Introduction
Commercial mediation concerns business-to-business disputes involving one or more contractual relationships where there is generally no insurance for the alleged loss or liability– meaning that the checkbook at the table belongs to the disputants, and discussion about the merits of the dispute at hand will only get you so far. The parties’ respective business realities and a host of other external factors need to be considered. This article highlights the unique dynamics of this area of dispute resolution and the typical considerations to anticipate and plan for when mediating a commercial dispute.
What Are Some Key Features Distinguishing a Commercial Case?
Mediating commercial disputes presents different challenges from those encountered in tort and insurance cases. Commercial cases are primarily driven by business interests and frequently include multiple parties, subtle conflicts, and big demands. These disputes often involve more than just money, so issues may center on goodwill, negative publicity, setting a bad precedent, market share, competitive pressures, or a host of other economic factors. While there is no pain and suffering, the time value of money is inherent, and business reputation might matter more.
Disputes arising from contract obligations can be complex, technical, and even structural. Issues regarding the formation, interpretation, or enforcement of obligations invite evidentiary disputes over the circumstances surrounding the making and performance of the subject agreement. There is a growing prevalence among those drafting business contracts of including clauses requiring mediation as a precondition to initiating a lawsuit or arbitration. This creates early mediation challenges, such as limited information with which to evaluate positions, especially since damages are calculated differently from tort claims, and what is recoverable is often unpredictable. Decision makers in business usually understand the expense and aggravation of litigation. They have companies to run and far better ways to use financial and human resources than lawsuits. Through mediation, they are able to explore the opposition’s interests, concerns, motivations, and goals.
Whose Interests Influence Outcomes in Commercial Mediation?
Getting the proper parties to the table helps avoid a frequent obstacle to achieving a negotiated resolution at the mediation. Because many businesses have a hierarchy of decision-makers, planning ensures that those needed to make a binding decision are at the table. Should they need convincing to come to mediation, both mediators and counsel would do well to remind parties of the advantages of mediating commercial disputes: confidentiality, resolution at reduced expense, removal of uncertainty as to outcome, and lessened disruption of business. Being entrenched in litigation comes with an opportunity cost of not focusing on company profitability. Likewise, the need to preserve ongoing business relationships or concern about establishing an adverse industry impact may be considered. Further, saving time and avoiding protracted litigation and any appeals should prove attractive to parties.
Many jurisdictions have rules pertaining to requirements for the appearance of a party or a party’s representative at a mediation conference. This is perhaps due to the widespread use of remote attendance via electronic communications, which has enabled necessary alternative dispute resolution to continue since the pandemic, while improving access to mediation. While it is common in corporations for more than one person to be necessary to make a decision, mediators are not there to police attendance, and given the last-minute nature of how things transpire in litigation today, lawyers sometimes struggle to identify the ultimate attendees.
To achieve a negotiated outcome, everyone influencing the final settlement decision needs to participate in the mediation to hear the points made and experience the process. If a spouse, business partner, founder, or family member (or all of the above) will help make the decision, they should attend. Without full participation, which products like Zoom help accommodate, a deal struck after a day of negotiated resolution could evaporate if the need to confer with a missing decision-maker suddenly arises. This must be balanced with attendees that are simply proverbial warm bodies or yes-men to the litigant or lawyer, who can lead to an inability to perceive valid points about the weaknesses of a particular claim.
What Makes for a Successful Commercial Mediation?
It goes without saying that trial lawyers should be prepared to try every case, even though statistics tell us most cases settle short of trial. Success in commercial mediation is dependent upon adequate preparation of counsel and the client. A lawyer should know the important facts of the case, both good and bad, and be educated in the law applicable to the claims and defenses, including the latest case law (not hallucinated artificial intelligence citations). The mediator can help parties engage in a private risk assessment of the strengths and weaknesses of the parties’ respective positions, a cost-benefit analysis, likely results of litigation, and the potential expense. Only after such risk analysis will the parties understand how the cost of the litigation alternative for testing the validity of their stated positions and assumptions might be better applied to items on the table worth discussing, allowing for a proper evaluation of whether a settlement makes sense.
Mediators assess the ability of advocates using the quality of mediation submissions as evidence of readiness for trial and the acumen of the lawyer. Failing to submit a requested summary in confidence or merely sending a large PDF of documents misses an opportunity to frame the issues and inform the mediator of the nuances in advance of the conference. Candid submissions are better than shared ones that repeat advocacy already apparent in the court file. Of course, key pleadings, evidence, admissions, deposition excerpts, photos, and videos are appropriate. A pre-mediation phone conference with the mediator can help explain more than an exchange of demands and offers. Determining the presence and status of any commercial insurance coverage is helpful to know as well. It is also important to appreciate whether the parties have preserved data in litigation holds or plan to engage in E-Discovery of electronically stored information subject to production in the dispute, which costs can overshadow the amount in controversy.
Determining opening postures for a joint session based solely on the result a business client seeks is dangerous. While probably the first opportunity to convey to the opponent that they face a formidable adversary capable of litigating the case to conclusion, there are benefits to both parties acting sensibly at the outset of a commercial mediation. Keep in mind, there are regional differences as to even having a joint session. Whether clients themselves say anything of import during the joint session should really be decided in advance. A sophisticated and well-prepared party can appear reasonable, convincing, and even speak better about a particular point than counsel. A sharp mediator will encourage the parties to save nothing for trial. It is also important to acknowledge weaknesses where they exist and explain why anticipated weaknesses may not really exist. Reasonableness and willingness to listen must prevail if a mutually acceptable outcome is to be had from the process. The challenge is to help parties find value in a negotiated resolution that outweighs the value they place on pursuing the perceived merits.
The goal on both sides of a commercial mediation is to generate movement, albeit occasionally through incremental changes in position, toward a settlement. Tracking the progress of the negotiations in terms of time and money can be useful, but there is an overemphasis on midpoints that sometimes sabotages what otherwise could be a good deal, despite where it appears the settlement is heading. Skilled mediators make regular pulse checks and remind corporate clients that negotiation takes time. They are always working in one room or the other, continuing the process, and getting decision makers to consider the next move. As the mediation progresses, innovative solutions should arise as information and documents are authorized for sharing with the other party. Additionally, in some commercial mediations, there may be a point where the lawyers acquiesce to the two principals meeting by themselves, even reaching a deal without them!
How Can a Mediator Help Avoid Impasse When Dealing with Corporate Clients and Get to the Dotted Line?
Most disputes result from the breakdown of a relationship. Commercial mediators are normally able to ascertain the root cause of that breakdown. As in family law cases, there are underlying relationship issues. While it is conventional wisdom to try to separate personal from business issues, it is often the interpersonal issues that need to be overcome to reach a satisfactory resolution.
Demeanor is also important to the process, and greeting adversaries without hostility goes a long way toward getting the ball rolling. Although parties through their counsel do present their positions persuasively, it is best to avoid emotionally charged language or theatrics. For commercial litigation, the atmosphere at mediation should be more like negotiating a beneficial business deal than making closing arguments. Competitors sometimes even end up becoming new partners.
Businesspeople ordinarily view the financial aspects of a case in dollars and cents. However, commercial mediators often succeed by exploring inventive, global, nonmonetary resolutions in cases that appear to involve only monetary claims. Parties could conceivably agree to continue doing business on new, mutually acceptable terms. It is routine for parties in intellectual property cases to enter into win-win licenses or royalties, or agreements not to challenge the validity of such rights in the future.
Commercial cases commonly have many participants, as mentioned. Not visiting those participants regularly during the session leads to frustration and aggravation directed towards the process and even the neutral. Crucial to maintaining the parties' trust during negotiations is the sense that their positions are heard and communicated to the others involved. Though some litigants have deeper pockets or are alleged to be more at fault, the smaller players deserve attention as well. After all, they are in a lawsuit and have appeared, hoping to extricate themselves from it, just like the other parties seeking finality.
Of course, there are many effective strategies to break an impasse, but they have become overused and gimmicky. The bracket, the mediator’s proposal, or the silver bullet have all been seen. Creativity is case-specific and recognizing the adage that a good settlement is one neither party is delighted with, but both accept (even for very different reasons), remains a good rule of thumb. Even if a dealbreaker prevents settlement, there is still value in going through mediation, as it can yield new information through settlement negotiations. Remember, value in a case is affected by many factors beyond the merits, such as the expense and disruption of litigating all the way to trial, insurance coverage, personal exposure of a party's representative, reputation concerns, publicity, reported settlement of similar cases, and attorney experience. An adjournment may be appropriate, depending on momentum, and leaves some hope that another day in a follow-up session to resolve the remaining issues will lead to a successful conclusion.
Final Steps for Commercial Mediated Settlement Agreements
Lastly, because it is essential to get the settlement terms in writing before the mediation session is over, unless authorized representatives sign before everyone leaves, each party is potentially subject to buyer’s remorse regarding the negotiated self-determined agreement. To avoid this, it is suggested that counsel draft the desired settlement agreement language before mediation, ready to be tweaked to reflect the deal ultimately reached. This saves possibly hours of back-and-forth mediator babysitting, as well as the expense of over-lawyering superfluous language in the days that follow the conference. Commercial agreements tend to be lengthier and more intricate, but the material terms of the settlement are really not that different from the average civil case and are, of course, governed by contract law. Because many settlements are now circulated via DocuSign, AdobeSign, and similar platforms, having a flexible framework in Word or Google Docs to adapt the final agreement readily is always a good practice.