A better way Featured

8:00pm EDT May 26, 2009

For many business owners involved in a dispute, their first inclination is to file a lawsuit. But agreeing to mediation instead could save you enormous amounts of time, money and effort.

“It’s a rare case that wouldn’t benefit from some form of mediation,” says John Mark Jennings, a partner in the Orange County, Calif., law firm of Shulman Hodges & Bastian LLP. “CEOs are surprised by the amount of time and effort it takes to prepare for litigation and take a case to trial — the business interruption aspect of litigation is real, significant and permeates everything the company does. Critical employees will be consumed by time with attorneys, searching for and reviewing documents, and days away from the office at depositions and trial. An early mediation is a great alternative that cuts to the root of the dispute and, hopefully, avoids the need for protracted litigation.”

Mediation takes place between the disputing parties, their attorneys and a mediator. Unlike arbitration, in which the arbitrator’s decision is binding, there is no settlement in mediation unless both parties agree.

Smart Business spoke with Jennings about what is involved in mediation and what benefits companies can see from this form of alternative dispute resolution.

Why would someone agree to mediation instead of going to court?

Usually, the parties agree to mediation because they think the likelihood of them being able to settle the case is better if everyone can sit down and understand each other’s position, find out what is really at issue and see if there is a way to address it informally. It is a reality of mediation that each side in a mediation often leaves the process feeling somewhat disappointed because they either gave too much or didn’t get enough or they were pushed into a place they didn’t want to go. Nonetheless, the settlement still happens, and the right thing probably happens. It doesn’t take too much pushing from the attorneys for the parties to understand that the costs and risks associated with litigation are much greater than when resolving the case at mediation.

When is it a good idea to agree to mediation?

There are two times in a case when mediation works best — one is before any work is done on the case (i.e. before discovery is taken, before attorneys’ fees begin to mount). Mediating early in the case will often allow the parties to come together to understand the dispute and try to reach a business resolution. Nothing gets people’s attention like a lawsuit, so as soon as a case is filed is a great opportunity to consider mediation. Later on, when the case is headed to trial and the company has spent a tremendous amount of money on experts, lawyers and trial preparations, settlement often becomes difficult in that the parties are by that time well vested in their respective positions. At that point, you will likely be reluctant to concede all the points that you’ve spent so much money developing.

The other time to attempt mediation is just before the major push for trial. At that time, mediation really becomes beneficial because both sides are about to pay their experts’ retainers, conduct the final rounds of discovery and dedicate the time to prepare for trial. All those endeavors can be very expensive.

What advice would you give a CEO going into mediation?

Follow the advice of your counsel and come in with an open mind. Most importantly, the CEO needs to come to mediation with the necessary authority to resolve the case. If either side requires approval from someone outside the mediation to settle the case, then the mediation often becomes a waste of time. The CEO should come to mediation with the idea that if the parties get within certain settlement parameters — whatever your objectives are for the case — they should be prepared to settle.

CEOs should take a business approach to mediation and think of the negotiations as the means to craft a business solution that provides or maintains value for the company. CEOs are accustomed to being in charge. Often, however, one side does not get to dictate the end result in mediation. Rather, mediated resolutions are often thought of in terms of the compromises necessary to reach a positive business result. All parties have to be willing to listen and concede the truth that your opponent will likely be facing the same decision points for his company.

Mediation requires you to make good economic decisions. Often CEOs find that mediation can save their companies from the disruption, cost and angst of years of litigation.

What are some benefits of mediation?

Mediation is a collaborative process that can be used in any way the parties desire to attempt to reach a resolution. Conversely, litigation is a more rigid process where the people involved have much less control because they are then subject to the needs of the court, the lawyers, juries, etc. Parties to mediation, however, can do anything they want to attempt to reach a resolution.

If the CEO wants to preserve a business relationship with his opponent or has an interest in its ongoing financial viability (e.g. critical vendors, lenders, employees, etc.), mediation may be a much better solution than causing their opponent the drain of protracted litigation.

Mediations often allow for a calmer, more thoughtful means to resolve disputes as opposed to the inherent adversarial nature of litigation. While both means are effective in their own ways, CEOs will certainly want to be mindful of nonlitigation options for conflict resolution.

John Mark Jennings is a partner with Shulman Hodges & Bastian LLP. Reach him at jjennings@shbllp.com or (949) 340-3400.