Chapter 19 - Dispute Resolution
Dispute Resolution
Summary:
When negotiation and compromise fail, some form of litigation may become necessary. This chapter lists the documents required for that litigation. Arbitration clauses are common in public works contracts (such as under the State Contract Act, specifically California Public Contract Code § 10240, et seq. Note that time for initiating arbitration is now reduced to 90 days, Public Contract Code § 10240.1 (amended 1998)). Litigation and arbitration may be slow and expensive; mediation is a more cost and time effective procedure. Judicial arbitration may be required before a case can proceed to trial pursuant to Code of Civil Procedure §§ 1141.10-1141.31. Claims with an amount in controversy less than $50,000 per plaintiff generally require mandatory arbitration.
Dispute Resolution Tools
If a claim or dispute cannot be resolved as discussed in Chapter 17, then further sets of resolution tools may be necessary.
§ 19.1 Litigation
Most everyone would agree it is in the best interest of all the parties involved in a public works contract dispute to settle their differences through negotiation and compromise, and to avoid litigation. However, if litigation is necessary, documentary evidence is very important. The key documents generated during a project are contracts, plans, specifications, revisions, bids, progress payment requests, detailed job costs reports, change order forms, schedules, daily reports, correspondence and testing reports. Because of the complicated nature of construction, it is essential to present the claim in a manner that both the court and the jury can understand.
Construction litigation involves the same familiar stages as any other type of litigation: discovery, pretrial motions, trial, post-trial motions and appeal.
§ 19.1.1 Special Master
A carefully chosen Special Master can manage discovery and encourage early settlement.
In this author’s decades of experience in serving as a Referee and Special Master, the author has become convinced it is the best method of managing complex construction cases, meeting the parties’ desire for early discovery leading to settlement. If a trial is required, it can be scheduled at a convenient time and place. The process is flexible while maintaining judicial supervision.
A typical District Judge manages 425 cases (in the Eastern District of California, each Judge has over 900 cases). So, the courts have very little time to devote to complex construction cases. A Special Master can hear specific issues or the entire construction case, then draft a proposed ruling for the Court's careful review and signature. The right of appeal is preserved by the parties.
Under the Federal Rules of Civil Procedure, Rule 53, a Special Master can be selected by the parties and appointed by the Court to exercise a broad range of powers:
(1) Scope. Unless a statute provides otherwise, a court may appoint a master only to:
(A) perform duties consented to by the parties;
(B) hold trial proceedings and make or recommend findings of fact on issues to be decided without a jury if appointment is warranted by:
(i) some exceptional condition; or
(ii) the need to perform an accounting or resolve a difficult computation of damages; or
(C) address pretrial and posttrial matters that cannot be effectively and timely addressed by an available district judge or magistrate judge of the district. (emphasis added)
The advantages of using a Special Master are quite significant:
1) Flexibility in scheduling time with counsel and the parties.
2) Highly knowledgeable in law, civil engineering & construction management.
3) Making prompt decisions on discovery matters.
4) Conducting hearings with sworn testimony and exhibits.
5) Writing a comprehensive, logical and principled report or decision.
6) Unlike arbitration, the Special Master’s decision is reviewable by the Trial Court and the final judgment is fully appealable.
The use of a Special Master (or Referee) has become a matter of absolute necessity in some federal and state jurisdictions. Due to delays in nominating judges, among other factors, civil jury trials have become very rare (less than 1.8% of filed federal civil cases go to trial).
In the Eastern District of California, a jurisdiction with over 8 million people, the retirement of two of the Court’s six judges will result in 2,000 cases being distributed to the remaining four judges (who already have over 900 cases each). As a result, the Presiding Judge has written the US Congress, civil jury trials will no longer be available:
(See http://www.caed.uscourts.gov/caednew/assets/File/Judgeship%20Letter%20June%202018.pdf)
And, as a practical matter, no court system is eager to tie up a judge, jury and courtroom for an eight-week construction dispute. (The jurors often find these cases overly technical and boring.)
§ 19.1.2 Judicial Referee
The parties may hire a referee to manage and determine specific aspects of a controversy, the discovery process, or the entire litigation. However, the Superior Court directly supervises the process. The procedural rules are similar to those of a Special Master and are found in the California Code of Civil Procedure § 638 (Party Appointed Referee), § 639 (Court Appointed Referee).
The Referee provisions read as follows:
CCP 638 (Agreement of the Parties)
A referee may be appointed upon the agreement of the parties filed with the clerk, or judge, or entered in the minutes, or upon the motion of a party to a written contract or lease that provides that any controversy arising therefrom shall be heard by a referee if the court finds a reference agreement exists between the parties:
(a) To hear and determine any or all of the issues in an action or proceeding, whether of fact or of law, and to report a statement of decision.
(b) To ascertain a fact necessary to enable the court to determine an action or proceeding.
(c) In any matter in which a referee is appointed pursuant to this section, a copy of the order shall be forwarded to the office of the presiding judge. The Judicial Council shall, by rule, collect information on the use of these referees. The Judicial Council shall also collect information on fees paid by the parties for the use of referees to the extent that information regarding those fees is reported to the court.
CCP 639 (Appointment by the Court)
(a) When the parties do not consent, the court may, upon the written motion of any party, or of its own motion, appoint a referee in the following cases pursuant to the provisions of subdivision (b) of Section 640:
(1) When the trial of an issue of fact requires the examination of a long account on either side; in which case the referees may be directed to hear and decide the whole issue, or report upon any specific question of fact involved therein.
(2) When the taking of an account is necessary for the information of the court before judgment, or for carrying a judgment or order into effect.
(3) When a question of fact, other than upon the pleadings, arises upon motion or otherwise, in any stage of the action.
(4) When it is necessary for the information of the court in a special proceeding.
(5) When the court in any pending action determines that it is necessary for the court to appoint a referee to hear and determine any and all discovery motions and disputes relevant to discovery in the action and to report findings and make a recommendation thereon.
(b) In a discovery matter, a motion to disqualify an appointed referee pursuant to Section 170.6 shall be made to the court by a party either:
(A) Within 10 days after notice of the appointment, or if the party has not yet appeared in the action, a motion shall be made within 10 days after the appearance, if a discovery referee has been appointed for all discovery purposes.
(B) At least five days before the date set for hearing, if the referee assigned is known at least 10 days before the date set for hearing and the discovery referee has been assigned only for limited discovery purposes.
(c) When a referee is appointed pursuant to paragraph (5) of subdivision (a), the order shall indicate whether the referee is being appointed for all discovery purposes in the action.
(d) All appointments of referees pursuant to this section shall be by written order and shall include the following:
(1) When the referee is appointed pursuant to paragraph (1), (2), (3), or (4) of subdivision (a), a statement of the reason the referee is being appointed.
(2) When the referee is appointed pursuant to paragraph (5) of subdivision (a), the exceptional circumstances requiring the reference, which must be specific to the circumstances of the particular case.
(3) The subject matter or matters included in the reference.
(4) The name, business address, and telephone number of the referee.
(5) The maximum hourly rate the referee may charge and, at the request of any party, the maximum number of hours for which the referee may charge. Upon the written application of any party or the referee, the court may, for good cause shown, modify the maximum number of hours subject to any findings as set forth in paragraph (6).
(6)
(A) Either a finding that no party has established an economic inability to pay a pro rata share of the referee's fee or a finding that one or more parties has established an economic inability to pay a pro rata share of the referee's fees and that another party has agreed voluntarily to pay that additional share of the referee's fee. A court shall not appoint a referee at a cost to the parties if neither of these findings is made.
(B)In determining whether a party has established an inability to pay the referee's fees under subparagraph (A), the court shall consider only the ability of the party, not the party's counsel, to pay these fees. If a party is proceeding in forma pauperis, the party shall be deemed by the court to have an economic inability to pay the referee's fees. However, a determination of economic inability to pay the fees shall not be limited to parties that proceed in forma pauperis. For those parties who are not proceeding in forma pauperis, the court, in determining whether a party has established an inability to pay the fees, shall consider, among other things, the estimated cost of the referral and the impact of the proposed fees on the party's ability to proceed with the litigation.
(e) In any matter in which a referee is appointed pursuant to paragraph (5) of subdivision (a), a copy of the order appointing the referee shall be forwarded to the office of the presiding judge of the court.
§ 19.2 Arbitration
The California Arbitration Act and the Federal Arbitration Act enforce arbitration provisions in contracts. Code of Civil Procedure § 1281. California courts and public policy favor the resolution of commercial disputes through arbitration to promote judicial economy, and to settle disputes quickly and fairly. Thus, courts will generally enforce such contractual provisions.317 Parties will often argue that the State arbitration act is preempted in some way by the Federal Arbitration Act. Or the International Arbitration Act (https://sso.agc.gov.sg/Act/IAA1994).
Further, some arbitration provisions have been found against public policy, McGill v. Citibank, N.A. (2017) 2 Cal.5th 945, rejecting a clause that prohibited public injunctive relief under such statutes as the Consumers Legal Remedies Act ("CLRA"). The public relief cause of action was relegated to the courts.
In some instances, the California Legislature has prohibited the use of binding arbitration, such as the recent ban on employment contract arbitration. The theory is that employees (and plaintiff attorneys) want their day in court, preferably in front of a jury.
Construction disputes are often extremely complex, and because arbitration involves many of the same drawbacks as litigation, it may not be the best alternative. For example, arbitration can be slow and expensive. But there may be efficiencies, in part because discovery rules do not apply, proceedings are informal, and it is not necessary to follow formal rules of evidence.
There are numerous rules for arbitrator disclosure and conflict of interest rules. Ethical rules for neutral arbitrators are found in California Code of Civil Procedure § 1281.85 and in California Rules of Court, DIVISION VI. Ethics Standards for Neutral Arbitrators in Contractual Arbitration, Revised September 1, 2019
These California Rules of Court state:
Standard 1. Purpose, intent, and construction:
(a) These standards are adopted under the authority of Code of Civil Procedure section 1281.85 and establish the minimum standards of conduct for neutral arbitrators who are subject to these standards. They are intended to guide the conduct of arbitrators, to inform and protect participants in arbitration, and to promote public confidence in the arbitration process.
(b) For arbitration to be effective there must be broad public confidence in the integrity and fairness of the process. Arbitrators are responsible to the parties, the other participants, and the public for conducting themselves in accordance with these standards so as to merit that confidence.
(c) These standards are to be construed and applied to further the purpose and intent expressed in subdivisions (a) and (b) and in conformance with all applicable law.
(d) These standards are not intended to affect any existing civil cause of action or create any new civil cause of action.
A significant consideration to keep in mind is whether any specific proceeding will be impacted by the arbitrator’s expertise and/or possible bias. Or, certain cases are stronger on the equities of the claim, rather than the law, and may thus have greater appeal to the arbitrator’s sense of fairness, resulting in a more favorable decision than in a judicial setting.
The major strategic decisions in arbitration are associated with the selection of the actual arbitrators, dealing with the lack of substantial discovery in arbitration, and the significant barriers to appealability. On the other hand, arbitration is generally faster, less expensive and uses a specialized panel of experts with considerable industry understanding and knowledge.
The preparation for an arbitration is similar to that of a jury trial, including extensive use of graphics, photographs, drawings and factual summaries. Often, the arbitration panel will read a great deal of the exhibits and other materials before the case begins, streamlining the overall presentation. Further, preliminary issues, such as the nature of a construction process, the delineation of design and construction responsibilities and other matters are generally well understood by the panel that focus upon the specific project contracts and events that make up the controversy before the panel.
Generally, arbitration panels must render a decision within a set period, e.g., 30 days, after the close of hearings. This is often a major delay in bench trials that is avoided in the typical set of arbitration rules.
While the relief that may be granted by arbitration panels is generally quite broad, such thorny issues such as disqualification of counsel, continuing injunctions, and punitive damages are generally reviewable by Superior Courts in California.
In Eternity Investments, Inc. v. Brown (2007) 151 Cal.App.4th 739, the Court held that if one wishes to have an arbitration award vacated or corrected, he or she must act within one-hundred days of service of the award or be precluded from attacking the award. Here, the owners did not serve a petition or response to correct or vacate the award before the 100-day period expired. Accordingly, the Court of Appeals affirmed the trial court’s decision which confirmed the AAA award in favor of Eternity. (This was true even though the owner was asserting the lack of a license by the contractor.)
It is fairly easy to enforce an arbitration agreement, but it must be done before waiving the right by proceeding with litigation. The typical approach is to file a lawsuit along with a motion to stay and to compel arbitration. The statutory grounds for overturning an arbitration award are quite narrow. They are covered in Code of Civil Procedure § 1281.2 and numerous cases.
At present, the most likely route to overturning an arbitration verdict, especially under the new California disclosure requirements, is fraud or corruption, or the lack of full disclosure of any material facts or relationship by one of the arbitrators that may have created bias or unfairness in the arbitration proceeding.
Practice Pointer: It is increasingly common for losing parties to start an in depth investigation of the arbitrator’s business dealings, family connections and prior representation to find some aspect of the disclosure that was incomplete. This is especially true in very large cases.
As such, it is important for the arbitrators to state every known past involvement, as well as a blanket statement as to the limits of their ability to research the archives of past law firm connections or lists of prior clients of the firm or partners. Finally, the arbitrators should disclose their use of social media, such as LinkedIn or Facebook, attendance at State Bar events or ABA functions, as well as other industry events. It is also important to disclose any past friendship or professional involvement with lay witnesses or experts in the case, at the earliest opportunity.
§ 19.2.1 AAA Arbitration
Many form agreements require binding arbitration according to the American Arbitration Association rules (some of which require mediation, see below). An agreement to arbitrate may be made either in advance of a dispute (e.g., in the contract) or negotiated after the dispute has arisen.318 Some form contracts require binding arbitration (Associated General Contractors of California), whereas others have a checkbox of various ADR options (such as the American Institute of Architects). The later include arbitration, Project Neutral as well as mediation.
The AAA has various rules for arbitration, the most common one is The Construction Industry Dispute Resolution Procedures (including Mediation and Arbitration Rules). The rules contain regular procedures that are applied to the administration of all arbitration cases, unless they conflict with any portion of the Fast Track Procedures or the Procedures for Large, Complex Construction Cases whenever these apply. In the event of a conflict, either the Fast Track procedures or the Large, Complex Construction Case procedures apply.
These are some highlights of the Regular Procedures for Construction Arbitration:
• An experienced panel with expertise in engineering, construction, and law;
• Party input into the AAA’s preparation of lists of proposed arbitrators;
• Express arbitrator authority to control the discovery process;
• Broad arbitrator authority to control the hearing;
• A preliminary hearing that sets timelines and expectations of the parties;
• A concise written breakdown of the award and, if requested in writing by all parties prior to the appointment of the arbitrator or at the discretion of the arbitrator, a written explanation of the award;
• Arbitrator compensation, with the AAA to provide the arbitrator’s compensation policy with the biographical information sent to the parties;
• A demand form and an answer form, both of which seek more information from the parties to assist the AAA in better serving the parties;
• Expedited procedures for smaller cases;
• Formal supervision and administration of cases; and
• A hundred years of court cases interpreting AAA Rules.
§ 19.2.2 JAMS Arbitration
The Judicial Arbitration and Mediation Service (JAMS) is a private firm that provides ADR Services. (The Author’s former law firm in Newport Beach, California took JAMS public in an Initial Public Offering in 1989).
Many real estate and commercial contracts contain a clause requiring arbitration according to the JAMS arbitration rules. The most recent JAMS rules and procedures were issued effective July 1, 2014.
§ 19.2.3 OAH Arbitration
A public works contract may provide an arbitration clause, whereby the parties agree to resolve potential disputes by means of an arbitrator. See: Public Contract Code § 22201. Public Contract Code § 10240 provides that all claims under the State Contract Act are subject to arbitration.
If the claim is governed by the State Contract Act, Public Contract Code § 10240.9, provides for joinder of any party who consents, and is necessary to avoid the risk of the joined party being subjected to inconsistent obligations or decisions.
§ 19.2.4 CSLB Arbitration
The California State Contractors License Board administers an arbitration service to resolve smaller disputes. It is a fairly common remedy for smaller disputes between homeowners and residential contractors. Since it pertains to low dollar value monetary disputes, it is rarely used in commercial or public works settings. However. it is a valuable and extremely cost effective service.
A case qualifies for mandatory arbitration under Business and Professions Code § 7085, if:
(1) The final financial remedy does not exceed $15,000;
(2) The contractor’s license was in good standing at the time of the alleged violation;
(3) The contractor does not have a history of repeated or similar violations;
(4) The contractor does not currently have a disciplinary action pending against him or her; and
(5) The parties have not previously entered into a contractual agreement to privately arbitrate the matter.
§ 19.2.5 Judicial Arbitration
Judicial arbitration is different from the contractual arbitration discussed above. Judicial arbitration is governed by Code of Civil Procedure §§ 1141.10 - 1141.31, which provides that a case may be required to go to arbitration before it can proceed to trial. Mandatory submission applies to all at-issue civil cases in a superior court with more than 18 judges if, in the opinion of the court, the amount in controversy will not exceed $50,000 for each plaintiff.319
§ 19.3 Dispute Review Boards
A growing trend among public agencies engaging in large projects is the use of Disputes Review Boards (DRB’s). These boards typically consist of three senior, or retired, construction and public works professionals with broad experience in the type of work being undertaken. The DRB meets regularly, often once a quarter, and keeps abreast of the course of the project, as well as issues advisory decisions on any trends, controversies, or claims that may arise.
The language used by the California Department of Transportation (CalTrans) for the establishment of such DRB’s reads, in part, as follows:
5‑1.11 DISPUTES REVIEW BOARD
To assist in the resolution of disputes or potential claims arising out of the work of this project, a Disputes Review Board, hereinafter referred to as the “DRB”, shall be established by the Engineer and Contractor cooperatively upon approval of the contract. The DRB is intended to assist the contract administrative claims resolution process as set forth in the provisions of Section 9‑1.04, “Notice of Potential Claim,” and Section 9‑1.07B, “Final Payment and Claims,” of the Standard Specifications. The DRB shall not be considered to serve as a substitute for any requirements in the specifications in regard to filing of potential claims. The requirements and procedures established in this special provision shall be considered as an essential prerequisite to filing a claim, for arbitration or for litigation prior or subsequent to project completion.
The DRB shall be utilized when dispute or potential claim resolution at the job level is unsuccessful. The DRB shall function until the day of acceptance of the contract, at which time the work of the DRB will cease except for completion of unfinished dispute hearings and reports.
After acceptance of the contract any disputes or potential claims that the Contractor wants to pursue that have not been settled, shall be stated or restated, by the Contractor, in response to the Proposed Final Estimate within the time limits provided in Section 9‑1.07B, “Final Payment and Claims,” of the Standard Specifications. The State will review those claims in accordance with Section 9‑1.07B, of the Standard Specifications.
Following the completion of the State’s administrative claims procedure, the Contractor may resort to arbitration as provided in Section 9‑1.10, “Arbitration,” of the Standard Specifications. The DRB shall serve as an advisory body to assist in the resolution of disputes between the State and the Contractor, hereinafter referred to as the “parties”. The DRB shall consider disputes referred to it, and furnish written reports containing findings and recommendations pertaining to those disputes, to the parties to aid in resolution of the differences between them. DRB findings and recommendations are not binding on the parties.
Depending on the project language, the Disputes Review Board’s recommendations may, or may not, be admissible in later proceedings, such as arbitration or court proceedings. In the context of CalTrans Special Provisions, the DRB’s findings are admissible in any later arbitration between the parties. It is expected that due to the expertise of the DRB panel and their significant involvement during the course of the project, DRB findings generally will be given significant weight in any later arbitration or judicial proceedings.
§ 19.4 Project Neutral
The AIA and ConsensusDoc standard contracts provide an opportunity to appoint a ‘Project Neutral,” who will assist with dispute resolution during the entire course of the project. The Project Neutral is expected to be familiar with the project plans and specifications and is on hand at the job site, staying in contact with the parties and keeping abreast of a job’s progress.
The parties may agree as to whether their Project Neutral acts as an advisor providing non-binding opinions, a mediator facilitating the parties’ negotiations, or an individual vested with decision-making authority, as well as whether the project neutral serves on call or is more integrated into the project.
§ 19.5 Mediation
The parties to a dispute should always try to resolve their dispute by way of private mediation. The parties agree to employ a private mediator who assists and facilitates negotiations or settlement of a dispute in an informal manner. The mediator typically identifies the strengths and weaknesses in each party’s case and attempts to find a fair resolution of the dispute.
Ethical rules for mediators involved in court related mediations are found in the revised 2019 California Rules of Court, MEDIATOR ETHICAL STANDARDS, PART 1. Rules of Conduct for Mediators in Court-Connected Mediation Programs for Civil Cases, Title V, Special Rules for Trial Courts — Division III, Alternative Dispute Resolution Rules for Civil Cases — Chapter 4, General Rules Relating to Mediation of Civil Cases — Part 1, Rules of Conduct for Mediators in Court-Connected Mediation Programs for Civil Cases, first adopted effective January 1, 2003.
The majority of sophisticated contracting parties and their legal counsel regularly employ mediation as an effective method of resolving construction disputes. Construction mediation is often expensive in its own right, especially if a party is brought in on a cross-complaint and has little or no real exposure in the case.
In other instances, mediations can occur over numerous sessions without real progress (when the author was a full-time litigator, he was counsel for a party in an extended mediation for an airport dispute that was conducted over 16 sessions).
As such, there are reasonable standards for when parties need to participate in extended mediation sessions. In Jeld-Wen, Inc. v. Superior Court (2007) 146 Cal. App.4th 536, the court of appeal stated that trial courts do not have the power to send litigants to private mediations of complex construction disputes or pay for private mediation of those disputes. As a practical matter, the Courts may conduct their own Mandatory Settlement Conferences, appoint Special Masters or Referees for handling pre-settlement discovery, including production of insurance information and policies from the parties.
In addition, there are special statutes that must be observed by mediation participants. The first is confidentiality. Nothing said during mediation or prepared for or during mediation is admissible in later court proceedings, including whether a party was reasonable or negotiating in good faith in the mediation process. (Evidence Code §§ 1115, 1119).
Practice Pointer: The actual settlement agreement, being created during the mediation, is itself inadmissible, unless it specifically states that it is intended to be admissible and enforceable in subsequent court proceedings. Such settlement agreements stemming from pending litigation are often agreed to be under continuing court jurisdiction under Code of Civil Procedure § 664.6 and thereby subject to entry and enforcement of the settlement as a judgment.
§ 19.5.1 The Strengths of Mediation
There are two often cited rules regarding construction mediation: It is voluntary and the discussions regarding of settlement are confidential. It is also a huge money saving tool. It offers absolutely gigantic savings over the discovery and trial process. It satisfies the desire to end disputes with a handshake (and a signed settlement agreement). It turns adversaries into future clients and bidders.
§ 19.5.2 Unsuccessful Mediation
There are several MAJOR impediments to a successful mediation. The most significant is that everyone assumes that the parties will be prepared and that the necessary people, knowledge and documents will be readily available during the proceeding.
Unfortunately, during the course of mediation the parties and/or their legal counsel often realize that an essential party, representative (read insurance claim person), vital document, or other piece of key information is not present. It can leave a gaping hole in the settlement process and keep the parties from reaching agreement.
In that case, a great deal of time and effort is expended in rescheduling. Even then the parties may discover a new missing party, document or item of information. Mediation is great. But it can become an expensive waste of time if the parties are not fully prepared to wholeheartedly participate.
Practice Pointer: Hold the mediation at the site of the court reporter and/or document depository so that important exhibits, depositions and other documents are readily available.
§ 19.5.3 Mediation Checklist
The following Mediation Checklist covers the information and materials the mediator will require to resolve a construction case. Furthermore, the mediator should get these materials well before the mediation:
Parties:
1. Are all Parties present? (Owner, General, Subcontractors, A/E)
2. Do they have ultimate authority?
3. Are their insurance carriers (past and current) present with authority?
4. Are company owners present?
5. Will the responsible elected officials be present?
6. If not, can a committee chair attend?
Initial Presentation:
1. Can each side present its case in 30 minutes?
2. Are there blowups of project photographs?
3. Is an as-built and as-planned schedule available?
4. Are the daily reports and financial records available?
5. Are the most credible witnesses present?
6. Are the testifying experts in attendance?
Disputes:
1. Have all claimants exchanged written claims and demands?
2. Are all claims detailed and supported by reports and documents?
3. Has each defending party responded to the claims in writing?
4. What are the: a) original contract/lease amounts, b) agreed adjustments, c) paid amounts, d) outstanding claims, e) asserted backcharges, f ) punchlists, and g) retentions?
Pleadings:
1. Are the basic pleadings in place?
2. Have all parties answered?
3. Are there further parties?
4. Are all parties served?
5. Are there any jurisdictional issues?
6. Is there a bankruptcy stay on any party?
Claim Analysis:
1. Are full signed copies of the contracts available?
2. Who had primary responsibility?
3. What subcontracts assigned that responsibility?
4. What are the contract defenses?
5. Who is indemnified for the loss?
6. Who is entitled to attorney fees and costs?
7. What is the venue for the dispute?
8. Have inspections and testing been completed?
Insurance Coverage:
1. Have all parties tendered to past and current carriers?
2. Are the carriers accepting defense and coverage?
3. If not, have all carriers provided reservations of rights letters and detailed coverage opinions?
4. Are full copies of insurance contracts available?
5. Do the principals have coverage counsel?
6. Are the policy limits and deductibles known?
7. Is there a chart of the additional insureds?
8. What is the total amount of insurance?
9. Are sureties on notice and fully informed of their risks?
Legal and Expert Costs:
1. Do the insurers and principals have an estimate of defense costs?
2. Are there defense costs that are uninsured?
3. Can the carriers later seek to recover those costs?
4. Are experts a recoverable cost?
5. Is there any False Claim allegation?
6. Is there bad faith by any carrier or surety?
Damages:
1. Is there an itemized and complete written claim?
2. Is it supported by written documentation?
3. Is there an independent expert report on causation?
4. What is the economic rationale for the damages?
5. Is there a remediation or rehabilitation plan?
6. Did the parties mitigate their damages?
Strategy and Planning:
1. Are the parties and their carriers informed?
2. Do the principals know the case or only the lawyers?
3. Do the parties have readily available funds?
4. Are the key factual, contractual and legal positions known?
5. What are the likely alliances among the parties?
Settlement Mechanics:
1. Can the case settle piecemeal or only globally?
2. Are the parties emotionally and financially prepared for settlement?
3. Is there a financing mechanism available?
4. Are there any personal problems that foreclose settlement?
5. Does one party wish to punish another party?
6. Is there anyone who cannot compromise from their position?
7. Can the uncompromising individual be removed from the process?
8. Can the parties agree on a settlement draft?
The Mediation Facility:
1. Are the mediation facilities adequate?
2. Do the parties have private meeting rooms?
3. Can the adversarial parties be physically separated?
4. Are there lunch, refreshments and A/C?
5. Can the parties communicate via telephone, fax and e-mail?
6. If there are separate languages spoken, do the parties need a translator?
7. Can the parties and their counsel stay late?
The Mediation Process:
Construction and real estate mediations are generally conducted over one or two full days. A typical set of guidelines for construction mediation are as follows:
1. Prior to the mediation, counsel for the parties will submit a very short brief (5-8 pages) on the main points of the dispute. It is extremely helpful if these materials include the critical documents, such as copies of letters, documents, checks, meeting notes or other helpful materials that will help the mediator understand the issues.
2. The briefs should be submitted at least five days before the mediation. If the parties have confidential information to present, they may do so informally during the mediation. It is not necessary to copy other counsel, but many mediators find it helpful to the mediation process if the parties agree to do so.
3. The mediator will generally circulate a confidentiality sheet with various terms and conditions for the Mediation that also serves as a sign-in sheet.
4. The principal parties and any person whose approval is needed for resolution must attend unless other arrangements are made in advance with the mediator. Failure to have the ultimate decision makers personally present will quite probably result in failure of the mediation.
5. The mediator must disclose any prior relationships with the parties as well as the law firms, especially if the mediator has conducted a mediation for either firm or party in the past.
6. The mediation generally proceeds as follows: First, there will be a joint session, in which the attorneys for the parties will introduce everyone and the mediator will explain the process to the participants. Second, the attorneys, or their principals, will present a 15-20 minute presentation on their side of the case with all parties present. At the conclusion of that session, the mediator will summarize his understanding of the positions of the parties. The parties may also ask the other side key questions, as might the mediator. Third, the parties will meet separately with the mediator for sessions of 30-45 minutes each. These are confidential sessions. It is, however, important that any particularly sensitive information be discussed in the context that the material should not be revealed to the other side. Fourth, the mediator will eventually advise the parties whether the matter is not ripe for settlement, or that the matter can be settled, and upon what terms. Fifth, the parties and their counsel will draft a simple, enforceable settlement agreement that the parties shall sign. A more formal settlement agreement may follow, but the fundamental points shall be included in the settlement agreement.
The foregoing list is a generalized checklist for construction and real estate disputes. Careful thought by the parties and their counsel will result in supplementing or trimming these items for individual cases. Experienced legal counsel will assist their clients in ensuring that they are fully ready for an effective mediation experience, and full and final case resolution.
§ 19.6 Fact Finding
A further development is the creation of panels devoted to neutral fact finding, such as the American Arbitration Association Rules for Fact-Finding (2002). This involves an individual or group of appointed team members that carry out an independent investigation and report their findings to all concerned parties.
Fact finding can assist the parties in establishing common ground, or likely results, if the matter is litigated, as well as a factual basis for settlement. It is faster than the normal discovery or court process, as the fact finders are generally expected to have full and complete access to the parties, witnesses, documents, physical evidence, job site, party selected expert witnesses and other records.
§ 19.7 Sources of California Law on Alternative Dispute Resolution
a. California Arbitration Act: Code of Civil Procedure § 1280, et seq.
b. Federal Arbitration Act: 9 USC 1 (Also see Federal Alternative Dispute Resolution Act of 1998 (28 U.S.C. § 651(b)).
c. State Contract Act: Public Contract Code 10240 (Arbitration) & California Code of Regulations 1300, Chapter 4, et seq.
d. Local Agency Claims: Public Contract Code § 20104.4 ($375,000)
e. Reorganized California Rules of Court: The California Rules of Court were reorganized and renumbered to improve their format and usability.
f. California Evidence Code: § 1115, et seq. (mediation privileges), § 1152 (settlement discussions).
g. California Code of Civil Procedure: Code of Civil Procedure § 664.6 (settlement enforcement)
h. California Court Cases: Shepard v. Edward Mackay Enterprises, Inc. (2007) 148 Cal.App.4th 1092 (Federal Arbitration Act Preemption of Code of Civil Procedure § 1298.7 overturning homeowner’s right of litigation)
i. Indian Tribes: Arbitration Agreement as waiver of Sovereign Immunity.
j. International Arbitration: 9 U.S.C. § 201 (Treaty on Enforceability of Foreign Awards), California Code of Civil Procedure § 1297.11 (International Arbitrations in California), Carriage of Goods at Sea, International Chamber of Commerce, etc.
§ 19.8 ADR Considerations
1. Size of the Dispute
2. Complexity of the Issues
3. Need for Discovery
4. Cost of Resolving the Dispute
5. Financially Crushing the Opponent
6. Speed of Resolution
7. Industry Knowledge of Qualified Neutrals
8. Method of Selecting the Neutrals
9. Who Pays for the Neutrals
10. Value of Privacy
11. “Fact” Case v. “Legal” Case
12. Exchange of Documents
13. Involvement of Experts
14. Venue of the Action
15. Location of the Hearings
16. The Need to Bring in Third Parties
17. Interest of Major Parties in Settling
18. Insured Losses and Bonding
19. The Runaway Jury
20. Bankruptcy of a Party
21. Political Considerations (Public Boards)
22. Judicial Review
§ 19.9 ADR Tools for Construction Disputes
1. Meet and Confer
2. Partnering
3. Mediation
4. Standing Neutral
5. Ombudsman
7. Dispute Review Boards
8. Fact Finder
9. Hearing Officer
10. Project Neutral
11. Contractual Arbitration
12. Standby Arbitration Panel
13. Private Judging
14. Stipulated Reference (Code of Civil Procedure § 638)
15. Judicially Appointed Reference (Code of Civil Procedure § 639)
16. Special Master