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September 24, 2013 Articles

Disqualifying Post-Med-Arb-Med Conduct by Neutral Does Not Unwind Signed Settlement Agreement

By J. Gregory Whitehair

The monitoring and regulation of mediators and arbitrators is a haphazard business in the United States. It is often said that "mediation is not the practice of law"—despite how often mediators are asked to help parties navigate contentious and confusing legal issues—so many states, such as Colorado, do not regulate the conduct of neutrals, even for court-annexed mediation. This is a convenient determination for the neutrals as it avoids the credentialing and regulatory schemes routinely applied to attorneys, sidesteps the unauthorized practice of law (UPL) rules, and arguably moots the need for malpractice insurance. Parties harmed by unregulated neutrals may, however, question the public protections of this laissez-faire approach.

Even in states that provide some guidelines for neutrals handling court-connected dispute resolution, such as Alabama and Michigan, the system of oversight is almost always less developed than that found for lawyer regulation. For instance, there is no recognized "mediation malpractice bar" and often no grievance-and-discipline procedure. (Florida presents a special case, using an elaborate credentialing point system that reflects education and experience, and provides a detailed disciplinary procedure.)

Arbitrators likewise fall outside any formal governing body (though many affiliate with well-known organizations like AAA or JAMS where quality control is a part of the program). Misconduct is typically addressed through the state court review of arbitration awards, but with no real mechanisms for disciplining the errant arbitrator.

That said, especially when negotiations are conducted combining mediation with arbitration, the legal system may respond. Thus, a neutral who wishes to mediate, then arbitrate (med-arb), and then later establish a more personal relationship with one of the lawyers, may run into rules on partiality that resemble the fairly strict rules of judicial disqualification. But in an unpublished case from Michigan last year, a mediator-turned-arbitrator-turned-mediator-turned-settlement-overseer-turned-vacation-guest-of-defense-counsel, although deemed disqualified on appeal, was never disciplined, and the divorce settlement she helped craft was enforced. See L. Hornberger, Michigan Court of Appeals Reviews Post Arb-Med Conduct of Arbitrator Mediator, Labor and Employment Lawnotes (Summer 2013). The case raises interesting questions of prejudice to parties where a judge's actions in parallel circumstances would have prompted disqualification, and perhaps the revisiting of earlier rulings.

The Case Facts of Hartman v. Hartman
The Hartmans of Oakland County, Michigan filed suit to end their 23-year marriage and were ordered to mediation pursuant to local rule. They chose a mediator with no disclosed ties to either party, or to their respective attorneys. Mediation was only partly successful in resolving their issues, so the parties agreed in writing to binding arbitration, using the existing mediator. The mediator (now arbitrator) then ruled on several minor issues. After that, the parties attempted once again to mediate the remaining issues with the same neutral, leading eventually to a settlement agreement.

In disputed later testimony, the plaintiff husband said that the female neutral had before the settlement was reached "made statements regarding her feelings about the case," thus pushing him to surrender to the final terms, claiming "no real choice." That agreement was duly executed. Notably, both spouses were at all times represented by counsel.

According to the record, a few disputed issues were still unresolved near the end. The plaintiff's counsel expressed to the trial court concerns about the neutral, but did not move for a replacement or to set aside the settlement agreement. Due to scheduling issues, a postponement of the final proceedings was then negotiated among counsel.

During those discussions, the plaintiff's counsel learned that the neutral had been invited to, and had chosen to stay at, the defense counsel's Florida vacation home. The plaintiff's motions to remove and replace the arbitrator and set aside the settlement agreement followed. The defense counsel argued in response that he often invited "attorneys, including judges," to stay at his Florida home and that it was "no more than ordinary hospitality."

The trial court determined that there was "no impropriety," given that the allegedly problematic actions occurred 30 days after the settlement agreement was signed by both parties. The remaining disputed issues were then decided by the trial court (though with no mention of whether those issues should have been addressed by the neutral under the parties' arbitration agreement), a final divorce was decreed, and the settlement agreement was affirmed. The plaintiff's appeal followed.

In Hartman v. Hartman, Docket No. 304026 (Mich. Ct. App. August 7, 2012) (per curiam) (unpublished),the Michigan Court of Appeals addressed each legal ground for set aside raised by plaintiff—fraudulent misrepresentation of neutrality, mutual mistake, violation of public policy, and unconscionability—but ultimately sided with the trial court.

First, the court determined that this was not a case of reviewing an arbitrator's award, but rather was about setting aside a signed settlement agreement. The court thus found no basis for de novo review, applying the more deferential abuse of discretion standard. Then, the court asserted its commitment to holding parties to their settlement agreements, in the absence of fraud, duress, or mutual mistake.

The court noted that plaintiff failed to tender evidence of actual bias, and itself found "no evidence" of such bias (though the record does not reflect any testimony by the neutral). As for mutual mistake, the court determined that any mistake was unilateral to the plaintiff, and not shown to be prejudicial.

The appeals court then made an ethics assessment, stating that "contracts that violate our ethical rules violate our public policy and therefore are unenforceable" (citations omitted). The plaintiff's counsel cited Michigan's ethics Rule 8.4 on "dishonesty, fraud, deceit, misrepresentation, or violation of criminal law," but the court did not see a violation. Curiously, the appellate decision highlighted that appellant's counsel had failed to grieve opposing counsel or the neutral; this stance fails to consider the widely perceived impropriety of grieving one's opponent during unresolved litigation, and the lack of any process to grieve neutrals in Michigan.

Finally, neither procedural nor substantive unconscionability was shown, given the plaintiff's failure to articulate some alternative preferred settlement outcome.

To more fully assess the procedural unconscionability argument, the court addressed Michigan's administratively adopted Standards on court-connected mediator conduct and found that the then-adopted rules spoke simply to avoiding "partiality" or the appearance of partiality (though as noted below, there was additional language in the Standards that could have been relied upon by the court). Neither the court nor the parties found any partiality cases directly on point dealing with a neutral in similar circumstances. Instead, the court relied on court rule MCR 3.216 (E), providing that mediator disqualification should be assessed by the same standards used for judicial officers, including Judicial Canon 2's "appearance of impropriety" standard. The court then held: "The totality of the circumstances in the case at bar rises to the level that would have required the arbitrator to be removed from arbitrating or mediating the remaining matters." (emphasis added)

One might then have assumed vacature of the settlement agreement. But the court essentially decided no-harm, no-foul: "However, the final matters that remained outstanding at the time of arbitrator's and defense counsel's vacation together were settled by the judge," and the pre-settlement arbitration choices were deemed "moot," given the signed settlement (without addressing the fact that binding arbitration results had been imposed by the neutral on at least "minor issues"). And because the grounds offered by the appellant for setting aside the settlement were deemed insufficient, the trial court's rulings and the settlement agreement were affirmed.

Michigan's Regulatory History
For neutrals engaged in court-connected dispute resolution, Michigan's State Court Administrative Office adopted in 2001 its Standards of Conduct for Mediators. These Standards were derived from the Model Standards of Conduct for Mediators first developed in 1994 by the ABA, the Society of Professionals in Dispute Resolution (predecessor to the Association for Conflict Resolution, or ACR), and the American Arbitration Association. At that time, the Michigan Standards fit onto two pages, with the following relevant language on conflicts of interest:

(4) Conflicts of Interest
(b) The need to protect against conflicts of interest also governs conduct that occurs during and after the mediation. A mediator must avoid the appearance of conflict of interest both during and after the mediation. Without the consent of all parties, a mediator shall not subsequently establish a professional relationship with one of the parties in a related matter, or in an unrelated matter under circumstances that would raise legitimate questions about the integrity of the mediation process. A mediator shall not establish a personal or intimate relationship with any of the parties that would raise legitimate questions about the integrity of the mediation process.

(These were the standards in place in Michigan when the Hartman court reached its decision.)

In September 2005, the ABA, again along with AAA and ACR, promulgated a more detailed set of standards, including the following references to post-mediation conduct:


A. A mediator shall avoid a conflict of interest or the appearance of a conflict of interest during and after a mediation. A conflict of interest can arise from involvement by a mediator with the subject matter of the dispute or from any relationship between a mediator and any mediation participant, whether past or present, personal or professional, that reasonably raises a question of a mediator's impartiality.
F. Subsequent to a mediation, a mediator shall not establish another relationship with any of the participants in any matter that would raise questions about the integrity of the mediation. When a mediator develops personal or professional relationships with parties, other individuals or organizations following a mediation in which they were involved, the mediator should consider factors such as time elapsed following the mediation, the nature of the relationships established, and services offered when determining whether the relationships might create a perceived or actual conflict of interest.

(emphasis added).

On the arbitration front, just a year earlier in 2004, the ABA in conjunction with a special committee of AAA promulgated an update to its 1997 Code of Ethics for Arbitration in Commercial Disputes. Canon I includes the following guidance:

C. After accepting appointment and while serving as an arbitrator, a person should avoid entering into any business, professional, or personal relationship, or acquiring any financial or personal interest, which is likely to affect impartiality or which might reasonably create the appearance of partiality. For a reasonable period of time after the decision of a case, persons who have served as arbitrators should avoid entering into any such relationship, or acquiring any such interest, in circumstances which might reasonably create the appearance that they had been influenced in the arbitration by the anticipation or expectation of the relationship or interest. Existence of any of the matters or circumstances described in this paragraph C does not render it unethical for one to serve as an arbitrator where the parties have consented to the arbitrator's appointment or continued services following full disclosure of the relevant facts in accordance with Canon II.

(emphasis added).

On the domestic relations front, the ABA's Section of Family Law, in conjunction with the Academy of Family Mediators and the Association of Family and Conciliation Courts, thoroughly updated its 1994 standards in 2000. These broad standards can be found at Model Standards of Practice for Family and Divorce Mediation.

Michigan convened a task force in 2008 that worked steadily through 2010 to update and, if possible, consolidate the commercial and the domestic relations guidelines for mediators. The State Court Administrator then convened a general committee to finalize that work, with public comments closing February 2012; the Hartman court ruled in August 2012, before the revised Rules were issued. Those revised Rules were ultimately adopted by the state court administrator's Office of Dispute Resolution in February 2013. See A. Bachle Fifer, Michigan's New Mediator Standards of Conduct Approved, blog post of Dec. 29, 2012. The ODR's Conflict of Interest section tracks the ABA's 2005 update.

For a thoroughgoing compilation of the ABA Section of Dispute Resolution's recommended standards, codes, and ethics advisories in the ADR arena, go to ADR Ethics Resources. The ADR Ethics Resources page also provides guidance for submitting questions to the DR Section for advisory opinion response on ethics concerns in the dispute resolution field.

The Hartman decision might well have been decided on the simple proposition of harmless error: The plaintiff never established in fact how the settlement at issue might be improved were it reopened. Nonetheless, the post-settlement conduct of the neutral serves as a teachable moment for assessing the scope of personal or business connections with a party that a neutral might pursue after settlement is reached or an arbitration award issued.

As it turns out, the Hartman Court would have had a more elaborate standard to apply had the decision come down a year later, but under either standard, disqualification would have resulted—although with no real consequences, either to the neutral or to the parties, except for the unfortunate additional expense incurred by the parties on appeal. This appellate decision seems to elide the fact that the neutral decided several arbitrated matters presumably incorporated into the settlement agreement. Moreover, the reviewing court never addressed whether the neutral had in fact finished all the decision making contracted for under the parties' arbitration agreement. Finally, the case seems to provide a right without a remedy, hardly satisfying to the aggrieved plaintiff.

Of course, the entire episode might have been avoided if the neutral had simply informed the plaintiff's counsel of the invitation, and gotten consent (or not). As for the name and subsequent fate of this mediator/arbitrator/vacation-home guest, the opinion is notably silent. But one must ask whether the unsuccessful plaintiff might have deserved at least a refund of his half of the neutral's fees.

Keywords: ADR, litigation, ABA Standards of Mediator Conduct, med-arb