 I'm Richard Emory, one of the hosts for Kondo Insider on Think Tech Hawaii. Today we're going to have an exciting show talking about one of my favorite topics, dispute resolution. But before I do that, I do want to give you a little one minute update on the legislature for 2021. As you know, we started out with about 30 bills. We're down to about seven left. Most of them have been defeated, particularly the ones that the industry thought were not in our favor. And we'll address this a little bit today and some of my topics of dispute resolution because when they passed the changes to the law and dispute resolution last year, 2020, those two laws deleted the sunset date on some of the things I'm talking about. So everything I'm talking about is current and valid and you're looking at the old law and it talks about a sunset date, they no longer exist in the process here. But let me tell you, as I think you all know, I do a lot of expert witness work on litigation in the industry. Let me tell you why this is particularly important dispute resolution with owners and others because it's going to affect your pocket book. I'm an expert on a case where in fact that particular association had numerous claims by owners against it for minor things in some cases more significant another, but they had a lot of claim. In this particular association, prior to these claims that were paying about $2,700 a year in their director and lobster liability insurance. There are so many claims that the insurance company declined to renew the policy, forcing the association to go to the standard market, you know, that's a standard market the outside the standard market. There are premiums went from $2,700 a year to $29,000 a year. You can imagine what a $22,000 a year increase does to the maintenance fee. You know, it's depending on the size of your association. If in fact you are 100 units, that's $2,200 a unit, it can raise the maintenance fees $150 a month. If you don't look at disputes with homeowners, seriously, and look at the options you have many of them don't cost you any money that you in fact are putting yourself in risk because Hawaii has one of the highest director and officer liability claims ratios in the United States, if not the highest. In fact, it's been difficult to get insurance carriers to continue to write the insurance even though it's required by statute. And so you have all these off market insurance companies coming in and maybe you're willing to pay $29,000 a year for insurance, but it's going to only get worse so we don't find ways to resolve problems among ourselves within our community. So, let's get kind of right into some of the meat of that knife. I'm going to talk about another case that I was involved in didn't result litigation or claim, but it's kind of the poster child for what goes wrong. And, and owners wanted to see a copy of a contract that the association recently entered into. The association immediately said, I'm sorry that's private business we're not going to give it to you, ignoring the fact that the condit of statute says the owners are entitled to all contract. So then what the board said when they learned that they're wrong that they had to give that to them. They said we're not going to give it to you until you give us a notarized statement that you're only going to use it for yourself. That's an interesting thing because the statute does provide you can ask for a notarized statement. But as soon as you do that you're sending a message to the owner we'll have something to hide. If it's so simple as a copy of the contract and you know they're going to get it anyway. Why would you throw all these roadblocks why wouldn't you just say closes a copy of the contract or closes a copy of the ministry requested. I'm going to engage with them in the, in the issues are more complex I can understand the notarized statement, but what kind of message are you really being transparent as a board. If in fact they hadn't learned of their obligations that accepted the managing agents advice. And then another claim because as soon as the claim is submitted for mediation or lawsuit, the managing agent turns into the insurance agent who gives it to the insurance company who appoints a defense, which rises your claim claim ratio. For all of you to use some common sense that you are elected officials of your members and barring some extraordinary circumstance. What you want to do is be transparent and make it somewhat easy for owners to get the things that they're entitled to by law. I can tell you clearly from example, there's been owners who say things that they are not entitled to, for example, I've had owners come to me and say, I want a copy of the bank statement. That may have electronic information, certainly your account number on it, and you would want to redact that information but the law doesn't require you to give them the bank statement. That owners kind of means that I want the signature cards when you open the bank account. Well, the law doesn't say you have to give the signature cards and certainly the signatures in this world of scanning and duplicating and fraud, probably not a good idea to give the signature cards. So you can have people who are asking for reasonable things but if in fact an owner is asking for something they're entitled to under the statute or something there's no harm to the association. Why not just make it easy and give it to them and avoid the claim? And if you're in a dispute over what they can have or not have, why not invite them to a board meeting and talk to them and treat them as adults, and not with a traffic cop mentality as I call it. And try to talk through it with them before it becomes a claim and believe me, I've been in this business 26 years. I understand that there are people out there no matter what you say are going to have an adverse view and it still costs trouble but we can minimize the total number of claims that's going to affect your pocketbook. The first thing I want to just remind you of is that associations are based on the principle of self-governance. You look at the approximately 1800 associations in the state of Hawaii and you look at the summer agricultural summer senior living summer residential summer high rise summer low rise. But none of these governing documents are the same. And the issues within that association will vary quite a bit, particularly based on the age of the project or older projects have more maintenance issues than newer projects do differently, not always true, but differently. So the legislature and putting together all the laws with regard to that rely on self-governance by a board based on the governing documents of the association. So I have another case aware of where an owner. The board has some issues with the decks leaking and the shape of the condo makes the deck the roof of the guy below us. It's shaped like stairs. So they have leaky decks. And so the board went through and they got an engineer. They got manufacturers to come out and spec the property. And the board came out with an affordable economic solution. No assessment, all three paid for by reserve. However, one owner said, I don't like the solution. And so I'm not going to do it, even though everybody else is going to do it. And he says I'm going to do my own solution. And I'll just indemnify the board. Well, you know, if the roof leaks, it doesn't affect him and affects the guy below him. So the board has said no, no, no, no, we have the authority. We made the decision. And you have to do it. And that person owner said no and follow the lawsuit saying we don't have to do it. Well, you know, it's still a litigation. So I don't know the results, although I know that they made a summary judgment to say that their interpretation of the governing documents is right. Not, not the board's interpretation, nor its attorney's interpretation. And the judge to the summary judgment out. And then there are other things requested from that owner refused to comply and, and they meanwhile got a judgment against them for all the legal fees across the date on certain aspects of the case, because they didn't want to disclose their strategy and what they had and why they felt their product was better than the board's product. To me, this is nuts. You know, if you have a board that's elected they've got architects and engineers and lawyers and they're saying this is the fix. Then in fact, you kind of have to go along with it because the association is paying for out of reserves. In this case, no specialist that's what they had the money. And if there's a problem who's responsible the board, if you do your own thing, you're not going to be protected by that but it goes back to self governance most judges rely on the fact that they depend on the boards to do what's proper right in this case. It was interesting and that particular association it has had an annual meeting, and this came up and the owners that we had approximately 80% or 82% there by quorum 18% didn't send in proxies are doing so they made a motion to affirm the board's decision to do this product is fixed. And now the vote was 100% in favor of the fix the board selected, except for one owner I bet you can guess which one that was. But the problem is that all this lawsuit all this stuff is being defended at great cost by the insurance company, who I'm sure will take it into consideration when they're, when they're, when their premiums come up next year. I can don't know that but I was suspected from experience. So the question is why can't people sit down and talk. And it's, I'm going to tell you right now not everybody's going to agree and people get hard head. But the reality of it is too many times I see boards treat that like we're elected you're just an owner and we're not going to deal with it. Sometimes you're painting a coli but you've been elected to deal with the pain and the coli's beside the wonderful upstanding always correct right people like me, who never makes a mistake that mistake I made with 1972 I think my wife pointed that out. I'm only joking of course, but let's look at what the options are after the break. I'm going to take you through the free options you have. If you can't get it done among your styles, the free options you have to deal with disputes. So we're going to be right back after the break. Hi, Richard Emory your host today on condo insider talking about dispute resolution. And I first half was lecturing everybody about. Come on, can we all get along together you know and can we talk and I don't explain this without becoming combative. And I explained to you the risks of the insurance so let's talk about what your options are. We deal with a couple of them very quickly, because they're very rarely used anymore but they're in the statute. One of them is what we call facilitated mediation, where you can go for 50 bucks a person and have a mediator try to help you resolve the dispute usually at the attorney or trained professional. Under facilitated mediation, the rules are mediator can't take a position. And so I was trying to get too hard heads to agree and they never agree and, and so you try to mediation and it didn't work. The second is called non binding arbitration. It's kind of a paradox of words because everybody looks at arbitration to usually binding instead of going to court. But what happens in non binding arbitration under the statute which is under our condo statute. You can have all the rules of arbitration go and get a buy opinion. But if either side doesn't like the written opinion at the end of all this and spending all this money and all these rules of conduct, like a court case. If one side doesn't like it. You've got to go back to square one. And certainly there's some rules that if you don't prevail by a certain percentage and the next time around, you may be liable for the other side's legal fees. It's kind of like why spend all the money to do this. If you're going to get a final resolution. So let me say the third thing which is the last option would be litigation to and spend all the money with parties. I'll tell you the two things you can do that are affordable. They should work. They provide solutions. And they get fast result. The first one I already told you about have own talk story session next session with the owner and try to resolve it in some reasonable way. I would tell you probably half the cases I see should be able to resolve if you just treat people with respect and talk story with them and accept your duty responsibilities of board member to do this. Well, the other one which is very popular has a very high success rate is called evaluates of mediation. I do under the statute act 196. As I told you earlier if you read it and saw a sunset date of June 30 last year, that was removed by the legislature so if you don't have the most current copy of force by 14b you might get confused. The value of mediation is highly successful. And you know what evaluates of mediation is you go to one of the couple agencies approved for this, and they have retired judges. And under evaluative mediation that retired judge can take the gloves off and tell you what he really thinks his job is like a settlement conference judge to drive you to a solution. So he's not embarrassed to say to an owner. That's the dumbest thing I've ever heard. If I was a judge I'd make you pay all his legal fees, you're not going to win this matter. If we can say to the board, you better give them the contract the statute says, and if you don't give them the contract and I was a judge, I'd make you pay all his legal fee. So the these judges are very, very adept at driving solutions and settlement, recognizing again if you have hard heads or may not, or was unreasonable with their asking for, they may not be able to get it. So how do you get a value of the mediation. Well, you go to the real estate website and they'll give you the name of the providers who offer but the number one provider in Honolulu is the dispute, the dispute prevention Resolution 8 BPR is called. And they have a huge group of retired judges. They do other things beside condo work obviously. And what they'll do is you fill out a page about the size of one side of an eight and a half 11 sheet of paper. And you say, I want to have resolution on this matter to put your name the association. What's your matter is and you sign it. And then you know what they do is they contact the board, it was managing agency, we have a mediation request under the condo statute. They reach a fiduciary duty for the board not to go to this mediation. So if in fact they wouldn't go, you can file in court to make them go and you'd be entitled by statute to get your legal fees back. But you know what everybody goes because all the lawyers tell them you don't go this is what's going to happen. And then as you follow your, your, your demand, DPR in this case goes and talks to the managing agent, it can be vice versa, the managing agent or the association can file a claim against an owner. So it works both ways. And what happens in that dispute, they then go ahead and they set up a mediator whoever both sides have to agree to, and then they give you a chance to put more detail and documents and writing to the mediator. The last for this is each side pays one half of the mediator mediators first hour. So if the mediator charges $350, which is typical, then in fact, each side would pay one time 175 bucks. And where does the rest of the payment come from it comes from the real estate commission trust fund that in fact, we pay our associations pay the number of units into a fund that has about a million and a half dollars in it to handle education and mediation stuff. The rest of the cost is borne by the real estate education trust fund which includes this Now, there is a cap on that, if I remember correctly, it's $9,000. But then the mediator has to write if he's close to settlement can go back to the real estate commission and say, I would like another 5000 or 1000 or wherever maybe to wrap this up. I'm close. So it seems to me when on the simple disputes that for 175 bucks each side and if you're bored thinking about this way. Are you doing your fiduciary duty for your owners by avoiding thousands of dollars illegal fees, or risk of increasing your insurance premiums because you have too many claims. So it seems to me for 175 bucks is mediation. You're not obligated to agree at the end of the day but you have a professional retired judge skilled at this, trying to bring a resolution to this problem. I do want to footnote this when the law was put in under the same program, you can agree voluntarily to make it binding arbitration if you don't want to do mediation. So you would have a binding and final results. Risk you know for some associations they don't like to the boards themselves the directors don't like to deal with this. They want their lawyer to deal with it for them. Well if they are a lawyer to go to the mediation then they have to pay the legal fees related to the lawyer, you know with regard to this matter so. But I would tell you I track all this because every month the real estate commission puts out a Bolton, and they list all the cases that are filed, and whether they were resolved or not. And you know what happens, close to 70 80% are being resolved through this evaluative mediation, but I track it further to see how many end up in lawsuit. And you know what, I haven't found any end up in the loss, because a owner who doesn't like the results and doesn't want to admit he was wrong. You know I have risk because the judge told me that I'm going to have to pay off his cost. I'm just going to ignore it and forget it ever happened. It's weird as that may sound that actually what happens. Very few of these end up in litigation after they get a skilled legal professional to try to measure this. And there are times by the way and you know the most common claim I can tell you right now is on insurance proceeds and how much he is so stand up pay and how much the owner had to pay in his unit. Those things more times and not the dialogue with the media value of this retired judge the mediator. A resolution is reaching a compromise is reaching an understanding is reached, and the problem goes away. Well, the kind of message I have to all of you is that you as the board and you as the owner have a great deal with how this is going to affect your association as neighbors, which are costs are for director and your ability to get it. And they're actually going to go through of not liking each other for months or years while you fight this out, do some other mechanism within the law like litigation to resolve that. I would submit to you this my opinion has always been my opinion that the first thing to do is try to get into an executive session invite the owner, or try to go to the board select and talk to him private, all very legal, and try to resolve the matter. You know, another common mediation request I see is, is the issues of paying legal fees and late fees with regard to an interest with regard to delicacy. That's not so simple anymore as far as notice requirements or whatever. And I've seen many cases settle where the owner agrees to pay the legal fees, but the association waste part of the fines, and the owner agrees that if he does it again and all the fines are kind of put in suspense for a year. And the old clients will come back and they did it again same with house rule violations. So, it's just ways to deal with dispute resolution keep yourself as a happy harmonious community, and get through these things with with with the least amount of angst as possible. For whatever reason, I still see case after case after case filed, where people choose to get really angry to go hire a lawyer and, and some lawyers who want I guess the income and the fees. File the lawsuits and you've already started down this expensive road is hard to get out of where I would hope that the board to realize and I would hope managing agents would be saying, these things come up. You know, let's talk about evaluative mediation what the choices are. There's no harm no foul if you don't like the results of the value of mediation. Well, I'm not going to agree we're not going to do it. And then someone's got to choose whether you file a lawsuit or, or if you follow also usually ends up in binding arbitration and everybody spends thousands of dollars and the associations that defend it. The insurance company, who may not charge you for the lawyer they're not going to pay for your, your claims if you were wrong if there's some kind of financial damage, but they'll pay to defend you. And so what happens at the end of the day they look at how many claims you've had they say well you know what I can pay out $20,000 in claims and attorney's fees and only taken $2,000 and director and also liability insurance. To some reason if you only have one claim over a long period of time they'll do that because the weight of the pool not having claims makes it a profitable enterprise. We know in Hawaii that you know insurance is not profitable today, and we're fighting the battle of heavily rising premiums, and we're fighting the battle of everybody being upset with each other, and not doing it. So I guess in summary as we get to the end of the show our last two minutes, I would just again to remind you that under act 186 under the current law, you have a very simple inexpensive way to deal with disputes even complex disputes are worth a chance to try to resolve this without having to go through the very expensive issue. And for boards or owners to take their own drawn line in the sand drawn position. It's not helpful to anybody, and certainly not helpful to the community at large because my prediction and the predictions I've seen are that that this cost of going to go up dramatically. So on that note, I'm on principle Kauai today it's beautiful here, no rain which is a blessing. And we're going to wrap up the show and we're going to thank you for joining us on condo insider. email me if you have specific questions about this, but we're going to thank you for joining the show. We're on every Thursday at 3pm, trying to help the community in the association world, be a better community. So thank you for joining us today. And again I'll remind you make a donation to think tech Hawaii as we're all suffering after this coven. This is a great service to our community.