Michael P. Carbone

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Publications > Construction Defect Mediation > Settlement Cracks?


A New Ruling Puts an End to Court-Ordered Mediation


Michael P. Carbone, Esq.


(First Published in The Recorder March 2007)


In Jeld-Wen Inc. v. Superior Court of San Diego County (2007) 146 Cal.Appp.4th 536, which arose from a multi-party construction defect lawsuit, the Four­th District Court of Appeal held that courts cannot order parties to attend and pay for private mediation. While the holding was not limited to construction defect or other kinds of complex litiga­tion, its impact will be felt primarily in those arenas.


The trial court entered a case management order, relying on Code of Civil Procedure section 639, that appointed a neutral to mediate and conduct settlement conferences for a maximum of 100 hours at an hourly rate of $500. It also appointed a second neutral as a discovery referee. These appointments were typical of the manner in which construction defect litigation has traditionally been handled, except that in some counties the courts appoint a single neutral B usually called a Aspecial master@ B to handle both discovery and settlement negotiations.


After representatives of Jeld-Wen Inc. failed to attend a mediation session, a motion was made for an order imposing monetary sanctions and compelling its appearance at the next mediation. The trial court granted the motion and entered the order, concluding that the case management order did not conflict with any statute or rule of court and that Lu v. Su­perior Court, 55 Cal. App. 4th 1264, authorized it Ato appoint a mediator to conduct man­datory settlement conferences.@


The Court of Appeal, in its Jan. 4 opinion, directed the trial court to set aside the order. It based its decision primarily on the principle, which had been recognized in Travelers Casualty and Surety Company v. Superior Court, Cal. App. 4th 1131, that mediation is by nature a voluntary process. AWhile trial courts may try to cajole the parties in complex actions into stipulating to private mediationYthey cannot be forced or coerced over the threat of sanctions into attending and paying for private mediation as this is antithetical to the entire concept of mediation,@ held the appellate court.


The court also disapproved of the use of the reference power in section 639 to appoint a mediator. That section allows a trial court to appoint a referee for certain enumerated pur­poses, including the resolution of discovery disputes, but not including the appointment of a mediator. Rule 3.920 of the Rules of Court allows the use of section 639 to appoint a referee to conduct a mandatory settlement conference but expressly prohibits its use to appoint a mediator.


The Court of Appeal=s decision regarding mandatory mediation was legally sound. Vol­untariness lies at the very heart of mediation. AMandatory mediation@ is an oxymoron and the appointment of a mediator, rather than a referee, to conduct a process that really amounts to a mandatory settlement conference is simply out of place.  The only exception to the requirement of voluntary participation is for the small cases that fall within the Civil Action Mediation Program established under section 1175 of the Code of Civil Procedure.


The Jeld-Wen case has removed the underpinnings of the case management and settlement system previously used by many courts in complex litigation. Unless the California Supreme Court overrules Jeld-Wen, which does not appear to be likely, the nature of complex litigation will be significantly changed.  Gone will be the days of mandatory mediation. Gone as well will be the special master/mediator appointed by the court, who manages the case, resolves any discovery disputes, settles the case and uses a series of hearings and mediations in order to accomplish all of these tasks. 


Some may not see a problem in any of this since parties can still stipulate to mediation. That has been a common practice until now, thereby enabling courts to order it.  But in a multi-party case, what is the likelihood now that all of the insurance carriers, for example, will so stipulate? Even if they do, does their stipulation confer the authority on a court? And even if a judge orders mediation, doing so may prove to be a futile act because, as the Court of Appeal observed, a party has the right to withdraw from mediation at any time.


Some observers are predicting that chaos will result. But the Court of Appeal disagreed and so do I. The appellate justices understood that mediation is necessary for the settle­ment of complex litigation and believes that it will continue. A[W]e suspect that in a large majority of complex cases most parties will agree to private mediation; as such, we fore­see no apocalyptic consequences from this decision,@ the court said in Jeld-Wen.


In reality, this decision could turn into a positive development. The system used in the past for complex construction defect cases was already broken and in urgent need of re­form. Jeld-Wen Inc. was not alone in its resistance to mandatory mediation although it may have been the first to challenge it in an appellate court. It has become commonplace for parties involved in complex litigation to refuse to cooperate with court-appointed me­diators. The compulsory aspect of the process often leads to passive resistance rather than good faith cooperation.


Mandatory mediation also has another drawback, which is the loss of confidentiality. Under section 1115 of the Evidence Code, a mandatory settlement conference is excluded from the definition of mediation. Thus, the communications made during mandatory set­tlement conferences, along with any studies, reports or other documents prepared for use in such conferences, are not protected by the confidentiality that would attach to a true mediation.


The question now is how can parties to complex litigation effectively use mediation? While courts will no longer make the appointment, parties can simply retain the mediator on their own at the outset of the case. If so, they should select a neutral who is capable of handling complex situations and building consensus among multiple parties rather than trying to impose a resolution on them.


For those who may prefer to use a single neutral, it is still possible for a person who has served as a referee to be hired as a mediator but only after the reference has ended. Pro­ceeding in that fashion is not recommended. Parties should not wait for the reference to end before starting the process of mediation because confidentiality will not be available until the mediation begins.


Courts can and should still use the reference power in section 639 to appoint discovery referees. Traditionally, courts have used case management orders in complex cases to place a stay on normal discovery and let the referee manage the process. There is no indi­cation in the Jeld-Wen decision that this practice will be affected. But given the emphasis on following the statutes and rules of court, it may be prudent to consider proposing amendments to those rules that would clarify the powers of the superior courts and referees in this regard. The appointment of a referee to assist the court in managing the case, handling discovery problems and getting the case into a position so that a productive mediation can thereafter occur will be of paramount importance.


Mandatory settlement conferences can still be used when mediation does not resolve the case. But a court may not be able to compel parties to attend an unlimited number of such conferences. Jeld-Wen Inc. took the position before the trial court that, under Rule 3.1380, the authority to set a mandatory settlement conference meant that only one such conference could be held. While the Court of Appeal did not have to decide this issue, Jeld-Wen=s argument could be well taken if Rule 3.1380 is read literally. And if so, a settlement referee who conducts a series of settlement conferences may disappear from the scene. Courts may prefer to reserve to themselves the power to hold a settlement conference if the case does not settle at mediation and to continue it from day to day as needed. The solution to this problem would probably be an amendment to Rule 3.1380 to insure some flexibility in the number of mandatory settlement conferences that may be held in complex litigation.


In order to adapt to the new environment created by the Jeld-Wen case, counsel will need to revisit their forms of case management orders. An adaptation that I favor is one in which a court expressly encourages parties to use mediation while allowing them to opt out by notifying the court at the outset of the case. Mediation has become accepted as the most effective way of resolving complex litigation. Parties are unlikely to refuse so long as they cannot be forced to go to an endless series of sessions nor otherwise be treated in a heavy-handed manner.


  Copyright Michael P. Carbone 2007

Copyright © Michael P. Carbone

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