Arbitration may not unclog courts after all!

By Neal McCulloh, Esq.

Many people believe that the arbitration system will provide a solution to the backlog of currently existing court cases involving condominium issues. However, the new arbitration requirement is anything but a cure-all.

There is a chance that the Division of Florida Land Sales, Condominiums and Mobile Homes will become totally inundated with petitions for arbitration. As many of you know, the Division at this time has limited funds and staffing. As such, it may not have the ability to hire the number of full-time arbitrators who must be Florida attorneys, necessary to properly handle the expected number of arbitration petitions. Most people already feel that our court system is overburdened and operating at a snail's pace. However, the time required to arbitrate may even be longer than the time required to litigate within the present court system.

Arbitration is non-binding. 

 If that is not discouraging enough, remember that the new Act provides for non-binding arbitration only. As such, within 30 days of an arbitration ruling any party can file a complaint for a new court trial (trial de novo), adding to the time for resolving the dispute. Given the possibility, or probability that many arbitrated disputes will ultimately end up in court, attorneys may need to remain involved in the arbitration, if for nothing else, to properly preserve and establish claims in case the matter is ultimately litigated. Moreover, unless properly conducted, arbitration could have a devastating and potentially improper result which could carry through to litigation.

Some association lawyers are concerned that the Division does not have the resources to train and employ arbitrators to properly handle these types of disputes. Because the new statute requires arbitration, it may turn out that arbitration will become a mere formalistic step on the way to a real adjudication of the dispute in a court of law.

Will the rules help? 

 The Division has recently promulgated rules of procedure regarding arbitration. However, it is our understanding that the new rules will be changed in the new future. Hopefully, the ultimate form of the rules will help, not hinder, unit owners, associations and developers who must now cope with what may constitute a new sub-layer to the judicial system.

It will be interesting to see if many covenant enforcement issues must be arbitrated. Consider enforcement of a vehicle restriction: Does this involve the owner's unit and therefore, require arbitration? If not, does it somehow fit under one of the other criteria for "dispute?" What about pet restrictions? As you can imagine, if the statute is interpreted literally, many covenant enforcements as well as other actions arguably fall outside the definition of dispute. If such issues are not "disputes" under the definitions should or even can the Division permit and/or mandate arbitration? It will be interesting to see how the division as well as the courts deal with these issues. More over, presenting and filing your case in the wrong forum can have significant and detrimental consequences. Consider not only cost considerations for potentially having to start over, but Statute of Limitation consequences (i.e. your claim could become barred). On the other hand, courts trying to reduce their case loads may be motivated to require as many condominium disputes as possible to go through this new arbitration procedure.

Arbitration under the new Condo Act.

In 1991 and 1992 the Florida Legislature amended the Florida Condominium Act and created a mandatory, non-binding arbitration procedure that applies to many, but not all, disputes involving condominiums. Many people wrongly believe that the arbitration provision applies to all disputes involving condominiums.

What's a dispute?  

Before filing suit, an association, unit owner, developer, or other individual or entity must first determine if their controversy is controlled by the new arbitration statute. The definition of the term "dispute" under the new arbitration act is the basis for determining whether arbitration is mandatory. Generally speaking, the new provision requires that the parties to a "dispute" (as defined below) petition the Florida Division of Land Sales, Condominiums, and Mobile Homes (the "Division") for non-binding arbitration of the dispute prior to litigating in court. For purposes of this article, it will be easier to discuss the new mandatory arbitration provision in parts. The Legislature specifically excluded certain types of disagreements from the effect of the provision. More specifically, a "dispute" does not include and therefore arbitration should not be used for the following:

• Any disagreement that primarily involves title to any unit or common element;

• The interpretation or enforcement of any warranty;

• The levy of a fee or assessment;

• The collection of an assessment levied against a party.

The definition of "dispute" in the statute implies that it does not pertain to other types of controversies. Consider the balance of the definition that covers disputes that will be arbitrated. Any disagreement between two or more parties that involves the authority of the board of directors, under law or any association document to:

• Require any owner to take any action, or not to take any action, involving that owner's unit, or;

• Alter or add to a common area or element.

Any disagreement between two or more parties that involves the failure of a governing body, when required by law or an association document to:

• Properly conduct elections;

• Give adequate notice of meetings or other actions;

• Properly conduct meetings;

• Allow inspection of books and records.

The first part of the above definition deals with disagreements relating to the authority of the board of directors to require a unit owner to take or withhold action with respect to his unit. This applies only in situations where a unit owner disagrees with a board's interpretation of the law or the association documents regarding a unit owner's use of his unit. For example, if the board were to refuse to permit a unit owner to alter his unit, and the unit owner believed that the documents permitted the alteration; such a dispute would be arbitrated.

Alterations of common elements 

 The same limiting language applies to alteration of the common elements. For example, if the board were to seek to alter the common elements by installing a new pool, and the unit owner(s) believed that the documents or law did not permit the alteration, such a dispute would be arbitrated. However, what if the controversy arose from an owner altering the common elements? Since such a controversy does not involve the owner's unit, nor is it the board who is performing the alteration, it could fall outside the definition of "dispute" and would not be a proper subject for mandatory arbitration.

As you can see, this new statutory provision does not require arbitration of disagreements regarding individual owners adding to or altering the common elements, as opposed to a disagreement that relates to the authority of the board of directors to alter or add to common elements, which apparently is subject to mandatory arbitration.

The governing body  

The second part of the above definition deals with "disputes" which involve the "failure of a governing body," when required by the law or the association documents, to properly conduct elections, give adequate notice of meetings, or allow inspection of books and records. Please note that the term "governing body" is probably intended to apply to decision-making bodies in addition to the board of directors, such as architectural review committees and court-appointed trustees. These types of disagreements often involve complaints by individual owners about the way the association is conducting its business. Unit owners with these kinds of complaints must now arbitrate the dispute before they can bring a court action. As such, some people believe that the new arbitration provisions apply mainly to claims that unit owners have against associations, not vice versa.

Attorney Fees 

 Generally, the arbitrator has the discretion to award, or not to award, the costs of the arbitration, reasonable attorney fees, or both to the prevailing party. However, under the arbitration rules, if a party files for a trial de novo in court and obtains a court verdict which is not more favorable than the result of arbitration, the statute mandates that the party shall be assessed the other party's arbitration costs, court costs, reasonable attorney fees, investigation expenses, and expenses for expert testimony. If a party files for a trial de novo and obtains a more favorable result, such party shall be awarded reasonable court costs and attorney fees. (Note: If a trial de novo begins, the non-filing party could have a right to recover more than the filing party). Thus, the stakes become much higher if a party files for a new trial after the arbitrator has ruled. In addition, the new statute appears weighted in favor of accepting the arbitration award.

Another factor to watch is that the arbitration decision can be introduced as evidence into the court case, making it somewhat more difficult for the losing party in arbitration to change the outcome in court. Therefore, parties should seriously consider, and this firm would recommend, having an attorney involved in all stages of such arbitration proceedings.**

~ 1992, Neal McCulloh, Esq.

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