MCL 559.154: What is the difference between arbitration and mediation?
Conflict is inevitable when co-owners live in close proximity in a condominium association. Whether it is a barking dog, loud music or unpleasant odor, it is important that a condominium association has a mechanism to resolve disputes between co-owners. Many condominium associations resolve disputes by commencing an action in circuit court to enforce the master deed and bylaws as permitted by MCL 559.206 after determining that a particular co-owner has violated the condominium bylaws. However, condominium associations may also seek to resolve disputes through alternative dispute resolution procedures such as arbitration or mediation. While many people use the terms “arbitration” and “mediation” interchangeably, there are major differences between arbitration and mediation. As will be discussed below, Michigan condominium associations should ensure that their arbitration provisions comply with the Michigan Condominium Act and that their condominium bylaws provide a mechanism to mediate co-owner disputes.
Arbitration is distinguishable from a traditional court proceeding in several ways. The common characteristics of arbitration are as follows:
- Arbitration is a private proceeding, whereas a traditional court proceeding is open to the public.
- The parties are required to split the costs to pay for an arbitrator or multiple arbitrators instead of using a judge that is paid by the taxpayers.
- Arbitration is typically less formal than a traditional court proceeding, and the parties have more latitude in creating their own rules.
- Arbitration is binding on the parties and the ability to appeal arbitration is much less limited than a traditional court proceeding.
Accordingly, while arbitration may be preferable in complex litigation, it is rarely invoked for co-owner disputes in a condominium association. Notwithstanding that co-owner disputes are rarely resolved via arbitration; the Michigan Condominium Act requires that all condominium bylaws contain an arbitration provision. Specifically, MCL 559.154 provides in pertinent part:
(8) The bylaws shall contain a provision providing that arbitration of disputes, claims, and grievances arising out of or relating to the interpretation of the application of the condominium document or arising out of disputes among or between co-owners shall be submitted to arbitration and that the parties to the dispute, claim, or grievance shall accept the arbitrator’s decision as final and binding, upon the election and written consent of the parties to the disputes, claims, or grievances and upon written notice to the association. The commercial arbitration rules of the American arbitration association are applicable to any such arbitration.
(9) In the absence of the election and written consent of the parties under subsection (8), neither a co-owner nor the association is prohibited from petitioning a court of competent jurisdiction to resolve any dispute, claim, or grievance.
In addition, Mich. Admin R. 559.512 provides as follows:
The bylaws shall provide for procedures, in accordance with sections 106 and 107 of the act, to resolve any dispute, claim, or grievance arising out of, or relating to, the interpretation or the application of the master deed, the bylaws, or the management agreement, if any. The bylaws may provide for arbitration or other methods of resolving disputes, claims, or grievances arising among or between co-owners or between co-owners and the association of co-owners or between the association and a management company. If arbitration is requested by the parties to such a dispute, claim, or grievance, the dispute, claim, or grievance may be submitted to arbitration and the parties shall accept the arbitrator’s decision as final and binding. The bylaws may provide for the application of the commercial arbitration rules, as amended, of the American arbitration association.
While MCL 559.154 and Mich. Admin. R. 559.212 require that the condominium bylaws contain an arbitration provision, arbitration may only be invoked based on the consent of all parties to the dispute. As recently noted by the Michigan Court of Appeals, a party may not unilaterally invoke arbitration. Specifically,
….MCL 559.154(8) and (9) require condominium bylaws to include a provision for arbitration at “the election and written consent of the parties.” The Legislature employed the plural noun “parties” in MCL 559.154(8) and (9), demonstrating that all parties to a dispute must elect and consent to arbitration in lieu of litigation. The Legislature’s use of the word “consent” supports this interpretation. To “consent” means “to give assent or approval: AGREE.” Merriman-Webster Dictionary, available at <https://www.merriam-webster.com/dictionary/consent> (accessed April 20, 2020). It takes two to consent or agree to participate in arbitration, much like it takes two to consent to a contract or to reach a consent judgment. The circuit court correctly determined therefore that the Tuers were not permitted to unilaterally demand arbitration and that summary disposition was not proper on that ground.
Copperfield Villas Assn v Tuer, unpublished opinion of the Court of Appeals, issued May, 21, 2020 (Docket No. 348518), 2020 WL 2601600, p *5. Accordingly, if a condominium association’s bylaws permit a party to unilaterally invoke arbitration, such a provision would be illegal and unenforceable as it would violate MCL 559.154. As such, Michigan condominium associations should review their condominium bylaws to ensure that they contain the required arbitration provision that complies with the Michigan Condominium Act.
- Mediation is a private proceeding that takes place outside of the view of the public. In almost all cases, the parties are require to keep negotiations that take place during mediation confidential.
- In mediation, the parties are required to split the costs to pay for a private person to serve as a neutral third-party that attempts to come up with a negotiated resolution for the dispute.
- Mediation is not binding. Unlike arbitration where an arbitrator renders a final decision, the parties are free to walk away from mediation and continue with arbitration or litigation if a resolution is not reached.
Mediation shares some similarities with arbitration, but there also key differences. The common characteristics of mediation are as follows:
Mediation can be performed before arbitration or a court proceeding, or it may be ordered by an arbitrator or judge during an arbitration or court proceeding. However, as outlined above, the job of a mediator is to advise both sides of potential risks and determine if the parties can come up with their own negotiated solution to a dispute. While mediation often involves compromise, many parties prefer to come up with their own resolution instead of spending a great deal of time and money to obtain an uncertain outcome in an arbitration or court proceeding.
While MCL 559.154 requires all condominium bylaws to contain a provision where disputes may be submitted to arbitration based on the consent of all of the parties, the Michigan Condominium Act does not require that the condominium bylaws contain a mediation provision. However, as indicated above, Mich. Admin R. 559.512 states that the “…bylaws may provide for arbitration or other methods of resolving disputes, claims, or grievances arising among or between co-owners or between co-owners and the association of co-owners or between the association and a management company.” Mediation would be one of the “other methods” of resolving a dispute. Accordingly, many condominium associations have updated their condominium bylaws to allow for a board of directors to compel mediation of disputes, in its discretion, before taking any other bylaw enforcement action or proceeding with arbitration or litigation. Condominium bylaws that have not been recently updated are unlikely to have any provisions related to mediation, which means that condominium associations and co-owners are forced into litigation in order to resolve many disputes. However, a mediation provision can save a condominium association a lot of time and money, so condominium associations should consider amending their condominium bylaws to include a mechanism to mediate disputes.
Bylaw enforcement actions in circuit court are the remedy contemplated by most condominium bylaws. Condominium associations should be aware that arbitration or mediation may serve as alternatives to traditional litigation. However, the board of directors of a condominium association should be aware that arbitration and mediation are two separate things and that these terms cannot be used interchangeably.
With respect to arbitration, MCL 559.154 mandates that the condominium bylaws contain a provision regarding the arbitration of disputes. However, the condominium bylaws cannot require the parties to arbitrate a dispute. Rather, a dispute may only be arbitrated if all parties consent to arbitration. Accordingly, given that parties in a disagreement rarely agree on anything, arbitration of disputes under the Michigan Condominium Act is rare.
However, it is becoming more common for disputes to be referred to mediation under the condominium bylaws. Given that mediation is not binding on the parties, and it may prevent protracted litigation, it is often a good first step in resolving co-owner disputes. However, unless the condominium bylaws provide the board of directors with authority to refer a dispute to mediation, there is nothing that the condominium association can do to compel the parties to attend mediation as a first step in the dispute resolution process. Accordingly, condominium associations should consider amending their condominium bylaws to provide the board of directors with authority to refer co-owner disputes to mediation.
Kevin Hirzel is the Managing Member of Hirzel Law, PLC and concentrates his practice on commercial litigation, community association law, condominium law, Fair Housing Act compliance, homeowners association and real estate law. Mr. Hirzel is a fellow in the College of Community Association Lawyers, a prestigious designation given to less than 175 attorneys in the country. He is also a member of the Community Associations Institute’s (“CAI”) National Board of Trustees. Mr. Hirzel has been a Michigan Super Lawyer’s Rising Star in Real Estate Law from 2013-2020, an award given to only 2.5% of the attorneys in Michigan each year. Mr. Hirzel has been named a Leading Lawyer in Condominium & HOA law by Leading Lawyers Magazine from 2018-2020, an award given to less than 5% of the attorneys in Michigan each year. He represents community associations, condominium associations, cooperatives, homeowners associations, property owners and property managers throughout Michigan. He may be reached at (248) 480-8758 or [email protected].