As a mediator and arbitrator, I have frequently encountered seven common myths associated with alternative dispute resolution. Primarily assailing arbitration and mediation, the most commonly used ADR tools, these myths are dangerous because they may prevent counsel from using the best and most efficient form of dispute resolution for their clients. A signature benefit of using ADR is that the resolution process may be crafted to meet the specific and unique needs of each dispute. However, the ability to tailor the ADR process depends on the ability of the attorneys and the neutral to understand the true possibilities of mediation and arbitration without being deterred by common myths.
Arbitrators Split The Baby
I sat as wing chair in an arbitration between the defaulting purchasers of a $2 million home and the builder. The defaulting purchasers argued that a 10% liquidated damages provision was both an unenforceable penalty and severed from the contract by the builder's breach. The builder argued that the default costs measured by interim-financing interest costs and lost opportunity was close to $420,000. After two years of architectural revision, the buyers had walked away when they disliked the siting of the public utilities' junction box and having incidentally found a property they liked better. The panel unanimously awarded the liquidated damages to the builder. Upon receiving the award, an outraged buyer telephoned the panel chair and roared, "I thought we went to arbitration so everyone could win!" Popular myth has it that the buyer is right. In an article on "Why Arbitration Agreements Are No Panacea for Employers" its lawyer author summarizes: "Finally, and worst of all, there is a tendency among arbitrators to 'split-the-baby' - and their decisions can be virtually non-appealable.1 If this myth has any truth, it may derive from the perception that arbitration awards are lower than those generally rendered on the same facts in court. If true, it also may arise from both the acute awareness of the arbitrator that, if even slightly wrong, s/he cannot be appealed and an unconscious unwillingness to offend any party too much for fear his/her services will never be sought after again. Of course the biblical tale from which this arbitration practice derives in fact resulted in no such diluted award.2 King Solomon offered an equal award to each side only to force out an admission of the true mother who acted promptly to save the life of her child.
The attitude of professional arbitrators is that one is not rewarded for wimpiness. An award that gives half-a-loaf so as not to offend anyone, offends everyone. The half-a-loaf award is generally given without reasons because any reasoning would be weasel-worded and transparent. With the tendency of the better provider organizations to require reasoned awards, arbitrators must now justify any award they give. And it makes more sense to explain a winner than half-a-winner. If anyone is in doubt, the law firm of Liddle & Robinson is not shy about advertising its big wins in arbitration.3 In June 2002 the New York State Supreme Court entered a judgment of almost $29 million ($25 million punitives) against Waddell & Reed, Inc. and its former CEO. The court noted that "the Panel's finding find support in the record." And that is only one example.
You Can't Mediate Until DiscoveryIs Done
One of the main points favoring mediation is it saves time and money. Discovery on the other hand is probably the single largest budget item for a client in any lawsuit. Economists talk about the 80/20 rule which, when applied to litigation, fairly means that 20% of the effort produces 80% of everything important you need to know about the case. The additional 80% effort to fill in an additional 20% of information is the litigator's bane (or delight if you look at billable hours) and what is often referred to as leaving no stone unturned. You never know what you might find under a last rock. But rarely is it a smoking gun. Best practices in mediation dictate that you come to the table knowing the essentials of your case and the other side's case, but equally importantly, the knowledge of what your client hopes to gain in a resolution of the dispute. The reasoning that limits discovery in arbitration, time and cost savings, is even more compelling in mediation. And the beauty of mediation is that if a fact is critical, you take the time and discover it. And even more elegant is the possibility of bringing in people, by phone or in person, whose testimony is critical and posing them agreed questions - not under oath and not for use in impeachment at later deposition or trial. The answers are highly instructive and assist the parties in assessing risk and crafting settlement.
And bottom line, if you do need more discovery to engage in meaningful settlement discussions, mediation will direct you to the discovery you do need and away from the wasteful "leave no stone unturned" type. What don't you know that is critical to understanding your interests? Mediation should answer that question. And then you can adjourn the mediation and seek that discovery and only that discovery. Mediation can be adjourned and reconvened with the new information. Mediation is not only a way of problem solving, but of defining the problem to be solved.
Asking To Mediate Is A Sign Of Weakness.
Real men don't eat quiche. Real men don't cry. War is the metaphor of litigation: "Take no prisoners," "go for the jugular," "scorched earth." The litigation prep room is frequently called the "war room." Litigation is the ultimate competition. That makes sense since it is the stand-in replacement for medieval trial by battle or purgation. It is institutional warfare governed by institutionalized rules of battle and court-sponsored protocol. In a courtroom, it is unseemly and forbidden for counsel to address each other except through the medium of the judge. They are not trusted to be civil since there is nothing civil about a civil action. So how can you ask to mediate? Isn't that a signal that you have a truly weak case? Maybe. But if you do have a weak case, why mediate at all? You can always fold your cards early or sit the game though bluffing to the end. Mediation can be approached from strength - the strength of knowing what you want out of this dispute and the assurance that you can get it, or at least most of it. And as Fisher and Ury have repeatedly reminded us, if you don't like the deal offered, your Best Alternative to a Negotiated Agreement ("BATNA") is - fill in the blanks - walking away, trying the case, engaging in more discovery, moving for summary judgment, et cetera. You could look at it another way: only weak litigants avoid mediation. They are the ones who are afraid to engage in a meaningful dialogue in which they look not just at their strengths, but also at their weaknesses. And it is a grateful client who gets this opportunity in the 2nd hour rather than in the 11th hour when the judge in a pre-trial conference strikes the fear of possible loss into each side. Think of Peter Jovanovich, who in sitting down to negotiate the survival of his family-founded publishing house, Harcourt Brace Jovanovich, signaled his desire for sincere discussion by presenting his opposing presence, Dick Smith, CEO of General Cinema who was bidding to buy HBJ, with an engraved HBJ watch and the words: "My father always gave a watch like this to his partners at the beginning of a new business relationship. This is meant to signify my sincere belief that General Cinema is the right buyer for HBJ."4 Remember, agreement is consensual. One does not have to settle a case or make a deal if the terms of settlement make no sense and serve no need. It is the strong who are unafraid to engage in talk; the weak who first resort to battle.
And if you are really shy about asking the other side to attend a mediation, ask the mediator to serve as your foil. S/he can contact each side and suggest that s/he thinks this is an excellent case for mediation and not suffer the reactive devaluation response that is almost knee-jerk were you to suggest the same thing to your opponent(s). And in a multi-party case, it need not even be disclosed where the interest in mediation is coming from.
Mediation Is Simply Free Discovery.
Why should mediation be free discovery? Because your client is there? Isn't it his case? Isn't he the one that will be most affected by the outcome? Are you afraid your client will show weakness? Display a personality side previously unrevealed? Is there anything really that you can hide that won't be discovered at trial or in settlement discussions with the judge the day before trial? Remember mediation is voluntary. Its rules are consensual. If defendant does not bring a representative, insurance claims specialist or CFO of the company, you do not need to bring your client. If defendant barrages your client with questions, your client does not need to respond. Might you get a sense of the demeanor of the people present and how they may appear at trial? But doesn't that work equally to the advantage of both sides?
Are you afraid your client will spill his guts? Sit down and talk to your client before the mediation. Decide what role he will play and what he will contribute. Make him an active participant in a comfortable negotiation; you will get all his new business and many referrals.
People talk in mediation. True it is far from the "talk" of interrogatories where questions are "asked" in writing and "answered" in writing under oath. Most of the time the questions are tortured and the answers ungrammatical and evasive. Clients sign the interrogatories as an act of faith in their lawyer. The questions and answers have nothing in common with a dialogue and they are designed to conceal not only interests but as much information as possible. Courts hate them and in the law practice they are delegated to the people furthest from the client - the youngest associates in the law firm.
Are you afraid of revealing a settlement position that makes you look soft? Don't reveal it. You don't have to reveal bottom lines. You really just want to know if you can get into the same ballpark. Lots of good things happen after that.
One place where you really may worry about free discovery is if a third-party to the dispute shows up at the mediation who, while "averring that he has no liability in the case," just wants to sit in. You might strongly suspect that in this situation that party is simply looking to gather evidence that he can assert if he is sued. But that kind of free discovery is easy to deal with; if he is unprepared to tell you his take on the story and factually why he should not be a party, ask him to leave. Mediation is consensual. Only the people who want to be there are there with others of the same mind.
Arbitrators Don't Apply The Law
That is correct. They don't have to apply the law. However, it is a rare or an untrained arbitrator who is not grateful to counsel for supplying a cogent legal analysis and application of statutory and case law to the facts of a case before him.
Remember, arbitration has proud historical foundation in the efforts of merchants and businessmen to retain control over their disagreements by submitting them for determination to an arbiter in their particular trade who had no stake in the outcome and whose wisdom, experience and impartiality everyone respected. Commerce required quick resolution; the legal system was the long arm of the state which knew nothing about the ins and outs of daily commerce in a particular trade.5 The problem was less in determining who was right and who was wrong, but in achieving a solution that let everyone get on with their business. Rough justice was quick justice, which if not academically analytical, served America's capitalist future.
Today, lawyers view arbitration as an alternative to court, but one that still applies legal precedent and procedure. It is particularly attractive in international disputes where at least one party is not the hometown team and fears submission of its dispute to a legal system that is, by definition, foreign. But what guides arbitrators today? Outside of the agreement of the parties, on which not enough emphasis can ever be placed, arbitrators are ruled by fear of vacatur. Under the FAA §10, courts can vacate an award where it was procured by corruption, fraud or undue means; where there was evident partiality or corruption in one or more arbitrators; where the arbitrators were guilty of misconduct in refusing to postpone the hearing upon sufficient cause shown, or in refusing to hear evidence; or where the arbitrators exceeded their powers. And there are "non-statutory" standards for vacatur that courts recognize with no predictable reliability: where the award was rendered in manifest disregard of the law; where it was arbitrary and capricious; where it was completely irrational; where it violates public policy.6
But most importantly, remember, if you want an arbitrator to apply the law, say so in your agreement to arbitrate. Your agreement to arbitrate defines the scope of your arbitrator's authority. If you want the case law of New York applied say so. But be sure then that you supply all the case law, with copies of the cases that you want your arbitrator to rely upon. Your arbitrator generally does not come with a research clerk, which is just as well, because the research clerk would have to disclose any conflicts he may have. And you want to make sure that it is the arbitrator who is doing the reading and thinking. Just give him the law; ask him to apply it; and he will.
Mediation Is Just A Waste Of Time And Money If The Case Doesn't Settle
Mediators like to say there is no such thing as a failed mediation. But lawyers tend to think in binary fashion. A case settles or it is tried. Mediation is meant to settle cases, therefore, if the case does not settle in mediation, the mediation is a failure. Mediators think along a spectrum and ask the following kinds of questions: what are the issues in the case? Are the parties able to dialogue about the issues? Are the lawyers and/or the clients too adversarial to communicate effectively? Can the lawyers talk to each other? Can the clients talk to each other? Does the client trust his lawyer? Does the lawyer believe his client?
Lawyers view settlement as an apocalyptic and sudden event; usually induced by a heavy-handed judge and a trial the next day. Mediators view settlement as a process, and a gradual one at that. Adversaries settle in court because the risk of loss is too great to contemplate. Adversaries settle in mediation because they begin to understand each other's perspective. The same set of facts can bear totally differing interpretations. Much like the picture shown in introductory psychology classes of the woman who appears as either a beautiful young woman or a witchy old hag, the untrained eye can only discern one image. But identical pictures do yield different stories. A trained mediator can look at the picture and see both women simultaneously.
So if a case does not settle at the mediation, is that a failure? What if the parties came in a million dollars apart and leave $45,000 apart? Is there an increased likelihood that the case will settle? What if three smaller issues resolve, but a larger one remains? Is the goodwill generated by the solution of some, but not all, issues enough to allow the parties to continue to dialogue? What if, if nothing else, the parties leave understanding exactly what stands in the way of settlement and can focus more narrowly on overcoming a better-defined, and therefore more manageable, obstacle? What if, two weeks later, the lawyers renew the conversation through the mediator and two weeks after that, the case settles? What if the mediation teaches the parties how to communicate about a shared problem?
Mediations don't fail. A good mediation smoothes the way to settlement by creating ways in which parties can understand each other, the mediator serving as a conduit to explain each party's sense of the case to the other. A good mediation enables parties to focus on the issues that truly impede settlement and to talk to each other about removing that impediment. Mediation generates options and opportunities. Mediation enhances the likelihood that the case will settle before trial in ways that are more satisfying than apocalyptic settlement on the eve of trial. And that is what mediation in great measure is all about.
Mediation Just Delays Ultimate Trial Of The Case - It Is Just Another Delaying Tactic
"Sometimes parties may try to use the mediation process to stall or buy time, not only dragging out mediation with no intent to settle, but by agreeing to a settlement they have no intention of carrying out. By the time the other party can take them to court, to get an outcome no different than the settlement, they will have gained weeks or months."7 And if they are really mean-spirited, perhaps filed bankruptcy?
But ask yourself: why should mediation delay any legal remedy? Just because you agree to go to mediation does not mean that the clock should stop on court-sponsored remedies. One reason that cases settle is because they face trial tomorrow, hence the adage that "all cases settle on the eve of trial." Keeping a trial date set offers every encouragement for people to pay attention in mediation and use it for purposeful ends. And even if an agreement is reached, a trial date need not be dismissed until performance of the agreement's terms is completed. Some ADR clauses are drafted to require direct negotiation and then mediation before a lawsuit may be filed; while this may be conducive to early resolution, the time frames for negotiation and mediation should be kept relatively short. There is no better way to focus people's attentions than by creating a trial date which may be everyone's "WATNA" or Worst Alternative to a Negotiated Agreement.
2 Kings, 3:24-25.
4 Richard Shell, Bargaining for Advantage, p 4.
5 For an excellent discussion of the history of ADR in the U.S. see Justice Without Law?, Jerald S. Auerbach (1983).
6 For an excellent discussion of the finality of arbitration awards see §7,Commercial Arbitration at Its Best, Thomas J. Stipanowich, editor (2001).
7 Dwight GolannMediating Legal Disputes, Aspen Publishers 1996, §14.3.8(d).
Judith P. Meyer, Esq. is one of the founders of JAMS Philadelphia Resolution Center. A highly respected arbitrator and mediator, she has successfully resolved hundreds of complex commercial disputes. Ms. Meyer may be reached at email@example.com.