I have commented previously here on the characteristics of disputes that are appropriate for resolution by mediation. With the large number of mortgage foreclosures anticipated during the rest of the current recession, only some of which are anticipated to be prevented by federal mortgage refinance and modification guidelines , one may wonder whether it makes sense for state court systems to implement mandatory mediation programs as an adjunct to court determination of these foreclosure actions. Perhaps you saw CNN video footage of a Florida state court's rapid fire processing of foreclosure actions. The Florida Bar has recently proposed mandatory mediation of foreclosures (perhaps they saw the video footage too). Apart from the policy and political implications of this proposal, is mediation likely to have a beneficial effect on the court administration of a large number of foreclosure actions?
Some states, such as Connecticut, have already implemented such mortgage foreclosure mediation programs, while New York, where I hang my hat, has not (New York requires, with respect to subprime mortgages, for homeowners to receive 90-day pre-foreclosure notice to alert borrowers that they are in default or foreclosure and advise them that there may be help available. Another provision establishes mandatory settlement conferences to bring a borrower together with the party initiating the foreclosure proceeding to attempt to reach a satisfactory conclusion. No mediation is called for in these settlement conferences).
Which court system has got it right?
I think mediation is probably not an apt dispute resolution mechanism in the mortgage foreclosure context. There is no real relationship between the parties in which interests and objectives can be worked through. The lender wants to maximize its net present value. While there may be information that the homeowner can provide the lender that will lead the lender to pursue modification as opposed to foreclosure (hence the New York mandatory subprime pretrial conference), there would be nothing tangible that I see that a mediator can add to this informational exchange that would enhance the resolution of the dispute.
Moreover, while there may be substantial asymmetry in knowledge and resources available to the foreclosing lender and the homeowner that should be addressed (hence the New York mandatory pre-foreclosure notice of where to get help), mediator neutrality would seem to prevent a mediator from expanding upon the type of information the homeowner could get from the local legal aid/housing rights office.
So what would mediation offer of any tangible benefit to the process beyond the information and meeting requirements set forth in the New York statute?
Wednesday, March 4, 2009
Mediation and Mortgage Foreclosure
Saturday, September 6, 2008
The Mediator's Settlement Meter
When I accept a commercial mediation and have reviewed the parties submissions, I like to schedule a conference call before the mediation to do a number of things, such as review the mediation process that I like to use, and confirm that the client representatives have the requisite case knowledge and settlement authority (and confirm that each party accepts as qualified the other party's representative). During this call, if I believe that my mediator's settlement meter grades the prospective mediation with a high score, I also want to affirm to the parties my confidence and expectation that this mediation will result in a settlement. Akin to a pre-mediation pep talk. What is my mediator's settlement meter and how do I read it?
I have found the following variables to be highly indicative of whether or not the mediation will result in a settlement. These variables are:
1. Are the parties reasonably comparable in economic strength? If one party is substantially stronger financially, that party can be expected to take an uncompromising stance in the mediation and try to wear the other party down in litigation. Not much settlement potential here.
2. Do the parties share the blame for the conflict in a relatively equal manner? A mediator can get the sense of whether there is shared blame in the conflict by reviewing the pre-mediation submissions. I am not talking about figuring out what the settlement might be in substantive terms, but simply whether there was problematic activity on both sides. The parties each will have to empathize with the other party's interests and needs in order for there to be any chance to achieve settlement. That empathy is less likely to be forthcoming from a party if it can reasonably be said that the other party is substantially more at fault.
3. Is this a significant conflict? If the matter is not that important, there will be less incentive to settle. This may sound counter-intuitive, but I have found that the gains to be achieved from settlement must be important for a party to take the mediation seriously and see the benefits of settling now; if these gains are not important, because the controversy itself is not that significant, it is too easy for a decision-maker at the mediation to delay and defer to continued litigation, as opposed to making a decision to settle.
4. Are the transaction costs involved in litigation sufficiently large for the parties to wish to avoid these transaction costs through a mediated settlement? By litigation transaction costs I include not only the actual lawyer fees and other costs of conducting litigation and the operational distraction to management, but also the probabilistic damage award that may be payable or received as a litigation outcome. If the parties can be said to share the blame, then there should be in a party's realistic assessment of the cost of litigation a significant damage award (or failure to obtain damages) that the decision-maker should try to avoid by settlement.
5. Is the conflict in the proper procedural posture? Ideally for a settlement, there should have been at least some discovery taken and preferably a failed motion for dismissal or summary judgment. The parties will then know something about the other side's case and realize that there will be a full trial in the case. If the case is too early in development, the parties may not know enough about the other side's case to understand fully the benefits of settlement, and if it is too late in the case, the parties may have sunk too much of an investment in the litigation to fully embrace mediation as a cost-effective solution.
Friday, August 8, 2008
The Mediator's Proposal (Also, the Difference between Party Offers and Proposals)
If offered at the wrong time or in the wrong way, a mediator's proposal can fall as flat as the plains of Kansas onto the mediation table. If offered at the right time and in the right way, it can crystallize a settlement process, much like a sand grain can lead to a pearl. How and when should a mediator offer a settlement proposal?
First, don't get in the way of the parties' own proposals. Now, I distinguish a party proposal from a party offer; a party offer is a low/high ball number which just invites the other party to reply with something equally as unavailing. The next offer is a baby step towards the middle, and so on. A party proposal is something that is carefully thought out and supported on a principled basis, and while it can be expected not to be immediately accepted by the other party, it does reflect some understanding of the other party's interests and objectives.
Usually, parties make many offers, but very few real proposals.
Second, don't introduce a mediator's proposal unless and until each party has had the opportunity to vent, explain its current position, explain its needs, motivations, interests and objectives, and has demonstrated some capacity to understand those of the other party. Moreover, there should be some time devoted to having the parties empathize (meaning understanding the other party's presentation, even if not agreeing with it), and having each party recognize that the other party is (at least somewhat) empathetic.
Usually, parties make offers when they have not really shown empathy; these offers are slight concessions offered as discounts to "get the deal done." They are not proposals, in the sense that they do not seek, in some way palatable to the proposing party, a way for the other party to solve a problem or need, or satisfy an appropriate interest or objective.
Third, if your mediation is in a litigated matter, or immediately before litigation commences, as mine often are, your mediator's proposal cannot purport to value each party's litigating position. A mediator needs to have each side try to convince the other side of the merits and valuation of its litigation. Usually, this can create some movement, but not enough to achieve a settlement.
As a mediator, you are in no position to jump in and offer a meaningful valuation of a party's litigation. I know, mediators do this all of the time, but they are really just bloviating (all for a good cause, mind you), or their egos have been pumped up on kool-aid. Even if you have read a full record with briefing materials supplied to you as mediation submissions prior to the mediation, all a mediator can really do is assess whether or not a certain claim makes some sense and whether a party's position is reasonable. That's plenty to work with, by the way, but that provides a mediator no special competence to say the litigation is worth x or y to any particular party. Maybe a mediator can say that the litigation is between one party's x and the other party's y, but isn't that sort of self-evident? And even if a mediator could correctly value a case, the parties are still going to resist because they know they will have to litigate this case if the mediation doesn't settle the conflict. So they will maintain a showing of strength even as they assess the wisdom of making concessions.
Here's the key: just as a mediator must recognize that the mediator cannot convince the parties it has any special competence that should lead it to adopt the mediator's valuation of the case, the mediator does have the strength of the mediator's neutrality in being able to offer a proposal that sounds in fairness.
The mediator can ask the parties to put two pins on a litigation valuation map, identifying where each party's litigation valuation rests, whether or not the parties have been making mere offers or have been able to make constructive proposals. Then the mediator can offer an alternative path, which the parties can assess as an alternative to further analysis of litigation value: a neutral mediator's proposal.
Now, some mediator proposals are apparent, even to the parties, after all of the prior discussion, and other mediator proposals require some creative analysis, on the mediator's part, of the parties respective interests and objectives. But the mediator proposal is ready to be made when the mediator believes he or she has reached an understanding of what would be a fair result in the matter.
If a mediator can express empathy, in the sense of explaining why the mediator's proposal solves some of each parties interests, and be assertive, in the sense of explaining why the mediator's proposal does not solve other of each parties interests, then the parties have two alternatives to choose from: the separate pins on their litigation valuation map, and the mediator's proposal.
My next blog entry will seek to assess which conflicts might prove to be more receptive to a mediator's proposal than others.
Friday, July 4, 2008
Finding Those Fifty Cent Dollars
Party A thinks it owes fifty cents to Party B. Party B believes it is entitled to a dollar. Simple solution, right. Just have Party A pay Party B a fifty cent dollar. How does a mediator find those fifty cent dollars?
In reality, they are all around.
When you go to the supermarket, you prefer a half gallon of milk to $4 in your pocket. The supermarket prefers to sell you for $4 a half gallon of milk, for which it paid the farmer $2, than to keep the milk in its case. Markets are where fifty cent dollars are traded, whether they are stock markets, supermarkets or the tag sales that sprout up on country roads on the 4th of July.
Buyers usually do not begrudge the seller for selling a fifty cent dollar, because the fifty cent profit is only a business profit...nothing insidious, no suspicion that the seller is reaching into the buyer's pocket. The buyer either thinks the product is worth a dollar to it, and is not concerned that the product cost the seller fifty cents to make, and the deal is made, or seller and buyer pass like ships in the night.
Parties in conflict have a much harder time finding their fifty cent dollars than parties seeking to consummate a normal transaction. There is a pain sharing formula which is not easily shared between settling parties...each wants the other to give up more. This kind of behavior is as common in settling mode as it would be peculiar in normal transaction mode.
That is why in mediation, after the parties discuss and understand each others' positions, interests and objectives, the mediator is well advised to transition the discussion to considering value-creating trades. These are trades that may have nothing to do with the conflict, but which enable a party to pay fifty cents, and be satisfied, and enable the other party to receive a dollar, and be satisfied.
Saturday, April 19, 2008
Stupid Mediator Tricks (4)
Visualization and "As if" negotiation.
I have been thinking about the applicability of visualization and "as if" social activism to mediation. Maybe mediators focus too much on having each party focus on themselves: on their own interests, and on trying to understand and appreciate the other party's interests.
Maybe mediators should focus more on the settlement itself: by having each party visualize the settlement, and negotiate "as if" there was no choice other than to settle.
At some point in the mediation, maybe I will call a timeout and have each party visualize the settlement. No doubt they will say, "What settlement, we are not even close!" But I will say, visualize it and tell each other: What it feels like. What it has accomplished. What it permits the parties to do going forward. Maybe even what it looks like in substance, but if I go this far, I would want to hear more about what the substantive terms do for each party, how they make each party get something important, rather than what the precise terms are.
Also at some point in the mediation, maybe I will call a timeout and have each party agree to negotiate in a way "as if" there is no BATNA, no alternative to reaching a settlement. Michael Pollan discusses "as if" behavior in a recent article about what each person can do to help deal with global warming. Essentially each person must suspend disbelief that social change can be accomplished one person at a time. Each person must act as if each person's personal attempt at living a more green life will actually retard global climate change. If everyone acts "as if," then one by one our green decisions accumulate, and we all will accomplish social change. If everyone says that no one person can affect global warming, so why bother, then social change will not happen.
I think everyone has had the experience of being in a situation where you decided to act in a way where you would not accept an available alternative. Maybe something as simple as you are running a race and you are getting tired, and you know you can drop out, but the thought triggers a wave of shame and you say to yourself, "no, I am not going there."
If you want social change, act as if what you do will achieve social change, as if what you do matters. If you want a settlement, negotiate as if there is no alternative, as if the settlement matters.
If I pursue this stupid mediator trick, then my main job becomes making sure each party is negotiating "as if."
Wednesday, April 16, 2008
Stupid Mediator Tricks (3)
Something Mnookin points out in Beyond Winning grabbed my attention. He stated that a productive negotiating posture for parties to adopt is to maintain a dynamic between assertiveness and empathy.
You should maintain assertiveness when stating your own interests and objectives, showing that you take them and your arguments seriously. You should maintain empathy for the other party when the other party negotiates, to understand the other party's interests and objectives by adopting the other party's perspective, seeing what the negotiating table looks like from the other side. I was struck because this same dynamic between assertiveness and empathy was what I have been telling my son is the the essence of leadership.
There is precious little leadership training in high school. This is not viewed as an academic subject, at least for students at this age. Doesn't make sense to me because I find it interesting to discuss with my son.
I might have a conversation with my son that goes like this: what would make people want to listen to you and follow your recommendations? By making sure, first, that you really know who it is you are talking to and where they are coming from, so that you understand their questions or needs in the way that they feel or understand them; and, second, by not being wimpy about where you stand and what you think. Thoughtful yes, but wimpy no. (But don't go over the top).
So now, I think I am going to start some mediations by saying I am looking for some leadership to be able to settle this conflict. Ah, making leaders, that's what mediators do.
Monday, April 14, 2008
Why Mediation is Not a Pre-Trial Trial
The biggest impediment to a mediated settlement in commercial cases is the inability of parties to regard mediation for what it is, as opposed to a pretrial mini-trial.
Parties settle conflicts in mediations, they don't win mediations. Litigators who appear at mediations often don't sufficiently appreciate this, certainly not as much as their clients. Which is why I will probably start making even more certain that only those client representatives who have sufficient stature to think for themselves and authority to act for the client appear at mediations.
Mediations are not mini-trials because mediators are not judges or juries. Thankfully. Mediators do not stand in judgment, and they have no institutional or personal competence in deciding who should prevail in a conflict. Indeed, mediators generally shun the notion that any party should prevail in a conflict, as if conflict was sport.
To the extent mediators do their job, they help the parties themselves discover for themselves meaningful ways to accomplish their goals without undergoing the time, expense and risk of litigation. Litigators seek damages, and perhaps another judgment that they can list on their resume for the next time they pitch a general counsel for a beauty contest. Clients want to a reasonable, risk-adjusted settlement to a problem, so that their business can focus more on profit generation than liability containment.
While there are cases that go to the heart of the way a firm conducts business, even these cases are typically better settled than pursued to a win/lose result. Settlements often become ways for a business to create goodwill even as it eliminates a risk.
Mediators are in the goodwill generating business, and litigators often don't appreciate how much goodwill can be created out of conflict.
