The Colorado Supreme Court last month quietly let stand a Court of Appeals decision that homeowner associations cannot be forced into arbitration by builders and general contractors.
It's a huge victory for homeowner associations in Colorado, said Christopher Rhody, the attorney representing the Eagle Ridge Condominium Association in a lawsuit over construction defects.
There are an estimated 16,000 HOAs in Colorado, according to the Rocky Mountain chapter of the Community Associations Institute, an HOA trade group.
"This is an important victory for homeowners and homeowner associations," said Rhody, a partner with the law firm McKenzie, Rhody & Hearn. "What it does is allow them to have their day in court."
Rhody said Metropolitan Builders Inc., which constructed the 60-condominium project in the Grant Ranch subdivision in the southwest metro area, put binding arbitration language into the initial HOA bylaws before ground was broken. Those rules said any disputes between the builder and the HOA had to be resolved in binding arbitration.
But in 2002, when the HOA believed the condominiums had a variety of construction defects, the association voted to do away with the binding arbitration language, Rhody said. The contractor, however, argued the bylaws couldn't be changed without its permission, Rhody said.
"The association wanted to tell their story to a jury," Rhody said. "A jury of 12 is often a fairer form to hear their side than in front of a single arbitrator, who is usually chosen by the builder."
In addition, he argued it is "inherently unfair for builders to shield themselves from liability for shoddy construction before the houses are even built." He said the Court of Appeals' decision, which the Supreme Court let stand, "holds home builders responsible for their actions."
Alleged problems at Eagle Ridge were related to soil movement and water intrusion, Rhody said. Similar cases have resulted in settlements of more than $1 million, he said.
An executive at Metropolitan Homes couldn't be reached, and its law firm didn't return calls.
Roger Reinhardt, executive director of the Home Builders Association of Metropolitan Denver, on Monday said that while he isn't familiar with the facts of the Eagle Ridge case, in general he thinks arbitration is a better method for solving disputes than going to trial.
"This flies in the face of what responsible business people do," Reinhardt said. "Developers and builders try to provide for equitable relief for all sides. Binding arbitration is a logical, reasonable, economical and expeditious way of resolving disputes."
Rhody said that while he's won every battle so far, the case isn't over.
"We're back in district court where it all started," he said.