Mr. and Mrs. Clark owned and ran a bed-and-breakfast for 15 years, but Mr. Clark's poor health forced them to sell. With few potential buyers interested, the Clarks sold to George Johnson for $850,000, accepting only a $25,000 down payment and financing the balance. In order to keep the sale costs down, the Clarks verbally explained to Johnson that the spa room was added without a building permit and suggested "they not let the building inspector see the room." In the closing documents, the Clarks made no mention of the spa.

Shortly after the purchase, Johnson decided to add another bathroom to the B&B. After construction was under way, the building inspector refused to allow construction, citing the spa as illegal. After that, the code enforcement officer shut the B&B down for unsafe conditions.

Johnson believed the cost to correct the spa, to complete the new bathroom, and to cover the loss of revenue from the business closing totaled $80,000 and demanded that amount from the Clarks. The Clarks refused to pay because they had explained the situation to him before the sale. The conflict between the parties continued to escalate to the point that the Clarks were "calling Johnson's note," meaning that if he didn't pay them what was owed, they would take the property back, and Johnson would lose everything he put into the property.

Both parties were reluctant to sue and get attorneys involved, so they agreed to hire a mediator who had experience in real estate transactions. Judy had over 20 years' experience as a real estate broker and 10 years' experience as a mediator. The parties explained to her that they wanted her to tell them how to handle the situation. Judy explained what evaluative mediation is, and the parties agreed.

She first met privately with the sellers and listened to their case. The Clarks appeared to genuinely believe that they had not misrepresented anything to Johnson and that now Johnson was extorting them by trying to get money from them. In a private caucus with Johnson, he told Judy that the Clarks were guilty of misrepresentation and that he was being forced into bankruptcy from the loss of income while the B&B was closed.

Then, speaking as an evaluative mediator, Judy explained to the Clarks in caucus that the B&B shutdown was a result of the spa enclosure that they had installed. The fact that they had discussed it with Johnson did not fix the problem. The Clarks then said that they would take the property back and resell it. Judy asked a series of questions: How long would it take? What is the probability that they would locate a new buyer? Could they find a buyer that would take on the expense and responsibility of correcting numerous code violation issues as well as the city's closure of what was once a very prosperous, well-known B&B? How would either party bringing a lawsuit benefit them for their immediate needs? How much would it cost? Did they think they would win? The Clarks proposed paying Johnson $35,000 to do all the spa corrections and restore the city license to operate. They stated this was all they were willing to do.

Judy then presented the Clarks' offer and comments to Johnson in a caucus. He accepted the $35,000 offer but argued that the closure meant he would be unable to make monthly payments for at least six months. He wanted those payments deferred to the end of his loan. Judy told him that he would still owe the interest during the grace period, which would also be collected at the end.

Judy presented the offer to the Clarks. They asked for three months. A final agreement was reached that Johnson would commence payments within six months or 30 days of reopening if that was sooner.

Source: Author created.

Discussion:

1. Trace the steps Judy took in this mediation.
2. Do you believe that by guiding the mediation she forced a particular decision? Why or why not?

Answer rating: 100% (QA)

In this mediation scenario Judy took several steps to facilitate the resolution of the dispute between the Clarks and Johnson 1 First Judy met private... View the full answer