The Pros and Cons of Mediation in Hotel Disputes

As a lawyer involved for over 30 years in the drafting and negotiation of contracts for the hospitality industry, I can assure you that disputes are inevitable. Even among parties such as owners and management companies that have the best working relationships, there will nevertheless be issues that cause discord.

It is in how we resolve these matters that will determine if the relationship between the disputing parties will survive. If preservation of the contract and the relationship is desired, then the goal of both parties should be to resolve the matter quickly and efficiently, while also recognizing at the outset that neither of them is likely to be completely satisfied.

Resorting to court, for so many reasons, should be the last resort. Going straight to court is analogous to going to war without any attempt at diplomacy. Short of a pitched battle, there are three recognized alternatives: mediation, expert resolution (or determination) and arbitration. This article will focus on mediation, which offers the best opportunity for the parties to move forward in the ‘status quo ante’ following resolution of the dispute.

Before diving into the pros and cons, a definition is in order. Mediation means the intervention of a person chosen by agreement of the conflicting parties to promote reconciliation, settlement or compromise. Most people are familiar with mediation in a marital context. It applies with equal efficacy to commercial disputes as a means to bring the parties ‘into the same room, face-to-face’ so that, with the assistance of a trusted and sometimes trained/certified mediator, the parties can craft a resolution themselves.

For a summary of mediator certification requirements state-by-state, go to: http://www.mediationworks.com/medcert3/staterequirements.htm

A mediator assists the parties to find common ground and, where the parties disagree, to make concessions in the interest of a compromised solution. Mediation techniques include separate meetings with each party, developing a statement of the parties’ exact differences to avoid having the dispute expand in the heat of disagreement and drafting a memorandum of understanding to capture the ‘deal’. This memorandum may be enough for the parties, or it may in some cases go to the lawyers to become a more formal contract or contract amendment.

Generally, agreements to mediate that are often found as mediation clauses in contracts are enforceable. But as a consensual process, a settlement is less likely if one party is forced to participate. The mediation clause recognizes that both parties have considered and are open to the mediation process. If the mediation fails to produce an agreement, then typically the contract in question will provide that the parties may then go to arbitration or court.

Advantages of Hotel Mediation:

• Consensual in nature; no one feels ‘summoned to appear in court’
• Brings the parties together before the relationship is destroyed
• The mediator, chosen for relevant experience, will be someone who knows the industry and has experience specific to the matter in controversy
• The mediator is acceptable to both parties
• The parties contribute to the process that results in a mutually acceptable resolution
• The cost of a mediator is not exorbitant
• Lawyer involvement in most cases is minimal
• The scheduling is up to the parties

Disadvantages of Hotel Mediation:

• No binding award is issued until the agreement is memorialized in a written agreement executed by both parties
• Can consume a lot of time with no resolution
• The admission of documents, statements and other ‘evidence’ is left to the mediator who will not be constrained by formal rules of pre-trial discovery or the rules governing the admission of evidence during a trial
• Each party will ‘show its hand’ in the process and that information may result in a tactical advantage if the parties later arbitrate or litigate

Hotel Mediation Case Example

For years, a hotel used a particular vendor for linen services. Then, a new driver was assigned to the account. This driver became verbally abusive to the hotel receiving clerk and her manager within days of taking over the route. Repeated complaints were made to the vendor management without response.

The hotel was left with no choice but to file notice with the vendor to cancel their contract. The vendor refused to meet with hotel management about the situation and instead commenced a lawsuit to collect damages from the cancelled contract. Because the damages claimed fell within state mandated amounts requiring mediation prior to a trial, the case was directed to mediation.

Within two hours of discussions managed by an independent and unbiased professional mediator, not only was the case dismissed by the vendor, but both parties also left the mediation expressing relief and affirming how valuable they were to one another. With apologies to the hotel staff, reinstatement of the vendor contract and dismissal of the abusive driver, both parties found a path forward and preserved an important relationship.

While this case may have been for a relatively small sum of money, it nonetheless represents the importance of using mediation to limit legal costs, business disruption, management time dedicated to the issue and the unpredictability of a court decision. Whether it’s a simple vendor dispute, an employee/employer conflict or a larger issue such as a management contract challenge, mediation should be considered as the first course of action to prevent escalation.

Mediation Clause

Here is a sample mediation section for a contract.  Shorter, less detailed versions are also available. Please review so you are familiar with the terms when it comes time to put them to use.

1. The parties agree to attempt to resolve any dispute, claim or controversy arising out of or relating to this Agreement by mediation, which shall be conducted under the then current mediation procedures of [AGENCY] or any other procedure upon which the parties may agree. The parties further agree that their respective good faith participation in mediation is a condition precedent to pursuing any other available legal or equitable remedy, including litigation, arbitration or other dispute resolution procedures.

2. Either party may commence the mediation process by providing to the other party written notice, setting forth the subject of the dispute, claim or controversy and the relief requested. Within ten (10) days after the receipt of the foregoing notice, the other party shall deliver a written response to the initiating party’s notice. [OPTIONAL PROVISION: The mediation shall be conducted by ___________ with its principal offices located at __________]. The initial mediation session shall be held within thirty (30) days after the initial notice. The parties agree to share equally the costs and expenses of the mediation (which shall not include the expenses incurred by each party for its own legal representation in connection with the mediation

3. The parties further acknowledge and agree that mediation proceedings are settlement negotiations, and that, to the extent allowed by applicable law, all offers, promises, conduct and statements, whether oral or written, made in the course of the mediation by any of the parties or their agents shall be confidential and inadmissible in any arbitration or other legal proceeding involving the parties; provided, however, that evidence which is otherwise admissible or discoverable shall not be rendered inadmissible or non-discoverable as a result of its use in the mediation.

4. The provisions of this section may be enforced by any court of competent jurisdiction, and the party seeking enforcement shall be entitled to an award of all costs, fees and expenses, including reasonable attorneys’ fees, to be paid by the party against whom enforcement is ordered.

(Article by Albert Pucciarelli, published in Hotel Executive on May 29, 2016)

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About the Author

Albert Pucciarelli is a former member of Cayuga Hospitality Consultants.

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