For Success in Mediation, Cultivate a Virtue

By James J. Mathie

Time is likely the most underappreciated contributor to a successful mediation. Without patience, time doesn’t get to work.

So, you’re preparing for mediation – whether you’re the mediator or an attorney representing one of the parties. You’ve reviewed the significant evidence and the arguments that can be made from that evidence. You’ve considered the parties’ submissions. Perhaps you’ve made notes to remember during the mediation.

Here’s one to always include: Be patient. Time is likely the most underappreciated contributor to a successful mediation. Without patience, time doesn’t get to work.

The Role of Patience

There are many reasons that patience can play an outsize role in mediation.

At the outset, recall the setting for mediation. By the time it rolls around, negotiation has probably already failed at least once. The parties are represented by attorneys who are confident in their case assessments and have expressed them to their client, meaning they’re invested – dug in – to their view of the case. They have also expressed their view to opposing counsel, which hasn’t been productive.

Mediation is likely a new experience for at least one of the parties. And because we live in a swipe-left-swipe-right, take-it-or-leave-it world, people don’t get a lot of negotiating practice.

Given this, it is far too easy to conclude after the first demand and offer are exchanged that the case is unlikely to resolve because the parties are too far apart. It simply confirms what they were thinking before mediation began.

Mediation is not a process of figuring out which side is more convincing, it’s a process of finding where both sides are comfortable resolving their differences. Neither side (or the mediator) knows where that point is when the mediation begins.

Attorneys often underestimate the time that it will take the other party to rethink their position. They aren’t necessarily considering that their position will change. What time does is allow the parties and their counsel to think about their case differently. What makes the other side take the position that they have? If we’re going to think about the case differently, how will that look?

Here Are Your Takeaways

Attorneys: Make a point to be intentionally patient. It will make the inevitable slow start bearable for both you and your client and will give you the best chance to settle your case.

Mediators: Decision-making is a process that takes different and unpredictable amounts of time for different people. Preview the process and encourage the parties – and their attorneys – to give the process the time necessary to work.

I often tell parties that the secret to mediation (in addition to a thorough discussion of the case) is simply giving the parties the time they need to decide. Be ready to do that.

See you at mediation.

When Construction Projects Don’t Go According to Plans

By Kevin M. Long

Many contract provisions give owners the ability to reject and require the replacement or removal of nonconforming work. However, the parties must also factor in Wisconsin law respecting damages.

Most construction work is done pursuant to a set of plans and specifications issued by the architect that tells the contractor what they are to construct and the owner what they are receiving in exchange for the contract price. That is, the plans and specifications for a construction project describe the contractor’s scope of work.

But when work (especially in particularly large and complex projects) does not conform to the plans and specifications, the parties involved need to understand both their contractual and other legal rights.

In short, many contract provisions give owners the ability to reject and require the replacement or removal of nonconforming work. However, the parties must also factor in Wisconsin law respecting damages.

Check Contract Language

Contracts, especially those model forms – such as those from AIA, AGC ConsensusDocs, or EJDCD – usually specify that the contractor’s work must be performed in accordance with the referenced plans and specifications.

However, when an owner uses a simplified or short-form contract, that owner should ensure that the contract form requires that the contractor perform the work pursuant to the referenced plans and specifications, provide new materials and equipment of good quality, and that the work is performed in a workmanlike manner.¹

While under Wisconsin law, performance not in compliance with the required plans and specifications is likely a contractual breach as well, without the explicit language, a contractor might contend that it complied with the contract merely by constructing the project.

The AIA Document A201-2017 form explicitly requires the contractor to correct all work that is either rejected by the architect or does not conform to contract requirements, either before or after substantial completion.² The AIA form also gives the owner the option to accept nonconforming work:

§12.3 ACCEPTANCE OF NONCONFORMING WORK
If the Owner prefers to accept Work that is not in accordance with the requirements of the Contract Documents, the Owner may do so instead of requiring its removal and correction, in which case the Contract Sum will be reduced as appropriate and equitable. Such adjustment shall be effected whether or not final payment has been made.

The AGC 200 ¶ 3.9 and EJCDC C-700 ¶¶ 13.06-07 forms each include similar language, but refer only to “defective work,” a defined term that includes nonconforming work.

Decisions During Construction

While most contractual language explicitly gives the owner the right to reject nonconforming (or defective) work before or after substantial completion, the practicalities of each differ significantly.

After Substantial Completion. After substantial completion, requiring the correction or replacement of work is much more likely to cause problems for the owner’s immediate use of the project. More importantly, under the most common contract forms, the contractor’s retainage is released upon the achievement of substantial completion. Accordingly, the contractor has significantly less financial incentive to promptly undertake the corrective work.

Thus, it is very important for the owner (and its architect) to be vigilant with inspections and other observation to ensure the work being done meets the contract requirements before final payment is released. When defects are identified during construction, the owner is in a better position to insist on what it bargained for, and the schedule impact of the repair or replacement will be minimized.

The Diminished-Value Damages Rule Limits Owner’s Remedy

Wisconsin law holds that if correcting the defect or supplying the omitted labor or product involves unreasonable economic waste because the costs of correction are materially disproportionate to the increased value that it would produce, then the recovery is limited to the difference between the value of the improvement had it been properly constructed and the value as actually constructed.

Wisconsin law on these issues is summarized authoritatively in Pattern Jury Instruction Wis. JI-CIVIL 3700, titled “Building Contracts: Measure of Damages.”³

It is difficult to determine with precision the difference between the value the improvement would have had if properly constructed and its value as actually constructed, particularly when the nonconformity does not preclude the use or occupancy of the building.

Under the dispute resolution mechanism of the AIA forms, the “initial decision maker” (usually the architect) can make that determination, but the initial decision maker’s determination is not entitled to deference in future dispute resolution proceedings.

In litigation, the determination of damages will most often be left to the jury, unless the parties have waived their right to a jury. Real estate appraisers are generally not experienced in drawing distinctions between the real estate value if properly constructed and the real estate value as constructed, but they are often called upon to serve as experts in this capacity. Indeed, two of three generally accepted real estate valuation approaches (the income approach and the market comparable approach) do not typically involve an evaluation of component parts of the structure or piece of real estate within that context.

Equitable Adjustment of Contract Price

The AIA, AGC, and EJCDC forms each explicitly allow the owner to accept nonconforming work, while receiving an equitable adjustment to the contract price in exchange. Neither the contract forms, nor authoritative Wisconsin case law, provide a basis for how the adjustment should be calculated.

The amount is purportedly designed to be a compromise amount agreed upon by the contractor, who seeks to avoid the cost of the repair or replacement, and the diminished-value damages calculation that the owner knows will cost a significant amount of money to obtain through the contractually mandated dispute resolution process.

Important Takeaways

• Understand what your contract says about nonconforming work before your client signs it. An owner needs a provision that grants it the right to insist upon repair or replacement of nonconforming work, and the contractor will seek to limit that right.

• It will be very difficult to locate definitive case law, statutory authority, or even expert testimony on the appropriate equitable adjustment to which an owner is entitled when the owner accepts nonconforming work.

• The owner’s leverage is best when the nonconforming work is found early in the project and worst when found after substantial completion.

• The owner should include contractual language that monetizes the equitable adjustment or streamlines the dispute resolution process for such adjustment, including designating that the determination of the initial decision maker is binding in such circumstances. The contractor will likely resist such decisions.

Conclusion: Be Vigilant During Construction

Owners have more leverage to get work performed properly and in conformance with project specifications, or an equitable adjustment of the contract price, where the nonconformities are discovered during the project, rather than after substantial completion.

Endnotes

1 See, e.g., AIA Document A201-2017 General Conditions to Contract, § 3.5.1.

2 AIA A201-2017, § 12.2.1.

3 Citing W.G. Slugg Seed & Fertilizer Inc. v. Paulsen Lumber Inc., 62 Wis. 2d 220, 224-25, 214 N.W.2d 413 (1974). See also “Modern status of rule as to whether costs of correction or difference in value of structure is proper measure of damages for breach of construction contract,” 41 A.L.R.4th 131; Mark R. Hinkson, Repair or Replace? The Economic Waste Doctrine in Construction Defect Cases, 84 Wis. Law. 4 (Aug. 2011).

Spell It Out for Me

By Erin R. Ogden

Let’s not spend our time trying to memorize each little intricacy in the law. Instead, let’s look at the pattern, the direction, and the intent to spell out a better understanding of how we want to move forward.

We attorneys are described in many ways. Sometimes flattering, sometimes not. But one way to describe us that will always fit is “constant learners.” The law is notorious for moving slowly, but it is always moving. Occasionally, there is a sea change, but often change is through constant tweaks. There are the laws (we like to call them statutes or ordinances depending on who passed them) created by legislatures. There are regulations created by administrative bodies. Then there are courts and their interpretations of each. Law is always shifting – sometimes a lot, sometimes a little, but always changing. And there are always gaps to fill in. Clients have an interesting way of posing questions that have no clear-cut answers.

That means that we can’t simply rely on memorizing something and have it be set. For example, Wisconsin had statutes on the books for how limited liability companies (LLCs) work since 1993. On April 14, 2022, Governor Evers signed into law the Revised Uniform Limited Liability Company Act created by the Uniform Law Commission, with some Wisconsin-specific changes, which repealed that prior law. So, starting Jan. 1, 2023, we had a whole new statute to implement, with new regulations and court interpretations sure to follow. All of those memorized citations and phrases gained over the past 30 years aren’t so applicable anymore.

What’s a lawyer to do? Same thing all business owners do – recognize the very important difference between memorization and learning, and the difference between memory and understanding. When we start out in any field, we resort to the same approach that let us pass our spelling tests of yore. We sit down and go over word after word until we memorize all the silent consonants and tricky vowel placements. But to level up, the “good” spellers learn the why. Yes, the Scripps Spelling Bee students certainly have more words memorized than most, but their true talent is knowing “why” and “how” words are formed. It is not a stalling tactic when they ask for the definition of a word. They are looking for clues, how to fit the unknown word into a known pattern. If you know where it came from and what it is trying to convey, then you can usually get pretty darn close to the spelling. Similar tactics can be used when you come across a word that you don’t know. If you know the building blocks, then you can often sleuth out the meaning until you can get to the dictionary (or look it up on your phone, depending on your age).

So, if we know where the LLC law came from (the need for a more flexible operating structure for small businesses) and where it is going (more consistency among states), we can understand the statutes and regulations and better predict court interpretations. We can write better operating agreements and advise clients about risks. We can read and understand the language of the law rather than trying to memorize it. So, let’s not spend our time trying to memorize each little intricacy. Instead, let’s look at the pattern, the direction, and the intent to spell out a better understanding of how we want to move forward.

Podcast of the Month

The Road Less Traveled with In-house Counsel Larry Whitley

In Episode 7 of the Bottom Up Podcast, produced by the State Bar of Wisconsin, co-hosts Kristen Hardy and Emil Ovbiagele speak with Larry Whitley, in-house counsel in real estate law. Whitley, a Milwaukee native, went straight from law school to an in-house counsel position, and discusses how he got there. “There is no right path, just your path” is Whitley’s message to lawyers in the first years of their careers. Listen to the episode at wisbar.org/podcast, or wherever you get your podcasts.

Photo: From left, Kristen Hardy, Larry Whitley, and Emil Ovbiagele.

» Cite this article: 96 Wis. Law. 47-51 (April 2023).