Many businesses are initially reluctant to engage in mediation, opting instead for an aggressive litigation posture. Yet, more than ninety percent of business cases ultimately settle, and many of these resolve through mediation. How to explain these seemingly discordant facts? There are several things at play. First, due to a lack of litigation experience, many businesses presume that their version of events will necessarily prevail. Second, businesses often underestimate how expensive and disruptive litigation will be. Third, even sophisticated corporate decision-makers can personalize disputes and sometimes fail to separate personal feelings from broader corporate goals. Finally, businesses unfamiliar with the mediation process can mistakenly view participation as a sign of weakness, or worse, don’t understand what mediation entails.
Mediations do occasionally fail because some cases cannot be resolved without a decision by a judge or jury. Such cases are the exception, however, not the rule. Over eighty percent of cases, including those in which parties were staunchly opposed to settlement at the outset, are resolved without trial because businesses eventually come to understand that (a) judges and juries do their best to discover the truth, but they are far from perfect and do reach unjust decisions; (b) litigation is very expensive, particularly in today’s world of electronically stored evidence; (c) litigation is extremely disruptive, both for those in management who must live with the case sometimes for years and for non-management witnesses (e.g. lower level employees or even customers) who are compelled to attend meetings with lawyers and pre-trial depositions; (d) the emotional investment in the case is draining and counterproductive to the organization’s broader objectives; and, perhaps most importantly, (e) mediation is an inexpensive and highly effective method of resolving business disputes.
Despite the widespread use of mediation, even sophisticated business leaders often have only a basic understanding of the process and sometimes confuse it with arbitration. Arbitration is the referral of a dispute to an impartial person (often an experienced lawyer or retired judge) who renders a final and binding decision. It usually includes the hallmarks of trial, such as sworn witness testimony, cross examination and opening and closing statements. Like trials, arbitrations can last days or weeks, but the selected arbitrator renders a binding decision instead of a judge or jury. Thus, though arbitration is meant to be less expensive than a traditional trial, it can still be time consuming and costly. Unlike an arbitrator, a mediator is an impartial facilitator who does not have the power to render a decision. For this reason, parties often agree upon a mediator without the level of angst or disagreement that usually accompanies selection of an arbitrator.
Usually, mediators are chosen based not only on their dispute resolution skills, but also on their specialized, substantive experience — typically a match for the type of dispute at hand. A mediator (even if a retired judge) does not hear testimony or review evidence. Instead, a mediator meets informally with the parties to help them understand the factual and legal issues and to gain a different perspective of the dispute. The goal of mediation is to remove the obstacles to settlement, which, more often than not, are emotion, misunderstanding, and confusion. Skilled mediators are able to understand the important issues; communicate the strengths and weaknesses of a case without polarizing the participants; “read” the parties, their lawyers, and their conflicting and common interests; explore creative options for resolution; and bring a sense of optimism and persistence, especially when continued talks seem to stall and the prospects for a settlement seem bleak.
The Mediation Process
A mediation comes about in different ways. Parties sometimes agree to mediate before a lawsuit is filed, often when a contract includes a provision requiring pre-suit mediation. Mediation also occurs when a dispute is being litigated at an administrative or agency level, such as when the Equal Employment Opportunity Commission offers its mediation program to parties prior to a lawsuit being filed. Mediation may also arise at almost any point during litigation in state or federal court, even after a jury’s verdict, but before all appellate rights have been exhausted. In essence, because mediation is a voluntary process, it can take place at virtually any time in the course of a business dispute.
Mediation can be scheduled quickly, usually in a couple of weeks, and requires a relatively small amount of preparation time. The mediation usually takes place in the office of one of the party’s counsel. To give both parties a sense of a level playing field, it is not uncommon, however, for a mediation to occur at a “neutral site,” such as the mediator’s office. Most mediations are completed within one day, though sometimes the settlement negotiations continue after the mediation session is concluded, building upon the progress made at mediation. Success hinges on the direct participation of those with the necessary factual information and settlement authority, which do not always coincide in one person. Usually, those with decision-making authority are required to attend, though occasionally they participate by telephone or video conference.
The mediation session typically begins with the mediator establishing the key ground rules. Chief among these is that the process is confidential. The parties (and the mediator) agree to keep what they see and hear at mediation confidential. This fosters an environment in which parties do not hold back key information or documents for fear that their positions will be weakened at trial should mediation fail. Another key rule is that the process is voluntary, though the parties are expected to participate in good faith. This means that participants generally are free to leave at any time, although good mediators will persuade parties to “hang in” and endure the inevitable phases when settlement appears unlikely. Many cases have been settled at mediation after one or both parties threatened to walk out. Once the ground rules are established, each side has an opportunity to present a brief overview of the dispute from that party’s perspective. Although the lawyer for each side typically makes the opening presentation, the parties themselves are often given the opportunity to speak during the joint session if they want to.
Usually, after the joint session, each party and their lawyer go into their own “breakout” room and the mediator shuttles back and forth for the remainder of the mediation, trying to get the parties to reach common ground for settlement. During the first few private sessions with each party, the mediator tries to gather information about the facts and the law that will enable him or her to highlight potential weaknesses in each side’s case, or to clarify misunderstandings that will continue to frustrate settlement if left uncorrected. The mediator only shares information if given approval to do so. So, for example, if one party informs the mediator that they “must settle today because the company is being sold and the case needs to get off the books,” but they do not want the other side to know, the mediator will not reveal this information but will have a better understanding of that party’s motivation to settle.
The mediator attempts to help the parties prioritize their interests and deflate extreme or irrelevant demands. At times, a mediator may offer his or her assessment of the strengths and weaknesses of the parties’ cases, but this must be done very carefully in order to avoid alienating either side. The mediator facilitates discussion and understanding by getting each party to view their case differently — getting them (even if only temporarily) to suspend their attachment to their own case. Whatever the methods employed, the mediator is not attempting to arrive at a just result or an outcome he or she deems fair. The mediator’s sole motivation and purpose is to help the parties reach a negotiated agreement to resolve their dispute, so that the parties control the outcome instead of leaving it to the uncertainty of a judge or jury.
Papering the Deal
If a case is settled at mediation, parties are encouraged to sign a memorandum of understanding that contains the key terms of the deal. Although it is understandable that parties will be anxious to leave the mediation immediately upon a verbal settlement agreement, signing even an informal term sheet will bind the parties to those terms and reduce the likelihood of confusion and misunderstanding when it comes time to prepare the formal settlement agreement.
Mediation has real benefits in the business context and often helps parties to end a dispute amicably and get back to work. A successful mediation saves time and expense, avoids the uncertainties of litigation and sometimes preserves a valuable business relationship, enabling the parties to work together towards a common purpose in the future. The takeaway: Before you adopt a reflexive opposition to mediation, insist that your attorney educate you at the outset of litigation about (a) the costs and risks of litigation, and (b) mediation options. Together with your counsel, think broadly about the dispute, the litigation, the organization’s overall objectives and what it means to win in the context of a business dispute. A “win” can often be achieved by resolving a dispute quickly, cheaply, and amicably through mediation.