A generation ago, mediation of construction disputes was unusual. Today, it is rare that a construction claim goes to trial without some effort at mediation first. Indeed, a substantial percentage of construction contracts require mediation as a precondition to filing suit or demanded arbitration.
Still, as pervasive as mediation has become, misperceptions about mediation persist among the contractor population generally.
What does a mediator decide? Who controls the proceedings? Is there such a thing as binding mediation? How confidential is confidential during and after a mediation?
What Is Mediation?
Mediation is simply a facilitated negotiation. The mediation is between the parties to the dispute. The mediator decides nothing. Primarily, he helps the parties negotiate, but he also can provide a valuable function in using the merits of a dispute or, perhaps, each side’s particular motivation for wanting to settle as a way of encouraging the parties toward a common resolution.
Parties to a mediation must always remember that they own the process from beginning to end. If they do not like the way a mediation is conducted, they can change the rules. Indeed, failed mediations often results in the parties settling a matter without the mediator’s help.
Fully Committing to the Process is Difficult
Like any difficult negotiation, the successful conclusion of a mediation is usually preceded by a few tough decisions. Even in successful mediations, the parties rarely realize their fondest hopes. Rather, they arrive at a resolution that they can live with, given the alternative of trial. But, there is a natural reluctance of those participating in a mediation to leave their comfort zones, and the parties often say and do things to convince themselves that the other side is negotiating in bad faith. They use that as an excuse for failing to negotiate, because real negotiations are risky, emotionally taxing and uncomfortable. In this way, they rationalize their own failure to negotiate. This is a mistake, because the parties can miss the opportunity to determine whether a settlement is possible.
Know what is acceptable to you and negotiate towards your goal. Pursue your own self-interest without worrying too much about what you think the other side should be doing or saying. If that does not work, at least you will know that the ensuing litigation was unavoidable.
Preparing for Mediation
Remember, the mediator decides nothing. The parties decide what they are willing to do to settle. So, yes, you and your counsel will make arguments to the mediator, but only because that may provide ammunition for the mediator to convince your adversaries of the wisdom of settling on terms acceptable to you. The other side is your audience at mediation, not the mediator.
Similarly, if you or your lawyer wants to speak directly to the other side, do so. If the mediator thinks that is a bad idea, ask him why and consider what he says. Remember though, talking directly to the other side is your prerogative to exercise as you see fit.
Additionally, if the mediator asks if you would like to commence the mediation session with a joint session involving all parties and counsel, remember this may be one of the few opportunities to speak directly with the other side. You and your counsel should use that time wisely. Think about the case as you believe your adversaries will evaluate the case, and appeal to their perceptions of the case and their motivations to settle.
So, in preparing for mediation, first understand what you need to settle, and make sure you have support for that resolution within your organization.
Second, draw up a negotiating strategy to model how you might steer the negotiations to where you want to be.
Third, write out every incentive your adversary has for settling. Most incentives will be obvious — such as avoiding the risk and expense of trial or avoiding unwanted publicity. Some will not be so obvious — perhaps your adversary can’t afford to fund the litigation, is close to bankruptcy, and needs cash quickly or perhaps your adversary’s main witness is about to be indicted. Think hard about what is likely to motivate the other side, and prepare accordingly.
Confidentiality Is at the Heart of Most Successful Mediations
There is a dual confidentiality at mediation that protects the process and helps the parties to talk freely with the mediator and one another.
First, unless a party authorizes disclosure, its conversations in private sessions with the mediator are confidential. Thus, parties may talk freely with the mediator, who is bound not to disclose these conversations to the other side without permission.
Second, the proceedings at mediation are confidential and are not to be disclosed to third parties, including the court or arbitrators hearing the litigation, if settlement is not reached.
This dual confidentiality is a powerful incentive for open dialogue with the mediator because that dialogue will be considered by a mediator and used (1) only within the confines of the mediation and (2) only if permission to disclose is granted because the mediator and the disclosing party agree that publication to the other side may help settle the case. Moreover, offers to settle can never be used outside the mediation as an admission of anything. The mediation’s dual confidentiality allows for a carefully choreographed, yet open, dialogue that usually provides the best chance of settlement.
Watch Out for Rookie Mistakes by Your Mediator
Not surprisingly, not all mediators are created equal. You should look for telltale signs that your mediator will be ineffective. Here are a few common mistakes.
First, good mediators will understand the facts even before the mediation session begins. Usually, the mediator will ask for a written mediation statement, in which the parties summarize the pertinent facts and may even layout their positions on settlement. A good mediator should be able to demonstrate that he has a solid grasp of the facts. If he cannot, your mediation is probably in some jeopardy.
Second, a mediator who specializes in construction disputes will often think that, as a party, you want his opinion. Any mediator who expresses his unsolicited opinion early in the mediation has probably made a huge mistake. Why? Because he has no idea whether that opinion will help settle the case. He has no idea whether his opinion conforms to counsel’s advice. That could easily turn counsel for a party into an adversary. Also, the mediator has no idea whether his opinion conforms to the positions or expectations of the parties at the outset of the mediation. Although it may seem counterintuitive, it does you no good whatsoever for the mediator to tell your adversary he should pay more money to settle than you need or expected to receive. In such a situation, you are put in an awkward position and your adversary is prematurely, and perhaps wrongfully, convinced that the mediation will not work.
Third, beware of the mediator who wants to talk with you without your counsel present. Sometimes a mediator will sense that your lawyer is an impediment to getting the case resolved. And sometimes, in frustration, a mediator believes that if he can talk to you directly, he can convince you to settle. In these situations, the client often says to himself, “Why not? What would be the harm?” But there could be considerable harm.
Remember, you have retained your counsel for a reason. He serves only you. If you did not know him or trust him, he would not be your lawyer. Invariably, when the mediator wants to meet with you without your lawyer, effectively he is saying he wants to advise you and that you should reject the advice of your counsel. Equally troubling, he may elicit information from you that your counsel would not like disclosed.
Never let a mediator get between you and your counsel. Your lawyer is there for a reason.
It’s Not Over Until It’s Over
Usually, because the alternative of full-blown litigation is so unattractive, it is important to commit to the mediation process. That does not mean you are committed to settling; it means you are committed to try.
Mediations often start slowly, and signals from the other side are often disappointing and sometimes misleading.
If, at some point, you know the process cannot succeed, by all means end the mediation. Be sure, however, that you are not misreading the tea leaves.
So how do you resolve what could be an ambiguous situation? If you trust your mediator, do not conclude that your mediation is over until the mediator says it is over. If he asks you to persevere a little longer, make sure he has a good reason for that advice, and stay.
Also, if you have made progress and had some constructive dialogue, do not simply march out and slam the door when the mediation proves unsuccessful on a particular day. It even may be appropriate, before terminating the mediation session, to meet with your adversary and to say how gratified you are that progress was made and that you hope constructive dialogue might resume in the future. Keep the lines of communication open, and, if you see an opportunity for additional constructive dialogue, go back to your mediator and see if he can help.
The Settlement Memorandum
Parties often settle their dispute in the middle of the night, when everyone is exhausted and just glad the mediation is over. Still, never leave a successful mediation without first writing out a memorandum of understanding that is signed by representatives of all sides.
Too many memories change, or negotiations get second guessed after the parties leave that mediation. Often, it is solely the settlement memorandum that prevents a successful settlement from devolving into a complete waste of time when positions change overnight because the settlement is not documented.
Mr. Ficken is Chair Emeritus of the Construction Practice Group of Pepper Hamilton LLP. He has mediated well over 50 matters on behalf of clients and has served as a mediator in several multiparty, complex construction disputes. His office is in Philadelphia, Pennsylvania.