The Early Bird Catches …
The benefits: Successful early mediation can save time and legal fees, enabling parties to move forward with business planning, without the uncertainties of pending proceedings.
Resistance: Counsel have unrealistic outcome expectations and are often blinded by the narrative that they have developed, or expect that document production and depositions will expose weaknesses in the other’s case.
Success: Early mediation success is maximized by using evaluative mediation to give parties a more realistic view of their potential for success in the matter.
Early—meaning pre-discovery—mediation has been much touted by plaintiffs in complex commercial litigation, who are eager to use available insurance proceeds for settlement, rather than watching the funds be frittered away in defense costs. Similarly, early mediation is strongly supported by insurance carriers, who prefer to lessen their defense cost obligations and to facilitate a settlement that may result in some policy savings for them. General counsel likewise favor early mediation, as a means by which a corporate party can avoid the terrible toll that prolonged litigation takes on the time and resources of corporate personnel who could more usefully be deployed in advancing the company’s core business goals. In addition, there is a general perception that early mediation affords a mechanism for bypassing the build-up of litigation antagonisms that so often create significant emotional obstacles to settlement.
With such widespread support and so many good reasons to use it, why then is early mediation not particularly common in complex business disputes, and why is it so frequently unsuccessful? There seem to be parallel factors at work. Plaintiffs’ counsel, who have spent considerable time creating the story line of a complaint and who accordingly have “heard” only their own side of the story, are often blinded at the outset of a matter by the compelling narrative that they have developed. The simplistic notion that someone must be responsible for this mess and that innocent plaintiffs must be made whole is a commonly heard refrain. In the very early stage of a proceeding, plaintiffs’ perception of the facts as they see them and of the equities, again as viewed through their lens, tend to be predominant, with what plaintiffs may perceive as legal niceties playing a lesser role in their early analysis of the matter. This frequently leads plaintiffs’ lawyers to have unrealistic outcome expectations that are not conducive to early settlement.
For their part, except in those instances in which they begin with a keen awareness of the client’s exposure, defendants and their counsel typically have an almost diametric stance. No matter how unpalatable the facts and the equities may appear, defense counsel often start out with, and communicate to their clients, a firm belief in the strength of their various legal defenses. In particular, business litigators are trained both to believe in the broad protection afforded by the business judgment rule in the absence of fraud or other willful misconduct, and to rely on their clients’ lack of scienter. Moreover, defense counsel almost always expect that document production and depositions will allow them to expose important weaknesses in the plaintiffs’ case. It is not surprising that when the parties and their counsel start at such opposite ends of the spectrum, they often find themselves unable to bridge the chasm until the standard litigation process has played out, with the usual attendant expense, through discovery and the dispositive motion stages.
UNDISPUTED ADVANTAGES OF EARLY SETTLEMENT
There is a plethora of greatly divergent statistics as to settlement rates at different stages of litigation, with early mediation proponents citing studies supposedly showing that earlier mediation enhances settlement and other commentators advancing contrary views. It is not clear that there is any real consensus, and even if there is, it may be dependent on the type of matter. What seems indisputable is that successful early mediation can greatly reduce both the legal fees that would otherwise be spent on major litigation or arbitration, and the time commitments and distractions of such proceedings. An early settlement also brings outcome certainty at a much earlier stage, thereby enabling parties to move forward with their business planning and with the implementation of those plans without the uncertainties that pending proceedings often bring. At the same time, it is equally axiomatic that no one wants to settle foolishly, without sufficient ability to gauge realistically the risks and rewards that lie ahead. How then can these often-conflicting principles be aligned?
INFLEXIBILITY AND UNREALISTIC EXPECTATIONS
When early stage mediation fails, it is most often because both sides’ unrealistic expectations impede or altogether prevent them from making a more objective case assessment. But this is inevitably the failing of the mediator as well. In the less commonplace circumstance in which one side enters the discussion with knowledge of an as-yet-undisclosed important flaw in its case or vulnerability in its defense, the mediator can serve merely as a facilitator to the settlement that will likely ensue. An experienced mediator should recognize that, except in those unusual circumstances, early stage mediation is not likely to succeed unless the participants can be moved from their initial perceptions of their respective case positions. Thus, a critical component of this type of mediation is the identification of a small set of specific facts and issues that will be outcome determinative in whole or part. Unless the mediator is prepared to assist the parties in that process, even to lead them down that path, early stage mediation will rarely succeed.
It is not enough, however, merely to help, or even to coax or to prod, the parties to a point at which they have identified the few critical facts and the one or two legal rulings that they view as crucial to their success in the matter. There are two possible paths forward. Both involve a mediator’s moving from the mediation comfort zone of nonjudgmental facilitation into a more proactive role.
The more traditional route entails having the mediator work with the parties to arrive at an agreed on plan for how the key facts and issues could be quickly resolved. The plan might entail a very abbreviated first wave of discovery, with very limited, targeted document production and no more than one or two individual (not party representative) depositions per side. The parties might also agree to very limited motion practice focused on the identified issues. While this avenue is not much of a stretch for a mediator, it requires counsel for both sides to move into what is likely to be unfamiliar terrain for them. Even if they are ready to do so, this approach also requires cooperation from a forum that is willing to countenance a staged approach to discovery and to motion practice. An arbitral tribunal may have the requisite flexibility to accommodate and even to endorse such an approach (particularly because there may be only limited discovery available in any event, depending on the arbitration seat and on the arbitration rules that are being utilized). By contrast, a judicial forum may be inherently less flexible. Thus, unless there is good reason to believe that the forum will welcome a phased approach designed to encourage early settlement, having a mediator go down this path may not be productive.
Due to this uncertainty, which may not be able to be timely dispelled, the better way to maximize the likelihood of success of early mediation is to seek out a mediator who is specifically asked, and who agrees, to provide a nonbinding evaluation of the critical facts and legal issues. In this scenario, each side would share with the mediator, solely for his assessment purposes, the information that the mediator needs to know in order to make a factual and merited assessment. The mediator cannot communicate any of that information to the other side. Rather, once he or she has been briefed by both sides, the mediator then separately advises each side what he or she believes will be the likely outcome of the credibility and/ or legal issues that have been discussed and what the basis for that conclusion is. With that neutral evaluation of the key facts and issues, parties can sometimes recalibrate their own thinking, which can in turn lead to a different settlement posture.
In summary, the likelihood of success of early stage mediation is maximized by the use of an evaluative mediation technique. Again, this requires the up-front agreement of both the parties and the mediator. For obvious reasons, it may also affect the choice of mediator; if an issue evaluation will be sought as part of the mediation process, it will generally make sense to choose someone familiar with the types of issues involved. There are many mediators who would not be comfortable with and would not agree to a procedure that requires evaluative work on their part. For parties who really want to settle early, it is worth the effort to search for a mediator willing to proceed in this fashion.
RESOURCES AND FURTHER READING
CPR Model Early Dispute Resolution Process Overview/Rollout; bit.ly/NX0d5m.
CPR Early Case Assessment “ECA” Toolkit (2010); bit.ly/NX0d5m.
John Lande, Kurt L. Dettman and Catherine E. Shanks, Planned Early Dispute Resolution User Guide(ABA 2013); bit.ly/1iwcXJH.
Richard J. McAdams, “A Case for Early Mediation,” The Recorder, April 9, 2012; bit.ly/1fn1ZTi.
John Lande, “The Movement Toward Early Case Handling in Courts and Private Dispute Resolution,” 24 Ohio State J. Disp. Res. 83 (2008), bit.ly/1cNgkOi.
Craig McEwen, et al., “Determining Whether To Initiate A Mediation Program And How Its Structure Affects Results,” in 1 Mediation: Law, Policy and Practice §14:3 (West 2013–2014).
Laura Steinberg is a partner in the litigation department of Sullivan & Worcester, LLP. Her practice consists of federal and state civil litigation and arbitration throughout the United States, with an emphasis on complex regulatory and fiduciary issues.
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