Mediate or Arbitrate?

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RetiredCSProf
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Mediate or Arbitrate?

Post by RetiredCSProf » Wed Jul 10, 2019 3:08 pm

I have been in a legal dispute against a licensed general contractor (GC) for over two years. My attorney has just suggested that I request mediation. II don't know how to come up with a proposal (dollar amount) that would satisfy both me and the GC. If I reject all their proposals, then mediation would be a waste of time and money. If I am willing to accept whatever they offer, then I may regret not having proceeded with arbitration. I am leaning toward mediation, but I don't know what "my number" is to settle.

Some background:

In 2015, I had my house remodeled by the GC. A year after completion, I filed a lawsuit for overcharges and the cost of correcting defects. The lawsuit was compelled to arbitration. The GC is represented by lawyers from his general liability insurance coverage. After numerous delays, arbitration was scheduled for March 2019, but opposing counsel requested and was granted a continuance (delay) to November.

I have also filed a complaint against the GC with the Contractor's State License Board, and the case is currently under investigation. During the discovery phase, my attorney has found evidence that the GC defrauded worker's compensation insurance (underpaid premiums) and failed to report wages paid to employees.

There are uncertainties with arbitration -- Arbitrator decides on the award; if I prevail, I still need to collect the award. If we mediate, there would be no judgment against the GC, and his license would not be jeopardized.

edgeway
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Re: Mediate or Arbitrate?

Post by edgeway » Wed Jul 10, 2019 4:44 pm

Why did your lawyer suggest you request the mediation? Does he/she think your case is weak? If the insurance company's lawyers have stepped in, who would you be mediating with on the other side?

jminv
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Re: Mediate or Arbitrate?

Post by jminv » Wed Jul 10, 2019 4:54 pm

RetiredCSProf wrote:
Wed Jul 10, 2019 3:08 pm
I have been in a legal dispute against a licensed general contractor (GC) for over two years. My attorney has just suggested that I request mediation. II don't know how to come up with a proposal (dollar amount) that would satisfy both me and the GC. If I reject all their proposals, then mediation would be a waste of time and money. If I am willing to accept whatever they offer, then I may regret not having proceeded with arbitration. I am leaning toward mediation, but I don't know what "my number" is to settle.

Some background:

In 2015, I had my house remodeled by the GC. A year after completion, I filed a lawsuit for overcharges and the cost of correcting defects. The lawsuit was compelled to arbitration. The GC is represented by lawyers from his general liability insurance coverage. After numerous delays, arbitration was scheduled for March 2019, but opposing counsel requested and was granted a continuance (delay) to November.

I have also filed a complaint against the GC with the Contractor's State License Board, and the case is currently under investigation. During the discovery phase, my attorney has found evidence that the GC defrauded worker's compensation insurance (underpaid premiums) and failed to report wages paid to employees.

There are uncertainties with arbitration -- Arbitrator decides on the award; if I prevail, I still need to collect the award. If we mediate, there would be no judgment against the GC, and his license would not be jeopardized.
I might go with mediation if my lawyer was recommending it to me as it might mean that the lawyer thinks it would be a better bet than arbitration would be. Have you asked the lawyer about this?

If you go to non-binding mediation, then you will know their position and they will know yours. You don't have to be willing to accept whatever they offer. You need to be willing to walk away and make sure the mediation is non-binding. You should go into it knowing what you want and what you would be willing to accept.

You should have an idea about what your 'number' is to settle. It would be related to the time you've put into this case and dealing with the corrections, your attorney fees to date (or recovery if that's how it's being dealt with), refund of the overcharges, and refund for corrections. Make a spreadsheet and then add a column for the hassle of it all.

It sounds like you also want to punish the contractor through the state process. Would not workers compensation fraud and failure to report wages be something that would continue regardless of settlement?

strafe
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Re: Mediate or Arbitrate?

Post by strafe » Wed Jul 10, 2019 5:01 pm

This is a great question to ask your lawyer rather than internet strangers.

Topic Author
RetiredCSProf
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Re: Mediate or Arbitrate?

Post by RetiredCSProf » Wed Jul 10, 2019 5:32 pm

I filed a complaint against the GC to warn other homeowners and to make the GC accountable for his actions (not to punish him). Disciplinary action against a licensed contractor is more credible than a bad review on Yelp (which I have not done). The CSLB is likely to impose fines on the GC, not throw him in jail (although they have that option).

My atty suggested mediation as a cost-effective resolution to the dispute. I was surprised at the suggestion because it came on the heels of information that strengthened my case. OTOH, the legal fees have already been substantial, partly due to the opposing side's stonewalling -- we needed subpoena's to get records, which the GC claims were "lost or stolen."

Sconie
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Re: Mediate or Arbitrate?

Post by Sconie » Wed Jul 10, 2019 6:07 pm

Mediation, which is voluntary, is typically a less expensive process than arbitration----a process which usually results in a binding decision and award. Accordingly, if you enter into mediation and don't like the suggested resolution, you don't have to agree to it.
I know you think you understand what you thought I said but I'm not sure you realize that what you heard is not what I meant. - Alan Greenspan

Lee_WSP
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Re: Mediate or Arbitrate?

Post by Lee_WSP » Wed Jul 10, 2019 6:43 pm

If you think there is no possibility of a resolution, than mediation is a waste of time. However, if you think mediation has a better than 50% chance of achieving a resolution acceptable to you, then I'd say it's worth a shot. You can always walk away.

It's kind of like whether to invest in the stock market. 66% of the time it's better to jump in right now.

Arbitration is going to be very costly and as you said, you could lose or do worse than at mediation and you'll have additional legal expenses.

In addition, while it is advisable to bring the attorney to mediation, if you'd rather save money, you can leave him at home and try asking for the GC to leave his attorneys at home (or banish them to the other room) as well.

ClaycordJCA
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Re: Mediate or Arbitrate?

Post by ClaycordJCA » Thu Jul 11, 2019 12:53 am

A mediation necessarily involves compromise. Don’t expect to “win” at mediation. I’ve participated in many and in my experience mediators invariably will say that a sign of a good settlement after mediation is that both sides are unhappy.

Don’t expect the mediator to take your side and gang up with you to force the GC to settle on your terms. Instead, the mediator should be telling you about all the risks and problems with your case and telling the other side about all of the problems/risks in their case. Ultimately, the mediator will probably ask you for a demand, take it to the other side, will convey their counter-offer offer, and will continuing going back and forth until a deal is reached or one party won’t move any further.

Also, I would not be so sure that the claimed workers’ compensation or tax fraud will work to your advantage. First, those issues would seem to be irrelevant to your claim, which alleges damages caused by construction defects. I’m curious to know whether you discussed with your lawyer how this information strengthens your case. Second, your lawyer is almost certainly prohibited by the ethical rules from threatening to pursue criminal proceedings in order to gain leverage in your civil action.

Iridium
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Re: Mediate or Arbitrate?

Post by Iridium » Thu Jul 11, 2019 2:33 am

RetiredCSProf wrote:
Wed Jul 10, 2019 3:08 pm
II don't know how to come up with a proposal (dollar amount) that would satisfy both me and the GC.
...
The GC is represented by lawyers from his general liability insurance coverage.
I do not think it has to satisfy the GC at all. If this is an insurance claim, then the insurance company is de facto in charge of determining whether to settle. I know folks with commercial insurance who get irritated when the insurance company settles an unfounded claim, but there isn't much they can reasonably do about it (legally they could probably refuse to allow the settlement to move forward, but from then on everything would be at their cost and risk).
RetiredCSProf wrote:
Wed Jul 10, 2019 3:08 pm
If I reject all their proposals, then mediation would be a waste of time and money.
Perhaps I am overly optimistic, but I would think that since mediation forces both sides to reveal what they think of the case, it may help focus preparation for arbitration. Right now, I have no idea, and perhaps you do not either, why the insurance company is refusing to pay you your damages. Is the insurance company disputing every single overcharge and construction defect? Or, do they think you are going overboard on a few items, but actually don't dispute the majority of your claims? Or, do they see it as so egrigous that they believe their coverage shouldn't apply and are just providing the lawyer to stave off a bad faith suit? What is their basis for believing that they do not have liability? In most disputes, once you strip out the emotion, the actual crux tends to be only one or two differences of opinion. Even if you do not settle, Iearning the core of your dispute is at least not a total waste of time.
RetiredCSProf wrote:
Wed Jul 10, 2019 3:08 pm
There are uncertainties with arbitration -- Arbitrator decides on the award; if I prevail, I still need to collect the award. If we mediate, there would be no judgment against the GC, and his license would not be jeopardized.
If the insurance company is paying the claim, I would think that collecting an arbitration award ought to be trivial.

I am not sure I see the connection between the GC's license being in jeopardy and mediation. It is not as if the state license board is going to say: RetiredCSProf settled the dispute over construction defects... No reason to look into this possible workman's comp fraud anymore!

Topic Author
RetiredCSProf
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Re: Mediate or Arbitrate?

Post by RetiredCSProf » Wed Oct 16, 2019 2:30 pm

I'm following up on my post. Mediation with the GC is scheduled for November and will continue to arbitration if we reach an impasse. I gave my atty a bottom-line number but he can't promise what I'm asking. My biggest risk, if we move to arbitration, is that if the GC is found to have committed fraud, his insurance company may retreat, and then I will need to collect directly from the GC, who may decide to skip town.

To clarify, the bulk of my claim is for overcharges, coupled with fraud. It was a cost-plus contract for home improvement. The GC expanded the work by making false claims about local code. He failed to provide me with documentation of his expenses and billed me triple the estimate. Furthermore, most of the work (plumbing, electrical, framing, cabinetry, masonry, tile setting, drywall, painting) was performed by unlicensed subcontractors (the contract specified all workers would be licensed). I'm in California, where a GC is required to disgorge all payments made to unlicensed subs. The GC is falsely claiming that I specifically requested all the work he performed and that his workers were his employees, although he issued 1099s.

My atty won't push for reimbursement to cover defects and repair of property damage, but I may be able to collect up to $15K from the GC's bond surety company on defects and damages. I've not yet submitted a claim to the bond company.

The CSLB has recommended disciplinary action against the GC and will soon be issuing a citation.

My atty recommended mediation when I told him that I have $60K remaining to spend on legal fees. I have already spent close to $200K. If we continue to arbitration, I may be awarded every penny I paid the GC plus triple damages, due to fraud. I was over 65 when the work was done, so I have a claim for financial elder abuse.

To "break even" at mediation, I would need to collect at least what I've spent on legal fees plus the cost of repairs for defects and property damage.

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PrettyCoolWorkshop
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Re: Mediate or Arbitrate?

Post by PrettyCoolWorkshop » Wed Oct 16, 2019 2:57 pm

Wow, thanks for the update. I'm curious, how much did the GC try to charge you for all the work that was done?
Be greedy and fearful. All the time.

WhyNotUs
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Re: Mediate or Arbitrate?

Post by WhyNotUs » Wed Oct 16, 2019 3:09 pm

Your description does not suggest that mediation will result in a mutually satisfactory resolution. Sometimes setting a date for arbitration will trigger meaningful resolution negotiation, if so that would be a chance to exit before the costs of arbitrations continue to escalate.

You can help yourself and your attorney by getting clarity on your real bottom line for what you would accept to be done with this.
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Topic Author
RetiredCSProf
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Re: Mediate or Arbitrate?

Post by RetiredCSProf » Mon Nov 04, 2019 9:28 pm

Mediation is scheduled for this week and I am still fuzzy about my numbers. I'm thinking about opening with an offer of $500K, but maybe $400K will get us there quicker. I want at least $300K, but I may be willing to accept anything over $200K. I have serious doubts that I will get it.

Last week, the Mediator threatened to suspend mediation because opposing side was late in making advance payment for the mediation. I am concerned that they are not approaching this in good faith, and that no matter what number I propose for settlement, they will walk away, that is, unless I agree to pay them money.

In response to the questions asked, the GC charged $408K for the renovation. This is on a 30-year old, 2000 square foot, two-story, 3 bedroom condominium. It was built in 1987 and cost the builder about $100K to construct. I have outstanding invoices of $33K (final progress payment and last change order) for which the GC has filed a counter claim, along with 10% per annual interest. Most of the bills were for labor. During discovery, the GC alleged that his expenses for the renovation totaled close to $197K, which leaves him with a profit and overhead of $211K (more than 100%).

Last week, the CSLB issued a citation against the GC, finding him in violation of multiple business and professional codes, including hiring unlicensed contractors. The CSLB website now shows the public that there is a citation pending against him.

I may be awarded anywhere up to $1.5 -$2M in arbitration if my side is able to show senior fraud (financial elder abuse). If the GC is found to have committed fraud, then his GL insurance carrier may walk away and leave him holding the bill. My biggest risk in moving to arbitration is if the GC declares bankruptcy.

In preparation for the upcoming mediation, both sides prepared mediation briefs. This has been helpful, as it gives insight into the approach that his attorney will take if we continue to arbitration. Their defense against my claim of senior fraud is that I was in my right mind when I signed the contract but my faculties declined after construction started. Basically, the brief is a pack of lies -- claiming, for example, that it was OK for the GC to forgo the "formalities of the contract" because I trusted him and that I caused delays in scheduling because the GC had to work around my schedule. (I'm retired.)

What is missing in the brief is an admission of wrongdoing and any hint of concession for negotiating. I made several phone calls to identify and locate the general liability insurance adjustor for the GC. She's on the other side of the country, not returning calls, and unlikely to be present at the Mediation. I don't know if she will even be accessible by phone to authorize an insurance settlement.

At least, at this point, I accept that mediation will not be a waste of time -- it's like getting a "free" deposition.

Topic Author
RetiredCSProf
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Re: Mediate or Arbitrate?

Post by RetiredCSProf » Thu Nov 07, 2019 3:18 pm

ClaycordJCA wrote:
Thu Jul 11, 2019 12:53 am
A mediation necessarily involves compromise. Don’t expect to “win” at mediation. I’ve participated in many and in my experience mediators invariably will say that a sign of a good settlement after mediation is that both sides are unhappy.

Don’t expect the mediator to take your side and gang up with you to force the GC to settle on your terms. Instead, the mediator should be telling you about all the risks and problems with your case and telling the other side about all of the problems/risks in their case. Ultimately, the mediator will probably ask you for a demand, take it to the other side, will convey their counter-offer offer, and will continuing going back and forth until a deal is reached or one party won’t move any further.

Also, I would not be so sure that the claimed workers’ compensation or tax fraud will work to your advantage. First, those issues would seem to be irrelevant to your claim, which alleges damages caused by construction defects. I’m curious to know whether you discussed with your lawyer how this information strengthens your case. Second, your lawyer is almost certainly prohibited by the ethical rules from threatening to pursue criminal proceedings in order to gain leverage in your civil action.
Thanks. This helped me know what to expect at mediation. As you predicted, the mediator asked me for a demand, which he took to the other side. There was no counter offer and neither of us walked away. It came as a surprise to me and the mediator that the GC had not filed a claim against his insurance. The mediator suspended discussions and offered to continue on another day. My only other surprise was that mediation included a free lunch.

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