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Evaluate It: How to Reset the Business Mediation Process

ADR Techniques

By Laura Steinberg February/March 2015

Although mediation is often touted for its flexibility, it has become increasingly common to apply a set of standardized mediation practices to a broad range of civil disputes. The tendency to do so frequently shortchanges the large complex case that is sent to early mediation, or that arrives at mediation because a contract provision requires that mediation occurs before litigation or arbitration can proceed.

This article addresses why mediation often fails in such circumstances and offers an approach that is tailored to the specific needs of commercial parties involved in complex litigation or arbitration.

Traditional Template

The familiar mediation template begins with choosing a mediation service or an individual mediator. Early on, once payment arrangements have been finalized, the mediator’s assistant sends out a procedural letter.

That letter usually prescribes as the first step confidential written submissions by each side, which go to the mediator and may or may not ultimately be shared with the other side. These submissions are typically advocacy pieces, which present an overview of the facts in the best possible light to the submitting party and then outline legal arguments as to why that party should prevail. There may be a section that addresses the party’s settlement stance. If so, there is ordinarily some posturing involved.

It would be quite unusual for such a submission to discuss the vulnerabilities of the submitting party’s case candidly or to provide a true sense of the submitting party’s actual settlement range.

The written submissions are normally due several days before the mediation. In the interim, the mediator may have a telephone conference with each side, to ask a few questions about the submission and to inquire whether there is anything else that counsel would like to share in advance of the in-person session.

When such questions are broached, the lawyers ordinarily respond in a somewhat anecdotal way, often to raise personality issues that they view as possible impediments to settlement. Again, it would be extremely uncommon, in fact, almost unheard of, to share concerns about the strength or weaknesses of one’s own case.

Next comes the in-person mediation session. The standard formula is that each party must have a decision maker present along with counsel.

After the mediator’s introductory remarks to explain the process, it is commonplace to have each lawyer give an opening statement. This frequently echoes what you would expect to hear in opening argument in a courtroom. In part because the client is sitting right there, each advocate puts only his or her best foot forward.

After all parties or both sides (depending which makes sense in the particular situation) have made such presentations, the mediator may ask some questions designed to expose vulnerabilities. But because the mediator has typically not been provided with adequate ammunition to do anything else, these are generally not genuinely probing questions that make either the lawyers or their clients uncomfortable.

Following the question and answer phase, the parties are separated into various private rooms, and the mediator’s shuttle diplomacy begins.

This format was developed to force each side to listen to how the other side perceives its case, with the twin goals of (a) making sure that the lawyers have not somehow insulated their clients from understanding how the matter is developing, and (b) giving each side a chance to vent and to feel “heard” about the injury inflicted and the anger that it caused.

What the process was most definitely not designed to do is to identify and assess the strengths and vulnerabilities of each side’s case and to help the parties recognize the import of that analysis. That is because mediation is generally presented as a non-evaluative process that does not address the merits but rather tries to find “win-win” solutions that minimize risk and maximize rewards for all involved. In the garden variety mediation scenario, the merits of the matter are frequently almost irrelevant.

Different Needs in Complex Commercial Litigation

This process and these goals make sense when the litigants are individuals embroiled in a personal dispute. But in complex commercial disputes, the parties have little if any need to feel that they have undergone an emotional catharsis or extracted some sort of emotional vindication from their adversaries.

Rather, what they need is assistance in arriving at an impartial assessment of how they will fare if the matter goes to trial, so that they have a rational basis for reasonable settlement estimates. Mediation can play an important role in this evaluative process, because no court will provide an assessment prior to a preliminary injunction or summary judgment decision, and perhaps not even then. And by that time, litigation costs can be astronomical.

Some commentators have suggested that creating specialized commercial courts will provide the solution. In reality, however, dedicated commercial sessions do not have budgets that permit the maintenance of high caliber built-in mediation services.

Additionally, in non-jury cases, the parties will never want the assigned judge to oversee their mediation, and the presiding judge would refuse that dual role. So even in the business court setting, litigants who want to mediate but prefer not to use volunteer retired judges are largely left to their own devices.

The problem that sophisticated business litigants face is that the standard mediation format is by definition non-evaluative, which makes it inherently ill-suited to the needs of commercial litigants seeking impartial issue analysis. This leads squarely to the question of how to structure a mediation that makes sense for complex commercial disputes.

No mediation can work without participant buy-in to the process. A successful complex business mediation has to involve a process that sophisticated business people regard as reasonable and meaningful. The process cannot be something that they view as a waste of time or, worse still, with contempt.

At the same time, that process has to have elements that will serve as catalysts to settlement. Realistically, that means that the process has to be designed to expose and explore risks and that the litigants have to be ready to engage in that exercise.

But a mediator’s involvement may be limited to a week or a month. The only way that adequate risk assessment can happen in the brief mediation context is by choosing a mediator who is prepared to grapple with the merits and by providing that mediator at the outset with sufficient information as to both (i) the key issues in the case−the ones on that are truly outcome determinative−and (ii) each party’s frank assessment of its own vulnerabilities in the matter.

A More Appropriate framework

A mediation that unfolds in this fashion will necessarily involve a fundamental rejiggering of the standard mediation framework. This is something that should be explicitly discussed with the mediator (and/or the administrator) at the outset, so that the entire process rests on the right footing. From the business litigation perspective, a more appropriate process would include the following:

  • First, the parties should explicitly seek out a mediator who commits to undertaking issue and outcome assessments.
  • Second, instead of the traditional written submission, the mediator should require each party or group of parties, as appropriate, to make a confidential written submission, with the understanding that it will absolutely not be made available to the other side, that (a) sets out a brief case overview, (b) identifies the outcome-determinative facts and legal issues, (c) addresses the submitting party’s/parties’ stance as to each, (d) and includes the party’s/parties’ views, with an explanation, as to the appropriate settlement range.
  • Third, overview opening statements should be jettisoned. Instead, several days before the in-person session, the mediator should identify for each side the issues that will be orally addressed. This part of the process will likely work best if the issues are addressed one by one, with the mediator framing the issue and each party that is affected by that issue then speaking one after another, for no than five or 10 minutes per person. The mediator might decide that each side or party will address different, rather than the same, issues. This would be left to the mediator’s discretion. In either event, the party presentation(s) on an issue would be followed by mediator questions. Then the mediator would introduce the next issue and the parties would move on to that issue, and so on.
  • Fourth, when separate room shuttle diplomacy begins, the mediator should initially focus on whatever further discussion seems necessary to flesh out analysis of the issues that were addressed orally. The mediator should ultimately provide each party with some sense of how it is likely to fare, and why, on each of those issues and what that will likely mean for the overall case outcome.

What happens next would depend on the mediator. If the process is proceeding well, a numbers dialogue can now usefully begin. If the parties appear to remain wedded to their own intractable views, it may make sense to bring them back together for a whole group discussion of the issues.

It may then also make sense to take a break of a day or several days, to allow digestion of what has transpired so far. Shuttle diplomacy can perhaps be handled by telephone rather than through another in-person session. At some point, the mediator may want to sit down in person separately with each side to go through a somewhat formalized, arithmetic risk assessment exercise. The mediator may ask each party (or group) to provide him with a short risk assessment write-up.

Obviously, there are no hard-and-fast rules as to how the process must occur. The mediator must be sufficiently flexible to accommodate the process to how the mediation is unfolding.

By contrast, the mediator’s overall goal is not flexible. It is to assist the parties in coming to grips with a realistic case assessment on the basis of what is then known as to the key facts, the evidence, and the law. When the mediator and the parties work together in this manner, mediation of complex business disputes is more likely to have a successful outcome.

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Laura Steinberg is a partner in the litigation department in the Boston office of Sullivan & Worcester. She has regularly arbitrated in many different forums, including the American Arbitration Association and various securities venues. Internationally, she has arbitrated under the auspices of the International Chamber of Commerce, the LCIA, the International Centre for Settlement of Investment Disputes, and other venues, and has handled numerous self-administered arbitrations. Her practice consists of federal and state civil (commercial) litigation and arbitrations throughout the United States, with an emphasis on complex regulatory and fiduciary issues. She has experience in disputes involving shareholder and investor rights and relationships; application of the business judgment rule; and fiduciary disclosures, compliance and enforcement issues (often in a securities law setting). Her practice includes counseling clients on how to minimize or avoid litigation exposure, both contractually and through proactive conduct. As part of that process, she frequently conducts internal investigations for non-management directors. For more information, visit www.sandw.com.


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