A Means To Obtain An Early Resolution of A Construction Dispute
By William C. Last, Jr.
In excess of ninety percent of all lawsuits are settled before a trial is commenced. In light of that statistic and the ever increasing cost of litigation it is in the best interest of all parties to a construction dispute to resolve their dispute as promptly as possible.
There are a number of alternative dispute resolution forums. The two most widely accepted mechanisms for resolving disputes outside a courtroom are arbitration and mediation. While arbitration involves submitting a dispute to a neutral third party arbitrator for a binding decision, mediation is a voluntary, non-binding process. The remainder of this article will discuss the mediation process.
1. What is Mediation and Why Should I Agree to Mediate A Dispute?
Mediation is an informal, yet defined, non-binding process, whereby parties to a dispute work with a neutral third party mediator to reach a voluntary resolution of their dispute. The goal is for the parties to reach a mutually agreeable resolution of the dispute. Arbitration, on the other hand, results in a binding enforceable award.
While you are not required to have an attorney present during the mediation session, the majority of mediations occur with the parties being represented by attorneys. From the author's perspective, the presence of your attorney during the mediation session is conducive to a successful outcome to the mediation.
If a settlement cannot be reached at the conclusion of the mediation, the parties to the dispute should leave the mediation in no better or worse legal position then when they went into the mediation session. However, after preparing for and attending the mediation session, the parties leave with a better understanding of each parties arguments. Such an understanding may be advantageous to both sides to a dispute when they later prepare to arbitrate or litigate the dispute. But such information would, in all likelihood, also be gained during the discovery litigation process.
Under California law, any statements or admissions made during the mediation session are not admissible into evidence. Furthermore, any documents prepared for and submitted during the mediation process are not admissible evidence. Obviously, the parties to the mediation can mutually agree that a written document (e.g. a settlement agreement) can be admissible evidence. There are a number of California statutes that address the admissibility of statements made during the mediation.
It should be noted that many construction contracts include clauses requiring mediation as a prerequisite to instituting a legal action or arbitration. Mediation is also required, by statute, for certain public works projects. The parties to a lawsuit may also be ordered by the court to mediate the dispute. Although mediation may be required, the outcome of the mediation session is still voluntary.
The primary advantage of mediation is that it is non-binding. The parties, through the efforts of the mediator, control the outcome of the mediation. It is becoming increasingly common for a mediation session to occur early in the litigation process before significant legal fees and costs are incurred. As a result, there can be savings if the dispute is resolved during the mediation session.
If the matter is not resolved during the mediation session, the parties will have spent money paying for the mediator and for their attorney to prepare for and attend the session. Normally, the mediator's fees are split equally between the parties. However, the cost of preparing for a mediation is usually less than the cost of an arbitration session or trial.
2. What is the role of the mediator?
The mediator is typically an individual who has taken courses related to the mediation process and is selected because of his or her knowledge of the industry. Most mediators are attorneys or retired judges. In advance of the mediation, the mediator should disclose any conflicts of interest that may impact his neutrality. Since mediation is a voluntary process, the selection of a mediator is typically mutually agreed upon by all parties to the mediation.
There are associations that have lists of mediators and act as the intermediary to schedule the mediation sessions. The mediators are paid on an hourly or flat fee basis. The charges are subject to agreement with the mediator.
The mediator's role is to facilitate the parties' settlement negotiations. While the mediator may challenge the contentions that are the basis of your position, the mediator will not do so when the other side is present or voice his opinion as to the merits of your case to the other side. Furthermore, any confidential statements that are made to the mediator will be disclosed to the other side.
3. What Occurs During the Mediation Session?
The mediation process is flexible and can be varied to suit the parties' requests. However, most mediations follow common procedures.
Once the mediator is selected and a date set for the mediation, the mediators will ask for mediation briefs and key documents be delivered days in advance of the actual mediation session. The parties can agree to exchange the briefs with each other or agree that only the mediator receives them.
On the day of the mediation session, all the parties will meet together in a conference room. The mediator will ask that all parties sign a confidentiality agreement. After the mediator explains the mediation process, the mediator may ask factual questions of each party or ask that each party make a brief presentation of their respective positions and contentions.
Once the joint session is concluded, the parties will be disbursed to separate rooms for private and confidential caucuses with the mediator. During the caucuses the mediator will solicit your settlement demands and discuss the nature of your case in greater detail. The mediator may reconvene a joint session if he or she believes it will be useful to discuss factual issues.
The mediator is free to determine the number of private and joint sessions with parties. If one party decides that the mediation process is not working, that party is free to leave and thereby end the mediation process.
At some point the mediator will reach a settlement or conclude, after discussions with the parties, that a settlement cannot be reached. At which point, the settlement will be reduced to writing or the parties, having failed to reach a settlement, will end the session. If a settlement is not reached, the litigation or arbitration process will continue.
4. What Preparation Occurs Before The Mediation Session?
As stated, the parties usually submit a mediation brief to the mediator that sets forth their factual and legal contentions. Key documents should be identified and delivered to the mediator in advance of the mediation session. The parties to the mediation should be prepared to discuss, in detail, the specific facts upon which your case is based.
In addition, each party to the mediation should carefully review the positive and negative aspects of their contentions. A similar analysis should be made of the other party's case. Such reviews could include a formal written risk-benefit analysis, lost opportunities analysis, business losses analysis, litigation risk analysis and a money present value analysis. The time and effort spent on such written analysis will depend on the nature and amount of the dispute.
An assessment of the costs associated with trying the matter to conclusion should be made. You should also consider any other factors that will impact you if the matter is actually tried. Those factors could include the expenditure of your time preparing for trial and the actual trial. If you are the plaintiff, an assessment of your ability to recover a successful judgment should also be made.
It is not uncommon for mediations to result in unique settlements. Thus, alternative settlement ideas should be explored.
Finally, a negotiation strategy plan should also be explored. While elements of a negotiation plan can be as detailed as you believe necessary, you should include: (a) what your objectives are for the mediation; (b) determining what the issues are and each parties position;
(c) a determination of each parties needs and interests; (d) the negotiation climate (e.g., antagonistic, ethical, close-minded); (e) negotiation tactics; and (f) how and when to close the negotiations. That strategy could include what settlement offers to open the private session with and what concessions to make.
5. What Happens If A Settlement is Reached?
As stated, if a settlement is reached it will be reduced to a written document and signed by all the parties to the agreement. If there is a pending lawsuit and the parties enter into a written settlement agreement, the court, pursuant to a motion by one of the parties to the agreement, may enter a judgment in that matter pursuant to the terms of the written settlement agreement. Such a judgment would then be enforceable in the same manner as any other judgment.
Mediation is an effective means for resolving a dispute. Generally, it is best to mediate the dispute after the parties have a firm understanding of each side's contentions. The selection of a mediator is based on a number of considerations. Those considerations include industry experience and mediation experience.
The outcome of the mediation will, to a large extent, depend on the willingness of the parties to honestly assess their respective positions and make an informed business decision.
This article, ©2002, was written by William C. Last, Jr. Mr. Last is an attorney who has been specializing in Construction Law for over 20 years.. In addition to belonging to a number of construction trade associations, Mr. Last holds a California "A" and "B" license. He can be contacted at 415-764-1990 or 650-425-7679. A number of his past articles can be found on his website (lhfconstructlaw.com). This bulletin is published periodically to provide general information about current legal issues. The articles are not intended to be a substitute for the advice of an attorney as to a specific problem. If you have a specific legal question or need legal advice, you should contact an attorney.