TABLE OF CONTENTS
| I | Introduction |
| II. | Arbitration In General |
| III. | Filing For And Proceeding With An Arbitration |
| IIV. | Post-Arbitration Procedures |
| V. | Association/Board Procedures |
| V. | Mediation |
I. Introduction
The real estate market has become increasingly competitive, regulated, and complicated in recent years. Along with these developments, the industry has seen a substantial increase in the number of real estate-related lawsuits. As a result, today's real estate professional may confront challenging questions and concerns both while his or her transactions are proceeding smoothly, and also when disputes arise, counsel have been contacted, and lawsuits have been threatened or filed.
The increase in litigation has familiarized many REALTORS® and principals alike with our judicial system, often frustrating them in the process. A common cry is often heard: "Is there another way?" The answer is: "Yes." Arbitration and mediation are two alternatives to litigation every REALTOR® should know about.
Arbitration and mediation will not eliminate all litigation, nor are they
intended to do so. However, in today's society they are viable
alternatives. The reader who understands these processes can start to
appreciate them as useful tools rather than as something to be feared. This
memorandum is designed to provide guidance and insight to REALTORS® with
questions concerning arbitration, mediation and litigation as they relate
to their real estate practice.
II. Arbitration In General
Q 1. What is arbitration?
A Arbitration is a method of dispute resolution by which parties to a dispute: (1) select a neutral person(s) to consider the merits of the conflict, (2) present evidence to the neutral person(s) to support their positions and (3) agree to abide by the decision of the neutral person(s) rather than seek redress in a court of law.
Q 2. Are there advantages to arbitrating disputes?
A Yes. The following are several of the potential advantages of arbitration:
An arbitration will almost always be resolved in a more timely fashion than a court action.
Attorney fees are usually lower than in litigation because less time is needed to resolve the claim, and because the procedural and evidentiary rules in arbitration are less burdensome.
Arbitrations are private. Accordingly, sensitive information generally will not be widely disseminated since the hearing is not open to the public.
Arbitrators, who are selected by the disputants, are usually experienced in the field of the dispute. This can reduce the need to educate the decision maker on the issues involved in the dispute, and can provide the parties with greater assurance that the award will be made by a knowledgeable person.
Arbitration awards are final, binding and legally enforceable.
Q 3. Are there disadvantages to arbitrating disputes?
A The following may be considered disadvantages of arbitration in some cases:
There is only a limited right of review of an arbitration award.
If a party fails to comply with the award, then court action is needed to enforce it.
The parties must pay for the services of the arbitrator.
Q 4. Are there different types of arbitrations?
A Yes. The obligation to arbitrate may be created contractually or judicially. Contractual arbitration results when parties enter into an agreement to arbitrate a current dispute or any dispute which may arise in the future. Judicial arbitration, on the other hand, results when parties without a contractual arbitration provision are required to arbitrate pursuant to court order.
Thus, there are situations in which the obligation to arbitrate is voluntarily agreed to by the parties (such as the agreement REALTORS® make, pursuant to the Code of Ethics of the National Association of REALTORS® ("NAR Code of Ethics"), to submit disputes with other REALTORS® to Board/Interboard arbitration), and situations in which arbitration is imposed involuntarily upon the parties (for example, through judicial arbitration in the course of a lawsuit).
Arbitration may be binding or non-binding. In binding arbitration, the participants are required to comply with the decision of the arbitrator(s), which is final and usually not appealable. In non-binding arbitration, the decision of the arbitrator(s) is advisory only.
Some arbitrations are formal proceedings, similar to a trial in a court of law, that require compliance with discovery (see Question 12), evidentiary and procedural rules, while other arbitrations may be informal.
Arbitrations can be decided by a single arbitrator or a panel of multiple arbitrators, depending upon such factors as the arbitration agreement, the type of claim involved, the dollar amount of the dispute and the rules controlling the arbitration.
The type of arbitration required by arbitration clauses in C.A.R. contracts is an example of contractual, binding arbitration in which evidentiary and procedural rules are relatively informal, but in which the parties are granted pre-hearing discovery rights.
Q 5. What are some examples of these different types of arbitrations? What are the features of these different types of proceedings?
A The following chart provides an overview of three different types of arbitration proceedings: contractual arbitration pursuant to the arbitration clause in C.A.R. contracts, contractual Association/Board/Interboard arbitration between REALTORS®, and judicial arbitration.
|
Type of Arbitration |
|||
|
C.A.R. Clause |
Association/Board/Interboard |
Judicial |
|
|
Contractual |
Yes, by initialing the optional arbitration clause in a contract. |
Yes, by joining an Association/Board of REALTORS® and agreeing to abide by the NAR Code of Ethics. |
No |
|
Voluntary |
Yes. Participants have no obligation to enter into a contract containing an arbitration provision. |
Yes. Real estate licensees have no obligation to join Associations/Boards of REALTORS®. |
No. Participation is mandated by statute or court rule. |
|
Binding |
Yes |
Yes |
No. Parties can demand a trial in court after arbitration has concluded. |
|
Pre-Hearing Discovery |
Yes |
No |
Yes |
|
Formal Evidentiary Rules |
No |
No |
Yes, but less formal than in court. |
|
Formal Procedural Rules |
No |
No |
Yes, but less formal than in court. |
|
Number of Arbitrators |
Usually one. |
Three |
Usually one. |
III. Filing For And Proceeding With An
Arbitration
Q 6. How do I file for
arbitration?
A Arbitration may be commenced by submitting the following to the arbitrator or the organization administering the arbitration:
Signed copies of the written agreement to arbitrate;
Identification of the parties to the dispute;
A statement of the subject matter of the dispute and the amount of money involved;
A statement of the remedy sought; and
Any applicable administrative fee.
Q 7. Who can serve as an arbitrator? Is any formal training required?
A Any individual or entity may administer an arbitration, and any individual can serve as an arbitrator. While there are no California laws specifying minimum qualifications or training of arbitrators, certain organizations have guidelines that arbitrators must follow.
In some cases, the parties to a dispute may contractually agree to use an arbitrator with particular qualifications. For example, if the parties to a C.A.R. agreement cannot agree on an arbitrator and one has to be appointed, the arbitrator must be a retired judge or justice, or an attorney with at least five years of real estate experience.
Q 8. How can I locate an arbitration provider?
A In recent years many individuals and organizations have entered the arena of providing arbitration services. One source for locating these arbitration providers is your local phone directory. A county or local bar association (association for attorneys) may be able to supply you with a list of providers. Also, your Association/Board attorney or personal attorney may be able to direct you to arbitration providers in your area. Many arbitration providers also maintain Internet websites.
Q 9. How much does arbitration cost?
A The cost of an arbitration varies depending on who is conducting the arbitration. When shopping for an arbitration provider, one should consider various cost factors, including the following:
Whether the arbitrator charges a flat fee or an hourly rate.
If there is an arbitration administrator, whether the administrator charges a fee, and whether it is a flat fee or an hourly rate.
Whether a filing fee, separate from the flat fee(s) or hourly rate(s) charged by the administrator and/or arbitrator, will be required.
Q 10. Do I have the right to have my case in an arbitration decided by a jury or an active judge?
A No. In an arbitration, the dispute will be heard by a single arbitrator or, in some instances, a panel of three arbitrators. The arbitrator(s) will not be active judge(s). There will not be a jury.
Q 11. Will a trial be held in arbitration?
A No. A trial takes place in a court of law where evidence is presented to a judge or jury in accordance with specific rules and formal procedures. In arbitration, by comparison, a hearing will be held in which evidence will be presented to the arbitrator. Neither the arbitrator nor the disputants are bound by any formal rules of court other than those previously agreed upon or ordered by the arbitrator.
Q 12. What is discovery?
A Discovery is the legal term describing the process of gathering information through written questions, verbal testimony and presentation and inspection of documents and other evidence. Discovery allows the disputing parties to better understand the strengths and weaknesses of each other's case, and to better identify the issues that require resolution.
Q 13. Do I have the right to conduct discovery in an arbitration?
A Yes, if the arbitration provision specifically allows it.1
Q 14. Can I subpoena witnesses to appear at an arbitration hearing, and can the opposing party be required to produce relevant documents prior to or at the hearing?
A Yes. These rights are granted. Subpoenas which are issued and signed by the arbitrator, but otherwise blank, are to be completed and served by the requesting party.2
Q 15. What happens if the opposing party does not comply with a discovery request?
A The arbitrator has the power to order discovery and impose the same liabilities, sanctions and penalties as a court of law (except an order of contempt which could result in arrest or imprisonment).3
Q 16. Are the rules for presenting evidence in an arbitration hearing as formal as they would be in court?
A No. The arbitrator alone determines the admissibility, relevance and materiality of evidence offered. Conformity with the technical judicial rules of evidence used in courts of law is not required.4
The arbitrator must, however, comply with basic concepts of due process, treat all parties fairly and admit all relevant testimony and evidence.
Q 17. Am I entitled to have an attorney present at an arbitration hearing?
A Yes. California law allows any party to be represented by counsel at an arbitration hearing. Additionally, you may be allowed to be represented by someone other than legal counsel if the arbitrator or administering organization allows it.5
Q 18. Are attorney fees recoverable in arbitration?
A As a general rule, attorney fees are not recoverable unless a contract term provides for recovery of such fees. C.A.R. contracts containing arbitration clauses provide for recovery of attorney fees by the prevailing party in any action, proceeding or arbitration. The arbitrator has the authority to include attorney fees in the award, provided the party has requested them at the hearing and before an award has been rendered. (Note, however, that when using a C.A.R. contract, the right to attorney fees may be lost if the prevailing party does not first attempt to mediate the dispute.)
Q 19. What remedies may be awarded to a prevailing party in arbitration?
A An arbitrator has the authority to award any remedy requested (other than criminal sanctions) including:
Specific performance;
Damages;
Punitive damages;
Injunctions; and
Declaratory relief.
IV. Post-Arbitration Procedures
Q 20. Is an arbitrator's decision binding on the disputants?
A Yes, assuming the parties have agreed to binding arbitration. The decision of the arbitrator, called an award, is binding on all parties to the arbitration.
Q 21. What is the legal effect of a binding arbitration award?
A An arbitration award has the same effect as a written contract unless and until the award has been confirmed by a court (see Question 22). Prior to court confirmation, the parties are obligated to follow the award just as parties to a contract are required to comply with the terms of the contract. If the award is fully satisfied by the disputants, court confirmation will not be necessary.6
Q 22. How may an arbitration award be confirmed?
A If a party fails to honor an arbitration award, the prevailing party must file a petition to confirm the award in court. The petition must set forth:
The agreement to arbitrate;
The names of the arbitrators; and
The award itself.
All parties to the arbitration must be named in the petition.7
Q 23. What is the legal effect of an award which has been confirmed by a court?
A Once an award is confirmed by a court, a judgment is entered. This judgment has the same force as a judgment entered by a court of law in a civil action, and can be enforced the same way. This gives the prevailing party the ability to obtain writs, impose a lien on the judgment debtor's property, attach the judgment debtor's assets, and take other actions allowed a judgment creditor.8
Q 24. Is there a time limit within which a petition to confirm an award must be made?
A Yes, four years.9
Q 25. May I appeal an award if I do not agree with the decision of the arbitrator?
A No. An arbitration award may not be appealed on its merits. However, you may, in certain narrow circumstances, petition a court either to vacate or correct an award (see Questions 26 through 31).10
Q 26. What are the grounds upon which a court will vacate an award?
A Generally, an award will be vacated only if one or more of the following occurred:
There was corruption in any of the arbitrators.
The rights of the parties were substantially prejudiced by misconduct of a neutral arbitrator.
The arbitrator exceeded his or her power.
The arbitrator refused to hear material evidence or allow a postponement request made with sufficient cause.
The award was procured by fraud or corruption or other undue means.
An arbitrator failed to disqualify himself or herself, upon receipt of a timely request, if a judge would have been required to disqualify himself or herself had the matter been heard in court.
AN ARBITRATION AWARD WILL NOT BE REVIEWED OR VACATED BASED UPON THE MERITS OF THE CASE. In other words, the court will not re-hear the arbitration.11
Q 27. What may a court do if it vacates an award?
A When a court vacates an arbitration award, the award is nullified. Then, depending on the circumstances, the court may order a rehearing before the same or a different arbitrator, or grant other relief.12
Q 28. What grounds exist to correct an award?
A Generally, an arbitration award may be corrected to remedy an evident miscalculation or mistake. For example, if the arbitrator awards the prevailing party $500 in damages and $500 in attorney fees but incorrectly totals the two sums to equal $900, the court could correct the award to equal $1,000.13
Q 29. Does the arbitrator have the power to correct an award?
A Yes, but only for very limited period of time. The party seeking a correction from the arbitrator must request it within 10 days after the arbitration award has been signed and served.14 After that, the party seeking correction will have to do so in court.
Q 30. What is the effect of an award that has been corrected?
A The arbitration award, as modified by a court or the arbitrator, is binding on the parties.
Q 31. Is there a time frame within which a petition to vacate or correct an award must be made?
A Yes. The petition must be
made within 100 days after service of the award.15
V. Association/Board Procedures
Q 32. Are there differences between arbitration under the arbitration clause in a C.A.R. contract and Association/Board/Interboard arbitration?
A Yes. First, the types of disputes that are subject to these arbitration processes are different. The arbitration clause in a C.A.R. contract typically governs disputes between the parties to that contract arising out of the agreement or a related transaction. In contrast, the disputes requiring Association/Board/Interboard arbitration are enumerated in the NAR Code of Ethics and the arbitration rules of local Associations/Boards of REALTORS®.
The procedural rules governing how these types of arbitration hearings are conducted also differ. Arbitrations conducted pursuant the arbitration clause in C.A.R. contracts generally must follow procedures outlined in various California laws. (See section II. Filing For and Proceeding With an Arbitration, above.) Association/Board/Interboard arbitration, on the other hand, follows procedures set forth in the California Code of Ethics and Arbitration Manual, or similar manual, used by REALTOR® associations for conducting arbitration proceedings. Association/Board/Interboard arbitration does not provide for pre-hearing discovery. Additionally, the arbitrators who participate in Association/Board/Interboard arbitration hearings are volunteers selected from a Professional Standards Committee of the appropriate association.
(See Question 5 for additional differences between these two types of arbitration.)
Q 33. Are there differences between an arbitration conducted pursuant to the arbitration clause in a C.A.R. contract and the processing of an ethics complaint at a local Association/Board of REALTORS®?
A Yes. An arbitration pursuant to an arbitration clause in a C.A.R. contract assesses civil liability between parties to the arbitration. An ethics complaint (often called a "grievance"), on the other hand, starts a proceeding in which an Association/Board of REALTORS® enforces adherence by REALTORS® to the NAR Code of Ethics. Also, the ethics proceeding serves to protect the interests of the membership at large-not just the parties to the grievance.
An ethics complaint can be filed against a REALTOR® by a member of the general public or by another real estate licensee, whether or not the complaining party is a REALTOR®.
Q 34. Can a REALTOR® who is a party to an arbitration agreement with another REALTOR® still file an ethics complaint against that REALTOR®?
A Yes. The right to file an ethics complaint is independent from the obligation to arbitrate disputes. In accordance with C.A.R. and NAR policy, however, if both an arbitration and an ethics complaint are filed, the arbitration is generally heard first.
VI. Mediation
Q 35. What is mediation?
A Mediation is a method of resolving disputes in which a neutral person (mediator) facilitates discussion and negotiation between the parties to a dispute. The mediator does not have authority to impose a settlement upon the parties but instead explores with the parties the possibility of settlement.
Q 36. Are there advantages to mediating disputes?
A Yes. The following are several of the potential advantages of mediation:
A mediation often can be held within a few days or weeks after a dispute has arisen.
Meditations are private, which allows for issues and feelings to be discussed openly without fear of sensitive information being widely disseminated.
Mediation allows the parties to express their point of view directly to each other.
Attorney fees can be reduced or avoided entirely if the mediation results in a settlement.
Mediators are often trained in techniques valuable in overcoming stalemate or impasse in negotiations.
The parties themselves are empowered to reach their own agreement rather than have one imposed on them by an outside source such as a judge or arbitrator.
Q 37. Are there disadvantages to mediating disputes?
A The following may be considered disadvantages of mediation in some cases:
The parties must pay for the services of a mediator.
If a settlement is not reached at the mediation, another dispute resolution mechanism, such as arbitration or litigation, may be required to resolve the dispute.
If a party fails to comply with a mediated settlement, then court action or arbitration will be needed.
Q 38. Who can serve as a mediator? Is formal training required?
A Any individual or entity may administer a mediation, and any individual can serve as a mediator. Currently, California law does not specify any minimum qualifications or training requirements for mediators. Many mediators are lawyers or retired judges. Many others are professionals with a background in therapy, and many others are simply individuals with a strong desire to see disputes resolved peacefully and without court action. Many mediators have received extensive training and/or education on the mediation process and mediation techniques.
Q 39. How do I initiate a mediation?
A Your first step is to contact a mediation service or individual mediator. If you're mediating pursuant to a written mediation agreement, the mediation provider may want to see a signed copy of that agreement. The mediation provider will need to know the names of the parties to the dispute. Many mediators will require payment of any applicable fee either at this time or before the mediation commences.
Q 40. How do I contact providers of mediation services?
A In recent years many individuals and organizations have entered the arena of providing mediation services. One source for locating these mediation providers is your local phone directory. A county or local bar association (association for attorneys) may be able to supply you with a list of providers. Your Association/Board attorney or personal attorney may be able to direct you to mediation providers in your area. Many mediation providers also maintain Internet websites.
Additionally, you can also contact your local County Board of Supervisors, city or county attorney’s office, or the California Department of Consumer Affairs Dispute Resolution Office.
Q 41. How much does mediation cost?
A The cost of mediation varies depending on who is conducting the mediation. Some services receive some public funding and are able to charge as little as a few hundred dollars (or even nothing for those unable to afford any expense). Others charge an hourly fee. When contacting a mediation provider, it is important to fully understand the fee structure before initiating the mediation.
Q 42. Are there different types of mediation?
A Yes. Because mediation is an informal process, it is extremely flexible. In some mediations, the parties are kept separate most of the time and conduct a sort of "shuttle diplomacy." Others let the parties themselves decide when to separate and when to have joint sessions. Some mediators actively participate with ideas and analysis; others prefer to be involved only as necessary to allow the parties to communicate with one another.
Q 43. What typically happens in a mediation?
A Typically, the parties will be greeted by the mediator who will then make some opening remarks in order to explain the process and ground rules for the mediation. At that time, the parties, and anyone else present at the mediation, will usually be asked to sign a confidentiality agreement (an agreement in which the parties agree that anything said or written in the mediation session will not be admissible in a court of law). The parties are then each given a chance to make an initial statement explaining how they view the situation leading up to the mediation. From this point forward, mediation styles vary (see Question 42). Regardless of the format or style followed by the mediator, one thing is certain: the mediator will make all attempts to keep the lines of communication open so that progress can be made in the effort to enable the parties to reach their own agreement for resolution of the dispute.
Q 44. Who should be present at a mediation?
A The mediation should be attended by the parties to the dispute who have the authority to enter into a settlement agreement. Not all parties have this authority. For example, an employee of a corporation may be a party to a dispute, yet have no authority to enter into a settlement agreement on behalf of the corporation. Similarly, if two spouses are parties to a dispute with another person, each spouse should attend the mediation hearing since one spouse may not have the authority to settle the dispute on behalf of the other spouse.
Q 45. Am I entitled to have an attorney present at a mediation?
A Yes.
Q 46. Am I entitled to bring witnesses to a mediation?
A While witnesses may help, it is important to remember that a purpose of mediation is to understand the other party's point of view-not to convince the mediator of one party’s position over the other. Most mediations will probably start without witnesses present. However, if all parties to a dispute agree to listen to a witness at a later time, such a point of view can be useful.
Q 47. Are attorney fees recoverable in mediation?
A Whether the parties' settlement includes attorney fees is up to the parties themselves. A mediator does not issue any award or rulings.
Q 48. If the mediation concludes with a settlement, what happens then?
A Typically the agreement is reduced to a writing which all parties sign.
Q 49. What if a party does not comply with a mediated settlement?
A If a party does not comply with a mediated settlement, then a court action or arbitration generally must be commenced. However, mediation providers report that the overwhelming number of settlements obtained through mediation are honored by the parties.
Q 50. Where can I obtain additional information about this subject?.Endnotes
1 Cal. Code Civil Procedure § 1283.05
2 Cal. Code of Civil Procedure § 1282.6
3 Cal. Code of Civil Procedure §§ 1283.05(b) and (c)
4 Cal. Code of Civil Procedure § 1282.2(c)
5 Cal. Code of Civil Procedure § 1282.4
6 Cal. Code of Civil Procedure § 1287.6
7 Cal. Code of Civil Procedure §§ 1285, 1285.4
8 Cal. Code of Civil Procedure § 1287.4
9 Cal. Code of Civil Procedure § 1288
10 Cal. Code of Civil Procedure §§ 1285, 1286.2, 1286.4, 1286.6,
and 1286.8
11 Cal. Code of Civil Procedure § 1286.2
12 Cal. Code of Civil Procedure § 1287
13 Cal. Code of Civil Procedure § 1286.6
14 Cal. Code of Civil Procedure § 1284
15 Cal. Code of Civil Procedure § 1288
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