1. Association of Corporate Counsel Charlotte Chapter
The Case for Early Mediation of Disputes, and a Contractual Provision to Implement It
Association of Corporate Counsel Charlotte Chapter
November Membership Luncheon
November 7, 2018
Speaker:
Jim Cooley, Womble Bond Dickinson

2. LITIGATION DEFINED
A basic legal right: “Guarantees every corporation its decade in court.” Judge David Porter
A machine: “A machine which you go into as a pig and come out as a sausage.” Ambrose Bierce

3. The Case for Early Mediation
There is no dispute about this:
Early resolution of a dispute outside a court-based litigation structure provides the opportunity to:
Preserve business relationships before positions harden.
Save enormous litigation or arbitration costs.
Protect reputational interests/the “brand” from adverse publicity.
Quick resolution, freeing your clients from the extensive time demands of litigation in order to grow the business.

4. The Case for Early Mediation
So why isn’t pre-litigation mediation used more often?
Because doing so voluntarily is often viewed as a sign of weakness.
To address that, consider writing into the deal a requirement (subject to some exceptions) that the parties engage in pre-lawsuit or pre-arbitration mediation.
Even if you don’t have such a provision in connection with a current dispute, there is still very little downside to suggesting mediation.

5. The Case for Early Mediation
Most sophisticated parties are aware of the benefits, especially that each side will get an honest appraisal of the strengths and weaknesses of their positions.
Even if it doesn’t settle now, you have a better sense of how to present the dispute more favorably and to minimize your risks.

6. The Case for Early Mediation
Because counsel are afraid to proceed without knowing all the facts that discovery will bring to light (the search for the “smoking gun” or the deposition of the “loose cannon” on the other side) – i.e., don’t mediate until discovery has been completed.
True, the parties at early mediation may determine that they do not have enough information to settle on day 1, but a good mediator can facilitate a confidential exchange of information and then bring the parties back together.

7. The Case for Early Mediation
Consider this: the longer in the process the parties wait to attempt a mediated settlement, the less likely they are to succeed.
A detailed statistical analysis of the use of mediation in the courts of Singapore is the first empirical study of which I am aware. See “How Should the Courts Know Whether a Dispute is Ready and Suitable for Mediation,” 28 Harvard Negotiation Law Review 265 (Spring, 2018). 

8. The Case for Early Mediation
“… [A] significant association was found between stage of referral and the likelihood of resolution. In particular, the cases are 50% less likely to reach a settlement when they are referred for mediation at the interlocutory [i.e. after some preliminary order has been entered] stage rather than before or at the close of pleadings. There was no significant difference in likelihood of settlement outcome between cases referred after discovery and cases referred at the close of pleadings.” 

9. The Case for Early Mediation
The study goes on to evaluate the effect of “contested applications” that occur after the case reaches the interlocutory stage (e.g., discovery disputes, motions for summary judgment). The presence of one or more contested applications decreases the odds of settlement at a later stage by 22-23%. “A high degree of contested litigation probably entrenches disputants in their positions and makes them less open to arriving at a mediated resolution.” 

10. The Case for Early Mediation
So consider putting into your toolkit for the deal a specific provision about pre-litigation mediation which addresses:
Process and procedure – format. 
The “triggers” for mediation, excepting out the kinds of disputes not likely to settle.
Confidentiality.
Identification of potential mediators, or the qualification needed for a mediator.
Apportionment of costs.

11. The Case for Early Mediation
The Agreement can be as simple as:
Mediation Before Litigation (Arbitration). The parties shall attempt in good faith to resolve any dispute arising out of or relating to this Agreement promptly by confidential mediation under the [here select applicable mediation rules] in effect on the date of this Agreement before resorting to litigation [arbitration]. Such pre- litigation [arbitration] mediation shall be a condition precedent to the initiation of litigation [arbitration] and shall be completed within ___ days from the date one of the parties requests mediation.

12. Dispute Resolution Prior to Litigation / Arbitration
Examples of Mediation Rules: The Commercial Mediation Procedures of the American Arbitration Association; the CPR Mediation Procedure of the International Association of Conflict Prevention and Resolution.

13. Dispute Resolution Prior to Litigation / Arbitration
Or more complicated (depending on your leverage in negotiating the deal):
[the exceptions] “Except for actions which we may bring in any court of competent jurisdiction (i) for monies owed, (ii) for injunctive or other extraordinary relief, or (iii) involving the possession or disposition of, or other relief relating to, real property, the proprietary marks, or our confidential information…”

14. Dispute Resolution Prior to Litigation / Arbitration
[the basic agreement] “. . . you and we agree to submit any claim, controversy or dispute between us or any of our affiliates (and their respective shareholders, officers, directors, agents, representatives and/or employees) and you (and your owners, agents, representatives and/or employees, as applicable), arising out of or related to (a) this agreement or any other agreement between us and you, (b) our relationship with you, or (c) the validity of this agreement or any other agreement between us and you, to confidential, private mediation prior to bringing such claim, or controversy, or dispute in a court or before any other tribunal, and that mediation is a condition precedent to bringing such claim, controversy or dispute in a court or before any other tribunal.”

15. Dispute Resolution Prior to Litigation / Arbitration
[how the mediator or mediation service is to be selected] “The mediation shall be conducted by either an individual mediator [here specify an individual or individuals agreed upon by the parties] or a mediator appointed by a mediation services organization or body experienced in the mediation of disputes [here specify expertise in the type of business involved], as agreed upon by you and us and, failing such agreement within a reasonable period of time (not to exceed fifteen (15) days) after either you or we have notified each other of your or our desire to seek mediation, by the American Arbitration Association (“AAA”) in accordance with its rules governing mediation of commercial disputes.”

16. Dispute Resolution Prior to Litigation / Arbitration
[location] Mediation shall be held at [here specify the location or locations suitable for mediation].

17. Dispute Resolution Prior to Litigation / Arbitration
[costs and expenses] “The costs and expenses of mediation, including the compensation and expenses of the mediator (but excluding attorneys’ fees incurred by either you or us), shall be borne by you and us equally.”

18. Dispute Resolution Prior to Litigation / Arbitration
[timeframe for resolution] “If the parties are unable to resolve the claim, controversy or dispute within ninety (90) days1 after the mediator has been chosen, then, unless such time period is extended by your and our mutual written agreement, either you or we may bring a legal proceeding under Section ___________, below.”
______________
1 A specific time limit for completing the mediation should be stated in order to enhance the likelihood of enforcement. See Cumberland &York Distributors v. Coors Brewing Co., 2002 U.S. Dist. LEXIS 1962 (D.Me. 2002).

19. Enforcing the Pre-Litigation Mediation Clause
Such a clause is usually2 enforceable as a condition precedent to litigation. DeValk Lincoln Mercury, Inc. v. Ford Motor Co., 811 F.2d 326 (7th Cir. 1987); Tattoo Art, Inc. v. TAT International LLC, 711 F.Supp 2d 645 (EDVA 2010).
______________
2 See examples of non-enforcement in Weldon and Kelly, “Prelitigation Dispute Resolution Clauses: Getting the Benefit of Your Bargain,” 31 Franchise Law Journal (2011).

20. Enforcing the Pre-Litigation Mediation Clause
A party contemplating litigation, in order to comply with this condition precedent, must convey a clear request to mediate and receive a clear response refusing or waiving mediation. MB America, Inc. v. Alaska Pac. Leasing, 132 Nev. Adv. Op. 8 (Feb. 4, 2016).
Enforcement may be by Rule 12(b)(1) and 12(b)(6) motion to dismiss, Brosnan v. Dry Clearing Station, Inc., 2008 U.S. Dist. LEXIS (N.D. Cal. 2008), or motion to stay pending mediation, N.Tron Corp. v. Rockwell Automation, Inc., 2010 U.S. Dist. LEXIS (S.D. Ala. 2010).

21. What Rules Govern?
The provisions of NCGS § 7A-38.1 and the Mediation Rules of the NC Supreme Court apply only to “court- ordered” mediations. They do not apply to pre-litigation mediations.
By contract, the parties may have agreed that the mediation will be governed by specified rules (see, e.g., the CPR Mediation Procedure of the International Institute for Conflict Prevention & Resolution; the Commercial Arbitration Rules and Mediation Procedures of the American Arbitration Association).

22. What Rules Govern?
If not, the parties will need to agree in writing on the rules to be applied, whether by incorporation of the provisions and rules governing court-ordered mediation in a specified state or by incorporation of the comprehensive rules of one of the ADR service providers.
In any event, the parties will need to agree upon a written confidentiality agreement governing the mediation. Even if the contract requiring mediation specifies that it shall be “confidential,” it is prudent to adopt a specific confidentiality agreement governing the mediation dispute at hand.

23. Preparing the Mediator to Mediate Pre-Litigation
What should each side provide to the mediator in advance of the mediation, since there is no pleadings or brief illustrating the subject of the dispute?
A copy of the contract in dispute.
A copy of communications between the parties outlining the issues in dispute (e.g., a demand letter and response, if any).
A copy of the letter or other agreement for early mediation.
A confidential position statement.
A telephone conference with the attorney who will represent each party in order to review questions that are likely to arise. In-house counsel who will attend the mediation should be party to this conference. In addition to review of the ground rules, the mediator should develop a consensus of the parties on whether counsel will present opening statements of position.

24. The Role of the Client
The role of a knowledgeable client, especially someone who was part of the negotiation of the contract in dispute, cannot be overestimated.
He/she knows the other party.
Knows what was intended.
Knows the underlying business.
Who better to explain the deal to the mediator so he/she can probe the other side?
In pre-litigation mediation, or pre-discovery mediation, the importance of that client’s role is greatly magnified.

25. A FEW Thoughts on Preparation of Lawyers and Client for Early Mediation
Focus on your BATNA (best alternative to negotiated agreement) and avoid setting a “bottom line” too soon in the process.
Analyze the other side’s BATNA and see if it reveals a business opportunity that might disrupt a traditional litigation strategy. I.e., interest-based bargaining is easier at this pre-litigation stage, before positions have hardened and before publicity.

26. A FEW Thoughts on Preparation of Lawyers and Client for Early Mediation
Depending on the level of contentiousness/emotion between the key players, consider the value of an opening statement in which you:
Go light on dispute analysis (why the other side is going to lose).
Emphasize the interest of both sides in reaching agreement (a win-win).
Talk about solving a “problem.” To solve a problem we have to work together to:
Understand and appreciate each other’s position.
Try to preserve existing relationships and build on them.
Recognize the importance of everyone at the table in addressing the problem, so that no one is demeaned.

27. A FEW Thoughts on Preparation of Lawyers and Client for Early Mediation
Describe how to deal with the information which you have, and which the other side does not have. What should you reveal, and when?
Prepare your client for the possibility that he/she might end up negotiating directly with the other side during the process.

28. Is Impasse the End of Pre-Litigation Dispute Resolution?
Maybe.
Lack of good faith (e.g., other side looking for free discovery but reveals little or nothing about its position).
Unreasonable demand (i.e., it is clear the other side’s demands cannot be evaluated without testing in the litigation process, so then you can budget and proceed accordingly).

29. Is Impasse the End of Pre-Litigation Dispute Resolution?
Maybe Not.
Longer gestation period for resolution may be necessary.
More time than a day-long mediation is needed to digest and re-evaluate.
May need to conduct an internal investigation and locate documents.
May consider an informal exchange of documents or review of a draft complaint.
Some possible business solutions may require involvement of business people not part of the mediation.

30. Is Impasse the End of Pre-Litigation Dispute Resolution?
A partial agreement may be possible, while other issues remain.
An agreement as to the process going forward, designed to control costs, can be achieved even if resolution of all issues cannot:
E.g., agreement to continue mediation after initial pleadings and dispositive motions reveal more about strengths and weaknesses.
Or, to continue mediation after agreed-upon, limited discovery as to the key issues which may account for the gap between the parties’ positions.

31. In Summary
The cost/benefit analysis: if, through early mediation, you resolve 1 out of every 3 or 1 out of every 4 disputes that would otherwise go into litigation, would that have a positive impact on your bottom line? What about %?
Cf. The success rate in mandatory, court-ordered mediation has been estimated at about 50%, compared with a 90% success rate in voluntary mediation. See Lovett, “How to Create a Settlement Opportunity When the Court Orders Mandatory Mediation,” 43 Orange County Lawyer 36 (2001). Cf. L.A. Superior Court – 63%; Colorado Governor’s Task Force on Civil Justice – 60-90%.

32. In Summary
The business opportunity analysis: “The world is wide, and I will not waste my life in friction, when it could be turned into momentum.” Frances Willard, American suffragist.

33. THANK YOU! Questions? Jim Cooley, Partner Womble Bond Dickinson