Case Study 3
Mediation required as a condition precedent to filing suit
Dispute between Specialty Contractor and Installer over delay claims, changed conditions
Use of Two-Stage Mediation Hearing format
Sample Data Sets used to evaluate claims in lieu of extensive discovery
Multi-million dollar settlement, 52 days start to finish
Background on the Case: Contractor for the baggage handling system at a major 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.
Status of Document Exchange / Discovery: Parties shared the same contract and project documents but there was no further document production; During prior settlement discussion the Subcontractor relied on elaborate PowerPoint presentations using maps and graphs of project details, but the Subcontractor was reluctant to exchange its internal records substantiating its claims. Without access to the data supporting the PowerPoint, the Owner refused to acknowledge any responsibility for claims.
Mediator Leadership: The Mediator initially met with project managers and engineers of both firms prior to the Hearing (the Mediator refers to this as “PreMediation” and attempts to arrange these pre-hearing conferences with parties as a standard practice). The parties suggested a site visit so the Mediator could understand the complexity of the project. The Mediator recognized the importance of the information gap; the Subcontractor was reluctant to release its internal records, but the Contractor held the position that the contract precluded any responsibility for additional compensation. The Mediator suggested that the subcontractor submit sample data sets supporting the delay and changed conditions claims referenced in the PowerPoint presentations, which could be reviewed by the Contractor prior to the Hearing; all information submitted was submitted “For Mediation Purposes Only”. The subcontractor provided extensive details on 5 specific claims, in each of 5 different zones of the project for a total of 25 discrete claims. The claims were analyzed in advance by the Contractor’s project managers and engineers, and the Contractor prepared a factual slide show defense/rebuttal presentation.
The Mediator recommended a two-day commitment for the Mediation, the first day for exchange of technical information; the second day for negotiation and settlement discussions. Principals and project managers from both sides were present during the First Stage Mediation Hearing and the Mediator presided over a discussion of the claims during an extended Joint Session.
Outcome: The principals resolved their dispute on the second day of Hearing. The Defendant Contractor reversed its prior refusal on several of Plaintiff-Subcontractor’s previously submitted change order requests, and agreed to compensate the Plaintiff for a small portion of the alleged delay claims. The Federal Court matter was dismissed promptly without the need for any responsive pleadings. Total time from start to finish, 52 days.
Insight: The Mediator was skilled to maintain constructive use of Joint Sessions and the free-flowing exchange between counsel and project leaders across the conference room table illustrated the difficulty in presenting a clear and unambiguous factual presentation at trial. 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 prepare for trial, as well as the distraction to key management personnel. One principal noted to the mediator: “do you realize what a distraction this has been, if my team does not get back to the office to review and approve pending bids, we’ll lose more that what’s as issue in this case?” And this case started with a demand north of $7Million.
Post-Script: In-House Counsel for the Contractor later advised the Mediator that an unrelated dispute of a similar nature had been settled after 3 years of litigation on terms "no more favorable” than the result in this case; and if the investment of staff and outside counsel fees were considered, the outcome in the mediated case was far more favorable. He presented the two examples to his senior managers as support for a corporate policy favoring Pre-Litigation / Early Case Mediation.
Judge: David M. Lawson, USDC, EDM
Sub Contractor’s Counsel: Judah Lifschitz, Shapiro, Lifschitz & Schram, Washington, DC,; S. Thomas Wienner, Wienner & Gould, Rochester, MI
Contractor’s Counsel: Steven Kelly, PC, St. Clair Shores, MI;
In-House Counsel for Contractor: Michael Farley, Novi, MI