CPR Mediation Procedure
- 1987 - CPR published Model ADR Procedures: Mediation of Business Disputes.
- 1994 - Revised and published as Mediation Procedure for Business Disputes.
- 1995 - Amendment of paragraph 2, p. I-17, requiring use of CPR Panels of Neutrals unless otherwise agreed.
- 1998 - Revised and effective as of April 1, 1998.
- 2005 - CPR name changed from CPR Institute for Dispute Resolution to International Institute for Conflict Prevention and Resolution, Inc. Bibliography and Alternatives articles updated and 2 articles from Alternatives added (Previous updated in-boxes deleted).
The most widely used ADR process, mediation is a process in which a third party neutral a mediator sits down with the disputing parties and actively assists them in reaching a settlement.
Mediation should not be confused with binding arbitration or private adjudication. The mediation process is non-binding, although a settlement agreement resulting from a mediation usually is binding. The mediator has no authority to make any binding decisions or impose a resolution. The role of the mediator and the goal of the process is to help parties achieve their own resolution.
Mediation is private and generally confidential. It is highly flexible and informal. Typically, it is concluded expeditiously at moderate cost. The subject matter can be complex or simple, the stakes large or small, the number of parties few or many. An exchange of information commonly occurs in a mediation, and limited discovery also is possible. All parties can participate in tailoring the ground rules. The process typically is far less adversarial than litigation or arbitration, and therefore less disruptive of business relationships. Since other options are not foreclosed if mediation should fail, entering into a mediation process presents few risks.
In fact, in voluntary mediation failure is the exception. Time and again, with the assistance of a skillful mediator, parties to a great variety of business disputes and other types of disputes have succeeded in bridging wide gaps in their positions and in developing creative, mutually-advantageous solutions. The principal pre-condition to successful mediation is that the parties share a genuine desire to resolve the dispute promptly in an equitable manner.
Not all cases lend themselves to creative solutions. However, even when the amount of money damages is the principal issue, the non-partisan perspective of a trusted mediator can prove very helpful in bringing about a settlement. When the client has unrealistic expectations, of which the lawyer is reluctant to disabuse him, the mediator's views can be critical in breaking an impasse in negotiations.
There are different styles of mediation, e.g., "facilitative mediation" and "evaluative mediation," that are discussed in this paper. With all styles, the dynamics of the negotiations usually change markedly with the addition of the neutral mediator. Mediation enables parties to communicate perceptions, feelings and information directly to one another in a safe, controlled environment managed by the mediator. The mediator helps to build a cooperative, problem solving atmosphere. This manner of communication often reduces hostility and facilitates rational discussion. Mediation gives the parties a sense of ownership both in the dispute and in its resolution.
Mediation also can be a highly efficient dispute resolution process. The mediation process can "telescope" into a few days factual and legal development likely to consume many months in litigation.
One of the important features of mediation is that each party can discuss with the mediator certain confidential information that it would not disclose to the other party. Equipped with such information, a skillful mediator often is able to identify hidden interests and settlement alternatives that would not have been considered in unassisted negotiations and that may help overcome barriers to settlement.
Another benefit is that principals on each side participate in the process. They deal directly with each other, unless the mediator sees fit to keep them apart due to extreme hostility or for other reasons.
Each party is given an opportunity to state its business goals and interests, as well as its legal position and its views regarding the conduct and issues in dispute. However, the primary focus is on solving problems and developing a tailor-made solution. Business disputes are often resolved on the basis of underlying business interests and concerns--not only on the basis of legal rules or fact differences. Mediation can be utilized to preserve, or even improve, long-term relationships, as well as to resolve a particular dispute.
Once parties to a dispute agree to engage in mediation, they often arrive at a resolution of their dispute even before the mediation process has begun. The imminence of a mediation, much like the imminence of a trial, can serve as a "settlement event" that induces parties and attorneys to focus on the case and to enter into serious negotiations. Negotiations aimed at establishing a fair procedure for resolving a dispute create an atmosphere of cooperative problem-solving that is conducive to resolving the dispute itself. CPR recommends that the parties first attempt to settle the dispute themselves, without the intervention of a mediator.
Frequently cited advantages of mediation include:
- substantial savings in legal fees and other litigation expenses
- promptness of resolution
- creative, business-driven solutions generally better for both parties than a solution available in court
- maintaining control over the outcome of the dispute
- preservation of business relationships
- privacy and essential confidentiality
The procedure and commentary set forth below reflect the experience of the CPR Mediation Advisory Committee, a group of the nation's leading mediators. The procedure can be incorporated by reference in the dispute resolution clause of a business agreement or in a submission agreement entered into after a dispute has arisen (see Section 1 of the Mediation Procedure and Form 1 annexed to the procedure). The procedure is suitable for transnational disputes as well as for disputes between U.S. parties.
There is no one right way to conduct a mediation. Parties may adapt the procedure to their own needs. There is also no one right time to conduct a mediation. The opportunities to reduce the costs and wear and tear of court proceedings are greatest before litigation has commenced, but mediation may be a sensible option at any point in the litigation process, even while an appeal from a trial court judgment is pending. Parties not ready for a mediation at the outset of litigation may be more receptive as litigation runs its course. Mediation also can be useful as an adjunct to litigation--it can be used for "parts" of disputes, as well as for the whole matter.
Many federal and state courts already have adopted procedures mandating the referral of a broad range of cases to mediation or to early neutral evaluation, a process different from mediation, but which shares some of its characteristics. Other courts are expected to follow suit. Litigants can expect that increasingly their cases will be referred to court-selected neutrals, frequently members of the bar who have volunteered for such service on a pro bono basis or are paid. However, most courts will accept the parties' agreement to mediate privately in lieu of the court's procedure, with the advantage that the parties may select an agreed upon mediator in whom they have confidence. Of course, even when mediation is mandated the process remains non-binding. The mediator is not a decision maker.
Despite its advantages, once a dispute has arisen the parties often are reluctant to propose mediation, and adversaries typically find it difficult to agree about anything. With this in mind, CPR urges parties entering into a business agreement to include clauses providing for unfacilitated negotiation and mediation of future disputes, possibly with binding arbitration as a fallback, should mediation fail. A sample pre-dispute mediation clause appears in the CPR Mediation Procedure, below. Sample multi-step clauses appear in Drafting Dispute Resolution Clauses: Better Solutions for Business (International Institute for Conflict Prevention and Resolution 2006).
The CPR Corporate Policy Statement on Alternatives to Litigation has been signed by more than 800 companies on behalf of themselves and their 3200 domestic operating subsidiaries. Signatories agree to explore negotiation or ADR when in a dispute with another signatory. This statement helps parties overcome hesitancy to propose or agree to ADR.
The CPR Mediation Procedure and Commentary were prepared initially in 1991 with business disputes in mind. Since then there has been a rapid growth both in the volume of cases that are mediated and in the type of cases . As different types of cases were mediated successfully the CPR Mediation Procedure proved to be suitable for these cases as well. CPR has published an Employment Dispute Mediation Procedure that differs somewhat from the CPR Mediation Procedure.
In the Commentary, below, we list the many types of disputes that have been mediated successfully, and we outline factors to be considered in analyzing suitability. The CPR ADR Suitability Screen readily enables a party to identify and analyze factors favoring and disfavoring mediation.
The CPR Panels of Distinguished Neutrals consist of eminent former judges, legal academics, other leaders of the bar and outstanding conflict resolution professionals, who are well qualified to serve as mediators of significant disputes. A brochure listing the members of the Panels and describing services they may perform is available. The panel roster appears at CPR's web site, www.cpradr.org. CPR will assist the parties in selecting a mediator well qualified for their needs. CPR can also, at the request of a party, contact the other party or parties to interest them in entering into a mediation or other form of private dispute resolution.
The CPR Mediation Procedure
1. Agreement to Mediate
The CPR Mediation Procedure (the “Procedure”) may be adopted by agreement of the parties, with or without modification, before or after a dispute has arisen. The following provisions are suggested:
A. Pre-dispute Clause
The parties shall attempt in good faith to resolve any dispute arising out of or relating to this Agreement promptly by confidential mediation under the [then current] CPR Mediation Procedure [in effect on the date of this Agreement], before resorting to arbitration or litigation.
B. Existing Dispute Submission Agreement
We hereby agree to submit to confidential mediation under the CPR Mediation Procedure the following controversy:
2. Selecting the Mediator
Unless the parties agree otherwise, the mediator shall be selected from the CPR Panels of Neutrals. If the parties cannot agree promptly on a mediator, they will notify CPR of their need for assistance in selecting a mediator, informing CPR of any preferences as to matters such as candidates' mediation style, subject matter expertise and geographic location. CPR will submit to the parties the names of not less than three candidates, with their resumes and hourly rates. If the parties are unable to agree on a candidate from the list within seven days following receipt of the list, each party will, within 15 days following receipt of the list, send to CPR the list of candidates ranked in descending order of preference. The candidate with the lowest combined score will be appointed as the mediator by CPR. CPR will break any tie.
Before proposing any mediator candidate, CPR will request the candidate to disclose any circumstances known to him or her that would cause reasonable doubt regarding the candidate's impartiality. If a clear conflict is disclosed, the individual will not be proposed. Other circumstances a candidate discloses to CPR will be disclosed to the parties. A party may challenge a mediator candidate if it knows of any circumstances giving rise to reasonable doubt regarding the candidate's impartiality.
The mediator's rate of compensation will be determined before appointment. Such compensation, and any other costs of the process, will be shared equally by the parties unless they otherwise agree. If a party withdraws from a multiparty mediation but the procedure continues, the withdrawing party will not be responsible for any costs incurred after it has notified the mediator and the other parties of its withdrawal.
Before appointment, the mediator will assure the parties of his or her availability to conduct the proceeding expeditiously. It is strongly advised that the parties and the mediator enter into a retention agreement. A model agreement is attached hereto as a Form.
3. Ground Rules of Proceeding
The following ground rules will apply, subject to any changes on which the parties and the mediator agree.
- (a) The process is non-binding.
- (b) Each party may withdraw at any time after attending the first session, and before execution of a written settlement
agreement, by written notice to the mediator and the other party or parties.
- (c) The mediator shall be neutral and impartial.
- (d) The mediator shall control the procedural aspects of the mediation. The parties will cooperate fully with the mediator.
i. The mediator is free to meet and communicate separately with each party.
ii. The mediator will decide when to hold joint meetings with the parties and when to hold separate meetings. The
mediator will fix the time and place of each session and its agenda in consultation with the parties. There will be no
stenographic record of any meeting. Formal rules of evidence or procedure will not apply.
- (e) Each party will be represented at each mediation conference by a business executive or other person authorized to
negotiate a resolution of the dispute, unless excused by the mediator as to a particular conference. Each party may be
represented by more than one person, e.g. a business executive and an attorney. The mediator may limit the number of
persons representing each party.
- (f) Each party will be represented by counsel to advise it in the mediation, whether or not such counsel is present at
- (g) The process will be conducted expeditiously. Each representative will make every effort to be available for meetings.
- (h) The mediator will not transmit information received in confidence from any party to any other party or any third party
unless authorized to do so by the party transmitting the information, or unless ordered to do so by a court of competent
- (i) Unless the parties agree otherwise, they will refrain from pursuing litigation or any administrative or judicial remedies during
the mediation process or for a set period of time, insofar as they can do so without prejudicing their legal rights.
- (j) Unless all parties and the mediator otherwise agree in writing, the mediator and any persons assisting the mediator will be
disqualified as a witness, consultant or expert in any pending or future investigation, action or proceeding relating to the
subject matter of the mediation (including any investigation, action or proceeding which involves persons not party to this
- (k) If the dispute goes into arbitration, the mediator shall not serve as an arbitrator, unless the parties and the mediator
otherwise agree in writing.
- (l) The mediator may obtain assistance and independent expert advice, with the prior agreement of and at the expense of
the parties. Any person proposed as an independent expert also will be required to disclose any circumstances known to
him or her that would cause reasonable doubt regarding the candidate's impartiality.
- (m) Neither CPR nor the mediator shall be liable for any act or omission in connection with the mediation, except for its/his/her
own willful misconduct.
- (n) The mediator may withdraw at any time by written notice to the parties
i. for serious personal reasons,
ii. if the mediator believes that a party is not acting in good faith, or
iii. if the mediator concludes that further mediation efforts would not be useful. If the mediator withdraws pursuant to (i)
or (ii), he or she need not state the reason for withdrawal.
4. Exchange of Information
If any party has a substantial need for documents or other material in the possession of another party, or for other discovery that may facilitate a settlement, the parties shall attempt to agree thereon. Should they fail to agree, either party may request a joint consultation with the mediator who shall assist the parties in reaching agreement.
The parties shall exchange with each other, with a copy to the mediator, the names and job titles of all individuals who will attend the joint mediation session.
At the conclusion of the mediation process, upon the request of a party which provided documents or other material to one or more other parties, the recipients shall return the same to the originating party without retaining copies.
5. Presentation to the Mediator
Before dealing with the substance of the dispute, the parties and the mediator will discuss preliminary matters, such as possible modification of the procedure, place and time of meetings, and each party's need for documents or other information in the possession of the other.
At least 10 business days before the first substantive mediation conference, unless otherwise agreed, each party will submit to the mediator a written statement summarizing the background and present status of the dispute, including any settlement efforts that have occurred, and such other material and information as the mediator requests or the party deems helpful to familiarize the mediator with the dispute. It is desirable for the submission to include an analysis of the party's real interests and needs and of its litigation risks. The parties may agree to submit jointly certain records and other materials. The mediator may request any party to provide clarification and additional information.
The parties are encouraged to discuss the exchange of all or certain materials they submit to the mediator to further each party's understanding of the other party's viewpoints. The mediator may request the parties to submit a joint statement of facts. Except as the parties otherwise agree, the mediator shall keep confidential any written materials or information that are submitted to him or her. The parties and their representatives are not entitled to receive or review any materials or information submitted to the mediator by another party or representative without the concurrence of the latter. At the conclusion of the mediation process, upon request of a party, the mediator will return to that party all written materials and information which that party had provided to the mediator without retaining copies thereof or certify as to the destruction of such materials. At the first substantive mediation conference each party will make an opening statement.
The mediator may facilitate settlement in any manner the mediator believes is appropriate. The mediator will help the parties focus on their underlying interests and concerns, explore resolution alternatives and develop settlement options. The mediator will decide when to hold joint meetings, and when to confer separately with each party.
The parties are expected to initiate and convey to the mediator proposals for settlement. Each party shall provide a rationale for any settlement terms proposed.
Finally, if the parties fail to develop mutually acceptable settlement terms, before terminating the procedure, and only with the consent of the parties, (a) the mediator may submit to the parties a final settlement proposal; and (b) if the mediator believes he/she is qualified to do so, the mediator may give the parties an evaluation (which if all parties choose, and the mediator agrees, may be in writing) of the likely outcome of the case if it were tried to final judgment, subject to any limitations under any applicable mediation statutes/rules, court rules or ethical codes. Thereupon, the mediator may suggest further discussions to explore whether the mediator's evaluation or proposal may lead to a resolution.
Efforts to reach a settlement will continue until (a) a written settlement is reached, or (b) the mediator concludes and informs the parties that further efforts would not be useful, or (c) one of the parties or the mediator withdraws from the process. However, if there are more than two parties, the remaining parties may elect to continue following the withdrawal of a party.
If a settlement is reached, a preliminary memorandum of understanding or term sheet normally will be prepared and signed or initialed before the parties separate. Thereafter, unless the mediator undertakes to do so, representatives of the parties will promptly draft a written settlement document incorporating all settlement terms. This draft will be circulated, amended as necessary, and formally executed. If litigation is pending, the settlement may provide that the parties will request dismissal of the case. The parties also may request the court to enter the settlement agreement as a consent judgment.
8. Failure to Agree
If a resolution is not reached, the mediator will discuss with the parties the possibility of their agreeing on advisory or binding arbitration, “last offer” arbitration or another form of ADR. If the parties agree in principle, the mediator may offer to assist them in structuring a procedure designed to result in a prompt, economical process. The mediator will not serve as arbitrator, unless all parties agree.
The entire mediation process is confidential. Unless agreed among all the parties or required to do so by law, the parties and the mediator shall not disclose to any person who is not associated with participants in the process, including any judicial officer, any information regarding the process (including pre-process exchanges and agreements), contents (including written and oral information), settlement terms or outcome of the proceeding. If litigation is pending, the participants may, however, advise the court of the schedule and overall status of the mediation for purposes of litigation management. Any written settlement agreement resulting from the mediation may be disclosed for purposes of enforcement.
Under this procedure, the entire process is a compromise negotiation subject to Federal Rule of Evidence 408 and all state counterparts, together with any applicable statute protecting the confidentiality of mediation. All offers, promises, conduct and statements, whether oral or written, made in the course of the proceeding by any of the parties, their agents, employees, experts and attorneys, and by the mediator are confidential. Such offers, promises, conduct and statements are privileged under any applicable mediation privilege and are inadmissible and not discoverable for any purpose, including impeachment, in litigation between the parties. However, evidence that is otherwise admissible or discoverable shall not be rendered inadmissible or non-discoverable solely as a result of its presentation or use during the mediation.
The exchange of any tangible material shall be without prejudice to any claim that such material is privileged or protected as work-product within the meaning of Federal Rule of Civil Procedure 26 and all state and local counterparts.
The mediator and any documents and information in the mediator's possession will not be subpoenaed in any such investigation, action or proceeding, and all parties will oppose any effort to have the mediator or documents subpoenaed. The mediator will promptly advise the parties of any attempt to compel him/her to divulge information received in mediation.
CPR Model Agreement for Parties and Mediator*
Agreement made ______________________, ________
A dispute has arisen between the parties (the “Dispute”). The parties have agreed to participate in a mediation proceeding (the “Proceeding”) under the CPR Mediation Procedure [, as modified by mutual agreement] (the “Procedure”). The parties have chosen the Mediator for the Proceeding. The parties and the Mediator agree as follows:
A. Duties and Obligations
1. The Mediator and each of the parties agree to be bound by and to comply faithfully with the Procedure, including without limitation the provisions regarding confidentiality.
2. The Mediator has no previous commitments that may significantly delay the expeditious conduct of the proceeding and will not make any such commitments.
3. The Mediator, the International Institute for Conflict Prevention and Resolution (CPR) and their employees, agents and partners shall not be liable for any act or omission in connection with the Proceeding, other than as a result of its/his/her own willful misconduct.
B. Disclosure of Prior Relationships
1. The Mediator has made a reasonable effort to learn and has disclosed to the parties in writing (a) all business or professional relationships the Mediator and/or the Mediator's firm have had with the parties or their law firms within the past five years, including all instances in which the Mediator or the Mediator's firm served as an attorney for any party or adverse to any party; (b) any financial interest the Mediator has in any party; (c) any significant social, business or professional relationship the Mediator has had with an officer or employee of a party or with an individual representing a party in the Proceeding; and (d) any other circumstances that may create doubt regarding the Mediator's impartiality in the Proceeding.
2. Each party and its law firm has made a reasonable effort to learn and has disclosed to every other party and the Mediator in writing any relationships of a nature described in paragraph B.1. not previously identified and disclosed by the Mediator.
3. The parties and the Mediator are satisfied that any relationships disclosed pursuant to paragraphs B.1. and B.2. will not affect the Mediator's independence or impartiality. Notwithstanding such relationships or others the Mediator and the parties did not discover despite good faith efforts, the parties wish the Mediator to serve in the Proceeding, waiving any claim based on said relationships, and the Mediator agrees to so serve.
4. The disclosure obligations in paragraphs B.1. and B.2. are continuing until the Proceeding is concluded. The ability of the Mediator to continue serving in this capacity shall be explored with each such disclosure.
C. Future Relationships
1. Neither the Mediator nor the Mediator's firm shall undertake any work for or against a party regarding the Dispute.
2. Neither the Mediator nor any person assisting the Mediator with this Proceeding shall personally work on any matter for or against a party, regardless of specific subject matter, prior to six months following cessation of the Mediator's services in the Proceeding.
3. The Mediator's firm may work on matters for or against a party during the pendency of the Proceeding if such matters are unrelated to the Dispute. The Mediator shall establish appropriate safeguards to insure that other members and employees of the firm working on such matters unrelated to the Dispute do not have access to any confidential information obtained by the Mediator during the course of the Proceeding.
1. The Mediator shall be compensated for time expended in connection with the Proceeding at the rate of $___________, plus reasonable travel and other out-of-pocket expenses. The Mediator's fee shall be shared equally by the parties. No part of such fee shall accrue to CPR.
2. The Mediator may utilize members and employees of the firm to assist in connection with the Proceeding and may bill the parties for the time expended by any such persons, to the extent and at a rate agreed upon in advance by the parties.
by _________________________ by _________________________
Party's Attorney Party's Attorney
* This form assumes that the mediator is affiliated with a firm. If that is not the case, delete paras. C.3., D.2. and references to the mediator's firm in paras. B.1. and C.1.
Suitability for Mediation
Most bona-fide disputes are amenable to settlement by negotiation. Mediation is a facilitated form of negotiation. Virtually every case in which negotiation is appropriate but difficult is suitable for mediation, whether direct negotiations have taken place or litigation is pending. Mediation can be particularly helpful if there is an opportunity to structure a creative business solution. When a dispute involves several or many parties it may not be essential for all to be at the table, but any party crucial to a settlement must be represented.
The following is a partial list of the many types of domestic and international business disputes that have been successfully mediated:
- bankruptcy and creditor/debtor issues
- commercial, financial and real estate transactions
- dealerships and franchises
- eminent domain
- insurance coverage
- mineral extraction
- partnerships or joint ventures
- patents, trade secret, technology
- personal injury
- private antitrust
- product liability
- professional malpractice
- regulatory matters
- trademarks and unfair competition
Mediation has become the most popular choice of parties seeking a non-binding form of dispute resolution. However, other forms of non-binding ADR do exist, and there are cases for which non-binding procedures may not be appropriate.
The minitrial is another effective form of collaborative dispute resolution. It is a more formal and structured proceeding than mediation, with the roles of counsel and business executive more precisely defined. The neutral is often expected to evaluate the parties' chances of success in litigation. The CPR Minitrial Procedure provides ground rules and a commentary. Features of mediation and the minitrial can be combined. A mediator conducting a mediation proceeding may stage a meeting resembling the minitrial “information exchange.” A minitrial neutral adviser frequently plays a mediating role in the negotiation phase, whether or not such a role was contemplated at the outset.
Professors Stephen B. Goldberg and Frank E.A. Sander have developed an analytical method that encourages each party to articulate its objectives in the dispute and to appraise the likelihood that any of five ADR procedures — mediation, minitrial, summary jury trial, neutral evaluation or arbitration/private judging — will overcome the impediments to settlement. Two charts the practitioner may use in applying the Goldberg-Sander analysis and a commentary appear at 12 Alternatives 49 (April 1994). Goldberg and Sander refer to mediation as the “presumptive” choice, recognizing that in most cases the analysis will lead to the conclusion that mediation is indeed the most appropriate procedure.
Outlined below are factors to be considered in deciding whether mediation is appropriate.
The factors favoring mediation are likely to be particularly strong when, but for the dispute, the parties would or could be in a business relationship. The settlement then may well take the form of a renegotiated contract or some other business deal.
Where the parties are unevenly matched with respect to business sophistication, economic resources, or information concerning the underlying facts, the “stronger” party may be able to impose lopsided settlement terms. However, this imbalance is not necessarily a reason to reject mediation. The imbalance may well be offset by the caliber of the person(s) representing the “weaker” party, and a settlement through mediation may be more desirable for even a “weak” party than the alternatives of direct negotiation or litigation with its “win-lose” outcome, high costs and other burdens. Mediators may be effective in counteracting “power imbalances” to facilitate an equitable solution.
Personal and emotional factors cannot be ignored. Animosity is likely to get in the way of unaided negotiation and to underscore the need for skillful mediation. A key function of a mediator is to defuse hostility and distrust and to encourage cooperation.
Bringing about a settlement may be more difficult if there are numerous parties with dissimilar interests; however, mediations involving many parties are becoming commonplace and are frequently successful.
Fact Issues Predominate
Cases involving predominantly fact issues or mixed questions of fact and law tend to be well suited for mediation. In mediation, the parties need not resolve fact issues to agree on a resolution of their dispute.
Even when a party believes that a vital interest rides on the outcome of a case, it may well favor mediation over the uncertain decision of a judge, jury or arbitrator. The parties remain in control of the outcome; if the mediation is unsuccessful, other options remain. If the stakes are moderate, mediation may also be appealing; for one thing, the cost and burdens of litigation may be disproportionate even for the winner of a lawsuit.
Opportunities for Joint Gains
Many business disputes are not zero-sum games; the issue is not, or need not be solely, whether X owes Y money, and if so, how much. Frequently, there are opportunities for non-cash settlements which a court or arbitrator generally cannot impose. Even if the subject matter is limited to money, there may be differences in the availability and cost of credit to the parties, or in the value of delayed payments, which can be exploited to add to the value of a settlement to each side. Development of such “value-creating” solutions requires cooperation between the parties. This is easier to foster with the help of a mediator.
The direct and indirect costs and burdens of full-scale litigation are likely to be of a different order of magnitude from those of mediation. Even parties with ample resources are likely to welcome the potential savings in transaction costs.
Parties to a business dispute frequently are anxious to avoid placing the details of their transactions in public court records and exposing them to media publicity. The privacy and confidentiality of mediation is likely to be seen as a significant advantage.
Barriers to Settlement
Only 5%-10% of all civil lawsuits are tried. Most cases settle. The primary aim of mediation is to facilitate faster, less costly and more productive settlements. Common barriers to settlement are outlined below. These barriers should be identified and addressed in a mediation proceeding, and often they can be overcome.
Perceptions can differ about a number of issues relevant to settlement. Do the parties have different views regarding what the facts are? Do they disagree about what proposition the facts prove? Is this disagreement based on each side having access to limited information? Is disagreement primarily the result of each side's partisan assessments of the evidence and its implications? Do the parties have different views as to how the law will be applied or as to the likelihood of success at trial? Do the parties have different views of what is at stake? Do they make different assessments concerning the value of those stakes? It is very common for each party to be unduly optimistic about its chances of success at trial, particularly during the early stages of litigation. A mediation proceeding is likely to lead to a much more realistic appraisal and thereby greatly enhance prospects for settlement.
Extrinsic Pressures, Linkage
Are there pressures working on one or more parties that cut against prompt settlement? Do time constraints operate differently on the parties? Is resolution of this dispute linked to other similar disputes, pending or contemplated? Does either side have constituencies that would criticize a settlement? Are there “strategic” considerations to avoid settlement, e.g., to discourage other suits?
Communication problems between the parties or their lawyers are a common barrier. Does the negotiation process afford sufficient opportunities to devise and explore settlement options? Do the lawyers have different incentives than the parties in interest?
Need for Discovery
An attorney determined to “leave no stone unturned” in discovery will not readily agree to mediation before discovery is completed; however, limited discovery can be conducted within the mediation framework, and the submission agreement can define the scope of discovery each party may conduct and establish a time schedule therefor.
Delay Considered Advantageous
A party may believe, rightly or wrongly, that it will benefit from delay; but, when a dispute arises while a business relationship is ongoing, both parties have an incentive to put the matter behind them. Even when there is no continuing relationship, there are likely to be advantages to all parties in having the matter resolved.
Are all of the parties with a stake in the dispute available for negotiation? Should non-disputants with a stake (e.g., insurers) be invited to participate? Mediation is more successful when all individuals or entities with an interest are included, either by participating or by being kept informed.
Even such inactive inclusion reduces the prospect of their later opposing the mediated settlement.
Many attorneys remain concerned that a proposal to mediate will be seen by the adversary, however incorrectly, as leading from weakness. When the dispute is in litigation a judge's suggestion to try mediation often is welcomed by both sides. The CPR Corporate Policy Statement on Alternatives to Litigation serves the purpose of overcoming hesitancy to take the initiative on the part of a signatory. Contractual commitments to mediate future disputes greatly increase the likelihood that mediation will take place, and at an early juncture of any dispute.
The CPR ADR Suitability Screen (CPR, 1996) poses 30 questions, which provide a disciplined, analytical process for appraising a dispute's suitability for mediation. The screen will identify many of the factors that bear on suitability. The weight to be given to each factor must then be assessed. In certain cases the answer to a single question may be dispositive.
The Mediation Process
There is a continuum of approaches to mediation, going from “facilitative mediation” to “evaluative mediation.” The mediator, meeting jointly or separately with each party, usually first explores with the parties their underlying interests. Having identified these interests, the mediator and the parties explore opportunities for a creative solution, such as a mutually-advantageous new business arrangement. This approach is likely to be most effective when a business relationship already exists between the parties. In facilitative mediation the mediator ordinarily will not offer opinions on the merits of the case or the positions of the parties.
Frequently, parties harbor vastly differing estimates of litigation risk and the likely outcome of trial. In evaluative mediation, the mediator, through careful questioning, usually in private caucuses, may focus more on the strengths and weaknesses of the parties' legal rights to assist them in assessing more objectively the likely outcome if their case were tried in court. In this way, parties may be better able to weigh the advantages of settlement against the benefits and risks of trial. This approach is likely to be used if the case does not present opportunities for interest mediation or if the interest mediation approach has been unsuccessful.
Many cases call for both approaches. The two approaches can be combined or alternated, with the mediator developing an evaluation during the later phase of the mediation on one or more remaining issues after interest-based mediation has been partially successful in moving the parties toward settlement. The mediator should address an evaluation only on an issue on which he or she has expertise.
There are different ways for mediators to be evaluative, reflecting various levels of intrusiveness on the parties' own decision-making. Timing may determine when one or another of those approaches is appropriate. The earlier in the mediation, the more restraint the mediator should exercise, given the mediator's need both to build trust and to understand (and be perceived as understanding) the parties' case. Mediator approaches may range from questions about the parties' case and elements of proof and asking a party to respond to the other side's arguments, to offering opinions about elements of a party's case, opinions about the strengths and weaknesses of a party's entire case, or to expressing opinions about how the court is likely to decide the case (subject to any limitations under any applicable mediation statutes/rules, court rules or ethical codes) or proposing a settlement. A preferable approach is to draw an evaluation out of the party representatives and counsel, aided by the mediator, but not solely delivered by the mediator. An evaluation of the likely court outcome or a settlement proposal should only be given with the prior consent of all parties as a final step to avoid impasse and stimulate a settlement. Once having given an evaluation, the mediator's influence is likely to be impaired in the view of a party whose position is weakened by the evaluation.
There is no one right way to conduct a mediation. The CPR Mediation Procedure represents a process that appears logical and has proven effective in numerous cases. It can be modified to fit the circumstances of the case and the wishes of the parties.
Initial Consultation with Mediator
The initial consultation of the parties with the mediator serves several purposes:
- The parties are given an opportunity to size up the mediator. If one or more parties do not gain a favorable impression, a substitution may be proposed, to which the mediator should freely agree.
- The mediator will discuss the entire mediation process, including the ground rules, with the parties. They may agree on modifications.
- If they have not done so previouslly, they should develop a retention agreement with the mediator (see Model Agreement Form, above).
- A meeting schedule may be discussed.
- The mediator and the parties will discuss the role(s) the mediator will play.
- If appropriate, the parties will begin to familiarize the mediator with the dispute.
- The mediator can confirm that the parties have a genuine interest in resolving their dispute through the mediation process, and that they have the persistence to stick with the process.
- The parties' representatives will begin to talk to each other in a manner appropriate to their joint goal of reaching an accommodation.
- There will be discussion of who will represent the parties at future sessions, and the extent of their authority. If the stakes are large, it may not be possible for the negotiators to have complete authority to sign a settlement agreement, but each should have authority to negotiate a settlement, and the authority of the negotiators should be comparable.
- The exchange of certain documents may be discussed, as well as a form and schedule of mini-discovery, if necessary.
- If litigation is pending between the parties regarding the subject matter of the mediation, the parties and the mediator may discuss the suspension or curtailment of discovery and other pre-trial activities. They also may discuss whether the court should be informed of the mediation, and whether court approval of curtailment of pre-trial activities is required.
In a relatively simple case, a discussion of the preliminary matters listed above may be followed immediately by a joint session such as described below.
Familiarizing the Mediator with the Case
The mediator must be familiarized with the dispute, and the parties must be given an opportunity to state their case. The mediator usually will ask the parties to submit on an agreed time schedule such written materials as the mediator or the parties consider necessary or advisable. A statement summarizing the background and status of the dispute is likely to be the principal document.
It will be helpful to the mediator and the submitting party if its submission includes a confidential analysis of the party's underlying interests and needs and a realistic evaluation of its litigation risks. The mediator may request the parties to jointly prepare a written statement of facts. Their doing so would clarify areas of agreement and disagreement and perhaps would help narrow the latter. The joint preparation also would help foster a cooperative spirit between the two sides at an early stage in the process. If litigation is pending, court documents such as pleadings and briefs may be submitted. If an exchange of certain documents between the parties has been agreed upon, that exchange also should occur during this phase of the proceeding.
Joint Sessions and Caucuses
Following submission of written materials, a joint session is likely to be scheduled at which the parties' representatives and/or their counsel will state their views orally in an informal manner and will address the conflicting views of the other party or parties. Each party will present its views in what it considers the most effective manner. Usually there will be opportunities for rebuttal and for discussion and clarification of issues. Rules of evidence will not apply and the presentations will not be transcribed. The mediator will prescribe the sequence of presentations, may impose time limits and is likely to ask clarifying questions.
Opening statements are of great importance. They represent the first opportunity each side will have to hear uninterrupted what the other side considers to be its best case, and, if the client speaks, to hear what is important to him or her. Each side will also have the opportunity to assess the other side's representative as a witness. All participants should be prepared to listen with an open mind. They may learn things that lead them to reevaluate their case, or to identify new possibilities for settlement.
Following the joint session, the mediator may caucus with each party. The parties tend to be more candid in such a private meeting. The mediator may well elicit in confidence information not disclosed at the joint session. The mediator may explore certain aspects of the party's presentation and may request additional materials. The mediator will explore with each business executive his or her company's underlying interests and aims, will identify barriers to settlement and will help the parties address those barriers.
When strong hostility exists between opposing party representatives or their attorneys a joint session may be counterproductive. Under those circumstances the mediator may decide to meet with the parties separately from the beginning.
The mediator must understand the case fully from each side's perspective; the mediator should then assure that each side better understands how the case looks from the other side's viewpoint. The mediator, to be effective, must keep fully informed of all developments and must be able to control dialogue between the parties.
Even when there are no issues of credibility, the “facts” relevant to a dispute can be elusive. The party submissions to the mediator or statements made in meetings may well indicate that the parties see the facts differently, or draw different conclusions from them. At times, it will be useful for the mediator to address any such differences and seek to bring about agreement on the most salient facts and the issues of the dispute. At other times, focusing on the facts may be counterproductive if it will encourage the parties to focus on past disputes rather than on reaching an arrangement that will enable them to better deal with each other in the future. An “agreement to disagree” on past facts may still be used productively to reach a forward-looking solution. This is a case-by-case decision for the mediator.
Some controversies hinge on key factual issues which can be resolved by an independent expert operating under ground rules on which the parties have agreed. Does the machine perform in accordance with contractual specifications? Is the former executive using information proprietary to the former employer? Were the soil conditions as represented to the contractor, and if not, how much additional expense was incurred? Once such critical questions have been answered by a neutral expert, the controversy may, as a practical matter, resolve itself. Independent expert appraisals are a key part of dispute resolution.
Negotiation of Settlement Terms
Negotiation is most productive when the parties focus on their underlying interests and concerns, avoiding fixed positions which often obscure what a party really wants. The mediator can help the parties crystallize their own interests and understand each other's interests, defuse adversarial stances and develop a more cooperative approach. The mediator can narrow or expand the range of issues as appropriate for effective resolution of a particular dispute.
Settlement proposals are likely to be generated through discussion in caucus. The mediator can help each party to generate ideas, to develop options and alternative proposals that will lead to a mutually acceptable solution, and to try out unusual solutions in a relatively safe and confidential setting. The mediator can help parties frame proposals and responses in such a way as to further the settlement effort. The mediator may advance as his own a proposal made by a party in caucus to avoid the skepticism with which an adversary's proposal is sometimes greeted.
The first settlement proposal, by whomever made, is seldom the last. Usually, it will provide a basis for negotiation. At this juncture, some experienced mediators will usually engage in “shuttle diplomacy,” i.e., meet with the parties individually to try to bridge a gap or develop a more acceptable solution; other mediators are likely to conduct joint sessions to bring the parties together. When conveying one party's position to the other, the mediator must take care to state that position accurately. On some occasions, the mediator may consider it advisable to meet with the principals of the parties, separately or together, outside the presence of counsel. Any such meetings should occur only if the principals and attorneys agree to them.
Some mediators favor a “one-text” approach. Late in the process they will prepare a first draft of a settlement agreement, seek the parties' comments, and prepare successive drafts until all parties are in agreement.
Section 6 of the Procedure contemplates that if the parties do not develop mutually acceptable settlement terms the mediator, only with the parties' consent, (a) may submit a settlement proposal, and (b) if the mediator feels qualified to do so, may give the parties an evaluation of the likely outcome of the case in court, subject to any limitations under any applicable mediation statutes/rules, court rules or ethical codes. When submitting a settlement proposal it is advisable for the mediator to assure the parties that acceptance of the proposal by either party will not be communicated to the other, unless and until the other also accepts.
If agreement is reached on settlement terms, by whatever technique, a preliminary memorandum of understanding or term sheet normally should be prepared and signed immediately. Thereupon, a settlement agreement is drafted, circulated, edited as necessary and executed.
When it is clear that no agreement can be reached through mediation, other alternatives to litigation remain. The mediator may discuss with the parties whether arbitration or another form of ADR may be preferable to a lawsuit. In particular, a “last offer” arbitration would require each side to submit an offer to an arbitrator who would be required to select the offer he or she considers the more reasonable. If the parties agree in principle, the mediator may be able to help them structure appropriate ground rules. Moreover, if the parties so agree after the mediation, the mediator, if willing, could serve as the arbitrator. It is not desirable for parties to agree before the mediation that the mediator will become an adjudicator, as that may well inhibit discussions in caucus between each party and the mediator. It is also doubtful whether the mediator should serve as the adjudicator if either party, or both, have given the mediator significant confidential information that will not be placed in evidence in the arbitration but may influence the arbitrator's decision.
Why Mediation Works
A high percentage of mediations of business disputes result in a resolution. Even when agreement does not occur during the proceeding, the greatly enhanced mutual understanding substantially improves the prospects for a later agreement. Satisfaction with the process on the part of users is high.
What are the reasons for the success of the process? Each case has unique aspects, but the following factors are common:
- Disputes ostensibly between dispassionate corporate entities involve human beings endowed with emotions. The mediator can help the parties deal with emotional issues. Discussions in the presence of a mediator tend to reduce misunderstandings and antagonism frequently subsides. Concerns beyond legal issues are discussed. The process itself presents a joint challenge to all participants to devise solutions. The momentum of mediation leads to accommodation. Settlement represents success for all involved.
- Just as an impending trial often induces litigants to stop posturing and seriously seek a settlement, commitment of the parties to a mediation is likely to motivate them to “bite the bullet” rather than to postpone unpleasant decisions. The mediator will reinforce this motivation.
- The mediator can establish ground rules designed to maximize the chances of success. For instance, the mediator may first urge discussion of non-controversial subjects or those for which agreement is readily achieved and postpone consideration of difficult issues. These early agreements help build a spirit of cooperation.
- Mediation provides the parties with an opportunity — at little or no risk — to crystallize issues and learn more about the other party's perceptions of the pertinent facts.
- In caucusing with each party, the mediator can diplomatically urge that party to face facts and dispel unrealistic expectations such as over-optimism regarding chances of prevailing in court. The mediator also can point to the costs and burdens of prolonged litigation.
- Once the mediator understands the true interests of each party, he or she can recommend opportunities for common gains. Many business disputes are resolved through innovative business arrangements not previously contemplated.
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The selection of a highly capable mediator is absolutely vital. A mediator is not vested with the legal authority of a judge or arbitrator, but must rely on his or her own resources. To effectively mediate a complex business dispute, a mediator must possess a combination of qualifications. The ideal mediator:
- is absolutely impartial and fair and so perceived
- inspires trust and motivates people to confide in him or her
- has experience as a mediator
- is able to size up people, understand their motivations and relate easily to them
- sets a tone of civility and consideration in dealings with others
- is a good listener
- is capable of understanding the law and facts of a dispute, including surrounding circumstances
- is able to analyze complex problems and get to the core
- is creative, imaginative and ingenious in developing proposals and knows when to make them
- is a problem solver
- is articulate and persuasive
- possesses a thorough understanding of the negotiating process
- is flexible, patient, persistent, indefatigable, and “upbeat” in the face of difficulties
- has a personal stature that commands respect
- is an energetic leader, a person who can stimulate others and make things happen
The size and complexity of the case will influence the selection of the mediator. In a major case, the mediator might be a former judge, a leading attorney, the dean or a professor of a law school or business school, a senior executive, or a skilled conflict resolution professional. An evident flair for dispute resolution is as important as long experience.
The styles, personalities and orientations of mediators vary significantly. Some mediators are facilitative and focus predominantly on party interests and insist on party-generated solutions, while evaluative mediators focus centrally on the positions of the parties and the merits of the legal claims. Strict facilitators will not offer opinions about legal claims or court outcomes. Other facilitators will not offer such opinions unless party interests have been fully explored and parties directly request the opinions. Evaluative mediators tend to be more aggressive in forcing the parties to make frank assessments of their interests and the legal merits of their positions. Through pointed questioning and direct observations, they may force a party to re-evaluate the likely outcome of a trial. They may bypass interest exploration. A mediator's orientation will affect the mediator's techniques throughout the process, but many experienced mediators will adapt their style to the particular situation.
These differences should be borne in mind in selecting a mediator. However, in advance of a mediation parties and their attorneys may not perceive opportunities for interest exploration that a skilled facilitative mediator can uncover. CPR believes that unless it is certain that such opportunities do not exist, the parties will be best served by a mediator who can play both roles. When CPR is asked to assist in the selection process, the parties' preferences should be discussed.
An insightful analysis by Prof. Leonard L. Riskin of the roles mediators can play, “Mediator Orientations, Strategies and Techniques,” appears at 12 Alternatives 111 (September 1994).
When legal issues are critical, there may be significant advantages to selecting as the mediator a lawyer or legal academic with expertise in the field (e.g., patent, trademark, construction). Similarly, when the subject matter is technical, it may well be desirable to select a person who has an understanding of the technology. Some experienced mediation practitioners and parties, however, believe that even in legally or technically complex disputes, the key to resolution does not lie in adding yet another expert to the process. Instead, they prefer a mediator who is a skilled deal-maker and who can shift the parties' focus from resolving the legal or technical dispute to reaching a mutually satisfactory agreement.
In most cases a single mediator will be used; however, in complex cases the mediator may need assistance, and it is helpful for the mediator to be able to discuss issues or possible solutions with another neutral person familiar with the case. On rare occasions, using two mediators may be considered. They can represent different disciplines relevant to the dispute, e.g., science and law. One can possess relevant technical expertise and the other can be a deal-maker. By conferring with each other they may develop additional settlement options. In a multiparty case they can deal with a number of parties and interests. There is a risk that the two mediators may not be in sync, in which case using both actually can be counterproductive. It is advisable to confer with the potential mediators, preferably jointly, before selecting them.
The mediator may well need administrative assistance, legal research, or other forms of assistance. It is desirable for the mediator and the parties to discuss early the types of assistance likely to be needed and the mediator's resources for obtaining such assistance.
Selection of the Mediator
The parties may select any mediator of their choice. It is advisable for the parties to jointly interview one or more candidates before making a selection, and to question candidates regarding matters such as their mediation style, their training and their experience. Unless they agree otherwise, the mediator will be selected from the CPR Panels of Distinguished Neutrals. These panels consist of nationally and internationally prominent attorneys, former judges, academics and legally-trained executives available to resolve business and public disputes. The CPR Panels include: the National Panel, U.S. Regional Panels, the International Panel, and Specialized Panels in Banking/Financial Services, Construction, Employment, Environmental, Franchise, Insurance, Taxation, Technology and Trademarks. The CPR rosters and brief biographical data may be found on the CPR Web site, www.cpradr.org (click on Finding a Mediator or Arbitrator).
Parties may contact CPR panelists directly, or may request CPR's assistance in selecting a mediator. Section 2 of the Mediation Procedure requires the parties to request CPR's assistance if they do not promptly agree on a mediator. Upon receiving such a request, CPR will promptly pre-screen candidates for their availability and absence of conflicts of interest. CPR then will submit jointly to the parties in writing the names of candidates who are available, together with each candidate's qualifications and current hourly rate.
It is critical that the mediator be totally impartial and be so perceived by all parties. CPR will not propose any individual who has disclosed a clear conflict. As to candidates CPR proposes, it will disclose to the parties any circumstances made known to CPR that could cause doubt but that the parties probably will not regard as disbarring. Broad disclosure by the mediator of past, current or foreseeable future conflicts is encouraged. Because mediator conflicts of interest is an unsettled area of law and practice, full disclosure — with the possibility of party consent and waiver — is the most prudent approach for both mediators and parties. CPR will urge parties to agree on one of the candidates. If the parties do not so agree, each party will number the candidates in order of preference, and CPR thereupon will designate as the mediator the candidate for whom the parties jointly have expressed the highest preference.
The Roles of Executives and Lawyers
In a business mediation, the business executive and counsel function as a team. Business executives have the best understanding of their company's interests and are the most likely to embrace creative, business-oriented solutions. The executive should participate actively in every phase of the mediation process. It is preferable for a company to be represented by an executive who does not feel a need to defend past actions, who can be relatively objective and unemotional, but who has a thorough knowledge of the facts. It will be helpful for the executives representing the parties to relate well to each other and to be experienced negotiators. Each executive should be a decision maker authorized to negotiate a settlement, if need be subject to board of directors approval.
An executive who has had prior experience in mediation is likely to function more effectively than one new to mediation. Efforts must be made to educate the novice about the process. CPR's videotape, “Mediation in Action: Resolving a Complex Business Dispute” will be particularly useful in giving the executive a feel for the dynamics of the process.
Success in negotiation, as at trial, depends on thorough preparation on the part of each participant. As a rule, the attorney will prepare the client for the mediation. Normally, the attorney will make the opening statement, presenting the company’s views in joint session, but persuasive opening statements also can be made by executives. In any event, when it comes to discussing business interests and exploring options for settlement, the executive should take the leading role. All participants should be encouraged to speak freely.
Counsel to the company, who may be a senior in-house or outside attorney, has a critical role to play:
Counseling and Preparation
- Counsel on the advisability of settlement and mediation
- Persuade parties to agree to the process
- Design or adapt the procedure
- Select the mediator
- Select a suitable executive
- Educate the executive about the process and the legal issues
- Help the executive think through goals for the process
- Assure that the executive thoroughly evaluates his and the adversary’s BATNA and WATNA**
- Draft statements for submission to the mediator
- Prepare for effective presentations by counsel and client
- Counsel on management or suspension of litigation
- Assure the confidentiality of the process
** These acronyms are derived from Fisher and Ury, Getting to Yes, and mean Best Alternative to a Negotiated Agreement and Worst Alternative to a Negotiated Agreement. i.e., considering cost, time, turmoil, risk of court error, and how good and bad are the parties' best and worst court trial outcomes by comparison with a settlement today.
Participation in Proceeding
- Advocate in a non-confrontational manner designed to impress the mediator and other side with the reasonableness of your position
- Listen carefully to the other side's statements, so as to understand their interests
- Ask questions
- Answer questions about legal claims and issues
- Serve as a sounding board for the client, brainstorming and discussing settlement options as the mediation progresses
- Help the client articulate business concerns and formulate proposals
- Avoid compromise of the client's litigation position should the mediation fail
- Be aware of legal ramifications of possible solutions and options
- Re-evaluate BATNAs and WATNAs in light of new information
- Draft the settlement agreement and assure its enforceability
The skills required for effective mediation advocacy differ substantially from trial advocacy skills. Exaggeration or making what lawyers call “a jury appeal” is counterproductive in mediation. Arguments that are likely to offend or fail to impress the mediator or the adversary should be soft pedaled. Some trial lawyers may have difficulty adjusting to the mediation environment.
Role of Neutral Organization
Mediation services are being offered by an increasing number of national, regional and local organizations. Essentially, three types of services may be provided:
(a) Help bring parties to the table, i.e. secure their agreement to participate in the process.
(b) Identify candidates well qualified to serve as mediator in the particular dispute, secure the agreement of all parties to the
retention of one of the candidates, recruit that person and make compensation arrangements.
(c) Administer the proceeding.
Once an adversarial relationship has developed, a party who wishes to engage in mediation may be reluctant to take the lead in “selling” mediation to its adversaries or may have difficulty persuading them to mediate. A neutral organization can play a useful role in explaining the mediation process and its advantages to parties whose agreement to participate is being sought. CPR has successfully played that role in numerous cases involving both few and very large numbers of parties.
Selection of a well qualified mediator in whom all parties have confidence is the most critical step in assuring the success of the mediation. Parties often need the assistance of a neutral organization in the selection process. CPR's Panels of Distinguished Neutrals have the highest qualifications, and CPR regularly assists parties in selecting the “right” mediator.
Given the highly informal and voluntary nature of mediation, CPR believes that once the mediator is in place, the parties and the mediator do not need a neutral organization as an “administrator” of the process; indeed, the involvement of such an organization can be counter-productive. However, a number of organizations offer that service.
Role of Insurers
In certain cases one or more insurers are direct parties to the dispute, as in a coverage dispute with a policyholder or in an allocation dispute among insurers. Obviously, these insurers must be at the table.
In other cases, the immediate parties are not insurers, but one or more insurers are expected to bear all or part of the liability of a party, and any settlement therefore will be subject to their approval. Under these circumstances, it is essential for the policyholder to assure in advance that the insurers do not object to the insured's participation in the mediation. It will be desirable for the insurers to agree informally in advance to the parameters of a settlement, and for the insured to keep the insurers informed as the mediation progresses. Representation of the insurers in the mediation, or in certain phases, is common. Before agreeing to a settlement the policyholder should ascertain whether the terms are acceptable to the insurers. Reaching an agreement with the other side, subject to uncertain insurer approval, is not a desirable solution.
If insurers are denying coverage to which a policyholder believes it is entitled, or if differences exist among two or more insurers as to allocation of coverage among them, a second mediation may be in order, entirely separate from mediation of the underlying dispute or meshed with it. Sometimes it is productive to involve insurers in the primary mediation process, as well as to conduct a “secondary” insurance mediation.
“Selling” Mediation to the Other Party
The other party may well have to be “sold” on mediation, especially if it lacks prior experience. A suggestion or offer to mediate may not suffice. The advantages of mediation to both sides should be carefully explained. The proposer should emphasize that:
- The procedure is non-binding unless and until a settlement agreement is signed.
- The procedure is confidential.
- The parties retain control over the outcome.
- This particular dispute is well suited to mediation and mediation has worked in comparable situations.
- There is a likelihood of substantial savings in legal fees and other litigation costs and of a much quicker and more satisfactory outcome.
- The risk for each party is minimal.
- Mediation is much less adversarial and disruptive of business relationships than litigation or arbitration.
- The mediator must be acceptable to both parties.
- The ground rules must be acceptable to both parties.
- Either party may withdraw at any time after the first session.
- The parties may agree on limited discovery, if needed.
- The cost of the procedure is likely to be relatively modest.
- Experience shows that the chances of success are high. An 85% success rate is the commonly accepted average.
- The proposer will negotiate in good faith and trusts the other party will do likewise.
- Even if the procedure should not succeed, much will be gained through better mutual understanding, and the cost of the legal proceedings that follow is likely to be reduced substantially. If the parties have a contractual relationship and the contract calls for ADR, the relevant clause should be invoked. If the initiating party has subscribed to a CPR policy on ADR, the policy may be invoked even if the other party is not a subscriber.
Special inducements to use ADR sometimes can persuade the adversary into the process, such as:
- Monetary Incentives: Offers to pay for the initial meeting with a mediator to determine if the process can be helpful to the parties, with shared costs beyond the first meeting; offers to pay the entire mediator fee unless the mediation is successful.
- Allowing the Opponent to Select the Neutral so long as significant conflicts of interest are not present. This technique has been used so the opponent feels confident in the neutral and may accept any recommendations more readily.
When litigation is pending, a judge can be very persuasive in convincing a reluctant party to participate in ADR. Indeed, the court may have a mandatory ADR program.
When the opponent cannot be convinced to use ADR for the entire matter, isolating a key issue or factual dispute, or even the damage portion for submission to ADR, might result in partial ADR use.
Consideration should be given to who should approach whom. Who is most likely to be receptive to early settlement and ADR? Who has had prior ADR experience? Who appears to be the principal decision-maker on the issue? Success will depend in part on the persuasiveness of the proposer.
If the persons to be induced to mediate are not familiar with the process, it may help to provide them with a copy of this paper or with other reading material. Moreover, a neutral organization, such as CPR, may play a useful role in persuading parties of the advantages of mediation.
Timing of Mediation
The timing of a mediation is a major issue. The opportunities for savings in legal fees and other costs are greatest if mediation takes place early on — and is successful. In many cases the type of information exchange that can readily occur within the mediation framework will provide each side with the information it needs to evaluate its case and to responsibly negotiate a settlement. If either party believes firmly that it must engage in more extensive discovery, meaningful negotiations may have to be deferred until sufficient discovery has taken place, which still should fall far short of discovery required for a court trial. The desire to await the judge's decision on a dispositive motion is another reason sometimes given for deferring mediation.
It is not uncommon for a mediation process to be commenced, and for the parties and the mediator to agree to suspend the process until certain events have taken place.
Psychological factors can work for or against early productive mediation. The animosity often encountered at the outset of a dispute may diminish or become further exacerbated as litigation unfolds. Some persons simply are not prepared to “bite the bullet” until they have suffered the costs and burdens of full-scale pre-trial activity for awhile, but if mediation is delayed until pre-trial activity is substantially completed, the potential benefits will be greatly reduced.
Length of Procedure
The length of a mediation depends on factors such as the complexity of the case, the number and availability of the parties, the urgency, and the difficulty of reaching agreement on settlement terms. In any event, length usually will be measured in weeks, not in years. Most mediations are concluded in two to four sessions. The mediator may give the parties an estimate of the length of time required for each phase of the proceeding. Moreover, even during the early phases of the procedure the party representatives will develop a sense of the likelihood of success and of the approximate length of time that will be required. Note that under the Procedure any party may withdraw from the mediation at any time after the first session.
It is not uncommon for parties to agree to mediation on the express condition that a party will be permitted to commence litigation or arbitration if the mediation is not concluded within a specified period. Presumably that option will not be exercised if, when the deadline is reached, the prospective plaintiff is optimistic as to the outcome of the mediation.
CPR panelists normally charge by the hour. Rates vary by location and by individual and are determined in advance of appointment. Most will charge in the range of $250-$350. The number of hours spent by the mediator might be in the range of 15-25 hours, exclusive of any required travel time. CPR charges a case administration fee of $1,750 per party for a mediation and $2,400 per party for an arbitration — regardless of the amount of the claims.
The mediator's fee and other mediation expenses are normally shared equally. However, sometimes a party proposing mediation will offer to bear the expense of the early phase of the procedure in order to induce the other party or parties to try the process. Each party typically bears its own legal fees and other expenses.
If possible, the mediation should occur at a convenient neutral, congenial site — typically the mediator's office. There should be sufficient space for both joint sessions and separate caucuses. Refreshments should be available. Normally the mediator will attempt to reach agreement with the parties on the site, which need not be the same for all meetings. A site specified in a contract may be changed by agreement.
[This section is adapted from CPR's Videotape Study Guide, Mediation in Action: Resolving A Complex Business Dispute, 1994.]
Among dispute resolution processes, mediation offers a maximum degree of confidentiality and privacy. Contractual and legal protections provide additional assurances against use or disclosure of mediation statements or documents. These confidentiality protections contrast sharply with the public nature of the litigation process and its procedures that encourage public disclosure.
Parties can increase the chances that mediation participants will maintain the confidentiality of the process by entering into various confidentiality agreements.
- Parties can execute a written confidentiality agreement reciting the protections of existing federal and state laws and privileges and agreeing not to reveal any information about the process. Adoption of the CPR Mediation Procedure provides these assurances of confidentiality, proscribes transcription of meetings and requires the mediator to return documents to the originating party upon request without retention of copies.
- Mediators can execute confidentiality agreements as part of their retainer provisions. (See Form of Model Agreement for Parties and Mediator Proceeding, annexed to the Mediation Procedure.)
- In the event of witness or expert attendance at mediation, some parties and mediators take the precaution of having them sign a confidentiality agreement as well.
Confidentiality contracts are well advised in view of limitations, gaps and variations in existing statutory confidentiality protections. Some courts may intrude into mediation confidentiality since the law is still developing in this area. There is also uncertainty whether federal courts will apply the confidentiality statutes of states in which a mediation is held. Nonetheless, confidentiality agreements may support party damage claims in the face of party breach. Some mediators may require indemnification from the parties for expenses they incurred in defending the confidentiality of the process and the documents it produces.
Statutory Protections. Various statutory principles protect the confidentiality of mediation. They vary significantly, however, in the extent of coverage afforded.
Federal Protections. Mediation, a form of negotiation facilitated by a third party neutral, enjoys the traditional protections associated with negotiation incorporated in the following rules. However, these rules have significant limitations.
Federal Rule of Evidence 408 protects against admissibility into evidence in subsequent proceedings in which the Federal Rules of Evidence apply of settlement offers and compromises made in negotiations over a disputed claim if the evidence is offered to prove liability or invalidity of the claim or the amount. Evidence of conduct or statements made in compromise negotiations are also inadmissible.
The Rule does not bar discovery of such information or admission into evidence for purposes other than validity of the claim (e.g., impeachment). Courts will frequently weigh Section 408 and Federal Rule of Civil Procedure 26(b) in analyzing discovery requests.
Federal Rule of Civil Procedure 68 prohibits later admissibility, for any purposes, of unaccepted offers of judgment (as defined in the rule) made in negotiations conducted during litigation.
State Statutory Protections: Varied Coverage. While ADR evidentiary or procedural codes of most states protect mediation confidentiality, the extent of such protection covers a wide spectrum. Often the statute is tied to a particular type of mediation or program.
Some statutes have broad coverage. For example, California Evidence Code, §§ 1115-1128 protects any admission made or any evidence of anything said for the purpose of a mediation or a mediation consultation. If a person subpoenas a mediator to testify or produce a writing and the subpoena is quashed, attorney’s fees and costs shall be awarded. In Massachusetts, mediation is confidential only if the mediator satisfies particular training, experience or affiliation criteria in the statute and if the agreement to mediate is in writing (Massachusetts Annotated Laws, Chapter 233, § 23C). The Texas Civil Practice and Remedies Code, § 154.073, protects all private or court-related mediation participants from compulsory process and makes all ADR records confidential.
While privileges often are created by statute, case law is developing at the state and federal levels applying privileges to mediation and other facilitative ADR processes. Privileges may be applied wholly outside any specific ADR statutory provisions.
Special confidentiality rules applicable to court-related mediation may apply. Such rules need to be reviewed to determine their scope and protections.
The best time to agree on a sensible way to resolve a business dispute is before any dispute has arisen. Once one has erupted, it can be much more difficult for parties to agree about anything. CPR strongly encourages the inclusion of multistep ADR clauses in business agreements, calling for the following steps, with appropriate time limits on steps 1 and 2.
- 1. Negotiation between Executives
- 2. Mediation
- 3. Arbitration or Litigation
Drafting Dispute Resolution Clauses (CPR, 2006) offers a variety of sample clauses and commentary.
A clause providing for mediation of future disputes appears in Section 1 of the Mediation Procedure.
Whether or not the parties' business agreement provides for mediation, they may enter into a submission agreement such as that set forth in Section 1 of the Mediation Procedure once a dispute has arisen and they have agreed to engage in mediation.