ALTERNATIVE DISPUTE RESOLUTION (ADR)

ADR, IDR, Litigation Comparison Chart
 

Pre-Litigation Alternative Dispute Resolution (ADR)

Neither associations nor their members may file an "enforcement action" in superior court unless the parties have "endeavored" to submit their dispute to alternative dispute resolution pursuant to Civil Code § 5930(a). Parties are required to offer alternative dispute resolution (ADR) if the anticipated litigation is:

• Is solely for declaratory, injunctive relief, or writ relief; 
• Is solely for declaratory, injunctive relief, or writ relief in conjunction with monetary damages not over small claims limits (Code Civ. Proc. § 116.220 and § 116.221);
• Before initiating foreclosure on an owner's interest. (Civ. Code § 5705(b).)

When ADR is Not Required. ADR is not required:

• If going to small claims court. (Civ. Code § 5930(c).)
• If preliminary or temporary injunctive relief is necessary. (Civ. Code § 5950(a)(3).)
• If filing suit for delinquent assessments, unless requested by a member related to disputed assessments or charges.

Initiating a Request for ADR. As required by Civil Code § 5935, to initiate the process for pre-litigation ADR, all parties to the dispute must be served with a Request for Resolution. The Request must include all of the following:

• A brief description of the dispute between the parties.
• A request for alternative dispute resolution.
• A notice that the party receiving the request for resolution is required to respond within 30 days of receipt or the request will be deemed rejected.
• If the party on whom the request is served is the member, a copy of this article.

Serving a Request for ADR. Service of the Request for Resolution shall be by personal delivery, first-class mail, express mail, facsimile transmission, or other means reasonably calculated to provide the party on whom the request is served actual notice of the request. (Civ. Code § 5935(b).) The Court of Appeal in Cabrini Villas v. Haghverdian (2003) also allowed for service by certified mail, provided there is a signed return receipt by the person being served.

Deadline to Respond & Complete ADR. A party on whom a Request for Resolution is served has 30 days following service to accept or reject the request. If a party does not accept the request within that period, the request is deemed rejected by the party. (Civ. Code § 5935(c).) if the party on whom a Request for Resolution is served accepts the request, the parties shall complete the alternative dispute resolution within 90 days after the party initiating the request receives the acceptance, unless this period is extended by written stipulation signed by both parties. (Civ. Code § 5940(a).)

Refusal to Participate. If a party unreasonably refuses to participate in alternative dispute resolution and the case proceeds to court, the court can take that into consideration when it comes to the award of attorney's fees.

Section 5950, subdivision (a), requires a party commencing an action to file a certificate of efforts to resolve the dispute with the initial pleading. The certificate must state that either: “(1) Alternative dispute resolution has been completed in compliance with” sections 5925 et seq.; “(2) One of the other parties to the dispute did not accept the terms offered for alternative dispute resolution”; or “(3) preliminary or temporary injunctive relief is necessary.” (§ 5950.) In the first action, plaintiffs filed a complaint without a certificate. In the second action, plaintiffs filed a certificate that was deemed not to “comply with Civil Code section 5950.” The court reasoned that “to dismiss the first action, and re-file it without making any substantive changes or any additional attempt to engage in ADR was frivolous.” The court’s determination that the action was frivolous depended upon the conclusion that plaintiffs did not comply with section 5950. (Retzloff v. Moulton Parkway HOA (2017) 14 Cal.App.4th 742, 753.)

Discovery. ADR is not an excuse to engage in extensive discovery prior to litigation. (Retzloff v. Moulton Parkway HOA.)

Certificate of Compliance. If ADR is unsuccessful and the parties proceed to litigation, the party filing the action must include a certificate stating that one or more of the following conditions is satisfied (Civ. Code § 5950(a)(3)):

• ADR has been completed,
• Other party did not accept ADR, or
• Preliminary or temporary injunctive relief is necessary.

Demurrer. Failure to file a certificate of compliance is grounds for a demurrer or a motion to strike unless the court finds that dismissal of the action for failure to comply with this article would result in substantial prejudice to one of the parties. (Civil Code § 5950(b).)

Attorney's Fees. In Grossman v. Park Fort Washington Assn, the court changed the starting point for the award of attorney's fees. Normally, any fees incurred prior to the filing a complaint are not awarded. Here, the court concluded that the pre-litigation ADR process mandated by the Davis-Stirling Act is the actual start of litigation. Accordingly, attorney's fees expended in pre-litigation ADR can be awarded at the discretion of the court if the matter proceeds to litigation.

Mediation

Mediation is a voluntary process where parties select a neutral third party (often a retired judge) to act as a facilitator to settle the dispute. The mediator does not decide who is right or wrong. Instead, the mediator talks to each side (usually in separate rooms) and works to eliminate obstacles to settlement. In the end, both parties may be induced to compromise and settle their dispute. No evidence or testimony is required. The mediator has no power to impose a decision on the parties. However, if the parties settle their dispute and sign an agreement, the settlement is enforceable in court.

Benefits of Mediation. The benefits of using mediation to resolve disputes are significant.

• Disputes are resolved quickly. A single hearing is often sufficient to resolve the dispute.
• Mediation is significantly less expensive than litigation. Because litigation involves lawyers and experts and typically lasts from 12 to 18 months, and legal fees on both sides can be extremely high. Moreover, the losing party frequently pays the other party's legal fees in addition to their own.
• Unlike public court proceedings, mediation is confidential unless the parties agree otherwise.
• Mediation is voluntary; a party cannot be forced to accept an outcome he or she does not like. As a result, any party may withdraw at any time.
• Meditation is non-binding until a settlement agreed to by all parties is reached.
• A mediated settlement eliminates the unpredictable nature of litigation.

Confidentiality. Unless consented to by the parties, evidence of anything said or of admissions made, or documents prepared for the purpose of mediation is not admissible in evidence in any civil action. The California Supreme Court in Foxgate HOA v. Bramalea (2001) held that "confidentiality is essential to effective mediation. In addition, Rojas v. Superior Court (2004) held that writings made for, during and pursuant to mediation are not discoverable. In 2011, the California Supreme Court in a unanimous decision and confirmed the doctrine of mediation confidentiality. In Cassel v. Superior Court (2011) 51 Cal.4th 113. However, confidentiality is not conferred upon facts or a document just because either is referred to or used at mediation. Documents that would otherwise be discoverable cannot be shielded by mediation.

Confidentiality Disclosure. An attorney representing a person in a mediation or a mediation consultation must provide his or her client, as soon as reasonably possible before the client agrees to participate in the mediation or mediation consultation, with a printed disclosure, containing the confidentiality restrictions related to mediation, and to obtain a printed acknowledgment signed by that client stating that he or she has read and understands the confidentiality restrictions.

No Discovery. Parties to alternative dispute resolution (ADR) sometimes believe they can engage in discovery (records demands, depositions, requests for admissions). The court of appeal has determined otherwise: "...the association was not required to provide plaintiffs with documents prior to ADR. ADR is not an excuse to engage in extensive discovery prior to litigation." (Retzloff v. Moulton Parkway HOA.)

Fees Are Apportioned. The cost of the mediation is equally divided between the parties unless the parties agree otherwise.

Length of Mediation. Typically, cases are resolved after a half day or full day of mediation.

Lawyers Allowed. Because the parties are trying to work out their differences without incurring significant legal expenses, many choose not to involve lawyers. However, all parties are allowed to bring lawyers into the mediation process if they choose to.

Mediation Brief. Mediation briefs are recommended but not required. A brief is nothing more than a written synopsis of the dispute and why a party believes his position is correct. Briefs are generally submitted in advance of the mediation to give the mediator an opportunity to become familiar with the dispute.

Settlement. If during mediation the parties reach agreement to settle their differences, a settlement agreement is prepared describing the terms of settlement. The agreement is then signed and the matter is concluded.

Arbitration (Binding & Nonbinding)

In arbitration, a neutral third party without a jury takes testimony under oath and receives evidence just as a judge would in court, but in an informal setting. The arbitrator then makes a finding or "award" similar to a ruling by a judge.

Nonbinding Arbitration. The parties have the discretion to abide by the arbitrator's decision and retain the right to take the dispute to court. Parties generally do not choose this form of arbitration because most consider it a waste of money. Why go through the time and expense if the parties can ignore the outcome?

Binding Arbitration. The parties waive their right to go to court, and the arbitrator's decision becomes final and binding. The decision is fully enforceable in court.

Advantages. Arbitration tends to be faster and less expensive than litigation in the courts. Discovery is limited, which significantly reduces expenses. Because there is no jury, the hearing is faster and presentation of evidence is less formal. This dispute is confidential since is does not appear in public court records.

Disadvantages. Generally, the decision, even if flawed, cannot be appealed. However, provisions can be added to the arbitration agreement providing a mechanism for review of the decision. Cable Connection, Inc. v. DIRECTV, Inc. (2008) 44 Cal.4th 1334. Unless agreed otherwise, the rules of evidence are relaxed, which means hearsay evidence may be allowed. The fact that discovery is limited may mean that parties are going into the arbitration without a full picture of the strengths and weaknesses of the case.

Developer Arbitration. When it comes to construction defects, associations can be forced into arbitration pursuant to arbitration provisions contained in their CC&Rs.

Appealing an Arbitration Award. California provides only limited grounds for judicial review of an arbitration award, such as fraud, corruption, misconduct, or that the award exceeded the arbitrators’ powers. (Code Civ. Proc. § 1286.2.) Absent some limiting clause in the arbitration agreement, the merits of the award, either on questions of fact or of law, may not be reviewed except as provided in the statute.

Miscellaneous ADR Issues

CC&R ADR Provision. An association's CC&Rs may contain a provision compelling the association and members to use alternative dispute resolution instead of the courts to resolve disputes. Such provisions are enforceable provided, however, the provision is strictly followed. (Mansouri v. Superior Court.)

Annual Notice. Associations are required to annually provide members with the following language: "Failure of a member of the association to comply with the alternative dispute resolution requirements of Section 5930 of the Civil Code may result in the loss of the member’s right to sue the association or another member of the association regarding enforcement of the governing documents or the applicable law. (Civ. Code § 5965(a).)"

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