– By Mark T. Guithues, Esq. (originally published in April 1999)

Many Board Members are aware that before bringing an action against a homeowner, they are generally required by law to offer that homeowner the opportunity to mediate or arbitrate. This article will provide you with an outline of the requirements, choices and expenses related to Alternative Dispute Resolution (“ADR”) pursuant to Section 1354 Civil Code.

The Civil Code requires distinct and specific steps be taken when offering alternative dispute resolution prior to the imposition of a civil action against a homeowner. Under Civil Code Section 1354, an association generally is required to provide homeowners with an opportunity to accept ADR prior to bringing certain types of civil actions against homeowners.

Any party to such a dispute may initiate the ADR process by serving upon the other party a “Request for Resolution.” The Request for Resolution is required to include a brief description of the dispute between the parties, state which form of ADR is offered, and provide a notice that the party receiving the Request for Resolution is required to respond. If the party who receives the Request for Resolution fails to accept or reject the request within the 30-day period, the request is deemed rejected, and the parties may proceed with litigation.

If ADR is accepted, the ADR process must be completed within ninety (90) days of receipt of the acceptance, unless both parties stipulate, in writing, that an extension of the 90-day period is acceptable. The cost of the ADR (i.e. arbitrator’s or mediator’s fees) is generally split equally between the parties.

ADR is a broad term which encompasses two (2) different mediums of resolution. Parties may select from arbitration or mediation, and within the umbrella of arbitration, may choose between binding and non-binding arbitration. The difference between arbitration and mediation essentially lies with who will make the final resolution.

In arbitration, the parties agree on a mutual third party who, after listening to the merits of each party’s position, will make a decision; typically in favor of or against one of the parties. If the association and homeowner have agreed that the arbitrator’s decision will be binding, then this decision cannot be appealed, and thus, the parties are “bound” by the decision. The good news is that even if the decision is unfavorable to an association, it will not be considered precedent as to other owners who were not parties to the binding arbitration. If the parties have agreed that the decision will be non-binding, the decision amounts to an advisory opinion and accomplishes little towards settling the dispute if the losing party is unwilling to abide by the decision.

In mediation, both parties sit down with a “facilitator” who listens to the relative merits of each party’s argument and then works with them to reach a resolution. When a compromise between the parties is found, the mediator will draw up a contract, under which both parties agree to perform. Interestingly, any admission made by a party during mediation is privileged, i.e. cannot be used in litigation. However, the contract is legally enforceable.

The use of binding or non-binding arbitration or mediation will depend upon the facts and circumstances of each specific situation. Generally, associations may consider non-binding arbitration when the parties are far apart on the issue, and there is no obvious “middle ground”. Alternatively, associations can select mediation where a compromise position appears evident and desirable. Associations should consult with legal counsel prior to choosing either mediation or arbitration and deciding between binding and non-binding arbitration.

Participants in mediation or arbitration need the authority to discuss and settle on behalf of the association. In other words, a board needs to agree that the representative (either attorney, board member, or both) who attends the ADR proceeding has the authority to make decisions and enter into mediation contracts.

The costs of ADR vary widely. Depending upon how vigorously a board wants to pursue the case, costs can be as high as some trials Ñ between five and ten thousand dollars. However, for the majority of association cases, ADR provides an economical solution for less than one thousand dollars.