Arbitration & Mediation Practice of  Jerome F. Rock

Case Studies

Arbitration / Mediation / Med-Arb.  Construction Defects / Expert Neutrals / Escrow Agent


Background on the Case:  Contractor filed a Demand for Arbitration against the building Owner for non- payment, the Owner counter-claimed with allegations of multiple construction defects and breach of warranty.  The parties agreed to Mediation with the encouragement of the Case Manager (When matters are initially filed in Arbitration, Case Managers will inquire if the parties desire to initially participate in Mediation, holding the Arbitration process in abeyance, and the parties select the Neutral as Mediator.  Rule M-2, Invitation to Mediation of the Construction Industry Arbitration Rules and Mediation Procedures, eff. 7/1/15).   

Mediator Leadership:  At the initial Management Conference, the parties invited the Mediator for a site visit, and separate meetings were scheduled with each side at the project site.  The Mediator sensed that many of the issues could be effectively resolved through Mediation, but there were two major defects that required additional investigation and might be difficult to resolve voluntarily.  At this first meeting, the Mediator explained the options for dealing with mediation and arbitration of issues and the parties enthusiastically proceeded with a Med-Arb process.  The Mediator also recognized the opportunity to suggest that Neutral Experts (one for standing seam metal roofing defects, and a geotechnical engineer to address the under slab flooding resulting from a defective underground fire suppression connection to a main water line) could provide much needed objectivity to the negotiations.  

Outcome:  The parties agreed to the terms of settlement at the conclusion of the Mediation Hearing.  The Mediator acted as Escrow Agent holding the settlement funds from both the owner and the contractor, and served as Arbitrator to verify the sufficiency of the corrective action specified in the Settlement Agreement, and disburse funds accordingly. 

Insight:  Although the under slab flooding was covered by a the fire suppression subcontractor’s insurance to remediate the direct flooding and clean up, the Owner was concerned about the erosion of the sub base below the concrete slabs that had been raised several inches and then resettled, as a result of the water pressure under the floor.  The Owner needed verification that there was no erosion of the sub base while the insurance adjuster considered the request excessive and demanded a full release before disbursing funds.  Neither would move.  The Mediator provided recommendations on candidate Geotechnical Experts, assisted with the development of the agreed upon scope of work, and the format for the report. The Mediator convinced the insurance adjuster, whose insured was not a party to the Arbitration, to fund ½ of the Geotechnical Expert investigation, with the balance shared by the parties.  When the concrete core borings and engineering analysis confirmed that the sub base was intact, the intractable position of the owner changed and the process continued.  

Contractor’s  Counsel:    David Russell, Foster Swift, Collins and Smith, Lansing, MI

Owner’s Counsel:  Scott Fraim, Henneke Fraim & Dawes, Flint, MI

Business Court Mediation.  Breach of Contract / Multiple Claims / Combine Unrelated Parties / Claims


Background on the Case:  Plaintiff, an independent contractor on fee/commission with a real estate developer filed suit in Business Court for breach of contract.  The amount claimed was significant, but there were serious legal issues and proofs that make the outcome uncertain. The Mediator was selected by the parties at the conclusion of significant discovery and unsuccessful motions for summary judgment.

Leadership by the Mediator:  The Mediator held separate meetings with each side prior to the formal Hearing (The Mediator refers to this practice as “Pre-Mediation”).  The Mediator learned that the Plaintiff was preparing a separate lawsuit against the Defendant and others based on an unrelated development project.  The Mediator was authorized to explore the opportunity to combine a discussion of the forthcoming lawsuit at the time of the scheduled Mediation Hearing. 

Outcome:   The relative strengths and weaknesses of each party’s case was reversed for the two lawsuits, and both matters were resolved at Mediation, with the third party acquiescing to the terms of the proposed global settlement. 

Insight:  Engaging in an open dialogue, listening and asking the right questions during the Pre-Mediation session can uncover opportunities that provide benefit to both parties that facilitate settlement.  Here, the Mediator learned that the Defendant was not aware of the pendency of the new lawsuit.  The Mediator sought approval from the Plaintiff to discuss the concept of combing unrelated issues at Mediation.  The Defendant and unrelated third party were receptive to resolving both disputes simultaneously, which had the obvious benefit of avoiding unneeded  transaction costs.  Separate meetings with the parties well in advance of the scheduled Hearing made it possible for the parties to react to the proposal, and changed the mind set from antagonistic to cooperative. The juxtapose of bargaining strengths between the two lawsuits made the global resolution a practical solution.

Plaintiff’s Counsel:  Donald R. Bachand, III, Garratt & Bachand, Bloomfield Hills, MI

Defendant’s Counsel: Don William Blevins, Blevins Sanborn Jezdimir Zack, Detroit, MI

Early Case Mediation. Construction / Engineering Malpractice

Early Case Mediation. Construction / Engineering Malpractice

Background on the Case:  Mediator selected by parties for Early Case Mediation involving work performed at Honda assembly plant in Tennessee.  Plaintiff was a robotics integrator who retained Defendant Engineering Company to design structures over production lines.  The structures vibrated excessively, which resulted in out of tolerance robotic operations.    Engineer’s defense relied upon Plaintiff’s project manager providing project requirements. 

Mediator Leadership:    Mediator met with project managers and engineer of both firms, and expert for Plaintiff.  The Mediator coordinated “For Mediation Purposes Only” information exchange, including a stipulated Protective Order.  Mediator recognized a fundamental information miscommunication between project managers, and suggested additional document exchange from component suppliers to clarify design parameters.  The Mediator arranged a “For Mediation Purposes Only” presentation by Plaintiff’s project manager and Plaintiff’s Expert at the Mediation Hearing.  

Outcome:  Demand for $1.5 M resolved well below claim at Mediation Hearing based on extensive “For Mediation Purposes Only” exchange of information. No formal discovery needed resulting in reduced transaction costs and Defendant did not require its own expert witness.

Insight:  The Mediator recognized the value in presenting a persuasive explanation for the underlying “miscommunication” offered by Plaintiff’s Project Manager, and the importance of a face to face exchange.  The Mediator understood that Defendant’s professional liability policy included a substantial self-retention, and required consent to any settlement.  

Judge: David Lawson, USDC, EDM

Plaintiff’s Counsel: John Chupa, PC, Farmington Hills, MI

Defense Counsel: Kevin Gleeson, Craig Thompson, Sullivan, Ward, Asher & Patten, Southfield, MI

Pre-Litigation / Early Case Mediation  

Construction / Delay Claims / Changed Conditions

Background on the Case:  Contractor for baggage handling system at Washington Dulles Airport was presented with a demand for additional compensation by the installation subcontractor relating to hundreds of delay and loss of efficiency claims based on undocumented interferences and changed circumstances.  The parties’ contract provided for Mediation as a condition precedent to litigation.  To avoid losing time barred claims, the subcontractor filed suit in US District Court the day before the Mediation Hearing.   

Mediator Leadership:  The Mediator met with project managers and engineer of both firms prior to the Hearing (the Mediator refers to this practice as “Pre-Mediation”).   The parties suggested a site visit so the Mediator could understand the complexity of the project.  The Mediator suggested the submission of sample data sets supporting the delay and changed conditions claims of the subcontractor with extensive details on 5 examples of claims, in each of 5 different zones of the project for a total of 25 discrete claims. The claims were analyzed in advance, and the contractor presented a factual slide show defense/rebuttal presentation at the Hearing. Project managers and principals were present during the Hearing and discussed the claims in great detail, providing each side with a better foundation to negotiate a resolution.  

Outcome:  After two days of Hearing, the matter was resolved.  The Defendant Contractor reversed its prior refusal on several of Plaintiff’s previously submitted change order requests, and agreed to compensate the Plaintiff for a small portion of the alleged delay claims.  All information submitted as “For Mediation Purposes Only”.  The Federal Court matter was dismissed promptly without the need for any responsive pleadings.

Insight:  During the review and discussion on the sample data sets during the Hearing, both parties recognized the extensive staff commitment that would be required to continue the dispute.  The free flowing exchange between counsel and project leaders on each side of the table illustrated the difficulty in presenting a clear and unambiguous factual presentation at trial.  Each side also had an introduction to the high level of commitment of principals and key staff to support the litigation.

Judge: Robert H. Cleland, USDC, EDM

Sub Contractor’s Counsel:  Judah Lifschitz, Shapiro, Lifschitz & Schram, Washington, DC

Contractor’s Counsel:  Steven Kelly, PC, St. Clair Shores, MI

In-House Counsel for Contractor:  Michael Farley, Novi, MI

 Postscript:  In House for the Contractor advised that an unrelated dispute of a similar matter had been settled after nearly 3 years of litigation on terms no more favorable than the result in this case, before considering the investment of staff and counsel fees. He presented the two examples to his senior managers as support for a corporate policy favoring Pre-Litigation / Early Case Mediation.

Arbitration / Mediation.  Construction Contract Default / Defective Workmanship / Expert Neutrals


Background on the Case:  The dispute between the Municipal Owner of a 40,000 sq. foot industrial building and the General Contractor was filed as a Demand for Arbitration with the American Arbitration Association.  The largest issue dealt with defects to the standing seam metal roof system.  Each party engaged experts that were clearly biased and hardened the positions of the parties:  the Owner’s position required a complete removal and replacement, the Surety for the General Contractor presented an expert claiming there was no structural defect, and denied the claim under the bond. The parties agreed to Mediate prior to any formal discovery.

Mediator Leadership:  The Mediator conducted a site visit with the Owner’s Expert Witness and the General Contractor (the Mediator refers to this practice as “Pre-Mediation”).  Sensing extreme positions being asserted by each side, the Mediator suggested that the parties agree on the selection of an unbiased Neutral Expert, with agreement to share the costs of the expert, to be used for Mediation Purposes Only.   The Mediator undertook a search to locate the Neutral Expert on standing seam metal roof defects, provided the outline and scope of work for the Neutral Expert and over several sessions, mediated a schedule and series of work tasks that were to be undertaken by the General Contractor, along with a detailed budget and some cost sharing by the Contractor, the Owner, Architect and Owner’s Rep.

Outcome:  The Settlement Agreement established a budget, a work schedule and required the Contractor to complete the agreed up on work tasks under the supervision and subject to  acceptance by the Neutral Expert.  As part of the Settlement, the parties engaged the Mediator to act as Standing Neutral to resolve field issues that might arise during the construction activity as well as final inspection and acceptance of the remediation Work by the Neutral Expert.  

Insight:  The Mediator recognized that an independent expert could be used to successfully overcome the mutual lack of trust between the Owner and the General Contractor. The Mediator understood that the General Contactor had strong incentive to cooperate and use its resources for remediation considering its obligation for indemnification of the Surety if a substitute contractor was retained to perform any work. 

Arbitrator:  John M. Sier, Kitch Drutchas Wagner Valitutti & Sherbrook, Detroit, MI

Owner’s Counsel:  David Lick, Foster Swift, Collins and Smith, Lansing, MI

Contractor’s Counsel:  Mark D. Sassak, Deneweth Dugan & Parfitt, Troy, MI

“Owner’s Rep” Counsel:  R. Edward Boucher, Kotz Sangster Wysocki, Detroit, MI

Architect’s Counsel: Craig S. Thompson, Sullivan, Ward, Asher & Patton, Southfield, MI

Postscript: The Mediator has been successful in getting parties to agree on the selection of an independent Neutral Expert, with  an agreed upon scope of services,  presented in an unbiased manner, with costs shared by the parties.  As necessary, the Mediator suggests qualified expert candidates for review and agreement by the parties, and assists in the preparation of the scope of services to ensure that the resulting report is presented in a factual, unbiased manner.  This effort is designated as “For Mediation Purposes Only”,  and forms a foundation to support negotiations in the Mediation process.  The Mediator has prepared a “Model” setting forth the discrete steps that should be followed to greatly improve the opportunity for successful resolution of similar cases.  This “Construction Dispute Resolution Model Involving Contractor Self-Preformed Remediation” is available upon request.

 Mark Sassak, Counsel for the Defendant Contractor offered the following assessment:

"One of the most important things that you accomplished as mediator was selecting an unbiased third-part expert.  As part of the “buy-in” that you mention in the Model, the parties (particularly the Owner and Contractor) bought in to the neutral expert. The Owner was assured that the deficiencies would be properly remedied while at the same time the Contractor was assured that the expert would not have “his thumb on the scale”.  The neutral expert as able to negate the biases of the Owner/s expert that were thwarting negotiations, and he also built trust in the Contractor that the self-performed remedies would not result in an unending series of repairs.  The Owner was able to get the building repaired, and the Contractor was able to get fairness and finality.

Importantly, the skill of the Mediator is essential to get the parties to set-aside their respective experts and trust that the third-party neutral expert will truly look after their legitimate interests.  I think hat this issue was critically important to building the trust that enabled the matter to be settled."

Business Court Mediation.  Construction Contract / Non Payment / Creative Business Solution


Background on the Case:  Plaintiff subcontractor filed suit against the Contractor for non-payment on numerous projects completed for the same Owner.  Defendant Contractor had a strong personal relationship with the Owner and was a “qualified contractor” to the Owner, a telecommunications firm that provided frequent assignments for work, but was unaware of the subcontracting work performed by the Plaintiff.   Plaintiff’s case was well documented, and the principal defense was asserted as an inability to pay.

Leadership by the Mediator:  The Mediator held separate meetings with each side prior to the scheduled Hearing (the Mediator refers to this practice as “Pre-Mediation”).  The Mediator learned that the Defendant’s financial difficulties arose out of acquisition of sophisticated (but underutilized) equipment, and unanticipated health issues that suggested an inability to continue as a going concern.  Assets, if liquidated, were insufficient to pay the amount owed to Plaintiff.  The Mediator explored the opportunity for the subcontractor to “take over” the role of “qualified contractor” with the telecommunications firm, but the subcontractor has previously been denied the preferred status.  With encouragement of the Mediator, both the contractor and the subcontractor met with the procurement officials with whom the contractor had strong personal ties, explained the dilemma, and obtained acquiescence to transfer its “qualified contractor” status to the subcontractor for future work.

Outcome:  When the transfer of the “qualified contractor” status was assured, the parties returned to Mediation and agreed to credit a “commission” on future jobs performed by the subcontractor until the outstanding debt was satisfied.  The subcontractor also assumed responsibility for payments on the sophisticated equipment, avoiding a default by the contractor.  

Insight:  The Mediator was able to identify high-benefit moves for one side (the Subcontractor  in line to take over future work from the Owner) that were also low-cost for the other side to concede (cooperating in the transfer of work to the subcontractor).  The result satisfied the interests of both parties.

Plaintiff’s Counsel: David Michael Zack, Mark L. McAlpine , McAlpine PC, Auburn Hills, MI

Defendant’s Counsel: Timothy J. Klitz, Livonia, MI