As bankruptcy cases of all types continue to be filed in record numbers, the use of mediation is increasing. This trend is likely to continue. This article focuses on the concepts that a lawyer must know and actions that he/she should take to avoid or overcome an impasse in mediation. The obstacles to reaching a settlement vary with each case. Some are obvious, such as the facts and law governing the dispute, the history of the parties, business and personal relationships, the personalities of the parties and counsel, the justification and righteousness of positions, the relative economic and social status of the parties, the experience and talents of counsel, the style of the mediator and the fear of signaling the wrong message. Other barriers to the settlement might be less obvious. These might include gender, sexual orientation, race, religion and the cultural backgrounds of the parties and counsel. To these concerns we may add the complications of conducting a live or remote mediation during this time of COVID-19.
An effective attorney must be mindful of these challenges. Avoiding an impasse is not happenstance; it is the product of hard work. [1]
Understanding the Process
Mediation is the process of resolving a dispute between two or more parties through mutual accommodation. Classical mediation was voluntary, but today, mediation might be voluntary or involuntary. In many districts, bankruptcy judges are authorized to order mediation, so it is possible that a lawyer may find himself/herself ensnared in a process in which he/she is an unwilling participant.
Mediation is not litigation by other means, and it is not a way station to trial on the merits. Winning is not the goal of mediation; instead, the objective is resolution through accommodation. To be an effective advocate in a mediation, a lawyer must be willing to balance the interests of the client against the interests of the opposing party. This begins with grasping the distinction between a party’s legal position and his/her personal and economic interests.
Positions and Interests
Litigation is position-based. [2] A position is a stance, a posture taken on an issue in an adversary proceeding or contested matter. It may be a claim or a defense or a value placed on damages. A position may appear to be an objective statement, but it is usually a subjective conclusion based on the applicable law.
However, an interest is very different. An interest is the economic or personal stake that a party has in the outcome of a case. It is based on needs; a position is premised upon wants.
Litigators translate client needs into desires, then joust in the arena of want. In mediation, lawyers work in the realm of needs. Settlements are more likely to occur when the discussion turns from wants to needs. Accepting this idea and conveying it to the client will help counsel prepare the client to think in terms of needs as opposed to wants. The client who understands the difference between wanting X and needing only Y will be open to accommodation — and bringing the client to this understanding is the lawyer’s job.
Selecting the Mediator
Selection of the mediator will involve cooperating with opposing counsel. The selection process might be straightforward, or it might become a test of wills and a jockeying for position. The best way to avoid getting bogged down in the selection process is to agree upon a common list of acceptable candidates and conduct joint interviews.
Choose a mediator with knowledge of the law, an acceptable style and adequate experience. People skills are essential. Knowledge of the applicable law is important. Wisdom is another factor to be assessed. Will the candidate earn trust from all sides? Is the candidate a sitting or retired judge (and will that status help or hurt the process)? How will the mediator respond when the parties reach an impasse? Will he/she be able to evaluate claims and defenses and help formulate a settlement without losing the confidence of anyone in the room?
An interview will enable counsel to narrow the field of qualified candidates and assess their abilities/styles. Remember, barring a conflict of interest, an acceptable mediator favored by another party should not be a problem. Going with an opposition’s pick is not a sign of weakness; it could advance the process.
Preparing Yourself
Preparation is essential. Preparation for mediation means knowing your case to the same extent as you would present it in court. Also, know your opponent’s case. Prepare a checklist of every factual and legal issue. Have a realistic feel for the most likely outcome of every issue at trial, and share this assessment with your client. Commit yourself to the mediation as if it is the primary method of dispute resolution and not a weak alternative to adjudication. Learn what the actual needs of the other party might be by gaining knowledge of his/her/its personal and business circumstances. Come to the mediation with knowledge of the industry and the opposing party’s position in the market. Learn what you can about the negotiating style of opposing counsel. These bits and pieces will help you avoid an impasse by distinguishing between bluster and substance. Strive to be the smartest person in the room — and the one with the level head.
Preparing the Mediator
Give the mediator a concise statement of the law and your list of contested facts and legal issues, with copies of pertinent cases and applicable statutes. Also give the mediator a confidential statement of the history of settlement discussions and your notion of a reasonable result.
Insist upon at least one plenary pre-mediation telephone conference. Ex parte communications are not prohibited. Contact the mediator whenever you have questions or concerns, and invite the mediator to contact you and opposing counsel to do the same.
In all your dealings with the mediator, your objective should be to impart an understanding of the legal positions and the actual needs of each party. This information will enable the mediator to evaluate offers and counteroffers upon the merits of the litigation and upon what really matters to each party. With this knowledge, the mediator will be prepared to share his/her thoughts on possible outcomes with each party when the negotiations falter. These discussions might help avoid or help overcome an impasse. Some mediators might be willing to propose a term sheet for settlement or “arbitrate” a result when faced with a stalemate.
Working with Opposing Counsel
Insist that all participants, including each party, counsel for each party and the mediator, sign a mediation agreement containing the terms of the mediator’s engagement, scheduling, venue, confidentiality, applicable law, the nature and extent of mediation submissions, and any other provisions governing the mediation. Work with opposing counsel to narrow the issues and discuss hot spots. It is also a good idea to join with opposing counsel to draft a settlement agreement or term sheet before the mediation.
When a resolution is reached, fill in the blanks by comparing your checklist of issues with your opponent’s list. This will help the parties to catch nettlesome details that might otherwise be overlooked. Signing a term sheet or settlement agreement on the spot is a good way to avoid “buyer’s remorse.”
Timing
The timing of the mediation should be a choice for counsel. Early-intervention mediation is a good way to avoid the expenses of litigation, including the cost of discovery, but mediation prior to discovery often results in impasse due to a lack of knowledge of the facts. Informal discovery may suffice but will depend on the circumstances of the case. Do not go into a mediation without a thorough knowledge of the facts thinking that you will learn what you need to know during the mediation. Remember that the rules of confidentiality might limit your ability to use in court what you learn in a mediation.
Mediation must not be too late. There comes a point when the parties are committed to their positions and the lines are drawn, even when their interests might be better served by mediation. This, too, may result in an impasse. Finding the timing sweet spot will enhance your chances for a fruitful mediation.
Managing Client Expectations
As previously discussed, clients engage lawyers to pursue their wants and needs. Lawyers are trained to convert wants and needs into positions expressed as claims and defenses. Needs (i.e., a party’s actual economic and personal interests) are often subordinated to wants in legal positions. So, it should be no surprise to counsel after months of litigation — and thousands of dollars in legal fees — when a client exhibits a righteous belief in his/her claims or defenses. This might make it difficult for a lawyer to refocus client attention on actual economic and personal needs. A client imbued with a sense of entitlement might view his/her lawyer’s recommendation for mediation as a lessening of the lawyer’s commitment, which might have an adverse effect on the attorney/client relationship.
Damage control is essential if trust is to be restored. Education is the answer, but to be effective, the learning process should begin before the parties enter the mediation room. Impasse looms when the attorney/client relationship is damaged. The chances for settlement are enhanced when the client understands the true extent of his/her interests and the pitfalls of litigation.
The Mediation
Every case is different. Some situations allow for plenary sessions. Others require the parties to be isolated and connected by the mediator’s shuttle diplomacy. Opening statements by counsel might be helpful, but often they are unnecessary. Opening statements by clients are helpful if it appears that speaking in a confidential environment will be cathartic. This is rare in commercial cases, but opening statements by clients in consumer cases might bring understanding to the other side.
There is no secret sauce for conducting a mediation. Let the mediator set the tone and control the process. Take your time. Do not be concerned with signaling weakness. Who goes first in pitching an offer is not important. Concentrate the discussion on interests rather than legal positions. Be candid with the mediator and your opponent on whatever limitations you may have. Tackle one issue at a time. Start with the easy ones. Do not get stuck in a rut; be creative. Take breaks when things are not going well. Talk about common interests such as sports or vacations to ease tensions. Spend time in caucus groups with common-interest-holders. Talk to the mediator privately. Chat with opposing counsel privately. Let the clients talk by themselves if they express the desire to speak to each other without counsel. Keep your client informed at every step.
Remain civil throughout the process. Rancor leads to impasse. Being polite to a difficult opponent is not easy, but it is necessary. Lawyers must set the example for their clients. Grandstanding will not earn points with the mediator and it will not lead to a settlement. Do not be the cause of a standoff. If tempers begin to flare, leave the room until things calm down.
Let the mediator attempt to mitigate the differences between the parties. A good mediator will understand where each party should be if a settlement is to be reached. If the mediator cannot bridge the gap, salvage what you can by reducing the number of issues to be litigated.
Conclusion
The hard work of avoiding an impasse and crafting an outcome occurs before the mediation session begins. Remember that mediation is defined as the attainment of a resolution through mutual accommodation. Be willing to accommodate the goals of the opposing party without compromising bedrock principles and your client’s needs. Do not be dismayed if a settlement is not reached. Some cases must be tried.
[1] Many resources are available for training in mediation, including short and long courses and written materials for bankruptcy lawyers. See, e.g., Leslie A. Berkoff & John G. Loughnane, Bankruptcy Mediation (ABI 2016). This book, available for purchase at store.abi.org, contains concise essays on many aspects of mediation written by several leading bankruptcy mediators.
[2] Some concepts addressed in this article first appeared in another article. See Hon. Louis Kornreich, “Recipe for Success: Tips and Techniques for a Mediated Settlement,” Me. L. Rev. (June 18, 2020), at 18.
Reprinted with permission from the ABI Journal, Vol. XXXIX, No. 11, November 2020.
The American Bankruptcy Institute is a multi-disciplinary, nonpartisan organization devoted to bankruptcy issues. ABI has more than 12,000 members, representing all facets of the insolvency field. For more information, visit abi.org.