A federal district court has broadly interpreted a contractual mediation clause to require that a dispute first be mediated before proceeding to litigation. The court held that a provision mandating mediation of “any dispute [that] arises between the parties” included third-party claims for indemnification, even though another clause in the same agreement limited indemnification to issues that “may arise from the [w]ork.” To avoid this pitfall, ABA Litigation Section leaders caution against the use of boilerplate language in mandatory alternate dispute resolution (ADR) provisions.
In Rivas v. CBK Lodge General Partner, LLC, et al., the plaintiff sought damages against the defendant and owner of a waterpark for personal injuries suffered while using a water slide at the waterpark. After the case failed to resolve at court-mandated mediation, the waterpark owner sought to implead the waterslide manufacturer, alleging indemnification and contribution claims. The manufacturer moved to dismiss the third-party complaint, arguing that the “Resolution of Disputes” provision in the parties’ construction contract required that the waterpark owner mediate any issues between them before filing third-party claims. The manufacturer also maintained that the third-party claims were distinct and severable.
The waterpark opposed on the grounds that the surrounding language in the contract limited the mediation provision to commercial disputes between the parties alone and did not apply to indemnification claims arising out of the personal injuries of a nonparty to the contract. The U.S. District Court for the Middle District of Pennsylvania granted the manufacturer’s motion to dismiss, reasoning that the clear and unambiguous mediation clause encompassed “any dispute” between the parties, including indemnification claims brought pursuant to a distinct contractual provision.
The court began its analysis by observing that the “Resolution of Disputes” clause at issue clearly and unequivocally stated that “any dispute” that arises between the parties “shall” be mediated. It further noted that there was “no further qualifying language” that would “preclude an indemnification claim” from the reach of contractually mandated ADR.
In so holding, the court rejected the waterpark’s intent-based argument, stating that “if the intent between the parties was to limit the requirement of mediation to work-related issues, then such qualifying language could have been included.” And though it agreed with the waterpark that the personal injury plaintiff could not be compelled to mediate under the clause, it held that only the plaintiff’s direct claims against the waterpark could remain in court—not the waterpark’s indemnification claim. Because the waterpark and manufacturer had not mediated the indemnification claim, the court dismissed the waterpark’s third-party complaint. It further declined to stay the underlying personal injury action even though the plaintiff and the waterpark had already attempted to mediate the case and failed.
Litigation Section leaders caution practitioners about the importance of drafting ADR provisions that clearly match the expectations of the parties. “The court treated the ADR provision to mean exactly what it said, even though mediation was unlikely to be successful without the participation of the plaintiff,” recognizes Henry R. Chalmers, Atlanta, GA, cochair of the Section’s Alternate Dispute Resolution Committee. “While this might seem like an unnecessary step, especially considering that there was every indication that the case would not resolve through mediation, the court forced the parties to adhere to the language in the contract and to keep their word before resorting to litigation,” adds Chalmers. “It certainly appears from the relevant language that the parties may have intended for the mediation provision to apply only to contract disputes relating to the work being performed—at least that seems to be the ‘spirit’ of the agreement,” explains Eric R. Harlan, Baltimore, MD, cochair of the Section’s Alternate Dispute Resolution Committee.
“This case highlights the importance of crafting clear dispute resolution clauses that match the parties’ expectations for those proceedings,” notes Betsy A. Hellmann, former cochair of the Section’s Alternate Dispute Resolution Committee and current cochair of the Section’s International Litigation & Alternative Dispute Resolution Committee. “This is especially true for multi-tier clauses such as the one at issue here, which called first for discussions between authorized representatives, next for mediation, and finally for litigation,” she elaborates.
Section leaders believe this outcome likely could have been avoided with more careful drafting. “Attorneys drafting ADR provisions, especially ones with mandatory requirements, should not just cut and paste boiler plate language from other contracts,” advises Chalmers. “Provisions like the one in this case should be tailored specifically to what matters the parties intend to send to ADR,” Chalmers recommends. “Because courts tend to favor ADR, a party wishing to limit the scope of a mediation or arbitration provisions should clearly define those limitations,” suggests Harlan.
Section leaders also counsel attorneys to draft contracts carefully when parties desire different ADR provisions for different scenarios in the same agreement. “Special care should be taken when a client wishes to handle certain disputes one way and the remaining disputes another because a lack of clarity can lead to ancillary disputes over which dispute resolution procedure applies,” Hellmann warns.
