Sunday, January 27, 2008

False Mediation

Can mediation be falsifiable?

Is there a right mediation practice? Need there be transformation? Or facilitation? Or is it "Just settle, baby?"

Who is to say that a mediator is truly practicing true or false mediation?

I attended a conference regarding mediation in personal injury cases, where insurance company defendants were discussing the relative merits of mediation versus showing willingness to go to trial. I was appalled to hear a panel member, a sitting judge, describe what he referred to as the mediation that he practices in his cases. He described his mediation by invoking the law of the jungle, predators and predation, excoriating "weak" plaintiffs and coercing them to settle by telling them in chambers that the strong defendant would devour them at trial. He seemed impressed by his analogy. I remember talking to another panel member, a retired judge, after the conference, shaking our heads as we agreed that if this can pass for mediation, then there is no useful meaning to the practice.

I think that national, state and bar accreditation of mediators is important and will eventually arrive as more courts look to mediation to relieve docket congestion. But even before we embark on a licensing initiative, we need to be able to discriminate between mediation and false mediation. Mediation is falsifiable if it parades as something other than facilitating party agreement and self-determination. To be hesitant to call out false mediation is to betray an inability to even consider taking the path to any form of mediation accreditation.


Thursday, January 24, 2008

Zone of Possible Agreement

In Beyond Winning, Robert Mnookin discusses how parties may fail to reach an agreement even if it is valuable and efficient for them to do so. The problem is that parties may not be aware that there is a "zone of possible agreement," where the range of values that the parties assign to the dispute overlap, so that a settlement value acceptable to each party would also be acceptable to the other party. This situation is a classic call for facilitation by a mediator. How does the mediator increase the likelihood of a settlement where the parties' valuations overlap to create a "zone of possible agreement?"

Take as Mnookin does the example of a negotiation to sell a used car between two parties. The seller has a reservation value of $7,000, below which she will not sell the car to the other party. She has set $7,000 as her reservation value because she has identified her BATNA, her best alternative transaction to a negotiated agreement with this buyer, as a sale to a dealer at a "blue book" price of $6,900. Seller would like to get more than this easy-to-obtain "wholesale" price, and is asking a "retail" price of $9,500.

Buyer also has a reservation price above which he will not spend for this car. He has set this maximum price at $9,000, because he could purchase a similar used car from a dealer for $11,500. Buyer thinks the dealer's warranty and quality inspection of the car before sale is worth the incremental $2,500, but is willing to forgo it in order to pay the lesser price to seller. However, buyer would like to pay as little as possible, and he counters with an offer of $6,000.

In this case, the zone of possible agreement is $7,000-9,000, and any transaction in this range would be beneficial for both parties. There is a $2,000 surplus to be distributed, which is a measure of the potential economic benefit to each party to doing the deal in addition to simply acquiring or disposing of the car. It is in each party's self interest to obtain as much of that surplus as possible, and dividing up the surplus is a zero sum game. However, if each party is unaware of the other party's valuations and objectives, they run the risk of failing to reach a deal if they only seek to maximize their personal self-interest.

Mnookin identifies information asymmetries and strategic opportunism as the principal barriers to settlement even where parties share a zone of possible agreement. Information asymmetries concern the differences in knowledge that each party has about the other party's objectives and concerns, as well as about the quality of the good being sold. As Mnookin states, "[i]ronically, the more successful a buyer is at negotiating a bargain price, the more suspicious he should be that he is being sold a lemon." Strategic opportunism can be briefly identified as that urge each negotiator has to "win" the negotiation, to outdo the other party. Often a party will seek to manipulate the perception of the party's alternatives and "bottom line." To put it bluntly, each party seeks to not only do the deal but also exploit the other party to boot.

This is a useful example to explore how a mediator can facilitate a settlement...a settlement that is in the parties mutual self-interest to make. The parties might be able to agree that a "fair" price would be $8,000 (the middle point of the zone of possible agreement) if they can collaborate to understand each other's objectives and alternatives in a way that doesn't render them vulnerable in the process, and if any questions regarding the quality of the car could be answered by structuring a process that satisfies the buyer but doesn't create unacceptable transaction costs for the seller.

The best way to discover whether there is a zone of possible agreement without rendering each party vulnerable to the other party's opportunism is for the mediator to identify each party's valuation range separately in caucus, and apply any reality-testing that may be necessary based upon the mediator's understanding of the facts and issues presented. The mediator must also be willing to sniff out the difference between a true reservation price and a purported "bottom line."

The mediator will need to continue the separate caucusing until the mediator is ready to report in open session that a settlement is possible, because there is a zone of possible agreement. Once the parties are aware that settlement is achievable, the parties can then in open session begin to explore with some more confidence each others' interests in a way that seeks in a collaborative way to determine where the surplus may be "fairly" divided.


Monday, January 21, 2008

The Mediator's Settlement Compass

One of the most unnerving aspects of mediation when I started as a mediator was the uncharted nature of the enterprise. I realized that I should not anticipate a settlement path, but rather should explore the conflict without any preconception as to what a settlement might look like, and let the parties' interests, needs, objectives etc emerge and blaze the settlement path. The question is to what extent a mediator may facilitate the settlement by gently pushing the parties to go in directions they initially resist. In other words, should the mediator use a settlement compass to select or change the direction of the settlement process?

Mind you, I use the analogy of a compass, which in my hand would always seem to jump and spin around as I moved in any direction, yielding a multiplicity of true norths. I wouldn't presume to invoke a mediator's gps, where one might plug in the conflicted start and settlement destination and call upon a detailed and certain route. Even a mediator's compass in a gps world would be a handy tool, were a mediator able to conjure it up.

Here are two thoughts to consider in conjuring a mediator's compass.

First, I believe that a mediator needs a detailed understanding of the parties' prior settlement activity, if any, before taking a first step. If there has been any prior negotiations, the mediator needs to understand what was said, how, when, and to what effect. In a case where there have been prior settlement discussions, the mediation does not really start with your arrival as mediator. After you have been briefed by the parties of prior discussions, which often can take place in separate pre-mediation conferences, the mediator may have a sense of a plausible first step.

Often, the mediator will ask parties to prepare separate mediation statements in advance of the mediation to apprise the mediator of the nature of the conflict, the alleged facts and the parties' pre-mediation view of the merits of their case. Often, counsel treat this simply as an opportunity to rehash their court papers, and the effort is truly worthless. A twist on this, especially if there have been any prior settlement discussions, is for the mediator to ask both counsel to collaborate and present a statement of the facts that are not in dispute, and even a mutually acceptable range of settlement values. Again, if there have been prior settlement discussion, a useful first step for a mediator is to ask counsel to identify what the parties can agree to in advance of the mediator's participation.

Second, in the case of a failed transaction, a mediator must learn what each party was seeking to obtain from the transaction. One reason the transaction may have failed is that the parties' objectives were not reasonable, or not as carefully thought out as they would have been had the parties known then what they know now. The perfect may have been the enemy of the good, or self-interest was overweaning. If a sensible end result can still be achieved, an end result which a party might not have rejected at the start if the party had thought of it then, then the settlement path can be made to look (almost) like just another fresh start, as opposed to the more distasteful attempt to clean up a failure.

Of course, one party may wish to move on, as the other party wishes to restart. In this situation, there is no true north path towards settlement.


Friday, January 18, 2008

The Mediator and Party Fatigue

By party fatigue I am not referring to when you decide it is time to leave a party. I am talking about that point in the mediation when the mediator would like to (a) leave the parties to their own devices, because they deserve each other, (b) wring a party's neck (at least just a little), (c) charge a premium rate, in the nature of hazardous duty pay, or (d) take a breath, smile and do none of the above.

If you choose (d), congratulations. But how does the mediator deal with difficult or unlikeable parties in a way that is conducive to settlement without being adversely affected by party fatigue?

The mediator has to empathize with and actively listen to the parties in order to get the parties to do likewise. All of the mediator's devices, such as focusing on interests rather than positions and finding common interests and needs among the many opposing incentives, will be useless if applied to parties unsympathetic to the process.

But what happens when for all of the mediator's empathy and patience, the parties remain disengaged and resistant? In one mediation involving a conflict arising out of a failed joint venture, I could not move the parties into a position of even possible accommodation. One party, the money partner, smugly presented a position of strength. It didn't help matters that it was mostly right on the merits, so in their view, why accommodate? The other partner, who needed the money and labored long and hard to develop and present the business opportunity, was tiresomely incompetent, if the truth be told. I found that not only was I frustrated in my efforts to develop common ground, I was frustrated in my effort to identify with either party empathetically to the extent necessary to effectively explore options.

I found that, in this case, it was important to be a vigilant champion of the process even if I couldn't readily become an empathetic champion of the parties themselves. This mediation ended in settlement and, to the extent I contributed to this result, it was only because I was tenacious in pursuing the process towards settlement...even though I had developed party fatigue well before the end.


Thursday, January 17, 2008

Mediation, Emotion and Regret

When I discuss mediation with other mediators, I find the most enlightening discussions do not concern negotiating strategy or what tactical tips may be pulled out of the mediator's quiver at an opportune moment, but rather the importance of understanding the parties emotion as a necessary precursor to engaging the parties in the analytic journey towards settlement.

At the start of a mediation, I usually tell the parties that I expect them to be civil, not to interrupt each other, and engage in active listening, but I also tell them that I do not insist that they refrain from expressing emotion. If a party wants the other party to understand the depth of the upset and disappointment that party is experiencing, that emotion is better expressed than repressed.

Usually counsel, rather than the parties themselves, initially take me up on the offer. Inviting a lawyer to vent can be likened to throwing red meat to a wolf. But that's fine, as the parties often seem to derive emotional release vicariously. Yet sometimes in a caucus, when I will be reality testing a party, speaking directly to the party and bypassing counsel, I will be pushed back by a party in strong terms. Parties sometime seem surprised when I ask why they don't forcefully express their views and feelings directly to the other party in open session. They often reply that they wonder whether that would be proper.

I have come to believe that when people are trying to resolve a conflict, the greatest barrier to analysis and judgment, which are necessary for settlement, is the emotional condition of the parties. For some parties, venting will suffice to clear up enough mental space for the party to collaborate in the settlement process. I believe for many parties, however, they have to go further; they must come to understand the regret they feel with respect to the matter in conflict, and dispense with it as a condition to partaking in real settlement activity.

Working through regret is essentially a process of forgiving oneself before one can empathize and collaborate with the other party in the conflict. It is an important way to permit the regretting party to become free to engage in meaningful analysis (almost as if the party must grieve at the death of the transaction that was to be).

There is an experiment by Tversky and Kahneman that illustrates how powerful a force regret is at inhibiting clear judgment:

Paul owns shares in company A. During the past year he considered
switching to stock in company B, but he decided against it. He now
finds out that he would have been better off by $1,200 if he had
switched to the stock of company B. George owned shares in company
B. During the past year he switched to stock in company A. He now
finds out that he would have been better off by $1,200 if he had kept
his stock in Company B. Who feels more regret?

By far, experiment subjects state that they would feel more regret if they were George than Paul (even though, analytically, they are in the same economic position).

Taking the experiment one step farther and putting it into a mediation context, where Paul and George each are seeking to mediate a conflict after following the advice of their stock broker, who was incorrectly bullish on company A and bearish on company B, who would you expect to have the more difficult time reaching settlement? What would you, as a mediator, have to do additionally with George that would you would not likely have to address with Paul?


Wednesday, January 16, 2008

Mediator as Neutral

The core principles of mediation practice for a mediator are to act as a neutral and to maintain confidentiality. Notice I said act as a neutral, not be fair. For important reasons that I explain below, the mediator has no business trying to be fair as long as the mediator is neutral.

By being a neutral, the mediator has no interest in the conflict other than its resolution. The mediator decides nothing as to matters of fact or law. The mediator's role is to try to understand each parties' interests and objectives, and move each party to a point of resolution under circumstances where the parties, acting on their own, would find such movement difficult.

By conceptualizing a mediator's role as being fair, two problems are introduced: first, fairness implies that each party is receiving their due by means of the mediated resolution. This creates an impediment to resolution because it causes the parties to analyze their claims in terms of their ex ante expectations that they had when they entered into the deal or situation that gives rise to the conflict. It is for the courts to provide parties their expectancy damges, to place the parties where they would have been had the conflict not arisen. In order to do this, the court must make findings of law and fact, and presumably do so in a fair manner.

On the other hand, the mediator works most efficiently if the mediator can move the parties off of their claims of frustrated expectation to the ex post analysis of what their respective interests are, here and now, and how each party may constructively move on in a way that satisfies both parties' reasonable objectives. To do this, the mediator is best served by helping each party to distinguish reasonable from unreasonable interests and objectives, given the current facts and circumstances. To be successful, the mediator should be seen as not taking sides or playing favorites; being fair necessarily means taking sides, at least that will be the way it is perceived by one (or both) of the parties.

Secondly, being a neutral may, at times, require "unfair" treatment of the parties, in the sense, that the mediator must treat the parties differently in order to create movement towards resolution. This is best done during caucuses, where a mediator may find that different types of analysis or argumentation are required for each party, based upon the parties' situations and the stage of the mediation. In a theme that I will explore elsewhere on this blog, one of the parties may require more focused and specialized effort by the mediator at certain stages of the mediation; one party may, in other words, be the party best suited to move at a "pivot point" of the mediation. The other party may be inclined to make a substantial accomodation, provided the first party resolves an issue that may only be resolvable by that party (hence, the notion that the resolution pivots around the first party).

If a mediator's true interest is to neutrally puruse a resolution, rather than to act fairly, then the mediator must be both sensitive enough to discern where and when these pivot points arise, and also free to deal with these pivot points in a manner that best promotes the process towards resolution without focusing on the substantive fairness of the result. One can be neutral and still insist that the resolution of a pivot point in the mediation should rest with the party that is in the best position to deal constructively with it. It is simply a category mistake to question whether it is "fair" to do so. Indeed, the mediator has no general competence to do so, for it is always the parties, themselves, that are the best guardians of their own fair and just deserts.


How Confidential is Confidential?

Can a mediator use confidentiality selectively as a tool, compromising it at the margins when the mediator believes doing so will promote the settlement process?

Statements by parties in mediation are not admissible in court, either by court rule or by agreement of the parties when entering into mediation. (If there is no court rule, the parties entering into the mediation must address the issue with the mediator in a written agreement before the mediation begins). Likewise, the mediator may not be called to testify regarding the subject matter of the mediation in any court proceeding. (Section 8 of the Uniform Mediation Act speaks to confidentiality where enacted.)

With this confidentiality privilege in place, the parties are encouraged to seek a settlement without recourse to strategic behavior. Strategic behavior is the sort of bluffing, posturing and otherwise negotiating in bad faith that parties often engage in when when negotiating face to face without a mediator. The mediator's role is to entice concessions by each party without each party fearing that it will be taken advantage of by the other party. Confidential caucus sessions are one means to do this, since the mediator can try various approaches out on a party in confidence, without the other party present to opportunistically sense weakness or doubt. This is a second level of confidentiality in mediation: without a party's consent, that party's statements in caucus cannot be conveyed by the mediator to the other party, as well as to the outside world. In other words, what is said in the Vegas of the caucus stays in Vegas. (Of course, the mediator often struggles to keep each party in caucus simply from engaging in the same strategic behavior with the mediator that the parties engage in with each other).

This second level of confidentiality in a caucus can help the mediator gain a better understanding of a party's interests, objectives and thought process when pursued in isolation. A mediation may involve more shuttle diplomacy by the mediator, going into separate causcus rooms with each party in an effort to bring each party closer to a range of compromise, than there is discussion between the parties with the mediator present in open session.

The mediator will often want to communicate to the other side some movement or concession granted by a party in caucus, and it is in that party's interest for the mediator to do so if that party believes the mediator will be able to obtain a reciprocating concession from the other party in the other party's causcus. To do this, the mediator obtains the explicit permission of the party in caucus to make that communication.

That is the theory, but in practice every party wonders whether it can be confident that what is said in caucus will be faithfully represented by the mediator, if permission is granted, or indeed not communicated by the mediator if permission is not granted. This is the underlying tension of the caucus process, and only the adept and trusted mediator can reduce it to an acceptable minimum so that it doesn't inhibit the settlement process.

The mediator must build trust with the parties in order to encourage honest and open discussion in caucus, but many parties, at least initially, view the mediator with suspicion. At some point in a mediation, if the mediator senses that a party in caucus is not being honest and forthright, or is resisting making concessions that are well within that party's capacity, the mediator may feel the need to take a step that tests the confidential relationship with a party in caucus.

For example, suppose that the mediator in separate caucus sessions finds that one party expresses a belief that it has a 60% likelihood of prevailing on the merits, and the other party believes it has a 95% chance to win in court. Based upon a summary inquiry into the parties' statement of the facts that gave rise to the conflict and the mediator's understanding of the applicable law, the mediator thinks the second party is not being realistic. Understand, the mediator has no substantive view of the merits other than to try to assess whether each party is being realistic. Once a mediator reaches a view on the merits, is the mediator still being neutral?

If a party is not being realistic, in the good faith assessment of the mediator, the mediator has found a pivot point: the mediator must work with the unrealistic party to assess the underlying assumptions and arguments that is causing the unrealistic party to maintain excessive confidence. This excessive confidence by the unrealistic party is the pivot point that the mediator must resolve in order for the parties to approach a range of settlement. The settlement pivots around whether this obstacle is overcome.

If the mediator is not able to move the unrealistic party off of his excessive optimism in caucus, and the unrealistic party insists on complete confidentiality regarding their confidence, the mediator faces a difficult situation since the realistic party will want to get some assurance of movement by the unrealistic party before it contemplates movement. If the mediator has nothing new, much less encouraging, to report to the realistic party about the unrealistic party's caucus session, the mediator is stuck at the pivot point.

Suppose the mediator tells the unrealistic party in causcus that the mediator is prepared to go into open session and state that the unrealistic party is being unrealistic and is frustrating the mediation effort. In essence, the mediator would be seeking to shame the unrealistic party into adopting an attitude more conducive to settlement. A high stakes gambit, but the mediator may consider this if the process is stuck at the pivot point. Does this violate the mediator's neutrality? The mediator would argue, no, that it has assessed the parties' self-expression of their likelihood of success in a neutral manner, and it is because of this neutral analysis that the mediator has reached the judgment that one party is being unrealistic.

The greater question, in my mind, is, Does this violate the mediator's confidentiality? The mediator has only come to this conclusion based upon a confidential caucus discussion with the unrealistic party. The unrealistic party will feel its caucus confidences violated, since had the unrealistic party known this would be the result of the discussion, the unrealistic party would likely not have been as forthcoming in the caucus.

Is it better for the mediator to not rock the boat in open session, and "merely" express the mediator's view of the unrealistic party to the realistic party in a subsequent caucus? Is it better, in other words, to violate the confidentiality with the unrealistic party in secret? When the realistic party asks in the subsequest caucus how things went in the caucus with the unrealistic party, what can the mediator say? Is the caucus process, when observed in the cold light, someting akin to a sausage factory?