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Alternative Dispute Resolution
THE BASICS, AND WHAT MANAGERS NEED TO KNOW
By John R. MacDowell, Esq.
Quick! What does “ADR” stand for? And what does it mean, really?
“ADR” is an abbreviation for “alternative dispute resolution,” an alternative to going to court to resolve a dispute. Over the past decades, ADR has become an essential litigation tool, and was adopted wholeheartedly by the authors of the Davis-Stirling Common Interest Development Act (the “Act”) starting at §5925. Community associations participate in ADR for two reasons.
1. When it works, it saves time and money and fosters a cooperative relationship between associations and homeowners.
2. When it doesn’t, it is a legally required precursor to a lawsuit.
The Act requires that the parties attempt ADR first, before filing a lawsuit, in disputes between owners and the association involving the governing documents, the Act or the Corporations Code. There are exceptions. If a court order is needed immediately, the association or owner can file suit and ask the court to enter a temporary restraining order or preliminary injunction. If the amount sought is over the small claims limit (now $5,000 for corporations), ADR is not required, but generally is conducted anyway.
If a party files suit without offering ADR, or refuses ADR if it is offered, they may be barred from recovering attorneys’ fees at the end of the case. It would be foolhardy not to participate in ADR and face this consequence.
ADR is an important, and mandatory, part of the association enforcement process. If letters, hearings, and fines don’t work, the logical and legal next step is a demand that the homeowner participate in ADR.
ADR should not be confused with Internal Dispute Resolution or “IDR.” IDR is not mandatory unless the homeowner demands it.
The Act defines ADR as a non-judicial process involving a neutral party. When this neutral works with the parties to help them come to mutual agreement – this process is called mediation. When the neutral is asked by the parties to simply make a decision, like a judge would, this process is called arbitration. Most of the time, associations and homeowners use mediation. It is relatively quick and inexpensive. Most importantly, parties tend to prefer an agreed-upon outcome over one imposed on them by a third party.
The neutral in a mediation is the mediator. Attorneys usually recommend a professional mediator who devotes most or all of their time to dispute resolution. The retired judges and attorneys who do this work are skilled, and their professional reputations depend on their success in settling cases. Your attorney needs to attend, and so do witnesses and board members with authority to make binding decisions. I often recommend that a quorum of the board attend (with a special executive session noticed for the time and place of the mediation). In the mediation session, each side will have its own room (physically or virtually) and the mediator will shuttle back and forth with questions and comments, offers and demands. Expect the mediator to point out weaknesses in your case (every case has some), which helps everyone gain perspective. If the parties come to agreement, a written agreement should be prepared then and there. It’s best to sign an agreement right away – it’s human nature to have second thoughts.
If there is no agreement, the mediation ends. Everything that is said must remain confidential. However, an unsuccessful mediation usually sets the stage for further dialog. Your mediator will often agree to stay involved, talk to the parties by phone, and hold another session. If there is no agreement, the parties are then free to go to court.
While “mediation” and “arbitration” sound similar, they are very different. In arbitration, the neutral is the arbitrator. The arbitrator hears witnesses testify, reviews documents, and makes a decision. Someone will win and someone will lose. Although arbitration may seem attractive, it can be a long and expensive process and for various evidentiary reasons, may not be better than going to court.
The party seeking ADR begins by sending a demand, and the other party has 30 days to agree. Often, an owner will soften their position when they get the demand and realize the process will cost several thousand dollars. (The parties split the mediator’s fee and pay their own lawyers.) A skilled mediator can help both sides view their positions realistically. Sometimes, a party just needs to tell their story, and the mediator can be a sounding board. Statistics show that about 90% of cases settle, so it is a benefit to both parties to reach an agreement early. Perhaps most importantly, your relationship with the owner will continue, regardless of the outcome, because of the amicable nature of the process.
If a homeowner has a dispute with the association, they too must offer ADR (unless an exception applies). The offer can be sent by mail, by the owner or their attorney, and can be in the form of a letter. If an association receives any written communication that talks about ADR, association counsel should be involved, and quickly. You only have 30 days to agree, and missing the deadline is an automatic rejection with the serious consequences mentioned above. The association’s insurer should be notified as well. Most directors and officers liability policies will pay for an attorney to represent the association in ADR if the claim is otherwise covered.
So why ADR? It is legally required and it is an effective alternative to going to court.
John R. MacDowell, Esq.
John R. MacDowell, Esq., of Fiore, Racobs & Powers, A Professional Law Corporation, specializes in community association law and has 28 years of experience in the industry.
