Mediation Needs More Bite

Mediation Needs More Bite

Although pre-litigation mediation is an option for franchisors and franchisees to cut legal costs, stay out of a courtroom and get most legal disputes taken care of in short period of time, many do not cooperate, rush into court and in most instances courts do not enforce mediation provisions like they do with arbitration provisions.

A growing majority of legal professionals will encourage mediation as a way to their clients to cut costs but it seems like clients are not listening and courts are not inclined to force people into something they feel is voluntary when parties does not want to cooperate.  Despite this perception by courts of private mediation, many times federal courts will nevertheless order parties to mediation with a magistrate judge.

For example, in Gate Precast Co. v. Kenwood Towne Place, LLC, No. 1;09-CV-00113, 2009 WL 3614931, at *5 (S.D. Ohio Oct. 28, 2009), the court determined that mediation was not to be treated like arbitration under the Federal Arbitration Act.  The court, in refusing to dismiss or even stay the case pending private mediation (as required as a condition precedent to ligation in the parties’ agreement), ordered the case to proceed and directed the parties to engage in mediation with a magistrate, which would have likely occurred regardless of the mediation provision in the parties’ agreement.

Another problem with mediation provisions occurs when one of the parties does not take the private mediation seriously and would prefer litigation.  All too often one of the parties will appear at the mediation session, not cooperate and leave in order to satisfy the mediation provision.

If some courts do not have an interest in enforcing mediation provisions as a condition precedent to litigation and one of the parties would prefer to incur the costs of litigation than settling the case at the outset, something needs to be done to give mediation more teeth.

First, parties should include penalties in the mediation provision for a failure to comply with mediation when it is designated as a condition precedent to litigation. For example, a provision that awards the party seeking to enforce the mediation provision their attorney’s fees or forfeiting attorney’s fees for the party that refuses to comply with mediation as a condition precedent (if the contract provides attorney’s fees to the prevailing party).

Second, legislation should be enacted that would require courts to enforce mediation provisions similar to the Federal Arbitration Act.  Courts that do not enforce mediation typically refuse to do so because they do not treat mediation the same as arbitration for purposes of the Federal Arbitration Act or they do not want to force someone into mediation when they do not want to cooperate.  Legislation would discourage lawsuits before mediation and may lead to more settlement and less court congestion.

Lastly, attorneys must encourage mediation with their clients when it is required.  Many of the reasons why parties do not want to mediate can be traced back to attorneys that would rather litigate the case for a variety of reasons.  Instead, mediation should be encouraged as an effective tool to ending disputes early.  In the end, most cases settle at some point.  It makes much more sense for clients to do that early than after incurring a large amount of attorney’s fees and costs that eat into one side’s recovery and increase the side’s loss.