In Ryan N. Bowers et al. v. Raymond J. Lucia Companies, Inc., D059333, Fourth Appellate District, filed May 30, 2012 the court upheld a settlement agreement that provided for a hybrid dispute resolution process referred to as "binding mediation." Although the term may seem to be an oxymoron, the parties had voluntarily agreed in writing to a mediation in which the neutral was empowered to make a decision if the parties were unable to settle.
The parties entered into a "Settlement Agreement and Release" that provided for "mediation/binding baseball arbitration." They would mediate for one day and if they had not settled, the mediator would be "empowered to set the amount of the judgment." Plaintiffs would then give the mediator their final demand, which would have to be between $100,000 and $5,000,000, and defendant would give the mediator its final offer, which would also have to be within those same parameters. The mediator would then determine the final amount, which would have to be within the parameters and which would also have to be equal to either the plaintiffs' number or the defendant's number. This "binding mediator judgment" would then be entered as a legally enforceable judgment in the superior court.
The parties went to mediation but failed to reach an agreement, whereupon the mediator asked each side for their final numbers. Plaintiffs demanded $5,000,000 and the defendant offered $100,000. The mediator chose $5,000,000.
Plaintiffs petitioned the superior court to confirm the mediator's "award." Defendant opposed the petition, arguing the trial court could not confirm the award because it was a mediation award, rather than an arbitration award. The court agreed and declined to confirm the award as an arbitration award. Instead the court enforced the settlement agreement and the mediator's award under Code of Civil Procedure Section 664.6.
The court explained:
Despite their use of undefined legal terms such as 'mediation with a binding arbitration component' and 'mediation/binding baseball arbitration,' the parties clearly agreed in writing that the mediator would decide the amount of the judgment with the 'binding mediator judgment to then be entered as a legally enforceable judgment in San Diego Superior Court without objection of any Party.' The parties agreed to a day long mediation whereby if they did not resolve the case, the mediator would determine the amount of the judgment. Nowhere in the settlement agreement does it contain any procedure for a formal arbitration where each side would present witnesses and evidence as defendant now maintains. It appears the use of the term 'binding baseball arbitration' was meant to allow the mediator to pick the amount….
There clearly is some confusion about what to call the procedure they would use. Nonetheless, counsel for defendant agreed that the mediator had the ability to decide the case at the end of the day if the parties did not resolve it. Counsel for defendant further stated that the mediator would have the freedom to choose between a range of $100,000 and $5 million 'after we present our cases to him or her during mediation.' There is no reference to an arbitrator choosing the number after a presentation of evidence apart from the mediation. The court notes that this case involves sophisticated parties and knowledgeable counsel who could have explicitly provided for a separate arbitration had that been what they intended.
Consistent with its ruling, the trial court subsequently entered a $5 million judgment for plaintiffs. Defendant moved for reconsideration, to vacate the judgment, and for a new trial. The trial court denied the motion, finding once again that the parties' settlement agreement was enforceable and that the parties had agreed to binding mediation, rather than a two-step mediation and binding arbitration process. Defendant appealed.
Defendant argued that the judgment should be reversed and that the underlying settlement agreement was unenforceable because: (1) defendant never agreed to resolve the parties' dispute through binding mediation; (2) a contract term providing for binding mediation is necessarily too uncertain to be enforceable; and (3) binding mediation is not among the constitutionally and statutorily permissible means of waiving jury trial rights.
The Court of Appeal affirmed the judgment. It concluded that there was substantial evidence to support the trial court's determination that defendant agreed to the binding mediation procedure utilized in this case; that the binding mediation provisions in the parties' settlement agreement were not too uncertain to be enforceable; and that binding mediation is not a constitutionally or statutorily prohibited means of waiving jury trial rights where, as here, the parties have agreed to settle their dispute in a nonjudicial forum.
At a time when commercial arbitration is under attack binding mediation may be an attractive alternative in certain cases where the parties have full confidence in the mediator's integrity and expertise. It offers speed, finality, economy, and the opportunity to choose a neutral who can both mediate and decide. The mediation can be structured so that the mediator obtains the necessary information to make a sound decision without first having to preside over a lengthy hearing that amounts to litigation in a private forum. It may be a process for which the time has come.
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