Business Court Sanctions Defendants For Failing To Appear At Mediation

Sanctions were awarded by the Business Court in Red Ventures, LLC v. Modern Consumer, LLC, when two of the four Defendants didn't show up for a mediated settlement conference.

The mediation had been scheduled by agreement, and all parties had received notice of the conference. Two of the Defendants, however, decided not to appear and didn't provide any advance notice that they were not going to do so. The other parties showed up, but decided not to proceed without the missing Defendants.

The Court observed that Rule 4 of the Rules Implementing Statewide Mediated Settlement Conferences "requires all individual parties to attend a mediated settlement conference." The same rule provides specific procedures for a party to follow if it wishes to be excused from the conference.

The Defendants said that the conference wasn't covered by the Rule, because it was a "voluntary" proceeding. Judge Diaz made short shrift of that argument, stating that "there simply is no basis in the record for Defendants' belief that they were free to attend the Conference -- or not -- at their pleasure." He also rejected their argument that Plaintiff should have gone ahead without the missing Defendants.

Mediation Rule 5 authorizes monetary sanctions against a non-attending party. Judge Diaz required the AWOL Defendants to reimburse the mediator fees in full; to pay the hourly fees for the lawyers for the other parties in attending the conference; and also to pay the fees in preparing and arguing the Motion for sanctions. The Court found the Plaintiff's lawyer's hourly rate of $405 to be "comparable to the rates of other attorneys with similar experience and practices in the Charlotte, North Carolina market."  The total sanctions awarded were $5,000.

There are a couple of other Business Court decisions involving mediations and sanctions, including Hemenway v. Hemenwayand Mattress Now, Inc. v. Vickers; and the Court of Appeals entered a mediation sanctions opinion earlier this year in Perry v. GRP Financial Services Corp.

I mentioned the Red Ventures decision to Andy Little, who is a great mediator and who was one of the leaders in implementing mediation in North Carolina. Andy pointed out that the mediation rules used to provide for even harsher sanctions for a non-attending party, including dismissal of the case, and told me that the Court of Appeals affirmed such a sanction years ago, in Triad Mack Sales and Service, Inc. v. Clement Brothers Co., 438 S.E.2d 485 (N.C. App. 1994). Rule 5 would not permit that type of sanction today.

The cartoon at the top is by Charles Fincher, a lawyer who is also a cartoonist. You can find his "inside baseball" comics for lawyers at lawcomix.com. The one I used, with his permission and which he owns, is from a series of one-panel cartoons called Scribble-in-Law.

Brief in Support of Motion for Sanctions

Brief in Opposition to Motion for Sanctions

Reply Brief in Support of Motion for Sanctions

Mattress Now, Inc. v. Vickers, September 21, 2009 (Jolly)(unpublished)

The Court sanctioned a pro se party for failing to appear at a scheduled mediation. The sanction included (1) requiring the party to pay her share of the mediation she did not attend, (2) being compelled to attend another mediation to be scheduled at the mediator's discretion, and (3) requiring her to pay the total expense of the new mediation.

Full Opinion

How To Get Properly Excused From Mediation, And Other Ways To Avoid Sanctions

The North Carolina Court of Appeals ruled yesterday that a mediator doesn't have the authority to excuse a party from attendance at a mediated settlement conference, in the absence of approval of either all the parties or of the Senior Resident Superior Court Judge.

The issue arose in Perry v. GRP Financial Services Corp., where the trial court had sanctioned some of the plaintiffs for failing to appear at the mediation session and awarded the defendant its attorneys' fees.  The Court of Appeals reversed the award of sanctions, but the opinion highlights some things you might want to be aware of if you have a client that has to skip a mediation session, or if you are pursuing sanctions against a party who failed to show up.

Proper Procedure For Excusing A Party's Attendance At Mediation

The Court said that  a mediator does not have authority to grant permission to a party to be absent.  The operative Rule is Rule 4A(2) of the Rules for Statewide Mediated Settlement Conferences, which states that a party can be excused from physical attendance either "(a) by agreement of all parties and persons required to attend and the mediator," or (b) by order of the Senior Resident Superior Court Judge, upon motion of a party and notice to all parties and persons required to attend and the mediator." 

The Court rejected plaintiffs' argument that Mediation Rule 6A(1), which says that the mediator is "at all times . . . in control of the conference and the procedures to be followed," gave the mediator unilateral power to excuse a party's attendance.

A Court Must Assess Whether There Is "Good Cause" For A Party's Absence

Mediation Rule 5 specifies that if the party "fails to attend without good cause," then a superior court judge "may impose upon the party or person any appropriate monetary sanction including, but not limited to, the payment of fines, attorneys fees, mediator fees, expenses and loss of earnings incurred by persons attending the conference." 

So, before sanctioning a party for failing to attend a mediation session, the Court has to determine whether there was "good cause" for the absence. 

The sanctions order in the Perry case was reversed because the trial judge hadn't made adequate findings of fact on the good cause issue.  The Court of Appeals ruled that one party's excuse that her employer unexpectedly wouldn't give her the day off to attend the mediation, and that she would have lost her job if she had, was arguably "good cause" for her absence.  It held that another party's statement that she didn't have the financial means to attend might also meet the "good cause" standard.  Travel problems experienced by another party might also suffice. 

Watch Out For Waiver

The Court suggested (but didn't explicitly rule) that a party who participated in the mediation notwithstanding the absence of some of the opposing parties might waive its objection to their lack of attendance.  In Perry, the defendants presented an affidavit that they had objected at the outset of the mediation to the absence of some of the plaintiffs.

Reasonableness Of Attorneys' Fees

Finally, the Court said that if attorneys' fees are awarded for a violation of the Mediation Rules, the Court must make specific findings as to the reasonableness of the fees awarded.

The mediation cartoon at the top is from LawComix, by Charles Fincher. 

Be Careful With The Memorandum Of Mediated Settlement

A successful mediation session ends with a signed document reflecting the settlement, usually the AOC Form "Memorandum of Mediated Settlement," but is often accompanied by an agreement to draft a more comprehensive settlement agreement. 

The unpublished Court of Appeals decision this week in Santoni v. Sundown Cove, LLC is a reminder to be careful that the Memorandum accurately sets out the terms of the deal.  That's especially so if the settlement applies to only some of the defendants or potential defendants.

In Santoni, the plaintiffs had originally sued multiple defendants, but had taken voluntary dismissals without prejudice as to two of them.  Those dismissals were taken before the mediation session.

At the mediation, the plaintiffs settled up with the remaining defendants. They executed a Memorandum of Mediated Settlement which contained the form language that they would "execute such releases as required by Defendants in a form accceptable to Defendants."  The Memorandum included handwritten language saying that they would "execute mutual releases of all existing claims."

When defendants' counsel presented a release that specifically included the previously dismissed defendants, the plaintiffs refused to sign.  They argued that the claims against those parties were not "existing claims."  The trial court disagreed and ordered the plaintiffs to sign the settlement agreement as presented, and the Court of Appeals affirmed.  It held:

In the case at bar, the terms of the parties' settlement, as set out in the memorandum of mediated settlement agreement, are clear and unambiguous, and the agreement must be given effect. Plaintiffs agreed to execute releases of “all existing claims” and to “execute such releases as required by Defendants in a form acceptable to Defendants[.]” A claim is defined as “[t]he aggregate of operative facts giving rise to a right enforceable by a court[,]” and “[t]he assertion of an existing right[.]” Black's Law Dictionary 264 (8th ed. 2004). The facts giving rise to Plaintiffs' claims were “existing” at the time the parties reached the agreement, and Plaintiffs had the right, at the time the parties reached the agreement, to assert claims against the [dismissed defendants]. That Plaintiffs had not re-filed an action against the [dismissed defendants], or instituted an action against any other person or entity, is of no moment. Plaintiffs are required to execute the proposed settlement agreement which, as Defendants drafted it, was in a form acceptable to Defendants.

You can see the full Memorandum of Settlement by clicking on the image at the top.

 

 

"Neutral Evaluation" Is One Of Several Alternatives To Mediation In North Carolina

Mediation often devolves into the mediator shuttling back and forth between two rooms, carrying alternating declining and increasing offers to the parties.

There are times during this ping ponging of offers when I wish the mediator was pushing harder on the other party to explain the absolute rightness of my client's position, inevitably to result in summary judgment in our favor, or explaining to me why my client and I have missed the boat in evaluating the case.  Most mediators won't do that, and dismiss the concept of informing the parties of the mediator's perception of the quality of their case or defense as being unacceptably "evaluative."

I'm prompted to write about this subject based on a one paragraph Order by Judge Tennille earlier this year in Bank of America Corporation v. Beazer Morgage Corp., granting the Joint Motion of the parties to have a "neutral evaluation" instead of a mediation.  

What is a "neutral evaluation?"  In short, it's "a process in which a third party neutral examines the evidence and listens to the disputants' positions, and then gives the parties his or her evaluation of the case."  Here's a good article on the subject, and also the American Arbitration Association's description of the procedure and how it works.  Neutral evaluation apparently led to a settlement of the Beazer case, because the parties filed a joint dismissal with prejudice a few weeks after the evaluation, in which a state court Judge in Georgia served as the neutral.

There is clear approval of alternative resolution procedures to mediation in North Carolina's statute on mediated settlement conferences. N.C. Gen. Stat. Sec. 7A-38.1:

Promotion of other settlement procedures -- Nothing in this section is intended to preclude the use of other dispute resolution methods within the superior court. Parties to a superior court civil action are encouraged to select other available dispute resolution methods. The senior resident superior court judge, at the request of and with the consent of the parties, may order the parties to attend and participate in any other settlement procedure authorized by rules of the Supreme Court or by the local superior court rules, in lieu of attending a mediated settlement conference. Neutral third parties acting pursuant to this section shall be selected and compensated in accordance with such rules or pursuant to agreement of the parties. Nothing in this section shall prohibit the parties from participating in, or the court from ordering, other dispute resolution procedures, including arbitration to the extent authorized under State or federal law.

 Id. at i.

Also, the North Carolina Rules Implementing Statewide Mediated Settlement Conferences in Superior Court Civil Actions contain a specific provision (Rule 10) permitting the parties to request the use of procedures other than mediation, including neutral evaluation (Rule 11), non-binding arbitration (Rule 12), or non-binding summary jury or non-jury trials (Rule 13).  I don't hear much about these alternative procedures being used in North Carolina even though they are specifically allowed by the Rules.

There is no special certification necessary to become a neutral evaluator.  In Mecklenburg County, for example, the Court maintains a list of approved neutrals.  You are qualified to serve if you have five years of experience as "a judge, practicing attorney, law professor, arbitrator or mediator, or have equivalent experience" and you are of "good moral character," and you "adhere to ethical standards."

The cartoon at the top is by Charles Fincher, a lawyer who is also a cartoonist.  His very funny comics and comic strips are what he calls "inside baseball" humor for lawyers.  He has a number of different cartoons and strips, which you can find at lawcomix.com.  The one I used, with his permission, is from a series of one-panel cartoons called Scribble-in-Law