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Developing Mediation Programs as an Exercise of Police Power?

Just Court ADR, December 7th, 2011

The foreclosure crisis is real, and it is not dissipating anytime soon. So why would a borrower advocate undermine a process meant to facilitate resolutions?

State and local governments seek creative ways to resolve the crisis. Some have looked to mediation and its rich history of providing a forum to disputing parties – including parties to foreclosures – to discuss alternatives to litigation. Courts (in judicial foreclosure states) and other government entities (in non-judicial foreclosure states) have created mediation programs to encourage borrowers and servicers to talk face-to-face about options other than foreclosure. These options include loan modifications as well as graceful exits.

Now, a court case in Nevada (Wells Fargo v. Renslow) challenging the constitutionality of Nevada’s non-judicial Foreclosure Mediation Program threatens to dismantle 30 years of good work mediators and mediation developers have done. And it’s not because Wells Fargo claims that the Program violates the U.S. Constitution’s contracts clause.

Rather, an attorney defending the Program is making arguments that undermine the core principles upon which mediation is built. In defending the Program’s existence on Friday, Carole Pope argued that the Program’s creation was an exercise of the Nevada legislature’s police powers. Police powers allow states, in emergency situations, to create laws that inhibit personal liberties (like contracts) but  promote the general welfare. An argument that legislation is an exercise of police powers essentially concedes the legislation is unconstitutional, but seeks an exception for a state emergency.

Two major logical flaws render this argument damaging to the Program and mediation generally. First, by arguing the Program is an exercise of police powers, Ms. Pope essentially argues that the mediation program is unconstitutional , that is, the Program—and thus the mediation process—is an interference with private contract. Following her thought, all mediation programs that deal with cases in which a contract is in place are unconstitutional. This is a major problem for mediation, which creates a place where contracts may be modified voluntarily by the parties. Self-determination, not state determination, is the core value of mediation.

The second flaw is in calling the creation of the Program an exercise of police power. Sometimes, mediation programs are created in the wake of a major crisis (think Hurricane Katrina and the farm-lender crisis of the 1980s). However, the majority of mediation sessions held around the country are not connected to a statewide crisis at all. Instead, mediation offers mothers and fathers a chance to talk about their kids, employers and employees a chance to solve workplace conflicts, or small business owners and customers an opportunity to repair harm done to both parties. As Wells Fargo asserts in its opening brief, “[m]ediation is a good thing, and can be a legitimate public end,” because it has “beneficiaries and borrowers ‘come to the table’ to engage in meaningful negotiations,” not because it is a reaction to an emergency.

Mediation programs(?) can be helpful processes to get stakeholders talking about resolutions to large-scale, country-wide disputes. But they are also helpful in disputes that happen every day, in every small claims or family courtroom in the country. To label mediation as only an emergency measure not only reduces mediation to a process used only in emergencies instead of a process to be used at all stages of a conflict, but also downplays its value as a consistent, steady alternative to litigating a variety of cases.

If the Nevada Supreme Court decides this case based on Ms. Pope’s arguments, the mediation community should be prepared to counteract the case’s impact by reminding communities across the country that mediation is not a punishment or a process to be used only in an emergency.

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