Tag Archives: arbitration

With Construction, Compromise is Always an Option (guest post)

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Chris Hill, attorney, construction law.

Chris Hill, attorney, construction law.

Today, we have a guest post from one of our favorite  Virginia lawyers- Chris Hill. 

As always, he knocks it out of the park with another worthy post explaining why biting the bullet and settling your claim sometimes is the way to go. 

Here is Chris’s official bio:  Christopher G. Hill, LEED AP is Virginia Supreme Court certified mediator, construction lawyer and owner of the Richmond, VA firm, The Law Office of Christopher G. Hill, PC.  Chris authors the Construction Law Musings blog where he discusses legal and policy issues relevant to construction professionals.  His practice concentrates on mechanic’s liens, contract review and consulting, occupational safety issues (VOSH and OSHA), and risk management for construction professionals. 

Without further adieu, take it away Chris!

As always, thanks to Melissa for letting a Blue Devil invade her blog. I always enjoy the opportunity. Now, on with the post.

I know, you read a title like this and your first thought is “I’ll never have to compromise, if I get into trouble, I’ll be in the right!” You followed your friendly construction attorney’s advice, drafted a great contract (using a “belt and suspenders” approach) and do good work! What could possibly go wrong?

Well, among other things: 1. An owner may not pay the general contractor that you subcontracted to, 2. Weather could cause delays beyond your control, or 3. (yes, I’ll say it here) the architect may not like your work and what you did with his or her masterpiece of design. [Editor’s note: architectural plans exist for a reason, people!]. These three were just off the top of my head. Given that “Murphy was an optimist,” there are many other things totally beyond your control as a construction pro that can and likely will go wrong. The question is how to make the best of that bad situation.

Lets skip the easy points and head straight for the title of the post. You’ve already done all you can to “fix” the situation: increased manpower, shuffled your workforce, and gotten the work done as soon as possible. The party that should be paying you has decided not to do so. You decide that you need to do something besides beg for your money.

At this point you have a couple of options (not mutually exclusive): Mediation or Litigation/Arbitration. The second option is the “nuclear” option and to be used as a last resort. Remember, this is a zero sum game with no winners once the lawyers start filing papers. You will spend money that you didn’t plan to spend and take focus away from your business.

The first option is where you compromise. While you may not get the result that you may get by going to the mat in litigation, namely a judgment for everything that you would have gotten had you been paid in full, mediation has its advantages.

What are they? 1. The big one is control. With litigation or arbitration, you are turning your fate (and possibly the fate of your business) over to a third party. In mediation, you get some control and get to creatively determine the best way to solve the problem. 2. After anywhere from a few hours to a day, the dispute is resolved. Compare this to the several months to several years of litigation and you see where this would help. 3. It cuts off the attorney fee spigot much sooner than the alternative. While I as a construction attorney don’t mind being paid, you can’t run a business profitably with a monthly legal bill.

While a compromise is never the ideal, it is in most cases far better than the alternative.

Thanks, Chris!  It is a tough message to hear when you are in the thick of battle, proving that you are right, but the economic realities should always be considered before starting down the long path toward a court trial. 

Now it is your turn.  Have you settled or mediated a claim purely to put the economic pain of litigation to rest?  Do you regret that decision, or feel it was for the best?  Share in the comment section below.

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

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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?!).

Next in our series:  getting out of court on a dispositive motion (aka, asking the judge to dismiss the case against you).

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. 

5 Reasons Why You Need Arbitration for a Construction Dispute (Guest Post)

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Today we welcome another guest author to the blog– Jonathan Newby.  Jonathan is in the brokerage business, and runs a website relating to brokerage fees.  Thanks Jonathan for your sharing your thoughts today.

5 signArbitration may be a better alternative to some construction disputes, assuming that you use a qualified and skilled arbitrator or arbitration panel.  Here are five benefits for using arbitration over litigation:

  1. Arbitration means that the decision maker is an experienced industry professional instead of a lay jury.
  2. Arbitration can provide better protection for your assets by minimizing your risk of large losses sometimes seen with jury verdicts.
  3. Arbitration can provide flexibility in scheduling, versus court where you are told when and where to show up without much room to negotiate.
  4. Arbitration can put an end to your case faster.  The time taken by an arbitrator is usually less than that to get a case to court to resolve a construction dispute.
  5. Arbitration costs can be much less when compared to the one charged during any other legal process like litigation.

These are five reasons why arbitration may be better for your construction dispute, so consider using an arbitration provision in your next construction contract.

Editor’s Note:  As I’ve previously noted, there are pros and cons to arbitration in lieu of trial.  The better venue is in part based on the type and size of contract, as well as numerous other subjective considerations.  Discuss whether arbitration is appropriate for you with your construction law attorney.

Thoughts, comments, or questions?  Drop Jonathan or me a note in the comments section, below. 

Photo (c) freefoto.com.

 

 

Arbitrators are not King Solomon?

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whoa signAfter my recent post on the pros and cons of court vs. arbitration, I was contacted by the American Arbitration Association (AAA).    They told me that, contrary to what is a widely held belief about panels “splitting the baby,” their internal studies actually show that is not, in fact, the case.   The summary of their findings is worth reading.

Now, I don’t know the particulars of their study protocol, and AAA is certainly not a disinterested party, but the numbers are impressive.  Perhaps AAA arbitration panels, at least, are not King Solomon.

Do you have a AAA arbitration experience?  Share it in the comments below.

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Photo “whoa” by stgermh via Flickr/Creative Commons license.

Should I stay or should I go now? (Court vs. Arbitration)- Updated

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gavelShould I stay or should I go now?
If I go there will be trouble
And if I stay it will be double
So come on and let me know!

Are you wondering whether Court or Arbitration should be made a standard part of your construction contracts?  With apologies in advance to The Clash, there is “trouble” to be found in either venue.

Some companies, and their lawyers, insist that American Aribtration Association (AAA) Arbitration is the only way to go.  Others prefer to take their chances in a local state court.  Who is right?  Neither, and both.  As with anything, there is a cost-benefit analysis that you should go through prior to making either a standard part of your construction contract.

Pluses and Minuses of Going to Court

If a dispute is brought in court, there is a standard, fully vetted set of statutes, case law, court rules, and procedures already in place.  A judge, unlike the typical arbitration panel, is generally more willing to consider defenses based on statue, such as the statute of limitations or the statute of repose.  Summary Judgment, in which a judge will (on occasion) grant a judgment for or against  a party without the necessity of the full blown jury trial, is possible.  Such dispositive, procedural rulings are extremely unlikely to be granted by an arbitration panel.

On the other hand, a court trial means a jury verdict.  Unless the parties agree to waive their right to a jury trial, your case will be decided by true laymen who may have never set foot on a construction site before, and who will not understand the RFI, change order, and pay app process.  Terms like “substantial completion,” “critical path,” and “standard of care” will be foreign to them.

I’ve seen some juries get it right, and I’ve seen some get it wrong.  Most jurors take their responsibilities extremely seriously and will try to apply the law as the judge instructs them.  But at the end of the day, you have people unfamiliar with industry standards determining your case.

Pluses and Minuses of Arbitration

Many standard construction contracts contain arbitration provisions, generally AAA Arbitration.  The typical arbitration includes a three member panel of experts (construction professionals, designers, construction attorneys) who hear the evidence and make a ruling.  That ruling has the full force of law.The reasoning behind such arbitration clauses is that industry professionals better understand the construction process, standards of care, and interrelationships on a complex construction project.  Theoretically, therefore, they are better able to determine the true root cause of damages or delay.

Arbitration is sometimes considered to be less expensive and less time consuming than a court trial.  The arbitration panel generally sets fairly loose procedural and evidentiary boundaries, and tends to allow into evidence things that might not meet the strict Rules of Evidence that a court would apply.  Some of these generalities, however, have not proven to be true in practice.  AAA Arbitration can be costly– the filing of a claim alone is costlier than typical court fees.  Case managers add a layer of bureaucracy to the process.   Arbitration panels also generally are more prone to “split the baby” in a close case.

Which is Better?

The answer to that question is a clear and concise, “it depends.”  It depends on the facts of your particular case, the jurisdiction you are in, the type of panel you may get, and numerous other things completely out of your control.  Consult with a lawyer in your jurisdiction to discuss the pros and cons of each, and which may be right for your particular situation.

Do you have experience with court or arbitration?  Personal preference?  I’d love to hear your thoughts on the subject in the comment section below.

UPDATE 10/13/2010:  The AAA responded to this article citing their internal studies showing arbitration panels do not often “split the baby”.  See more here. 

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Photo “Courtroom One Gavel” by Joe Gratz via Flickr/Creative Commons license.