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Mediation: Is it binding?

by Goldsmith, James on

The standard residential agreements of sale mandate that buyers and sellers “will submit all disputes” arising from those agreements to mediation.

Equally clear is the requirement that mediation “be concluded before any party to the dispute may initiate legal proceedings in any courtroom, with the exception of filing a summons if it is necessary to stop any statute of limitations from expiring.” While our courts will enforce the requirement that the parties mediate, not all will dismiss a suit that has been filed by a party who did not first invoke mediation. A fair number of courts will stay proceedings (rather than dismiss the suit) until the parties conclude mediation. Other courts simply dismiss a lawsuit filed prematurely because of the language compelling mediation before suit is initiated.

To answer the broader question, yes, mediation is binding. Regardless, there are many instances where mediation does not occur and where suits are filed and left to thrive unhindered by the failure to mediate. This can happen in several ways. An aggrieved buyer files a request for mediation with the local association of Realtors® claiming that the seller failed to disclose material defects. The request for mediation is served on the seller who does not respond or give any indication that she will participate in the mediation process. Maybe the seller lives thousands of miles away or maybe the seller hopes the matter will go away by sticking her head in the sand.

When the association receives no reply to the request, a second request will be mailed. When that fails, it is likely that the association will advise the initiating party, the buyer in this example, that the seller is not cooperating and that enforcing the mediation clause is now left to the buyer.  This makes sense. Associations provide the mediation as a benefit to their members. It can be a costly process to administer and none of the mediation fees go the association; rather, the fees are paid to the mediator. Further, the association does not have legal standing to enforce, in court, an agreement between buyer and seller to mediate disputes.

If a request for mediation is unheeded, the requestor, our buyer, should be directed to his attorney. An attorney’s letter may work (sometimes mine do), but more likely the buyer will now face the decision whether to abandon the claim or file suit. A suit, among other claims, can demand that the other party honor her contractual obligation to mediate. When served with suit papers, the defendant, our seller in this case, may come to realize the benefit of mediation, or, the parties will determine that the matter is likely to be unresolved by mediation and agree to continue their foray into litigation. Though the requirement to mediate is mandatory, parties to an agreement may, expressly or by their conduct, forego its directives. Courts will not enforce mediation or other provisions of a contract that the parties do not raise in their lawsuits or answers to those suits. Interestingly, the trend is for courts to require parties to lawsuits of whatever nature to mediate their disputes precedent to trial even in the absence of an agreement to mediate.

At one time, the mediation clause in our standard agreements was elected or waived somewhat like the inspection contingencies. Today, there is no suggestion that the provision is waivable though parties can strike the provision. As one of the architects of our mediation program, you should expect me to endorse it, and I do. I know firsthand that mediation is far less expensive and runs its course far quicker than litigation. Mediation is effective about 80 percent of the time, though it rarely works without both parties capitulating. Compromise is a reasonable trade-off, considering the great expense and the years that litigation can last. It’s a perfect first step to resolving the matter and frequently, the only step required.

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Mediation
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