Introduction

Twenty years ago if you asked the average person what mediation is you would probably get answers that would range from a new-age relaxation treatment to a highway dividing line. If you asked the average attorney the same question, the attorney might respond that significant research was necessary to determine the true meaning, but that only a judicial determination of the issue may actually be relied on.

Today, mediation is a word which is uttered as much as litigation or settlement in most law firms. In fact, after years of explaining the benefits of mediation to clients, attorneys have made the word common for the lay person as well. Yet, it is evident that there are still many misconceptions and often terms are used interchangeably, when in fact the words are not at all similar.

With the increasing congestion of the legal system and the equally increasing number of common interest developments popping up all over the nation, legislatures have seen fit to mandate alternative dispute resolution, which includes mediation, in order to rid the judiciary of a growing number of homeowners association disputes. Therefore, it has become imperative for professionals working in the homeowners association industry to become familiar and comfortable with the process.

Here we will discuss the changing role of mediation in the legal system. It shall explore the advantages of the mediation process, what the process really is and when a claim should not be submitted to mediation. [Return to Index]

How Arbitration Differs from Mediation

In essence, Alternative Dispute Resolution or ADR is a general term used to describe many types of methods used to resolve disputes. It is deemed "alternative" because it is an alternative to going to the courthouse and litigating the issue in front of a judge. Each type of dispute resolution has unique characteristics, and the rules and lingo are different as well.

Arbitration is a process in which a third party—called the arbitrator—renders a decision as to the respective liabilities of all parties. The object is not to reach a settlement, instead the arbitrator ultimately makes a ruling. It is an adversarial process that results in the same "win-lose" or "lose-lose" that you would see in litigation.

The arbitration can be binding or non-binding. A binding arbitration is for the most part non-appealable. Once the decision is rendered, unless you can prove fraud, the decision will be forever binding. This is true even if the arbitrator has made a gross deviation from existing law. For that reason, you have to pray that you get an intelligent and well-informed arbitrator. A non-binding arbitration is advisory in nature. The decision that the arbitration makes does not have to be followed. In that respect, it is like getting an opinion of your case from a neutral party, which could result in a fair settlement figure.

In contrast, mediation is a non-adversarial process which is intended to bring about a "win-win" resolution. In this process a neutral third party—called a mediator—attempts to guide the parties into reaching a resolution or settlement that is favorable to everyone. It gives both parties a chance to present their side in a forum where confidentiality is guaranteed. Often times mediation is the first meaningful discussion the parties have engaged in.

The mediator does not attempt to blame either party and should not take sides. However, the mediator will often give his/her opinion on the outcome of the case, should it go to trial, in order to facilitate settlement. A good mediator will likewise attempt to make the parties see the realities of their position (e.g. pointing out that the plaintiff really needs the money now, and if they go to trial it will take several years and leave open the option of appeal).

Traditionally, a mediator will not hear any testimony and while the mediator may review documents to get a better feel for the issues, the mediator does to admit evidence into any record. The mediator also meets with individual parties so that the mediator can discuss issues privately. Arbitrators on the other hand never meet with the parties individually because it would not give the opposing party the ability to respond to the allegations.

So, while many people still think that mediation and arbitration are the same thing, they are actually quite different. The most significant difference is the fact that a mediation should result in a settlement agreeable to both parties, whereas an arbitration will result in an award that man not be agreeable to nay of the parties. [Return to Index]

How a Dispute Ends Up in Mediation

Contractual Agreements
Because of the overwhelming success of mediation, many contracts, including vendor contracts and the CC&Rs now include provisions that require that the parties submit the matter to mediation before initiating a lawsuit. A sample mediation clause may look like:

"The parties to this agreement hereby covenant to submit all disputes arising out of this contract to mediation. The forum for the mediation shall be _______ County. The parties shall in good faith attempt to resolve the matter. Any party may initiate mediation by sending a written demand to the other party. The written demand shall describe the dispute with specificity. Should a party fail to participate in good faith in the mediation process, the lack of participation shall be considered by the judge or arbitrator in determine what fees and costs which shall be awarded to the prevailing party."

The American Arbitration Association recommends the following clause:

"If a dispute arises out of or relates to this contract, or the breach thereof, and if the dispute cannot be settled through negotiation, the parties agree first to try in good faith to settle the dispute by mediation administered by the American Arbitration Association before resorting to arbitration, litigation, or some other dispute resolution procedure."

Community association attorneys should consider drafting mediation agreements separate from the contract itself for large vendor contracts. By doing this the parties may establish which mediation company to use, what city the mediation will be held in, how the agreement will be enforced, the types of discovery allowed, whether a position paper will be necessary and how the cost of mediation will be divided.

Court-Ordered Mediation
Many judges and local judicial districts have developed sly ways of coercing the parties into first attempting to resolve matters through Alternate Dispute Resolution ("ADR"). Often a judge will subtly remind the Plaintiff that the court room will not be available for some time for trial to uncooperative plaintiffs that do not wish to discuss the possibility of settlement.

As a matter of course, many judges will simply tell the parties that they will be signing up for mediation or non-binding arbitration and if that does not work out, then they will discuss the possibility of obtaining a trial date. For the judges, this is a great solution because it gets that particular case of the court’s calendar for several months, if not a year.

Voluntary Submission
When a case is voluntarily submitted to mediation it can be done through the courts or the parties may opt to submit the matter to a private company. When it is submitted pursuant to a pending litigation, it is often paid for by the state and it is supervised by a judge. The state receives funding for these programs by including a surcharge in the filing fee for all civil complaints. On the other hand, when it is submitted to a private company the parties will pay for the services and it will not be supervised by the judge.

Often the issue of who is going to pay for the private mediation will come up. Generally, the parties will agree to split the fees and costs and the one party will be reimbursed after an agreement has been reached. However, some private companies will require that the party that initiates the mediation will be responsible for the fees.

Statutorily Required ADR
Generally, statutes which require ADR state that the parties must submit the dispute to some form of non-binding ADR, such as non-binding arbitration or mediation. The reason being is that the constitutional right to a jury trial must be overcome by an important state interest if binding ADR is going to be forced upon the parties. Constitutional protections, such as jury trials, will not be denied simply because the judicial system is overcrowded.

Mandatory and binding ADR is permitted in most cases when the issues centers around a highly regulated industry. For example, the Supreme court has upheld statutorily required binding arbitration for attorney fee disputes because the legal profession is so highly regulated. Likewise, some cases may not be submitted to binding ADR against the parties’ wishes. One example is cases involving alleged federal civil rights violations.

In California, enforcement of the governing documents requires that the Association present the homeowner with a request for resolution by way of ADR and this request must be submitted with the complaint when the suit is filed. (California Civil Code section 1354). If the prevailing party refused to submit the matter to ADR, this may be taken into consideration when determining the appropriate amount of attorney’s fees. The Calderon process, governed by California Civil Code section 1375 has similar requirements. The legislature has included assessment claims in this scheme, but has required the homeowner to pay the amount owing under protest in order to submit the matter to ADR. (Civil Code section 1366.3) [Return to Index]

The Advantages of Mediation

It is commonly known that roughly ninety percent of all cases which are filed end up being settled. Of the cases left over, a considerable amount will not go trial. The key to a successful settlement is to be sure that the attorney’s fees and costs do not get so high before the settlement that both parties lose in the end. If the parties agree to submit the matter to ADR early on, the costs are kept low and the likely outcome—settlement—is reached that much faster.

Another advantage is the fact that the majority of ADR proceedings are absolutely confidential. Anything that a witness says can not be used against them in a court of law. This has the advantage of allowing the parties to be honest with each other and figure out what is really at issue, without worrying about the judge or the jury basing their decision on these statements.

Mediation, unlike litigation, gives the parties greater control over the outcome of their case. The process allows the parties to express themselves better and provides a good environment to be heard. This will generally result in better defined goals and a greater level of comfort with the outcome, in that the parties are more likely to understand the reasoning behind it.

Mediation affords greater communication between the parties. This is particularly advantageous when the parties have an ongoing relationship (e.g. they are neighbors) or the real issues involve strong emotions or large egos. [Return to Index]

When Not to Use Mediation

In some cases, it may be very disadvantageous for a party to go through the mediation process. For example, if a homeowner has taken a very tough stance and there is no chance of compromise, mediation will be a waste of time and money. However, if the homeowner has taken a tough stance because it is an emotional issue in which either party may be in the right, then mediation would be appropriate to allow the emotional issues to be talked out so that the legal issues can get resolved.

In some rare cases the Association’s lawyer will be looking at a case in which the Association is clearly in the right (e.g. a homeowner just stopped paying assessments). In that situation, the Association should not be expected to compromise its position in any way and therefore if a good settlement offer is not forthcoming, then the Association should go to court. [Return to Index]

Mediating a Construction Defect Suit

Construction defect suits are usually big and complicated. Any help that an association attorney can get in handling the matter should be received with open arms. Mediation in a construction defect setting is not only a blessing, but in most instances, it is the only rational way the case can be handled.

These cases tend to be very fact specific and it is typical to see a lot of finger pointing. The projects are developed over a number of years and in order to figure out what went wrong, every one has to hire their own expert. For these reasons, mediation is going to be a bargain for all parties, and even if it does not work out, everybody knows what the real issues are by the time you get to the courtroom.

A clever plaintiff’s attorney can figure out a way of getting the mediator and the mediator’s staff to get all the defense attorney’s in sync with the plaintiff’s proposed time line. It is extremely helpful to contact the mediator early on in the lawsuit. In fact, the mediator can actually be contacted prior to the lawsuit being filed. For the defense attorney, mediation will mean an opportunity to be heard and a means of getting out of the case early. This saves their clients money.

Early mediator intervention can be used to coordinate the discovery and testing time lines so that absolutely no additional expenses are incurred and the testing methodologies can not be disputed later. By having opposing counsel both agree on the methodology and payment, a pattern of cooperation is developed. This is particular true for homeowners associations that suffer from defects and additionally do not have the money to fix the problems right away. The anxiety and discomfort of the homeowners can be used as a bargaining chip by stalling the litigation process. But alternatively, mediation can be done quickly and early enough so that the stakes are not too high.

While mediation has been used to solve these disputes for decades, the legislature just caught on recently. In 1995, the California legislature enacted Civil Code section 1375, which went into effect January 1, 1996. The statute requires that the association and the developer try to settle the dispute through alternative dispute resolution or by discussing the issues on their own. The association must give a notice to the developer ninety days prior to filing suit. During these ninety days the Statute of limitations is tolled. If with in the first twenty-five days after receiving the notice the developer does not attempt to "meet and confer" with the Association, the Association may forget all about ADR and just sue right away. However, in most circumstances, it is advantageous to file the suit, but initiate mediation as well. [Return to Index]

The Mediation Process

For an Association dispute there are generally two types of mediation; the ones used for construction disputes and the ones used for everything else. Construction disputes require the mediator to be flexible in the process to allow for the individual aspects of each case. For example, there would be no point in setting aside a day for everyone to view pictures of defects, if the real issue is the methodology of repair.

In contrast, CC&R violations and assessment collections can utilize the process known as "classic mediation". Classic mediation is a four step process.

	It begins with the mediator introducing everyone and then each party (or their lawyer) presents their case.
	The case is presented by simply stating the facts or telling the story. There is no testimony or cross-examinations. Documents are simply handed to the mediator and the opposing side.
	The mediator will then set aside time for the parties to ask each other questions or the mediator will meet with each party individually.
	Thereafter the mediator will attempt to facilitate a settlement.

In the end, the parties will either walk away with a signed settlement agreement or they will head back down the litigation highway. [Return to Index]