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Jeld-Wen, Inc. V. Superior Court: Lessons In Mediation Of Complex Litigation

by Michael P. Carbone
March 2007

Originally published in The Recorder March 5, 2007.

Michael P. Carbone
In Jeld-Wen, Inc. v. Superior Court of San Diego County, D048782, filed January 4, 2007, which arose from a multi-party construction defect lawsuit, the Court of Appeal for the Fourth Appellate District held that courts cannot order parties to attend and pay for private mediation. It also held that courts cannot require parties to attend more than one mandatory settlement conference. While these holdings were not limited to construction defect or other kinds of complex litigation, their impact will be felt primarily in those arenas.

The trial court entered a case management order (“CMO”) in reliance on Code of Civil Procedure Section 639 that appointed a neutral as the "Mediator and/or MSC [Mandatory Settlement Conference] Judge" to mediate and conduct settlement conferences for a maximum of 100 hours at an hourly rate of $500. It also appointed a second neutral as a discovery referee. These appointments were typical of the manner in which construction defect litigation has traditionally been handled, except that in some counties the courts appoint a single neutral (usually called a “special master”) to handle both discovery and settlement negotiations.

After Jeld-Wen, Inc. failed to attend a mediation session, a motion was made for an order imposing monetary sanctions and compelling its appearance at the next mediation. The trial court granted the motion and entered the order, concluding that the CMO did not conflict with any statute or rule of court and that Lu v. Superior Court (1997) 55 Cal. App. 4th 1264, authorized it to appoint a mediator to conduct mandatory settlement conferences.

The Court of Appeal directed the trial court to set aside the order. It based its decision primarily on the principle, which had been recognized in Travelers Casualty and Surety Company v. Superior Court (2005) 126 Cal. App. 4th 1131, 1138-1139, that mediation is by nature a voluntary process. “While trial courts may try to cajole the parties in complex actions into stipulating to private mediation (see Super. Ct. San Diego County, Local Rules, rule 2.3.7), they cannot be forced or coerced over the threat of sanctions into attending and paying for private mediation as this is antithetical to the entire concept of mediation.” (Op. 9.)

The court also disapproved of the use of the reference power to appoint a mediator. Section 639 of the Code of Civil Procedure allows a trial court to appoint a referee to resolve discovery disputes, but it cannot be used for other purposes. Rule 3.920 of the Rules of Court, while allowing the use of Section 639 to appoint a referee to conduct a mandatory settlement conference, expressly prohibits its use to appoint a mediator.

Lastly, the court agreed with Jeld-Wen, Inc that under Rule 3.1380 the authority to set “a mandatory settlement conference” means that when one MSC has been held and does not result in a resolution of the case, the court cannot thereafter set another one.

The court’s decision regarding mandatory mediation was legally sound. Voluntariness lies at the very heart of mediation. The only exception to the requirement of voluntary participation is for the small cases that fall within the Civil Action Mediation Program that was established by Code of Civil Procedure §1175 et seq.

On the other hand, the court’s interpretation of Rule 3.1380 to mean that a court can set only one mandatory settlement conference may have been too literal under the circumstances. Such a rule may be reasonable in a simple two party case, but it is not realistic in complex litigation.

The Jeld-Wen case has removed the underpinnings of the case management and settlement system heretofore used in complex litigation by most courts. Unless the Supreme Court overrules Jeld-Wen, which does not appear to be likely, the nature of complex litigation will be significantly changed. Gone are the days of “mandatory mediation.” Gone as well are the days of the all-purpose neutral, the “special master/mediator” appointed by the court, who manages the case, resolves any discovery disputes, settles the case and uses a series of hearing and mandatory settlement conferences in order to accomplish all of these tasks.

Some observers are predicting that chaos will result, but the court disagreed as does this author. The court understood that mediation is necessary for the settlement of complex litigation and believes that it will continue. It states that “… we suspect that in a large majority of complex cases most parties will agree to private mediation; as such, we foresee no apocalyptic consequences from this decision.” (Op. 9.)

In reality, the system used in the past has already broken down and has been in urgent need of reform. Jeld-Wen, Inc. was not alone in its resistance to mandatory mediation although it may have been the first to challenge it in an appellate court. It has become commonplace for parties to complex litigation to refuse to cooperate with court-appointed mediators or to comply with orders issued by special masters. The compulsory aspect of so-called “mediations” appears to lead to passive resistance rather than good faith cooperation.

“Mandatory mediation” also has another drawback, which is the loss of confidentiality. Under Evidence Code Section 1115, a mandatory settlement conference is excluded from the definition of “mediation.” Thus, the communications made during MSC’s, as well as any studies, reports, or other documents prepared for use therein, are not protected by the confidentiality that would attach to a true mediation.

The question now is: how can parties to complex litigation most effectively use private mediation? In the past the major parties to the case would select a mediator, and the court would make the appointment. They would select a neutral who was capable of handling complex situations and building consensus among multiple parties. Now that the court can no longer make the appointment, the parties should simply retain the mediator on their own at the outset of the case.

The court can still use the reference power in Section 639 to appoint a discovery referee, but that same person cannot also be the mediator. It is possible for a person who has served as a referee to be hired as a mediator, but only after the reference has ended. (Rule 3.920(b).) Proceeding in that fashion is not recommended, however, because the parties should not wait for the reference to end before starting the process of mediation. Until the mediator is hired, and the mediation begins, confidentiality will not be available.

The court did not address the powers of the discovery referee. Traditionally, courts have used the CMO in complex cases to put a stay on normal discovery and to let the referee manage the process. There is no indication in the decision that this practice will be affected. But given the emphasis on following the statutes and rules of court, it may be prudent to consider proposing amendments to those rules that would clarify the powers of the superior courts and referees in this regard. The appointment of a referee to assist the court in managing the case, handling discovery problems, and getting the case into a position so that a productive mediation can thereafter occur will be of paramount importance.

MSC’s can still be used when mediation does not resolve the case, but the parties cannot be compelled to attend a series of such conferences. For so long as this limitation remains in effect, it will be even more important than before for the parties to approach mediation in a cooperative fashion and to make it work.

It may be advisable to consider an amendment to Rule 3.1380 that would allow the courts the flexibility in complex litigation to set more than one settlement conference, but without abusing the right to do so. This avenue may prove to be more fruitful than seeking Supreme Court review. In the meantime, or in the absence of such an amendment, creative courts may simply set a mandatory settlement conference that will be continued from day to day or week to week until the case is settled.

In order to adapt to the new environment that is created by the Jeld-Wen case, counsel will need to revisit their forms of case management order. In 2006 the San Diego County Superior Court published suggested forms of order for complex construction defect cases on its website. These forms, which contain a number of excellent provisions for the efficient management of these cases, can be adapted to the requirements of Jeld-Wen. One way to do so, which the author favors, is for the court to encourage the parties to use mediation while allowing them to opt out by so notifying the court at the outset of the case. Mediation has become accepted as the most effective way of resolving complex litigation, and parties are unlikely to opt out so long as they are not forced to go to an endless series of sessions.

Biography


MICHAEL P. CARBONE is a senior mediator who has also served as an arbitrator and court-appointed referee. His dispute resolution practice has been built over a period of more than 25 years and covers a wide range of fields.   His exceptional combination of transactional and litigation experience enables him to handle complex litigation and other challenging cases.  

Michael resolves business and commercial cases, real estate disputes, employment claims, construction claims and defect cases, estate and trust matters, insurance issues, legal malpractice, corporate and partnership disputes, and personal injury cases.  In his capacity as a court-appointed referee he has undertaken a wide variety of responsibilities, including sales and appraisals of real property, and the adjudication of trust accounting and administration matters.  

He is a member of numerous dispute resolution panels, including the National Panel of Arbitrators of the American Arbitration Association.  He is also listed on the mediation and discovery facilitation panels of several Superior Courts. 

He is a founder and past president of The Mediation Society, and a member of many other professional organizations, including the Academy of Court-Appointed Masters, the Dispute Resolution Section of the American Bar Association, and the Association of Business Trial Lawyers.

Michael is a frequent author and speaker on alternative dispute resolution issues.  He publishes a monthly newsletter entitled "Resolving It" which provides timely advice on strategies for successful mediation and discusses current issues, such as reforming the commercial arbitration process and mediating e-discovery.



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Website: www.mpcdisputeresolution.com

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