Posts Tagged ‘ADR’

The Best Time to Mediate A Dispute is Yesterday

Eviction ImageHere on ConstuctionLawMonitor.com I like to blog about non-traditional ways to settle disputes between contractors and other feuding parties. Mediation is my favorite because I am a mediator. Its also my favorite because, generally, its the best and most efficient way to resolve disputes. There are circumstances whereby mediation will not work but that usually happens when irrational parties come to the table.

In this post I will explore the element of “when” is a matter ripe for mediation.

Timing Issues For Mediation

As discussed in other posts, there can be clauses within construction contracts wish mandate mediation. This type of clause is called a mediation or alternative dispute clause. In this instance, the contract will lay out exactly how the mediation and/or arbitration process should be handled when an dispute occurs between the parties.

So the timing element of a contractually mandated mediation is spelled out in the construction contract. Many times mediation is a precursor to any litigation or arbitration hearings. This basically works as to when there is a dispute, parties look to the contract to see how the mediation should be initiated.

Outside of contractually mandated mediation there is also voluntary mediation. By definition, all mediation is voluntary. The premise of all mediation proceedings is that the parties are there voluntarily. Otherwise the mediation will not work.

Once the parties are both there in good faith and voluntarily, then the process can work properly. Most mediation proceedings can be completed in one day. Sometimes more complex issues with numerous parties may take a bit longer and may span over a number of days. Either way is fine and the process is designed to facilitate both simple and complex.

Its Okay To Mediate A Dispute More Than Once

Often times parties think they only get one bite at the apple when it comes to mediation. Mediation is different than trial or an arbitration where there does not have to be a final decision made by the neutral party. A mediator is merely a facilitator to settlement. When parties mediate, they have to be the ones who make the final decision to settle.

In my experience, I have seen parties try to mediate disputes early on in the dispute and it did not work out. There was simply an impasse which could not be worked out that particular day. Then the parties dig back in and litigate or negotiate independently. Months and even years later, the parties will come to the table again to mediate and try to work out a deal. As long as the parties are engaged and willing to compromise there is always hope that mediation will work.

Other More Expensive Alternatives To Mediation

There are two main alternatives to mediation. Litigation and Arbitration are what I will discuss.

Litigation

As you may or may not know, litigation is the standard practice here in the United States, but it is old and antiquated. Litigation is also extremely expensive and slow. If a party files suit on a hundred thousand dollar construction dispute it will likely take years to completed. The process is slow and the parties know how to exploit the process so that it will move even slower. The only parties who make money off litigation are attorneys.

One of my favorite quotes regarding how bad litigation is from the French scholar Voltaire,

“I was never ruined but twice; once when I lost a lawsuit and once when I won one.”

Even as far back as the seventeenth century people were opposed to litigation. Needless to say, the process has become worse, not better.

Arbitration

Next is the somewhat better and more favored, arbitration. Arbitration is good because it is more efficient and cost effective than litigation. Parties get to select an arbitrator and then proceed ahead with more relaxed rules than traditional litigation. The problem here is that the arbitrators ruling in binding. Binding is scary because its all left to the discretion of one person.

I’ve experienced a number of arbitration rulings that have left me scratching my head wondering what the arbitrator was listening to. There is the possibility of appeal, but the standard is overwhelming and the ruling is rarely overturned.

Mediation is a voluntary negotiation process where a neutral third party helps to facilitate the parties making an agreement. In my mind this choice is clear to mediate.

 

 

 

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Construction Contracts: Mediation Is A Great Alternative To Litigation

Mediation bigstock-Attorney-at-Law-sitting-at-des-49285283 copyMediation and Construction Law are two of my favorite topics to discuss. These are my favorite aspects of the practice of law. Every construction law dispute I encounter starts with the premise of getting contractors paid. No matter the dispute, the underlying factor is withholding of money along the hierarchical chain of characters.

Owners need to get cash from the lenders. General Contractors need to get progress payments from the Owner. Subs are always waiting on the GC to pay out. Suppliers provide goods on credit with the hopes of getting paid once the other parties take their share. There are small margins for error and high possibility of dispute.

With such small percentage of money actually going to profits its no wonder owners, general contractors, subcontractors and suppliers cannot afford expensive litigation. There are efficient and cost effective means to settle disputes without having to tee it up in the courts, Mediation and Arbitration. For the purposes of this blog, I will be speaking to the more flexible of the two forms of alternative dispute resolution methods, Mediation.

Do Construction Contracts Contain Mediation Clauses?

It depends on the contract. Many American Institute of Architects (AIA) form contracts will allow for an option to include both a mediation and arbitration clause for alternative dispute resolution. If you are unsure if your contract has  mediation clause you should look to see if there is some type of language like the following provided by the American Arbitration Association (AAA), who is the leader in the arbitration and mediation space.

If a dispute arises out of or relates to this contract, or the breach thereof, and if the dispute cannot be settled through negotiation, the parties agree first to try in good faith to settle the dispute by mediation administered by the American Arbitration Association under its Construction Industry Mediation Procedures before resorting to arbitration, litigation, or some other dispute resolution procedure.” AAA Construction Industry Arbitration Rules and Mediation Procedures (pg 14).

There are many variations on this type of clause. Courts are very keen on upholding mediation clause language because courts favor resolving disputes through other means.

Construction Disputes Settle With Mediation

Some disputes will never settle. The parties are so entrenched to a position that they become irrational and will not compromise. The construction industry is different. Contractors tend to want to continue doing business and therefore do not want to burn bridges.

I have personally been witness to numerous construction disputes setting through mediation. The parties agree to meet with a neutral third party, the mediator, and go through the process until a compromise is reached. Conventional wisdom states that the best settlements are those where both sides leave unhappy.

Construction disputes are no different. Each party negotiates some give and take until a compromise is reached. I see it all the time. Have your attorney put mediation clauses in your company’s contracts. Do not sign contracts unless they have a mediation clause. Finally, even if there is not a specific clause mandating mediation, you can still mediate! All that is required are two parties who want to solve a dispute.

 

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Mediation! New Service Available at Wolfe Law

Seth J. Smiley, partner at Wolfe Law Group, LLC and author of ConstructionLawMonitor.com is now a formally trained mediator. New Orleans just hosted the AAAU’s (American Arbitration Association University), Essential Skills for the New Mediator workshop in downtown, hosted by Neil Carmichael.

Why would parties want to mediate a dispute instead of going to court? That answer is easy, yet has many factors. The most important are that mediation is less expensive and much more efficient compared to litigation. But the most important factor is that the parties control their own outcome, rather than a group of strangers (jury).

So if you are in a dispute and are looking for an economical, logical and swift conclusion that is mutually agreeable between you and your adversary, then mediation may be just what you are looking for. Contact the Wolfe Law Group, LLC for more details.

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Louisiana Arbitration Law

Over the past few months here at Wolfe Law Group, I’ve been involved in a number of disputes where where arbitration clauses were invoked and the matters traveled the path of arbitration rather than ordinary judicial proceeding. Mediation and Arbitration have been touted as the faster, cheaper and more efficient way to handle legal disputes. While this may be true due to the enormous built in delays and catastrophic costs of “going to trial” there are a number of ways that contractors can be disadvantaged by dealing with lawyers who are not experienced with this process.

First and foremost, there is no standard for the rules. This means that, unlike the slow judicial process, the rules by which each arbitration play by can be changed and altered based on the contracts between the parties and document that they incorporate. For example, the American Arbitration Association (AAA) is one of the leaders in construction arbitration. They publish a set of rules called “Construction Industry Arbitration Rules and Mediation Procedures.” These rules are the rules that govern the entire proceeding. What this means is that there is a completely different set of operations for an arbitration than there would be for a judicial proceeding. As all lawyers know and most laymen do not, procedural tactics and expertise can make or break a case, even before it gets to be heard on the merits.

The key to getting this set of rules to apply is by having a good unambiguous arbitration clause in your construction contract. The AAA even gives example clauses that a construction company can use in its construction contract:

“Any controversy or claim arising out of or relating to this contract, or the breach thereof, shall be settled by arbitration administered by the American Arbitration Association under its Construction Industry Arbitration Rules, and judgment on the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof.” See AAA’s Guide to Drafting Dispute Resolution Clauses for Construction Contracts 

On of the more important aspects of the quote above it that it incorporates the AAA Construction Industry Arbitration Rules. The same can be said for just about any arbitration company, but the AAA tends to be the leader in the commercial and construction industry. Further, you can even go as far as having a local company such as ADR, Inc., host the arbitration and then the AAA rules will apply to that proceeding.

Another reason why this is important this that the law in Louisiana governing arbitration proceedings is relatively short and references other parts of the Civil Code and the Code of Civil Procedure. Louisiana Civil Code in its Revised Statutes §9:4201§9:4217 encompass Louisiana Arbitration Law. These statutory provisions are helpful in filling in the gaps where other rules fall short and that point to other areas of Louisiana law that govern arbitration proceedings.

Typically the process works like this: 1) first you look to the contract to see how the parties have agreed to have the matter arbitrated, such as a clause saying that arbitration is proper and which rules apply. 2) Then you see which rules apply (if any) and then that will be the governing set of rules for the proceeding. 3) In matters where the rules are silent, then parties are forced to look to the Louisiana Arbitration Law section of the Revised Statutes as gap filler. 4) Finally, if all areas are silent, then you seek a decision form the arbitrator for what to do or how to proceed based on public policy.

Knowing the rules is critical to the success of an arbitration or any type of legal proceeding. The term “the devil in the details” cannot be more applicable. Arbitration proceedings can save a company thousands of dollars and lots of time. The one negative is that the are final and cannot be appealed, save extreme circumstances.  Always consult with an attorney before deciding to insert an arbitration clause into your construction contract and if you decide to invoke it.

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Electing ADR Post-Contract: It’s Never Too Late


This article is part of a three part series titled “Alternative Dispute Resolution – Why, When & How.” To read the other parts in this series, or to read more articles about ADR, navigate to the Wolfe Law Group ADR page here: ADR.

Under most circumstances, discourse about Alternative Dispute Resolution centers around the construction contract and the importance of “ADR clauses.” However, it’s never too late for the parties to agree to an alternative dispute resolution process.

Agreeing to ADR before filing suit
At the onset of a dispute, the parties can simply agree to forego filing a traditional lawsuit and to engage in some type of ADR process. When this choice is made, the parties are still “contracting” to submit to binding arbitration, but the notion is sometimes forgotten when the original contract is already history and the dispute has already riled the parties.

It’s advisable to include ADR clauses in the original contract to avoid this “heat of the moment” problem, but there are many circumstances when the parties – even at odds – can agree to ADR post-contract.

During the course of a construction project, there are many situations whereby the parties are amicably dealing with one another but encountering some disagreements. The ADR process can be very valuable to the parties in this scenario.

The parties can simply agree to submit to the decision of a neutral, or to participate in a speedy mediation on this issue. The decision of the neutral or compromise of the mediation can likely resolve the issue, prevent delay in scheduling and keep the parties on good terms.

It’s oftentimes more difficult to engage an opposing party in ADR in a more mature dispute, as the parties are less likely to agree to anything at the beginning of a adverse proceeding. However, the benefits of the ADR process may outweigh any urge to agree with the adversary, and if litigation is actually commenced, the parties can still later suspend the suit in lieu of ADR.

Agreeing to ADR after suit is filed.
As suggested above, it’s common for parties to submit to an ADR process even after suit has been filed. Depending on the county / parish of your litigation, there are different time requirements for when the parties may or may not participate in alternative dispute resolution. Across the board, however, these requirements are extremely liberal, and the parties are usually only limited when the action is close to trial.

While any ADR process may be elected during litigation, the most common ADR vehicle used by litigants is mediation. Mediation allows the parties to meet, express their position, and evaluate its pros and cons and the risks of litigation in hopes of reaching an acceptable compromise.

Mediation may be initiated most anytime, but litigants most often submit to mediation at the beginning of litigation or towards the end. There are pros and cons to mediation during both periods.

The pros and cons to mediating at the start of litigation:

Pros

  • The parties have not incurred much expense and frustration, and therefore may be more willing to compromise to avoid the same;
  • Even if a settlement is not reached, it provides the parties with an opportunity to analyze its case in-depth, and to get a better picture of the adversary’s position.
  • Usually, neither party has clear leverage over the other party. Oftentimes, at the end of litigation, certain facts have been exposed that weakens the position of one party. At the start of litigation, however, the party with the weaker position has a little more leverage than it will later in the proceeding.

Cons

  • The parties are less willing to compromise. The emotional connection to the dispute is still clear and present, and the expenses of litigation have not been exposed;
  • Stones are unturned – or, in other words, both parties are working on a limited set of facts and understanding of the issues at play. The litigation process allows the parties to research its and the opposing party’s position, and a mediation immediately after suit proceeds before this researching opportunity.

The pros and cons to mediating later in litigation:

Pros

  • The parties have incurred much expense and frustration throughout litigation, and they are more willing to compromise certain positions in exchange with “getting the matter behind them.”
  • Through the litigation process, the parties have an opportunity to develop their respective positions and to investigate their adversary’s position, which gives them a good understanding of their risks in going to trial.
  • The threat of trial is real and present, and the parties are more likely to make compromises to avoid the unpredictable event.
  • The “demands” of the respective parties are more developed and understood.

Cons

  • Since the positions of the parties are better developed and understood, the party with leverage will be aware of the fact and be less willing to make a significant shift in their position – and thus, settlement may be less likely.
  • With trial around the corner, parties may be more willing to wait the extra few weeks or months and let a judge or jury decide.

Electing ADR Post-Contract
Electing ADR post-contract is easy, but the actual process will likely depend on the ADR provider chosen by the parties. Typically, the parties should agree with one another in writing, and then submit the written agreement to the ADR provider.

The American Arbitration Association provides the following clauses as example clauses for choosing ADR post-contract:

Construction Dispute Mediation Submission Clause:
The parties hereby submit the following dispute to mediation administered by the American Arbitration Association under its Construction Industry Mediation Procedures (the clause may also provide for the qualifications of the mediator(s), method of payment, locale of meetings, the tolling of the statute of limitations, pre-dispute resolution step clause with time frames and any other item of concern to the parties). If a party fails to participate in any scheduled mediation conference, that party shall be deemed to have waived its right to mediate the issues in dispute.

Construction Dispute Arbitration Submission Clause:
We, the undersigned parties, hereby agree to submit to arbitration administered by the American Arbitration Association under its Construction Industry Arbitration Rules the following controversy: (cite briefly). We further agree that the controversy be submitted to [one] [three] arbitrator(s). We further agree that we will faithfully observe this agreement and the rules, and that a judgment of any court having jurisdiction may be entered on the award.

Large, Complex Construction Dispute Submission Clause:
We, the undersigned parties, hereby agree to submit to arbitration administered by the American Arbitration Association under its Procedures for Large, Complex Construction Disputes the following controversy [describe briefly]. Judgment of any court having jurisdiction may be entered on the award.

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