By Robert S. Coldren, Esq. and Richard P. Gerber, Esq.

Our manufactured home community industry stands out as an ethical, mature, balanced one. Sadly, however, the realities are that there is a potential for conflict and litigation over contractual agreements, whether they are leases or purchase agreements, etc. When such legal disputes and conflicts arise, there are viable alternatives to incurring the expenses and frustrating delays associated with courtroom litigation. Alternative Dispute Resolution (ADR) procedures offer rapid and cost effective resolution of these disputes. You should think seriously about making an ADR provision a part of your standard residency document package. If you are in court or about to go to court, you should consider using ADR.

This article discusses three types of ADR: "Mediation," "Arbitration" and "Summary or Mini Trials."

Why Mediate?

The key to avoiding unnecessary litigation costs is planning. The best time to implement strategies to avoid litigation costs is before the dispute arises and the battle lines are drawn. A well crafted arbitration or mediation submission agreement can effectively accomplish the following: (1) identify the processes that will be used to select the arbitrator or mediator; (2) set forth the rules that will govern the arbitration or mediation; (3) determine the manner by which documents will be exchanged; (4) reach an agreement about the exchange of briefs describing the dispute; (5) estimate the length of the arbitration or mediation hearing; and (6) identify the dispute or disputes to be resolved.

Mediation is a process in which the parties are assisted by a neutral mediator who helps them to negotiate resolution of their dispute. The mediator has no power to bind the parties to any particular resolution of their dispute without their consent. Mediation has proven to be a very effective procedure for resolving disputes which cannot be resolved through direct, unassisted negotiations. Statistics indicate that intervention by skilled mediators results in a resolution of contractual disputes over 90% of the time. Mediation enables parties to resolve their disputes quickly and inexpensively, while preserving their right to determine the terms of any settlement.

Mediation works particularly well in landlord-tenant matters in our manufactured home community industry. In a mediated settlement, a settlement result can be achieved that could not be achieved in court. In court there is a "winner" and a "loser." The judge can not fashion a judgment with remedies the parties need. For example, in a failure to maintain dispute, a mediated settlement may require that a particular condition be modified, as opposed to an award of monetary damages. Even if mediation doesn’t settle the case, at a minimum mediation is a cheaper and faster way to flush out the "real" issues, facts and evidence.

How the Mediation Process Works

At the mediation sessions, the parties are generally required to have present representatives with authority to settle on the respective parties behalf. The parties can agree to mediate for one hour, one day, or multiple days. The first mediation session typically begins with all parties, their lawyers and the mediator meeting as a group. At this initial meeting, the parties describe their positions. They may also have witnesses with them who will state their version of the facts. Following this initial group meeting, the mediator will usually meet separately with each party and their counsel. The mediator will not divulge the contents of these individual meetings to the other side, unless he/she is given permission to do so. In these sessions, the mediator attempts to understand what is really at issue for the respective parties and what it is they seek to achieve in settlement. With the issues identified, the negotiation process begins, and usually involves a series of private sessions with the individual parties and their counsel. In these discussions, the mediator’s role is not merely to point out to the parties the strengths and weaknesses of their respective positions, but to force them to examine their interest and explore settlement terms which satisfy those interests.

Arbitration is a Good Substitute for a Court Trial

In arbitration the arbitrator decides the matter. Rather than waiting months for a court date and sitting around the courthouse waiting for a judge, in arbitration the arbitrator is yours and accommodates your schedule.

Arbitration, traditionally, is a binding process where an arbitrator or panel of arbitrators, agreed upon by all parties, hear the issues and render a decision. Arbitration is typically viewed as an alternative to litigation. It is usually a formal type of hearing similar to a trial, although there is less formality in the presentation of evidence. The theory is that a neutral third party in a private setting has several advantages, including; (1) the parties can select an arbitrator who has particular experience with the type of issues raised in the dispute; (2) the dispute can be resolved privately, thus avoiding much of the adverse publicity associated with a public lawsuit; (3) the arbitration tends to be more informal, and it is even possible for the parties to represent themselves rather than hire an attorney; (4) arbitration can be completed more quickly than a lawsuit; (5) arbitration may save money; (6) a community owner avoids a jury trial that sometimes "stick it to" community owners; and (7) there is no lengthy appeal with more attorneys’ fees and delay.

Arbitration is based on an agreement of the parties. Therefore, the parties can tailor the arbitration to a large extent based on their particular needs.

"Trial by Reference" and "Mini Trials"

As a variation on a form of arbitration are trials by private judges. In general, these procedures rely upon a private judge to conduct a form of trial. The trial is often an abbreviated version of what would actually happen in a court trial. The short cuts of a mini trial may consist of presenting testimony in summary form, or limiting the time available to each side to present evidence. A particularly creative variation is to conduct such a mini trial and, rather than having the judge make a decision, the litigants return to the negotiation arena to attempt to settle the dispute with their new insights as to how the actual trial may unfold. "Trial by reference" and "mini trials" generally work best where there is a lot of money at stake and the issues are very complex.

The advantages of ADR (whether mediation, arbitration or mini trial) over protracted litigation may be summarized as follows:

--Quicker final resolution of dispute;
--Less expensive than full blown litigation;
--Avoids uncertainty of judicial outcome;
--More flexible remedies available in negotiation and mediation;
--Avoid diversion of litigants’ energies from their business;
--Reduces business uncertainty;
--May preserve business relationships;
--Permits confidentiality;
--Avoids risks of adverse judicial precedent; and
--Avoids trial by jury.

There are occasions when an arbitration result can be overturned. However, the grounds are fairly narrow and relate to situations where there is something defective about the process or the arbitrator has an undisclosed conflict of interests with one of the parties.

There are, of course, drawbacks to community owners in the ADR area:

In Village Trailer Park, Inc. v. Santa Monica Rent Control Board, (2002)110 Cal App 4th 1133, 124 Cal Rptr. 2nd 857, the Santa Monica, California, city charter contained a rent control law which was administered by its Rent Control Board. The tenants of the trailer park complained that the trailer park violated the rent control law by charging excess rent. The Board ruled in favor of the tenants. The trial court found that the Board was entitled to determine whether the leases were exempt from rent control and was authorized to impose excess rent penalties; however, the trial court remanded as to the calculation of the damages. The California Court of Appeal concluded that an arbitration clause in the mobilehome park lease did not prevent the Board from applying the rent control law to the landlord. The Court held that the park’s leases, which contained arbitration clauses, were void to the extent that they limited the tenant’s rights to file claims with the Board. Careful drafting of ADR agreement can often avoid results like this.

In Brassington v. EMC Corp. (Fla. App.1st Dist., 2003) 855 So.2d 1212, the Court found that the fee-splitting provision in the arbitration provision of the plaintiff=s employment agreement was valid. Firstly because the contract allowed Brassington to avoid paying arbitration costs by refusing to participate in selection of the arbitrator and secondly because she did not make the necessary showing that the cost would be so high as to prevent her from pursuing her claim. The Court noted that the fee-splitting clause was prominent in the employment contract and that the arbitration provision was in clear bold print. Thus, this case offers tips for drafting a good ADR clause.

In Murphy v. Mid-West Nat’l Life Ins. Co. of Tenn. (Idaho, 2003) 78 P3d 766 the Court found that prohibitive costs imposed on a claimant rendered an arbitration clause unenforceable. Again, there are ways to draft a binding arbitration clause that more Afairly@ allocates arbitration costs.

In Equal Employment Opportunity Commission v. Luce, Forward, Hamilton & Scripps (Ninth Circuit) (Cal.), 2003) 345 F3d 742, the Ninth Circuit joined the rest of the circuits in allowing arbitration clauses as conditions of employment. The United States Court of Appeals Ninth Circuit held that an employer’s compulsory arbitration agreement does not weaken Title VII of the Civil Rights Act of 1964 (42 U.S.C. Section 2000e-3) because arbitration effects only an employee’s choice of forum, not his substantive rights. The EEOC retained its rights to pursue judicial remedies as it was not a party to the arbitration agreement. This case is important to community owners since it seems to support the idea that we can require an ADR agreement as a condition of tenancy in our communities.

Some jurisdictions, by statute, limit the use of ADR. For example, California Civil Code Section 798.25.5 provides that any rule or regulation of a mobilehome park that (a) is unilaterally adopted by the management, (b) is implemented without the consent of the homeowners, and (c) by its terms purports to deny homeowners their right to a trial by jury or which would mandate binding arbitration of any dispute between the management and homeowners shall be void and unenforceable.

By way of conclusion, ADR is an effective mechanism for winning friends and staying out of court in that it reduces irrationality, provides opportunities for graceful retreats and facilitates communication so necessary for the speedy and cost efficient resolution of disputes.

Rob Coldren has handled virtually every legal issue presented in the complex manufactured housing community environment in his 25 years of specializing in this area. He has represented clients nationwide in the prosecution and defense of all aspects of zoning, closure, conversion, residency documents, financing, "Failure to Maintain", rent control - you name it, Rob has dealt with it. Richard Gerber has dedicated his practice to civil litigation since 1974, specializing in complex business, employment, intellectual property, insurance, securities, municipality, construction, landlord and tenant, personal injury and appellate matters. Rob and Richard can be reached at Hart, King & Coldren, 200 E. Sandpointe, Santa Ana CA 92707; (714) 432-8700; robertc@hkclaw.com and richardg@hkclaw.com.