Mediating Commercial Disputes
Edmund J. Sikorski, Jr., J.D.
January 2, 2012
Mediation is simply supervised negotiation between parties who want to settle a dispute. This is the voluntary and consensual element of mediation. Process is the essence of mediation. The mediator owns the process, but the parties own the result.
Commercial disputes are factually intensive, can involve numerous expert witnesses, multiple parties, and unbelievably complex trial exhibits. It is long, incredibly expensive, and becomes a drain on both the human and economic resources of the enterprise.
The pretrial and trial process only further obliterates the forest for the trees. Trial is a terminal event that burns bridges, destroys ramparts and obliterates the escarpments of future relationships between the parties.
Unlike Family, Tort and HOA/Developer Mediation where the focus is on termination of relationships, Commercial Mediation, somewhat like Probate Mediation, should usually focus on the opportunity for reconciliation and additional business being worked out between the parties. The Commercial Mediation opportunity should be seen as a place to structure future relationships NOT terminate and preclude future relationships.
Mediation can be helpful in settling issues relating to:
Corporate – Shareholder/Director
BENEFITS OF COMMERCIAL MEDIATION
We have all been routinely told that early mediation is a desirable characteristic of the dispute resolution process. I do NOT believe that is true in many areas of dispute resolution such as Family and Tort where there may be a need for time to pass to deal with resolution and acceptance of the emotional aspects of the matters. But I DO believe that when it comesCommercial Mediation, SOONER IS BETTER, before emotions take control away from the pursuit of a sensible business solution.
After over four decades of practice I have rarely seen a judge (much less a jury) interested in hearing commercial disputants drone on and on arguing about the ingredients of accounting, drawings, formulas, models, and damage calculations that go into the commercial dispute mix. Nor (somewhat contrary to what we were taught about the determination of the intent of the parties) does the fact finder want to hear much about what the parties intended – it will usually do its own interpretation of the governing instruments language and decide accordingly under the theory that the original language of the parties gives the only objective criteria for decision.
Civil commercial cases often are moved to the bottom of the adjudication pile. If they do go to trial, how many days of continuous trial time are you likely to get? What will be the time between trial days? How many days of business interruption can a commercial litigant devote away from the enterprise? This only adds fuel to the fire of already unhappy litigants who have experienced first-hand the grind of the pretrial, trial, and expense mill.
AVOIDANCE OF TRIAL EXPENSE
The cost of commercial litigation is rarely a bill covered by insurance. Experience tells me that a witness deposition costs about $2,500. Expert witness deposition costs are multiples of that number. Expert witness costs, fees, and expenses cannot be predicted in advance. In short, commercial litigation requires an open checkbook from both sides of the controversy. Very few commercial enterprises can withstand a financial assault of this magnitude.
AVOIDANCE OF LITIGATION RISK
A few years ago, Mattel won a $100 Million judgment against it arch rival MGA. That judgment was subsequently reversed after all imaginable appellate proceeding were exhausted.On re-trial, MGA won an $89 Million verdict against Mattel-----IN THE SAME CASE!!!!If both sides had it to do over, do you think they would do it again or find a way to resolve the dispute early on?
Can anyone speculate on what the Board of Directors thought of the opinions of the company attorneys? We need not even start a discussion of their thoughts on costs, expenses and fees.Parties need to compare the almost impossible ability to predict a litigated outcome with the deal on the table over which they still have some control and make an informed decision on whether litigation presents a more attractive alternative.
POTENTIAL FOR CREATIVE SOLUTIONS
A career in the legal profession has taught me that aside from constitutional and statutory determinations, courts can do two things:
a) grant or deny liberty and/or
b) order transfer of property (including money) from one person to another
Both are zero sum results.
Adjudication substitutes a judge’s (or perhaps jury’s) version of the intent of the parties and their respective business expectations. These third party decisions may even create terms and conditions that were never contemplated by the parties. The simple fact is that parties lose control of the outcome of a dispute when they engage the gears of the legal system.
Mediation opens the door to creative solutions not available to the court. It can result in business solutions without adherence to the terms of the governing instruments, and can in fact act as a forum to renegotiate contract terms resulting in additional business being worked out between the parties.
Litigation inevitably will test the limits of the concepts of business and trade confidential information. Modern electronic discovery techniques are designed to uncover information that will inevitably be disagreeable or give one side or the other an argument platform.
Commercial enterprises spend a great deal of money on advertising to promote brand, image, and goodwill. Negative publicity that may be associated with high profile litigation is certainly a factor to be considered in the decision to timely mediate the dispute.
BENEFITS TO ATTORNEYS
When a commercial transaction goes bad, it is axiomatic that the transactional attorney becomes one of the star witnesses in the case and is often the target of criticism for not drafting a document to anticipate the problem at hand.
Mediation may allow the transactional attorneys to participate in the problem resolution process. They will undoubtedly have useful information that can be obtained in a more efficient manner than through formal legal process.
SPECIAL CHALLENGES IN COMMERCIAL MEDIATION
REVENGE OF SCORCHED EARTH POLICIES
One of the unique things about the conduct of business is that one path very frequently crosses over the path of the other at some point in the not too distant future and at that point, the parties may HAVE to transact business with each other for their own survival and benefit. If one of the disputants does not survive the litigation gauntlet, what are the options that the other party has on a go forward basis to obtain the benefits from another source willing to do business that originally brought the disputants together?
Business litigants most often run in the same industry circles. Litigation often results in disparaging comments and remarks to other industry insiders. Does anyone really believe that trashing some one’s reputation will do them any possible good in the eyes of other people in their circle of the business community?
WHERE IS THE MONEY? (COLLECTABILITY)
Even if there is a win in court, what is the probability of collectability? Enforcement of Judgments is an entirely separate body of law having its own complete set of rules. An uncollectable judgment may be a very expensive Pyrrhic victory for the winner.Financial feasibility is a significant driver of commercial dispute resolution.
MULTIPLE PARTIES – THE HAZARDS OF UNANIMOUS CONSENT & CONTRIBUTION TO GLOBAL SETTLEMENT
A mediator must know enough about the case prior to mediation to ensure that all necessary parties are available to reach an agreement that closes the case.Multiple parties make settlement challenging because one presumably unreasonable party can veto the entire process while at the same time using that potential veto power as a huge bargaining chip to leverage demands. Apportionment of global settlement proposals in multi-party disputes presents similar challenges.
LACK OF INFORMATION
Is there enough information available to find a feasible business solution to the apparent problem? Sometimes the apparent problem is not the real problem and the solution will require additional information. Only clear definition of the problem agreed upon by the parties will allow discussions to move from finger pointing to resolution.
RE-ESTABLISHMENT OF TRUST
Relationship should be an agenda item to be dealt with in mediation. Mediation should not be confined to a discussion of legal positions because each party is thereby limited in their ability to entertain a perspective different from their own, thus defeating interest based outcomes and re-establishment of relationships.
Mediated settlements can have tax consequences. The mediation participants should have those potential issues addressed prior to mediation or have access to someone during those proceedings to give that knowledge without adjourning.
This approach to problem resolution is antithetical and counter productive in Commercial Mediation for the following reasons:
1) It ignores the roles that relationships play in commerce. Good business means having good relationships with customers, suppliers and staff. It sacrifices the big picture for a spec of paint. Otherwise, why would enterprises spend significant money on advertising and promotion?
2) It ignores that promoting good working relationships will assist parties to better deal with their differences and resolve disputes more satisfactorily than the alternative. Remember the basic mediation question: What is the best alternative to a negotiated agreement (BATNA)?
3) It ignores that the information gathered during the process can be used to shape transactions with future customers. LESSON LEARNED?
4) It ignores the reality that such public disputes impact BOTH parties business reputation and ability to deal with others.
5) It deprives the mediator of one of the most effective tools in the MEDIATOR TOOL BOX -- the technique of Role Reversal. That technique is designed to encourage each party to see the dispute through the eyes of the other. It enables a party to recognize their contribution to the situation, take appropriate responsibility, and re-humanize the other party thus rebuilding a sense of trust and relative responsibility.
Mediation is often the last best chance to find a business solution to the business problem that either threatens to lead, or that has already led to litigation. It is the LAST chance to explore resolution, correct mistakes, and control costs and outcome. Litigated solutions can never address those issues because it is a zero sum event where someone wins and someone loses. Commercial mediation should bee seen as a place to structure relationships rather than terminate relationships.
Edmund J. Sikorski, Jr., J.D. is a Florida Supreme Court Certified Circuit Civil and Appellate Mediator concentrating mediation services in organizational, customer and business conflicts, probate, insurance, securities, and property disputes.