Tag: mediation

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.

Court Rules That Binding Mediation Is Not The Same As Arbitration

ABA American Bar Association, Section of Litigation, Alternative Dispute Resolution

This article was also published by the American Bar Association’s Section of Litigation, Alternative Dispute Resolution Committee.

In Tirreno v. The Hartford, 2015 WL 8132972 (Conn.App. Dec. 15, 2015), the parties had agreed to resolve a dispute through binding mediation, by which they meant that the parties would first work with a jointly selected mediator to try to reach a settlement, but if no settlement were reached, the mediator would decide the claim and determine damages. These terms were agreed to orally and then memorialized in a series of emails between the parties. Pursuant to this agreement, the parties first attempted to reach a voluntary settlement but, when that failed, the mediator issued a written decision summarizing the mediation evidence and making a damage award. The Plaintiff refused to accept the damage award, however, and opposed Defendant’s motion to enforce it. The trial court granted the Defendant’s motion to enforce the mediator’s decision. Plaintiff appealed.

On appeal, Plaintiff reiterated its argument that the procedure the parties had used effectively was an arbitration, and that a Connecticut arbitration statute required any agreement to arbitrate to be reduced to writing. Plaintiff concluded that, inasmuch as the parties had never reduced their dispute resolution agreement to writing, the mediator lacked jurisdiction to decide the parties’ dispute. The appellate court had to decide whether the binding mediation procedure was the equivalent of arbitration and, if so, whether the mediator’s decision was enforceable.

The appellate court noted that there are no particular words required to form an agreement to arbitrate, but that there must be a clear manifestation of the parties’ intent to arbitrate. Here, the court found that the parties consistently referred to the submission of their case to a mediator who, if the parties could not reach a voluntary settlement, would take on the additional responsibility of assigning a final damages number. The only use of the word “arbitration” was by the mediator in the caption of his final decision. The court further noted that in emails between the parties, counsel stated that this method of dispute resolution would be “similar to arbitrating the case, but would not be as time-consuming and less expensive.” The court also found that the parties conduct was inconsistent with the proceeding being arbitration. For example, the Plaintiff complained that the proceeding was not a regular arbitration with each side presenting witnesses, and the defendant filed a motion to enforce a settlement, not a motion to confirm an arbitration award.

Based on all of this evidence, the appellate court concluded that there was no clear and direct manifestation of an intention to resolve their dispute through arbitration. Accordingly, the court ruled that the Connecticut arbitration statute was not applicable and confirmed the trial court’s decision to enforce the mediator’s decision as the parties’ settlement agreement.

Practice Pointers: This decision shows that binding mediation may be something quite different from an agreement to mediate plus an agreement to refer to arbitration any issues that the mediation does not resolve. Instead, when the parties give a mediator the authority to resolve any disputes not settled by the mediation, the resulting decision or award may be regarded by the court as a settlement agreement and enforced accordingly. As the Connecticut court stated in its final comment: “Our arbitration statutes may not be used as a sword to subvert a mutually agreed upon adjudication procedure or as a weapon of further court litigation.”

Extrinsic Evidence to Interpret a Mediated Settlement Agreement?

Mediated Settlement AgreementIn PNC Bank, N.A. v. Springboro Medical Arts (Ohio App. 2015), the parties concluded their mediation by signing a document that contained the “essential terms of the settlement.” The agreement further stated that counsel would later draft a settlement in “formal legal language” with such “additional documents” as were necessary. No formal document was drafted, however, and the defendant later contested the meaning of the mediation agreement.

The question before the court was whether it should consider extrinsic evidence in determining how to interpret the mediation agreement. The court decided that the mediation agreement was “fully integrated” and therefore no extrinsic evidence was permitted. The fact that the parties might later draft a more formal document did not mean the mediation agreement was not a binding contract that embodied a full meeting of the minds on all the essential terms.

What the parties did in this case – sign a written agreement at the end of the mediation, with the intent to later prepare a formal document – is very common, and very good, mediation practice. The court’s decision rightfully protects this practice from subsequent attempts to undermine the document signed at the end of the mediation. Buyer’s remorse, while not uncommon, should not be tolerated.

Make Sure Your Mediation Ends With A Signed Document

In Billhartz v. Billhartz, 2015 IL App (5th) 130580-U, the parties ended a mediation by reaching an agreement, which was reflected in a written memorandum of understanding, but which they did not sign. The Illinois Appellate Court ruled that there was no enforceable settlement agreement, overturning a trial court ruling that attempted to enforce the settlement based on the unsigned memorandum of understanding.

The issue was whether there was an enforceable oral settlement contract based on oral statements at the end of the mediation that the unsigned memorandum of understanding reflected what they had agreed to. The court ruled that there was no enforceable agreement two reasons. First, the court noted that the agreement to mediate provided that oral communications during the mediation would not be admissible for any purpose. Based on this, the court found that the parties only intended to enforce fully executed written agreements, not oral agreements. The court cited Illinois cases holding that oral agreements are not enforceable if the evidence shows that the parties intended execute a written agreement. Second, the court ruled that, from an evidentiary standpoint, it could not admit evidence that the parties orally agreed to a settlement because oral statements during a mediation are, under the Illinois Uniform Mediation Act, privileged and not admissible.

This case raises the question of what to do when the parties reach an agreement at the end of a mediation, but the complete document is too complex to prepare and execute at that time. My recommendation is that: (1) the parties sign a memorandum of understanding at the end of the mediation, and that (2) the memorandum of understanding should state that this document contains all the material terms of the settlement and constitutes a binding agreement, even though the parties intend to prepare and execute a formal settlement agreement.

Court Inquires Into Materials Exchanged During Mediation For Class Action Settlement Approval

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.

Confidential mediation statementsIn Ogbuehi v. Comcast of California/Colorado/Florida/Oregon, 2014 WL 4961109 (E.D.Cal. Oct. 2, 2014), the Court was asked to grant preliminary approval of a class action settlement reached through mediation before class certification. Preliminary approval of a class action settlement requires only that the court determine whether the proposed settlement is within a range of possible approval. Final approval — particularly before a class is formally certified — requires a more rigorous review and a determination as to whether the settlement is fair, reasonable, and adequate.

The Court granted the requested preliminary approval, but noted that it had reservations on whether it would grant final approval of the settlement. In order to make the required fairness determination, which included examining the settlement process for evidence of collusion or other conflicts of interest, the Court ruled that the parties would have to submit “more detailed evidence concerning the mediation and negotiation of the proposed settlement agreements.” The Court stated that it would need to “understand the nature of the negotiations” before making its final determination. Of particular concern were certain estimates of potential liability that were disclosed and discussed during the mediation. The Court therefore ordered the parties to submit “information exchanged during their private mediation including, but not limited to, mediations statements and any relevant communications during the parties’ negotiations.” Recognizing that such materials might be confidential, the Court permitted the parties to request that confidential materials be reviewed in camera.