I previously discussed some of my concerns regarding binding arbitration agreements. Arbitration has its place, and it can be a very useful tool in resolving cases. As much of my practice involves employment disputes, drafting an enforceable arbitration agreement can be difficult, and I believe arbitration oftentimes does not meet the objectives that it is intended to achieve (i.e., lower costs, quicker resolution, lower awards, etc.). There are many variants to the typical arbitration or mediation options, and a recent case caught my eye because it presented one of the more unique variants.
In Bowers v. Raymond J. Lucia Companies, Inc. (No. D059333), the parties were in the middle of binding arbitration, when they decided to dismiss the arbitration and the accompanying state court action, and participate in “mediation/binding baseball arbitration.” According to the record, the plan was to:
participate in a full day mediation. If, at the end of that mediation, the Parties have failed to reach an agreement, the Plaintiffs (Bowers, Seward, and LaBerge) shall provide to the mediator their last and final demand, which demand shall be some amount between $100,000 and $5,000,000, and the Defendants (Companies, Wealth Management, and Enterprises) shall provide to the mediator their last and final offer which offer shall be some amount between $100,000 and $5,000,000. The mediator shall then be empowered to set the amount of the judgment in favor of Plaintiffs against Raymond J. Lucia Companies, Inc. by choosing either Plaintiffs’ demand or Defendants’ offer, such binding mediator judgment to then be entered as a legally enforceable judgment
At the end of the mediation, the mediator decided to award the plaintiffs the full $5,000,000.00. That’s right, the “mediator” awarded the money. This is unusual because typically mediators do not have the power or authority to “award” anything. The mediator typically helps the parties reach a resolution, but if the parties are unable to reach an amicable (or unamicable?) resolution, the mediator’s job is done. Because the parties in Bowers agreed the mediator could make a binding award if the mediation failed, the trial court and the appellate court upheld the award. Parties can agree to allow a third party to decide what the parties will pay, even if the evidence is not presented in a typical trial or arbitration setting.
It’s easy to armchair quarterback this one and second-guess the thinking behind agreeing to such an unusual form of dispute resolution. Going into the process the parties had to know that the plaintiff’s “last and final demand” was going to be $500,000.00, just like the defendant’s “last and final offer” was going to be $100,000.00. The case does not provide a lot of facts regarding the underlying claims or liabilities (we only know that it was some kind of defamation claim), but I presume liability was not much of a question, and that the real issue was the amount of damages. The big risk for each side is that, knowing the other side’s “last and final” number is likely going to be the highest or lowest allowed by the parties’ agreement, the resulting mediator’s “award” was essentially going to be an all or nothing deal. I suppose there was the possibility that had the parties stuck with the original arbitration the arbitrators could have awarded significantly more than the $5,000,000.00 ceiling to which the parties agreed, but it seems like a pretty high risk given the fact that the mediator receives information differently than an arbitrator, a judge or a jury.
I am a big proponent of mediation. Given the costs and risks involved in litigation, mediation offers the parties the opportunity to have a say in the outcome of the resolution. I’m not so sure I would be willing to hand that control over to the mediator. The process of presenting my case in mediation differs significantly to how I present my case to the trier of fact. I’m not sure how my presentation would have to change if I knew that at the end of the day the mediator was going to “decide” the case.
If you want to read the case, you can find it here.
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