Almost all in-house lawyers have dealt with mediation at some point. If you haven’t to date, you will. Mediation is a process to resolve disputes between parties where a neutral third party helps facilitate the discussions, negotiation, and (hopefully) ultimate settlement of the dispute. Unlike arbitration, mediation is generally voluntary and non-binding. Meaning, in addition to picking their mediator, the parties get to decide whether and how they will resolve their dispute. There are times when mediation is mandated, i.e., the parties must go through the process such as, for example, when their contract requires it as part of a dispute escalation process. Likewise, there are times when a court will require mediation with the judge (or magistrate judge) acting as mediator (sometimes called a “settlement conference”). Mediation is often your best opportunity to settle a dispute before undergoing the expensive process of all-out litigation and trial. Unfortunately, many in-house lawyers — or their clients – treat mediation like a poor cousin to arbitration and waste the opportunity. This is usually because of either indifference or the idea that you can “just show up” and mediate. Wrong! There are many things you need to know about mediation in order to have the best chance at a successful outcome. This edition of “Ten Things” discusses the key points in-house counsel need to know about mediation.
1. Voluntary vs. Mandatory Mediation. The first thing you need to understand is whether your mediation is voluntary or mandatory. Mandatory mediation can be required by contract (i.e., part of a dispute resolution process) or, as noted above, required by a court or, in some cases, by statute/regulation. Mediation that is mandatory vs. voluntary has a somewhat lessor chance of success given that the parties have no choice, they must mediate. In such cases, one or both of the parties may simply “go through the motions” because they have to, though they are not really interested in discussing settlement. If you are faced with mandatory mediation be sure to understand the rules that apply either under the contract, the rules of the court, or whatever is required by statute or rule. While your heart may not be in it, you need to be sure to comply with all requirements. Voluntary mediation is a different creature altogether. Here the parties have agreed between themselves: a) that they are interested in trying to resolve the dispute, b) that they want a neutral third-party to help them, and c) on who they want the neutral third-party to be. Under these circumstances, mediation provides a much higher chance to resolve the dispute.
2. When to Mediate. A key decision point is “when” to mediate. Mediation can occur at literally any point of a dispute, even before litigation has formally started. When to start the process depends on several things. Some important considerations are:
- Uncertainty of how litigation may turn out.
- The cost of litigation (time = money).
- The desire to keep documents/facts private (vs. having them come out publicly at trial or in motion practice).
- The knowledge that you have “bad” documents that could decide the case in favor of your opponent once they are produced to the other side.
- An unfavorable ruling by the court on a key preliminary matter.
- The urge to simply “get it over with” as quickly as possible.
- Preservation of the relationship between the parties.
- Learning about the strengths and weaknesses of your and the other side’s case (and perhaps having your business client hear this as well).
In my opinion, it’s best to mediate as soon as possible, especially if there is a real chance to resolve the dispute. I say this primarily because, having been involved in many disputes in my career, I find the litigation process to be incredibly expensive, uncertain, corrosive and wasteful of everyone’s time and energy (see “Guided Choice” for a discussion of the benefits of early mediation). The sooner the parties can get back to business the better off everyone will be. That said, there usually needs to be some discovery (exchange of documents, depositions, etc.) before mediation is productive. A certain amount of discovery allows each side to better understand the strengths of and weaknesses in their case. However, if the mediation comes too late in the process and after significant expense is incurred, then there is the potential for a “sunk cost” problem, i.e., “we’ve already spent $X on the case, we might as well take it to trial now because there is not much more expense to incur.” I also prefer earlier mediation because it allows everyone to hear (sometimes for the first time) the other side’s position unfiltered through lawyers or other intermediaries. This can be a real eye-opener for the uber-strident business client who thinks the case is a “slam dunk” for their side. Few (if any) cases are ever slam dunks because those types of disputes rarely get very far in the first place.
3. Picking a Mediator. Picking the right mediator is probably the most important part of a successful mediation. Get the wrong mediator and your mediation can be incredibly short or incredibly painful. Either way, you will be very unhappy. Your outside counsel will be very important here as they usually have experience with many different mediators and mediation styles. The first place to look is at any rules governing the mediation. If there are no rules (or in supplement to the rules) here are some things to consider:
- Get recommendations from multiple sources – colleagues, outside counsel (even those not working on the matter), other in-house lawyers, etc.
- Your own experience with mediators.
- Reputation of the mediator – i.e., lack of bias, creative approach to solving problems, easy to work with, etc.
- Experience of the mediator – including certifications, education, background, etc. This is especially true if you have a complex case or a case that involves a specialized area of the law or a complicated business. And don’t rule out mediators because of their experience. For example, a mediator who is a plaintiffs’ lawyer may actually be a good choice for the defendant because that mediator may be more likely to honestly evaluate the strength of the plaintiff’s case – something they do all the time in their own practice.
I have found that retired judges often make terrific mediators. If you are completely at a loss, most of the alternative dispute resolution organizations have lists of mediators you can choose from, e.g., JAMS, ICC, ICDR, and AAA. Additionally, the National Arbitration and Mediation (“NAM”) group has a great page on their website with numerous mediation resources. Finally, you need to think about the “style” of the mediator. There are three kinds: a) facilitative (mainly guides the “process” and remains completely neutral); b) evaluative (will make recommendations and assessments about the case and each party’s position); and c) transformative (facilitates but also attempts to restructure/improve the relationship between the parties). For most commercial litigation disputes, I would go with either a facilitative or evaluative mediator and lean toward the latter because I think the best mediators are those that will “beat up” on both sides a bit and bring their thoughts to the table (which is also why I favor retired judges as mediators).
4. Who Attends and What is Their Authority? Who attends the mediation is another key piece of the puzzle. Typically, outside counsel and in-house counsel will attend for each side. And if both parties are serious about settlement, someone from the business who is fairly senior will attend as well (note that if you are operating under some type of mandatory mediation, the rules may prescribe who attends). While you do not necessarily need the CEO to attend, the more senior the person the more likely you will get things resolved. Regardless, whomever is selected to attend for the business should be someone with an open mind and not so dug into the company’s position that settlement is unlikely just because they are intractable. Likewise, you want someone who is friendly, civil, and respectful of both the mediator and the other side. Some senior executives bring a heightened sense of arrogance and “I’m right/you’re wrong” to the table. This will not be helpful. You also need to ensure that whomever attends is authorized to settle the case. This means they have a “number” (or other authority) that they can agree to without having to call back to the office for permission. They also need to be vested with some flexibility to manage a deal without having to “get permission” for everything. A decision tree analysis can be very helpful here. Being authorized to settle at a certain amount, however, doesn’t mean that you won’t have to call back to “higher ups” if there is a possibility of settling the matter at a higher number or for things outside the scope of the given authority, that happens all the time. There just has to be some baseline authority brought to the process. Everyone also needs to understand that the purpose of the mediation is to try to settle the case, not to “zero out” the other side or get every potential dollar under the sun. That is something you hope to do at trial. Mediation is about compromise. If one or both parties are unwilling to “give” on things, your mediation will be over before the morning coffee cools.
5. Explaining the Process. It is extremely important that everyone on your side of the table understands the mediation “process” before attending the mediation. If not, you or your business representative may become very confused or befuddled by what is going on. In a nut shell, here’s what to expect (but be sure your outside counsel spends time preparing you and the business representative for the process so nothing is a surprise to your side):
- The rules – If your mediation is mandatory or conducted until the auspices of one of the ADR organizations, there may well be some rules that will need to be followed. Likewise, the mediator may have their own rules. Be sure to understand and follow whatever rules are in place for your mediation.
- Introductions/Opening statements – most mediations start with handshakes and pleasantries (which are important to establishing a working relationship between the parties). Then, typically, each side gives a short opening statement of their position. While sometimes these opening statements are passed over, I recommend you go through with them because it may be the first time you or the business client hear what the other side is thinking without the filter of outside counsel or other intermediaries. This can be truly eye-opening. While it is fine to be confident in your case, this is not the time to be insulting or demean the other side (unless you want the mediation to crater immediately). There is, however, a lot of debate about the value of opening statements. For more on this and to help you decide what might be best for your mediation, click here.
- Breakouts – after the opening session, each side retires to their own room and the mediator will come and talk with both sides. This is the opportunity for each side to more fully explain their positions, tell the mediator what they are looking for/willing to do in terms of a settlement, ask questions, get information, etc. Prepare yourself and the business client for a lot of “sitting around” during this exploration phase. Things tend to move slowly in mediation, especially at the beginning. While you may just want to get to the bottom-line and be done with it, that is not how a successful negotiation usually works. It’s the same type of process in mediation. The mediator will continue to go back and forth between the groups several times, each time trying to bring the parties closer to a deal (but also only telling each side only what he/she is specifically authorized to say). The mediator may also use these sessions to talk about the strengths and weaknesses of your case. Do not be put off by this, they are doing it with the other side as well. If the mediator is using an evaluative process, they will also start to give you their opinions about how the case might come out. Prepare your business representative for this otherwise they may think the mediator is picking on your side unfairly. This is also the time when the mediator will bring settlement proposals to each side. You may be surprised to hear that the initial settlement proposals are shockingly far apart. Do not despair, this is normal. Many disputes have settled at mediation even when at first glance the parties seem to be on different sides of the universe. Give the process time to work.
- Joint sessions – the mediator may bring everyone back together again at certain points to discuss issues. The mediator may also want just the outside lawyers, or just the in-house lawyers, or just the business principals to meet with him/her to keep the discussions going. This can be very effective, especially when the mediator senses a potential settlement (the “negotiation phase”) but that the internal group dynamic on one side or both sides is preventing a breakthrough. Welcome the opportunity for a joint session. The most important thing to do here is truly listen to the other side and what they are saying. You will learn a lot if you open your ears and your mind.
- Success/Failure – if the parties reach a settlement, there will be a session to finalize the details (more on that below). If the parties reach an impasse that the mediator feels cannot be broken, then he/she will bring the parties together for some final words and then release them (usually with a statement that if the parties feel later on that they want to try again, he/she will be available to help facilitate that process if so requested).
- Timing– most mediations last one day (or two days but usually only if planned for two days in advance). The day may be very long, starting early and going into the evening, especially if the parties start to get close to a deal. But sure that your side is flexible enough to give the mediation all of the time it deserves. You do not want your business person or outside counsel to have to stop at 3:00 pm. Plan ahead that the process will likely take the entire day and evening.
6. Pre-Mediation. There are a number of things that will happen “pre-mediation.” Typically, each side will file a mediation statement setting out their view of the dispute. These are usually confidential and for the mediator’s eyes only, though in some mediations they are shared with the other side (which is something I prefer). Additionally, there is usually an opportunity for each side to give the mediator questions he/she should ask the other side during the course of the mediation. Most mediators welcome discussions with either side before the mediation. Your outside counsel should take advantage of this opportunity and talk at least one time with the mediator, giving them the lay of the land, potential settlement structures, personality differences, etc. The more information the mediator has in advance of the session, the better he/she will be able to perform her duties. Lastly, make sure that your mediation is confidential and anything said or presented cannot be used at trial. This can be done by written agreement of the parties or pursuant to the rules the apply. It is always worth double checking this one and making sure both sides are aware of their obligations around confidentiality. You cannot “un-ring” the bell.
7. Preparation. As is true for so many things, a very important part of mediation is preparation before the meeting. If you want the best chance for a successful mediation you cannot “wing it” and just show up and hope for the best. If you do, you may settle your case but likely at price much worse than if you had properly prepared. For in-house counsel this means:
- Know your case – the facts, your strengths, weaknesses, good documents, bad documents, read your mediation statement – and that of the other side if permitted.
- Know the law – key cases, statutes, regulations, elements of the claim, affirmative defenses, counter claims, etc.
- Know the other side – a mediation is a negotiation and one of the key elements of a good negotiation is learning as much as you can about the people on the other side and the culture of their company.
- Know your side – make sure you have a good sense of your business representative and their personality, goals, etc. Take them to lunch before the mediation. Know your outside counsel as well. Who is coming with you and what’s their “style,” and are you prepared to step in if things start to go south because your outside counsel is too soft or too hard? Make sure your outside counsel is doing all of this preparation as well.
- Know the mediator – find out as much as you can about their style and methods.
- Know your expert reports – if you intend to rely on them during the mediation. You will likely need to be able to explain them and defend them to the mediator.
- Prepare to be unhappy – if you settle during mediation you will probably not have gotten everything you want. But if it’s a good deal for the company, be ready to accept it and move on. If you don’t settle you may feel like you’ve wasted your time. You didn’t. Not every case settles at mediation or even at the first mediation. But, you likely learned a lot about your case and that of the other side and that will help you if and when trial comes. Regardless, go into the mediation with the right attitude. It’s an opportunity to settle your dispute, not your opportunity to berate or belittle the other side (or worse, the mediator – they are only human too).
8. Strategy Considerations. Every mediation is different but there are some strategy considerations common to all of them:
- Only mediate in person – unless there is absolutely no way to do this.
- Give up the “weak” stuff – at mediation it’s better to focus on the real strengths of your case. If you try to make and hold on to every argument/claim you make in your court filings you will lose credibility. You can always say “For purposes of today only, we’re not going to fight about X.” Locking in on every little thing and refusing to concede anything will likely get the same type of stone-walling from the other side in return. You have to give to get. Sometimes, just acknowledging to the other side that litigation is uncertain and they have valid points too can get the settlement train moving.
- How much do you tell the mediator – you will have to decide how much you’re willing to share with the mediator. Some of this will be decided on the fly after you get to know them a bit during the course of the day. Generally, the more you give them to work with the more effective they will be, but not always.
- Bring several key documents/emails to the session – select several things that are really strong for your position and share those with the mediator at the right time. Something “in writing” can be very helpful, especially if the mediator is using an evaluative method of mediation. That said, don’t lie or misrepresent facts to the mediator. That will backfire quickly.
- Know what help you want from the mediator – consider if you want to ask the mediator to help you structure a settlement or, always touchy, asking the mediator what “they think” the case is worth in terms of settlement. You might not like the answer (and some mediators will not tell you regardless). Also, when you give the mediator instructions to take back to the other side, make sure he/she repeats back to you what they are going to say and, ideally, that they write it down so there is no miscommunication.
9. You are in complete control at all times. Mediation is not binding. It’s not a trial or an arbitration. There is no requirement that you must settle your dispute. While that is certainly the goal, a bad deal is a bad deal and be prepared to walk away and say “no thanks” if necessary. Don’t be bullied into accepting a resolution that you think just doesn’t work, for whatever reason. And make sure your outside counsel knows that if they disagree with you, that discussion needs to occur out of earshot of the mediator and certainly the other side. You’re the client, you set the rules.
10. Memorialize any settlement then and there. If your mediation happens to end with the parties reaching an agreement to resolve the dispute, that’s wonderful. But don’t put on your coat yet. You need to write out the key terms of your agreement and have each side sign it before anyone leaves. I have seen first-hand where one or both sides rush through this part and when the time comes to put the definitive settlement document together, things blow up and the deal craters because one side has key terms or conditions that were not discussed or raised at the mediation. For example, if money is changing hands, be sure that every agrees on when the money will be paid and will it be a lump sum or payments over time. If other agreements need to be signed as part of the settlement (for example a new contract) when will those documents be signed? Likewise, if the CEO or Board of Directors need to approve the settlement, then you don’t really have a settlement yet. Like any good lawyer, while everyone is happy you’re “getting married” you need to be thinking about what happens when the divorce comes along. Settlement agreements are tricky, so take your time and think through the issues and all the places where things can come off the tracks. Make sure everyone is clear on exactly what the agreement is and how it will work. If you’re really pro-active you might want to draft a settlement term in advance and have it ready. You can fill in the blanks once you have a deal.
Mediation is often your best opportunity to resolve a dispute before you become completely bogged down in the litigation process (and the tremendous cost in time and money that entails). However, you need to approach mediation like an important part of the litigation process and spend the proper amount of time and effort preparing for it. As in-house counsel you have a unique role in the mediation, especially in terms of teaching your business representative what to expect and figuring out the range of settlement authority (and figuring out creative ways to resolve your dispute once you’re in the mediation process due to your knowledge of the business and the law). Finally, while it’s okay to rely on outside counsel for many of the things needed for a successful mediation, don’t concede control of the process. It’s your dispute and your business. You will know what’s best in terms of when to settle and when to walk away. This requires that you understand your “case” almost as well as outside counsel. Don’t be a potted plant.
July 13, 2017
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