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So you want to go to arbitration...
With the legislative season about to begin in many states, frustrated homeowners are once again looking at mandatory Alternative Dispute Resolution - ADR - as a possible fix for their HOA problems.  But wait. 

Before you propose giving away your last hope for a fair outcome to your legal entanglements with your homeowners association, listen to what others have to say about Arbitration and Mediation.

In their book, "No Contest; Corporate Lawyers and the Perversion of Justice in America", Ralph Nader and Wesley J. Smith discuss Alternative Dispute Resolution and as far as I can tell, the nicest thing they have to say about it is that it can work - in some instances - provided both parties agree to ADR, fully understand what it entails and that both parties are equal.  They say, "... ADR almost always favors a big institution over individuals.  ADR can cost as much as or more than court litigation, can prevent aggrieved parties from finding facts essential to their cases, can conceal important information of broad public concern, and can keep the individual disputant , even if victorious, from obtaining an effective remedy." 
They also, rather artfully, debunk the myth that ADR is more cost effective than having your day in court.  "Claims that arbitration saves individuals money as compared with litigating in the court system do not stand up. Individual tax payers pay for the courts, allowing access to jurisprudence for modest fees, which can be waived if necessary.  Not so arbitration.  Arbitrators charge both parties for their services - usually $200 or more per hour - half of which must be paid by consumers.  This places consumers in the unenviable position of paying taxes for court services from which they are barred, while at the same time being forced into paying high arbitrator's fees when seeking justice, in addition to other expenses associated with litigation."  They went on to quote a litigant's attorney they interviewed who made the point that arbitrators charge $250 an hour apiece.  If the arbitration goes for several hours a day and lasts for several days, the cost to the individual can be quite substantial.  From what I understand those fees have increased considerably since the book was printed in 1996.  And when you consider that in some cases there are three arbitrators on each case, each charging an hourly fee, those costs can climb rapidly.  Again, a larger corporation can afford to shell out 10's of thousands of dollars in just arbitrator's fees, not counting their own attorney fees.  Few individuals, particulary homeowners in a dispute with their association, can afford that, which leaves most of them at a severe disadvantage. 
Their discussion centers primarily on the small print in most "take it or leave it" contracts that imposes mandatory, binding arbitration on consumers.  While they use a couple of cases to illustrate their points, neither case involves an HOA, their intended message about ADR is well taken.  One thought that deserves serious consideration is that corporations  "....want to use ADR because it can help protect them from punitive damage awards for egregious behavior, limit corporate embarrassment by shedding proceedings from public view, and deny future victims of corporate misconduct the benefits of relevant trial records and judicial precedents."
And for anyone harboring any delusions of a fair and equitable outcome to arbitration, you need to know that arbitrators are not assigned but selected by the disputants.  "The corporation, unlike most individuals, is routinely in litigation and thus is far more likely to be a repeat customer".  Arbitrators, no doubt, know which side of their bread is buttered. 
The segment on arbitration concludes with the following, " The best way to keep down the costs of resolving disputes is to preserve the constitutional rights of citizens to have their day in court, if they so choose, in the event of wrongdoing.  The possibility of facing public trial and accountability assists in keeping powerful corporations and individuals from misbehaving in the first place and helps facilitate sufficient out-of-court settlements when they nevertheless engage in misconduct.  If corporations knew that the worst result of their wrong-doing would be a confidential scolding and a slap on the wrist from a sympathetic arbitrator, incentives to sell defective products and worthless securities, to trick and mislead consumers, and to mistreat and discriminate against employees would surely increase." 
In the recently published, "Villa Appalling:  Destroying the Myth of Affordable Community Living", the authors, Donie Vanitzian and Stephen Glassman, also sound the alarm about ADR -- and they should know, they are both arbitrators.  Their segment on ADR is full of quotes by homeowners who did go through the process as well as interesting questions raised by those in the business.  They quote a judge arbitrator who, after noting that there is great dissatisfaction and many complaints about the process, asks "Why is this system (arbitration), born out of the communities need for fairness and justice, evolving backward toward the same kind of litigation process the community rejected?"  ADR has become big business.  According to the book, just one agency has handled in excess of 70,000 cases which equates to 25% of the annual case load tried in Federal Court. 
The authors include a healthy list of downsides to ADR including the fact that there are no caps on mediator or arbitrator fees, that there is "No mandatory rule that due process or legal precedents be taken into account during proceedings, deliberation and/or rendering of judgment."  and "The pressure on homeowners of being "forced" to choose mediation or arbitration to resolve their dispute places homeowners in an inferior position to exercise their rights." 
Vanitzian and Glassman warn us, "Many states set time limits by which law suits must be filed."  Time that is often frittered away by HOA attorneys who are aware of time limitations and much time can be wasted by attempting a not so cheap fix in the private court system thus depriving homeowners of their possible "day in court" when the laws, due process and other constitutional protections would apply. 
The segment is peppered with personal stories catchy quotes from homeowners who have been through the ADR meat grinder.  One homeowners said ADR was "nothing more than a $4000 dance with debt".  Another observed that "mediation is a facade".  And from the transcripts of a Fox News show, "... 'mandatory binding arbitration' is swiftly stealing American Justice." 
In 1993 the Council for Homeowner Rights (CHR), a Virginia based homeowner advocacy group (no longer in existence), at the suggestion of a member,  examined mediation and arbitration as a possible legislative agenda item.  Based on the following paper by Frank Short, , the CHR BOD overwhelmingly chose, as its official position, NOT to support mediation and arbitration. With Frank's permission I am retyping his paper and making it available to you.

The comments in quotation marks at the beginning of the numbered paragraphs were taken from the proposal presented to CHR.

1. " arbitrator or mediator can, knowingly or not, permanently take away any part of any one of our constitution-provided rights at any time!"

Implicit in this statement is the unsupported conclusion that arbitrators do not have authority to render decisions or to formulate remedies inconsistent with the law.

Here's the law:  According to "American Jurisprudence", one of the foremost legal encyclopedias, "An award will not be held invalid under the common law merely because unjust, inadequate, excessive, or contrary to the law."  This statement generally applies whether state or federal law is involved.  The Federal Arbitration Act, 9 U.S.C. § 1 et. seq, sets forth the very limited criteria under which a federal court will invalidate an arbitrator's award.  An appeal to the court that has as its basis a claim that the arbitrator's decision was "contrary to the law" faces summary dismissal because this is NOT a valid criterion for appeal.  Examples of the language used by federal courts in rejecting such appeals include: "Courts are generally prohibited from vacating arbitrations awards on the basis of errors of law or interpretation."  "An arbitration award will not be vacated on the ground that the arbitrators misinterpreted applicable law."  "An arbitration award will not be set aside because of an error on the part of the arbitrators in their interpretation of the law."

2. "...if an out-of-court mistake is made, the court system is always available for remedy!"

Here's the law:  The United States District Court for the Eastern District of Virginia, ruled on this issue in 1992.  A dispute involving an employment contract was submitted, pursuant to the provisions of the contract, to "binding arbitration."  The employment contract stated that it was to be construed according to the State of Virginia, and that, in the event of arbitration, the rules of the American Arbitration Association would be applied. To make a long story short, one of the parties was unhappy with the arbitrator's decision, and appealed to the court system.

You see, he thought "the court system is always available...etc."

The court--in dismissing the challenge to the arbitrator's award--stated that, "Perhaps RFC (the party taking the appeal) intends to argue that the arbitrators exceeded their powers by misinterpreting the contract or by committing an error of law.  If so, the argument fails because as a matter of law neither reason constitutes a ground on which an award can be vacated"

3. "The duty of an arbitrator, like that of a judge, is, of course, to uphold the law!"

Well, to the extent--and only to the extent-- that every citizen is under a duty to obey the law, I suppose I'd have to mark this statement "TRUE" on a TRUE/FALSE exam.  By now, however, you understand that the real issue doesn't concern the "duty" of an arbitrator.  It concerns the power of an arbitrator--and the extent to which a homeowner can effectively challenge mistakes or abuse incident to the use of that power.  A "duty" that won't be enforced by a court isn't much of a "duty" for an arbitrator, and it doesn't confer much protection on a homeowner.

However, here's some more law: "Arbitrators generally are not bound by principles of substantive law or rules of evidence and thus an error of law or fact will not justify vacation of an arbitrator's award"  "Generally, an error of law by an arbitrator is not grounds for vacating an award.  It is within the power of an arbitrator to make a mistake either legally or factually.  When parties opt for the forum of arbitration they agree to be bound by the decision of that forum knowing that arbitrators, like judges, are fallible."

In other words, homeowner, if you resort to an arbitrator, do so with your eyes open.  "You pays your money and you takes your chance."

Think about it-- the judicial attitude toward review of an arbitrator's award makes good legal sense--from the court's perspective.  The whole idea is to rid the court's docket of as many cases as can be disposed of through non judicial means.  "If every so called "victim of injustice at the hands of an arbitrator" can get right back in court, all we have done is delay the cases, not remove them,

Well, you ask, if arbitration won't necessarily help a Homeowner, does it follow that the use of arbitration might hurt a Homeowner?

Consider the following scenario:

The Commonwealth of Virginia adopts--without any change--the Hawaii Arbitration Rules and establishes, pursuant to those rules a Court Annexed Arbitration Program.

Charles D. Gall, pursuant to the governing documents of the Fortress Europa Community Association, seeks access to all books and records of the association.  Fortress Europa, on the advice of its attorney, suggests arbitration.  Charles, who is short of change anyway, gladly agrees.  After all the governing documents say he's got a right to "all books and records."

Meanwhile, the Fortress Europa folks are conducting a "damage control" exercise.  How much "harmless" information will they have to give Charles to get by the arbitrator?  There's the usual collection of dusty skeletons that even "troublemakers" on the Board of Directors will never see, (maybe 1/2 of 1% of the Association files).  Then, of course, there's the personnel information, defined to include anything related to salaries, benefits, pay scales, etc. -- maybe 5-10% of the records are in this area.  Then there is a body of material over which some colorable claim of privilege exists: attorney client information, privacy rights of individual members of the Fortress who are late in assessment payments, etc. -- maybe 25 to 30 % of the material.

So the Association concludes that showing Charles as much as 60 to 70 percent of its records will cause minimal inconvenience or turbulence.  This step is very important, as you'll soon see, because it establishes a crucial "point spread" upon which the association will seek to capitalize.

Both sides present cases to the arbitrator.  There is, of course , no transcription or recording of the Arbitrators hearing permitted.  After all, we don't need that kind of record unless we're trying to facilitate an informed, effective review by an appellate court, right?

Fortress Europa, as usual, is represented by CAI affiliated counsel.  The Association argues that Mr Gall is a nuisance, a sore loser in the last election of the Burgomasters, and that--at most--he's entitled to see only 55% of the Association records.  The "sore loser" evidence, which would be inadmissible at a trial, is allowed by the Arbitrator pursuant to the Arbitration Rules.  This really offends Charles' concept of justice, but more importantly, it contributes to his loss of
composure at the hearing--and that's exactly what the Association wanted to do.

Charles of course represents himself, and introduces the governing documents Fortress Europa, and his correspondence with the Association requesting access to books and records, as his exhibits.

The Arbitrator awards Charles access to 65% of the Association records.  The Arbitrator does not tender any findings of fact or conclusions of aw, but then he is not required to do so under the Arbitration Rules.

Charles looks at the 65% of the documents, and is more fired up than ever.  After reluctantly deciding not to contact the Corleone family, he now seeks out a member of the equally famous lawyer lobby.

Here's what the lawyer tells Charles:

Nothing in the newly adopted Virginia Arbitration Rules requires an Arbitrator to correctly apply the law of the Commonwealth.  Therefore, while I agree that the Arbitrator misconstrued your governing documents and ignored important case law, these mistakes do not entitle you to relief.

Although you have a right to request a trial "de novo", to do so exposes you to a serious new risk: Unless, at the trial "de novo", you improve your position by at least 15% above the Arbitrator's award, you are exposed to serious sanctions from the court.  This means that, even if you overcome all the obstacles of adverse case law and a non existent record and convince the court that the Arbitrator was wrong, and that you are entitled to more than he awarded you, you've also got to prevail by more than 15%.  Otherwise, the sanctions that may be imposed by the court include up to $5,000,00 in attorney fees you'll be required to pay
the Association's lawyer, the costs of any jury, and any other costs incurred by Fortress Europa incident to the trial "de novo".

Now you understand the role and the significance of the "point spread" in the Hawaii Arbitration Rules.

Now you understand why I think an attorney would want Lloyds of London writing his malpractice policy before ever advising a homeowner client with a solid case based on the homeowner's RIGHTS to consider arbitration.

Now--I hope--you have a better appreciation of the basis for CAI's enthusiastic support for arbitration, and the reasons why we, as a Board, should stand on our resolution. 

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