Modern Mediation: The Czar Clause

Documenting a settlement agreement reached at mediation is critical to the settlement’s success.  But, in complex cases, the parties do not always have the time (or energy) to write and negotiate a formal settlement agreement at the end of a long mediation session.  Instead, they sign off on a material term sheet to close the mediation, and then the lawyers spend the next couple of days (or weeks) negotiating the terms of the formal settlement agreement. This can lead to disagreements post-mediation that can delay or derail implementation of the settlement.  One or both of the parties can try to reopen the mediation, or even go back to court to try to enforce their view of the agreement.  But then some or all of the efficiency of settling the case is gone.  Instead the parties are in a new limbo, and they are facing unexpected costs of the litigation they wanted to avoid by reaching a settlement.

One solution is to include a term in the interim agreement where the parties specifically appoint the mediator to be a standby arbitrator in the event the parties cannot agree on language for a formal settlement document.  In Oregon, this has long been colloquially referred to as a “Czar Clause,” where the mediator will then have absolute and unappealable discretion to impose a resolution to any future drafting dispute.    

Some Czar Clauses take it a step further and also appoint the mediator to arbitrate any dispute that might later arise from the final agreement.  This might mean, for example, that if a party fails to make a required payment under the terms of a settlement agreement, the mediator would be authorized to issue an arbitration award for the payment that is due. The aggrieved party would then apply to the appropriate circuit or federal district court (diversity cases only) to have the award confirmed, and entered as a judgment (see ORS 36.522; 9 USC §9)

If the parties want to establish an efficient single point of summary resolution for any post-mediation dispute, a Czar Clause may be the best option. And if the mediator is unwilling to serve that role (or only willing to preside over a drafting dispute), consider appointing someone else, such as the local presiding judge.  An efficient dispute resolution mechanism ensures the certainty and durability of the agreement.

The downside, of course, is that a Czar Clause takes from the parties their right to otherwise have some control over the outcome of their dispute.  Like any arbitration clause, a Czar Clause strips parties of any rights to a jury and an appeal.  Instead, the Settlement Czar can impose their unilateral interpretation of the agreement over the will of one or all of the parties.  This is why, in crafting a Czar Clause for drafting disputes, attorneys consider including some basic guardrails, such as limiting the Settlement Czar to resolving ambiguities, removing unnecessary or offensive language, and supplying missing terms essential to carrying out the material terms.

A good mediation not only settles the dispute at issue, it also builds some goodwill between the parties.  That is perhaps the best way to avoid future disputes, including drafting and enforcement.  Hopefully, your mediated term sheets and agreements will not require a czar, but it can be reassuring to know that one is available should you need it

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