Orlofsky ADR Services

Contractually Required Mediation?

Contractually required mediation agreementIn a dispute arising out of two suppliers of Solyndra (the high-flying alternative energy company whose bankruptcy made headlines), the parties’ contract required that any dispute be submitted to non-binding mediation before a lawsuit could be filed. One party filed a lawsuit without mediating, arguing that mediation would be futile because the other party was on record as stating that it wouldn’t pay anything. The court nonetheless dismissed the case, ruling that the provision of the contract requiring mediation was enforceable, and therefore the parties had to mediate before a lawsuit could be filed. Mediation was not futile, the court noted, because parties frequently start out with extreme positions but then compromise during a mediation. A. Raymond Tinnerman Mfg., Inc. v. Tecstar Mfg. Co., 2012 WL 1191617 (E.D. Wisc. 2012).

So what is the benefit of a mandatory mediation provision?

If the other side doesn’t want to mediate, why force them? Consider, however, a scenario in which you suspect a lawyer is not being realistic with his or her client about the chances of success in a case, or a situation in which a client is not being realistic, but the lawyer is unwilling or unable to give the client a dose of reality. In both cases, a mediation enables a neutral third party to have direct contact with the client and potentially provide a more realistic view of the case.  A mandatory mediation provision also eliminates the problem where litigants want to talk about a settlement, but won’t raise the issue for fear of looking weak. If the mediation clause is built into the contract, it skirts this real or perceived problem.

Mandatory mediation provisions are rare, but they are worthy of greater consideration.  While the chances of success in a contractually-required mediation may be small, the upside, with a little luck, is a settlement without any litigation.

For more information, contact Jonah at (312) 566-0455 or jorlofsky@orlofskylaw.com.