How to use mediation rather than litigation to resolve business disputes

Civil litigation very often is mediated, sometimes twice, so that parties in conflict can avoid fighting out a dispute in court. 

“Businesses should think long and hard about moving forward with litigation without first trying to reconcile their differences through mediation,” says David Schaefer, Esq., a principal at McCarthy, Lebit, Crystal & Liffman Co., L.P.A. and a member of the National Academy of Distinguished Neutrals. “It’s a tried-and-true process that’s inexpensive when compared to the cost of litigation. And it’s a process that can save companies both time and money.”

Smart Business spoke with Schaefer about the mediation process and how it can be used in place of litigation to resolve business disputes.

When is mediation a good choice for businesses in dispute? 

Mediation typically is undertaken after a dispute has been ongoing for some time. At the very beginning of a dispute, the ability to resolve it through mediation is lower than after it has gone on for, say, a few months — statistics on early mediation indicate the settlement rate pre-lawsuit is lower than during the lawsuit. Still, there are a good number of mediations that occur before a lawsuit is filed, and some of those pre-lawsuit mediations work out, but not often. 

What is involved in the mediation process? 

Typically, the process is initiated by one party’s lawyer. A conference call with attorneys on both sides follows to discuss the procedural details: when, where, who will attend, the written materials the mediator would like to receive from the parties before the mediation, and the cost. 

The parties in conflict, along with their lawyers, meet at a neutral location — usually an office — where they’re split into separate rooms. The mediator goes from one party to the other getting information that will be used to find a resolution to the dispute. 

How can the parties be sure each is negotiating in good faith?

If one side is using mediation as, say, a means of inexpensive discovery, it becomes apparent quickly — within a couple hours of the start of mediation. But that doesn’t happen very often.

There are also instances in which a party might be ‘hoop jumping.’ That’s when a party has either been ordered by a court to mediate or needs to use mediation for dispute resolution because of a contractual obligation and is undertaking the process with little or no intention of settling the case and just wants to clear the legal or contractual hurdle.

What obligation do the parties have to abide by the mediator’s determination?

Mediators don’t make a final, binding decision like a judge or an arbitrator. Mediators, instead, make an objective suggestion to resolve the dispute. In monetary disputes, he or she can provide a mediator’s number, a suggested amount to settle the case. If both sides reject that number, then there is no agreement, and the parties and their counsel will need to decide on a future course. If both accept the mediator’s suggestion, a deal is reached and mediation is a success. 

What can parties do post mediation if they’re unsatisfied with the outcome?

When an agreement is reached through mediation, there should be a short document written up during the mediation and signed by both parties that binds them to the agreement. That document is an enforceable agreement. If one side tries to back out, which is rare, the other party can file a complaint in court to enforce the mediation settlement agreement.

There are a variety of steps that can be taken if the parties fail to reach settlement at the mediation. Probably the most common is the parties go back to litigation and engage in discovery. Sometimes the mediator will follow up with the parties’ lawyers and see if a resolution can be reached over the phone. Other times, the parties will pause and reconsider the offered resolution, and possibly accept it if it’s thought to be better than undertaking litigation.

Insights Legal Affairs is brought to you by McCarthy, Lebit, Crystal & Liffman Co., L.P.A.