Posts Tagged ‘binding mediation’

Mediation Message No. 122

MICHAEL D. MARCUS’S MEDIATION MESSAGE NO. 122

BINDING MEDIATION

Binding mediation is a procedure in which a mediator, if the mediation is not successful, can become an arbitrator. It can occur in two ways: the parties select the neutral beforehand to mediate the dispute and, if the dispute is not resolved, agree that the neutral can render a final and binding award. Alternatively, the parties may choose, after the mediation process has broken down, to have the neutral issue an award.

The benefits of binding mediation are that mediators have more leverage than usual during the mediation phase because they will be making the final decision if a settlement is not arrived at. Binding mediation is also less costly and more expeditious than a subsequent, full-blown arbitration because the mediator, and now arbitrator, has heard much of the background facts and legal argument. For that reason, this process is more appropriate for the less complex matter. Binding arbitration also allows for partial settlement of some claims at mediation with arbitration being utilized for unresolved disputes. For example, the parties can agree on liability at mediation but use the second phase to decide damages. The parties can also design the procedure of the binding mediation. In Bowers v. Lucia (2012) 206 Cal.App.4th 724, an agreement allowing the mediator to choose the low offer of $100,000 or the high demand of $5 million (known as baseball arbitration), without any additional evidence, was upheld as mutually agreed upon and sufficiently certain. (Id. at p. 736.) On the other hand, the parties can be more exacting and require that any phase after unsuccessful settlement efforts shall include, inter alia, sworn testimony, cross-examination, the right to object to evidence and the opportunity to provide rebuttal evidence and final argument.

There are also several drawbacks to binding mediation. Mediators, if they know from the beginning that arbitration is an alternative, may be more inhibited or less involved in the mediation process because they do not want to reveal their inclinations or thinking. For the same reasons, the parties may be less likely to participate fully in the mediation. Binding mediation, as contrasted with a more formal arbitration, also has fewer safeguards – generally, few if any witnesses are sworn or testify; cross-examination, if it exists at all, is probably perfunctory and there is no opportunity to object to inadmissible evidence.

Regardless, of the nature of the binding mediation agreement, whether it be very general as in Bowers v. Lucia or much more specific, the parties must also waive in writing any conflict that may (and probably will) exist by allowing the mediator-arbitrators to rely on ex parte communications and inadmissible evidence for their final and binding award. (See Rule of Court 3.857, subd. (g) providing that mediators who, with the consent of the parties, shall arbitrate a matter which has not settled, should have the parties consent in writing to that process.)

Judge Michael D. Marcus (Ret.)
ADR Services, Inc.
1900 Avenue of the Stars, Suite 250
Los Angeles, California 90067
(310) 201-0010

Copyright Michael D. Marcus, May 2016

Mediation Message No. 84

MICHAEL D. MARCUS’S MEDIATION MESSAGE NO. 84

BINDING MEDIATION

You might have heard of binding mediation in which a neutral, by agreement of the parties, makes a binding determination regarding the dispute when mediation has been unsuccessful. You might even have thought about it. This Mediation Message, prompted by Bowers v. Lucia Companies (2012) 206 Cal.App.4th 724, which sanctions the use of binding mediation, recommendsthat before the mediation part of the process begins, the mediator-arbitrator should provide conflict disclosures to the parties and that the parties should also waive any conflicts of interest that the mediator-arbitrator might have. Inexplicably, Bowers did not discuss these requirements.

Bowers affirmed a judgment arising out of binding mediation because it found there was substantial evidence to support the trial court’s determination that both parties had agreed to the procedure; the binding mediation provision in the underlying settlement agreement was not uncertain and that binding mediation is not a constitutionally or statutorily prohibited means of waiving jury trial rights where, as therein, the parties had agreed to settle their dispute in a non-judicial forum.

Although Bowers found the concept of binding mediation to be “paradoxical,” it noted that the procedure is recognized in collective bargaining and marital dissolution situations and, according to one commentator, is “more flexible than arbitration because the mediator can request more information, documentation or discussion and the parties and their counsel can more actively participate in the process.” (Id. at p. 735.) In contrast, the earlier case of Lindsay v. Lewandowski (2006) 139 Cal.App.4th 1618, which held that a binding mediation agreement could not be enforced because the parties had never specifically agreed to the procedure, mused about the significant problems inherent in binding mediation, including the lack of recognized rules governing the process, but found it inappropriate to discuss those issues because the matter could be resolved by simply finding the underlying agreement to be uncertain. (Id. at pp. 1628-1629.)

Unlike Lindsay, Bowers failed to discuss the potential conflicts of interest that exist in binding mediation and to find that statutes and Rules of Court address that issue. Consider that opposing parties must be careful about proceeding from mediation to arbitration with the same neutral because the mediator who becomes an arbitrator may have been compromised by hearing inadmissible argument. Accordingly, if parties wish to have a mediator arbitrate their case, they should consent in writing to that process. (Rule of Court 3.857, subdivision (g).) Before that waiver, the neutral must inform the parties about the consequences of revealing information in the mediation that might be used for decision making in the arbitration phase and also give the parties the opportunity to select another neutral for that stage. (Id.) Also, if the parties have consented to binding mediation, the mediator must clearly inform them when the transition from mediation to arbitration is occurring. (Id.) Finally, since binding mediation involves a process that may turn into an arbitration, the mediator-arbitrator, before beginning the mediation, should disclose the many circumstances that could cause a person aware of those facts to reasonably entertain a doubt that the proposed neutral arbitrator could be impartial. (See Code of Civil Procedure sections 1281.9 and 170.1 and Standard 7 of the California Rules of Court, Appendix, Division VI, Ethics Standards for Neutral Arbitrators in Contractual Arbitrations.)

Thus, Bowers must be followed with caution. Binding mediation may be an appropriate remedy to settle a case but, before initiating that process, the parties should require the agreed-upon neutral to disclose all potential conflicts and make sure that they, themselves, have waived the potential conflict that a mediator, and about to be arbitrator, might be influenced by all sorts of admissible and non-admissible argument that he or she heard in separate mediation caucuses. The better process is to avoid all of these problems by never having the same person mediate and arbitrate a matter.

Judge Michael D. Marcus (Ret.)

ADR Services, Inc.

1900 Avenue of the Stars, Suite 250

Los Angeles, California 90067

(310) 201-0010

Copyright Michael D. Marcus, February 2013

Please visit my website at www.marcusmediation.com for information about my mediation and arbitration background and experience. Copies of my previous Mediation Messages and Arbitration Insights are available by going to the articles link on the website.