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BINDING MEDIATION

DEFINING THE PROCESS

Binding mediation is a relatively new form of alternative dispute resolution.  It has finality similar to that of binding arbitration but first allows the Parties to work together, with the assistance of a trained, experienced and skilled mediator, to come to a settlement agreement that both parties should find to be fair and equitable.

The process begins with the standard procedures of a basic mediation; without pleadings, discovery, subpoenas and the other formalities that are common to binding arbitration or litigation.  The mediator has the freedom that mediation allows to the mediators; to talk to the Parties both collectively or privately as he/she deems to be appropriate.  At a point where the mediator and all of the Parties feel that they have come to agreement on as many issues as is possible through the mediation process, the mediator will assist the Parties in executing and signing a final Mediation Settlement Agreement (pdf) to cover the issues upon which the Parties have reached agreement.  If all issues have been successfully resolved, the binding mediation process will come to a close.  If there are unresolved issues, after that Mediation Settlement Agreement has been completed, the mediator may immediately render his/her decision on the remaining unresolved items or he/she may request a review of the facts and information available on the unresolved items before rendering a decision on how the unresolved items will be resolved.  The mediator may also request that he/she make a post-mediation jobsite visit prior to rendering a decision on the remaining unresolved issues.

The decisions of the mediator are written up on a separate Mediation Settlement Agreement and signed by the Parties.  Along with the other settlement agreement both Mediation Settlement Agreements are binding upon the Parties according to a Binding Mediation Agreement or a Binding Mediation Addendum that has been previously signed by the parties.  If one of the parties is unhappy with the decision of the mediator and neglects or refuses to sign the Mediation Settlement Agreement, the Mediation Settlement Agreement shall be binding upon both Parties as the Binding Mediation Agreement or Binding Mediation Addendum that the Parties previously signed, obligates the Parties to be bound by the decision(s) of the mediator.

Binding Mediation may be selected by the Parties through two different methods.  The standard method is to sign a “Binding Mediation Agreement” either prior to or after a dispute develops.  A second method is to sign a “Binding Mediation Addendum” which is usually utilized after a mediation agreement is in effect and the Parties mutually agree to submit the mediation to binding mediation assuring the Parties of a final and binding single process to settle their dispute.  It is not unusual to see a mediator have a Binding Mediation Addendum available at the end of a standard mediation in case the Parties are very close to a settlement at the end of the mediation and may elect to empower the mediator to render a final and binding decision so that they will not be required to go on the binding arbitration or litigation to arrive at a final and binding solution to their dispute.

A major advantage that binding mediation offers is that the Parties have the opportunity to directly participate in the binding mediation process from the beginning to the end of the binding mediation session.  In arbitration and litigation, the process is generally conducted by the party’s attorney and the Parties are only permitted to directly participate only when they are testifying or being cross examined by the opposing attorney.  Another advantage is that the parties, in binding mediation, may represent themselves and do not need the services of an attorney, although many people do utilize attorneys in the binding mediation process.

There is one small negative that can be seen in the binding mediation process.  Mediation is based on the premise that the Parties should be able to tell the mediator anything and share private and confidential information with the mediator as the mediator is sworn to secrecy and confidentiality.  If the Parties know that the mediator has been empowered with the responsibility of rendering a final and binding decision on the unresolved issues, the Parties may choose to hold back on certain information that they might have shared with the mediator, with the anticipation that the mediator may ultimately have the responsibility to issue the final decision on an issue.  As a result, the mediation process may not be as successful as it would have been if the Parties did share all information with the mediator.   A Binding Mediation Agreement or a Binding Mediation Addendum generally states “the mediator may have been given confidential, private and privileged information during the mediation sessions and his/her decision as a result of the binding mediation may be in some way due to that information”.   It is usually a small price to pay to assure the Parties that the binding mediation process will be a “final and binding” single process and the Parties will not have to continue on to arbitration or litigation to settle the unresolved issues at the end of the traditional mediation session. 

HOW AND WHERE BINDING MEDIATION IS UTILIZED

Binding Mediation is typically utilized on small dollar and simple, limited issue cases.  The construction industry is probably the largest user of binding mediation especially on residential and small commercial construction projects.  It is not only used between project owners and general contractors, it is also used to settle disputes between general contractors and subcontractors, general contractors and material suppliers, etc.  It offers a simplified, expeditious and inexpensive method of dispute resolution.  A construction dispute may cause a project to run behind schedule or even shut the project down, which can be very costly to both the owner and general contractor.  If the required binding mediation paperwork has been completed in the early stages of the construction project, the binding mediation process can be conducted almost overnight depending on the preparation necessary by the Parties.

It is not unusual for there to be multiple binding mediations on one project before it is completed.  If the Parties to the construction contract execute a General Contractor’s Fast track Agreement which specifies binding mediation as the ADR processes to settle disputes, most disputes that are minor in nature and some of the more involved disputes can be settled within a week or two of their development.  The longer a dispute festers, the more harmful it can be to the overall health and success of the project.  Binding mediation is also utilized by Dispute Review Boards on larger construction projects to settle the smaller and simpler construction disputes.

In the construction industry, material suppliers, service providers and other construction-related industries also utilize the binding mediation process as it is a fast and inexpensive method to settle the minor dollar disputes that occur during the construction process.   

Binding mediation was first utilized by the insurance industry to settle small dollar claims.  It can also be very effective in divorce and family matter cases where the mediator is trained in family matters and is capable of deciding what would be fair and equitable for the Parties.  The states of Connecticut and Michigan routinely utilize the binding mediation process to settle divorce and family disputes.  There are many other places where binding mediation may be used but are too numerous to list in this article.

BINDING MEDIATION RESOURCES

Information on the binding mediation process including examples of a Binding Mediation Addendum, Binding Mediation Agreement. Subcontractor’s Binding Mediation Agreement, and other related forms are available on the website of Construction Dispute Resolution Services, LLC www.constructiondisputes-cdrs.com.  You will also find suggested contract language to incorporate binding mediation into a contract on the same website.  A general explanation about the binding mediation process is available in the book “Arbitration Advocacy – Second Edition” written by John Cooley.

EXPERTISE AND SKILLS REQUIRED

If you decide to use the binding mediation process, be certain that the mediator has the technical and substantive knowledge to be able to render a fair and equitable decision if called upon to render that final and binding decision.  In selecting a binding mediator, you should exercise the same care and diligence as you would in selecting an arbitrator.  In addition to having the technical and substantive knowledge required, it is advisable to make certain that the binding mediator also have mediation skills and experience as the ultimate goal of the binding mediator is to have the Parties come to a full settlement that would not require the mediator to be required to render any final and binding decisions. 

BINDING MEDIATION LEGAL ISSUES

Although binding mediation has been utilized by the ADR industry for several years, there is always the question of whether the process will hold up if challenged in court.  As we all know, judges across the country differ on almost every question unless there is an established legal process stipulated in documents such as the Federal Arbitration act and the Uniform Arbitration Act.  As the final legal document that results from the binding mediation process is a Mediation Settlement Agreement, it is enforceable through contract law in a court of local jurisdiction.  Just in case there is a challenge to the Mediation Settlement Agreement, it is recommended that the decisions of the binding mediator be written on a separate Mediation Settlement Agreement so that if for some reason, the judge decides that the binding mediation process is “unconscionable” or the judge voids the decision of the binding mediator for some other reason, the main Mediation Settlement Agreements arrived at by the mutual consent of the Parties prior to the mediator rendering his/her decisions, shall be severable and will remain in force.  Similar challenges are continuously filed in relation to binding arbitration and class action binding arbitration.  Before using binding mediation, please check to see if binding mediation may be contrary to or in conflict with local or applicable law in the jurisdiction in which the binding mediation will be conducted.  As most judges realize that any two Parties may agree on any ADR process as long as they fully understood the process and its benefits and pitfalls, the binding mediation process should stand up to any legal challenges.

In October 2006, our CDRS Corporate Attorneys conducted a nationwide review of the binding mediation process and could not find any current instances where the binding mediation process was disallowed or overturned by any court as long as the binding mediation process was “clearly stated in the contract and are not otherwise prohibited by law”.  They further pointed out that “Courts in Connecticut and Michigan routinely use binding mediation in divorce proceedings”.  A copy of their legal opinion and a report specifying supportive case histories in support of the binding mediation process is available by contacting Construction Dispute Resolution Services, LLC.

SPECIAL CONSIDERATIONS

If you are a mediator, please consider the consequences of becoming a binding mediator.  You may provide regular mediation services for certain clients as per a contract or agreement or you may be well known in your area as an experienced and effective mediator.  As long as you do not render any final and binding decisions, you are almost above reproach as you serve as a mediator and should be able to continue to render your mediation services in the future.  If you begin to do binding mediations for that same client, and you do not find in favor of that Party, you might run the risk of loosing their repeat mediation business.  If your regular client feels that they should have been the “Prevailing Party” in the binding mediation and you find in favor of the other Party, your regular client will be upset with your decision and may subsequently decide to not utilize your mediation services in the future.  Arbitrators usually follow the rule “Don’t arbitrate in your own backyard”.  There is usually far more business in the mediation field than there is in the arbitration field.  Don’t sacrifice your established mediation business by doing a binding mediation unless the binding mediation is being requested by new and unknown clients or is located outside of your normal business area.

As a binding mediator, you are also subject to the same neutrality and independence that is required of an arbitrator.  Any prior relationships or any reasons that “might be perceived” as a conflict of interest or that may affect your ability to remain neutral or to render a final and binding decision based on your neutrality, must be disclosed to both of the Parties.  This requirement to disclose is a continuous obligation of the mediator throughout the entire binding mediation process.  A Mediator’s Disclosure Statement should be executed and submitted to both Parties for their approval for you to continue on as the binding mediator.  A copy of the Mediator’s Disclosure Statement is located on the same CDRS website referenced to earlier in this article.  

OVERVIEW AND SUMMARY

Binding mediation can be an efficient, expeditious and inexpensive ADR process.  According to the Rand Corporation, the average time for a construction case to go through the court processes, including appeals, is more than two years, depending on the venue of the case and other particulars. It is advantageous to avoid the litigation process and opt in favor of an efficient, final and binding ADR process such as binding mediation.  CDRS believes that Binding Mediation is the fastest, simplest, least expensive and most efficient single ADR process that offers a final and binding resolution to a dispute.