Jacob Zahniser, BridgeTower Media Newswires
Pre-suit mediation as a condition precedent to litigation or arbitration is increasingly common. For example, AIA Document A201-2007 requires pre-suit mediation of "any claims, disputes or other matters in controversy arising out of or related to the contract" as "a condition precedent to binding dispute resolution."
Requiring pre-suit mediation makes good business sense: having a chance to resolve a dispute early is certainly preferable to incurring avoidable litigation fees and costs. Plus, successful mediation is faster, cheaper and more private than litigation or arbitration. But what happens if one party ignores the pre-suit mediation requirement and files a complaint in state or federal court for a claim subject to a pre-suit mediation requirement? Unfortunately, under Oregon law there is no clear answer, and sister jurisdictions offer competing guidance.
First, any pre-suit mediation provision should expressly state that it is a condition precedent to litigation or arbitration (whichever is the selected forum) and should be as specific as possible about the required process. Since mediation is a voluntary process, courts are reluctant to enforce a voluntary event where the provision is unclear.
Next, if pre-suit mediation is part of an arbitration provision, enforcing pre-suit mediation is straightforward. In federal court, the defendant can either move to compel mediation and then arbitration or stay the litigation pending mediation and arbitration. Similarly, in state court, the defendant can move to stay the litigation in lieu of mediation and then arbitration. These are relatively straightforward motions that are granted frequently provided the subject matter of the dispute is within the scope of the arbitration provision.
However, if the pre-suit mediation requirement is not part of an arbitration provision, judicial decisions vary. A number of courts have found that when parties to a lawsuit have elected not to be subject to a court's jurisdiction until some condition precedent, such as mediation, is satisfied, the appropriate remedy is to dismiss the action. Arguably, dismissing a lawsuit in lieu of non-binding pre-suit mediation that may or may not be successful may ultimately prove inefficient and futile. Nevertheless, if the contract requires pre-suit mediation, these courts hold the parties to their clear intent to complete mediation prior to litigation, and agree the parties are not subject to a court's jurisdiction until the condition precedent to litigation is satisfied.
Some courts, however, take a different approach and stay the matter pending mediation, not dismiss it altogether. These courts reject the notion that failure to comply with a pre-suit mediation requirement negates the court's power to hear the case altogether. Rather, these courts rule that their power to hear a dispute is not conditioned on pre-suit mediation, which was merely a contractual condition that may be waived or invoked, but the court always retains the power to otherwise hear and adjudicate the claim. These courts are more receptive to staying the claim to allow the parties to mediate. While this approach may be more efficient, it tends to reward a party for failing to follow its contractual obligations.
Finally, invoke the pre-suit mediation as soon as possible. Bring the issue to the court's attention at the earliest possible point. Failure to do so could result in the court agreeing with the analysis that mediation was a condition precedent to litigation, but also find the party seeking to enforce the condition waived it by delay.
Pre-suit mediation before the cost and time is spent on litigation makes good business sense. A clear and unambiguous provision is critical to making pre-suit mediation enforceable if a dispute arises. How an Oregon court will rule when faced with a motion to dismiss for failing to comply with a condition precedent to litigation is unknown. If a company is faced with a lawsuit where the other party refuses to mediate as required by the contract, officials should consult with an experienced trial attorney to discuss options.
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Jacob Zahniser is a shareholder in Jordan Ramis PC's Dirt Law practice group. He focuses on construction and real estate litigation. Contact him at 503-598-7070 or jacob.zahniser@jordanramis.com.
Published: Tue, May 15, 2018
