Lawsuits are both expensive and time consuming. It might be said that the only real winners in a civil suit are the lawyers. They get paid by the hour, and often in cases of negligence, they receive a substantial portion of the award or settlement – sometimes as much as 30 percent. For co-op and condominium boards, the time and money involved with defending a lawsuit, even in some cases where there is insurance coverage (cases defended under a Directors and Officers policy will pay for legal defense, but not for judgments), may simply be too much. However, there are alternatives. That option is known as alternative dispute resolution, or ADR for short.
Types of ADR
Mary Barrett, an attorney with Stark & Stark in Lawrenceville, says, “ADR is exactly what the name says: an alternative to litigation. It’s an opportunity to resolve a dispute before you get so far that you must litigate the matter.”
Methods of alternative dispute resolution fall into two categories: arbitration and mediation. While they may sound synonymous, they’re two very different things. Ellen Shapiro, a community law attorney with Goodman, Shapiro & Lombardi, with offices in Massachusetts and Rhode Island, says “Mediation is a method of resolving disputes without the necessity of filing a lawsuit seeking judicial intervention. It’s outside the traditional legal system of the courts. The first component in mediation is that both sides have to want to do it. It will only work if both sides are amenable. If someone wants their day in court, it won’t work. If both parties are interested in trying to come to a resolution without trial, it will.”
“In an arbitration, however,” says Barrett, “you have a neutral party that makes a decision: who is right, who is wrong, and to what degree and what the final resolution will be. It can be binding or non-binding – so you’d best know which you’re involved with!”
Shapiro defines the difference between arbitration and mediation as: “While both are voluntary, mediation tries to facilitate the parties arriving at an agreement jointly. In arbitration, as in a trial, the parties present evidence—it can be almost a mini-trial, but an arbitrator reaches a decision, and that decision is final. There isn’t any appeal. The parties have not participated in the final decision. They have only supplied evidence to the arbitrator.”
Why Choose ADR?
Kristofer Kasten, a community law attorney with Michael C. Kim & Associates, a law firm based in Chicago, observes that “litigation can go on for months, or years. Arbitration may take weeks to months. Mediation may finish in hours to days.” Clearly, the savings are significant. “Some associations are, rightly or wrongly, more driven by cost than other considerations,” he says.
Stephen Boonshoft, an attorney with the New York firm of Robinson Brog Leinwand Greene Genovese & Gluck, P.C., notes other factors in addition to cost. “Arbitration is generally quicker,” he says. “It is a private forum, not open to the public.” Litigation, on the other hand, “is in a courtroom, and is open to the public, except in the rarest of circumstances. In arbitration, the parties select an arbitrator, and there are those who believe you get a more knowledgeable person.” Arbitrators are often people familiar with the particular area of the cases they arbitrate. For instance, a construction dispute might be arbitrated by someone who has a background in construction.
“Mediation,” Boonshoft continues, “is used as a vehicle to try to facilitate settlement. If the mediator is a good one, he or she will assist in facilitating settlement, mediating the issues, pointing out weak and strong points, and attempting to find middle ground.” That approach may be particularly important in condo and co-op communities in that those involved with the disagreement are likely to have to live with each other long after the litigation ends.
The Drawback to Arbitration
The trickiest aspect of arbitration, as opposed to mediation, or to litigation, is that there is no appeal. The arbitrator’s decision is final. There are many parties to a specific lawsuit who might find this unacceptable. The exception to this, Shapiro explains, is procedural: “We had a case where we went to arbitration because the condominium documents required it. We lost. We felt if we had gone to trial and gotten the same decision we would have appealed the decision, but we couldn’t. However, we believed the arbitrators—it was a panel of three —exceeded their authority and awarded attorney’s fees to the winning side. We believed there was no authority to do that. So, we appealed that item, and we won. We didn’t win the underlying case, but we won on the issue of the attorney’s fees. You can appeal only if an arbitrator exceeds their authority.”
Another consideration against arbitration is that, depending on how much discovery is necessary or required by the arbitrator, it might not be substantially cheaper than full-blown litigation. Still another consideration is whether the arbitration is binding – which it generally is, despite the unhappiness of the losing side. Justin Walker, an attorney with Piekarsky & Associates in Wyckoff, points out that, “An arbitration agreement in New Jersey can be docketed as a judgment.” The docketing of a judgment is a serious legal step.
While he rarely recommends arbitration, Walker sees the value of mediation. “We were involved in a case where there was a massive lawsuit between two adjacent condominium associations regarding a gatehouse and a common roadway. One community was entitled to periodic payments for use of roads, upkeep, etc., from the other. The other decided not to pay. There were multiple lawsuits and actions filed. In the end, one board member from each side met separately from their boards in mediation and settled the dispute in an hour.”
State by State
“There is no state requirement in New York to use ADR, except in limited circumstances,” says Boonshoft. “More often than not, you find it’s in a contract. Before you get to ADR, you may have a choice whether you prefer arbitration or litigation in court. One prime example for co-ops and condos is a contract which is standard in the construction industry, which customarily – but not always – provides for arbitration. When you negotiate that contract, you have the right to address whether or not you want arbitration. There are risks both ways, and attorneys and potential litigants should understand the benefits and detriments.”
Boonshoft will often tell his clients to try to evaluate the potential cost of litigation against the cost of arbitration. Is there pre-trial discovery? Is it a factual intensive case? Litigation can go on for years; arbitration cannot. The cost of legal representation is clearly a major consideration for co-op and condo boards. There are no differences in consideration of condo or co-op ownership with respect to ADR in New York either.
“There are no state requirements yet,” says William Chatt, an attorney with Cervantes Chatt & Prince in Chicago. “The idea has been tossed around a lot. Some condominium declarations, especially the newer ones, will include this requirement. Mediation may come about in different ways. You might be involved in a lawsuit, and a judge may have a standing order in his court that orders parties to mediation before trial. Sometimes in chancery matters, more than just money, judges like to go to mediation. It’s not binding.
“This practice is very robust in Chicago,” Chatt continues. “In Cook County, we have mandatory arbitration under $75,000. It works like litigation, but on a fast track with deadlines, so cases move much faster. It can be a single arbitrator, or a panel of three. The arbitrators tend to be attorneys. They look at evidence, hear arguments and testimony, and make their determination. It’s binding, but if you reject the decision you can continue with the litigation – [though] here’s a hefty fee for that.”
Kasten observes that, “Boards often feel they are best served by the litigation process. Putting that aside, and focusing on mediation, which is something that has to be agreed upon in the end by both parties, it is a consensual means of resolving a dispute that can still maintain a positive relationship between neighbors.”
“The New Jersey Condominium Act requires a fair and efficient procedure for resolving conflicts within condominium communities,” says Barrett. The parties can seek judicial remedy after ADR has been pursued. “The ADR is required in community associations in New Jersey for housing-related disputes between the association and unit owners, and in disputes between unit owners and other unit owners. If it’s a dispute between neighbors, the association must provide some kind of ADR procedure. They have the right to appeal to the board,” or some other committee set up by the association for that purpose.
Barrett goes on to explain the benefit of this approach from a recent case she was involved in. “There was a noise dispute, and the parties had been complaining back and forth and the board didn’t know what to do,” she says. “We explained to them that they had to at least provide this opportunity. Both parties were seated together and saw that the other wasn’t just a source of noise, but rather another person and began to talk. They had different living schedules. The upstairs neighbor didn’t realize that walking across the floor in high-heels was very noisy. Acknowledging these things helped. In the future, they were able to approach each other, rather than the association.”
“There is no legal requirement for ADR in Massachusetts,” says Shapiro. Her colleague Frank Lombardi, who practices in Rhode Island as well, says there isn’t a requirement for ADR there either, though there was a bill submitted to mandate mediation for other than title and collection cases, but the measure was defeated based upon procedural issues and problems.
While she likes the idea of mediation where appropriate, Shapiro says that “mediation can lead to a trial if there’s no resolution, but it has a high success rate. Both parties want it to work.” She is not a big fan of arbitration. “The only time I see this as a real option is with construction defect litigation, where the arbitrator has a background in construction.
“We did a mediation last year,” Shapiro continues. “The case was over the height of trees in a condominium complex in suburban Massachusetts. The client and the court wanted it resolved. My client found the best mediator in the world, and in twelve hours the first day and eight the next, he resolved the problem. There were three groups. He placed us in three separate rooms and did shuttle diplomacy.”
Where to Seek Help
Many local jurisdictions offer arbitration and/or mediation services through their courts or local government offices. Services are also available through private organizations. Here are some resources:
American Arbitration Association—offers both arbitrators and mediators
National Arbitration and Mediation—private company
A.J. Sidransky is a staff writer/reporter for The New Jersey Cooperator, and a published novelist.