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Can Courts Enforce Contractual Mediation Provisions?

Jonah Orlofsky

Can Courts Enforce Contractual Mediation Provisions?
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In Heston v. GB Capital, LLC, 16cv912 (S.D.Cal. 2016), a contract provided that disputes must first be submitted to non-binding mediation, and then arbitration. When the plaintiff filed a lawsuit in court without first mediating or arbitrating, the defendant sought to compel both mediation and arbitration under the Federal Arbitration Act, 9 U.S.C. §4. The court ordered arbitration, but refused to order the parties to mediation. The denial was based on a prior district court decision (Trujillo v Gomez, Case No. 14cv2483 BTM, 2015 WL 1757870 (S.D. Cal. 2015)), which in turn based its holding on the Eleventh Circuit’s decision in Trujillo, Advanced Bodycare Solutions, LLC v. Thione Int’l, Inc., 524 F.3d 1235 (11th Cir. 2008).

To understand why the district courts in Heston and Trujillo courts would not order mediation, even though required by the contract, one must look at the Eleventh Circuit decision that both are based on. In Trujillo, Advanced Bodycare Solutions, LLC v. Thione Int’l, Inc., 524 F.3d 1235 (11th Cir. 2008), the party seeking to compel mediation filed its motion solely under the Federal Arbitration Act, and the court held that mediation could not be ordered under the FAA because mediation is not covered by that statute. The court carefully noted however, that there may be other means for courts to enforce contractual mediation clauses:

Nor do we hold that agreements to mediate are per se unenforceable. They might be specifically enforceable in contract or under other law; that issue is not before us. Finally, we emphasize that we do not hold that stays in aid of mediation are per se impermissible. To the contrary, district courts have inherent, discretionary authority to issue stays in many circumstances, and granting a stay to permit mediation (or to require it) will often be appropriate. We merely hold that the mandatory remedies of the FAA may not be invoked to compel mediation.

Based on the reasoning similar to that suggested in this paragraph, some courts have dismissed (without prejudice) cases where parties have failed to comply with contractual mediation clauses. E.g., Bank of Am., N.A. v. SFR Investments Pool 1, LLC, No. 2:15-CV-0693-GMN-VCF, 2016 WL 389981, at *2 (D. Nev. Jan. 31, 2016)(“because these claims were not submitted to mediation prior to the filing of this action, the Court lacks subject matter jurisdiction, and will dismiss these claims without prejudice”). Other courts have stayed cases until a contractually-required mediation is completed. E.g., Getchell v. Suntrust Bank, No. 6:15-CV-1702-ORL-TBS, 2016 WL 740603, at *3 (M.D. Fla. Feb. 25, 2016) (“This action is due to be stayed so the parties can perform their contractual obligation to mediate”). All of these courts relied upon basic breach of contract legal principles to either dismiss without prejudice or stay pending completion of the contractually-required mediation.

It is possible that the defendant in Heston will be able to enforce the mediation requirement by asking the arbitrator to dismiss or stay the action until the required mediation is completed. Nonetheless, the takeaway from these rulings is that a party seeking to enforce a contractual clause requiring both mediation and arbitration should plead common law breach of contract theories in addition to the Federal Arbitration Act.