Tag: Alternative Dispute Resolution

What is Binding Mediation?

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.

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.