New York Law Journal Alternative Dispute Resolution (ADR) Special Report
The joint session of the mediation, where disputing parties speak directly to one another, is often considered the best opportunity for the parties to engage in a realistic discussion of the strengths and weaknesses of their case. However, joint sessions don’t always end up with parties finding common ground. In many cases, the mediation process is often sabotaged during the joint session where a dispute arises with respect to communications between counsel prior to the mediation. These critical communications are usually informal, never reduced to writing and often lead to misunderstanding and mistrust between parties. In other words, the joint session could have the adverse effect of driving parties further apart. As a result, the mediator – in an attempt to move the resolution process forward – redirects valuable time away from the mediation in order to smooth ruffled feathers and to help to resolve an argument about what was represented prior to the mediation.
To avoid this scenario, the parties should always confirm in writing any understanding upon which their agreement to mediate is based, well in advance of the mediation. Further, it should be mutually agreed upon that the parties will disclose any change of circumstances that will affect that understanding prior to the mediation. The purpose is twofold: 1) it will allow counsel to reevaluate their client’s settlement position and proceed with the mediation; or 2) adjourn the mediation to allow parties additional time to do so.
Below are a few additional suggestions in regard to the type of information counsel should disclose in advance of a mediation:
- A change in the demand or offer previously made;
- new evidence that substantially strengthens a claim or a defense that will affect opposing counsel’s evaluation of same (unless there is some tactical reason to withhold this information);
- who will attend the mediation;
- insurance coverage amounts and any issues that involve a reservation of rights, disclaimer or erosion of coverage;
- lien amounts; and
- whether mediation submissions will be submitted confidentially or exchanged.
Communicating this information up front, as early as possible, will move the resolution process forward.
Demands, Offers and Settlement Terms
One of the most vexing problems that confronts a mediator is a dispute over discussions regarding monetary demands, offers, and settlement terms that took place prior to the mediation. This occurs in a large percentage of cases.
In a recent matter in response to a settlement demand of $38 million made a year prior to the mediation, the defendant offered $27 million. Yet, on the day of the mediation the offer was reduced to $14 million. The explanation given by defense counsel was that the passage of time had affected his client’s willingness to pay that amount. The result was a quick impasse. Counsel for the defendant should have conveyed the change in his client’s settlement position well in advance of the mediation. Counsel for the plaintiff should have been proactive and reiterated that the offer made a year earlier was still on the table.
The ethical duty of fair dealing in negotiations would require the disclosure of a change in a party’s settlement demand or offer upon which the agreement to mediate was predicated. Counsel should be proactive and confirm in writing any such demands, offers or proposed settlement terms prior to the mediation to avoid any dispute arising from same which will only be detrimental to a successful mediation process. Counsel participating in mediations would be well advised to familiarize themselves with the Ethical Guidelines for Settlement Negotiations promulgated by the Section of Litigation of the American Bar Association.
Changes in Proof
Very often the underlying facts that the parties have been relying on to assess liability or damages, change prior to the mediation. If there are new witnesses, documentary evidence, or anything else that would significantly alter an assessment of liability or damages, this should be disclosed well in advance of the mediation. Parties come to a mediation with a settlement position based upon the information that was provided in advance. To surprise an adversary with new information that could materially affect their evaluation of the case is counterproductive. This will often result in the mediation being adjourned to allow for a reevaluation of the settlement position.
Persons in Attendance – Case in Point
In a contract dispute between two Fortune 500 corporations with billions of dollars in issue, one CEO travelled a great distance to attend the mediation. The other CEO whose corporate headquarters was in the city where the mediation was held failed to appear. The negotiation ended before it had a chance to begin as it was the understanding of one CEO that the other would attend.
Where there is an expectation that either a party, decision maker or an attorney will be present at the mediation, their failure to appear creates mistrust. Opposing counsel’s perception will be that the mediation process is not being taken seriously. When counsel learns that a person of relevance who is to be present at the mediation will not be showing, opposing counsel should be given notice in advance of the mediation. This allows the adversary’s attorney to consider whether they wish to proceed in the absence of this individual. If you have an expectation that a specific individual will attend the mediation, be proactive and confirm in writing that that person will be in attendance.
Insurance Coverage and Lien Information
Once again in a more recent case, the plaintiff’s counsel and their clients travelled a great distance to mediate a complex matter. The dispute involved a default by contractors on a large construction project. At the commencement of the mediation, it was disclosed for the first time that the defendant’s insurance carriers were proceeding under a reservation of rights and potentially could disclaim coverage. This information should have been disclosed prior to the mediation.
If there is a reservation of rights and/or a disclaimer under a policy of insurance, or the potential thereof, that should be disclosed well in advance of the mediation. Counsel should confirm, beforehand, that there are no such issues.
A separate issue pertains to the amount of available coverage. Typically, defendants are required to disclose the amount of insurance coverage pursuant to a discovery order issued by the court. Usually the obligation is a continuing one. Initial settlement demands are often predicated upon this representation. At a mediation of a professional liability matter, there was a representation prior to the mediation and during the joint session that the available insurance coverage was $5 million. In the first break-out session, counsel for the defendant disclosed the coverage limit had been eroded to $3 million. This was due to legal fees and monies that had been paid out on separate claims during the same policy period. This conduct violated the discovery order of the court. Further it was clearly unethical, as there was misrepresentation of a material fact upon which opposing counsel relied, in entering into the negotiation. While disclosure may be made pursuant to court order there is no downside confirming, in writing, the coverage information previously disclosed.
Another issue relates to excess coverage. There are too many instances where, prior to the mediation, the amount of primary coverage is presented, but the available excess is not. When the excess coverage amount is disclosed at the mediation, plaintiff’s counsel will immediately revise their demand. If a representation is made that there is no excess coverage, the best practice is to obtain an affidavit as to same prior to the mediation.
Finally, as to lien information, defendants will take the amount of a lien into consideration when determining settlement value. Liens, while often negotiable, can create an obstacle to settlement. It does not serve the process to surprise defense counsel with a large lien amount for the first time at the mediation. This again will often create a situation where the mediation will be adjourned to give defendant the opportunity to reevaluate the case.
Exchange of Mediation Briefs
One of the issues that parties rarely address is whether pre-mediation briefs will be submitted confidentially to the mediator or exchanged. Often one party will exchange and the other will not. Invariably, the party who did exchange feels that they have been prejudiced by what they perceive to be opposing counsel’s ex parte communication with the mediator. The best practice would be to confirm in writing whether briefs will be exchanged or submitted confidentially before the mediation.
The basis for this article is the author’s long experience as a neutral, observing the aforementioned scenarios, and how they negatively affect the mediation process. A successful mediation is predicated on trust. Transparency and professional courtesy go a long way in advancing negotiations. It will serve the process, and your client well, by the disclosure of any new information that may affect opposing counsel’s case. At the same time, be proactive and confirm in writing any understanding that you may have upon which the mediation may be based. This will ensure that the mediation does not get off to a bad start and the negotiation process is not sabotaged by a lack of trust before it has even begun.
Reprinted with permission from the August 5, 2019 issue of The New York Law Journal © 2019 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.
Hon. John P. DiBlasi is a retired Justice of the Supreme Court, New York, Commercial and Civil Divisions. He is a member of NAM’s (National Arbitration and Mediation) Hearing Officer Panel and is available to arbitrate and mediate cases throughout the United States. In 2019, Judge DiBlasi was ranked a Top 3 Mediator in the United States by the National Law Journal Annual Reader Rankings Survey for the sixth straight year (#1, 4 years in a row) and voted the #1 mediator in the country by the 2018 Corporate Counsel Best of Survey. Also in 2018, for the third straight year, he was named a National Law Journal Alternative Dispute Resolution Champion, as part of a select group of only 46 nationwide. Further, Judge DiBlasi was voted a Top 10 mediator in the 2018 New York Law Journal Annual Reader Rankings Survey for the ninth consecutive year. He has been designated a Super Lawyer and holds an AV Preeminent Peer Rating from Martindale-Hubbell in both Alternative Dispute Resolution and Litigation – a distinction given only to those who possess the highest ethical standards and professional ability.
Meet the Author
For any questions or comments, please contact Jacqueline I. Silvey, Esq. / NAM General Counsel, via email at email@example.com or direct dial telephone at 516-941-3228.