Construction bill backers knock opponents for embracing arbitration in their own contracts

House construction

Backers of Republican-sponsored legislation to steer construction defects complaints into arbitration are crying foul because opponents require the dispute-resolution method in their own contracts.

An organization representing homeowner associations, however, says arbitration is fine in certain cases, but its spokeswoman maintains that forcing complicated construction disputes into arbitration — instead of guaranteeing the HOAs their day in court — is a “bad fit” for all concerned.

Builders say the threat of expensive, lengthy litigation over construction problems has all but shut down condominium construction in the state. Both parties — and the governor — have vowed to tackle the issue this session, but so far a handful of bipartisan solutions appear to be nibbling around the edges.

A Senate committee is scheduled Monday afternoon to consider legislation — Senate Bill 156, sponsored by state Sen. Owen Hill, R-Colorado Springs, and state Reps. Lori Saine, R-Firestone, and Cole Wist, R-Centennial — that would steer condominium construction complaints to mediation or arbitration before homeowners’ associations could file a lawsuit in court.

The bill also would require an HOA board to get approval from a majority of owners before filing a claim and give notice to owners about the potential costs, duration and financial impact of a claim.

A lawyer who belongs to a coalition supporting the approach calls it ironic and hypocritical that the very trial lawyers and homeowners’ associations opposed to the legislation agree to arbitration or mediation to resolve their own disputes.

“It just is bizarre,” Dennis Polk, a partner in Lakewood law firm Holly Albertson & Polk, told The Colorado Statesman.

“It’s very ironic that the plaintiffs’ lawyers are so opposed to arbitration in construction defects claims, but if they have a dispute with their own clients, they seek to arbitrate those type of disputes,” he said. “To me, that is hypocritical at best.”

Polk was referring to arbitration clauses appearing in contracts between HOAs and their attorneys in prominent construction defects lawsuits, including one scheduled for oral argument before the Colorado Supreme Court next week.

In fact, he contended, the Colorado Rules of Professional Conduct — basically, the handbook for practicing law in the state — encourage attorneys to resolve fee disputes by arbitration or mediation.

Polk defends builders and contractors in disputes over construction defects claims, he said, but the bulk of his time is spent representing professionals — including builders, engineers, doctors and lawyers — in disputes with their own insurance companies.

Suzanne Leff, the spokeswoman for the Community Associations Institute, a trade association representing homeowners’ associations, was having none of it, calling it an inaccurate comparison.

“Arbitration can serve as an effective means for resolving disputes between parties, including those related to fees between an attorney and client,” she told The Statesman. “But arbitration as a forced means for resolution of complex construction defect disputes does not make sense for many reasons.”

For one thing, Leff maintained, construction defects complaints are extremely complicated, involving numerous parties and detailed evidence, and that isn’t what arbitration is built to handle.

“In fact, arbitration costs more for the parties than court would, and, with arbitration, owners are denied a jury, a right to appeal, and the benefit of legal precedent,” she said, noting that those were only a few of her concerns.

“Add to this list the fact that developers often set the requirements for arbitration, including who will arbitrate, without input from owners or their common interest communities, and you can better understand how arbitration is a bad fit for homeowners and associations in the construction defect context,” she said.

Leff has already said her group opposes SB 156.

“We do not support Senate Bill 156, which would require homeowners to enter into forced binding arbitration and severely limit their access to the court system,” she told The Statesman earlier this month. “We put homeowners and their communities first, seeking to protect them from defects, and cannot agree to give up their rights to a fair trial as Senate Bill 156 requires.”

Earlier this month, the bipartisan Metro Mayors Caucus, representing 40 cities in the Denver area, threw its support behind SB 156. The Denver Metro Chamber of Commerce and a long list of business groups and affordable housing advocates are also backing the bill.

The bill is likely to make its way out of the GOP-controlled Senate, but its fate in the Democratic-controlled House is less certain. Last week, House Speaker Crisanta Duran, D-Denver, told The Statesman that she’s taking a wait-and-see approach to the legislation.

“Sen. Owen Hill’s bill is similar to prior efforts that have not made it through the legislature in the past,” Duran said. “I will continue to watch that bill and see what shape it takes if it reaches the House.”

For his part, Polk expressed skepticism that the opposing sides can come to agreement this session.

“I don’t think the Democratic leadership in the House is going to let there be a meaningful change that would help with construction defects claims,” he said, audibly sighing.

SB 156 is scheduled for hearing at 2 p.m. Monday before the Senate Business, Labor and Technology Committee.

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