“People began to feel that they could consult with me with some safety and without the danger of being involved needlessly in long and costly litigation in court….I suppose that they were more reasonable than other clients, for they usually settled their differences out of court.” – Calvin Coolidge
Business disputes are common. Merchants and customers, employers and employees, tenants and landlords, and business partners disagree about many things. Whether they maintain a productive business relationship going forward depends on how they resolve those disputes.
In the United States, most parties and attorneys tend to resolve and exacerbate disputes through litigation. This is an adversarial process that often ends relationships-usually after significant investments of time, expense and energy. Negotiations may be successful, but sometimes, parties reach an impasse. Mediation is assisted negotiation. Parties engage a mediator-a professional trained in conflict resolution-who facilitates discussion, attempts to defuse hostility and empowers the parties to reach their own solution.
Mediation has several advantages over litigation. Mediations are private and confidential. In contrast, litigation is part of the public record. The media and competitors can attend court hearings and research documents filed at the court. Thus, parties seeking to avoid publicity would probably favor mediation.
Litigation is an adversarial process, while mediation is collaborative. Mediation’s purpose is to reach a binding, workable agreement. Participation in mediation is voluntary, and dissatisfied parties can walk out of the proceedings. If one party sues the other, the defendant must participate or lose by default. In mediation, the parties can draft an agreement tailored to their specific needs, whereas a court issues an order that may frustrate both parties.
Mediation is less formal than litigation. The rules of civil procedure and evidence do not apply. Thus, in comparison with litigation, mediation can be scheduled quickly, handled more efficiently and settled at lower cost. A preexisting contract or court rule may require parties to mediate in good faith before litigating. Also, a party may voluntarily initiate a proceeding at a mediation center. The party submits a form that briefly describes the claim, remedy sought and amount at issue. The mediation organization contacts the other party and attempts to arrange a proceeding.
Requesting mediation does not guarantee that the other disputant will participate. Also, it is possible that mediations will not end with an agreement. Nevertheless, by participating in good faith, one has little to lose. If a party rejects mediation, it will almost assuredly result in a lawsuit or arbitration. (In arbitration, an arbitrator will decide the dispute, and the result is binding.) Some disputes are settled before mediation, and many mediated disputes end successfully.
While mediation is informal, it follows a basic structure. The mediator and parties make opening statements. Then, the mediator asks questions and facilitates a discussion to narrow or expand the issues. Later, the mediator will likely separate the parties and speak with them privately in caucuses. In these private sessions, the mediator attempts to ascertain each party’s bottom line and bring its respective expectations into line with reality. He will try to educate the parties about the consequences of not reaching an agreement. By helping the parties understand the interests that underlie their positions, the mediator prompts the parties to negotiate, collaborate and suggest solutions. He may suggest his own terms too.
If the parties agree, they draft a written contract. Parties can bring legal counsel to the mediation to help them articulate their interests and draft the contract. If counsel is not present, the parties can condition their approval of the contract upon their lawyers’ review. In order for the contract to bind the parties, they must have the capacity to contract. The terms must be sufficiently definite. Also, each party must provide consideration, or something of value (such as an act, forbearance or promise). A workable contract should be detailed and explain who must do what, where, when and how it should be done.
Neither the mediator nor the contract assigns blame, fault, liability or guilt. Reputation and integrity are not at stake. Thus, parties save face. If either party fails to perform its respective contractual obligations, the other can sue in court for breach of contract and seek damages, performance or other appropriate remedies.
Disclaimer: This column is not legal advice.