Alternative Dispute Resolution: I’ll see you out of court!

Mediation

While some courts require mediation before trial, it is generally undertaken voluntarily. Mediation is always non-binding, meaning the mediator has no power to decide the case. The mediator’s sole role is to try and negotiate a settlement that both parties can live with, though neither party may be particularly happy about.

Mediators engage in “shuttle diplomacy” between parties, who remain in separate rooms, attempting to broker settlements by discussing the relative strengths and weaknesses of each parties’ case along with the inherent risks and costs of litigation.

When mediating, the association (and its attorney) should be prepared to discuss the facts underlying the dispute and articulate why those facts and the related law support its position. Formal presentations are not made, rather, the mediation will be an informal conversation about the case. It is helpful to provide the mediator and opposing party a short 3 to 5 page letter explaining the association’s position prior to the mediation.

Mediators do not take sides in a dispute, rather they will push both sides to try and convince them to move closer to a settlement. This generally involves the mediator discussing why you may lose if you proceed to trial; however, he/she is telling the opposing party the same thing. Mediation often proves successful because it provides a venue where parties feel like they have been “heard”, as well as provides them with an independent analysis of the risks and costs they face in continued litigation.

Associations should consider mediation, in consultation with legal counsel, as a way of avoiding the direct costs (time and money) and secondary impacts (stress, lost productivity, etc.) inherent in litigation.

Arbitration

Unlike mediation, arbitration is generally a binding (i.e. not subject to appeal) dispute resolution process. In an effort to reduce the number of cases, many Washington courts require small monetary disputes ($50,000 or less) to be arbitrated. If not required by a local court, arbitration can be required by the terms of a written contract. Associations will most commonly encounter arbitration clauses in contracts with construction companies and other similar service providers.

While less formal than a trial, arbitration closely resembles one. A panel of between one and three licensed attorneys serves as the arbitrator(s) and presides over the arbitration. Each party presents evidence, questions witnesses, and makes argument to the arbitrator(s), who then make a ruling.

If the arbitration was required by a contractual term the panel’s decision is, in most cases, final and binding on the parties, (meaning it is not subject to an appeal). If the arbitration is mandated by a court, the parties can appeal the arbitrator’s decision to the courts.

While originally designed to be a quicker and cheaper alternative to the court system, in practice, arbitrations (especially of more complex matters) tend to take a similar amount of time as a trial and can be more expensive.

The primary drawback to arbitration is that the losing party has to pay the cost for the arbitration panel’s fees, which typically range from $300 to $500 per hour, per arbitrator. This fee adds up quickly, especially if you have a long mediation with a panel of arbitrators. Arbitration can, however, be a cost effective and quicker alternative to litigation on smaller and less complex disputes.

As discussed, associations commonly encounter mandatory arbitration clauses in construction contracts. Coincidentally, construction defect cases are often some of the most time intensive cases to litigate, resulting in significant additional costs to arbitrate a case as a result of the arbitrators’ fees.

If possible, associations should negotiate a clause into their contracts which allows the association to elect whether to resolve disputes through binding arbitration or litigation. This provides the association with the ability to make a decision, with legal counsel, which process will be more advantageous once the facts of the dispute arise.

Which Should An Association Choose?

As a general rule, associations should: i) seek to mediate disputes as early as practicable, and ii) retain a contractual option to choose between binding arbitration and litigation.