Caught in a lawsuit? What to know about mediation

Instead of proposing a payment schedule — the reaction you anticipated — the customer is saying your company failed to provide the services it’s charging for.The letter even accuses your company of committing fraud in the contract negotiations and demands that your company pay them. Then it suggests that the parties mediate their dispute before incurring litigation costs.What do you do?

Obviously, you pick up the phone to contact your attorney. But you certainly wonder, “Does it make sense to mediate this case?” Here are some things to consider and discuss with your attorney before you agree to mediation.Mediation is an alternative dispute resolution procedure that calls for an uninvolved neutral party to facilitate negotiations, usually through shuttle diplomacy. Mediators decide nothing. They may express opinions, but they have no actual power and cannot be called to testify about the case or what happened at the mediation.

Good mediators, however, encourage — some might even say pressure — parties to settle by using their powers to persuade and inform of the risks of proceeding with a lawsuit. The advantages of mediation include resolving the case without further expenditure of attorneys’ fees and being able to control the resolution — for example, deciding how to settle instead of being told by a judge or jury what the decision is. Mediation also is becoming more prevalent.

Mediation resolutions are increasing within several industry sectors. For example, the Equal Employment Opportunity Commission conducted 7,037 mediations in 1999 compared to 11,595 in 2003.

Mediation can happen at nearly any point in a legal dispute. In Minnesota courts, the judge will order the parties to conduct some kind of alternative dispute resolution, which often turns out to be mediation.

Not every case can or should be mediated, but mediation is the most commonly used method of resolving legal disputes. So the question is, do you mediate before the lawsuit starts? Here are some factors to keep in mind.

Know the reason
First, why is the other side proposing mediation? Perhaps the customer just wants to delay payment further, perhaps it thinks it can learn more about your position in the mediation without making any commitments, or perhaps its threats of fraud and damage are empty and it’s hoping it can get a better deal in an early mediation than it could if a lawsuit proceeded.

Or just perhaps the proposal to mediate is truly a genuine effort at conciliation and you should accept the offer. And maybe you should accept the offer to mediate even if the customer’s reasons for proposing mediation are not 100 percent sincere, because the mediation could still result in a settlement that would be right for your business.

Second, do you have enough information to mediate now? If a lawsuit proceeds, there will be an opportunity for discovery — obtaining documents and testimony — regarding the dispute. In this case, that discovery could undermine (or it could support) the claims the customer is making.

You may well want to spend the time and money to do this discovery, or you may conclude that you would rather do what you can to put the dispute behind you and move on.

If you do decide to mediate, give careful thought to how you are going to prepare. Too often, parties fail to prepare adequately for mediation. You need to know the facts and law concerning your position and you need to anticipate the other side’s view.

The mediator’s power to persuade and educate parties depends upon the parties informing the mediator of the facts and the legal principles involved. If parties are unprepared, they may be blindsided by the other side’s facts or unable to persuade the mediator to see their side of the case.

If the mediator cannot see your side of the case, he or she cannot persuade the other side to alter its position. So come to the mediation armed with the documents and information you need to show that the mediator should broker a settlement favorable to your position.

Along the same lines, give careful thought to who should attend the mediation. You do not want the mediator to be overwhelmed with a gang of people, but you may wish to have people who had first-hand dealings with the customer to offer perspective on what really happened. Of course, whoever attends should have the authority to make whatever decisions need to be made.

You also need to give careful thought to what could happen during the mediation. Try to anticipate the other side’s bargaining moves so you have an idea of what your response might be.

In some situations it is advantageous for the other side to state its position before the mediation, in others it is best to have them wait until they discuss their position with the mediator.

Who will mediate?
Finally, give careful thought to who the mediator is to be. Too often, parties make the mistake of thinking that they need a mediator to hammer the other side into a settlement. Such an approach rarely works.

Don’t forget, the mediator’s only power is the ability to persuade, and persuasion depends upon credibility. If the other side suggests a mediator, that is likely to be someone they trust. That trusted figure may well be more able to persuade them to alter their position than someone you thought could hammer them.

Mediation can be an excellent way of resolving business disputes. Before agreeing to mediate, however, ensure that it is the right method of dispute resolution at the right time.