Considering Alternatives to Litigation: When Third Parties Can Help, and When They Can't
When it comes to litigation, many in-house counsel -- except for those few gung-ho in-house specialists -- avoid the courtroom like the plague, if possible. But convincing management to look at alternatives isn't always so easy, until they have been dragged into court a few times. And many plaintiffs' lawyers may not see any reason at all to consider alternative dispute resolution.
But working with third parties to reach a negotiated settlement can be painful in other ways-mediators and arbitrators can be too passive. Or too aggressive. Or unprepared.
This month's Roundtable participants offer their insights on when to try mediation or arbitration, and how to manage the process once you have committed to it.
CONSIDERING ALTERNATIVES TO LITIGATION
Hon. Rebecca Westerfield (Ret.), JAMS (moderator): There are many forms of alternative dispute resolution, but we will focus on third-party-facilitated negotiations. Before we get started on that, I'd like all of you to introduce yourselves, talk a little bit about your legal department and the kinds of business you are in.
Nancy R. Heinen, Apple Computer Inc.: I'm senior vice president and general counsel of Apple Computer. We have a law department that consists of about 100 people worldwide, 40 of whom are lawyers.
We encounter every legal aspect of global operations in the manufacture, distribution, development and sale of computers and software applications.
John A. Schulman, Warner Bros.: I'm general counsel of Warner Bros. Approximately 125 lawyers work for the company, most of them in Burbank, Calif. We deal with the production, distribution and exploitation of intellectual property largely in movies, television, made-for-video productions, merchandise, books, theme parks and movie theaters.
Most of the lawyers are devoted to the production facilities, which is the key to our business. Unfortunately, some of them are devoted these days to resolving conflicts.
Barbara A. Reeves, Southern California Edison and Edison International: I'm assistant general counsel with Edison International and Southern California Edison. The business of the company involves the distribution of electricity, along with the generation and financing aspects of electricity. We have about 90 lawyers at Edison International and the various affiliates, about 60 of whom are with Southern California Edison, which is a regulated utility in southern California. The lawyers there deal with all aspects of regulatory work and litigation and transactions.
We also have primarily transactional lawyers who are with Edison Mission Energy and Edison Capital. They deal with all the transactions and deals, along with a few employment and litigation attorneys.
Philip David Kopp, Centex Homes: I'm the deputy general counsel for the West Coast region at Centex Homes, a national homebuilder and an affiliate of Centex Corp., a Fortune 500 company. Our legal department consists of approximately 17 attorneys, two of whom are stationed in our home office in Dallas. The others are stationed more or less equally throughout six regions in the United States.
Most of our attorneys and our support staff are involved in the business aspects of the construction industry. However, in California in particular we have a much higher rate of litigation and risk management, and alternative dispute resolution is a much bigger part of our lives there.
George Allan Phair, Conoco Inc.: I'm senior counsel in the Conoco legal department. Conoco is an integrated worldwide energy company, and our legal department consists of 75 attorneys headquartered in Houston and 28 attorneys posted in international locations that include England, Germany, the Czech Republic, Belgium, United Arab Emirates, Indonesia and Russia. Both our litigation and transactional attorneys make liberal use of mediation.
Guy Rounsaville Jr., Visa International: I'm general counsel with Visa International. Visa is a worldwide credit-card processing company. Visa International and Visa USA are separate corporations. We have 10 lawyers at Visa International and approximately the same number at Visa USA, but the size varies depending upon the business engagement of the particular region involved.
Judge Westerfield, JAMS: There was a time when most lawyers thought arbitration and mediation were synonymous. Now, counsel understand they are very, very different. Arbitration is a process in which there is a non-appealable award at the end of the process, whereas mediation is a third-party-assisted negotiation.
There has been a good deal of discussion and controversy surrounding arbitration. I'm wondering if those of you who use arbitration clauses are still using mediation as an ADR technique, and how that interfaces with arbitration clauses.
Reeves, Edison: We use arbitration clauses, and recently we've begun using mediation as a precursor to arbitration.
In the electric-power business, long-term relationships with our suppliers are very important to us. We would much rather have long-term contracts that are predictable than rely on the market on a day-to-day basis.
As we go forward now with new contracts with our various suppliers-independent power producers or qualified facilities-we are including settlement or dispute clauses that provide first for something like a face-to-face meeting between principals of the company. Then, if that doesn't work, we will arrange a facilitated meeting such as a mediation. Only if that fails will we go on to an arbitration.
It's just not productive to have an adversarial relationship with somebody you may want to be purchasing from for the next 10, 20 or 30 years. This is especially important in overseas activities, where you can get into a dispute with a supplier and never find a way to collect it or resolve it if you have to work through a court system that is completely different from your system.
We used mediation in the past. But now, wherever possible, we're including it in our new contracts. Or we are renegotiating a lot of the contracts we have with our suppliers at present.
Judge Westerfield, JAMS: Guy, what about in the business-to-consumer area?
Rounsaville, Visa International: Arbitration clauses in the Visa world are not pervasive. It varies from region to region and probably depends on where they are on the learning curve of the benefits of arbitration.
I echo the value of having mediation. Even if you are in an informal situation, you need to drive the process if you possibly can to a mediation-type of environment. That's even if you don't have the option of falling back to an arbitration, even if you are going into traditional litigation. It does preserve and stabilize the relationship. It is also very cost effective and time efficient.
Regardless of whether we have arbitration clauses in our contracts, if a problem does arise, we try to get people into mediation as a precursor to either traditional litigation or to arbitration.
AN ESSENTIAL TOOL
Judge Westerfield, JAMS: Nancy, are you using mediation for business-to-business issues?
Heinen, Apple Computer: We have. Our default position is now an escalation process. Senior executive to senior executive and then we use mediation and only then do we litigate. Unless it's in international context, then we require arbitration in a designated tribunal. We try to get through the escalation processes first in any troubled transaction or relationship and then if we have to, we pull the trigger on mediation.
Judge Westerfield, JAMS: Who's involved in the second step of the process, if the senior management can't resolve it with you? How do you determine who gets in on the second phase of discussion?
Heinen, Apple Computer: Working with the senior executives has been fairly effective, but the next step in mediation tends to unfortunately involve the lawyers, to a degree.
Schulman, Warner Bros.: We haven't resorted to mediation in contracts. Traditionally, it is a small world that we deal in. The number of buyers or sellers is getting even smaller as they acquire each other-there are four or five networks we deal with, four or five talent agencies and only a half dozen law firms that represent a lot of the talent.
If we want to resolve a problem, the only way has always been to first talk it out, whether it's a senior executive or the principal of the client who has to come in to talk about it. That's what we resort to every time. We haven't used that in a contract. It was there before the contracts, and it's not in the contracts now.
We do use arbitration in what I refer to as the talent contracts, as well as our day-to-day employment contracts and most of our vendor contracts. But we don't have mediation in our contracts now, because we already use it. It is an essential tool in the world we work in, which is very close.
Phair, Conoco: Many of our commercial agreements-especially lease agreements in the exploration and production side of the business-include a three-tiered, three-step process: negotiation, mediation and arbitration. We've found that to be very successful.
One of the most creative things we've done is to include a provision for prelitigation mediation, so we will sometimes mediate disputes at a business level before anybody goes into a courthouse. That's been very successful in certain cases.
Another place we use mediation and/or arbitration provisions is in joint-offense agreements, where we are codefendants with other companies. Sometimes those agreements contain a mediation or arbitration provision, so we can park our intercompany disputes for later and not litigate those matters through cross-claims in the lawsuit. Those have been effective at avoiding and making more complex an already difficult litigation.
Kopp, Centex Homes: We use mediation a lot, which isn't a surprise to anybody who has been in California the last 20 years.
It is part of a tiered alternative dispute resolution provision that appears in all of our current purchase agreements through which consumers purchase our products. We include it in our land-acquisition agreements, our joint-venture agreements and some of our vendor contracts as well. We find it to be a very cost-effective way of resolving disputes and preserving relationships.
It's important in our ongoing relationships with joint-venture partners where we're involved in a transaction that will have life over an extended period of time. It's important to us to preserve ongoing relationships with contractors with which we work in our various neighborhoods.
It's especially important in preserving our good will with the customers who are buying our products. Consumers these days are suspicious of the people who are selling them products. No matter how hard we try to earn their trust, it always helps to have a neutral third party early on in the process say to the consumer, "Yes, this company does have your best interest in mind. They are trying to do the best they can for you."
WEARING DIFFERENT HATS
Judge Westerfield, JAMS: Does anyone use the process known as "med-arb"-mediation-arbitration? That phrase does have various meanings, but JAMS defines it as offering parties the ability to participate in a mediation but having agreed in advance that if unable to reach a settlement, the process will shift to an arbitration.
Heinen, Apple Computer: Our program has actually been undertaken when litigations are under way. We have at a certain point agreed that mediation would be appropriate-certain issues are resolved and certain issues are not. We've gotten as close as we could.
That's usually in the area of consumer class actions, and it tends to relate to attorneys' fees for the plaintiffs' lawyers.
Judge Westerfield, JAMS: So the mediator in that situation is not addressing issues which will later be decided in arbitration.
Heinen, Apple Computer: We've had a couple of situations where the mediator has become the arbitrator, which is not the preferred course.
Rounsaville, Visa International: We will not have the same person wear different hats.
Reeves, Edison: I've tried it a few times, in situations where we did not have a provision for arbitration or mediation. We're heading toward litigation, or we're in litigation and somebody proposes mediation. I have suggested we then have an arbitration as a second format.
In other words, when a mediator does not totally resolve a situation, we agree that mediator will then serve as an arbitrator and rule on the remaining issues or on the entire matter.
I've had a lot of resistance to that, because people often feel if the mediator hasn't resolved the issue so far, they don't want the mediator then to become the arbitrator. I like it because sometimes you invest so much time in a mediation that you would like to just wrap it up rather than go away and come back another day.
Rounsaville, Visa International: The problem I have is that the roles and techniques in mediation and arbitration are different.
I see the mediator as more of a diplomat, someone who is trying to bring consensual closure to a particular problem.
People relate to that person differently than they do to the arbitrator. When that mediator is pre-ordained to become the arbitrator, I wonder if you get the full benefits from the conciliatory openness mediators theoretically can bring to a discussion. People might be a little bit closer to the vest as far as what they're doing and how they are talking and using that person if they think the mediator might be the ultimate judge of the controversy.
Having different parties keeps it pure when we're talking about mediation and arbitration. Though it's more expensive- there is no question about it.
Schulman, Warner Bros.: You may frequently want very different people as arbitrators and mediators. You may want a mediator who has influence on the other side-or at least one who the other side respects-as opposed to an arbitrator who simply knows the law, will be fair and rule in a judicious, relatively efficient way.
WHEN TIMING IS EVERYTHING
Rounsaville, Visa International: You can design it the way you want. That's the value of arbitration-mediation, arb-med and med-arb-the parties can sit down and decide when they want to do something different.
It's so malleable and so reactive to the particular personalities and situations at hand. It allows people to construct a situation they think will best serve their abilities and desires to resolve a particular issue. The alternative dispute resolution world has grown and has gained such acceptance because you have such control over the process.
Schulman, Warner Bros.: The timing of the process makes a lot of difference.
If it's two major companies, such as a supplier and my company, we can enter the process after the dispute has occurred. We both have an interest in maintaining a relationship, we both have an interest in resolving the problem, we both have an interest in not irritating the other irretrievably.
But from my experience, you will not be able to do that with an employee or a customer. Once the process has started, the plaintiffs' lawyer may want a shot in front of the jury.
Rounsaville, Visa International: Whom you are dealing with and whom the dispute is between makes a difference.
Schulman, Warner Bros.: Very much so.
Phair, Conoco: You can do that in a business-to-business dispute, because businesses have a similar agenda. They want to get matters resolved.
Schulman, Warner Bros.: And between businesses, the dispute has only arisen because both of them think they are right. Neither is assuming the other is wrong.
Phair, Conoco: But I don't think it will work when you have mass-tort cases or class actions involving individuals and the plaintiffs' bar, who are sometimes de facto parties in the cases.
Schulman, Warner Bros.: I accept the amendment to my statement.
Reeves, Edison: I'm concerned mediation is becoming too lawyer-involved and too lawyer-driven.
For example, we may have a major matter we would like to settle. We have many parties negotiating, and it's principal to principal, general manager to general manager. Someone asks whether we should have a mediator, and among the outside counsel in the room, their eyes just light up. They think, "Let's have a big lawyer-type presentation where we can write briefs." And the businesspeople immediately think, "No, we don't need a mediator. We are businessmen and businesswomen; we can negotiate this ourselves."
As in-house counsel, we straddle the fence in that situation. I'd love to get a neutral party, because a neutral party will help us. But I really don't want this to evolve into a nitpicky lawyer situation where we have 20 items on the agenda when all we're really trying to do is find a solution. We don't need all the briefs. Well, we need some briefs, but we don't need all the procedures we now have built into arbitration. Arbitrations have become as expensive sometimes as litigations, because people add discovery and so many formal proceedings.
Judge Westerfield, JAMS: Had the word "facilitator" been used instead of mediator, the businesspeople might have been more willing to get a third party involved.
Reeves, Edison: That's a good suggestion.
Kopp, Centex Homes: The businessperson's goal is always to get to the solution as quickly and efficiently as possible. One of the reasons we shy away from this med-arb, arb-med is that lawyers by training and perhaps by nature are seen as incapable of doing anything in an abbreviated format.
It's well and good to suggest having brief presentations during the outset of any one of these proceedings, but in reality it never happens that way. The money is spent, the time is invested and you lose all the efficiencies and all the benefits of the proceeding you were seeking in the first instance.
Judge Westerfield, JAMS: Everybody on the business side wants something that looks a lot less like a settlement conference and a lot more like it is facilitating communication.
Rounsaville, Visa International: In those environments where you can, you have to assert control. You can't let the process run away from you so you end up with something that is just litigation under a different name.
Schulman, Warner Bros.: I'd disagree only with your label. We've all attended a few settlement conferences-they are the minority, but a few-where the judge knows about the business, is interested in clearing the calendar, is interested in resolving the issue and spends a few days trying to get something done. It takes longer than 5 to 6 one evening or 9 to 10 one morning when it fits the judge's calendar.
And that's the nature of a true settlement conference. You can go through the perfunctory statements that everyone is trying to reach an agreement. But when one side wants $1 million and the other side is willing to pay $5, you get nowhere.
Rounsaville, Visa International: Since more than 90 percent of all cases settle before going to trial, it's obvious something is happening to force settlements-maybe exhaustion. The system wears people down to the point where they just decide what was important to them three years ago is no longer important.
So people move from righteous indignation to being able to go back to business as usual.
TOO EARLY TO MEDIATE
Judge Westerfield, JAMS: When is a case right for mediation?
Schulman, Warner Bros.: In federal court, it's whenever the judge sends you.
Really, it depends on many questions: Who are the parties? What's the issue? When does it wind down?
I've got a catechism of Cs. I try to keep a claim from becoming a case, a case from becoming a cause, and a cause from becoming a calamity. Each of those has a different approach.
If I can deal with the employee who doesn't like the treatment he's getting from another employee before the first employee hires a lawyer, I'd love to do it. It's the right time to do that. Alternatively, when one of our big vendors comes in who is upset, who has tried to negotiate and hasn't gotten anywhere, he may have to get it off his chest first. He may have to file a suit, we may have to go through a little bit of a process before we can get him to an attitude of exhaustion or reasonableness or closer to my view. So I don't think there's a fixed time.
As soon as is possible is the answer for the cost and for the abrasion elements in the transaction. So as soon as possible, but not necessarily right away.
Judge Westerfield, JAMS: Does anyone believe it's ever too early?
Phair, Conoco: Yes.
For parties to get comfortable enough to even entertain the notion of ending a case, they each have to feel they have their arms around enough of the facts and the big issues in the case. There has to be some modicum of discovery so everybody feels as if we are all on the same playing field.
It's the right time whenever both sides are committed to ending the matter. Whether they are miles apart on the numbers or dollars doesn't really matter. When both sides want to get it over with, the mediator has something to work with.
Heinen, Apple Computer: One of the factors that plays into it is the strong emotions. You often have to go through some long discovery before people are ready to get beyond the emotional point of view.
One way to get there is to allow people the chance to vent, and sometimes they get past the emotion very early. Sometimes when the first prelitigation mediation is scheduled, the attitudes can still be, "There's too much that went wrong, and you should pay."
Somewhere along the way, they may be willing to put that aside and have a rational conversation.
Schulman, Warner Bros.: There also may be a moment in time when a new deal is on the horizon, which makes it right to resolve the problems.
For many years we had joint venture with Colombia, a lot that originally had economies of scale. We didn't get along with each other and each of us was looking for a way out. Finally, we had a big fight and it was one of the issues in the fight and it got resolved, very quickly, very easily. But we needed the impetus of something else to dissolve a contract that had protections for everybody.
Kopp, Centex Homes: I agree the parties need to have a handle on the facts before they come in and make decisions. Most cases are ready to proceed much sooner than they actually get to the bargaining table.
We tend to spend about 80 percent of these legal fees trying to gather the last 20 percent of the facts, and I'm not sure those last 20 percent make any difference to experienced practitioners.
Most people looking at the facts-with a little exchange of information, a little investigation-can pretty much tell you the risks and the strengths and weaknesses of each side's arguments, and can get to a place where they can resolve this on a business-to-business basis or consumer-to-business basis much earlier than most cases get there.
MEDIATION, THEN LITIGATION
Judge Westerfield, JAMS: Prelitigation, have any of you ever used mediators to help streamline the discovery and make sure everybody has the information they need to feel comfortable about coming to closure?
Kopp, Centex Homes: We have actually used mediators prelitigation to facilitate and exchange information. In those circumstances, the parties can be somewhat defensive. They don't want to completely open the door to let the other parties root around in all the corners. But a mediator can help facilitate an exchange of the information that's necessary to give the decision makers the comfort level to sit down and try to work things out.
Rounsaville, Visa International: You can also use the mediator or facilitator to mellow out passions in a case. Parties involved in a dispute are adversarial-I'm trying to prevail over the person I'm talking to and, therefore, it's a real us-versus-them situation.
When you can bring in someone who each side can vent to, who doesn't have a particular self-interest, the change in tone can be remarkable, even if the issue doesn't get resolved. I've never been in a situation where mediation has made it worse.
Phair, Conoco: Until some people get that passion out of their systems, they can't get closure.
We had a mediation-it was actually two mediations of the same matter-a couple of years ago. Many plaintiffs had a lot of outrage and were not emotionally able to reason through anything. The first session simply gave them a platform to ventilate and after that took place, we were able to at least have a rational discussion through the mediation process in the second session.
Heinen, Apple Computer: How much time passed between the sessions?
Phair, Conoco: About two months. We were dealing with several hundred ordinary people who had a claim against Conoco and were very passionate about it. And we were trying to be dispassionate because we're the businesspeople, the lawyers and the accountants. And we couldn't make any headway.
Rounsaville, Visa International: That can be pervasive in certain types of litigation, including employment cases. In those, the representatives of the employer feel they are carrying out the policies and doing what they should do and that the company ought to support them and stand behind them. The employee feels wronged. That is an environment where a facilitator or mediator really has great value.
Judge Westerfield, JAMS: Has anyone here successfully used mediation in class actions and mass-tort issues?
Phair, Conoco: The case I just mentioned was one of those. It was a very difficult mediation, and we were light years apart in terms of dollars-which is what the whole case is about. But it was able to settle.
I am constantly amazed at how cases settle that you never think will. The process works if you give it enough time and patience.
I mediated a class action last summer that failed, although it has now been renewed again. You don't know when you will fail or not fail, because sometimes you just have to give it enough time for the case cycles to get to that point.
Class actions are more complex, especially in our instance, because we are often involved in industry cases. There can be a mix of manufacturers, refiners and distributors, and sometimes they have different agendas. There can also be millions of people involved, and several plaintiffs' firms, so there are a lot of moving parts. It can be very, very difficult, but I wouldn't say it's hopeless.
Heinen, Apple Computer: We have some of the same issues when it comes to false advertising and civil consumer-claims cases. In some instances, we have been able to mediate the entire dispute. I don't know that it's successful in every case.
Judge Westerfield, JAMS: What are some of the impediments to successful use of mediation in mass torts and class actions?
Reeves, Edison: It can be difficult when the defendant really believes it has done nothing wrong, and therefore is having trouble finding a compromise. That could happen in a securities class-action contest, where the company has issued a negative earnings report and, suddenly, bingo, there is the securities class-action suit. I despair over some of these securities class actions. They just drop out of the sky on your head.
It can also be difficult in dealing with plaintiffs' lawyers who just want their fees and don't have an ongoing relationship with the company.
On the other hand, in a class action involving either employees in connection with their benefits or some sort of discrimination claim-where you have ongoing relationships-a case can get resolved. We have worked successfully with those because you can put in place protections for the future that will benefit the class members.
Rounsaville, Visa International: In any class-action mediation, you need someone on both sides of the table who has a business or a personal interest in the case. If the person on the other side of the table is the plaintiffs' lawyer and there is no representative of the class, the chemistry of the mediation process doesn't take effect.
The mediator can talk to people who think they are right on each side of the equation and bring them closer together. The lawyer has a certain role both ethically and businesswise that he or she is trying to serve and can't emotionally be expected to be in the same place as the client. So you need to represent that client group at that mediation.
The mediations we have attempted that have not proven to be very successful have involved only the lawyers for the class.
Heinen, Apple Computer: We've resolved them when there are no class members present.
It works successfully because mediators have a relationship with the plaintiffs' bar. And they are able to say, "Look, I've seen a lot of your cases, this one is a dog. On a scale of 0 to 10, this is a .2, and this is what you are going to do."
Mediators are able to use their experience from the bench and say, "I've seen a lot of these, this is not going to be a winner. Get in, get out. You are not going to want to invest a lot of time."
IT'S ALL ABOUT RELATIONSHIPS
Judge Westerfield, JAMS: What are you looking for in a mediator?
Rounsaville, Visa International: Relationships and reputation. All of life is relationships. It's absolutely true if you can find that connection where credibility and relationships exist on both sides of the dispute, then you have a real platform to build on.
With the mediator, credibility is based on the person's experience, by what they have been, what experience they have had. And it is important to look at the mediator's relationship with the parties or the subject matter of the dispute.
Those would be two things I would look at in selecting a mediator. Who is the person? What is that person's reputation?
Reeves, Edison: I like a mediator who is evaluative, who actually will tell the parties his or her view of the law and the strengths of their positions. However, it must be someone who has done his or her homework and has read the briefs, knows the law and will get it right.
I've had three failed mediations that come to mind in the last six months. Two of them were passive mediators who believed they should not take a position and should not be evaluative. In one case, it was two days of, "Well, they want X. What do you think about that?"
Rounsaville, Visa International: Sounds like my psychiatrist.
Reeves, Edison: This was a retired judge. So I said, "Your Honor, you are a well-regarded judge of the same bench this case is pending before. You know the judge it's pending before. In fact, he referred us to you specifically. Here is my brief on the law. This is what I think is legal issue, which will determine the whole dispute. I think it is something you should weigh in on. If I'm wrong, tell me so."
He looked at my cases, and, he said "No, yours looks correct but they say they disagree." Do they have any cases? What's their authority? He never weighed in on it, so it fizzled.
Then we had someone who was very evaluative, but I swear he hadn't read the briefs. He came in and when we made our positions, the plaintiff made a very grandiose jury presentation. And he said, "Sounds good to me," and immediately started in. The only reason I know we were right is because we just got a judgment in that case in trial the other day after the mediation failed a year ago.
I want someone who is evaluative and who will help out, but then that person must take seriously the responsibility to really dig into the facts and the law.
Rounsaville, Visa International: How do you know that ahead of time, unless you've actually met the person before?
Reeves, Edison: It can be just a matter of talking to other people.
Judge Westerfield, JAMS: What works in one room and what works in another room can be very different.
There can also be success using a facilitative-to-evaluative continuum, where the mediator starts out facilitative, getting the parties to where they want to come up with a creative solution. So the mediator may use the open-ended questions. If the parties become stuck, then they can use the more evaluative approach with direct questions: What do you think the jury will think about this? What will the court say about that?
Schulman, Warner Bros.: The key is both sides have to perceive the mediator to be the same way. If the other side doesn't think the mediator has those same strengths, you will not be able to use them for that.
Kopp, Centex Homes: Patience. That's a characteristic I want to see in the mediator as well. I want to have a mediator with all of the skills, flexibility and characteristics we've described, but I want somebody who will be patient in the process, persevere and stick with the process and give the parties the best chance to get there.
Heinen, Apple Computer: Occasionally the subject-matter expertise of the mediator becomes very important when knowing the law is an issue. Patent cases would be an example.
Phair, Conoco: We represent highly educated, very talented engineers and scientists in my company. One of our challenges is to get our clients to understand the process and stay focused on it. Let the mediation process work, and if you do have a mediator who is bashful about sticking his hand in the meat loaf, finding out what's there and moving the parties around, it's hard to reach a conclusion successfully.
But the mediator and the clients need to make a decision, yes or no. If there is a track record of closure, that's what we do look for. Because we want to close it.
ALL WE NEED IS PATIENCE
Rounsaville, Visa International: In my past life as general counsel at Wells Fargo, we did a lot more mediation and arbitration than we have in my experience at Visa International. Our success rate increased as we did more mediation and as our people, the clients, became more aware of what mediation was expected to achieve. It was a real education process.
Phair, Conoco: As Phil mentioned a moment ago, businesspeople are into instant gratification and bottom line-they want to get to it. Mediation can be very counterintuitive to that.
Rounsaville, Visa International: It can be very counterintuitive. Businesspeople expect to win, and they may need to go through a few trials to realize a victory doesn't make them feel better.
Judge Westerfield, JAMS: What should in-house counsel tell their clients in order to prepare? What guidelines can you share with your clients to get them ready for the process?
Phair, Conoco: Patience.
Kopp, Centex Homes: In addition to explaining the process to the company representatives who will be participating, I am constantly cautioning them, "Be patient. Don't schedule any appointments for this afternoon or for the rest of the week if it's a significant case, because we will be there for a while. And we want to be there for a while, because that will give us the best opportunity to solve the matter."
Rounsaville, Visa International: Sit down with the businessperson even before the idea of mediation comes up and find out what they want to achieve out of this.
You can introduce different ways of achieving those things, with mediation being one method. You have to lead them into an acceptance of what they are trying to achieve, which is a dispute resolution, not total victory. Because most times you come out of a mediation, there will be a compromise. You may get more than you started out with, but you may get less. They shouldn't go into mediation with the expectation of total victory.
Reeves, Edison: I also advise my businesspeople to look at the other businessperson and not at the other side's lawyer. Mediators who are good speak to the businesspeople, not the lawyers, although the lawyers tend to respond anyway.
You have to advise your client to deal with the other businessperson and just put that lawyer out of their line of sight. Given the chance, lawyers will take over the process.
Judge Westerfield, JAMS: What skill set should a lawyer involved in mediation have? Is it different from the skill set of a litigator?
Rounsaville, Visa International: I definitely want the counsel advising my client in a mediation to be a little less restrictive and protective of what the client does-let the client take the forefront. The lawyer should be at his or her shoulder, but a step behind. In a litigation, I would expect the lawyer to be a shield for the client.
And lawyers recognize there is a difference between what they do in mediation versus tried and true litigation.
Phair, Conoco: There is an exquisite moment in the dynamics of the mediation a lawyer must be able to recognize. That is the point at which the businessperson should be front and center and the lawyer should back off. There comes a point when it's critical to do that, and you have to be able to recognize that. It's really an art, not a science. You just have to recognize it, and that gets back to patience. It may be the next day. It may be 8 o'clock at night.
I also look for counsel who will not try to argue the case or litigate it in the mediation room.
Kopp, Centex Homes: George's observation takes us back to the earlier point: How do you prepare your client or business representative for the mediation?
You must prepare them for that moment, because most mediators at some point during the process will turn to the business representative and ask them directly how they feel or what they want. And the businessperson has to be prepared to answer in a way that will advance the process.
In my experience, mediators are often looking for the level of emotional commitment to the cause on the part of the businessperson, and that's the businessperson's opportunity to express himself or herself, and really set the tone for the process.
Phair, Conoco: That also means you have to take the right businessperson. It has to be someone at the right level personally, whether it's the general manager, vice president or CEO.
I have had some who are reluctant to go beyond their authority, so you have to really analyze what level of authority is necessary to close this matter.
Schulman, Warner Bros.: How many times have you walked into a mediation and been upset because you know the level of the people on the other side?
Phair, Conoco: You've got a VP and they've got a low-level manager.
Rounsaville, Visa International: That's one of the things we've always made a condition of mediating-there has to be somebody with authority.
Schulman, Warner Bros.: We'd acquired a company that kept records like I did in college. We had a lawsuit from a representative of Jane Fonda, and Ms. Fonda was suing on a series of workout videos she had made.
Each one of them had a separate set of contracts, each of which were alleged to have been breached. I got called by a lawyer on the other side for a waiver of a conflict. I said "yes" on two conditions. One, I wanted to see the complaint before they filed it and two, I wanted an opportunity to sit down with them. It was not a formal mediation. And I wanted two people there: a witness who would know what went on, and somebody who could make a decision.
I don't remember the gross numbers, but it was millions of dollars-some typists' delight-they were seeking. We sat down with a few people on our side and took these outrageous numbers down and went through each of them in a day.
We got them talking, no mediating. We went back and forth on the numbers. We had lunch the next day to flip a coin and resolve it.
That was the whole of the process. The key was having somebody there who had the authority to make those decisions.
Judge Westerfield, JAMS: What examples do you have of mediations that haven't worked and what did you learn from those?
Reeves, Edison: My two bugaboos now are passive mediators and arrogant mediators. I mentioned my experience with passive mediators. The arrogant mediator is so full of himself that he can't hear the parties talking.
I was in a situation with excellent law firms, and the lawyers made presentations for a courtroom, not a mediation. The mediator then felt that he had to show he was just as good a litigator, so he took center stage and started dominating the proceedings, rather than trying to mediate the issues. He started throwing numbers around, which meant the parties' concerns never got heard.
Heinen, Apple Computer: We have had mediations that have not succeeded in resolving the disputes, and it's been disappointing. So you regroup and you go back into litigation. But you may have advanced it in some way so you can successfully mediate later.
What may seem like a total disappointment can somehow ease the way for a more successful mediation. In one instance, it was two years later, but we just had to get through scorched-earth discovery before the other side was ready to mediate. Initially they just came in saying, "Pay or die."
Kopp, Centex Homes: Inadequate preparation is another problem. Advocates can be inadequately prepared by not knowing their case and not talking to clients.
And clients can be unprepared in part because of the failure of their advocates. But emotionally, they may not be where they need to be, or factually, they may not understand the strengths and weaknesses in their case, so they are not in a compromising mood. You arrive, you have some conversation and five, six, eight hours later you wonder what the heck you were doing there because people didn't prepare.
Phair, Conoco: Another issue is the unraveled mediation. You reach an agreement and you leave the mediation, but you fail to memorialize what it is you've reached. When you're trying to do the paperwork later, you find out the parties have different understandings of what the arrangement was. It's important to get it on paper before you leave for the airport.
Heinen, Apple Computer: Amen to that, George.
Rounsaville, Visa International: Maybe I'm being Pollyannaish, but I believe a volume of progress has been made in every mediation I've been through- regardless of the fact that maybe our expectations were not fulfilled or we didn't achieve the greatest degree of success, or even if my immediate reaction was to wonder if it was a waste of time. After a few reflective moments, I always think something good comes out of it.
Reeves, Edison: The timing is also important. Sometimes you will be in a mediation for two days, and somebody says, "I just can't be back here tomorrow." That happened recently. My first reaction was disappointment, because we had momentum going. We met five or six days later, and it was wonderful. The interim had given us all time to cool down from the momentum, to step back and to see a more objective position.
Judge Westerfield, JAMS: The international arena is one you obviously engage in all the time. Practitioners in their day-to-day practice are learning suddenly they are international lawyers. They just did a business deal over the Internet with someone in Germany or India. Have you had much experience in international mediation?
Phair, Conoco: As I understand it from our international lawyers, we have not made much headway in getting foreign governments to buy into the concept.
In the instance of international operating agreements by which we partner with other foreign companies to explore oil and gas, there is a trend to include a mediation or a mediation-arbitration process in the agreements that will allow us to have some alternative remedy.
There are a lot of cultures in which we do business where the local businesspeople may recoil at the thought of American-style pitched litigation and would rather reason through a dispute. These are the commercial situations where there is life after the dispute and you need to preserve it.
Reeves, Edison: It's very much a wave of the future, but it's not here yet. Arbitration, of course, is international, but I don't see a lot of mediation at the international level yet, and I wish there were more. Our next step is adding that to all of our international agreements and transactions. Sometimes our arbitrations turn into mediations, where the parties all decide to sit down to talk instead of continuing to arbitrate.
Heinen, Apple Computer: That's been Apple's experience.
Reeves, Edison: It's especially true when our power plants are in countries that have less-than-stable governments. Even if you arbitrate and get a decision, it may never be enforced, because who knows who will be running the government next month? So maybe everyone should just sit down, patch it up between the parties and keep going.
Heinen, Apple Computer: In many jurisdictions outside the United States, the litigation process is so different that issues resolve themselves without a formal mediation process. In Germany, where there is no discovery, the judge tends to act more like a settlement judge, for example.
Judge Westerfield, JAMS: Are there regions in the United States that are doing more with mediation than others?
Reeves, Edison: My sense is California is pushing mediation more than states back East. When I speak to lawyers who have cases up in New York, for example, they are not as far along in the mediation concept and they don't use it nearly as much as we do, even though there are mediation offices there.
Phair, Conoco: California and Texas have been doing mediation for 25 years. Other parts of the country are way behind, and that presents some interesting issues.
Judge Westerfield, JAMS: Any other trends in mediation?
Reeves, Edison: Internally, we have what we call "focus on resolution." It's how we internally resolve employee disputes before employees file a lawsuit. We can't force them, but we strongly encourage them to agree they will certainly consider using the focus-on-resolution process.
In that process, an employee with a complaint files a form, and it is assigned to an internal mediator, a company person. We progress through a few levels, and toward the end, we may go to an outside mediator and discuss the employee's grievance. As a last step, if the employee is not satisfied, the employee has the opportunity to initiate either binding arbitration or litigation.
We almost always resolve the issue along the way.
Schulman, Warner Bros.: I've found the mere existence of an arbitration provision, even without a mediation provision, will frequently lead to mediation.
You don't need it written in. Knowing they are approaching a more controlled dispute resolution mechanism, both parties recognize in a narrower range what the resolution is likely to be. I find that almost as successful as the existence of that very provision.
Heinen, Apple Computer: All of our successful experiences makes us more willing to consider the alternatives-what are the different avenues to resolving this?
Phair, Conoco: My clients read the newspaper like everyone else. As multibillion-dollar verdicts-verdicts that actually drive companies into bankruptcies-make headlines, there is a general lack of confidence in the conventional court system.
Management will look at these kinds of tools more favorably as they see what happens in the courthouses, and they will be much more amenable to concepts of alternative dispute resolution. They will be more willing to look at creative solutions, because you can win a case and lose your stakeholders, your customers or your good will, and you might not have accomplished anything.
Kopp, Centex Homes: Our judicial system may be the best in the world, but the reality is that judges and juries sometimes get it horribly wrong. Most companies can't afford that kind of risk, so it's in their best interest to try to resolve issues ahead of time.
Nancy R. Heinen is senior vice president and general counsel at Apple Computer Inc. in Cupertino, Calif. Prior to joining the company, Heinen was vice president, general counsel and secretary at NeXT Software Inc., which Apple Computer acquired in 1997.
Philip David Kopp is deputy general counsel for the West Coast region at Centex Homes in Carlsbad, Calif. Before coming to Centex Homes in 2001, Kopp served as chairman of the litigation department at Dowling, Aaron & Keeler.
George Allan Phair is senior counsel at Houston-based Conoco Inc., where he focuses on environmental litigation. Before coming to Conoco in 1988, Phair served as an assistant U.S. district attorney for the Eastern District of Texas.
John A. Schulman is executive vice president and general counsel at Burbank, Calif.-based Warner Bros. Prior to joining Warner Bros. as general counsel in 1984, Schulman was a founding partner of Weissmann, Wolff, Bergman, Coleman & Schulman.
Guy Rounsaville, Jr. is executive vice president and general counsel of Visa International. Before joining Visa International in March 2001, Rounsaville served as co-managing partner at the San Francisco office of Allen Matkins Leck Gamble & Mallory.
Barbara A. Reeves is assistant general counsel of Southern California Edison and Edison International in Rosemead, Calif. Prior to joining Edison, Reeves was a litigation partner at Paul, Hastings, Janofsky & Walker.
Hon. Rebecca Westerfield (Ret.) has served as a JAMS (Judicial Arbitration & Mediation Services) mediator and arbitrator in California and is an active member of the California State Bar. Prior to joining JAMS, Judge Westerfield served as a circuit court judge in Kentucky.
Click here for Corporate Legal Times' website.