Mediation

Mediation is perhaps the most common means of attempting to resolve disputes as an alternative to litigation. Because it allows the parties to decide and control their own fates, it provides a relatively painless introduction to ADR.  Further, if Mediation does not resolve a dispute entirely, it can reduce the number of disputed issues to be address in litigation (and thereby reduce its duration and cost).

Mediation is a process in which a neutral person or persons facilitate communications between the disputants to assist them in reaching a mutually acceptable agreement.  Because a mediator has no decision-making authority, he or she cannot render a binding decision on the parties. A mediator does not hear testimony or evidence, and has no authority to impose a decision on the parties. Nonetheless, even when mediation does not result in a complete settlement, it may enable the parties to narrow the scope of their dispute or decide upon expedited procedures for resolving remaining areas of conflict.

Like other forms of ADR, a hallmark of mediation is confidentiality. Statements made during mediation are not typically admissible in litigation, and the parties (and mediator) can further assure confidentiality by agreement. Because a skilled mediator can filter confidential information and frame the parties discussion in ways that enhance the likelihood of success, mediation can enable parties to reach mutually beneficial agreement in circumstances in which direct negotiations would fail.

In most cases, the benefits of mediation far outweigh its risks. The principal risks related to failed mediation are (i) its comparatively modest cost and time commitment; and (ii) its potential for educating an opponent about a parties’ strengths, weaknesses, and strategies. In most litigation, the cost of mediation would be immaterial to cost of the overall dispute. The risk of disclosure can be addressed by clearly instructing the mediator as to information that can, and cannot, be shared with the opposing party.

The benefits of mediation are, by contrast, potentially substantial. It is well known that 90 to 95 percent of litigated cases settle prior to judgment. To the extent that mediation expedites the settlement process, it can generate substantial cost savings. Further, and unlike court rulings and arbitration, mediation may enable to parties to renew or develop mutually beneficial business arrangements based on areas of common interest identified in the mediation process.

Mediation of Business Disputes

There is no  one-size fit all approach to Mediation that is suitable for all types of disputes. We believe that business conflicts generally differ from conflicts between individuals in significant ways that affect the mediation process and and a Mediator’s role in attempting to assist the parties in reaching a sensible resolution.

Most business disputes are caused by, and ultimately resolved based on, economic factors. Although business disputes, like personal conflicts, often engender heated arguments, the decision-makers responsible for settling a business dispute--- such as a company CEO and/or insurance company representative---are often removed from personal involvement in the conflict. Further, each organization will comprise numerous individuals with diverse outlooks and agendas. Those diverse individuals, however, are likely to share an interest in the economic well being of their organization, regardless of differences in their their views of a dispute.

Thus, when a dispute creates on economic factors, a rational party’s settlement decision, is likely to rest primarily depend on a computation of settlement values, as follows:

Probability of success x (recovery or costs) - litigation and opportunity costs = Settlement Value

When, and if, the parties to a business dispute reach general agreement on the Settlement Value of case, it is likely to settle. An effective mediator can, therefore, promote settlement by assisting the parties to understand and evaluate the numerous factual and legal factors that may affect their respective appraisals of a case.

An effective business Mediator can help the parties understand and factor the myriad of costs related to litigation into their settlement evaluations. Although the risks related to litigation costs may be obvious to the parties, the opportunity costs of the dispute may be less obvious. Opportunity costs may include not only the diversion of time and attention from the parties' businesses, but also lost opportunities to create or use restructure a mutually business arrangement between or amont the parties. In this respect, an effective business Mediator can assist the parties not only to identify and qualify likely litigation and opportunity costs, but also to consider and structure business arrangement that might prove mutually beneficial.

Arbitration

Arbitration refers to the hearing and adjudication of a dispute by an impartial third party or parties (referred to as neutrals or “arbitrators”) selected and authorized by the parties to resolve their dispute. An arbitrator’s authority to decide a dispute depends entirely on the agreement of the parties. Thus, in selecting arbitration as a means for resolving disputes, the parties not only select the arbitrator (or agree upon a method for choosing an arbitrator), but also determine the scope of the disputes the arbitrator will be authorized to decide and the rules or procedures to be followed by the arbitrator in deciding a matter.

As a practical matter, the parties seldom spell out the rules to be followed by the arbitrator themselves, but instead rely upon rules developed over the years by either dispute resolution organizations, such as the American Arbitration Association, the Center for Dispute Resolution, the International Chamber of Commerce, etc., or model rules for such disputes, such as UNCITRAL. Further, businesses often decide upon an organization to administer the arbitration (i.e., to assist with the selection and management of the arbitrator and dispute process), rather than to submit a matter for ad hoc arbitration by an individual arbitrator operating independently.

The basic elements of arbitration are: (1) a third-party decision-maker chosen by the parties (2) a mechanism to ensure neutrality in the decision (3) an opportunity for the parties to be heard. and (4) a binding decision. In most arbitration cases, an agreement to arbitrate is included in a clause in the contract governing the parties. Generally, mandatory arbitration clauses are held to be enforceable.

Historically, arbitration has been considered to be faster and less expensive than litigation. Further, by permitting the parties to select the arbitrator, arbitration can provide some assurance that the decision-maker will have knowledge and/or experience related to the subject matter of the dispute and avoid the risk of an unfavorable or unsuitable judicial assignment and/or jury.

Dispute Planning

As in medicine, prevention of disputes is generally far more cost effective than efforts to resolve issues after they arise. Even when disputes cannot be prevented, effective management can prevent small disputes from growing into large ones. We are available to consult with you about projects or programs that may lead to foreseeable disputes.

The key to dispute management is simply to recognize, plan for, and respond to common areas of conflict in commercial agreements.  Although the nature of predictable disputes will vary across industries, many industries exhibit a pattern of predictable conflicts that can be managed and contained.

For example, in both information technology (“IT”) and construction , disputes over the scope of work that the vendor or contractor must complete without additional compensation are common-place, as are disputes over cost increases arising from project delays.  Most IT and construction agreements require the customer to submit written requests to modify the project.  The vendor must then, within a specified period, identify any likely cost and timing effects of the request. But many such contracts fail to establish a protocol for addressing disagreements as to whether a customer’s instructions are an increase in the scope of the project (as the vendor may contend) or simply instructions related to implementation of the project’s scope.  IT and construction contracts also frequently fail to set rules for the parties in the event of delays (and the parties’ inevitable conflicting arguments as to which party was responsible).

Contract provisions that attempt to specify procedures for changing project scope or addressing other likely areas of conflict are more important for establishing expectations and for dispute management than for their legal significance.  Obviously, even in the absence of a contract term describing procedures for “change,” the parties could modify contract terms by amendment.  The value of a protocol should not, however, be understated. One of the principal reasons IT projects fail is the inability of project personnel to document, and agree upon, changes in project responsibilities or scope.  Absent consistent and complete documentation—including terms and conditions of project modification—it can be difficult, or impossible, to evaluate the project’s success or failure (at least for the purpose of assigning responsibility).

Investigatory Arbitration and Mediation

Many business disputes can, and should be resolved, through a remarkably straight-forward and cost-effective procedure that would likely cost 70 percent less than business litigation while providing higher quality decisions. Specifically, Gary Kaplan's Executive Guide explains that many business disputes should be investigated and decided by a single Arbitrator. Instead of each party retaining an attorney to investigate the facts and law and then adversarily present a version of those interpretation of fact and law to a passive arbitratror, judge and/or jury, the parties would jointly retain an investigatory Arbitrator to conduct his or her own investigation.  In the Executive Guide, Gary Kaplan refers to this approach as investigatory mediation and arbitration or IMA.

Because IMA departs from the adversarial advocacy that underlies traditional common law means of resolving disputes, it will raise some eyebrows and doubts.  The substantial benefits and cost savings afforded by IMA, however, could provide compelling benefits to modern businesses seeking to resolve good faith disputes in a cost effective, confidential, and reasoned manner.

IMA would invariably cut dispute resolution cost dramatically by eliminating wasteful expenditures on, for example, redundant factual investigation and research, discovery disputes, trials and posturing.  In the place of duplicative procedures and posturing that do little to promote quality decisionmaking, in IMA, an  Investigatory Neutral would both investigate the facts and decide the dispute based upon applicable law. Throughout the process the Investigatory Neutral would interact with the parties to advise them of progress and preliminary conclusions. The purpose of such interactions would be to enable the parties to understanding and consider their respective risks of moving forward and thereby to encourage settlement and to encourage business or other non-traditional means of resolving the dispute.

IMA would not only reduce cost of dispute costs to a fraction of current costs, but would improve the quality of final resolution and decisions, because (i) the Investigatory Neutral would be selected based upon his or her suitability (in terms of expertise and experience) for efficient understanding and resolution of the dispute; (ii) the Investigatory Neutral would have the time, resources, and incentive to obtain a thorough understanding of the relevant facts and law; (iii) The factual record would be developed for the purpose of resolving the dispute rather than to paint a party in a particular light or posture; and (iv) the parties could interact with decisionmaker rather than simply put on a show for him or hear and then await the reviews of the parties’ performance (in the form of a verdict).

A diagram of the Executive Guide's IMA process follows: