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Managing The Litigation Risk Through Mediation

By Richard J. Collier

The Devil’s Dictionary sardonically defines litigation as “a machine that you go into as a pig and come out of as a sausage.” All too often litigation really is that distasteful, at least for the clients (and even for those who “win”). But litigation is an ever-present reality of doing business and a source or risk ranging from the bothersome to the devastating. Mediation makes management of that risk possible, by allowing for control over the process and the outcome of litigation.

What is “Mediation”? Mediation is a voluntary process in which a disinterested neutral assists the parties in negotiating their own resolution of a dispute. (Arbitration, in contrast, involves submitting the dispute to the neutral who makes a decision for and often binding on the parties.) Familiar in the context of diplomatic, labor or family law disputes, mediation in civil litigation is a recent phenomenon, but a growing one. Business agreements now frequently build in a mediation option for resolving disputes; courts are increasingly requiring that cases go to mediation before they are set for trial.

How does it work? A mediation session typically begins with a “joint session” in which the parties, in the presence of each other and the mediator, present their respective positions on the issues in dispute. The mediator will then typically meet separately with the parties to explore the strengths and weaknesses of the various positions and to find out what needs and interests each party has related to the dispute. Given a genuine interest in resolving the dispute, this “caucus” phase of a mediation will lead to the mediator helping the parties develop terms and options for resolution, and, with patience and persistence, come to an acceptable settlement. When this occurs, the parties will write out the terms of the settlement and sign an agreement.

Why does it work? First, mediation does work. Mediators report that between 85% and 95% of disputes are settled through mediation, often with only a few hours or at most a long day or two being invested. Why it works involves possibilities ranging from the psychological (is conflict a natural state?) to the economic (the investment in mediation can produce staggering savings in the time and money required to litigate). But the principal reason is that mediation places control over both the process and the outcome where it should be, in the hands of the parties who initiated the dispute and who are most affected by it.

Controlling the Timing: In litigation, when a dispute gets addressed and resolved is usually arbitrary, controlled by tactics and court schedules. Mediation makes it possible for parties to resolve a dispute when they need to and when they are ready to, bypassing the artificiality and delays of the litigation process. Of course, there are situations where one party wants resolution and the other wants delay, but in most disputes, the need for resolution — whether the result of a trial calendar or the cost of irresolution — sooner or later becomes a shared need.

Controlling the Decision Making: Taking a commercial dispute to trial involves handing over an important business decision to a jury or a judge who may not understand the business, probably does not care about it, and certainly has no accountability for any decisions that affect it. In mediation, these concerns are not an issue. The decision makers are the parties themselves. Properly prepared, they know what the fight is all about and what its impact has been and will be, and so are in the best position to evaluate the options for resolution that develop during the mediation.

Choosing a Mediator: Selecting a mediator is a matter of choice, not, as in litigation, a matter of random assignment or availability. While the mediator cannot decide the dispute, the selected mediator can play a big part in whether it gets resolved. An experienced mediator is familiar with the dynamics of the mediation process and can help the parties reach a resolution. An “evaluative” approach (proactively using trial or subject matter expertise to evaluate the issues to affect the parties’ risk-analysis) may be effective where the parties have very different outcome predictions. Where emotions and personalities have become as important as legal or factual issues, a mediator’s “facilitative” skills (in listening, questioning, and communicating) may be more conducive to reaching a resolution.

Controlling the Outcome: Being in a position to control the outcome of a dispute is the greatest risk-management benefit offered by mediation. In most mediations, some settlement is possible. Whether what is available is also acceptable may be a tougher issue, but at least the option is there, and experience shows that mediation usually produces acceptable settlements. Moreover, in litigation the outcomes are limited by the remedies available under the law, but in mediation the options are more flexible. In a case where the defendant’s failure to pay for a product was justified by claims that the product didn’t work, the defendant shared a fix for the problem for which the plaintiff was only too happy to pay. In a case with environmental issues, an impasse over the amount that would change hands was resolved by both sides contributing to an organization dedicated to investigating solutions to the problem. Obviously, no judge or jury could have ordered these results: litigation requires a loser.

Risk management in a litigation context usually involves assessing the risk and the cost of winning or losing. Mediation invariably reduces the exposure to both risk and cost, and in so doing, offers the opportunity to make everyone involved a winner. 

ABOUT THE AUTHOR

Richard J. Collier is an attorney with the San Francisco law firm of Titchell, Maltzman, Mark & Ohleyer. He serves on the Mediator and Arbitrator panels of the American Arbitration Association and the federal and state courts of Northern California. He is Co-Chair of the Bar Association of San Francisco’s Mediation Section, and serves on the San Francisco Trial Courts Mediation Advisory Committee. He can be reached at rcollier@tmmo.com.

riskVue | The webzine for risk management professionals
December 1999