by Bryant H.
Every so often, a client will call for advice and begin by
saying, "I've been in business for 20 years and have never had
a problem like this with an owner." It frequently means my
client is headed toward mediation.
Mediation is a method of alternative dispute resolution (ADR)
in which a neutral third party, experienced in mediation,
guides the disputing parties toward a mutually agreeable
solution. Simply put, the contractor and homeowner sit down
with a professional mediator who tries to help them settle
Mediation should not be confused with arbitration, which is
another form of ADR. Whereas the award in arbitration is
imposed from above (as in a civil lawsuit), the solution in
mediation is freely negotiated by the parties
Nine out of 10 mediations are successful; people
don't come to the negotiating table unless they really
want to wrap things up.
How Disputes Play Out
Construction disputes frequently progress through a series of
stages. At first, the contractor and customer might talk and
try to settle the issue themselves. But if that doesn't work,
the next step can be mediation. If the mediation fails, the
matter usually goes on to binding arbitration or
Binding arbitration is essentially the use of a private judge
(see "What Happens When You Go to Arbitration?" Legal, 10/04).
Litigation is a civil lawsuit with attorneys, a judge, and
sometimes a jury. Mediation requires only a mediator, and
although attorneys may be present, they play a less significant
role than they do in litigation and arbitration.
It's best to avoid litigation and arbitration altogether,
because they're risky and expensive. The goal of mediation is
to settle the dispute before it escalates into an all-out war
requiring that level of intervention.
Initiating a Mediation
Mediation is voluntary; though favored by courts, there is no
law requiring it. The contractor and the homeowner begin the
mediation process either because they want to or because they
signed a construction contract that requires it.
Contractual requirement. The contract
my clients use contains a clause that spells out how disputes
will be settled (see sample clause). Mediation is the first
step. Both parties initial the page that contains the clause to
indicate that they will mediate any disputes and, if that
fails, forgo their right to litigate and instead submit their
claims to binding arbitration.
When the author writes contracts, he
typically includes a section spelling out how disputes will be
settled. The first step is mediation. The clause above explains
how the mediation will be initiated; subsequent clauses deal
with what happens if it fails.
When one side says no. If, in spite
of the contract, members of one party end up balking at
mediation, a judge may compel them to participate; after all,
they signed a contract agreeing to do so. But, practically
speaking, there is usually no point trying to mediate a
solution when the people on one side are so entrenched they
must be compelled to attend.
Who Is the Mediator?
The mediator is a neutral third party. Anyone can become one,
but many mediators are retired judges or former trial attorneys
who practiced construction law.
Finding a mediator. There are
several ways to find a mediator. Courts encourage mediation
because it reduces the number of cases they have to try. Thus,
they often have lists or panels of mediators people can call.
Likewise, local bar associations and organizations such as the
American Arbitration Association (www.adr.org) can provide lists of mediators
If you go to mediation, be sure to get a mediator who has
construction-industry experience. In most cases, the parties to
the dispute can agree on which mediator to use, but in the
event of a true deadlock, the court will select one for
Cost of mediation. Although
mediation is less expensive than arbitration or litigation, it
isn't free. The parties to the dispute typically split the cost
of the mediator and any associated fees. If the parties choose
to hire attorneys, they have to pay them, too. Most mediators
charge the same hourly rate as private attorneys.
What the Mediator Does
Once you have a mediator, he or she will take over the
procedural aspects of the process, such as where and when to
meet. I prefer to have the mediation at a neutral site where
several rooms are available. This allows for the common
practice of putting the parties in separate rooms while
negotiations are under way.
Discovery. Before the mediation
begins, the parties to the dispute usually prepare and exchange
briefs. In litigation, this stage of the process is called
"discovery" and includes expensive and time-consuming
procedures like depositions and interrogatories. To reduce
costs and speed the process, the rules of mediation severely
limit the amount of discovery.
At the Mediation
The mediation session usually starts with a "joint session,"
during which the parties, counsel, and mediator gather in one
room and the mediator goes over the rules. This is the first
time he meets the parties, and this is when he begins to get a
sense of the personalities involved.
Negotiations. At the conclusion of
this initial joint meeting — which can be very brief
— the parties, along with their attorneys, go into
separate rooms and the mediator shuttles back and forth for
private meetings with each. The mediator gives the members of
each side a frank appraisal of their case, detailing its
strengths, its weaknesses, and — should it proceed to
arbitration or litigation — its risks. The mediator also
suggests ways to settle the dispute. Unless the parties agree
otherwise, the discussions are completely confidential.
These back-and-forth discussions and negotiations take time,
so it's a good idea to bring a book to read or something to
work on during the stretches of waiting. The proceedings can be
tiring and emotionally draining, too, as the parties are often
confronted with things they don't want to hear. (As bad as this
sounds, though, it's still probably better than the
alternatives — arbitration and litigation.)
Settlement. The mediator's job is to facilitate
resolution, and if he is successful, the settlement is written
up and signed by the parties at the mediation. The settlement
agreement is a contract; if one party does not comply, the
courts will readily enforce it.
Prospects for Success
I have seen statistics indicating that nine out of 10
construction mediations are successful. In my experience, that
number seems about right. People don't come to the negotiating
table unless they really want to wrap things up.
What is success? If you participate
in mediation, you will not get everything you want. The best
you can expect is to get maybe 90 percent of your claim, and
very frequently you'll have to settle for less —
sometimes much less. But at least you will staunch the
bleeding, so to speak, and ending the dispute will allow you to
concentrate once again on running your business.
A Real-Life Example
One of my contractor clients recently entered mediation with a
customer who owed him $60,000 on a $400,000 remodeling job. The
workmanship was excellent, but my client was not very prompt
about submitting the final bill, and when he did, the customers
refused to pay.
Tempers flared, talks broke down, and soon both sides hired
attorneys. We still couldn't break the deadlock, so, with fees
mounting, the parties agreed to an early mediation.
I attended the mediation, and it was clear to me that the
customers were rabid and out for blood. One spouse had gone so
far as to contact multiple past clients of my contractor to
construct some kind of conspiracy theory.
The mediator, contractor, and I agreed that our side held the
legal high ground, but that practically speaking the time and
cost to prevail in court would be out of proportion to what my
client would collect. In the end, the contractor agreed to
settle for less than the entire amount.
Do You Need an Attorney?
An attorney is not required for mediation, but if the case is
complicated, I advise at least consulting one. (And if the
other side hires an attorney, then you should definitely retain
one.) He or she can explain the procedures ahead of time and
advise you on tactics and strategy.
Also, most mediators ask for a premediation brief or statement
so that they come to the mediation well-informed of the issues.
While you could write this statement without the aid of an
attorney, you should at minimum talk with one, because a brief
that informs and persuades is worth its weight in gold.
Attorneys play a limited role during the mediation. They are
there not so much to advocate as to inform, clarify, and
advise. The really good mediators will often push counsel into
the background for much of the proceeding. When the mediator
says, "Mr. Byrnes is an excellent attorney, but ...." I know I
am being asked to step back and shut up.
A Worthwhile Investment
Mediation is never a waste of time. Even if it fails, you will
gain something by getting the mediator's objective read on the
strengths and weaknesses of your case. Should the case go on to
binding arbitration or litigation, much of the prep work will
already be done.Bryant H. Byrnes has a
law practice in Oakland, Calif., that specializes in