Agreeing to Disagree: The Complex World of Business Disputes

Business disputes are widely accepted as part of the cost of doing business. As businesses grapple with the high cost and resource-sapping nature of disputes, many are increasingly turning to alternative dispute resolution (ADR) to resolve matters more expeditiously and cost-effectively.

To better understand how ADR is being used to resolve business disputes, we spoke to Hon. Glenda Sanders (Ret.) and Hon. Barry Baskin (Ret.), JAMS neutrals who both have 20 years’ experience on superior courts.

From your perspective as a neutral, why is mediation an attractive option for dealing with business disputes?

Judge Baskin: One of the driving forces behind the choice to mediate business disputes is the huge cost of litigation. Obviously, ADR offers a cost-effective way to resolve disputes in far less time. I also think mediation addresses a cultural challenge inherent in litigation. The parties to a dispute, generally speaking, would sooner hand over their first-born child than tell the other side what their true bottom line is in order to settle a case. Mediation offers a trusted environment where both sides can divulge their actual bottom line without fear it will be conveyed to the opposing side.

Most business disputes involve an alleged breach of contract by one or both parties to a corporate dispute. A lot of contracts require mandatory mediation that takes place before or in parallel with an arbitration. Most parties choose mediation over litigation or arbitration for the reasons I’ve already enumerated: Mediation is less costly and can often offer an earlier resolution that's mutually acceptable to everyone.

Judge Sanders: The low risk and voluntary nature of mediation are great advantages. The parties take little risk in mediating other than the expense of the mediation, which is minimal when compared to the costs and fees associated with prolonged litigation. The parties are also in control of the outcome, unlike a court proceeding, where they are forced into court because they either are sued or feel they have to sue, and then have little control over how it proceeds.

An additional advantage is what is known as a “mediator’s proposal.” A mediator’s proposal provides an effective settlement tool that is not available in settlement negotiations between the attorneys. Such a proposal can be extremely useful when the parties are far apart and neither wants to show what they perceive as weakness by making a move to a more realistic number. The mediator, being in both rooms and assessing where they think the case will settle, can make a proposal, which, in my experience, often succeeds in settling the case but doesn’t require either party to feel it has “lost face” by making the ultimate move.

Some industries also prefer mediating a case over taking it to a verdict, which may be appealed, thus creating a precedent that one side—or maybe even both sides—doesn’t want because it may have a negative effect on future litigation in that industry.

What recommendations do you have for parties entering into mediation in order to achieve the best outcome?

Judge Sanders: While there are advantages to mediating a case earlier rather than later, if parties decide to do so in the early stages of the case, I recommend that they share sufficient information to enable the parties and the mediator to assess the strengths and weaknesses of the claims and defenses. I would counsel against an early mediation absent a productive exchange of information before the mediation because the parties cannot trust one another if they cannot evaluate one another’s arguments against, at least, the available documentary evidence. As a result, the case is less likely to settle at the mediation. In short, the timing of the mediation is important. Don’t mediate so early that you are unable to timely exchange material information, or so late that you’ve already sunk hundreds of thousands of dollars into depositions, document productions, motions and experts.

I also recommend that the parties file detailed mediation statements supported by key documents.

Judge Baskin: One of the first things I ask each of the parties to do during our preconference meetings is to tell me what their goals are. You’d be surprised how often people in litigation lose sight of what their actual goals are. Sharing this information is extremely helpful in allowing me to find a path to compromise.

The role of the mediator is non-evaluative in nature. The only time I get to be evaluative is when there’s an impasse with both parties. An impasse often happens when one side or the other, or both, has not objectively evaluated the merits correctly. By asking the mediator to provide an evaluation, it can become possible to use that to break the impasse. It’s important to note that this is different from neutral analysis. Neutral analysis is done outside of the formal mediation process. In such cases, the neutral is brought in to review the briefs and look at the various issues to see if anything was overlooked in the other side's arguments. Oftentimes, neutral analysis is done with the participation of both sides, which are looking to evaluate the strengths and weaknesses of their arguments. Here, the neutral acts more as a judge, providing opinions about the merits of the case.

What are some common mistakes attorneys make when entering into mediation?

Judge Sanders: The attorneys often fail to put enough effort into their mediation briefs. I always emphasize to both parties how important it is to present a comprehensive brief with the key documents attached to it, and of course their damages analysis. Unless there is something offensive in the brief that would antagonize the other side, I encourage them to share their briefs. I have found that they usually do, even if in a slightly redacted format. The sharing of briefs tends to jump-start the mediation because the parties then know what the other side considers to be its best arguments, and again, no time is wasted sharing information on the mediation day. I, of course, learn much more subtle information about the case in my separate conferences with each attorney prior to the mediation. It is usually that information they, at least initially, ask me not to share.

Judge Baskin: One of the biggest mistakes an attorney can make when coming into mediation is thinking they can still accomplish their litigation goals. If you decide to go the mediation route, you do have to give up those expectations. I find most lawyers understand this, and it's the clients who must be educated, so their mindset changes. Mediation requires a mindset of compromise and of understanding the other side's position rather than advocating your own. The lawyers need to explain to their clients that this is an opportunity for them to be heard by a neutral, objective third party.

While the lawyers have clearly spent a good deal of time looking at the facts and the law, they may not have devoted enough time to the psychology of mediation and how their client needs to think of this process. The best lawyers are the ones who explain to their client that the mediator is there to hear their side of the story and help reach some middle ground that both sides will find mutually acceptable. Coming into this process with the right mindset is crucial to achieving a successful outcome.

What is an emergency arbitration hearing, and how can it be used to resolve issues within a case?

Judge Sanders: Rule 2 of the JAMS Comprehensive Arbitration Rules and Procedures provides for Emergency Relief Procedures, which may be invoked if the parties’ arbitration agreement does not preclude their use. The rules require that the party seeking emergency relief show that (1) the requested relief is urgently necessary before the non-emergency arbitrator is appointed, (2) immediate and irreparable loss will result absent such relief and (3) the applicant is entitled to such relief.

Examples of the type of relief that might be granted include conserving evidence relevant to the determination of the dispute, injunctive relief for the protection of property and enjoining action that could make the arbitration proceeding moot. Parties should, however, be aware that the party seeking relief bears a burden similar to that in a court of law for obtaining such relief.

Emergency relief, if granted, similar to such relief granted in a court, can often result in an early resolution of the case and can therefore be a useful tool for a party to invoke in appropriate circumstances.

Judge Baskin: Emergency arbitration is an effective tool that doesn’t require months of discovery. The attorneys submit a carefully drafted petition that makes a showing on the merits of the breach of the contract and a secondary showing of why, even though they are going to succeed, irreparable harm is being done and relief is needed right now rather than waiting until the conclusion of the arbitration.

It's important that both sides try to resolve the dispute before turning to emergency arbitration. I find that parties often think there's no real relief that an arbitrator can award under an emergency arbitration, so they don’t make as thorough an attempt to resolve the matter. But once interim relief is granted, one party is now at a disadvantage going forward, as irreparable harm has been established. Some attorneys don't realize this kind of arbitration is quite common.

The importance of ADR in helping to resolve these matters more expeditiously and cost-effectively cannot be overstated. When attorneys are well prepared, ADR is an option that makes good business sense.