Late last month, the Court of Appeal for the Fourth Appellate District in California took up the issue of “binding mediation.” Unlike an earlier case on the same topic that it took up in 2006 (Lindsay v. Lewandowski (2006) 43 Cal. Rptr. 3d. 846, 139 Cal. App. 4th 1618), this time this court determined that such an ADR procedure can exist.

In Bowers v. Raymond J. Lucia Companies, Inc., Case no. D059333 (May 30, 2012)(Bowers v. Raymond J. Lucia Companies ), the appellate court found that the “binding mediation” agreement was certain enough in its terms to be enforceable and that the concept of “binding mediation” did not run afoul either of the California constitution or statutory law. (As the Court explained, “…in binding mediation, the mediator conducts a mediation, and, if a settlement is not reached, the mediator decides the matter by reaching a settlement figure.” (Id. at 11.))

Plaintiff sued Raymond J. Lucia and others for defamation and related business torts. Lucia filed an arbitration proceeding against plaintiffs raising similar claims. Because the trial court ruled that the arbitration against plaintiffs should proceed, plaintiffs dismissed Lucia from their lawsuit so that the arbitration would proceed separately from the lawsuit. The arbitration hearing occurred before the trial. (Id. at 2-3.)

After several days of the arbitration hearing, the parties agreed to settle their dispute before the arbitration panel rendered a decision. But, the terms of the settlement agreement were odd; they, in essence, described a med-arb procedure:

Within a week after the arbitration, the parties signed a “Settlement Agreement and Release” (settlement agreement). Paragraph II.2 of the settlement agreement provided this case “shall be placed on the Superior Court dismissal calendar. The Parties shall then proceed to a mediation/binding baseball arbitration with a mutually agreed-upon neutral within sixty days of the execution of this agreement. To wit, the Parties shall participate in a full day mediation. If, at the end of that mediation, the Parties have failed to reach an agreement, the mediator shall be empowered to set the amount of the judgment in favor of Plaintiffs against Raymond J. Lucia Companies, Inc. at some amount between $100,000 and $5,000,000, such binding mediator judgment to then be entered as a legally enforceable judgment in San Diego Superior Court without objection of any Party.”(Id. at p. 4)

At the request of mediator, the parties modified the above agreement to read as follows:

At the mediator’s request, the parties later modified the portion of paragraph II.2 of the settlement agreement beginning with “To wit” to provide “To wit, the Parties shall 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 in San Diego Superior Court without objection of any Party.” The amendment further provided, “This amendment shall not impact any section of the Settlement Agreement not referenced above.” (Id. at p. 5)

As one might guess, at the end of a full day of mediation, the parties were at an impasse. Plaintiff demanded $5 million while the defendant offered $100,000. After allowing the parties to submit further information for his consideration and meeting with defendant and his counsel, the mediator selected the $5 million figure as the settlement amount.

Plaintiff petitioned the court to confirm the mediator’s award. Defendant, who had obtained new counsel, opposed the petition, arguing that the award was unenforceable as it was a “mediation” award, not an “arbitration” award. The trial court agreed and using California Code of Civil Procedure Section 664.6 providing for the enforcement of settlement agreements, enforced the decision of the mediator as the settlement, concluding from the language of the agreement that the parties, in essence, agreed to a “binding baseball arbitration” or a procedure by which the mediator would pick the final number if the parties could not agree.

The appellate court affirmed finding that the settlement agreement was enforceable. Under California law, one element of enforceability is “mutual consent”: the parties must all agree on the same thing in the same sense. (Civil Code Sections 1580 and 1636.). The appellate court found substantial evidence to support the trial court’s finding of mutual consent:

Here, the trial court found that, notwithstanding any labeling, the parties mutually agreed to a full-day mediation and, if there was no resolution at the end of the day, the mediator could make a binding award by selecting from either the plaintiffs’ final demand or the defendant’s final offer…(Id. at 9-10.)

Disagreeing with the defendant, the appellate court next determined that “binding mediation” is NOT an inherently uncertain term. Unlike the situation in Lindsay v. Lewandowski, supra, the terms of this settlement agreement were reasonably certain and so enforceable. In contrast, in Lindsay v. Lewandowski, supra, different versions signed by different parties existed, and certain of the provisions themselves were contradictory as some required “mediation” while others required “arbitration”. Thus, it was impossible for that appellate panel to figure out the exact procedure intended by the parties. Here, the exact procedure was clearly spelled out. (Id. at 12-15).

Finally, the appellate court held that the procedure used was constitutional; it did not run afoul of a party’s constitutional right to a jury trial. As the appellate court noted, while there is no statute expressly authorizing “binding mediation”, this procedure IS extrajudicial, or outside of the judicial system; the parties have every right to select a non-judicial forum to settle their dispute. It thus, affirmed the judgment.

While I understand this appellate decision and its recognition of “binding mediation”, to me it is still an oxymoron. As Presiding Justice Sill in his concurring opinion in Lindsay v. Lewandowski, supra, so succinctly stated:

I can think of nothing more self-contradictory than “binding mediation.” Mediation is by definition a voluntary process which achieves a voluntary result, and is meaningful in distinction to “arbitration” in its very voluntariness. Or, to put it with more bite - mediation is distinctive from arbitration in its inherent lack of consequences. You go to mediation, you like it, you don’t, you settle, you don’t, no big deal. (Id. at 851.)

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by Phyllis G.Pollack

Phyllis G. Pollack is a full time neutral in Los Angeles where, as President of PGP Mediation, she focuses on business, real estate, contract and “lemon law” disputes. She may be reached at Phone: 213-630-8810 / phyllis@pgpmediation.com / Website: www.pgpmediation.com