HABITAT

CO-OP/CONDO BUYERS

What is Arbitration?

Renee Serlin & Tom Soter in Co-op/Condo Buyers

Co-op/condo boards and their shareholders or unit-owners may never actually face the decades-long run of Jarndyce vs. Jarndyce, the seemingly endless lawsuit in Charles Dickens' Bleak House. But sometimes, it can feel like it. For both sides, serious litigation can be a budget-busting and morale-destroying experience.

That's why some boards suggest arbitration. It's comparatively simple, but beware: Its decision is, legally, the final word.

Sometimes, however, that can be a reasonable trade-off for all concerned. Consider the case of the co-op shareholder who fought the board over who was responsible for installing window guards "The cost of installing the window guards was approximately $919.56," says Scott Mollen, a partner at Herrick, Feinstein, who teaches a course in alternative dispute resolution at St. John's University School of Law. "The co-op incurred a legal bill of $73,547." Elsewhere, a shareholder dispute over the use of a small vestibule involved six years of litigation and six-figure legal fees.

As well, arbitration, unlike court proceedings, are not public record. Since publicity about building problems and board disputes "does not enhance the value of people's units," says Mollen, the privacy afforded by arbitration can affect your apartment's resale value.

Here's how arbitration works: Both parties agree to meet with an arbitrator — often a retired judge or a court-appointed attorney — who listens to both sides, weighs any evidence brought in, asks questions and renders an opinion. You can use your lawyer to argue the case, but the process is designed to be informal enough that you could also argue it yourself if you're articulate and good at marshalling your material.

An arbitration forum is flexible. Hearsay evidence, for example, normally precluded in a court of law, can be taken into account by the arbitrator in arriving at a decision.

So why don't more people use it? For one thing, arbitration's very finality makes some lawyers uncomfortable recommending it to their clients.

Arbitration vs. Mediation

Another reason is there there's a whole spectrum of alternatives to litigation, all falling under the broad title of alternative dispute resolution. The most well-known is mediation, and there are similarities between that and arbitration. Both aim to provide a faster, less costly method of resolving a dispute than the courts, and in both, the parties present their cases to a neutral third party in a completely confidential setting.

However, in mediation, the mediator tries to help the parties find a common ground that each can live with. More importantly, if the parties still can't agree, they can walk away without reaching any settlement and go on to litigate their issues through the courts.

There are also some situations not well-served by arbitration. "Arbitrators are wonderful at dealing with fact-based cases, where the law is clear," says James Samson, a partner at Samson, Fink & Dubow, who points to disputes over alterations, pets, carpeting, or noise. "We all know you're not supposed to disturb your neighbor. Now the question is: Did you? That's a fact question." He feels that arbitrators are good with cases that need creative solutions instead of precedent-based approaches and legal wrangling.

If your co-op does want to require arbitration in your building, it needs to amend the proprietary lease, specifying in what circumstances arbitration will be used. Typically in co-ops, this takes at least a two-thirds affirmative vote of the total shares.

That said, "I don't think, in all the years I've been recommending an arbitration provision, I have ever had to actually have an arbitration between two shareholders," says attorney Stuart Saft, a partner at Dewey & LeBoeuf. "I think the reason is that, without the [arbitration] provision, the board's hands are really tied as to how to handle these quality-of-life issues. But, with the provision, all the board has to do is say, 'Okay, two shareholders, go to arbitration.' Once they're forced to deal with the issues, they'd rather deal with them on their own. It's a way to eliminate the need for dispute resolution by having an effective method at your disposal."

 

Adapted from Habitat October 2006. For the complete article and more,   join our Archive >>

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