Considerations for Early Mediation in Business Disputes

Every conflict is different. In some business cases, disputes can be resolved through mediation before a lawsuit is filed; and, in others, mediation won’t be productive until after a round or two of discovery is completed. It’s not always possible to know whether parties will be able to successfully resolve disputes before the filing of a lawsuit, but there’s rarely any harm in discussing the prospect of a mediated negotiation early in the lifecycle of a business dispute, even if the ultimate consensus is to wait.?

With this in mind, this post reviews three reasons commonly cited for postponing mediation, at least until after a lawsuit is filed:

• We don’t want to appear weak.
• We want to win the race to the courthouse.
• We need discovery before we mediate.

Appearance of weakness

Concern about an appearances of weakness is a response either side may express, but it’s probably more common to hear it cited by a defendant (or potential defendant). At a basic level, it’s really nothing more than a natural, human response to an attack – somewhat akin to a fight or flight reaction. But, in legal conflicts, there are so many factors to be weighed at the outset of a conflict, that its worthwhile to think hard as to whether an appearance of weakness is a relevant basis for avoiding an early mediation.

Let’s be clear, there are legitimate instances in which this is a valid concern. But, in most business disputes, an invitation to mediation at any time really shouldn’t be considered a sign of weakness. Nor should the willingness to accept an invitation to mediation be viewed as such.?

To illustrate, consider that, in most human interactions, invitations to do or participate in something are extended from a position of strength. An invitation to discuss what’s driving a conflict and ways to potentially resolve that conflict really is no different—it’s a sign of confidence.

The party proposing to engage in a conversation, even if it’s also a negotiation, actually does so from a position of strength. It is not always easy for a person to extend an invitation to meaningfully discuss a sensitive or potentially controversial subject with someone expected to hold an opposing view on the matter. Thus, the person extending the invitation is signaling “I am a reasonable person, interested in knowing and understanding your perspective, and discussing options for resolving the conflict on mutually agreeable terms.” These are hardly the traits of weakness.

The “race to the courthouse”

In terms of legal strategy, this reason for postponing mediation until after a lawsuit is filed has some merit. There can be legitimate legal, geographical, and other concerns about venue selection, for example, that a party wants shored-up before broaching the subject of scheduling mediation.

In consultation with legal counsel, this concern can be addressed and a conscious decision made as to whether proposing mediation before a lawsuit is filed realistically poses a risk to potential litigation strategies.

While the filing of a lawsuit might cause some parties to resist an early mediation, in other circumstances it could help to bring a counterparty to the table. The factors to consider on this point are too numerous and case-specific to address here. What’s important to remember is that, just because a lawsuit is filed, does not mean that efforts to negotiate a resolution may be fruitful only after extensive rounds of discovery.

Balancing the Need and Value of Discovery

In business litigation, the need for discovery before considering mediated settlement discussions is a topic that can be considered from two viewpoints – the viewpoint of a business owner and that of a litigator.

Let’s start with a recognition of the inherent value in fact-based decision-making, which in litigation is facilitated through the discovery process. The value of fact gathering through discovery, however, should include considerations of what information is already within the files of the business, what’s really needed to make a business decision about potential settlement (as compared to what is needed to try the case), and the inherent costs of the discovery process. The amount and type of information a business owner, for example, typically relies upon to make calculated decisions about risk and resolutions may not necessarily be the same as what a litigator relies upon to analyze risks relative to the prospects of a trial.

This should come as no surprise, since a business owner looks at conflict from a different viewpoint than a litigator. Most reasonable business clients view legal conflicts as problems detracting from day-to-day business operations. A litigator, on the other hand, likely sees dealing with legal conflicts?as?his business. As a result, even though both share the same goals and will work closely together to develop and implement a resolution strategy, a business owner may see the prospect of an early resolution differently—perhaps even more valuable—than a litigator.?

For example, a landlord responding to a premises claim may have strong defenses and talented counsel in place to prevail in front of a jury. If costs were not a factor, the prospective risks of an adverse judgment would seem to weigh in favor of going to trial. But, at what cost??

Perhaps the costs not only include the costs of defense (attorneys’ fees, experts, and other related expenses) but also potential lost revenue, for example from an inability to lease the premises at a higher market rate while the conflict pends. Or, perhaps, it’s as simple as the landlord isn’t able to invest and acquire new properties because the funds are needed to defend the litigation.?

The business considerations that loom in the shadow of litigation are endless and too diverse to delve into here; but you get the picture. As part of an overall resolution strategy, it’s valuable for business clients and lawyers to candidly discuss their respective attitudes about risk and costs as they relate to discovery needed to meaningfully discuss settlement strategies and the prospect and timing for a successful mediation — early or not.

A Final Note

In addition to the feeling of relief a client has once a problem is solved, it’s worth noting that many clients will be inclined not only to continue building the lawyer-client relationship on future matters, but will also refer new clients to the lawyer too. This is to say, that early resolutions are helpful to establishing long-term relationships and pipelines for opportunities to gain new business clients.?