Vol. 78, No. 3, March
2005
Deciding When to Mediate Business Disputes
Determining if mediation is the best method to resolve a business
dispute requires a structured examination of several factors from many
vantage points. Read how the nature of the parties and their
relationship, the interests of concern to each party, the issues
involved in the dispute, and the outcomes desired by the parties can
inform the decision to mediate.
by
John R. Dawson
hether a business dispute can or should be
resolved through mediation depends on several factors.
This article discusses factors to consider when trying to find where
on the "mediate - don't mediate" continuum a particular dispute lies.
The presumption is that the dispute lies toward the "mediate" end of the
spectrum if the structured negotiation of mediation is more likely than
not to produce a resolution that is:
- successful (meaning to the satisfaction of each party);
- more acceptable, or at least less unacceptable, than the likely
result of arbitration or litigation;
- cost efficient; and
- consistent with your client's objectives.
If mediation is not likely to satisfy these requirements, then it is
a waste of time for you, your client, and the mediator.
There are several vantage points from which to assess the utility of
mediation in a particular dispute: from the standpoint of the parties
and the nature of their relationship; from the standpoint of the
interests of concern to each of the parties; and from the standpoint of
the issues involved in the dispute and the nature and range of outcomes
desired, or feared, by the parties.
The Parties and Their Relationship
Prospective Relationship. Mediation clearly is the
preferred method of dispute resolution if the parties have, and
particularly if they hope to continue, an ongoing business relationship.
Common situations in which this factor predominates are disputes between
a manufacturer and a dealer or a franchisor and a franchisee, for
example. Not only does mediation diminish the hostility inevitable in
any adversarial process, but also the parties' control over, and the
diversity of, negotiated resolutions available through mediation fosters
the parties' ongoing relationship.
Participation of Decisionmakers. There is no point
in conducting a mediation if the ultimate decisionmakers do not
participate personally. The absence of the person in charge invariably
is viewed as suspect by the opposing party. That absence also eliminates
the possibility of a negotiation in which both sides safely may rely on
the "finality" and the "authority" of whatever the other side says. Such
a negotiation is doomed to fail - always. This means that a decision to
propose mediation should be accompanied by counsels' insistence that
previously uninvolved, "distant" senior manager(s) of both parties
participate.
Previous Involvement of Decisionmakers. Mediations
tend to be more successful if the impasse that prompts the process has
not involved the senior decisionmakers on both sides. If the senior
managers are themselves responsible for the dispute or its lack of
resolution, the chances of having a successful mediation are reduced.
Likewise, if they already have staked out positions from which it will
be difficult for them personally to move, the chances of having a
successful mediation are reduced. In contrast, if the dispute arose or
remains unresolved principally because of the actions of mid-level
managers, and if senior managers approach the mediation unfettered by
previous commitments or positions, the chances of a successful mediation
are improved.
Unrealistic Assessment of Positions. Frequently the
case most likely to be resolved through mediation is the one in which at
least one of the parties has an unrealistic appraisal of the strength or
value of its side of the case. Whether the cause of this false optimism
is the party itself or its counsel, it can be quite beneficial to have
each party consider the strength of the other's position in the informal
setting of a mediated negotiation. Usually the expression of that
position by the party itself, rather than by counsel, demonstrates the
depth of conviction of the "other side" and can interject into the
negotiation process a more realistic self-assessment. If it does,
settlement becomes more achievable.
Emotionally Driven Disputes. Every lawyer has
represented clients in disputes that objectively should be settled but
that simply cannot be because one or both of the parties are emotionally
unable to bring themselves to settle. These cases are particularly
susceptible to successful mediation. They typically involve personal
wrongdoing or tortious conduct causing emotional harm, invasion of
privacy, infliction of emotional distress, purposeful interference with
contract, or unfair competition, for example. The erosion of an
emotional impediment to resolution can best occur through a principled,
civilized, and quiet dialogue, perhaps over many hours or even days,
during which both sides have the chance to "vent" and to make certain
the other side knows just how upset they are and how justified they are
in feeling that way. Once a party is satisfied that the other side "gets
it," the party no longer needs to hold out and litigate just to prove a
point or to vindicate a position in which there is a significant
emotional component.
Relative Sophistication of the Parties. A dispute is
more readily mediated if the parties are of relatively equal
sophistication and have similar financial resources. When there is an
imbalance in either respect, preparation by counsel and the careful
selection of the mediator assume a greater than normal importance. In
such cases, the mediator's reputation for neutrality, lack of bias, and
impartiality is particularly important.
Number of Disputants. Finally, the number of parties
involved in a dispute can affect the likelihood that mediation will lead
to a more acceptable result than will an adversary proceeding.
Multi-party disputes may include claims against multiple insurers,
cross-claims, and third-party claims. The flexibility of mediation is
particularly advantageous in such multi-party disputes. Also, the
avoidance of the cost, heightened uncertainty, and complexity of
multi-party litigation argues strongly in favor of mediation. As in
litigation, however, multi-party mediation often requires particular
skill and patience and an elevated level of logistical organization, and
the mediator should be selected with these factors in mind.
The Parties' Interests
Mediation is the preferred method of dispute resolution when the
parties have certain identifiable interests.
Speed of Resolution. Mediation is quicker than
arbitration and litigation. The matter is resolved sooner, more
efficiently, and with less disruption of the parties' businesses.
Avoidance of Publicity. Sometimes parties desire not
only confidentiality but the avoidance of any publicity. While
arbitration also offers this benefit, mediation offers the additional
benefit of avoiding the creation of any record, exhibit, testimony, and
so on, to which the other side, or outsiders, might somehow gain access.
Parties to a properly managed mediation should agree in advance that
nothing said or used during the mediation may be used for any purpose
outside the mediation. They also should agree that the mediator is
absolutely not to be called on to testify to any event that occurs
during the mediation. Mediation is the most private dispute resolution
technique.
Cost of Resolution. Mediation should be the process
of choice when, as often happens, the cost of proceeding with a case is
disproportionate to the value of winning the case or the cost of losing
the case. This simple truism is intuitively obvious. However, it often
is ignored until the costs have risen to the point that to not forge
ahead is seen by the client as a waste of all that has preceded.
Variability and Complexity of Desired or Possible
Solutions. This factor is probably the most important single
factor in assessing the utility of mediating a case. In both arbitration
and litigation, the result frequently is "winner take all" and "loser
lose all," and the "all" is almost always expressed monetarily. Such
results do not consider any solution other than one expressed in
dollars. Mediation offers the significant advantage of being able to
tailor the result to the parties' real, long-term business interests.
Examples of the kind of arrangements that can be implemented in a
mediated resolution that cannot be mandated or included in an arbitral
award or judicial decision include:
- settlement contract modification or amendment,
- the addition or deletion of participants in a business deal,
- mutually acceptable exchanges of property or consideration of any
nature, and
- commitments for or against future conduct.
If imagination and creativity offer a chance to better accommodate
the parties' actual interests, mediation should be the process of
choice.
The Issues in Dispute and Potential Outcomes
The Legitimacy of the Claims and Defenses. Any
mediator will confirm that the most difficult case to mediate is a
frivolous case. Few attorneys, and fewer clients, want to negotiate with
an opponent whom they consider to be pursuing a claim frivolously or in
bad faith. So, one should consider mediation with respect only to cases
in which the claims and the defenses to them are legitimate and are
asserted, even if wrongly, in apparent good faith.
The Technical Complexity of the Case. Cases in which
the factual issues are highly technical or unusually complex tend to
lead to the greatest disappointment at trial. The recently mediated
resolution of the Miller Park/Mitsubishi/Travelers Insurance dispute in
Milwaukee is an example of such a case. The ability of juries to
understand and work with concepts or sciences that were previously
foreign to them is always uncertain, at best. These are cases that lend
themselves well to mediation.
The Sensitivity and Proprietary Nature of the Underlying
Facts. Both arbitration and litigation require each party to
demonstrate evidence supportive of its position to a third-party
fact-finder. Occasionally the disclosure of that evidence, even in the
relatively safe confines of an arbitration or under the safe harbor of a
protective order in litigation, can be more damaging to a party's
long-term interests than even the adverse consequences of an adversarial
proceeding. For example, disclosure to the other side of prospective
business customers' names, the fact of "secret" business ventures or
arrangements, cost-saving manufacturing processes, or the nature of
products still in development, even if disclosed under the most
restrictive of nondisclosure agreements or judicial orders, can cause
irreparable damage or the fear of such damage. In such cases, a mediated
negotiation that can avoid the disclosure of such evidence offers
particular advantage over both arbitration and litigation.
Factual or Legal Disputes and the Credibility of
Witnesses. Experience shows that the disputes least susceptible
to mediation are those in which the primary impediment to settlement is
a legitimate disagreement over the applicable law. In those instances,
both sides tend to view the dispute as a chance to win everything, if
only they are right on the law (and in these circumstances, the parties,
or their lawyers, tend to think they are right on the law). In such
cases, usually one side or both anticipate a quick and relatively
inexpensive resolution to litigation by motion. In those cases there is
less inclination, at least initially, to avoid the costs and uncertainty
of litigation.
In contrast, when the basis of a dispute is disagreement over the
facts of the case, settlement through mediation is more likely - even if
the dispute is heart-felt and each side is wedded to its version of the
facts. In those cases, the result of a trial is less predictable and the
advantages of avoiding that uncertainty tend to be clearer. This is
particularly true in cases in which witness credibility is not in issue.
If neither side is able to predict comfortably whether the other side's
witnesses will be believed, it is easier to reach common ground and to
do so in a cooperative, nonadversarial manner. These factors weigh
heavily in favor of the utility of mediation.
Control and Modification of Outcomes. As a corollary
to a point noted above, not only does mediation offer greater
flexibility than arbitration or litigation, it also affords both sides
the freedom to modify or alter the settlement agreement as conditions
change. This factor looms particularly large in cases in which the
parties have, or can envision having, an ongoing relationship. It also
becomes an important consideration in anticipation of changes in
circumstances not presently apparent that might warrant revision of the
reached agreement. When the ultimate value of a resolution necessarily
depends on identifiable variables, such as technological developments,
economic conditions, or management stability, a negotiated agreement
taking such variables into account is far more likely to protect the
parties' long-term interests than is a judicial order or an arbitral
award.
The Importance of Establishing Legal Precedent.
Another consideration in assessing the utility of mediation in a given
case is whether either side has an interest in establishing a legal
precedent for future use. If either does, then mediation may not be the
preferred mechanism for resolution. However, like all issues, the
importance or consequences of establishing precedent is itself subject
to discussion and, perhaps, negotiation.
The Necessity of Interim Relief. The desire for
interim judicial intervention and relief is not inconsistent with an
overall strategy of submitting the dispute ultimately to mediation. Once
the status quo is preserved, or a request for an injunction granted or
denied, the parties are free to resolve the matter in any way they
choose, including by mediated negotiation. In fact, if the dispute is
one in which injunctive relief is appropriate as an interim measure, the
chances are good that the greater flexibility of possible outcomes and
increased control over the ultimate resolution afforded by mediation
will weigh even more heavily in support of mediation. However, the
dynamics of mediation are altered significantly if one of the parties
has either obtained interim judicial relief or tried and failed in the
attempt. In those instances, the interim "prevailing" party often will
presume it has dominant leverage. This presumption might not accurately
reflect the real strengths of the parties' positions. This can frustrate
the mediator's efforts to foster a balanced and realistic
discussion.
The Uncertainty of Litigation. There are cases in
which not only is the result of litigation unpredictable, but even the
monetary award range is unclear. Avoiding that uncertainty and the
attendant risk can be important factors to both sides in considering
mediation.
Conclusion
The assessment of each of the factors discussed above is always in
itself ambiguous and uncertain, and the conclusion one draws from the
collective assessment of all the factors certainly is no less so.
However, a disciplined examination of each factor provides a helpful
analysis of the likely suitability of mediation as a dispute resolution
process. This structured approach enables counsel to more confidently
recommend (or not) the process to his or her client and to more credibly
discuss with opposing counsel the merit, or lack of merit, to trying to
mediate a particular dispute.
Choosing the "Right" Mediator
Mediation is simply a structured, facilitated negotiation. The
mediator's principal objectives include to:
- provide focus on the issues;
- enable the parties to realize their actual interests and goals (as
opposed to their mutual desire to "win" the case);
- diffuse (or, occasionally, use to advantage) the tension and
antagonism that invariably accompany significant disputes;
- assist the parties in making realistic assessments of their own
positions and their opponent's positions;
- offer, when appropriate, alternative settlement possibilities for
mutual exploration; and
- ensure absolute fairness in the process.
Unless the parties expressly request the mediator's evaluation of the
competing positions, most mediators favor and provide the best service
by confining themselves to facilitating the negotiation, not evaluating
it.
Selecting the right mediator can mean the difference between a
successful negotiation that produces a result acceptable to all involved
and a failed negotiation that is little more than a waste of time. The
parties must agree on the mediator, not just as a matter of process but
as a matter of shared conviction in the soundness of the selection.
Qualities of a mediator generally considered among the most important,
as reliably predictive of a successful effort, include:
- absolute impartiality and neutrality,
- integrity and trustworthiness,
- excellent listening skills,
- ability and experience in understanding the law and factual
applications in a variety of circumstances,
- mediation training or experience, or both,
- negotiation experience and skills, and
- demonstrated people skills accompanied by an appropriate sense of
humor.
State Bar Business Dispute Resolution
Program Helps Solve Problems Quickly and Easily
Almost all business-oriented legal disputes are ultimately resolved
out of court. Mediation and arbitration are among the best ways to
resolve such disputes, because they can generate reliable results
effectively, efficiently, and economically.
Mediators help people clarify issues, identify interests and needs,
explore settlement options, and focus on acceptable solutions. Mediation
can also help preserve important business relationships and create
long-term business strategies for preventing or resolving possible
future disputes between the parties. When a settlement is reached in
mediation, the parties sign a written settlement agreement which is
enforceable in court.
Arbitrators review evidence submitted by all parties and render an
arbitration award based on the evidence and the applicable law. Awards
are final and binding on all parties and can be appealed only under very
limited circumstances.
If you or your client has a business dispute, turn to the State Bar
Business Dispute Resolution Program. Parties can select an arbitrator or
mediator from a roster maintained by the State Bar of Wisconsin. All
arbitrators and mediators on the program's roster are Wisconsin lawyers
experienced in business matters and are members of the State Bar's
Alternative Dispute Resolution (ADR) Section.
There is no filing fee for cases submitted to the Business Dispute
Resolution Program. This program is cosponsored by the Business Law and
the Alternative Dispute Resolution sections. More information about the
Business Dispute Resolution Program is available online at
www.wisbar.org/bar/bdrp, or phone the program administrator at (800)
444-9404, ext. 6169. To learn more about the ADR Section, go to www.wisbar.org/sections/adr.
John R. Dawson, Duke
1970, recently retired from his law practice after 34-plus years with
Foley & Lardner LLP, Milwaukee. He is an associate adjunct professor
at Marquette University Law School. He is listed in The Best Lawyers
in America in three categories, including Alternate Dispute
Resolution. He remains an active member of the State Bar of Wisconsin
ADR Section and the American Bar Association. He is a member of the
Regional Panel of Neutrals for Wisconsin of the CPR Institute for
Dispute Resolution. He may be reached at jdawson727@earthlink.net. The
author is indebted to Madison attorney and business-commercial mediator
Terry Peppard, past chair of the State Bar ADR Section, for his
invaluable critique and constructive review of this article.
Wisconsin Lawyer