Can’t we all just get along? Mediation and settlement of the construction lawsuit (Law & Order: Hard Hat files Part 7)

meeting around tableToday, part 7 of our series on the Construction Lawsuit, Law & Order: Hard Hat files.

At some point during the lawsuit (usually, but not always, after expert reports are produced), your lawyer may tell you the case is going to mediation.  In fact, in North Carolina, all Superior Court cases are ordered into mediation, though the timing is usually left to the lawyers.

What is mediation?

Quite simply, mediation is a process in which the parties, their insurance representatives, and their lawyers get together to discuss trying to settle the case.  The process is usually fairly informal, fast, and, often effective.

How is mediation different from arbitration?

In arbitration, you present your case to a one or three person “panel” of arbitrators.  Witnesses are sworn in, evidence is presented, and, ultimately, the arbitrator(s) decide who wins, who loses, and what amount of damages should be paid.

In mediation, however, there is no “decision maker,” and the only way your case will be resolved is if you agree to having it resolved.  In other words, you have much more control over the outcome.

Technically, how does a mediation work?

Mediations are all unique, but in general, most start out with a “general session” in a large conference room in which all parties (lawyer, parties to the lawsuit, and insurance reps) are present.  The mediator, usually another lawyer who is not involved in the case, will present opening remarks, explaining that he/she is not there to decide anything, the ground rules for the day, and how he handles confidential information.

Then, the mediator asks each lawyer to state his case.  The party who brought the lawsuit always goes first, and they state how the project started, why they sued, and why they believe they are entitled to damages.  This can range from a 5 minute speech from their lawyer to a full-blown 2 hour multi-media (read: powerpoint) presentation, including remarks from retained experts.  I’ve seen both, and everything in between.

Following the plaintiff’s presentation, the other parties will be asked to state their case (i.e., their defense, and any counterclaims), and why they believe they will prevail at trial.

After all of the lawyers have had their say, the mediator will generally allow any parties to speak if they wish to.  Discuss this with your lawyer ahead of time, but the default is to simply bite your tongue, keep your mouth shut, and wait until “private session” to have your say.  No architect or engineer ever made things better by arguing during the opening general session.

What are these “private sessions” of mediation all about?

After the opening session, the mediator will divide the parties into different conference rooms.  Sometimes, parties whose interests are closely aligned may be in the same room, at least for part of the day.  For example, if an architect and his engineer are united in their defense, they may want to spend part of the private sessions together.

The mediator will then practice “shuttle diplomacy”.  That is, the mediator will talk with each party privately, playing devil’s advocate, discussing case outcomes, and, ultimately, passing offers to settle back and forth among the parties.

How do the offers of settlement work?

The settlement offers are highly case-dependent, and can vary throughout the day depending on how the mediator likes to work and how much leeway the attorneys give him.  Usually, he starts with the plaintiffs to find out what amount of money, short of the full amount claimed, they would accept to walk away from the lawsuit.

Then, the mediator talks with the defendants (and third party defendants) about how much money they would be willing to pay to be done with the risks and unknowns of a jury trial.   Conditional, confidential, and other offers are sometimes employed.  If they are, the mediator will discuss the process with you at that time.

Why should I pay money?  My design was good and I haven’t done anything wrong!

At some point during the day, you will end up saying this.  It will seem extremely unfair that you are being asked to pay (or have your insurer pay on your behalf) for someone else’s problem or mix-up.  However, ultimately you will have to make a business decision about how much time and effort your Firm wants to spend on taking the case to a jury.  If the case settles, you free up the time you would otherwise spend in depositions, meeting with your lawyer, talking to experts, and reviewing documents.  Depending on the scope of the project and the lawsuit, this could be hundreds of man-hours.  Further, at the end of the day, you end up risking bad publicity and an adverse judgment that will affect either your bottom line or your insurance premium.

Are you saying I have to settle?

No, absolutely not.  Sometimes, the plaintiff has such a crazy demand, that you are better off taking the case to a jury.  Other times, the evidence is so much in your favor that it doesn’t make sense to settle.  Usually, however, the case is more nuanced, and so you need to discuss the evidence, and your chance of a successful verdict, with your lawyer on a case by case basis.

My case was “impassed” at mediation.  What does this mean?

If the mediator concludes that the parties are too far apart to settle, at some point he will declare an impasse.  If this happens, everyone shakes hands and goes home.

What happens next is that the lawyers may continue to talk over the next month or so to see if there is any chance at all for settlement, and at the same time begin or continue their preparations for a trial.  Just because a case impasses at mediation, doesn’t mean it can’t or won’t settle.

Cases can settle right up and through trial, until the jury comes back with a verdict.  Obviously, the sooner a case settles the better, as you will have spent less time and money on trial preparation.  However, do not give up all hope of settlement simply because of a mediation impasse.  (After all, Lennie Briscoe never gave up, did he?!).

Your turn.  Have you been part of a mediation?  Tell me about your experiences, good and bad.  And, if you haven’t already, be sure to sign up for email updates of blog posts directly to your inbox.  The sign-up box is on the top right hand side of the homepage.

Photo (c) cobrasoft

Add a comment »4 comments to this article

  1. Our company has an expert witness practice and started in construction, specializing in historic restoration and repairing structural, critter, and water damage.

    A few years ago, after renovating a bath room, the owner called a year after completion (one-year warranty in NJ) to say that they were seeing stains on the dining room ceiling below their new bath room. We had used Schluter Systems’ products, specifically to reduce the risk of leaking. I used a digital inspection camera to look through a one inch hole, but was unable to confirm the source of the leak or whether it was ours. From inside the bath room, there were no signs of damaged tile or grout. I paid to have the ceiling repaired and repainted, and offered, according to our contract to completely replace the tile work. When the client wanted me to pay someone else to do the work, I told them that doing so was outside the terms of our agreement, but that I would ask my insurance agent. As suspected, the policy would not cover such a claim. I reiterated my offer to comply fully with our contract, but they chose to invoke the ADR clause in our contract. During the arbitration, they lambasted me, even accusing me of “pulling the wings off butterflies.” Ouch! I explained the elusive nature of water leaks, the precautions that I had taken, and that since I had been unable to confirm the source of the leak, I remained ready to honor the terms of our agreement that covered warranty work. The arbitrator, in my view cavalierly, awarded the owner several thousand dollars. In a nutshell, I ignored the award, saying, if they can throw out a legally compliant, honorable, equitable agreement, I absolve myself of duty to abide by the kangaroo court’s ruling. The ADR clause immediately came out of our contracts, in favor of litigation.

    They never perfected their complaint or received damages, but this was a huge hassle. As Ms. Brumback has cited, there must be a cost-benefit analysis in any dispute. The bottom line was that ignoring the ruling was most cost-effective, and that I should have retained counsel. Ms. Brumback may probably have other comments about this anecdote.

    Reply

    • Wayne:
      Wow! What a war story. If you’ve read some of my comments on arbitration on this blog, you will know that the “split the baby” and other concerns with arbitration can be very significant. Sounds like you had a single panel arbitration? A 3 person panel can stop the “rogue arbitrator” situation, though it costs more money of course. Mediation, unlike arbitration, is consensus based only. In otherwords, while a court might order you to attempt to mediate in good faith, at the end of the day, no one can force you to pay $ if you do not want to do so. You can have your day in court.

      Reply

  2. As a retired general contractor and consultant,I have always tried to work things out when disputes or claims were developing. Mediation works when both parties are amenable to resolving their differences. This same process can take place prior to considering any dispute resolution techniques, if the participants to the disagreement are of a like mind- “Let’s settle this, I’l give a little,you give a little and then we move on.” The collaborative nature of the A.I.A.’s recent Integrated Project Delivery (IPD) contracts and some ConsensusDOCs ™ agreements recognize that working together is a worthwhile endeavor. When owner’s recognize the advantages of bringing a contractor on board during the design development stage, many of the problems the surface after contract documents are prepared will be minimal- and using Building Information Modeling (BIM) furthers reduces many of the problems relating to coordination and conflicts between components ,hopefully further reducing the need to mediation,arbitration or litigation.

    Reply

    • Sidney:
      Thanks for your comments. From what I’ve seen of BIM, it does look like it has the potential to save conflicts down the road by resolving things up front, when it is cheapest to do so.

      Reply

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