This is part 6 of Randy Sawyer’s 16 Part series on UCIOA. You can read previous posts here.
Section 87, subsection (f)
’87(f) – If no settlement of the association’s claim, or any part thereof, has been agreed upon, then either the association or the declarant may deliver a written demand within 15 days from the date of the meeting held pursuant to subsection e. of this section for arbitration of the association’s claims. The party filing the demand for arbitration shall be responsible for paying any filing fees or escrow deposits related thereto. The arbitration shall be undertaken by and in accordance with the Commercial Arbitration Rules of the American Arbitration Association then in effect, unless the declarant and the association agree to another form of alternative dispute resolution in lieu of the provisions of this subsection. The arbitration shall be nonbinding. Arbitration hearings shall be conducted in the county in which the property is located unless the parties agree otherwise. The declarant and the association shall be responsible for their own costs in connection with presenting their respective cases. The cost of the arbitrator shall be equally shared by the parties unless the arbitrator determines otherwise. If neither the declarant nor the association delivers a written demand for arbitration as provided herein, compliance with the terms of this subsection shall not be a precondition to the association’s institution of litigation.
The language of subsection (f) of Section 87 of UCIOA has a number of glaring problems First, who decides when the settlement attempts are completed? If there is no resolution at the end of the meeting required by subsection (e) (see part 5), is the settlement discussion over? Does the Association or the developer say when the settlement discussions are over? Since there is a clock that starts ticking when settlement is over, this issue will likely be disputed since there is no clear direction from the statute.
Second, any attorney who represents condominium associations in construction defect cases knows that the developer will always demand arbitration under this language of Section 87. Arbitration is a very expensive, drawn out process that the developer can use to wear the Association down and force it to waste its limited resources. There is no developer our office has ever dealt with that would ever pass up the opportunity to force an Association, which it knows has limited financial resources, to go through an arbitration process that the developer knows could take years and cost thousands of dollars.
Third, anyone who has represented a client in a complex construction litigation case that was arbitrated under the American Arbitration Rules will tell you that the process is long, cumbersome and extremely expensive. The arbitration rules are intended to be a truncated version of court rules. That means that discovery is severely limited. It is possible that the Association could be denied the opportunity to obtain discovery needed to support its claims. In addition, the arbitration rules call for a panel of one to three arbitrators, who must be paid for every minute they think about the case. In addition, scheduling of hearings and other processes under the rules are at the whim of the panel members= schedules, which means the arbitration could be dragged out for years.
Simply put, although arbitration is touted as a simple, expedited way of resolving disputes, in our experience the exact opposite occurs when arbitration is used in complex construction defect matters.
The language “[t]he cost of the arbitrator shall be equally shared by the parties unless the arbitrator determines otherwise” is very cleverly slipped into Section 87 without an appropriate explanation. Although the provision requires each party to Aequally@ share the cost of the arbitrators, the American Arbitration rules have provisions that allow the panel arbitrators to impose costs on one party if another party refuses to pay. This means that the developer could refuse to pay its share of the arbitration costs and the panel could order that the Association pay those amounts. This should have been more clear in this provision.
In the very short sentence in subsection (f) of Section 87 that reads “[t]he arbitration shall be nonbinding,” lies the developers= power. It means that even though the Association is obligated to participate in arbitration, and even though that arbitration could last several years and cost the Association hundreds of thousands of dollars in expert fees and lawyer fees and cost, the developer at the end of the day can simply reject the outcome of the arbitration. This means that a developer who is trying to avoid litigation, and who wants to bleed the Association dry of its limited resources, can simply force the Association into the process required by Section 87, drag the Association through years of an arbitration (while the statutes of limitations on the Association=s claims are ticking), then simply reject the outcome of the arbitration and tell the Association to Asue me.@