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Business Dispute Resolution: A Mediation Primer

Posted by David W. McGrath

Business disputes are inevitable. Whether a dispute arises from alleged patent infringement, trade secret theft, interference with contractual rights, or any other ground for disagreement, business leaders increasingly opt for mediation to resolve their differences. Studies have shown that more than 80% of mediations are successful in resolving civil cases. In light of that success rate, it is not surprising that more and more business disputes, complex and routine, are being resolved without years of litigation and the related expense and uncertainty that accompanies traditional trials. Despite the widespread use of mediation, even sophisticated business leaders often have only a basic understanding of the process. This article will describe the process, benefits and some nuanced aspects of mediation.

Arbitration Distinguished

Mediation is often confused with arbitration. Arbitration is referral of a dispute to an impartial person (often an experienced lawyer or retired judge) who renders a final and binding decision. While it is designed to be less expensive than a traditional trial, it can be quite time consuming and costly, and usually includes some of 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.

The Mediator

Like an arbitrator, a mediator is impartial. Unlike an arbitrator, however, a mediator does not have the power to render any decision. For this reason, parties often agree upon a mediator without the same level of angst or disagreement that often accompanies selection of an arbitrator. Usually mediators are chosen based not only on their mediation skills, but also on their particular substantive experience – typically a match for the type of dispute being resolved. A mediator (even if a retired judge) does not hear testimony or accept evidence to be ruled upon. Instead, a mediator meets informally with the parties to help them understand the factual and legal issues and to expose the weaknesses in each side’s case. The goal of mediation is to remove the obstacles to settlement, which are often the result of 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 infuse a sense of optimism and tirelessness when settlement seems bleak.

The Mediation Process

Mediation can originate in different ways. First, sometimes parties agree to mediate before a lawsuit is even filed, such as when a contract includes a mediation provision. Second, mediation can occur 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. Third, mediation can occur 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 be scheduled at virtually any time in the course of a civil 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. Usually, those with decision-making authority are required to attend, though occasionally they participate by telephone or video conference. The success of mediation depends to a large degree on the direct participation of those with the necessary factual information and settlement authority, which does not always reside in one person.

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 is to foster 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 doomed. 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 so choose. Typically, following the joint session, each party and their lawyer go into their own “break out” room and the mediator shuttles back and forth for the remainder of the mediation, trying to get the parties to reach a common ground for settlement. Usually, during the first few phases of the private sessions, the mediator tries to gather information about the facts and the law that will enable the mediator 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 provided 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 the love they have for 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.

Why Choose Mediation to Resolve Your Business Dispute?

Mediation is often more complex than just meeting in a room to work out differences, but it has some 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 traditional litigation and sometimes preserves a valuable business relationship, enabling the parties to work together towards a common purpose in the future.

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