Blurred Lines – Arbitrator, Mediator, and Why it Matters, by Diana R. Sever, Esq.
On September 25, 2013, the Appellate Division published Minkowitz v. Israeli, to address what happens when parties to a matrimonial action agree to binding arbitration, and whether the arbitrator, who initially assisted in mediating the parties’ disputes, may thereafter resume the role of arbitrator over the remaining unresolved issues. The Appellate Division answered with a resounding “No”. Once the arbitrator puts on the proverbial mediator “hat”, he/she can’t go back.
Arbitration is a favored means of alternate dispute resolution, and in fact New Jersey’s public policy strongly favors it. It offers the same finality of disposition provided by the court, but in a more expeditious, less expensive and less formal manner. Arbitration is a creature of contract, and it is the written arbitration agreement that governs its subject matter, manner, and scope, subject to the general rules governing arbitration, and which are set forth at N.J.S.A. 2A:23B-1 to -32. Once the parties contract for binding arbitration, “the judiciary’s role to determine the substantive matters subject to arbitration ends.” Minkowitz, supra, at 25.
Mediation is another popular and favored form of alternate dispute resolution. Like arbitration, it provides an alternate, more informal forum than litigation, and allows for the confidential and candid exchange of information between the parties in the hopes of reaching an agreement on disputed issues. Mediation is governed by the Uniform Mediation Act (UMA), N.J.S.A. 2A:23C-1 to -13, Rule 1:40-4, and Rule 1:40-5(b), and mediation agreements knowingly and voluntarily reached and incorporated into an executed, signed written agreement are enforceable by a reviewing court.
But what happens when the line between mediator and arbitrator is blurred? Can a professional straddle the line, wear both hats, and perform both functions in the context of one litigation? Also, does the change in course invalidate the whole process from start to finish, such that the parties have to start all over again from scratch?
In Minkowitz, the parties originally agreed to submit their matrimonial disputes to binding arbitration. Mid-way through the arbitration process, after having reached agreement on several discrete issues (agreements), the parties changed course, and with the help of the arbitrator, mediated some issues to resolution and entered into a memorandum of understanding (memo of understanding). Shortly thereafter, all negotiations broke down. Plaintiff Minkowitz sought relief from the court to, among other things, set aside everything the parties had entered into, both prior to and after the change in course to mediation, and to remove the arbitrator from further handling of the matter. Defendant Israeli sought to affirm everything the parties entered into as arbitration awards, and to retain the arbitrator going forward pursuant to the parties’ arbitration agreement.
The Appellate Division declined to vacate either the agreements (entered into between the parties pre-mediation) or the memo of understanding (entered into as a result of mediation). The court affirmed the agreements based upon the law governing arbitration awards. Specifically, the court determined that the process by which this agreement was reached did not violate the Arbitration Act, and plaintiff’s challenges thereto were insufficient to set it aside. The court also affirmed the memo of understanding, but did so based upon the law governing mediation, not arbitration. In this regard, the court held the memo and its related documents were fully executed by the parties knowingly, and voluntarily reached and incorporated into an executed signed written agreement, and therefore was enforceable as a matter of law.
However, once the arbitrator assumed the role of mediator, the arbitrator lost the “appearance of neutrality” necessary to conduct a binding arbitration proceeding. In other words, an arbitrator appointed under the Act may not assume the role of mediator and thereafter resume the role of arbitrator. Thus, the court set aside all “arbitration awards” entered post-mediation by the arbitrator.
The court based its decision primarily on the conflict inherent in the vastly different premise upon which each of these favored forms of alternate dispute resolution is based. To that end, mediation is characterized as a “facilitative process”. Rule 1:40-2(c). Although a “neutral”, the mediator actively facilitates communication between the parties, often times by identifying issues and encouraging the parties to make accommodations. Mediations are not conducted under oath, do not follow any set “plan” or “procedure, and indeed aren’t even limited to developing certain facts. During this process, the mediator may become privy to party confidences. These confidences are the cornerstone of an effective mediation process, because they are made by the parties in the hopes of settlement, and with the expectation that they will not later be bound by them. Settlement, if any, is achieved by the parties with the guiding hand of, but not at the direction of, the mediator. Minkowitz, supra, 38-40.
Conversely, the arbitrator’s role is evaluative. Minkowitz, supra, at 40. The arbitrator is basically charged with weighing evidence, assessing credibility, and applying the law when determining whether a party has proven his or her request for relief. The arbitrator evaluates the evidence presented by both parties for final determination, which final determination (in Minkowitz) is binding on the parties.
In addition, while acknowledging its inapplicability to the matrimonial matter before it, the court also borrowed from the Code of Ethics for Arbitrators in Commercial Disputes, and specifically Canon IV.H, which states “an arbitrator should not be present or otherwise participate in the settlement discussions unless requested to do so by all the parties.” Minkowitz, supra, at 43.
Against this backdrop, the court concluded the positions of arbitrator and mediator conflict, and interchanging the two impairs the integrity of the arbitration process.”Minkowitz, supra, at 44. As a result, the court set aside all post-mediation “arbitration awards”, and ordered the naming of a new arbitrator for all future proceedings.
Several important points can be taken away from this decision. As always, litigants are encouraged to explore all avenues of alternate dispute resolution. Ideally, the court posits, arbitration should be the ADR of last resort, after all other avenues have been exhausted. The parties are likewise free to set the boundaries of their anticipated arbitration in anyway they see fit, as arbitration is at its very core a creature of contract. Finally, an arbitration date does not mean settlement negotiations can not simultaneously occur. Rather, it is advisable that the arbitrator set forth the parameters of any such negotiations, and more importantly, not facilitate them.
Diana R. Sever, Esq.
Ms. Sever is an attorney with Posternock Apell, PC. She focuses her practice on personal injury defense and school board defense.