To Mediate, or Not To Mediate?

I’m a mediator of business disputes. But no one ever asks me whether or not they should mediate their dispute—by the time they get to me, they’ve decided to go ahead.

Still, I have the nagging suspicion that plenty of cases don’t get this far, because one or both of the disputants has decided not to mediate.

So, I’m going to pretend that someone—namely, you—has actually come to me seeking advice on whether or not to mediate a particular dispute.

Yes, yes, I realize you may consider that akin to asking a barber whether you need a haircut—but I’ll try to surmount the personal interest and tell it like it is.

Let’s use a specific example. Say, you’re the general counsel (or other in-house corporate attorney overseeing litigation) of Defense Inc. (DI). Paul Plaintiff (PP) has made a $10 million claim against DI for money allegedly owed PP under a contract. No suit has yet been filed.

A brief round of settlement negotiations between you and PP’s lawyer went nowhere. PP’s lawyer then suggested the possibility of mediation (which the contract doesn’t require, and the state court is unlikely to prescribe), as to which you’re now asking my advice.

Your preliminary evaluation of the case is that it’s not a slam-dunk either way. The contract language at issue is ambiguous (although the dollars at stake are clear-cut), and each side has valid arguments for its interpretation. You consider DI’s prospects to be stronger than PP’s—somewhere between 55 and 75 percent in your favor, depending on what’s contained in some documents you haven’t seen and the testimony of a key witness that hasn’t yet been taken. You’re guessing that PP’s lawyer probably considers the case a toss-up (or, more likely with the lawyer for the claimant, at least 55 percent his client’s way).

If the case gets tried, then—after much time, expense, and angst—you’ll get a ruling (subject, however, to appeal). Averaging your 55-75 percent favorable outcome prognosis, the odds are roughly two-thirds it will go your way, and DI won’t have to pay PP anything—although you’ll be out, say, half a million dollars of legal fees. But there’s also a one-third chance (or more, if PP’s lawyer is a better prognosticator than you) that DI will have to cough up the full $10 million PP is seeking—even though, under any assessment of the relative merits, he’s not entitled to nearly that much.

So, how about trying mediation before duking it out in court? The potential advantage for your client is that, if it’s successful, DI’s outlay will be keyed to what PP’s case is worth (since otherwise you won’t assent to the settlement), with your legal fees just a fraction of what a lawsuit would cost.

You’re hesitant about going down that path—concerned that it’s likely to be a waste of time and money, leaving the parties back where they started. You know how hard it is to settle a one-shot dollar dispute like PP/DI, with each side taking tough adversarial positions and no variables other than money to use as swapping material in this zero-sum game.

I concur on the difficulty (even with a mediator shepherding the parties) of locating that elusive resolution point, which will contain many fewer dollars than the plaintiff is looking to receive, but much more than the defendant wants to pay. That’s why in my mediations, if no agreement has been reached after strenuous effort and none is likely to result from further negotiating forays, I present the parties with my proposed recommendation for a compromise resolution.

It represents my assessment—based primarily on the merits of the issues involved, but also considering other matters such as relative leverage—of the most feasible number that will gain both parties’ approval. I spend a lot of time with each side separately, justifying how I got to that spot and explaining why I think they should accept it. The parties can accept or reject my proposal, but can’t negotiate it further in the mediation; both sides need to accept for there to be a deal; a rejecting party won’t be told the other side’s response; and neither my proposal nor their responses will be admissible in any subsequent litigation.

In this dispute, you have reason to hope that the mediator will see things your way, come out close to the 75 percent favorable odds for DI, and propose a settlement in the $2 to $3 million area. Sure, the mediator might not be as optimistic as you are on the merits of your case (but that in itself is a negative factor worth learning), or he may not consider it feasible to get the other side to buy into a number that’s less than, say, $4 million. Still, that result may be preferable to your side than a lawsuit.

So, in sum, here’s the comparison. If you litigate:

• The end product (which may require time-consuming and expensive appeals) will likely be close to 100 percent for one side or the other.
• The decision will be binding on the parties.
• Since a judge or jury will decide the ultimate outcome, you can never be sure how it will come out.

If you mediate:

• You can exercise some control over the outcome (in that a settlement requires your assent).
• A successful end product between the extremes will reflect the relative merits (and other aspects) of each side’s case.
• The mediator’s recommendation, while not binding, can form a useful basis for settlement if both sides want to adopt it (and will also serve as high-level "cover" for the executive who has to make the accept-or-reject decision).
• If the mediation succeeds, it’s all over (there’s no appeal process).
• If mediation doesn’t work, you still have your shot at a favorable litigation result.