Kent B. Scott | Babcock, Scott & Babcock
If your client is involved in a legal dispute, you may be able to settle it without going to court. One way to do this is to work out a solution with the help of a mediator – a neutral third person. This article addresses some of the many basics in preparing the client for mediation.
The recently published 2007 Edition of the AIA A-201 General Conditions along with the General Conditions of CONSENSUSDOCS and most other standard industry support construction documents contains language requiring the parties involved in a dispute arising under the contract to mediate their matter before resorting to arbitration or litigation. The conditions require parties to first mediate their dispute prior to litigation their dispute. The AIA A-201 General Conditions provide in part for the following procedure: “….If a dispute arises out of or relates to this contract, or the breach thereof, and if the dispute cannot be settled through negotiation, the parties agree first to try in good faith to settle the dispute by mediation administered by the American Arbitration Association under its Construction Industry Mediation Rules before resorting to arbitration, litigation, or some other dispute resolution procedure.”
The use of mediation, in one form or another, has been around as long as there have been disputes. Granted, Julius Caesar most likely did not need the services of a mediator. But how many parties have his resources: slave labor, free materials from conquered nations and legions of soldiers to enforce the contract terms? Modern day construction for several reasons has gravitated toward the use of mediation to resolve disputes.
The mediation of construction contract disputes has traditionally been voluntary. The AIA A-201 mediation requirement, similar contract provisions and required court annexed alternate dispute resolution programs have brought a new element to the dispute resolution game – mandatory mediation. Whether mandatory mediation will serve the needs of the construction industry or become just another fossil in the graveyard of “good attempts” is unknown. For now, mediation is going to be used with increased frequency by parties involved with a construction dispute. Attorneys will end up spending more time in mediation than court. So let’s get trained and train those who are coming into the fold. The following represent a few fundamental questions lawyers should expect from their clients who are involved in a dispute.
WHAT IS MEDIATION?
Mediation is an alternative to the traditional litigation process. Mediation is an informal process in which a trained neutral third party, the mediator, assists the parties in reaching a negotiated resolution to a dispute. Mediation is forward-looking. The goal is for the parties to work out a solution they can live with. Mediation focuses on solving problems, not uncovering the truth and applying facts to legal principles.
Mediation, by its nature, requires the cooperation of all parties. Mutual cooperation and consent are essential ingredients in order to realize a mediated settlement. However, if the construction contract terms or required court annexed alternate dispute resolution programs require the contractor and other parties to mediate a dispute, it is important that all parties mediate in good faith. The mediation requirement may be avoided by mutual waiver. However, all parties must consent to the decision to bypass the mediation requirement and move on to the litigation or arbitration of their dispute.
SHOULD I MEDIATE?
Mediation is a faster and more economical alternative to litigation or arbitration. The mediation meeting is scheduled by the parties and is not dependent on the needs and requirements of the court’s calendar. The parties are expected to exchange information that supports their claims and defenses in a cooperative manner. The time and expense involved with the traditional discovery methods and the practice of filing motions are suspended until the outcome of the mediation. The parties are responsible for the outcome of the mediation. Their consent is a necessary ingredient in order for to achieve a settlement. In addition, one of the stated objectives of the mediation process is to preserve business relationships that a more adversarial process tends to destroy.
WHAT ARE THE DISADVANTAGES?
If the mediation fails to resolve the dispute, the parties may feel they have wasted valuable time and money. Attorneys, mediator fees and company time have been expended. Some attorneys and their clients express concern that too much free discovery is given out or the opposing party has received information involving confidential and proprietary practices. In addition, many attorneys are fearful that their litigation or arbitration strategy will be compromised. The contractor who faces a mediation situation, whether voluntary or involuntary, will want to weigh these concerns against the benefits of an early resolution achieved through mediation.
WHAT IS THE RECIPE FOR A SUCCESSFUL MEDIATION?
The success of a particular mediation is mainly controlled by the parties. Some of the critical components of a successful mediation involve:
- The right mediator.
- Attendance of the right people with the knowledge and authority to settle.
- The level of information exchanged.
- Current needs and interests.
- Whether a trial or arbitration has been scheduled
- The commitment of the parties and their attorneys to prepare for and participate in the mediation.
There is no set formula for assuring that a mediation may succeed. Mediation can be effective anytime. Most mediations occur after a claim has been filed and some exchange of information has taken place. The decision as to whether or when to mediate will vary with each case.
The statistics from the major institutional mediation services indicate that mediation is most successful when the dispute is in its early stages before the parties have expended their resources on combat, which resources could have been used for settlement. It is important to realize that successful mediation involves a good faith exchange of information between the parties.
The mediation should take place at a neutral site. The location is often arranged by the mediator. For mediations involving out of state participants, a value judgment will need to be made concerning the time and expenses that will be incurred. Always keep in mind that most mediators are available to travel to a neutral site to conduct the mediation.
WHY DO MEDIATIONS FAIL?
Not every mediation will be successful. The reasons for a failed mediation vary. One or more of the common elements for a successful mediation may be missing. One of the parties may be too emotionally stuck. The mediator may not have been the right person to get the job done.
IS MEDIATION CONFIDENTIAL?
Yes. All mediation proceedings are confidential. Documents created for the mediation are also confidential and may not be introduced during a subsequent trial if the dispute is not settled. Likewise, the mediator should not testify or be compelled to testify at a subsequent trial. If the dispute subsequently goes to trial, the judge who is assigned to the case is not told the identity of the mediator or given any information about what took place during the mediation process.
IS THE MEDIATOR LIKE A JUDGE?
No. The mediator does not decide who is right or wrong, neither does the mediator make findings of fact, or rules on issues of law. The mediator has no authority to impose a settlement on the parties. Instead, the mediator helps the parties to jointly explore and reconcile their differences. If mediation does not generate an agreement, the parties do not lose their right to trial, and either side is free to sue or propose binding arbitration.
WHO DO I BRING TO THE MEDIATION?
The following is a brief summary of those who would be expected to attend the mediation:
- Legal counsel: Yes, if represented.
- Client: The person with authority to settle and others with knowledge of the facts.
- Experts: Avoid having experts involved. They are hired to support your position and often complicate the process where settlement options are being discussed. Experts may be helpful to describe technical information.
- Documents: Less is better. Summaries, graphs and charts are useful.
- Others: Associates, secretaries or assistants are discouraged. If there is a need, make advanced arrangements so all parties approve and understand their respective roles.
- Other information requested by the Mediator.
HOW LONG DOES THE MEDIATION LAST?
Mediation is a very efficient process that saves time and money. While the length of mediation will vary in each case, the majority of mediations are completed in eight hours or less. More complex cases, however, will often times require more than one day to mediate. Also, since the mediation process is voluntary, either party may leave at any time if they wish, and the mediator can terminate the meeting if it does not appear to be working, although this is very rare.
WHAT SHOULD I WEAR TO THE MEDIATION?
Dress comfortable, but respectable. Mediation is informal and the parties should feel comfortable.
WHAT HAPPENS IN MEDIATION?
Every mediation is different and unique. Experienced mediators will use a format that is best suited for the particular dispute. Generally, the process of mediation falls into six stages:
- Mediator’s Opening Statement. After the parties are seated, the mediator will introduce the parties, explain the goals and rules of the mediation and likely encourage each party to work jointly toward a settlement.
- Parties’ Opening Statements. Both parties are allowed time to explain, in his or her own words, what the dispute is about, how they have been affected by it, and to present a few ideas for resolving the dispute.
- Joint Deliberation. The mediator may attempt to get the parties talking directly regarding what was said in the opening statements. This allows the mediator and the parties time to determine what issues need to be addressed.
- Private Caucuses. This is the guts of every mediation. The private caucus is a chance for both parties to meet privately with the mediator to discuss the strengths and weaknesses of his or her position, and brainstorm ideas for settlement. The mediator may “caucus” with each party once or several times if needed.
- Joint Negotiation. After private caucuses with each party, the mediator may bring the parties together again for direct negotiation.
- Wrapping it Up. This is the end of the mediation. If the parties have reached an agreement, the mediator will likely summarize the main provisions, verbally, while the parties listen. The parties will them memorialize their settlement by drafting and signing a summary of the settlement which cover all material settlement points. This document is legally binding and enforceable by the courts. Counsel for the parties will later prepare more detailed documents consistent with the summary agreement signed at the mediation. If no agreement is reached, the mediator will review the progress made by the parties in the mediation and advise each party of their options, such as meeting again later for further mediation, going to arbitration or going to court.
HOW CAN I ARM THE MEDIATOR?
Before the mediation begins, legal counsel and the mediator can work together in determining how much information should be made available in order to give the mediation the best chance for success. Consider if you want to exchange position statements with counsel or submit them as confidential statements to the mediator. You may use a hybrid approach such as exchanging position statements and providing the mediator with a confidential summary of strengths, weaknesses and objectives. In your confidential discussions (not in your position papers) share with the mediator the personality traits of the parties as well as hurdles that need to be overcome.
HOW MUCH SHOULD THE CLIENT TALK?
The mediation process should be client friendly. However, during the opening joint session, it is best to keep comments from the parties down to a minimum. As in every case there are exceptions. Counsel should work on the level of client participation as part of the mediation preparation. While the attorneys play the central role in litigation proceedings, the clients, as a general rule, should be proactive in the confidential caucus sessions.
It is important and central to the success of the mediation process to open up a dialogue of positions and interests. The “rambling client” can provide spontaneous information in a safe and confidential setting that will be useful to a successful resolution. There is a point where counsel may have to intervene to keep the client focused or get the client back on track. This is the part where you make your money as a “counselor at law.”
WHAT DO YOU DO WHEN YOU ARE ALONE WITH YOUR CLIENT?
Little is said about what you do when the mediator is in the other room meeting with the opposition. These moments may provide for some awkward and pressure cooker exchanges. However, a lot can be accomplished by using this time productively. Here are a few suggestions for legal counsel:
- Let your client vent.
- Evaluate strengths and weaknesses.
- Discuss real interests and objectives.
- Discuss the case budget.
- Analyze the options if the mediation fails.
- Try out new ideas for settlement.
- Go for a walk.
- Be sociable. Encourage your client to talk about something that interests him or her.
WHO MAKES THE FIRST MOVE?
This question assumes there is some advantage for one party to move the process forward. This one is a non-issue. Many items need to be discussed before offers begin to be put out on the table. A good mediator will take the time and make the effort to understand the position and interests of each party. The mediator will know when to start the process of making offers. Usually the mediator will seek a consensus on the easy issues and work toward an agreement on more difficult matters thereafter.
HOW DO YOU PREPARE OFFERS AND COUNTER-OFFERS?
There comes a point when the mediation shifts from information gathering to negotiation, and the exchange of offers and counter-offers. Rapport and timing are crucial. Negotiation is a back and forth process that should not be short circuited or rushed. Begin with the end in mind. Be goal oriented, not advocacy minded. Remember your objective: to achieve a better alternative to a litigated result.
A first offer should not be a final offer. It should be offered in good faith and not treated lightly. You are not buying a used car where the parties start out at opposite ends of the spectrum and meet in the middle. There is a certain chemistry to the mediation process that you should be on the look for. When you discover it – seize it and use it to serve your client’s interests. Remember, you are working with human beings who come packaged with their own set of emotions and views. Leave yourself room to negotiate, but don’t discourage the other side from continuing with the process by being unreasonable or unrealistic. By all means, be realistic.
Keep movement going; movement that brings the parties closer to resolution. Encourage your client to make concessions that are important to the other party but have limited value to your cause. Don’t overlook your client’s concerns. Here is where listening is essential to your success as an effective mediation advocate. By all means, include all elements that need resolution in your offer. It is counterproductive to add new demands late in the game. In fact, it is a recipe for disaster.
Stay flexible. Avoid taking the “line in the sand” approach. Work with the mediator in breakout or side caucuses with opposing counsel or with the parties outside of counsel’s presence. Remember, the mediator is the only one who knows what is going on in all of the rooms. Place some trust in his judgment as to what is and is not a realistic position to take. Trust in the mediator. The mediator is the one person who has the best sense as to where the negotiation is going; how much flexibility the other side has; can best keep the ball rolling and has an idea about what it is going to take to achieve closure to the dispute.
Always keep something in reserve to “sweeten the pot” and to complete the deal. Agree to pay for settlement document preparation, to write letters of support or apology, to do future work, trade something for something, or even pay a portion of the mediator’s fee (last resort).
WHAT HAPPENS WHEN YOUR CLIENT DRAWS THE LINE IN THE SAND?
When this occurs, that means your client is either frustrated or negotiations have reached an impasse. Determine which is the case. If the client is frustrated, relate to him or her the progress that has been achieved thus far. Tell the mediator that you would like to speak with your client alone. Remind the client of what is likely to happen if a settlement is not achieved. Talk about how much the litigation process is going to cost in terms of money, client manpower, and time. Analyze the likelihood of different outcomes.
Talk about new ideas. This is the time to get creative. Add a new twist to old information or ideas. Above all, counsel should remain independent. Keep a sense of humor. Tell your client what you think would be a good deal and what you think should not be accepted. The client is the boss, but it is the attorney’s duty to remain independent and objective.
WHAT HAPPENS WHEN YOU SETTLE?
Congratulations! You are the owner of a brand new settlement. Keep the client in the room. Sit down with opposing counsel and craft a settlement agreement that covers all major points. Spend some time and don’t rush. State in the agreement that there will be more formal documents to follow consistent with the terms of your settlement agreement. Designate who will prepare the final documents, and outline the dates by which all tasks are to be completed.
Provide a remedy for default and a dispute resolution mechanism. Include terms for who pays what costs, what will be done with interest and who will be responsible to pay for attorneys’ fees.
Have both parties and counsel date and sign the settlement agreement and give both a copy. It is important to be timely and accurate in the preparation of the final settlement documents. Remind your client that settlement remorse may set in the next morning. But be quick to emphasize that he or she will experience a sense of relief and freedom to work on other matters other than the case at hand.
WHAT HAPPENS IF A PARTY FAILS TO COMPLY WITH THE AGREEMENT REACHED AT MEDIATION?
No party will be bound by anything said or done at the mediation unless a written settlement is reached and signed by all necessary parties. If a settlement is reached, the agreement must be in writing. When the agreement is signed and approved by the appropriate parties or authorities for all parties, it will be binding. An agreement reached during mediation is enforceable in court just like any other settlement agreement.
Mediation is one technique to settle disputes. Mediation is not appropriate for every dispute, but it has the advantage of allowing the parties to choose the process and outcome rather than have it determined for them by a judge, jury or arbitrator.
Mediation is designed to give the parties a great deal of control over the outcome. The parties are given an opportunity to confidentially express their interests and values without compromising their positions while in the presence of other parties. Mediation provides a sense of involvement and control over the mediation process and the terms of a settlement.
To be successful in mediating, the parties must understand the mediation process, the merits of their case, and strategies to obtain a good result. In the end the client owns the mediation process. An informed client can best use and realize his or her objectives in seeking a resolution that is a better alternative to a litigated result imposed by judge and jury.
Kent B. Scott is a shareholder in the law firm of Babcock Scott and Babcock, located in Salt Lake City, and serves as a member of the American Bar Association’s Construction Litigation Committee.