As mediation has become more accepted, and its benefits apparent, commercial parties are well advised to consider inserting pre-litigation dispute resolution clauses into their contracts. Properly drafted, they provide a short window in which to explore settlement before litigation begins. Once suits are filed, positions usually harden, as both sides hunker down to begin what often turns into a war of attrition. Pre-litigation mediation is especially effective because it can sometimes salvage a continuing business relationship before it is irretrievably damaged.
Despite mediation’s benefits, some courts have been reluctant to force a recalcitrant party to mediate before filing suit, perhaps concluding it would be a waste of time and resources to compel mediation when one party is so against participating. See, e.g., Cumberland & York Distributing v. Coors Brewing Co., 2002 U.S. Dist. Ct. Lexis 1962 (D. Me. 2012). However, the enforceability of such pre-litigation mediation clauses can be enhanced through proper draftsmanship. The language of the provision should be clear, 1) identifying the procedures to be applied (this can easily be done by incorporating the rules of a court mediation program); 2) setting the time frame within which the mediation is to be commenced and completed (the shorter the better); 3) designating the mediator or a panel from which the mediator is to be chosen; 4) specifying that mediation is a condition precedent to suit; and 5) creating a carve-out if one party needs to invoke a provisional remedy on an expedited basis (e.g., replevin, injunction, attachment or other immediate equitable relief). See, e.g., Bank of America, N.A. v. SFR Investments Pool 1, LLC, 2016 WL 389981 (D. Nev. Jan. 31, 2016); Getchell v. Suntrust Bank, 2016 WL 740603 (M.D. Fla. Feb. 25, 2016).
Consideration should also be given to conditioning the right to recover legal fees, if the contract permits imposition of fees upon the losing party, upon the prevailing party’s compliance with the pre-litigation mediation clause. Alternatively, if the contract does not have an attorney fee provision, the clause can create a right to recover legal fees against a losing party who breaches a pre-litigation mediation obligation. Such provisions would put needed teeth into the obligation to mediate because some courts have refused to dismiss an action filed in violation of a pre-mediation clause. Dismissal can be a draconian result, especially if it would trigger a potential statute of limitations bar.
It is imperative that such mandatory pre-litigation mediation clauses be properly drafted, and address all of the issues identified above. See, e.g., Key Restoration Corp. v. Union Theological Seminary, 2014 N.Y. Slip Op. 30437 (v). If the clause is imperfect, the likely result will be unnecessary motion practice, with its attendant delay and expense, as the parties litigate the meaning, applicability, and enforceability of the underlying clause. See, e.g., Fluor Enterprises Inc. v. Solutia Inc., 147 F. Supp. 2d 648 (S.D. Texas 2001).
Joe DiBenedetto recently retired from Winston & Strawn LLP, after spending 46 years in its Manhattan office as a capital partner specializing in commercial litigation. He formed JDB Mediation LLC to further develop his mediation and arbitration practice, which is centered in Manhattan and its surrounding counties (including Westchester, Nassau, and Suffolk). Joe DiBenedetto’s experience, training, and other credentials are more fully described at www.JDBMediation.com