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.