Is ‘binding mediation’ a new solution?

No dispute resolution procedure is perfect. Litigation is expensive, protracted, public and risky. Arbitration has become essentially a private litigation with most of its attendant ills, and, even when conducted closer to its original, relatively-streamlined procedures, it is still expensive and in some ways more risky. Mediation requires good faith participation and agreement on the resolution.

One little known alternative comes close to solving the failings of each of the others. It is called “binding mediation” (although a more accurate appellation might be “mediated arbitration,” as it is in essence a hybrid of mediation and arbitration).

While it can take many forms, in concept, the parties, with the assistance of the mediator, try to resolve their dispute as they would in a standard mediation. If the negotiations prove unsuccessful, however, the mediator issues a decision at the end (or at the end of a given issue), which is then final and binding on the parties, just as an award from an arbitrator would be.

A perhaps somewhat familiar example of binding mediation is known as “baseball-style arbitration,” where (in its most basic form) the arbitrator decides a monetary dispute by selecting from the final proposals submitted by each of the parties.

Thus, depending on how it is structured, binding mediation can achieve many of the benefits of both mediation and arbitration.

Like mediation, it is relatively quick and inexpensive, allows for a chance at self-determination, and provides the best possibility of preserving existing relationships between the parties. But, if the parties cannot agree, it also provides the finality offered by arbitration.

Structure

Like other forms of alternative dispute resolution, binding mediation is a flexible process that can be tailored to meet the needs of the parties and issues involved.

Although the basic structure is the same each time, what happens before the mediation session, how the mediation session is conducted, and the means by which the mediator is empowered to make the final decision are all subject to the parties’ agreement or, in the absence thereof, the mediator’s ruling.

Because of the hybrid nature and flexibility of the process, the discovery procedures mandated in litigation and adopted in typical arbitration proceedings provide procedural protections that can be made applicable to a binding mediation.

Accordingly, advance thought must be given to the type and extent of discovery that will be permitted, balancing the need for a fair exchange of information against assuring an efficient, expedited proceeding that avoids the discovery abuses frequently seen in litigation and arbitration.

While this aspect of binding mediation is the one that most closely approximates litigation or arbitration, it is also a necessary part of any fair, binding proceeding.

A fair exchange of information does not, however, need to be extensive; in many instances a sufficient disclosure can be accomplished through an abbreviated, voluntary exchange, which ensures the parties that they are operating on equal footing when they develop their approach to the negotiations that will take place later in the binding mediation process.

To the extent that discovery of third parties is appropriate, the mediator — because he is in fact both mediator and arbitrator — can issue subpoenas just as any other arbitrator can in a more traditional arbitration.

With an efficient form of discovery completed quickly, the parties can proceed directly to the binding mediation session, which is conducted as a typical mediation, unless and until the parties reach an impasse.

Of course, while the structure is the same, the approach taken by the parties and their advocates may vary significantly, as they will be subject to influences not present in a typical, non-binding mediation.

Specifically, in a binding mediation, the parties need to recognize that they and their positions, including both credibility and reasonableness, will be judged by the mediator — who may later be influenced by the same when rendering the final decision on any unresolved issues.

This is markedly different from a traditional mediation, where any party may end the mediation at anytime without fear of adverse consequences (other than having failed to reach an agreement at that time) from “tough” negotiating. The benefit, however, is that the parties are more likely to engage in good faith, reasonable negotiations than might otherwise be the case.

In the event that the mediation session (or sessions) does not produce a voluntary agreement, the job then falls to the mediator, now arbitrator, to render a decision.

Again, recognizing the flexibility of the process, the mediator can be required to render a decision in myriad ways. For example, the mediator can be required to issue a decision based on the information provided to date or can be empowered to obtain additional information that may be deemed helpful in rendering a decision.

The mediator can also be instructed to make a “traditional” decision grounded soundly in legal principles and the facts or, instead, a decision that gives greater weight to the equities of the issue. Obviously, the method by which any final decision will be rendered is something that should be agreed on up front.

Similarly, in a case that involves “only” money, the mediator can be directed to choose from among the parties’ final offers or, at the other end of the spectrum, to make a decision unconstrained by the parties’ negotiations.

Somewhere in the middle of those two options, the mediator can be permitted to receive the parties’ final offers and then make a decision using the offers as the out limits.

Each of these approaches has benefits, balancing, for example, the likely protection of the party that has been reasonable in the face of a recalcitrant opposing party against the risk for both parties that the final decision may be out of line with what the parties had in mind.

Other issues

While binding mediation can be “nearly perfect” for many types of disputes, it does have its drawbacks. As a threshold matter, there could be some question of enforceability.

Unlike arbitration, around which a well-developed body of statutory and case law exists, because binding mediation is relatively new, infrequently used and rarely requires the mediator to issue a binding decision, there is limited authority relating to the enforceability of such a decision.

While some have questioned the enforceability, a decision is likely to be viewed (quite accurately) as a form of arbitration and therefore enforceable, provided that the process has been fully agreed upon, properly documented and correctly conducted.

In reality, however, the most compelling concerns of the binding mediation process arise from the fact that, if the parties are unable to reach agreement voluntarily, a third party will impose a resolution on them and the appellate rights are relatively limited (as with traditional arbitration).

As a consequence, the parties and their advocates may be concerned about the candor with which they deal with the mediator.

Likewise, the parties may be concerned about disclosing confidential information, which might later form the basis for the binding decision but which cannot be shared with the other side.

These are, however, complications that have analogues in litigation and arbitration and which, in most instances, can be handled by skilled lawyers and mediators, experienced in the binding mediation process.

Further tempering the issue to some extent is that, in many instances, candor can enhance the parties’ credibility and perceived integrity in the eyes of the mediator — particularly as juxtaposed against a less forthcoming adversary, thereby yielding increased benefits should the mediator later be called on to make a binding determination.

As a result, early attention to the ground rules and careful selection of the mediator is critical and, indeed, in some ways makes it more difficult even than selecting an arbitrator. In that vein, the mediator must not only possess good mediation skills, but must also be a person in whom the parties are comfortable vesting authority for rendering a final binding decision, after he has spent time privately meeting with the other party or parties.

All of these issues can and should be addressed in a written agreement for binding mediation. Among other things, the agreement should cover any exchange of information between the parties; discovery from non-parties; the mechanism for final resolution, including the form of the final decision; and confidentiality and timing of all the stages of the proceedings.

With proper advance planning and thoughtful selection of the mediator, the parties can save themselves significant fees, costs and time and still wind up with a process and outcome over which they have substantial control.

Russell Beck practices law in Boston.