Binding mediation may sound like an oxymoron because the decision to settle in a mediation is supposed to be voluntary. Yet something called binding mediation is a growing alternative dispute resolution mechanism. The general concept is that the parties attempt to resolve their dispute with the assistance of a mediator, but if they are unable to do so, the mediator issues a final – and binding – award. The award can be similar to an arbitration decision in which someone wins and someone loses, or it can be a determination by the mediator of what a fair settlement is. As long as the parties have agreed to this procedure, the courts have uniformly upheld the results. E.g., Nike, Inc. v. Enter Play Sports, No. 3:14-cv-1104 (D.Or. 2016).
The key is that the parties must clearly agree to such a procedure. In Kern Health Systems v. Allied Management Group, 2016 WL 1650523 (Cal.Ct.App. 2nd Dist. 2016), the parties had a contract providing that, if a lawsuit arose out of the contract, the winning party was entitled to an award of fees by the court, but also that the parties must engage in “legally binding mediation” before filing litigation. The court ruled that, in these circumstances, legally binding mediation could not mean the mediator would issue a final determination, even though that is what it usually means, because to do so would negate the meaning of the rest of that clause, which provided that a court would award attorney’s fees. If the parties had actually agreed to legally binding mediation, by definition there would never be a court award of fees.
Should you consider binding mediation? In smaller cases, where the fees and expenses of litigation can quickly approach the amount at issue, this may be a fair and inexpensive way to resolve a dispute. Try to settle, but if you can’t, have a neutral third party determine a fair amount and be done with the matter.