As anyone who has served as a transactional lawyer knows, protecting the client is important, but so is preserving the client’s relationship with its customer. Maintaining this balance can be difficult when a deal goes bad and litigation appears inevitable. But it does not have to be that way, however, if the parties make effective and early use of mediation.
I am a transactional lawyer by training. My focus was to help businesspeople (often times senior management) complete their transactions. In addition to my transactional responsibilities I often had oversight for litigation involving matters in my area of responsibility. My experience in that role taught me that litigation was expensive, time-consuming and that in many cases it damaged, sometimes irreparably, the relationship with the client. Executives found this difficult to accept. While litigation was ongoing, typically for years, they complained that we were not making money. We were spending it.
It was, in an attempt to resolve these concerns, that I began to really appreciate the opportunities mediation presents, particularly in providing a way for parties that are in a significant business relationship and wish to continue it to resolve their disagreements. I recall having been confronted with a difficult problem involving an important client. The client decided to mediate rather than litigate. The goal was to craft a solution that everyone was willing to accept. Success was achieved in that matter fairly quickly and easily. After that, I decided to consider mediation as a solution early in the dispute resolution process.
Compared to mediation, litigation can negatively impact you and your business in many different ways. The stigma of having “lost” the litigation, the cost, the lack of control over the process and its protracted and, typically divisive, nature generally can be unpleasant and can create ill will, which can unnecessarily limit future business. Even if the impact in one matter is bearable, the precedential effect of a decision that becomes a matter of public record can be far reaching. As examples, particularly in the age of electronic court filings, litigation can often:
- Drive your business partners and customers to competitors, potentially costing future revenue, market share, or other opportunities.
- Result in reputational damage and public scrutiny.
- Engender regulatory scrutiny.
- Make it more expensive and more difficult to get business done, as customers may take a more careful and deliberate approach to reviewing your contracts, including having lawyers take more time to analyze the consequences of potential problems with the deal or transaction.
When evaluating the benefits of mediation, one aspect that is often overlooked is that a mediator can propose ideas that neither side need claim as their own. Even if such ideas are not adopted as the ultimate solution, they can often lead to a resolution because the parties are free to discuss them without compromising their position.
Questions That Arise When Faced With a Business Dispute
When a business dispute occurs that needs to be resolved, many questions arise. For example,
- How did the dispute occur?
- Is it with a customer, a vendor, a business partner or someone else?
- How important is that relationship to the business?
- Is the dispute based on a simple misunderstanding or a more fundamental disagreement that will continue to impact the business relationship until it is resolved?
- Is the disagreement so important to the business arrangement that it needs to be resolved immediately to permit the business relationship to continue, or is it incidental and can be put to the side and dealt with later?
- Did the dispute just recently arise, or has it been in existence — and perhaps festering– for some time?
Answers to these questions and others will provide the mediator with valuable information that will offer an opportunity to ultimately resolve the dispute so the parties can move forward.
Mediation vs. Litigation – A Closer Look
Mediation is a form of alternative dispute resolution (ADR) that keeps the dispute out of the courtroom. It places the dispute in the hands of the parties themselves to resolve with the assistance of a mediator or neutral. The role of the mediator is to listen to and engage with the parties and to use all available information to identify ways to encourage a resolution of their differences.
One of the advantages of mediation is that, if successful, parties reach a consensual resolution which can eliminate the hard feelings associated with the “we won” and “you lost” outcome in litigation. That is not to suggest that the parties’ differences are simply split down the middle. Rather, based on the facts and circumstances involved, the parties agree on an outcome which will appropriately resolve their dispute.
Let’s take a closer look at both litigation and mediation and review some of the more material features.
Anyone involved with litigation probably knows all too well how extremely expensive it is to formally litigate a matter. The pleadings, discovery, motion practice, and ultimately going to trial, as well as the time and billing rates of counsel, can result in tremendous cost to the parties to the dispute.
In contrast, mediation generally affords the parties an opportunity for a much quicker and much less expensive resolution of their dispute. A mediator can be selected quickly, often in a matter of days or weeks. Mediators may require the parties to prepare and exchange a pre-mediation brief or document, particularly for more complex mediations. These documents will typically set out the facts of the dispute and the applicable law. They may also set out each party’s legal positions which, unlike in court, need not be shared with the other side. Although each mediator may have his or her own requirements or preferences for the exchange of documents and other information, in general, this is done quickly and inexpensively.
One of the most significant advantages of mediation over litigation is the length of time required to resolve the matter. Litigation can take years to be completed, from the filing of the complaint until a final judgment is rendered. Scheduling delays and packed court calendars often greatly exacerbate these delays. In contrast, once scheduled, mediations generally take only a single day for straightforward matters, and perhaps just a few days or up to a few weeks for the more complex disputes. Also, unlike most trials, where courts are open only during finite business hours, it is not unusual for mediations to be conducted under a more flexible schedule – even well into the evening, particularly if it is thought a resolution is at hand. This tends to promote a more rapid resolution of the matter using mediation.
Most litigation is public, or at least publicly available. While it may be possible in certain instances for a court to seal a file and permit the matter to remain confidential, it is a difficult and uncertain process. Mediation, on the other hand, is always private. Privacy can be critically important when it comes to business dealings, and it can be a significant factor in the decision to mediate. There may be circumstances, such as those involving trade secrets, proprietary information or the risk of negative media coverage, where public disclosure or public access to the matter in dispute simply cannot be tolerated. Finally, the risk of precedential consequences of an adverse court decision should not be overlooked.
Risk of an Adverse Outcome
In litigation, once the matter has commenced, not much can be done to prevent a particular outcome. The judge or the jury will decide the case based on the facts and the law and their own view of the matter, not necessarily based on what the parties desire or think. Mediation, on the other hand, can produce a virtually unlimited range of outcomes, with varying degrees of fault and monetary awards, which will have been negotiated and agreed to by the parties themselves. Mediations cannot be appealed, so there also is no risk of a different result upon review of the matter. The parties alone decide whether the proposed resolution is acceptable – this provides the parties with ultimate control.
A bad case is still a bad case even in mediation, but the parties retain the ability to manage it to a less harsh outcome (or to no outcome at all).
Case in Point
I have seen firsthand the benefits of mediation involving parties that had a significant and ongoing business relationship. During a recent mediation, two companies that dominate a particular industry segment, and who are largely dependent on each other for their current and future business had significant disputes involving a number of different aspects of their business dealings. At the same time, however, many of their joint business initiatives and other business dealings were performing well and were essentially problem free. Rather than simplifying the mediation, this added a layer of complexity.
Each party had the opportunity to explain its position on the issues. Their claims against one another, totaling in the millions of dollars were heard. The impact of these problems on their relationship was clear. Both parties approached the mediation in a constructive and professional way, which was likely due to the parties’ strong relationship, familiarity with each other, and obvious need to be able to continue to work with each other. Nevertheless, the issues were hard fought. The process and the result seemed natural and not at all contrived. What I found most striking, although not necessarily surprising, given the dynamics of mediation, is that several of the meetings during the mediation itself evolved into discussions between the two parties to explore future potential shared business opportunities. It is unlikely this would have happened if the two parties were litigating instead of mediating.
I firmly believe the approach or mindset of the parties is different when faced with litigation rather than mediation. In litigation it is as if there is a sense of war rather than peace, of winning rather than resolving, or of challenging rather than negotiating.
Identifying when mediation is the best approach to resolve a business dispute
When analyzing whether to pursue mediation or litigation to resolve your dispute, consider the following factors:
When a concern exists about publicizing the dispute.
When the parties are looking for a quick and inexpensive resolution.
When the cost of litigation is greater than the monetary value of the claim or dispute.
There are many disputes concerning matters that are extremely important to one or both parties but do not necessarily have great monetary value. In this circumstance, assuming it remains important that the parties resolve the claim or dispute, the only outcome that makes economic sense is mediation. It will also permit the parties to determine the specific outcome that fully addresses their concerns.
Desire to preserve a beneficial relationship. When the business relationship between the parties is strong and the parties generally get along well and want to continue their business relationship, there may well be an expectation that mediation will be more successful than litigation in resolving the matter(s) in dispute and preserving their relationship.
When significant time or cost needs to be invested or incurred to resolve the issue in court. Again, the economics of resolving the dispute may point to mediation as being far more preferable to litigation.
Liability is clear but the parties cannot agree on damages. This is a perfect situation for mediation. An experienced mediator should be able to work with the parties to arrive at an acceptable resolution much more quickly and less expensively than through litigation.
Once a decision has been made to mediate rather than litigate, the following factors can help prepare you for a successful mediation experience:
- Remember that you can pick your mediator, but typically not your judge.
- Be prepared to submit a pre-mediation statement or any other documents requested by the mediator to allow the mediator to review and to prepare for the mediation in advance.
- The pre-mediation statement or other requested documentation can be kept confidential or it may be shared with the other side. Putting “all your cards on the table” as early as possible is generally viewed as the most favorable approach to resolving the matter. This often makes sense with complex cases where the pre-mediation statement will include detailed facts with documentary support and will address important issues of law. Make sure you understand exactly what the mediator is requesting and make certain that is what you provide. If you misuse this opportunity and either (i) provide something the mediator has not requested or (ii) omit something the mediator has asked for, you could alienate the other party and potentially create mistrust or suspicion with the mediator.
- Remember that an essential element to resolving the dispute is trust. If trust is lacking, then don’t expect much good to happen. Both parties will have a sense of how much to trust the other based on the facts and circumstances that brought them to the mediation. The mediator will likely determine how much to trust each of the parties based on their interactions and methods of dealing with each other in the mediation.
- Present your case in the best light possible (but keep it factual). Remember that you are not presenting your case to a judge or to a jury who will be deciding your matter and who may be hearing about what happened (or didn’t happen) for the first time. At the end of the day, mediation is all about compromise, and each party will have its own view about what did or did not happen. Do not make things worse by misstating things.
- Do not think about “winning” per se; instead think about what success will look like – what outcomes are possible and considered “successful.” This may be particularly true where a dispute is not central to the parties’ business relationship and is an ancillary disagreement.
- Be flexible and keep an open mind. Try to approach the mediation without any specific outcome in mind. The mediator may suggest unexpected or unusual ways in which resolution of the mediated matter can be achieved.
- Be professional, but don’t be afraid to tell it the way it is. It is important to be civil, and respectful, but you don’t necessarily need to pull your punches. It is important to be able to tell your side of the story, in your own words, and in the way you feel best describes your position. It will be difficult for the mediation to be effective if particular facts and other relevant issues are never discussed.
- Be mindful of existing relationships. If you find yourself mediating with an existing customer, or someone else with whom you have an ongoing business relationship, be conscious of the fact that mediation is less filtered than litigation. Parties in a mediation will typically have more direct access to each other. Exchanges between parties will likely have a greater impact when parties are speaking directly to one another than would be the case when filtered through lawyers in litigation. It may result in a faster resolution.
It is important to recognize that mediation need not be regarded solely as a complete substitute for litigation, but rather as a companion tool that can be used surgically and precisely as needed. For example, consider turning to an experienced mediator for issue resolution to smooth out thorny discovery issues, particularly those where knowledge of transactional documents, client books and records, financial statements or regulatory requirements can be useful. A mediator can even be used to act as draftsperson of the final agreement that resolves the matter.
Finally, in addition to efficiency, cost savings and finality, mediation, unlike litigation, allows the parties flexibility and creativity to find business-like and client-driven solutions. Moreover, meditation can include all issues between and among the parties that may not fit within the confines of formal litigation. Maintaining or preserving the business relationship is, to me, one of the biggest potential advantages of mediation over litigation. It is the nature of mediation which can achieve this result.