1
MEDIATING A COMPLEX CONSTRUCTION DEFECT
CASE
Construction Defect Litigation
George D. Calkins
June 19, 2008Session 1
2
Introductions
Panelists Participants
Mediation Experience Construction Defect/ Claim Experience Expectations
Scheduling and Breaks MCLE Credit, Class Certificate and
Evaluation Forms
3
Explanation of the Goals -
Conduct of the Program.
Goals Overview of Construction Defect
Litigation, Case Management and Mediation and related construction delay/claim matters
In-depth Examination of the Factual and Legal Problems encountered in these matters.
Explore Strategies for the effective handling of issues and problems
4
Explanation of the Goals and the Conduct of the Program (Con’t.)
Process Interactive and Socratic (not individual
problem solving-save for post session discussions)
Will not use the team and breakout session approach common here - Have found that utilizing classroom participation is more enjoyable and productive
The Pepperdine Summary Sheets Use of the Fact Patterns and the Case
Management Orders (familiarize)
5
The Unfortunate State of Current Construction Defect Mediation Practice in California
Need for Reform - steps taken by the legislature
Revalidation of the Basics of the Purpose of the Case Management Order and the Role of Mediation in the Construction Defect Arena
6
Definition of Terms and Acronyms Encountered at Construction Defect
Mediations
Terms Mediation: The resolution of a
dispute through consensus and compromise utilizing a neutral party as a facilitator of agreements.
Mediator: A neutral party who assists in the resolution of a dispute by using facilitative and/or evaluative techniques.
7
Definition of Terms and Acronyms Encountered at Construction Defect Mediations (Cont’d)
Special Master: A term of art that has been developed over time in Construction Defect litigation and, although never formally defined in statute or case law, is often used to describe a mediator or a referee or both. It has evolved into a description of the party who assists the court in the management of a construction defect case under a case management . order and oversees the orderly preparation of the case for mediation and/or trial.
8
Definition of Terms and Acronyms Encountered at Construction Defect Mediations (Cont’d)
Referee: A party designated by the Court under California Code of Civil Procedure Section 639, to handle discovery disputes and to make recommendations to the Court for the resolution of those disputes. Cannot be a mediator and a referee pursuant to California Rules of Court.
9
Definition of Terms and Acronyms Encountered at Construction Defect Mediations (Cont’d)
Order: A document prepared by the parties to a Construction Defect Case and approved by the Court to facilitate discovery and the orderly management of the case.
10
Definition of Terms and Acronyms Encountered at Construction Defect Mediations (Cont’d)
Acronyms AIE: Additional Insured Endorsement CMO: Case Management Order CORE: Cost of Repair Estimate EIFS: External Insulation Finish
System HOA: Homeowners’ Association MKP:Most Knowledgeable Person PMK:Person Most Knowledgeable
11
Definition of Terms and Acronyms Encountered at Construction Defect Mediations (Cont’d)
MEP:Mechanical, Electrical & Plumbing OCIP: Owner Controlled Insurance
Policy CCIP: Contractor Controlled
Insurance Policy RMO: Responsible Managing Owner SIR: Self-Insured-Retention TPA: Third Party Administrator
12
The Roles of the Mediator, Special Master & Discovery Referee
As a Mediator, one is the Facilitator between the Parties to a Dispute.
The goal is to facilitate an agreement between the parties by making certain that they are looking at the same facts, have an understanding and appreciation of the law that governs their dispute, and are realistically assessing strengths and weaknesses of both their position and that of their opponent.
13
The Roles of the Mediator, Special Master & Discovery Referee (Cont’d)
In addition to the foregoing, a Mediator needs to Surface Hidden Agendas and Subjective, Emotional Issues that may have a significant impact on the positions of the parties.
The Mediator needs to guide counsel and the parties into the appropriate frame of mind for mediation: a willingness to compromise.
Unfortunately, in construction defect mediations the atmosphere is not always conducive to conciliatory behavior, and the strong adversarial tone needs to be ameliorated.
14
The Roles of the Mediator, Special Master & Discovery Referee (Cont’d)
The term “Special Master’’ connotes a party that is service in a Quasi-Judicial Capacity and who is responsible for the administration of construction defect case under a CMO to insure that it is prepared for mediation or trial in an orderly fashion under the CMO. The term is not defined in the statutes and is only found in the code of civil procedure section 170 relating to peremptory challenges.
A Discovery Referee is appointed by the Court to resolve discovery disputes. This is a quasi-judicial role.
15
The Past Pre-1986/87 CD litigation in California was treated
the same as any other civil lawsuit and because of the size of these cases and their complexity were generally not resolved until very near the end of the mandatory 5 year statute of limitations within which all civil litigation had to be resolved after the date of filing of a complaint.
There was no proactive case management by the Courts
Discovery was conducted per the California Code of Civil Procedure
The volume of CD litigation was relatively small
California CD Litigation & Mediation: Past, Present and Future
16
California CD Litigation & Mediation: Past, Present and Future (Cont’d)
In 1986 the Civil Discovery Act of California was revised
In 1987 the Trial Delay Reduction Act (Fast Track) became effective
The litigants and the Parties to CD litigation and other complex litigation matters along with the Courts determined that these cases could not be efficiently administer under the new discovery Act and effectively comply with the Fast Track requirements.
17
CMOs are developed to circumvent the provisions of the Discovery Act and to insure that complex cases can comply with the trial requirements of Fast Tract (18-24 months from filing) .
CMOs were intended to provide for informal, efficient and economical exchange of relevant evidence.
Private sector neutrals were utilized to handle the administration of these matters, their discovery issues and their mediation.
California CD Litigation & Mediation: Past, Present and Future
18
The Present CMOs have grown from outlines to facilitate
discovery, settlement and trial to tomes purporting to micro-manage every aspect of the case. (May Use Civility opposition)
The mediation process has become protracted and over-adversarial, exacting economic costs disproportionate to the benefits received and destroying time efficiency.
The system is no longer user-friendly
California CD Litigation & Mediation: Past, Present and Future
19
The Future Indicative that the system is not working the
guidelines for Fast Track trial time has been extended for complex cases
The Concept that originally led to the use of the CMO process needs to be recognized and the process returned to a focus on the expeditious and economical exchange of evidence, settlement and trial preparation and removed from the micro-management of all phases of the litigation process.
California CD Litigation & Mediation: Past, Present and Future
20
The Courts need to be more firm in the adherence to trial dates within Fast Tract guidelines
The mediation process must be improved through better mediator action insuring that cases are prepared and ready to mediate and the proper use of the parties and experts
The mediation process needs to be taken more seriously by the parties, the attorneys, the insurers and the experts and not treated as a pro occurrence that has been mandated by the Courts
California CD Litigation & Mediation: Past, Present and Future
21
Key Components of the CMO (Refer to Sample forms developed in S.D.)
Selection of the Mediator, the Special Master and the Discovery Referee Define the roles provide for fee and cost allocations
Provide a timely mechanism for identifying and naming the necessary parties Extend time to prepare the CMO until the
necessary parties can participate Attempt to involve the Special Master/
Mediator in the process
22
Key Components of the CMO (Refer to Sample forms developed in S.D.)(Cont’d)
Establish a process to expedite the filing of requisite pleadings Deemed filed cross-complaints
(controversy) Notices
23
Key Components of the CMO
(Refer to Sample forms developed in S.D.)
Set up a procedure for the acquisition of the necessary documentary information (Plans, Specifications, Contracts, Insurance Policies, Certificates of Additional Insured Endorsements, Notices of Completion) Document Depositories Cost sharing
24
Key Components of the CMO
(Refer to Sample forms developed in S.D.)
Establish realistic time-lines for mediation sessions and for trial Preliminary and final defect lists Site Inspections Destructive Testing
Define Destructive Testing Define Participation Establish method of cost sharing
25
Key Components of the CMO
(Refer to Sample forms developed in S.D.)
Plaintiffs preliminary and final costs of repair
Plaintiff’s Show and Tell Presentation
Developer/Builder cost of repair Defendant’s Defect and Cure
Presentation Developer/ Builder demands to the
Subcontractors
26
Key Components of the CMO
(Refer to Sample forms developed in S.D.)
Mediation Schedule Scope of Work Mediation sessions Insurance Day(s) Expert mediation sessions Peripheral Party mediations Money mediations
27
Key Components of the CMO
(Refer to Sample forms developed in S.D.)
Exchange of Experts and Discovery Schedule Stays PMKs Parties Experts (order-defect--trade)
Discovery and Motion Cut-off dates Trial
28
GENERAL DISCUSSION
29
MEDIATING A COMPLEX CONSTRUCTION DEFECT CASE
Construction Defect Litigation
George D. Calkins
June 19, 2008 Sessions 2 & 3
30
Organizing a Construction Defect Mediation
Determine the nature of the case and the types of claims that are being made and the nature of the legal issues that are involved Identify Parties and relation to Claims Prioritize and segregate claims Determine the status of Defendant
entities Identify legal issues-statute of
limitations-standing--etc
31
Organizing a Construction Defect Mediation (Cont’d)
Make certain that all contract (scope) information and insurance information is available (Depository) Use of Insurance Day(s) and Scope
sessions Evaluate contract (indemnity) and
insurance issues (AIEs and coverage)
32
Organizing a Construction Defect Mediation (Cont’d)
Attempt to identify peripheral parties at the earliest time possible and set up a protocol to remove them from the case as soon as possible Use of dismissal without prejudice Scope of work releases
Examine the basis for the claims Use of expert mediation sessions Protocol-with or without attorneys Keep a record of the proceedings to avoid
misunderstandings
33
Organizing a Construction Defect Mediation (Cont’d) Set up a protocol to insure that all things
necessary for a productive Money Mediation have been done Phone Calls Readiness conference Certificate of readiness
Require an agenda for each mediation session Avoid Cattle Calls Set up sessions by discipline or defect Stick to the agenda/schedule Avoid “overtime” sessions
34
Organizing a Construction Defect Mediation (Cont’d)
Insure that all of the necessary parties with authority are at the Money Mediations Letters-phone calls Caveat the mandatory settlement
conference-destroys the mediation Privilege
35
It is vitally important to establish all insurance coverage issues
Need to set up a matrix of liability and indemnity/additional insured coverage Information obtained through the form
interrogatories and by defending carriers not always accurate
Must have an accurate picture of coverage before mediation
Use of Insurance Day mediation session
36
It is vitally important to establish all insurance coverage issues (Cont’d)
Important to know indemnity and additional insured information (1) AI as important if not more so than liability Must keep AI on separate track
from liability mediation (conflict of interest)
37
What a Mediator should Expect from the Attorneys for the parties in a CD Mediation
Preparation Familiarity with the facts and the law and a
knowledge of the clients role in the construction of the project
Possession of a Game Plan for the resolution of the client’s issues
Courtesy and Professionalism Absolute Candor A willingness to participate in the
mediation process (voluntary v. involuntary)
38
What Counsel and the Parties should expect from a Mediator in a CD Mediation
General knowledge of the construction field and the law that applies to construction defect litigation.
General knowledge of the law of indemnity and insurance issues peculiar to construction defect litigation.
Familiarity with the overall facts of the case being mediated.
39
What Counsel and the Parties should expect from a Mediator in a CD Mediation (Cont’d)
A willingness to listen and withhold evaluative positions until fully in possessions of all of the facts,
An ability to administer a complex matter and manage numerous issues parties.
Skills to facilitate agreements Ingenuity of thought regarding potential
resolution of disputes
40
What Counsel and the Parties should expect from a Mediator in a CD Mediation (Cont’d)
Sufficient experience in the field to be effectively evaluative when such is required
Willing to observe the requisite confidentiality of information received when required
41
GENERAL DISCUSSION
42
AssignmentReview the Written Material
and to be Familiar with the Fact Patterns
43
MEDIATING A COMPLEX CONSTRUCTION DEFECT CASE
Construction Defect Litigation
George D. Calkins
June 20, 2008 Sessions 4 & 5
44
The Changing Face of Construction Defect Litigation and Mediation
Mold and Personal Injury Cases and Concrete Sulphate Issues “Junk” science issues-expert intensive Need for different construct when dealing
with personal injury issues High-rise commercial and condominium
cases Different approach-difficult to separate
issues Very paper intensive
45
The Changing Face of Construction Defect Litigation and Mediation (Cont’d)
Legislative action impacting CD litigation and mediation Comprehensive legislation directed at CD
claims Pending attempts to significantly modify
the law of indemnity Use of Modified Insurance Policies
“Burning Tree” WRAP -- OSIP - CSIP
46
What should a Mediator do to set up a successful Construction Defect Mediation?
Review the plaintiff’s and the defendant’s costs of repair Prioritize the defects by magnitude and/or cost Perform an “Aas” evaluation of the defects Show and Tell
Review the expert reports . Determine areas of agreement and
disagreement Utilize an expert mediation with or without
counsel
47
What should a Mediator do to set up a successful Construction Defect Mediation? (Cont’d)
Review the cast of characters Determine that all of the players are at the
table Determine the status of the players-viable-
bankrupt, etc Determine if there is an agreement on the
scopes of work Determine the status of indemnity
agreements, if any Utilize a scope of work mediation
48
What should a Mediator do to set up a successful Construction Defect Mediation? (Cont’d)
Review the insurance. picture Determine whether all triggered policies are on
notice Determine the nature of the existing policies-
primary-excess Determine the coverage positions Determine whether any of the carriers are in
receivership (stay orders) Determine whether there are aggregate problems Determine if the policies are “Burning Tree” Determine the existence and status of the AIEs Utilize an Insurance Day session
49
What should a Mediator do to set up a successful Construction Defect Mediation? (Cont’d)
Insure that all of the necessary parties will be in attendance (carriers, coverage counsel, AI carriers and principals) Devise method of insuring attendance
Court-ordered mandatory settlement conference (at courthouse)
Personal letter or phone call
50
What should a Mediator do to set up a successful Construction Defect Mediation? (Cont’d)
Organization of “Money Mediation” Utilize priority of defects in setting
appearances (small to large-large to small)
Organize by category of defect (architectural, structural, etc)
Set reasonable time lines for appearances in the agenda
51
Classroom Discussion concerning the activities and skills needed by a Mediator in a complex CD case to maximize a successful result
What is the role of a mediator in complex CD case? Consensus facilitator-position evaluator Requirement of expanded approach
Break through resistance due to involuntary nature of the process
Must have good administrative skills to organize and control the process
Proactive mediation approach to achieve realistic and objective position evaluation
Mediator is not a Judge or an enforcer
52
Classroom Discussion concerning the activities and skills needed by a Mediator in a complex CD case to maximize a successful result (Cont’d)
What are the skills required? Basis consensus building abilities Administrative and organizational
capabilities Ability to assimilate large quantities of
factual information quickly General knowledge of the applicable
law Understanding of the insurance issues
and the needs of insurers
53
Classroom Discussion concerning the activities and skills needed by a Mediator in a complex CD case to maximize a successful result (Cont’d)
What techniques are effective to achieve a successful result in a complex CD mediation? Be a good listener
Allow the parties to discuss the legal and factual issues Create an atmosphere of openness and understanding Remove peripheral parties quickly
Avoid being judgmental at an early stage Remain objective Make evaluations when appropriate
54
Classroom Discussion concerning the activities and skills needed by a Mediator in a complex CD case to maximize a successful result (Cont’d)
Use experts as problem solvers and not as advocates
Look for inventive ways of resolving disputes Use the relationship of the parties Resolving issues with plaintiff and reserving rights Mary Carter agreements Settlement and assignment of rights Issue and scope of work releases Work the case and keep the parties talking
Maintain a tight agenda
55
Classroom Discussion concerning the activities and skills needed by a Mediator in a complex CD case to maximize a successful result (Cont’d)
What are the expectations of the parties? The “parties” have no expectations
Generally the “parties” are not around (bankruptcy etc) The insurance companies are the driving force
They believe that mediators are ineffective and charge too much
They believe that the attorneys use the process to increase fees
They believe that the majority of the alleged defects are phony
They believe most mediations are a waste of time
56
Classroom Discussion concerning the activities and skills needed by a Mediator in a complex CD case to maximize a successful result (Cont’d)
The attorneys and the insurers have expectations
They expect the mediator to convince the other side to dismiss the case or to pay what is being asked
They expect the mediator to provide. them with discovery otherwise would be entitled to
They expect the mediator to come up with all the proposals to resolve the case
57
Classroom Discussion concerning the activities and skills needed by a Mediator in a complex CD case to maximize a successful result (Cont’d)
What is the mediator’s role vis-a-vis the Court? Problematic-Rojas-Foxgate-
depends on the Court
58
The Top 10 Things a Mediator needs to do
Help Unprepared Parties to the extent possible
Control Aggressive Parties, Attorneys and Experts
Identify Key Players and get them to the settlement table
Identify Key Issues Evaluate Role Players
59
Top 10 Things a Mediator needs to do (Cont’d)
Find and Use Helpful Experts Get the Necessary Information to the
appropriate parties Find Useful Tools and Implement
them – facts-legal-practical Create Settlement Options and
Alternatives (carve-outs, issue released, Mary Carter, etc.)
Close the Deal
60
MEDIATING A COMPLEX CONSTRUCTION DEFECT
CASE
Construction Defect Litigation
George D. Calkins
June 20, 2008 Sessions 6 & 7
61
Review of Fact Patterns, Identifying Issues & Developing Mediation Plans
General Class participation-solicit comments re: what steps required to administer the case as the mediator and prepare for mediation
Checklist of issues for Hypotheticals Determine the issues involved in the case
categorize-defect-personal injury prioritize prepare a liability and insurance analysis
Determine if all of the necessary parties are in the action
62
Review of Fact Patterns, Identifying Issues & Developing Mediation Plans (Cont’d)
Determine the status of the defendants and extent of involvement
Set up a matrix that will identify what defendants worked in what areas and at what times
Set up a matrix of repairs-when-where-who--what Determine the existence of Coverage
Primary-aggregates-burning tree-self inured retentions-deductibles-outstanding claims-policy defenses
Excess coverage Addition Insured endorsements-determine if need
two tracks
63
Review of Fact Patterns, Identifying Issues & Developing Mediation Plans (Cont’d)
Determine the nature and extent of indemnification provisions
Be certain that there is a mechanism in place for the deposit of all necessary documents, releases, records etc.
Need to be certain that the issue of cost-sharing for testing and necessary examinations addressed-opt-in-opt out provisions
Review site inspection and testing schedules to be sure that they are realistic
64
Review of Fact Patterns, Identifying Issues & Developing Mediation Plans (Cont’d)
Review the discovery protocol to see if realistic
Full or limited stay Written and deposition
Establish firm deadline for the submission of plaintiff’s CORE and other demands
Same-for Defense and for the demands to the sub-contractors
Mechanism to identify peripheral parties for early resolution
65
Review of Fact Patterns, Identifying Issues & Developing Mediation Plans (Cont’d)
Determine if there are any subrogation claims that need to be addressed
Obtain a list of subsequent purchasers (Krusi) Review facts re: Statute of Limitations issues Establish a mediation schedule
Show and Tell (plaintiff and defense) Insurance day Expert meetings Scope of work Money Mediation
66
Review of Fact Patterns, Identifying Issues & Developing Mediation Plans (Cont’d)
Determine mediation schedule and issues to be mediated
Multi-tier-defect/personal injury Organization-defect-trade etc Require agendas
Method to insure matter is ready for the money mediations
Determine a method that will insure that the necessary parties attend the money mediation
67
Review of Fact Patterns, Identifying Issues & Developing Mediation Plans (Cont’d)
Recommend a realistic trial date if the mediation is unsuccessful
68
Common Problems Encountered in Construction Defect Mediations - and how to deal with them
The missing defendant The missing Insurer The obstreperous party, attorney or
expert The hard-line insurance
representative Chronically unprepared parties Large gaps between demands and
offers
69
Mediation Techniques useful in Construction Defect Mediations
Working with the major defendants and the plaintiff to obtain a consensus on issues and costs-firm target
Keep the subcontractors in the loop and make them a part of the process
Work toward eliminating claims Provide suggestions for settlement and
encourage parties to be inventive Encourage the use of dispositive
motions
70
MEDIATING A COMPLEX CONSTRUCTION DEFECT
CASE
Construction Defect Litigation
George D. Calkins
June 21, 2008 Sessions 8 & 9
71
Discussion Construction Delay/Claim
matters
72
Recap: Points and Principles
established in prior sessions
73
Developing a Construction Defect Mediation Practice
74
Questions and Answers -General Discussion
75
Preparation of Evaluation Forms
76
Distribution of Certificates