Overview

Fortunately, the vast majority of HOA legal matters do not result in full-blown litigation. There is a great deal of truth to the adage: the only person who wins a lawsuit is the lawyer. Because of covenant enforcement issues and collection issues, legal proceedings are a way of life with homeowner associations. With all the serious matters facing homeowner associations, litigation is obviously not avoided in all situations, but it is always worth the effort to avoid litigation whenever possible.

There are two common misconceptions of litigation. The first being, “Our case is a can’t lose,” and the second misconception being, “We will get a huge settlement.” The parties to a court case will many times feel their case is strong, not only strong but a “sure thing,” no way they can lose. A sure thing is hardly ever the reality of a court case. Any experienced lawyer will admit that there are cases that seemed like slam dunks up until the judge or jury ruled the other way. The best approach to have on any matter involving litigation is to be prepared to win or lose no matter the merits of the case.

The large settlement misconception comes from news stories such as the famous Liebeck v. McDonald’s Restaurants case in 1994, also known as the McDonald’s hot coffee case. A jury awarded $2.86 million to plaintiff Stella Liebeck when she accidentally spilled hot coffee in her lap after purchasing it from a McDonald’s restaurant. While the jury awarded $2.86 million, the judge reduced the final judgment to $640,000, and both parties agreed to a confidential settlement, for presumably a lesser amount, to avoid the appellate litigation.

Per the U.S. Department of Justice report on Civil Jury Cases in Large Counties, the median plaintiff award for all jury cases was $52,000. Jury awards can vary from county to county, state to state. However, generally, the most generous awards are going to be awarded in the more metropolitan areas of the country. When factoring in legal fees and related court costs, any awards can be reduced significantly. It is important to note here that in this same Department of Justice report, plaintiffs winning cases and receiving awards was less than a quarter of the time or exactly 21.2% of the time. These numbers do not factor in how many cases were dropped or settled out of court before a jury verdict was presented, usually, a substantial percentage of all court cases were filed.

There are options to consider in dispute resolution other than full-blown litigation mediation, arbitration, and expert determination.

Mediation

Mediation is a commonly used form of alternative dispute resolution (ADR) that can resolve disputes between two or more parties. A mediator is a neutral third party who facilitates the mediation and attempts to assist the parties in negotiating a settlement.  Mediation is an interactive process with the disputing parties interacting with the mediator and, in certain situations, the parties with one another. One reason the mediation process is so effective is that a well-trained and experienced mediator can guide the process in a constructive manner to a mutual resolution, unlike the structured setting of court proceedings where the participants are, in essence, along for the ride.

In court proceedings, when a ruling is sought, the decision lies in the hands of a judge or jury. These court decisions are not the flexible results that can come from mediation. The nature of a successful mediation is the results are agreeable to all parties. When all parties are in agreement, compliance with the mediated agreement is estimated to be higher than court rulings. However, a mediated agreement is legally enforceable in court.

The lower cost of mediation, generally under $1,500, is a huge benefit as compared to the cost of litigation. Per the National Center for State Courts organization, the average lawsuit, on average, will cost between $15,000 and $20,000. Quicker resolution is another benefit of mediation, unlike court cases, which can sometimes take years to even reach a courtroom.  Mediation is a confidential proceeding while court hearings are public. All discussions and findings are known only to the parties in dispute and the mediator.

Varies organizations offer mediation to interested parties. In North Carolina, there is an organization, The Association Bureau, that offers mediation specifically to just association boards and association members. The Association Bureau has mediators who have an in-depth understanding of associations and the related legal issues.

Arbitration

Arbitration is another commonly used form of alternative dispute resolution that can resolve disputes between two or more parties. Arbitration can be voluntary or mandatory and can be either legally binding or non-binding. Mediation is similar to non-binding arbitration in that a resolution cannot be forced on the parties. The primary difference between arbitration and mediation is that in mediation, the mediator will attempt to negotiate a compromise between the parties. In non-binding arbitration, the arbitrator is an impartial adjudicator who does not participate in the settlement negotiations, only in accessing the liabilities and possible damages of the parties.

As with mediation, arbitration has a lower cost as compared to the cost of litigation. Again, as with mediation, arbitration generally has a faster resolution outcome as compared to litigation. Arbitration is generally a confidential, nonpublic proceeding while court hearings are public. All discussions and findings are known only to the parties in dispute and the arbitrator.

Because of certain state statutes or possibly requirements of an association’s governing documents, arbitration could be mandatory and binding. By participating in binding arbitration, the parties may waive their rights to seek remedies in court. Generally, there are few, if any, avenues for appealing an arbitration ruling. As in traditional court rulings, arbitration rulings are enforceable.

Expert Determination

One final alternative dispute resolution is expert determination. Expert determination has been a long-standing form of dispute resolution, generally called upon before an actual lawsuit is filed. The expert determination approach is utilized when parties have positions that could be mediated or arbitrated. However, the parties believe an independent evaluation by an expert would resolve the matter.

More preciously, expert determination is a process by which parties to the dispute select an independent and neutral expert to determine the dispute. This process is also confidential, where all discussions and findings are known only to the parties involved. The expert will be an individual with specific knowledge pertinent to the dispute subject matter.

In all dealings that are legal in nature, there is one important aspect that all boards of directors need to ascribe to, the concept of reasonableness. Reasonableness being if an HOA member is in violation of the declarations of covenants, the response from the board should always be as reasonable as possible. For example, a member has violated the covenants, and the board allows the member 15 days to correct the violation would, in most cases, be deemed reasonable. However, would a judge consider it reasonable for the board to demand a violation be corrected within 24 hours, and if not corrected, fines will be accessed. In court, in front of a judge or jury, the board always wants to be perceived as the party in the dispute that had bent over backward trying to resolve the matter by being reasonable in their dealings with the other party.

If a board of directors has questions about this topic, the homeowner association’s attorney should be consulted.

WDMC

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Legal Disclaimer: This blog is presented solely for entertainment and educational purposes. The blog’s author is not an attorney nor offering legal advice. The blog’s author and publisher are not offering or presenting this work as legal or any professional services advice or guidance. State statutes regarding homeowner associations can vary from one state to another, so state statutes will need to be reviewed and may conflict with the material found within this blog. Every homeowner association is different, and the advice and strategies contained herein may not be suitable for every situation. The reader should always seek the services of a competent and experienced homeowner association attorney who specializes in homeowner association law.