Mandatory Mediation Orders Are Within A Court’s Inherent Power (In re Atlantic Pipe)

By Donald L. Swanson

“[O]rdering mandatory mediation is a proper exercise of a district Court’s inherent power.”

That’s the “core holding” of the U.S. First Circuit Court of Appeals in its In re Atlantic Pipe Corp. opinion.[Fn.1]

What follows is a summary of that opinion.

Facts

The dispute is over an aqueduct project in Puerto Rico.

After completion of the project’s construction, a segment of the pipeline bursts, creating significant repair costs.

One of the insurers files a declaratory judgment action to determine whether repair claims are covered under its policy.

That lawsuit balloons, soon involving multiple parties and a myriad of issues above and beyond insurance coverage, with parallel proceedings in Puerto Rico and federal courts.

One defendant moves to dismiss the federal court case on technical and procedural grounds.

Mandatory Mediation Order

Meanwhile, another party asks the federal court to refer the disputes to mediation with a specified private mediator.  A third party objects.

In response, the district court finds that mediation is likely to conserve judicial resources and:

• overrules the objection;
• grants the mediation motion;
• orders the parties into non-binding mediation before the private mediator identified in the mediation motion;
• directs all parties to undertake mediation in good faith;
• stays discovery pending completion of the mediation; and
• declares that participation in the mediation will not prejudice the parties’ positions vis-a-vis the pending dismissal motion or the litigation as a whole.

The court also declares that, if mediation fails to produce a global settlement, the case will proceed to trial.

The objecting party appeals to the U.S. First Circuit Court of Appeals, which issues its “inherent power” ruling.

“Inherent Power” Rationale

Federal district courts have substantial inherent power to manage and control their calendars.

This inherent power takes many forms, like compelling parties to attend pretrial settlement conferences, even though such a practice is not specifically authorized in the Civil Rules.

But a district court’s inherent powers are not infinite. There are at least four limiting principles.  Inherent powers:

1. must be used in a way reasonably suited to the enhancement of the court’s processes, including the orderly and expeditious disposition of pending cases;
2. cannot be exercised in a manner that contradicts an applicable statute or rule;
3. must comport with procedural fairness; and
4. must be exercised with restraint and discretion.

Summary Jury Trial Analogy

A summary jury trial is a condensed presentation of a civil case to an advisory jury to show the parties how a jury reacts to the evidence.  The procedure:

• is not binding on the parties;
• helps the parties evaluate settlement possibilities; and
• is typically utilized in complex cases when other pretrial settlement methods fail. 

Some courts find that parties cannot be ordered to participate in a summary jury trial process, but: 

• the policy grounds behind such findings are not persuasive for mandated mediation in appropriate cases.

Appropriate Cases for Mandate Mediation

–Legal Standard

Mandated mediation is appropriate in cases where mediation is likely to conserve judicial resources, without burdening the objectors’ rights to a full, fair, and speedy trial.

Much depends on the idiosyncracies of the particular case and the details of the mediation order.

–Objections

The existence of an objection to mediation from a party is not determinative—i.e., does not automatically eliminate the mediation possibility.  After all, a party may resist mediation simply out of:

• an unfamiliarity with the process; or
• a fear that willingness to submit could be perceived as a lack of confidence in its legal positions.

In such instances, an objecting party’s reservations are likely to evaporate as the mediation progresses—and negotiations may well produce a beneficial outcome, at reduced cost and greater speed, than would a trial.

While the risk of a no-settlement remains ever present, the boon of settlement can be worth the risk.  This is particularly true in complex cases involving multiple claims and parties, where a fair and expeditious resolution is often helped along by creative solutions that simply are not otherwise available:

• that’s because a skilled mediator helps parties explore a much wider range of options that go beyond conventional zero sum resolutions.

So, it is within a district court’s inherent power to order non-consensual mediation when such a mediation seems reasonably likely to serve the interests of justice.

Limitations

The First Circuit’s appeal opinion, however, requires the district court to add some limitations to its mandated mediation order.

As entered, the district court’s mediation order simply requires the parties to mediate; it does not, for example, set a timetable for the mediation or a cap on the fees that the mediator may charge.

–Fees

The mediation fee figures bandied about in the briefs are $ 900 per hour or $ 9,000 per mediation day.  Such figures are quite large and should not be left to the mediator’s whim.

–Time

Because the mediator is to be paid an hourly rate, the court should set an outside limit on the number of hours to be devoted to mediation.

It is trite but often true that justice delayed is justice denied.

An unsuccessful mediation will postpone the ultimate resolution of the case—indeed, the district court has stayed all discovery pending the completion of the mediation—and, thus, prolong the litigation.

So, the district court should set a definite time frame for the mediation.

–Other Protections

Protections on fees and time are not an exhaustive list.

The district court, for example, properly specified that participation in mediation will not be taken as a waiver of any litigation position.

Also, a party is always free to challenge the qualifications or neutrality of a proposed mediator (whether nominated by another party or not).

Such precautions illustrate the duty of a district court, when ordering parties into mediation, to assuage legitimate concerns of the parties around potential negative consequences of such an order.

Conclusion

Courts have inherent power to order parties into mediation, provided they protect the legitimate concerns that objecting parties may raise.

That’s the message of the First Circuit’s In re Atlantic Pipe Corp. opinion.

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Footnote 1.  In re Atlantic Pipe Corp., 304 F.3d 135, 148 (1st Cir., 2002).

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