Arbitration And Mediation "Nuts And Bolts" For Owners And Contractors

"FOUNDATION" FOR THE SPEAKER – 35 years of arbitrations and 10 years of mediation as a "consumer" until 1996. Then, AAA Training in Frisco. Many mediation and arbitration matters since (e.g., Cotton Gin, Public Park, Lake Pleasant, Medical Clinics, Desert Sonoran Boulevard Subdivision's retaining walls). Mediating from 2 to 28 parties' disputes in the field of construction.

- ARBITRATION -

1. What arbitration is – a final decision based upon evidence presented in a procedure and setting that is less formal than a courthouse litigation, and presented to a knowledgeable "trier of fact" on a time track which is faster than the courthouse track, and therefore, usually less expensive. Arbitration is private (records are not accessible to the public). Ordinarily, there are few discovery requests (few depositions, interrogatories, etc.). There ordinarily is no appeal from the decision.¹

2. Reasons why we need arbitration: High cost of courtroom litigation. Lack of experience of many judges with construction and business law. Crowded court dockets that result in lengthy and therefore, expensive proceedings. Rules of Evidence that are 300 years old, many of which make litigation expensive. Avoidance of endless expensive depositions, usually.

3. What does it cost? From $180 to $400 per hour. This may be apportioned among the parties. Can you afford it? It is an economic alternative to spending 2½ years in litigation.

4. Are there cases where arbitration may NOT be advisable? Perhaps, when an EXTENSIVE "discovery" of the facts is needed. How do you cope with that? Careful drafting of the arbitration clause in your contract.

5. Where does one hold an arbitration? In AAA offices, or in the arbitrator's office, or a lawyer's office. Advantages of not being in the courthouse.

6. The Experience of the Arbitrator. How to maximize the likelihood of getting one who knows your field.

7. What do you do as an Owner or Contractor before you arbitrate (in preparation):

1. Pre-Arbitration Statement
2. Jointly organized (and tabbed) books of Exhibits
3. Preparation of witnesses
4. Use of experts

8. What does the arbitrator do to "kick it off"?

9. War Story: The Flagstaff apartment complex and the builder/operator, a "creative remedy" which could not have occurred in the courthouse. Conclusion – Arbitration is swifter, usually less expensive, less fraught with evidentiary (legal) issues, heard by a knowledgeable "judge," and is not complicated by appeals. It is "good for business."

- MEDIATION-

1. What mediation is – a facilitated "extruding" of the parties' own desires to reach a settlement, enhanced by confidential "reality therapy" consultation and by caucuses and Churchill-style "serial diplomacy."

2. What mediation is not – early "neutral" evaluation, or "suggested settlements" proposed by an avuncular figure. Big issue: "directional" vs. guided mediation.

3. The reason we need mediation: "Adversaryitis." In Arizona, Maricopa County, 93 judges (30 civil) x 1,800 active files each. $350 - $400 per hour lawyers who hope to impose their legal fees on the other side. Interest on contract amounts. Two years plus six-months trial delay. Certainty. Inventive remedies. Evaluation in a pre-expensive stage. Confidentiality of process/result. See A.R.S. § 12-2238.

4. What does it cost? From $180 to $400 per hour, split among/between two or more "mediatees." Can you afford it? It is a very economic intervention to avoid a costly litigation process, even if the next-step process is the (cheaper than the courthouse) arbitration.

5. When does one do mediation?

• When a problem arises on a job site or in a business transaction – before arbitration or litigation is even mentioned. Rare! Why is that?
• When you have to as a precondition to arbitration under an AIA A201, or when your contract arbitration clause says you must. Starting to occur more and more as the AIA documents are now being used.
• When you are into arbitration or litigation and want to avoid the expense of preparing for whatever fact, law, or other issues you may face. Often!
• When you are in state or federal court litigation, have done a little discovery, and want to try to "bring it to a close." Most frequent! Often done pursuant to a judge's suggesting it occur instead of a settlement conference. Why is that?

6. Where does one do it? In AAA offices, or in a mediator's office or a lawyer's office. Advantages of each.

7. Ethics of mediators: Must scrupulously over-disclose, never misrepresent, devil's advocate, but not be counsel for any party. Don't draft the document that resolves the case.

8. What do you do as an Owner or Contractor before you mediate (in preparation):

• Mediation Statement, 5 to 7 pages, limited exhibits, exchanged or not (better exchanged).
• Simple Graphics, item lists, site maps, photos (to focus opposition interest and to heighten awareness).
• Preparation Session, lawyer and clients, reality therapy, no surprises.
• Plans A, B, C and a draft form of settlement agreement.

9. What does the mediator do to "kick it off"? A generic introduction (one version, Tierney's, is attached as Appendix B). Note the relevance of our local statute, A.R.S. § 12-2238(B) on confidentiality of the process.

10. What do you do while you are doing it? Remember, each party is trying to arm the mediator with facts/law which he can use to convince the other side to make a deal!

• Cool and pre-prepared opening statement, but a short one and one that is non-adversarial;
• Terse, calm rebuttal;
• Use the time between caucuses to gather facts to refute the opposition's points, or defuse them, and to create "next move" scenarios; and
• "all hands on deck" when the mediator arrives.

11. What you want to leave the process with – a resolution, or a substantial narrowing of the issues, or a better process for resolving the problem.

12. War Story: How the BOR "stayed out," but mediation still succeeded. War Story: The plastic-extrusion company and the "cooked books." War Story: The Telecommunications Company and the "missing" information, leading to a 3-month hiatus in the mediation. War Story: the Cotton Gin. How fifty problems became 10 line items, thus a small arbitration.

13. "Bad Manners" during Mediation (and solutions therefore):

• They did not come to listen – or to negotiate;
• Extreme and unsupported positions are taken;
• Offers are met with a recitation of old "insults" earlier received;
• Key depositions await to be done and no one will evaluate or "move" on the issues pending that event;
• Someone important is not "at the table."

Conclusion – Mediation works, it's economical, it can save "stomach acid" and free up your time. It should be provided for in business documents, much as it is included in the AIA documents.

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Footnote

1. Appendix A is an outline of points on how to draft a good arbitration clause.

Originally published November 18, 2021

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.