1 MEDIATING A COMPLEX CONSTRUCTION DEFECT CASE Construction Defect Litigation George D. Calkins June 19, 2008 Session 1

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MEDIATING A COMPLEX CONSTRUCTION DEFECT

CASE

Construction Defect Litigation

George D. Calkins

June 19, 2008Session 1

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Introductions

Panelists Participants

Mediation Experience Construction Defect/ Claim Experience Expectations

Scheduling and Breaks MCLE Credit, Class Certificate and

Evaluation Forms

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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

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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)

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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

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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.

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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.

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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.

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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.

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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

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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

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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.

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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.

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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.

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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

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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.

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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.


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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


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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.


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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


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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

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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

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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

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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

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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

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Mediation Schedule Scope of Work Mediation sessions Insurance Day(s) Expert mediation sessions Peripheral Party mediations Money mediations

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Exchange of Experts and Discovery Schedule Stays PMKs Parties Experts (order-defect--trade)

Discovery and Motion Cut-off dates Trial

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GENERAL DISCUSSION

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MEDIATING A COMPLEX CONSTRUCTION DEFECT CASE


George D. Calkins

June 19, 2008 Sessions 2 & 3

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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

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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)

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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

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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

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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

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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

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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)

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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)

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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.

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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

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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

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GENERAL DISCUSSION

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AssignmentReview the Written Material

and to be Familiar with the Fact Patterns

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MEDIATING A COMPLEX CONSTRUCTION DEFECT CASE


George D. Calkins


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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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What is the mediator’s role vis-a-vis the Court? Problematic-Rojas-Foxgate-

depends on the Court

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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

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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

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CASE


George D. Calkins


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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

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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

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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

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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

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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

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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

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Recommend a realistic trial date if the mediation is unsuccessful

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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

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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

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CASE


George D. Calkins


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Discussion Construction Delay/Claim

matters

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Recap: Points and Principles

established in prior sessions

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Developing a Construction Defect Mediation Practice

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Questions and Answers -General Discussion

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Preparation of Evaluation Forms

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Distribution of Certificates

Documents

1 MEDIATING A COMPLEX CONSTRUCTION DEFECT CASE Construction Defect Litigation George D. Calkins June 19, 2008 Session 1