Tag: sanctions

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.