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Are there consequences to turning down an offer in mediation?

ABA American Bar Association, Section of Litigation, Alternative Dispute ResolutionThis article was also published by the American Bar Association’s Section of Litigation, Alternative Dispute Resolution Committee.

Turn down mediation offerIn Fogh v. Los Angeles Film Schools, 2012 WL 6604709 (Cal.App. 2012), the plaintiff won a $13,972 judgment plus a statutory fee award of $96,800. On appeal, the defendant argued that the plaintiff should not get any fees incurred after counsel turned down a settlement offer of $20,600 made during a mediation. The defendant made the equitable argument that fees expended after turning this offer down were not reasonable because the ultimate award was for a lower amount than the settlement offer.

The trial court rejected defendant’s argument, and the appellate court affirmed, on two grounds: (1) all discussions that occurred during the mediation were privileged, so the settlement offer could not be considered for any purpose, and (2) it was reasonable for plaintiff to have turned down the settlement offer because the defendant had failed to provide any documentation supporting the amount of the offer. The court also noted that California had an offer of judgment procedure (similar to Federal Rule 68), but that the defendant had not used that procedure.

While one can see a defendant’s frustration with paying a substantial fee award when a plaintiff has turned down a settlement offer in excess of the ultimate judgment, had the court come out the other way, a chilling effect on mediation would be the likely effect. Counsel dependent upon a statutory fee award would have to think twice about entering into a mediation if there could be consequences on the ability to recover fees incurred after that date. Parties will generally agree to mediation only if the process is viewed as voluntary and with no downside other than the minimal time and expense of the mediation itself.