By Wes P. Wollenweber, Pearson Wollenweber Freedman, LLC
The recent ADR survey that the Legislation Action Committee circulated to CAI-RMC membership led to questions about alternative dispute resolution. The survey was designed to obtain member feedback concerning potential legislation related to ADR for community disputes because of the belief that ADR for these disputes will be legislated one way or the other. In fact, the forthcoming bill is expected to address ADR yet again. As a mediator and arbitrator in this industry, it seems like great timing to discuss the nuts and bolts of ADR and its future role concerning community association disputes. While most of us in the industry understand what ADR entails, there are aspects of it in the HOA context that can be confusing. In order to make decisions and provide input concerning future legislative bills targeting ADR, understanding the different types of ADR and how they apply to community disputes is beneficial.
What are the Types of ADR that Best Serve Community Association Disputes?
1.Mediation: This form of ADR involves the parties to a dispute mutually selecting a third party to act as an intermediary or a neutral and facilitate a possible resolution between those parties. The most common questions concerning mediation are: (1) Is mediation binding - meaning, can mediators determine the outcome of a case? (2) Who has to pay for them? (3) How much do they cost?
Mediators do not decide the outcome of a legal dispute. Rather, they negotiate with the parties and facilitate settlement discussions, with the hope of helping the parties find a resolution. If the parties to a dispute reach an agreement, then the written agreement that results is often a binding agreement that each party to the agreement can enforce if the other side breaches it.
Typically, mediators charge by the hour or a flat-charge for the day, and prices vary depending on the complexity of the dispute and the experience of the mediator. The parties to the dispute equally split the total cost of the mediator unless they agree otherwise of a covenant or community rule requires something different. Many mediators are attorneys but there is no requirement in Colorado for mediators to be attorneys and there is no credentialing requirement. While there is no credentialing process, many mediators take extensive ADR training.
If mediators are not able to help the parties resolve the case, then the parties are free to move forward with litigation or arbitration.
2.Arbitration: As many know, arbitration is a private, out-of-court process where the parties to a dispute mutually select a third party (an arbitrator) to oversee their case, and ultimately make a decision concerning the dispute. Most arbitrators' decisions concerning HOA disputes are binding, meaning the parties have to live with the outcome of the decision. Most often, the parties split the cost of the arbitrator and any associated administrative costs.
3.Med/Arb: This is a hybrid, where typically the parties choose a mediator to try to settle the case, and if it does not settle, the mediator converts to being the arbitrator, who then makes a binding decision on the case. This form of ADR is controversial, many believing a third party cannot transition from being a mediator to an arbitrator and maintaining impartiality when weighing the evidence presented at an arbitration hearing. Yet, it is a growing form of ADR used in HOA disputes in certain states.
When is ADR Required in HOA Legal Disputes and How Might Legislation Change this?
As of right now, parties to any legal dispute, including community disputes, are required to mediate when there is an existing court case and the court mandates mediation. Arbitration is only required when there is a covenant in a Declaration that mandates arbitration. While most communities have the statutorily required Conflict Resolution policy, most such policies are not written to mandate mediation. Current legislation efforts are aimed at mediation. However, one longstanding homeowner advocacy group is pushing for Med/Arb to be legislated for HOA disputes.
As the recent survey touched on, there are two primary ways that legislation could play out. Members of our industry need to be prepared to weigh in. One, legislation could amend the Colorado Common Interest Ownership Act, making mediation mandatory in some situations, and possibly even Med/Arb in others, regardless of a court order for ADR. Under this type of legislative scheme, Conflict Resolution policies may have to include mandatory ADR language. Two, legislation could create a process within the Division of Real Estate (which is under DORA), where the State oversees a list of mediators or implements some type of specific credentialing for HOA disputes. A third possibility is a CCIOA change and DORA intervention combined.
As to which route seems best, it is worth discussion. Many involved in HOA disputes want their day in court. Nevertheless, the legislative landscape is shaping on this issue and weighing in on the best way to negotiate this legislation is crucial.
Wes Wollenweber is a founding partner at Pearson Wollenweber Freedman, LLC in Lakewood, Colorado, where his law practice focuses on litigation and mediation of complex community association disputes.
