“Parties To Construction Contracts Should Exercise Caution When Allowing An Arbitrator To Change Hats Between Mediator And Arbitrator”

Best practice guidance is that arbitrators should remain focused on their role as the “decider” of a dispute, and not cavalierly accept an invitation to facilitate mediation in the midst of the arbitration. Since mediation may provide the neutral with information that would not be admissible evidence in the arbitration, some of it ex parte, what happens if the mediation is unsuccessful? Can the arbitrator, armed with knowledge of inadmissible information gained during the mediation, resume his adjudicative role?

While an arbitrator can assume both roles, this should be the choice of the parties and, as the law of New Jersey and other states holds, must be memorialized in an agreement.

This scenario played out in a construction dispute that made its way to the New Jersey Appellate Division, Pami Realty, LLC v. Locations XIX Inc. In this article describing the case, available at JD Supra, Christopher Massaro and Adam Sklar of Cole Schotz, with input from summer associate Luke Alba, explain that during day two of a multi-day arbitration, the parties and the arbitrator detoured into settlement discussions which proved unfruitful. The arbitration resumed, but the project owner, having lost the arbitration, objected to confirmation of the award, arguing that the arbitrator “exceeded his powers when he resumed the role of arbitrator after acting as a mediator mid-arbitration[.]” 

The lower court vacated the award, holding that the parties’ alleged agreement to permit the arbitrator to mediate was not memorialized in writing. On appeal, the Appellate Division reversed, holding that the agreement need not be written. The solution for the Appellate Court was to direct the trial court to hold an evidentiary hearing to determine whether the parties, indeed, had agreed to the arbitrator taking on the role of mediator, and then re-assuming his adjudicative responsibilities in case the settlement efforts failed.

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