January 21, 2015

Why mediation is a waste of time and money

Posted in Commercial Litigation, Corporate Litigation, Employment Law, Negotiation by Gene Killian |

Not long ago, I was involved in a commercial dispute involving a possible $10 million in damages.  The other side suggested that we go to mediation in an effort to resolve it. Full disclosure: I was a mediator in the New Jersey court system for many years, and, as an attorney, I’ve been involved in dozens of mediations. The conventional wisdom is that I should be a fan of mediation, because it lessens the burden on the courts, and gets matters resolved more quickly and inexpensively. But I’m not. I’ve found that in many instances, mediation is incredibly expensive (especially when using one of the big name mediators in the New York metropolitan area), and often unsuccessful. In this particular instance, though, I cast off my doubts, on the theory that if the party with the checkbook is suggesting mediation, they’re serious.  Wrong. The other side (actually, the other side’s lawyers) offered nuisance value at the beginning and end of the day, the mediator offered no creative solutions, and I think we were actually worse off following mediation because now my client was officially angry.

Another example:  A $5 million commercial dispute over title to a certain piece of collateral. The large national law firm on the other side suggested mediation with a well-known retired judge, who happened to be with a large ADR organization in the same building as their main office. My then-theory was to let the other side select the mediator, unless the mediator was obviously unqualified. I figured that if the other side picked, then the mediator would have their ear and hopefully we might get something productive done. Wrong again. This particular mediator’s idea of mediation was to get me in a room with the lawyers on the other side and (again) try to beat me into submission for less than the case was objectively worth - on a theory that had already been rejected by the actual trial judge! The entire session was a failed effort at intimidation.  I resented the lack of respect for my client’s time.  And it was (again) a complete, and expensive, waste.

So why don’t mediations work in many instances? There are lots of articles and posts written by mediators on how lawyers go wrong, but in my experience it tends to be a team effort. One of the problems happens to be a major problem with the legal system generally: lawyers are not incentivized to solve problems quickly, unless they’re on the plaintiff’s side and are working for a contingency. This is especially so with insurance defense counsel, whose rates have been driven down to ridiculous levels over the years, and whose every bill is picked over with a fine-toothed comb. The hourly-rate problem is probably insoluble, although I will point out a piece of advice that I got years ago from a (different) retired judge. He mediated our case successfully. When I was speaking to him later, I joked, “Oh well, I guess I have to go find another case now.” He said that I was looking at the situation incorrectly. I had solved the problem for my client in a cost-effective way, and kept the company out of the meat-grinder (a.k.a. the court system). He told me that if I kept doing that, the business would come. (And it has.)

In an article in Claims Magazine a few years back, Domenick DiCicco wrote:  “Any audit of a litigated matter will reveal what many veterans of litigation have known for a long time: millions of dollars in legal fees are wasted on matters where 96 to 98 percent of the matters resolved for an amount any seasoned claim professional could have predicted at the outset of the case...The most effective counsel is one who understands your definition of success for a particular case and get you there quickly.”

If everyone should know – objectively – the fair settlement range, what can you do to increase your chances of a successful outcome at mediation?

First, don’t mediate cases in which settlement is not a realistic prospect. Nine times out of ten, you’ll be wasting your time. Before agreeing to any mediation, it’s a good idea to ask for a written settlement proposal (or demand) from the other side. If you’ve done some objective risk analysis of your case, and if the settlement proposal is unrealistic, then even the best mediator (whatever that means) is going to have trouble bringing the matter to closure.  And if you do agree to mediation, make sure that the person with appropriate authority to settle the matter on the other side will attend. I can’t tell you how many times I’ve been involved in mediations with inexperienced lawyers who are unable even to get on the phone with someone who can approve a settlement.

Second, mediation is not a trial. Be careful about making accusations of bad faith or fraud, that will cause the other side to harden its settlement position because ego is involved. Your job is not to persuade the mediator. It’s to persuade the person with the checkbook, or the person who will be accepting the check.  Along these lines, the concept of a “confidential” mediation submission is kind of stupid. The goal is to settle the case. Show the other side objective data and case law that helps them value the matter. Hiding the ball is not in your best interest.

Third, (most) judges are wonderful people, but retired judges don’t always make the best mediators. Mediation is a specific skill set that requires listening ability, careful prodding, and the ability to think of creative solutions. Judges are used to, well, judging. Many times in mediation, one side gets the idea that if they hire a retired judge, the judge will be a person of authority who will “hammer” the other side into a reasonable position. The problem is that, unlike in a courtroom, the other side can just get up and leave.  And sometimes, they do.  Make sure you have the right person for the job. Do your research. Ask around.

-         Gene Killian