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Gresham’s Law: The Mediation Paradox

First published by the Daily Journal

Gresham’s Law states that bad money drives out good.

The same principle can be applied to labor. Slavery drives out low wage labor. Low wage labor drives out high wage labor. It applies to mediators also. In southern California, a large majority of mediators work pro bono. The question is whether the continuing prevalence of pro bono mediation will continue to act as a deterrent to the development of mediation as a specialty profession.

How did the situation come about of an entire profession of people giving away large amounts of their time to other professionals who can well afford to pay for such services?

It happened gradually. In the 1970s, lawyers were filing lots of cases, but the legislature was reluctant to increase the number of judges, so the time taken to bring a case to trial stretched out for many years. The California legislature passed a law requiring that a case be brought to trial within five years. That did not solve the problem.

The next solution to be attempted is now incorporated under Code of Civil Procedure § 1141.10 et seq., the Judicial Arbitration Statute. In §1141.10, the legislature “finds and declares that litigation involving small civil claims has become so costly and complex as to make more difficult the efficient resolution of such civil claims, that courts are unable to efficiently resolve the increased number of cases filed each year, and that the resulting delays and expenses deny the parties their right to a timely resolution of minor civil disputes.”

The legislature decided on arbitration as an alternative: “Arbitration has proven to been an efficient and equitable method for resolving small claims, and that courts should encourage or require the use of arbitration for such actions whenever possible.”

By “small civil claims”, the legislature meant cases under $50,000.00. All such cases were mandated to judicial arbitration, to be heard by volunteer attorney arbitrators, and the law provided that those arbitrators should be compensated the sum of $150.00.

However, there was a catch. Litigants have a constitutional right to trial by jury. To overcome this problem, the legislature inserted a provision that if any party was not satisfied with the findings of the arbitration, that party could request a “trial de novo”, which had the effect of restoring that case to the trial list. No doubt legislators hoped that parties would for the most part be satisfied with the results of their arbitration. However, such satisfaction turned out to be the exception rather than the rule, and soon most cases were being “de novo’d.”

There was an additional, more serious disadvantage to judicial arbitration. Objections were heard that parties would simply use judicial arbitration as an additional discovery device, so to avoid that problem, the legislature provided that “there should be no discovery allowed after an arbitration award, except by leave of court upon a showing of good cause” (§ 1141.24).

The Judicial Arbitration Statute was enacted in 1978. In 1993, an alternative to arbitration was enacted, to be found in Code of Civil Procedure, Title 11.6, which is the Civil Action Mediation Statute, commencing at § 1775, in which the legislature found “(a) The peaceful resolution of disputes in a fair, timely, appropriate, and cost-effective manner is an essential function of the judicial branch of the state government, under Article 6 of the California Constitution. (b) In the case of many disputes, litigation culminating in a trial is costly, time-consuming and stressful for the parties involved. Many disputes can be resolved in a fair and equitable manner through less formal processes.”

This introduced the era of civil action mediation. All cases under $50,000.00 were mandated to arbitration or mediation; the parties could choose which. Payment of mediators was to follow the system of payment of arbitrators, namely $150.00 per case or per day. The bar preferred the mediation statute, because it has two distinct advantages over arbitration. First, mediation does not result in discovery cut off. Secondly, there is no penalty for failing to settle a case in mediation, whereas the party who proceeds to trial after an arbitration award may, if he or she fails to obtain a better result at trial, be penalized in costs as set forth in CCP § 1141.21.

The mediation statute provided that a case under $50,000.00 could be ordered into arbitration or mediation, but not both. Cases over $50,000.00 were subject to § 1775.5, which reads: “The court shall not order a case into mediation where the amounts in controversy exceed $50,000.00.” However, if parties will agree to mediation, then the court will “refer” the case into mediation. In this way, almost all cases in the system are sent to mediation, either by order or referral, with hardly any cases going to arbitration.

Around the time the Mediation Statute was enacted, funds for the payment of arbitration and mediation dried up. The courts turned to arbitrators and mediators, and asked if they would continue providing the service pro bono on a temporary basis.

That was in 1993. A temporary accommodation has become a permanent institution. Mediation has been provided pro bono by mediators ever since. Sacramento still provides funds, but those funds go to the Superior Court to administer the program.

Even though Los Angeles Superior Court has now instituted a paid panel, the approximately 1500 members of the pro bono panel are assigned 97% of the “business.”

At any mediation, everyone in attendance except the mediator stands to benefit financially. The parties have a chance of resolving their case without further expense. The plaintiff’s attorney makes money if the matter is resolved, and the defense attorney charges an hourly rate whatever the outcome.

Mediators donate many thousands of hours each year. Of the 28,500 cases sent to mediation in 2004, 97% were done pro bono. At an average of three hours, that works out at 85,500 hours, which is an aggregate of nearly 43 years worth of free service, making mediators proportionally by far the most prolific providers of professional pro bono services.

Of course the Gresham’s Law analogy is not exact, but it predicts that a majority of private mediators will necessarily continue working at much reduced rates, with only a relatively small number escaping the inertial pull exerted by the large pro bono panel. The system works well for bench and bar, which therefore have no reason to seek change. But does it work for mediators to continue to serve as the Cinderella’s of the system, and more importantly, is it good for the standing of mediation as a specialty? The bar is happy to use the services of mediators, but do they still respect them in the morning?


Charles B. Parselle

Admitted to practice law in California and England, Charles Parselle is a founding partner of Centers for Excellence in Dispute Resolution - CEDRS.COM - and a sought-after ADR professional. An experienced litigator, he enjoys the confidence of both plaintiff and defense bars as a gifted facilitator of dispute resolution. He… MORE >

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