Mediation Case Law Updates

An Interesting Mediation Clause

In Hughes Socol Piers Resnick & Dym, Ltd. V. G3 Analytics, LLC, No. 18 C 2114 (N.D. Ill. Aug. 28, 2018), Judge Aspen affirmed an arbitration award where the parties’ contract contained the following alternative dispute resolution clause:

Any disputes relating to this Agreement . . . will be resolved by alternate dispute resolution. Alternative dispute resolution means that you and our Law Firms agree to submit all disputes to an independent mediator mutually agreed upon. . . .

In the event the parties are unable to resolve their disputes through mediation, the parties agree that the mediator shall require the parties to submit their disputes to an independent arbitrator selected by the mediator. The mediator will have the right to appoint himself as arbitrator in that proceeding. The parties shall be bound by the decision of the arbitrator and such decision shall be final and not subject to review except as to the issue of malfeasance or bias on the part of the arbitrator. (emphasis added)

The interesting part is the power given to the mediator to appoint an arbitrator, and even to appoint him or herself to this role. Having the mediator appoint the arbitrator would seem both wise and non-controversial as it would save the parties the hassle of going back and forth on lists of potential arbitrators. Giving the mediator the power to appoint him or herself as the arbitrator, however, while it would likely provide some additional incentive to settle during the mediation, might also cause the parties to be less candid with the mediator during the mediation, making a settlement more difficult. A most interesting and creative ADR clause!

Litigation Arising Out of Mediation

It’s unfortunate, but not surprising, and definitely ironic, that with the increased use of mediation, people will sue for conduct that occurred during a mediation. One recent example is Doe v. JAMS Inc., (2nd Cir. 2018), in which a partner in a prominent New York law firm sued for discrimination and retaliation and included an allegation that conduct by a representative of the defendant law firm during a mediation session constituted unlawful retaliation. Another recent example is Dauber v. Fargey, (D.Or. 2018), in which the plaintiff attended a mediation that failed, fired her lawyer, attended a second mediation with a new lawyer that succeeded, and then sued the first lawyer for malpractice, alleging that his failure to properly prepare for the first mediation caused unnecessary delay and expense in resolving her claim.

Both of these cases, however, illustrate the difficulty in bringing claims based on conduct in mediation, which is probably a good thing. Both decisions concern discovery disputes where the defendant asserted, with some success, that documents sought by the plaintiff were protected by the mediation privilege, which exists by statute in Illinois and most states. While the mediation privilege has limitations, it can often be a significant obstacle to presenting evidence of misconduct that allegedly took place in a mediation.

Sanctionable Bad Faith In A Court-Run Mediation

In Koehn v. Tobias, 866 F.3d 750 (7th Cir. 2017), the Seventh Circuit upheld the imposition of a monetary sanction against the defendants for conduct in a mediation, even though Defendants prevailed at trial. Here’s what happened:

Round One: In a mediation before the Magistrate Judge, Defendants made a final offer of $75,000. Plaintiff rejected that offer, so the case didn’t settle.

Round Two: In response to a question about the status of settlement in a teleconference with the Court, defense counsel stated that their last settlement offer was approximately $150,000 and that Plaintiff had rejected that. Plaintiff’s counsel said they’d never heard the $150,000 number and that, based on this new number, a second settlement conference might be productive.

Round Three: Based on that teleconference, a new mediation was scheduled before the Magistrate Judge. However, Defendants only offered approximately $75,000 at this new mediation, which Plaintiff declined, and the mediation did not produce a settlement.

Round Four: At the end of the case, after Defendants prevailed at trial, the court entered a monetary sanction against Defendants because they were aware that the $150,000 figure was the only reason for the second mediation. While the Court noted that Defendants were not obligated to offer any number in settlement, “by changing their position so drastically without any indication that they intended to do so, Defendants did not participate in the settlement conference in good faith.”

Sabotaging Mediation Constitutes “Unclean Hands”

The facts are a bit extreme, but the legal principle is quite interesting. While plaintiff and defendant were in the middle of a California-based no-holds-barred legal battle, plaintiff reported defendant to criminal authorities in Oregon, which led to the issuance of an arrest warrant in Oregon. The Oregon police, however, were reluctant to arrest the defendant in California.

When a court-ordered mediation was scheduled in the related bankruptcy pending in California, plaintiff’s counsel induced the Oregon authorities to have the defendant arrested during the mediation. Indeed, plaintiff’s counsel was texting the Oregon authorities, from the judge’s chambers, during the mediation, about defendant’s exact location.  When the defendant was arrested in the middle of the mediation, the judge conducting the mediation was furious because, as explained in Baek v. Halvorson (In re Halvorson) (Bankr.C.D.Cal., 2018), the plaintiff had no intention of actually mediating the case, but was rather was using the mediation as a means of having the defendant arrested.

Since bankruptcy is an equitable proceeding, the court held a trial on whether plaintiff’s conduct constituted unclean hands. The court set the following legal standard:

Although parties entering into mediation pursuant to a court order would seem to have relatively few duties, certainly one of those duties is to refrain from taking action that is expected or reasonably could be expected to cause the collapse of the mediation prior to its conclusion in the ordinary course (i.e., action that this Court has referred to as sabotaging the mediation). To phrase it differently, if a court orders parties into mediation, it is hardly a stretch to conclude that such parties incur an obligation to refrain from taking actions that ruin or reasonably could be expected to ruin the mediation.

Based on this, the court had little difficulty concluding that plaintiff acted with unclean hands by arranging the arrest of the defendant during the mediation. The court then struck virtually every claim plaintiff was pursuing in the bankruptcy.

This is obviously an unusual factual scenario, but the legal principle may have broader application: Acting in bad faith in a court ordered mediation can have serious substantive consequences in the litigation.

What Are the Best Techniques a Mediator Can Use?

A recent ABA task force did a comprehensive review of studies examining whether the following mediation techniques were helpful or harmful:

1. pressing or directive actions or approaches;
2. offering recommendations, suggestions, evaluations, or opinions;
3. eliciting disputants’ suggestions or solutions;
4. addressing disputants’ emotions, relationships, or hostility;
5. working to build rapport and trust, expressing empathy, structuring the agenda, or other “process” styles and actions;
6. using pre-mediation caucuses; and
7. using caucuses during mediation.

The conclusion, perhaps not surprisingly, is that all of these techniques, in the right case, case be helpful, but some can be harmful if not used appropriately, which reinforces what you probably already knew: Pick a skilled mediator who knows all the techniques and has the savvy to know when to use them.*

Do you have an opinion on whether any of the seven listed mediator techniques are helpful or harmful? If so, let me know, as I’d be delighted to hear from you.

* Here’s the full report: REPORT OF THE TASK FORCE ON RESEARCH ON MEDIATOR TECHNIQUES