Unintended Consequences – A Byproduct of Legislation and a Court Ruling
As an individual most, if not all, contracts you commit to, contain binding arbitration. The most common would be the agreement you have with your credit card company. The impact of this is that you no longer have access to redress in the courts. This can in many situations be a good thing. The courts are frequently backlogged, litigation is expensive and the rules of evidence are complex.
This has been an issues affecting the development of condominiums. The original covenants will typically contains a clause requiring binding arbitration. But once the building has been turned over to the owners, the members will delete this clause and instead give the Home Owners Association (HOA) and the individual owners the right to redress in the courts.
But a recent ruling by the Colorado Supreme Court has changed this. The case is referred to as “Vallagio at Inverness Residential Condominium Association v. Metro Homes Inc”. The ruling says that “home buyers who sign contracts agreeing to settle construction disputes through arbitration cannot then turn around and vote to remove the arbitration requirement and take complaints through the court system”.
There was also recent legislation requiring a majority of condo owners to agree to proceed with legal action.
These two legal actions have promoted condo construction. After years with virtually no lower cost condo construction there are now 12 developments with about 1,200 units either planned or under construction. The availability of these units is a positive step. This affects people of all ages that are looking for a residence they can afford. For seniors, this provides the opportunity for downsizing and/or for a more convenient living arrangement.
Another area of significant importance to seniors is the contract they sign when they enter a nursing home, or other living arrangements such as assisted living, independent living, memory care, etc. It is very likely these contracts contain a clause requiring binding arbitration. Probably – in this time of high stress, the senior and their loved ones do not even recognize they have waived a fundamental right.
The concept of binding arbitration provides quicker resolution, lower cost and avoiding court backlogs. The question becomes: does the individual receive the same fair and unbiased justice that they would receive in the court system?
Judges are employed by governments; local, state and federal. They are not impacted by the substance of their rulings. Colorado is considered to have one of the better procedures for selecting judges, minimizing any political effect. So when you are in the courtroom you will be treated fairly. You may not like the results, but it was a fair process.
Conversely – arbitration is a business that is bound by a code of ethics. Typically the two parties agree on the arbitrator from a list provided by the arbitration organization. One of the parties is often an individual, perhaps supported by an attorney. The other side is frequently a business, also represented by an attorney. However, the business is often a member of a trade organization that tracks prior rulings by arbitrators. This creates an “uneven playing field”. The arbitrator knows that if there is a ruling unfavorable to the business, there may be no future arbitration assignments from that industry.
This inherent bias has been documented by “The New York Times”. Their investigative reporting was based in New York, but the conditions that exist there, exist throughout the country, including Colorado. They found significant bias detrimental to the individual.
Currently in Colorado, as a result of the Colorado Supreme Court ruling and legislation recently passed, the individual is at a disadvantage, with reasonable probability, fairness will not prevail. Once again the existence of Unintended Consequences prevails.
Binding arbitration has an important role to play in resolving disputes. But it must be fair to both parties. It is mandatory that both parties and their attorneys operate under strict ethical guidelines, and that there is strong discipline for those who abuse the system.
There are two issues the Colorado State Legislature must correct.
- The process for selecting the arbitrator must be equally fair to both parties.
- There must be certain discipline for unethical behavior.*
* Ed Shackelford participated in binding arbitration. The attorney for the opposition admitted to withholding evidence. There was no discipline.