The Mediated Arbitration: Think Outside The Box The Next Time You Reach An Impasse During Mediation
Mark Zukowski | Jones, Skelton & Hochuli
Cases typically settle in mediation, because the parties can control the outcome and avoid the cost of further litigation. As appealing as that can be to both sides, it also results in some dissatisfaction, because the case is not decided on the merits. Sometimes cases do not settle at mediation. The next time you reach an impasse at mediation, don’t give up. The mediated arbitration may be an acceptable solution.
Recently, I mediated a significant construction defect case. While the defect at issue was apparent, the parties had differing views of what repairs, if any, were needed and the cost of those repairs. For reasons not known at the time, the building owner was highly motivated to complete repairs as soon as possible, even if it meant self-performing the repairs and later suing to recap the cost of the repairs.
At mediation, it quickly became evident a mediated settlement was not possible. While the owner had identified the defect, it had not offered a cost of repair. The contractor had not fully investigated the defect or cost of repair, not wanting to bid against itself, or set the floor for settlement to negotiations. The dreaded and usually fatal impasse.
Sensing the parties frustration of no settlement, I proposed what I called a mediated arbitration. After some initial resistance to trying something new, the parties embraced my suggestion and agreed on a way to resolve the case that would involve both principals of mediation and arbitration.
Instead of reaching an agreed amount to settle the case, the parties agreed to jointly retain a neutral expert who would be tasked with identifying a reasonable scope of repair. In this case, the parties agreed in advance to three possible repair options which the neutral would have the sole discretion to decide: no repair necessary, partial repair – but not replacement, or full blown replacement.
To address the uncertainty of the final cost of repairs determined to be necessary by the neutral expert, the parties also agreed in advance to a reasonable cost for each repair option. The parties also agreed in advance on who would perform and certify the repairs. Finally, the parties agreed to allocate the cost of the neutral expert based upon the final cost of the repairs.
The parties left the mediation with a final resolution of the case even though neither knew what the final settlement figure would be. In the context of mediation, the parties set the parameters for what amounted to being a binding arbitration award. In doing so, the parties avoided the usual cost of litigation (significant attorneys’ fee, expert fees, court costs, delay and no control over the outcome of the case).
Both parties appeared extremely happy with this unusual outcome. The building owner achieved the certainty of getting things fixed that truly needed fixing at no cost to the building owner and fixed much quicker. The contractor was happy knowing it would only pay a reasonable cost for the repairs needed, far less than what was claimed, while at the same time avoiding the inevitable attorneys’ fees, expert fees and cost of arbitration.
The next time you reach an impasse in mediation, think outside of the box. My example of what I referred to as a mediated arbitration is just one option to consider. With some creativity and open mindedness on the part of the parties and their attorneys, the options are endless.
The content of this article is intended to provide general information and as a guide to the subject matter only. Please contact an Advise & Consult, Inc. expert for advice on your specific circumstances.