The Use of “Binding Mediation” to Resolve Disputes

Gerawan Farming, Inc. v. Agricultural Labor Relations Board, 3 Cal. 5th 1118 (Cal. S.C., Nov. 27, 2017) – A development / different perspective regarding the use of “binding mediation” to resolve disputes.

Introductory Statement

Mediation in the context of general, civil disputes has been defined as “the intervention in a negotiation . . . of an acceptable third party who has limited or no authoritative decision-making power, who assists the involved parties to voluntarily reach a mutually acceptable settlement of the issues in dispute.” Christopher W. Moore, The Mediation Process / Practical Strategies for Resolving Conflict (3d ed. 2003), p. 15. There is thus an incongruity in coupling “mediation” with “binding.” Nevertheless, the term “binding mediation” entered our vocabulary in 2006 when the mediator in Lindsay v. Lewandowski, 139 Cal. App. 4th 618 (2006) issued a “binding mediation ruling” that he said was a procedure he regularly used. Honorable Robert Polist (ret.), the mediator in question, defined the process as one where the parties “agreed in advance that in the event [they failed] to agree, I then decide [the] terms and conditions, typically by asking the parties to each submit . . . their final offers, accompanied by their oral argument as to why I should select their version over all others.” Id. at 1621 The trial court’s confirmation of the binding mediation award as a judgment was reversed by the Fourth District Court of Appeal as unenforceable – not on any procedural grounds (like lack of due process because the mediator’s decision is made without benefit of evidence and is based on confidential information shared with only the mediator), but because the process as expressed by the parties in their agreement was ambiguous. Id. at 1624. In a concurring opinion, two Justices found the term “binding mediation” to be “deceptive and misleading” and the concept to be “oxymoronic” because mediations “are supposed to reflect a truly voluntary process” that, by definition, “reflect[s] the consent of the parties.” Id. at 1625-1628.

When presented with a similar “binding mediation” situation in 2012, the Fourth District Court of Appeal took a different tact – because the facts were quite different from those presented in Lindsay – and affirmed the trial court’s judgment on the mediator’s binding mediation award. See, Bowers v. Raymond J. Lucia Companies, Inc., 206 Cal. App. 4th 724 (2012). In Bowers, the parties submitted their dispute to binding arbitration. After several days of evidentiary hearing, the parties agreed to settle the dispute by defendant dismissing all claims asserted against plaintiffs in the arbitration proceeding and by plaintiffs submitting their claims in the state court lawsuit to “mediation/binding baseball arbitration.” With regard to the latter process, the parties agreed to participate in a full day mediation, and if they were unable to reach agreement at the end of the mediation, they agreed that the mediator was empowered to set the amount of the judgment in favor of plaintiffs and against defendant “at some amount between $100,000 and $5,000,000” based upon the parties’ respective last and final offers, and that “mediator judgment” could then be entered as a judgment in the state court proceedings without objection of any party. As agreed, the parties participated in a full-day mediation, but were unable to reach an agreement. Plaintiffs’ last and final demand was $5 million and defendant’s last and final offer was $100,000. Ultimately, the mediator selected the $5 million number and plaintiffs petitioned to confirm the mediator’s award as a judgment. The trial court declined to confirm the award as an arbitration award, but enforced the settlement agreement and mediator award under Code of Civil Procedure Section 664.6. The trial court explained:

“Despite their use of undefined legal terms such as ‘mediation with a binding arbitration component’ and ‘mediation/binding baseball arbitration,’ the parties clearly agreed in writing that the mediator would decide the amount of the judgment with the ‘binding mediator judgment to then be entered as a legally enforceable judgment . . . .”

The Court of Appeal affirmed the judgment entered by the trial court on the “mediator award,” and rejected each of the three attacks waged by defendant. With regard to mutual consent, the Court of Appeal found that there was substantial evidence in the transcript of the arbitration agreement and the parties’ written settlement agreement showing that the parties agreed to a full-day mediation, at the end of which the mediator could make a binding award if the mediation was not successful. Moreover, the Court of Appeal found that “most supportive of the trial court’s finding” was the absence of any indication by the defendant or its counsel that they ever requested the arbitrator to conduct an arbitration after the full-day mediation ended.

With regard to defendant’s contention that the settlement agreement was unenforceable because “binding mediation” is an inherently uncertain term, the Court of Appeal disagreed and found that the term was sufficiently certain to be specifically enforceable. Of critical importance to the court was the fact that the parties – both in their agreement and in recorded statements made on the record in the arbitration proceeding – had elaborated on what they meant by the alternative dispute resolution method they had chosen, as well as the fact that defendant never objected or insisted on a post-mediation arbitration hearing until after the mediator made an award in plaintiffs’ favor.

This year – 2017 – we have a decision by the California Supreme Court in which a “mandatory mediation and conciliation process” created by statute (the Agricultural Labor Relations Act) was validated and the Board’s final order adopting the mediator’s report was affirmed.

Case Note

The Gerawan Farming case offers up a unique factual context that probably does not have broad application in the general, civil context, but it is interesting nonetheless because it provides a glimpse at how “binding mediation” is used in the collective bargaining arena. In this context, “neutral state mediators” are brought in to assist the union and employer in negotiating a new contract and, if the parties cannot reach agreement on mutually acceptable terms, the mediator then has the power – under Labor Code § 1164, et seq. – to conduct a hearing on the disputed terms and submit a proposed contract to the Agricultural Labor Relations Board (Board). The Board can then order a new contract between the union and the employer based on the mediator’s recommendation.

In this case, the United Farm Workers of American (UFW) filed a request for mandatory mediation and conciliation (MMC) with the Board after failing to reach a collective bargaining agreement with Gerawan Farming. When mediation failed to produce an agreement, the mediator submitted a proposed contract to the Board fixing the contract terms. The Board adopted the mediator’s recommendation and issued a final order imposing the mediator’s proposed contract on both parties. Gerawan Farming petitioned for review of the Board’s order, contending, among other things, that the MMC statutory scheme was unconstitutional.

The Fifth District Court of Appeal agreed with Gerawan Farming and held that the MMC statute “on its face violates equal protection principles” and “improperly delegates legislative authority.” In so holding, the Court of Appeal adopted the reasoning of the dissent in Hess Collection Winery v. Agricultural Labor Relations Bd., 140 Cal. App. 4th 1584, 1611 (2006), in which the Third District Court of Appeal upheld the MMC statute against a similar constitutional challenge.

The Gerawan Farming case is significant because the California Supreme Court has resolved the split between the Third and Fifth Districts concerning the constitutionality of the “binding mediation” procedure utilized by the Board under the Labor Code. In reaching the constitutional issues, the Court made clear that the only challenge raised was a “facial attack on the MMC statute,” and that the Gerawan Farming challenge did not articulate an as-applied challenge based on the specific terms of the contract imposed by the Board’s final order.

Gerawan Farming’s lead argument was that the MMC process is one that is actually known as “compulsory interest arbitration,” in which the terms and conditions of employment are established by a final and binding decision of an arbitrator. Unlike “grievance arbitration,” which focuses on construing the terms of an existing agreement and applying them to a particular set of facts, “compulsory interest arbitration” focuses on what the terms of a new agreement should be. The MMC process results in “quasi-legislative action” by which the terms of a union contract governing an employer and its employees is imposed by force of law. While “compulsory interest arbitration” is common in public sector labor relations at the federal, state and local levels, Gerawan Farming contended that such a system was “categorically impermissible” in the private sector because it violates substantive due process. In support of its argument, Gerawan Farming relied on a trilogy of cases from the 1920’s that held unconstitutional a Kansas statute authorizing a three-judge industrial court to arbitrate employment disputes and impose wage and other terms of employment. The California Supreme Court found this argument unpersuasive because this “restrictive view of the police power” has been repudiated by later cases. Moreover, while the United States Supreme Court has interpreted the National Labor Relations Act (NLRA) to prohibit compulsory arbitration, the Court noted that the United States Supreme Court had resolved those NLRA decision on statutory grounds and said nothing about compulsory arbitration’s constitutionality. “Contrary to what Gerawan contends, there is no indication in the high court’s case law that compulsory arbitration in areas not covered by the NLRA, such as agricultural relations, would be unconstitional.” Seeing no authority to support Gerawan Farming’s substantive due process challenge, the Court declined to rule that compulsory interest arbitration was categorically unconstitutional.

With regard to the equal protection challenge, Gerawan Farming’s primary argument was not that the MMC statutory scheme treats classes of employers differently, but that it discriminates against each individual agricultural employer within the covered class of employers who have not entered into a first contract after their workforce has voted to unionize. The Fifth District Court of Appeal accepted this argument and concluded that the MCC program has the effect of imposing a “distinct, unequal, individualized set of rules” on the affected set of employers and that this is “the very antithesis of equal protection.” While Gerawan Farming did not allege class-based discrimination, it claimed that it had been irrationally singled out as a “class of one” as recognized by the United States Supreme Court in Engquist v. Oregon Dept. of Agriculture, 553 U.S. 591 (2008). Central to its argument was the argument that because the MMC statute does not pass any judgments as to the specific terms that would foster collective bargaining and stability in the workforce, a mediator could consider one employer’s wages with relation to comparable employers and choose to impose a wage increase, a wage decrease, or no change at all. Three different mediators dealing with three similarly situated employers could impose collective bargaining agreements with different terms – resulting in different wage structures – thus creating a situation where those similarly situated employers could suffer different impacts on their gross profit margins.

The California Supreme Court found Gerawan Farming’s equal protection challenge unpersuasive. The Court held that the purpose of the MMC statute is “to promote collective bargaining and ensure stability in the agricultural labor force,” and that the statute accomplishes this purpose “by empowering mediators to make individualized determinations regarding the terms of particular collective bargaining agreements.” The Court went on to hold that these individualized determinations “are rationally related to the Legislature’s legitimate interest in ensuring that collective bargaining agreements are tailored to the unique circumstances of each employer.” The Court rejected as “hypothetical” the argument that three similarly situated employers could be treated differently under the MMC statute, and held that “it is not enough to show that some hypothetical applications of the MMC statute might result in arbitrary or discriminatory treatment. Instead, Gerawan must show that the statute ‘inevitably pose[s] a present total and fatal conflict’ with equal protection principles” or “that the statute violates equal protection ‘in the generality or great majority of cases.’”

Comment: This decision offers up a lot of interesting issues for discussion, including: