DO NOT DISREGARD CONTRACT-MANDATED MEDIATION CLAUSES

Posted by: Robert Korn (rkorn@kaplaw.com)

Many contracts provide that before a party can arbitrate or litigate a dispute, a mediation must occur. Often a party will choose not to submit a dispute to mediation believing that a mediation will not resolve the dispute. Many parties proceed directly to arbitration or litigation, dismissive of the contract language requiring mediation.

mediation clause.jpgIn MB America, Inc. v. Alaska Pacific Leasing Company, a decision of the Nevada Supreme Court, the lower court dismissed the Plaintiff's lawsuit because it had not first submitted the dispute to mediation as required by contract. The parties' contract provided that if the mediation does not result in a resolution of the dispute, then either party has a right to enforce the terms of the contract through litigation. In dismissing the Complaint, the Supreme Court, referring to the law of other jurisdictions, said that a pre-litigation mediation provision in the parties' contract is an enforceable condition precedent to the right to litigate. Because no mediation occurred, the Complaint was dismissed.

While Pennsylvania courts may stay litigation pending the outcome of a mediation, it is important that a party not unilaterally decide to ignore the obligation to mediate. Instead, if a party believes that mediation will be a futile exercise, it should attempt to secure from the other party a written waiver of the contract language requiring pre-ligation/arbitration mediation.

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