Highlighting the hidden dangers in lengthy covenant enforcement provisions, the Fifth District Court of Appeal addressed the interplay between a covenant’s alternate dispute resolution requirement and the Homeowners’ Association Act’s mandatory pre-suit mediation procedures in § 720.311 Fla. Stat. (2015), in Guan v. Ellingsworth Residential Community Ass’n, Inc., Case No. 5D18-3633 (Fla. 5th DCA, August 23, 2019).
In short, Guan modified her landscaping but did not obtain the Homeowners’ Association’s approval for the modifications.
The community’s Declaration contained a “Claim And Dispute Resolution/Legal Actions” provision:
CLAIM AND DISPUTE RESOLUTION/LEGAL ACTIONS
It is intended that all disputes and claims regarding alleged defects (“Alleged Defects”) in any Improvements on any Lot or Common Area will be resolved amicably, without the necessity of time-consuming and costly litigation. Accordingly, all Developers (including Declarant), the Association, the Board, and all Owners shall be bound by the following claim resolution procedures.
. . . .
Section 12.3. Legal Actions. All legal actions initiated by a Claimant shall be brought in accordance with and subject to Section 11.4 [re: Approval of Litigation] and Section 12.4 of this Declaration. . . .
Section 12.4. Alternative Dispute Resolution. Any dispute or claim between or among . . . (c) the Association and any Owner, regarding any controversy or claim between the parties, including any claim based on contract, tort, or statute, arising out of or relating to (i) the rights or duties of the parties under this Declaration . . . (collectively a “Dispute”), shall be subject first to negotiation, then mediation, and then arbitration as set forth in this Section 12.4 prior to any party to the Dispute instituting litigation with regard to the Dispute.
Section 12.4.1. Negotiation. Each party to a Dispute shall make every reasonable effort to meet in person and confer for the purpose of resolving a Dispute by good faith negotiation. . . .
Section 12.4.2. Mediation. If the parties cannot resolve their Dispute pursuant to the procedures described in Subsection 12.4.1 above within such time period as may be agreed upon by such parties . . . , the party instituting the Dispute (the “Disputing Party”) shall have thirty (30) days after the termination of negotiations within which to submit the Dispute to mediation . . . .
Section 12.4.3. Final and Binding Arbitration. If the parties cannot resolve their Dispute pursuant to the procedures described in Subsection 12.4.2 above, the Disputing Party shall have thirty (30) days following termination of mediation proceedings (as determined by the mediator) to submit the Dispute to final and binding arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association, as modified or as otherwise provided in this Section 12.4. If the Disputing Party does not submit the Dispute to arbitration within thirty days after termination of mediation proceedings, the Disputing Party shall be deemed to have waived any claims related to the Dispute and all other parties to the Dispute shall be released and discharged from any and all liability to the Disputing Party on account of such Dispute; provided, nothing herein shall release or discharge such party or parties from any liability to a person or entity not a party to the foregoing proceedings. . . . Subject to the limitations imposed in this Section 12.4, the arbitrator shall have the authority to try all issues, whether of fact or law.
After a compliance demand, the parties negotiations were unsuccessful. Mediation resulted in an impasse. The Association then proceeded to court instead of binding arbitration. The trial court held that the Association could proceed with its litigation claim.
The appellate court reversed the trial court. The Declaration was “clear” requiring the Association “to arbitrate the dispute within thirty days after termination of mediation.” The Homeowners’ Association Act’s post mediation procedures do not mandate proceeding to court, but allows in addition to proceeding in court, to proceed with binding arbitration or non-binding arbitration. §720.311(2)(c), Fla. Stat. (2015). Thus, by proceeding to court rather than arbitration as required by the Declaration, the Association, pursuant to the Declaration, waived its right to pursue the Association’s claim.
The holding relied up on a very unusual covenant, in its length and contents concerning alternative dispute resolution processes. The key appears to be the Declaration’s express waiver “deemed to have waived any claims.” Though the holding may be limited in applicability because of the Declaration’s extensive and limiting language, the decision provides a warning to those seeking to enforce restrictions, perhaps extending beyond covenant claims, of not so obvious penalties!
What of staying litigation to proceed with arbitration? We are aware that if a claim subject to mandatory arbitration is brought outside of the Condominium Act and the HOA Act’s ADR provisions, then the court generally stays the proceedings pursuant to § 682.03(6) Fla. Stat. (2019). If the statutory stay was raised, then it appears that the Declaration’s waiver text may bar a stay.
Is the Declaration’s language taken as a whole as clear as the appellate court asserts? Notably, the introductory paragraph of the ADR article speaks of application to “alleged defects,” then mandating claims over such alleged defects to follow the ADR procedures that followed. Only in Section 12.4 does the text expand to include other claims which creates an inconsistency with the introductory language. In this situation, should the inconsistency bar enforcement of the provision?
Separately, the ADR language is also somewhat problematic, requiring “every reasonable effort to meet” and to negotiate “by good faith.” It would appear that a defendant would highlight this language asserting a lack of reasonableness or good faith efforts that would then require a court to consider how and what occurred in negotiations and mediation, which normally is a prohibited area for court consideration.
Click www.RPPTL.com for Breaking News
About Florida’s Largest Substantive Law Section!
Note: This article is not legal advice. Statements and comments made are not those of The Florida Bar or the RPPTL Section
© 2019 Michael J. Gelfand
Florida Bar Board Certified:
Real Estate Attorney
Condominium & Planned Development Law
Florida Supreme Court Certified Mediator:
Civil Circuit Court & Civil County Court
Fellow, American College of Real Estate Attorneys
The only thing necessary for the triumph of evil is for good men to do nothing.
– Edmund Burke