Why Mediation?

THE BUSINESS CASE FOR EARLY MEDIATION

Most business disputes, like most personal or professional disputes, have their genesis in at least two parties viewing the same facts, or what they think are the same facts, differently. In all likelihood, each party believes they are viewing the facts correctly and being reasonable. As the parties begin to dig in on their respective positions, things become more heated, and the “I’ll sue” ultimatum finds its way into the conversation. The prospect of litigation sends the parties to their corners, and the battle is about to be joined. Regardless of who fires the opening shot in litigation, it can unleash a course of conduct that is beneficial to no one. Somewhere over the next months or years, someone, be it a party or the court, will float the thought of settling the dispute by mediation. The idea of mediation at this time is not a bad one, but it may come too late in the dispute to be meaningful for the reasons explored below.

Because the outcome of every case turns on the facts, the facts are a good place to start the discussion. Eye witness testimony has been frequently shown to be wrong or highly contradictory among witnesses to the same event. This is not totally unexpected. Individuals involved in or witnessing the same event often see the same events through different lenses and place the emphasis on different aspect of the “facts” as they remember or recall what happened. How one person remembers a fact framing her view is often different, even if just nuanced, from another witness’s memory. Likewise, parties to a commercial transaction see events through the lens of what each of them is seeking from the deal, but it is not necessarily a case of intentionally misconstruing things.

When the parties mediate a dispute, they have the opportunity to express their views of the fact to a neutral third party. Without seeking to establish any fact as right or wrong, the mediator will encourage each party to see how the other party may have a given view. This does not require the other party to accept the fact or reject its own view. It does establish a level set so the parties can discuss the issues with a better understand of the other party’s view of events.

Establishing the individual factual viewpoints of the participants is an important part of the mediation process. Because those viewpoints are frequently a reflection of what the party originally expected from the transaction, they help the mediator understand what might be needed to reach an agreement. They may also uncover other concerns that are not immediately apparent from the legal framework of the dispute and help the mediator identify possible alternatives to a win-lose outcome of the initial dispute. Perhaps a party to a troubled transaction has a cash flow issue but has the ability to provide the other party with an alternative deal or asset not included in the original transaction. This raises the possibility of a business resolution by the parties agreeing to a discounted vendor customer relationship in lieu of a burdensome cash payment.

Some may be inclined to discount an informal factual exchange of a mediation and point out that the very purpose of discovery in the course of litigation is to get to the facts. While there is no disputing this view, it fails to weigh the animus and irritation of the discovery process. The time spent collecting documents for production, answering interrogatories, and preparing for depositions all take time and energy from the party’s business. This builds interparty hostility beyond the initial dispute because each party feels the other is unreasonable in its positions and the information it is seeking.

In addition to creating a poor settlement environment, formal discovery is expensive and can stretch on for months. Even when completed, the close of formal discovery does not resolve the matter. Multiple items in the average court scheduling order require completion before the case is ready for trial. However, many courts believe that the issues have been fully vetted at the close of fact discovery and encourage the parties to seek a settlement because all the facts are now established. This belief is rarely acted upon in the post-discovery settlement discussions and the march toward trial continues.

The topic of discovery bares further discussion for another reason. The nature of discovery is such that each party believes it needs more information from the other party to ferret out the “smoking gun” or ” evidentiary silver bullet” that brings the other party to its knees. This seldom happens. What usually happens is that each party is required to disclose more about its business operations than it ever cared to divulge outside of, or even inside of, the business. The possibility of having the court enter a protective order covering discovery disclosures may provide some comfort. However, courts are increasingly reluctant to issue broad protective orders in view of the trend toward open public records.

The public’s right to access public records creates an additional rough spot. While litigation discovery may be a somewhat closed exchange between the parties, anything that hits the public record becomes accessible to the public. That motion to compel discovery becomes part of the record docket and available to the public. One only needs to consider the high profile matters deemed news worthy to appreciate the amount of information a reporter can dig out of the record. It is also a mistake to believe protection from public prying is available to the parties because they are in a niche industry. Almost every industry has some form of newsletter or blog that follows events and longs for a good headline grabber. Since they are more dedicated to a limited audience, the niche industry media is more likely to dig out the details. Furthermore, other industry members are likely to follow events closely because the parties are in a niche industry.

The topic of maintaining the confidentiality of business information brings to mind the saying that, “a secret shared is a secret no more!” One-way to avoid or at least control the public disclosure issue in contractual matters is to include a dispute resolution provision. The dispute resolution provision can frame a sequence of resolution procedures. First, the parties’ upper managements can attempt to reach a structured business solution. If that is not successful, the parties can move to mediation with a neutral third party looking for nuggets of compromises or alternatives that the parties may not have recognized. If that fails, the parties can litigate with the knowledge that they tried to resolve the matter, and regardless of who fires the opening shot in litigation, it will unleash events that are not beneficial to anyone.

One note on why I do not include arbitration in the proposed dispute resolution procedure – it is my experience that arbitration is litigation in a different or private forum. It is typically no less involved than litigation and extracts the surrender of certain rights afforded in court litigation. In the end, a useful arbitration must result in a winner-loser outcome, and both parties may be equally upset with that outcome. By way of distinction, mediation offers the parties a forum to shape their own resolution and if the mediation does not resolve the dispute, all options still remain available.

Finally, the parties have the ability to work with the mediator to determine the how, when and where of the mediation. Disclosures and briefings can be confidential or shared. The mediation sessions can be joint or individual and the information shared with the mediator can be shielded from the opposing party. In essence, mediation enables the parties to work with the mediator to establish a realistic procedure that is likely to result in a mediated resolution.