Tag: bad faith

Another Look At What Constitutes Bad Faith In Mediation

Because a party can never be forced to settle, courts struggle with what constitutes “bad faith” in mediation.  In Lea v. PNC Bank, No. 15-776 (W.D. Pa. 2016), after the court ordered mediation, Defendant’s counsel told Plaintiff’s counsel that the mediation would be more productive if Plaintiff made a demand before the session. Plaintiff complied, but Defendant did not respond with a counter-offer before the mediation. Even at the mediation, no counter-offer was conveyed to Plaintiff. While defendant apparently proposed a counter-offer in a private caucus with the mediator, the mediator determined that relaying that offer to Plaintiff would not be productive, presumably because it was so far from Plaintiff’s demand.

Having attended a mediation at which it did not even receive an offer, Plaintiff moved for sanctions. The court agreed that Defendant had violated a local rule requiring the parties attending a mediation to act in good faith, which meant avoiding a waste of time and resources. The court ruled that “after counsel for Defendant recognized the Plaintiff’s demand was well beyond an amount to which his client might be agreeable, he had a duty to reach out to the Plaintiff’s counsel to discuss the issue.” The court did not, however, award attorneys’ fees, but rather only the half of the mediator’s fee that Plaintiff had paid.

While one can understand the frustration of the Court and Plaintiff, there is a problem with the court’s decision because it assumes that the parties or the mediator can determine, based on pre-mediation offers, that a settlement is not possible. Most mediations start with a large gap between the parties, but it is only during the mediation session that one finds out if these positions are firm or not. For this reason, other courts have taken a purely procedural approach to determining bad faith, under which if a party shows up to a mediation, and has full authority to settle, there is never bad faith, regardless of the settlement position taken by that party.

What Is Bad Faith In A Mediation?

bad faith authority to settle mediation

In Holly v. UPS Supple Chain Solutions, Inc., 2015 WL 4776904 (W.D.Ken. 2015), the parties agreed to mediate a case before a federal magistrate. The court’s Settlement Conference Order stated that “each party must attend through a person who is fully authorized to approve a settlement and has the power to change the party’s settlement posture during the court of the conference.” The court awarded attorneys’ fees to the plaintiff as a sanction for defendant’s bad faith at the ensuing settlement conference because the defendant failed to send an appropriately empowered representative.

Defendant’s representative stated that she had met with a team of people before the mediation and that they determined a maximum value for plaintiff’s claim. She further stated that she had full authority to settle for that maximum value and even had some “wiggle” room to go above it. The court ruled that it was fine to set a value on a case, and also fine to have a settlement amount in mind, but sending a representative who effectively lacked authority to exceed a pre-determined settlement amount violated the requirement to send someone “fully authorized.” The policy concern underlying this is that mediations sometimes change a party’s view of the value of a case, but if the representative is not authorized to go above a pre-determined amount, there is no chance of changing that party’s assessment.

This issue does not arise in private mediations unless the parties agree to a requirement to send someone with full authority. However, most courts have requirements similar to the one at issue here. One Northern District of Illinois Magistrate, for example, requires someone with full settlement authority, defined as “the authority to negotiate and agree to a binding settlement agreement at any level up to the settlement demand of the opposing party.” Parties should therefore be aware that in a mediation under a court’s auspices they should send someone with at least theoretically unlimited authority, even if that person does not intend to go above a certain amount.

 

Mediator’s Reports

Mediator's ReportsThere are an increasing number of reported cases in which the parties end up fighting about what occurred in a mediation. These disputes include whether a settlement was reached, what the terms of the settlement were, and whether one party acted in bad faith. It is logical in such situations to turn to the neutral mediator for a report on the relevant facts. In Illinois, however, the Uniform Mediation Act (710 ILCS 35/7) prohibits a mediator from providing a report on anything other than certain specified subjects, principally whether the mediation occurred or has terminated, whether a settlement was reached, and attendance. The mediator is not allowed to report on the content of the mediation. Although a report beyond these boundaries would likely be permitted if agreed to by all parties, in a contested situation, the mediator is severely restricted from providing a report on what took place.

An example of the impact of this on litigation is the recent case of Knowles v. Community Loans of America, Inc., 2012 WL 5868622 (S.D. Ala. 2012), where a trial court dismissed a claim because of a failure of the plaintiff to negotiate in good faith in a court-ordered mediation. The dismissal was based in part on a mediator’s report that described the plaintiff’s failure to provide requested information on several occasions. The appellate court found the dismissal an abuse of discretion for several reasons, one of which was that the court could not, under the Uniform Mediation Act, consider this kind of report from a mediator.

Note that this ruling is specifically based on the Uniform Mediation Act, which has been adopted in Illinois and about 10 other states. In addition, in an adopting state such as Illinois, there is an interesting question as to whether the Uniform Mediation Act applies in federal litigation. This would seem to turn on whether the statute was considered procedural or substantive under the Erie v. Tompkins doctrine.