Issue link: http://read.dmtmag.com/i/755715
DECEMBER 2016 26 THE JOURNAL COMMUNITY LAW BY BILL DAHLIN Using Arbitration to Resolve Residential Landlord-Tenant Disputes For many years manufactured housing com- munities have been advised to utilize arbitration agreements. State courts, and sometimes even federal courts, have refused to enforce arbitra- tion agreements which are based upon state statutes. In contrast, much better success has been achieved in using arbitration agreements which are based upon the Federal Arbitration Act (FAA). An interesting matter that arose recently in California, however, illustrates the ongoing problems that can arise when utilizing arbitra- tion agreements that do not address certain foundational issues. In this example a mobilehome park (Park) resident filed a lawsuit against the Park management company and the Park owner alleging that an agreement for the pur- chase of the home- owner's home had been breached. The resident had signed a lease agreement that contained an arbitra- tion agreement based upon the Federal Arbitration Act. That same arbitration agreement called for the use of the Commercial Rules of the American Arbitration Association (AAA). The agreement did NOT require the AAA be the arbitration/dispute res- olution provider. The Park owner and the park's management company moved to compel arbitration. The pe- tition was granted. The arbitration process was commenced at the AAA. All seemed well. Not so. The AAA, as an entity, made a policy decision, that any and all disputes arising out of a residential landlord-tenant relationship must use the "consumer rules" of the AAA. The consumer rules have restrictions on who pays what for the arbitration process and also have restrictions on what attorneys fees may or may not be recoverable. Extensive correspon- dence between AAA and the attorneys in- volved on all sides, resulted in the AAA finding that it would not administer the arbitration without a court order requiring it to use the Commercial Rules set forth in the parties writ- ten agreement. Following the 25+ year trend in California courts the trial court concluded that arbitration would, therefore, not be required because AAA stated that it would not use its own Commercial Rules. There was no finding or discus- sion indicating how or why the Commercial Rules were unfair to a residential ten- ant. Rather, the trial court relied on the refusal of AAA to proceed as a basis for the court to decline to enforce the arbitration agreement under the FAA. What does all this mean? This author sees several issues for Park owners to consider. First, if your current arbitration agreements call for AAA to arbitrate that should be reconsidered. The foregoing example is illustrative of AAA's approach to disputes in the landlord-tenant set- ting that are not commercial in nature. Sec- ond, one way to address the issue is to select an arbitration provider that will utilize procedural rules that are neutral and not oriented towards one side or the other. AAA Consumer Rules, for example, tend to be oriented towards the consumer. This office, as a matter of policy, recommends that Park owners underwrite the initial out-of-pocket expense for any arbitration proceeding. That contractual provision helps eliminate one of the primary arguments raised by residential tenants against arbitration; the out-of-pocket cost to a homeowner can be seen as excessive. There are several nationwide dispute resolu- tion providers. This recent interaction with the AAA indicates why other dispute resolution providers should be utilized for arbitration pro- ceedings that are not 100% commercial in their content and focus. The U.S. Supreme Court has ruled consis- tently, for over 30 years, that arbitration under the FAA is favored. The approach of AAA, and a recent regulation adopted by federal reg- ulators are contrary to that legislation. For ex- ample, AAA has also indicated it will, per se, not arbitrate disputes between nursing homes and residents of nursing homes. AAA has con- cluded that such agreements are fundamentally unfair, regardless of the objective fairness of the language in such an agreement. Whether the approach of AAA in rejecting arbitration of res- idential landlord-tenant disputes will become generally accepted is unknown. However, at present, legislation to change the FAA seems unlikely. Bill Dahlin is a partner with the Southern Califor- nia law firm of HartKing and a leader in the firm's Manufactured Housing Industry Practice Group. He can be reached at (714) 432-8700, (714) 619-7084 (direct dial) or bdahlin@hartk- inglaw.com. This article is for general information purposes and is not intended to be and should not be taken as legal advice for any reader. An interesting matter that arose recently in California, however, il- lustrates the ongoing problems that can arise when utilizing arbitra- tion agreements that do not address certain foundational issues. T J