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Public policy supports the resolution of disputes before a lawsuit is filed.  What happens when a contract calls for mediation prior to filing suit as a condition of securing attorneys fees, if the party filing the suit suggests mediation after the lawsuit is filed?  Is the failure to seek mediation a bar to a recovery of attorneys fees or is the request for mediation made just after suit is filed deemed to be substantial compliance?
 

In the case of Lange v. Schilling, No. C055471, 2008 WL 2192833 (Cal. Ct. App. May 28, 2008), the Court of Appeals enforced a contract term that established a condition precedent that required a party to attempt to mediate a conflict before proceeding to arbitration or litigation in order to recover attorney fees.


In that case, the plaintiff bought property from a real estate broker, using a standard residential property purchase agreement. The agreement provided that the parties would mediate any dispute before resorting to arbitration or court action. Under the agreement, if a party commenced an action without first attempting to mediate, that party would not be entitled to recover any attorney fees which would otherwise be available. The Plaintiff sued the broker for alleged misrepresentations made about the property's condition. The Plaintiff then sent the broker a letter stating that he was willing to stay litigation in order to mediate the matter, but received no response. Thereafter, the trial court entered a judgment in favor of Plaintiff and finding the broker liable.


The Plaintiff, after succeeding in the lawsuit, filed a motion to recover attorney fees from the broker. In opposing the motion, the broker argued that the Plaintiff was not entitled to attorney fees because he did not attempt to mediate the dispute. The trial court determined that the plaintiff substantially complied by offering to stay the litigation in order to mediate and awarded the Plaintiff attorney fees. On appeal, the broker argued that the clear language of the agreement precluded an award of attorney fees if a party did not attempt mediation before commencing litigation. The Court agreed and found that since the Plaintiff filed his lawsuit prior to offering mediation, there was no basis to award fees.


The Court noted that while the agreement authorized attorney fees, that right was contingent on compliance with the mediation provision. The Plaintiff filed his lawsuit first and only later offered mediation. His failure to meet the condition precedent precluded any award of fees. The Court stated that the strong public policy in favor of mediation as an alternative to judicial proceedings is served by requiring the party commencing litigation to seek mediation as a condition precedent. Had the parties resorted to mediation, their dispute may have been resolved in a much less expensive and time-consuming manner. The plaintiff argued that his failure to seek mediation should be excused because he promptly offered to mediate, thereby complying with the spirit and intent of the language of the contract. The Court rejected this argument and noted that the plaintiff could have sent an offer for mediation before filing his complaint. The Court further determined that the doctrine of substantial compliance was not applicable because the contract imposed a clear and unambiguous condition.


Accordingly, the Court reversed the fee award.  The message set forth by the Court was simple and direct.  Public policy favors resolution of cases instead litigating them and the Court would therefore not allow the commonly used doctrine of substantial compliance to defeat that policy.

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The mediator privilege is extremely important to the mediation process.  Without it, participants would have no confidence in the process and information necessary to assist the mediator in resolving a case would not be communicated.   It has often been said that the mediation process involves two levels of confidentiality.  The first level is when the parties are together in a joint session.  While the communication itself at a joint session cannot be used at a later proceeding, the information conveyed has been heard by all and that cannot be changed.  However, communications at a separate session consisting of a party, counsel and the mediator are completely confidential, subject to the provisions noted below.

 
Effective July 1, 2008, New Jersey Evidence Rule 519 was amended.  This amended Rule deals with the "Mediator Privilege". 

 
Privileged communications
The amended Rule provides that a mediation communication is privileged and shall not be subject to discovery or admissible in evidence in a proceeding unless waived or precluded as provided by law.  In a mediation proceeding, the following privileges shall apply:

(1) a mediation party may refuse to disclose, and may prevent any other person from disclosing, a mediation communication.

(2) a mediator may refuse to disclose a mediation communication, and may prevent any other person from disclosing a mediation communication of the mediator.

(3) a nonparty participant may refuse to disclose, and may prevent any other person from disclosing, a mediation communication of the nonparty participant.

Evidence or information that is otherwise admissible or subject to discovery shall not become inadmissible or protected from discovery solely by reason of its disclosure or use in a mediation.  


Waiver of privilege
The privilege may be waived in a record or orally during a proceeding if it is expressly waived by all parties to the mediation and:

(1) in the case of the privilege of a mediator, it is expressly waived by the mediator;  

(2) in the case of the privilege of a nonparty participant, it is expressly waived by the nonparty participant;

(3) a person who discloses or makes a representation about a mediation communication that prejudices another person in a proceeding is precluded from asserting a privilege, but only to the extent necessary for the person prejudiced to respond to the representation or disclosure; and  

(4) a person who intentionally uses a mediation to plan, attempt to commit or commit a crime, or to conceal an ongoing crime or ongoing criminal activity is precluded from asserting a privilege.   

Lack of privilege
There is no privilege for a mediation communication that is:

(1) in an agreement evidenced by a record signed by all parties to the agreement;

(2) made during a session of a mediation that is open, or is required by law to be open, to the public;

(3) a threat or statement of a plan to inflict bodily injury or commit a crime;

(4) intentionally used to plan a crime, attempt to commit a crime, or to conceal an ongoing crime or ongoing criminal activity;

(5) sought or offered to prove or disprove a claim or complaint filed against a mediator arising out of a mediation;

(6) except as otherwise provided, sought or offered to prove or disprove a claim or complaint of professional misconduct or malpractice filed against a mediation party, nonparty participant, or representative of a party based on conduct occurring during a mediation;  

(7) sought or offered to prove or disprove child abuse or neglect in a proceeding in which the Division of Youth and Family Services in the Department of Human Services is a party, unless the Division of Youth and Family Services participates in the mediation.

(8) considered by a court, administrative agency, or arbitrator,  in certain limited proceedings involving a crime or to prove a claim to rescind or reform or a defense to avoid liability on a contract arising out of the mediation, and in which there is a finding, after a hearing in camera, that the party seeking discovery or the proponent of the evidence has shown that the evidence is not otherwise available, that there is a need for the evidence that substantially outweighs the interest in protecting confidentiality.   

Permitted disclosures
A mediator may not make a report, assessment, evaluation, recommendation, finding, or other oral or written communication regarding a mediation to a court, administrative agency, or other authority that may make a ruling on the dispute that is the subject of the mediation, except as is noted below. A communication made in violation of subsection a. may not be considered by a court, administrative agency, or arbitrator.


A mediator may disclose:

(1) whether the mediation occurred or has terminated, whether a settlement was reached, and attendance; or

(2) a mediation communication as permitted under other provisions as noted above.

Confidentiality is the key to a successful mediation.   Every mediator must be aware of its significance and make sure that all counsel and participants understand and appreciate its role in the mediation process.

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Thomas J. Pryor, Shareholder and Chair of Stark & Stark's Insurance Coverage & Liability Group, has authored the article, The Importance of Insurance Coverage in Mediating  Complex Construction Claims for the March 31, 2008 issue of the New Jersey Law Journal.

You can read the full article here.

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The New Jersey Appellate Division decided Delam Construction v. 15 Thornton Road on December 10, 2007.  The parties had entered into a contract for Delam to construct a building.  Defendant, Thornton, owed Delam a balance of $187,368 for Delam’s work on the project.  Delam filed suit for breach of contract and later added Thornton’s managing member as a defendant.

Thornton counterclaimed alleging construction deficiencies.

Discovery took place and trial was scheduled more than one year after the complaint was filed.  By then, defendant had obtained new counsel, trial was adjourned and the court sent the matter to arbitration after defendant’s new attorney raised for the first time an arbitration clause in the original contract.  Plaintiff alleged that defendant had waived its right to arbitration by participating in the litigation for over one year.  The court examined the competing interests between, on the one hand, favoring commercial arbitration as a speedy and inexpensive alternative to litigation, particularly in construction contract disputes, and on the other hand, whether the active and prolonged litigation resulted in a waiver of the right to compel arbitration.

The court noted an earlier decision where a trial judge’s compelling arbitration nearly five years after the original complaint, was rejected.

After wrestling with the issue of when a waiver has occurred, the court ruled in favor of allowing the matter to proceed to arbitration.

The court relied upon “prejudice” as the “touchstone” for determining when a waiver has occurred.  The court was influenced by the perceived lack of prejudice to plaintiff given that much of the same information generated through discovery would be admissible in the arbitration.  The court was also persuaded by the assumed knowledge by plaintiff that by filing in court, plaintiff was ignoring the mandatory contractual arbitration provision.  Finding neither side blameless, the court directed the matter to arbitration.

The court recognized this was a difficult choice.  Parties litigating in this area should be mindful that there are federal cases which hold otherwise.  As always, the ultimate outcome was somewhat case specific and fact sensitive.

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The New Jersey Supreme Court has adopted New Jersey Rule of Evidence 519 entitled “Mediation Privilege” to become effective July 1, 2008.  It provides that a mediation communication is privileged and shall not be subject to discovery or admissible in evidence in a proceeding unless waived or precluded under limited circumstances further defined in the amendment.

However, evidence or information that is otherwise admissible or discoverable does not become inadmissible or protected from discovery solely by reason of its disclosure or use in a mediation.

The parties to a mediation may expressly waive the privilege, and in the case of the privilege of a mediator, it may be expressly waived by the mediator.

Among the exceptions, where the privilege does not apply are the following:

1.    Communications made during a public mediation;
2.    A threat or statement of a plan to inflict bodily injury;
3.    Communications sought or offered to prove or disprove a claim or complaint against a mediator arising out of a mediation;
4.    Communications offered to prove or disprove a claim or complaint of professional malpractice; and
5.    Communications sought or offered to prove or disprove child abuse or neglect in a proceeding involving DYFS, unless DYFS participates in the mediation.

The privilege does not exist where a court, administrative agency or arbitrator finds that the party seeking discovery where the proponent of the evidence has shown that the evidence is not otherwise available, that there is a need for the evidence that substantially outweighs the interest in protecting confidentiality and the that the mediation communication is sought or offered in a proceeding involving a crime or to avoid liability on a contract arising out of the mediation.

A mediator may not make a report or recommendation regarding a mediation to a court.

The foregoing evidence rule expands upon New Jersey Court Rule 1:40-4 “Mediation - General Rules” which include a “confidentiality” provision.  It mirrors several provisions within the New Jersey Uniform Mediation Act, N.J.S.A. 2A:23C-1 to 13.  The evidence rule reaffirms the court’s intent to foster uninhibited communication during mediation, so as to further the goal of creating an environment wherein the parties will discuss freely their respective positions creating greater opportunities for settlements to occur.

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Mediators want high “batting averages”–i.e. a very high percentage of mediations which successfully resolve all matters in dispute.  As a mediator so do I, and there is nothing more frustrating to this mediator than a mediation which fails because the lawyers have failed to recognize outstanding legal issues and how the resolution of those issues affects the “value of the case.”  In such circumstances, a lawyer cannot perform a litigation risk and cost analysis which is a necessary predicate to a successful mediation.  Furthermore, the lawyer has probably given the client an unrealistic evaluation of various claims making it difficult to successfully mediate the case.  And when several of the lawyers participating in the mediation have given their clients unrealistic evaluations, it is almost impossible to have a successful mediation.  How do I as a mediator attempt to overcome the problem of unresolved legal issues?

First, as soon as I am retained I attempt to obtain as much information as possible.  I immediately request copies of all the pleadings and all briefs which have been filed in support of motions.  I then schedule a telephonic conference to uncover outstanding discovery issues.  At the telephonic conference I set a firm date for the submission of confidential mediation statements, and analyze them as soon as received.  After analyzing all this material I make an initial decision whether to handle the mediation in a facilitative style or an evaluative style or a combination of both.

Using a purely facilitative style a mediator tries to assist the parties in identifying and exploring interests, motivations, concerns, common ground and possible resolutions.  But, a mediator using a purely facilitative style does not draw conclusions for the parties.  The mediator does not offer opinions regarding legal positions or potential litigation outcomes.  Unfortunately, a purely evaluative style cannot result in a successful mediation when there are outstanding legal issues which have not been considered by one or more parties in making a litigation risk and cost analysis.

Instead of using a purely facilitative style I gently pursue an evaluative style.  In an evaluative style a mediator is likely to offer opinions on the strengths and weakness of the case.  But, I approach this evaluative style very gently.  After I discover a serious unresolved legal issue I generally write counsel and tell them that I have discovered a case or a line of cases which may affect the mediation process and ask for counsels’ opinions.  Or, I may request that counsel provide me with case law that supports an important legal position.  However, only when the parties to the mediation process believe that my opinion is necessary will I provide an opinion.

I try by using a modified facilitative approach to encourage the parties to consider the subject of unresolved legal issues and make realistic litigation risk and cost analyses before the day of mediation arrives.  Settlement is then much more likely.  And, SETTLEMENT is what I seek.

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Until recently, it was impossible to get a divorce in New Jersey without at least one party appearing before a Judge and requesting the divorce. However, despite the new procedure many attorneys still proceed with the standard default divorce procedure.

The new procedure is slightly more complex than the standard default divorce. In a “default” divorce, one spouse would file the complaint and serve the complaint on the other spouse. If the second spouse did not respond to the complaint within the appropriate statutory time limit, the filing spouse could request that the court schedule a hearing and enter a divorce judgment by default.

The “on the papers” process as modified starts off the same way. One party files the complaint, and after the appropriate statutory waiting period has elapsed, the filing party requests that the court enter a default judgment. A default hearing is scheduled. However, because the parties have executed a property settlement agreement, they are able to get a divorce without ever appearing in Court.
The parties must forward to the Court, prior to the default hearing the following documentation:

1. Verified Complaint
2. Proof of service of defendant
3. In adultery cases, notice to correspondent and proof of service, which shall include that the correspondent has not moved to intervene or otherwise respond to the notice.
4. Request for default and proof that such default was served on the defendant
5. Affidavit of non military service
6. Affidavit of Insurance
7. Plaintiff’s sworn statement in support of request of judgment (see below)
8. An original and two copies of the Proposed Final Judgment of Divorce,
indicating that the matter was heard on the papers submitted and that the court made no finding on the merits
9. Child support guidelines worksheet, and if a deviation from the guidelines, a statement of reasons for the deviation
10. Written statement required by the probation department
11. A stamped, addressed return envelope

Appropriate proofs must be submitted to establish the plaintiff’s right to the relief requested. Unless the following are contained in the complaint, such a request should be in the form of a sworn statement (affidavit or certification), captioned “Certification in Support of the Request for Judgment” (or a similar title), and should:

1. Include a statement identifying all prior and pending proceedings in this or any other jurisdiction. The statement must indicate the caption, docket number and a brief indication of the status. If there are no other proceedings, the statement must certify that there are no other pending matters between the parties.
2. Certify that neither party is on public assistance, or if so, the nature of the assistance being received, the amount of the assistance for plaintiff and children, if any.
3. If incorporation of a PSA is requested, state the agreement was entered into voluntarily and freely and without coercion; that it resolves all the issues between the parties; that plaintiff considers it to be fair and equitable under all the circumstances; that plaintiff waives a right to trial and that plaintiff is satisfied with the legal services provided, if any, and a request to incorporate the Agreement into the Final Judgment of Divorce.
4. In cases where permanent alimony is a relief requested, or where the PSA contains a provision for permanent alimony, include a “Marital Lifestyle Statement” consistent with Crews v. Crews, 164 NJ 11 (2000), and a CIS which is less than one year old.
5. State that plaintiff is aware that s/he is waiving the right to have the judge decide these issues.
If Plaintiff requests the continuation of prior final orders, the complaint or certification must:
1. include copies of the orders.
2. identify the orders in the body of the certification.
3. confirm there is no other property or debt to be distributed.
4. confirm that there are no other outstanding issues between the parties.
5. confirm that plaintiff is aware that s/he is waiving the right to have the judge decide these issues.
6. recite that plaintiff understands that all prior orders not specifically referenced in the Final Judgment will be vacated upon the entering of the final judgment; except that no Restraining Order entered under the Prevention of Domestic Violence Act shall be vacated by the entry of a Judgment of Divorce.
7. state whether or not either party seeks to continue a restraining order previously entered under the Prevention of Domestic Violence Act.

If either spouse is requesting a name change, the complaint or certification must confirm that the party qualifies for a name change and is not changing their name to avoid creditors or criminal prosecution.

Once the staff has confirmed that all the above is included in the file, the file will be forwarded to a Judge to enter the Final Judgment of Divorce.

Technorati Tags: New Jersey : Divorce

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Michael S. Kimm v. Blisset, LLC.

In the case of Michael S. Kimm v. Blisset, LLC., et als., in an opinion decided on August 28, 2006, the Appellate Division of the Superior Court of New Jersey ( Docket No. A-0965-04T2)  dealt with issues concerning the scope of an arbitrator's powers.    In the opinion, the Court drew distinctions between:  1) fee disputes between attorneys and clients; 2) arbitrations in Court annexed proceedings; and 3) arbitrations held pursuant to private agreements.  In addition, the Court focused on the meaning of the recently enacted  New Jersey Arbitration Act, N.J.S.A. 2 A: 23 B-1 to 32 as it relates to the powers of an arbitrator.   

The Court noted that, at its heart, arbitration is a creature of contract.  It is a favored remedy and arbitration agreements are liberally recognized.   It is state contract law principles that generally govern whether a valid agreement to arbitrate exists.

An arbitrator's powers is generally limited by the agreement of the parties.  The Court therefore noted that where only one of the parties believes that the arbitrator was empowered to act, and there was no evidence of an actual agreement, the arbitrator has no authority to act at all.    If the parties have not agreed in advance, the parties cannot force an arbitrator to give reasons for the award or to write a decision  explaining  his or her view of the facts.

In New Jersey, agreements to arbitrate made on or after January 1, 2003, are governed by the revised New Jersey Arbitration Act.  N.J.S.A.  2 A: 23B - 3a.  This revised Act is based largely on the Uniform Arbitration Act of 2000, see Assembly Judiciary Committee Statement on Senate Bill No. 514, L. 2003 c.95, and codified at N.J.S.A. 2A:23B-1 to -32.  This statute replaces the earlier version of the Arbitration Act, see N.J.S.A. 2A: 24 - 1 to -11.

The earlier statute required a written contract or a written "agreement to submit" to arbitration, in order for a party to be required to proceed to arbitration.    The revised statute, by comparison, only requires a "record", which presumably might fall short of a formal, contractual writing.  In addition, under the prior statute, an arbitrator's award had to be reduced to a judgment by a Court in order to be enforceable and the Court would have the ability to vacate, modify or correct the arbitrator's award .  

Under the new statute, the grounds upon which a Court may vacate an award have been expanded and the new statute also empowers the Court to correct or modify an award. The earlier statute gave the Court the authority to vacate an arbitrator's award if the arbitrator "so imperfectly executed (his) powers that a mutual, final and definite award" was not made.  The revised act specifically excludes an attack on an award, either by way of application to the arbitrator or the Court, on the grounds of imperfection, if the claim of imperfection is addressed to the merits of the award.  While an arbitrator may "clarify" the award, the arbitrator may not change his or her mind or reconsider the decision, in the guise of clarification.

Parties intending to have their disputes completely  resolved by arbitration should take care that any agreements they enter into deal clearly and concisely with the issue of what is to be arbitrated and how the arbitration is to be handled and be aware of the provisions of the New Jersey Arbitration Act.

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Maria Imbalazano, a Shareholder in the Divorce Group, authored the article Mediate or Litigate: Which is Best for Your Divorce Client for the August 2006 New Jersey Law Journal Family Law Supplement.

The article discusses the growing trend of divorce mediation as opposed to traditional litigation.  You can read the article here.

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