On January 13, 2016, the United States District Court for the District of Columbia issued an order upholding an arbitration provision contained in the recorded Bylaws of Millennium Square Residential Association in NW Washington, DC.
In Millennium Square, Julio Ruiz argued that he had obtained necessary approvals from the Association before making certain modifications to his Unit. The Association disagreed, claiming Mr. Ruiz must return his Unit to its original condition. Mr. Ruiz filed for declaratory judgment.
Millennium Square was not an analysis about whether Mr. Ruiz or the Association was correct – the Court was simply asked to determine whether Mr. Ruiz must submit this dispute to
arbitration as required in the recorded Bylaws.
Although Mr. Ruiz acknowledged that the arbitration agreement (copied below) in the Bylaws appeared to require arbitration of this dispute, Mr. Ruiz contended that the arbitration procedures are so unfair as to be unconscionable, and thus the agreement cannot be enforced.
The arbitration agreement provided:
Arbitration. Arbitration pursuant to these Bylaws shall consist of the appointment of an independent arbitrator by the members of the Board of Directors who are Residential Unit owners, the appointment of a second independent arbitrator by the members of the Board of Directors who are Commercial Unit owners and the appointment of the third arbitrator by the two previously appointed arbitrators. These arbitrators shall be requested to reach a decision within thirty (30) days after their appointment. The cost of arbitration shall be paid by the losing party unless the arbitrators determine that the cost should be a Common Expense. If the arbitrators determine that the action of the Board of Directors, the Unit Owners Association, the Residential Executive Committee, the Residential Association, the Commercial Executive Committee or the Commercial Association violates the Condominium instruments or has so prejudiced a Unit owners’ [sic] interests, such action shall not be taken. (Emphasis added).
As shown above, the arbitration provision does not allow Mr. Ruiz to have input in the selection of any of the three required arbitrators – the Court agreed with Mr. Ruiz that the selection of arbitrators was unconscionable and unenforceable.
However, the D.C. Condominium Act specifically provides that “[a]ll provisions of the condominium instruments shall be deemed severable, and any unlawful provision thereof shall be void.”
Relying on this provision, the Court ultimately held that the unconscionability of the arbitrator-selection provision only the severance of that provision, not the invalidation of the entire agreement to arbitrate.
The decision in Millennium Square may provide condominium unit owners associations in the District greater flexibility for interpreting arbitration (and other provisions) that are grossly unfair, egregious, or unconscionable.
Because every set of recorded condominium instruments and every insurance policy are different, the application of law to each community association differs. As always, contact an experienced attorney for advice and counsel.