Note: This article was previously published in Alternatives, Vol. 29, No. 4 in April 2011.
I concluded from the experience described in “A Different Approach to Conducting Med-Arb In Complex Commercial Litigation Matters,” 29 Alternatives 65 (February 2011), that adding the evaluation piece up front to the med-arb process, in lieu of a full-blown arbitration at the back end, was quite beneficial for the parties in that case.
It also has significant potential for other complex commercial litigation matters involving sophisticated parties, including, for example, those who have continuing commercial relationships, international transactions, and other commercial disputes where emotional litigation is not productive, but where the business people want at least some opportunity to “have a day in court” before settling or submitting for an expedited result. It’s not for all cases, but for certain select matters.
The following observations should be considered in setting up eval-med-arb proceedings.
I. CLEAR, UNEQUIVOCAL WRITTEN AGREEMENT.
First, consider the ethical issues associated with med-arb of any permutation calling for the same neutral to both mediate and arbitrate. Most rules and commentators concur that sophisticated parties fully informed about the issues and risks associated with this process may agree to waive the objections and barriers that would otherwise exist. This process certainly is not for unsophisticated parties. The written acknowledgments and waivers must be written, clear, thoughtful and unequivocal.
II. WILL PARTIES PARTICIPATE IN MEDIATION APPROPRIATELY?
Second, as noted last month, one vice suggested of med-arb is that the process encourages parties to be more argumentative than normal in the mediation stage, and less willing to consider and concede weaknesses in their case, lest they receive a more unfavorable award in any subsequent arbitration stage. It’s easy to envision such a dynamic in a pure med-arb. And in the evaluation stage of this case’s hybrid process, the opposing counsel were aggressive in presenting their cases.
One example was a piece of the agreed ADR structure providing for each party to submit two ex parte lists to the neutral before the evaluation session began. One was to contain five fact questions for the other side. The other was to identify five areas or subjects on which agreement possibly could be reached during the process, even if there was not a total settlement.
I reasoned ‑ perhaps naively in hindsight- that this would cause the parties to start thinking constructively; at least the first list might provide me with question I could ask the parties in the live session to learn possibly helpful facts.
But the fact questions received from outside counsel were generally argumentative and unproductive-for example, “How will you explain your fraud to a jury?” Neither side provided any potential areas of agreement.
In fact, the submission illustrated the level of tension and distrust on both sides when the evaluation process began.
I did not attribute this aggression to the med-arb process, however. Instead, the parties were seeking an evaluation, and the counsel wanted to present their best case possible, as they should have, all well before the mediation.
By the time the mediation occurred, the time for posturing and heated argument had passed. Each party had its “day in court” during the live evaluation session. That process led to further opportunities to be heard, and I had given my lengthy evaluation. To be sure, it contained still more questions and no decision, but by the time for mediation, the evaluation process had prepared the parties to participate in a more thoughtful, constructive mediation.
The evaluation stage thus mitigated substantially the concerns about argumentativeness and, instead, increased the likelihood of settlement rather than decision by baseball arbitration.
In this author’s experience, it is common ‑ whether or not prudent ‑ for counsel who are aggressive by nature, and who believe it serves their client’s cause in the mediation, to appear unwilling to consider with the mediator weaknesses in their case. This happens even if behind the scenes with the client they are objectively considering everything that has been said in fashioning their offers.
The med-arb process doesn’t necessarily exacerbate to any significant extent a party’s willingness to be objective in the mediation. After all, if they go to arbitration, they should want the former mediator-arbitrator to regard them as credible and reasonable, and that perception may not be helped by acting otherwise in the mediation-as experienced lawyers should know.
III. CAUCUS? OR NOT?
Third, cognizant of the relevant laws, rules and commentary, the parties had agreed in their engagement to waive any objections to my hearing ex parte communications during mediation caucuses of a type that ordinarily could not be considered by a deciding arbitrator.
As mentioned earlier, an alternative process is that parties reduce due process objections associated with such communications by agreeing there will be no such private caucuses in the mediation stage of a med-arb proceeding. From my vantage, caucusing was helpful, as in most mediations, if for nothing else than to further develop an affinity with the parties that might help facilitate the settlement they wanted.
Moreover, the nature of this eval-med-arb ADR process was such that, by the time we got to mediation, there was not much new or different left to be offered on the merits of this complex litigation, confidentially or otherwise. Thus the risk of tainting the neutral with ex parte unsworn, inadmissible false information seemed quite low because of the first-phase evaluation process.
Caucuses did, however, permit me to explore the possibility of an interest-based settlement, which might not have existed in a no caucus format. At least one commentator has suggested that this is a potential vice, not a virtue, of med-arb caucuses, since a mediator-turned- arbitrator will necessarily reach a “fair” decision based on the parties’ “interests” – many neither relevant nor germane, let alone admissible in a real arbitration, where the decision should instead be based on the parties’ factual and legal positions. See James J. Vlasic, “Med-Arb-Can You Afford the Risk?” The ADR Newsletter, Vol. 15, No. 1 (Jan. 2008) (Michigan State Bar ADR Section) (available at www.bodmanllp.com/publications/articles/ADR_Newsletter_1-08.pdf).
There is no denying that one risk of med-arb is that the arbitrator cannot “unring” the bell in his or her mind of otherwise inadmissible information heard in the mediation stage. Therefore, as noted earlier, parties should approach this hybrid process with caution. A no-caucus rule is one way to mitigate its risk.
That stated, mediation is an attempt to explore all appropriate ways of resolving a dispute- including those that are interest-based and creative, and which might not be available as remedies in an adjudicated process, such as business solutions. It seems reasonable for parties to want a mediator at least to explore those.
Regarding whether a med-arb neutral would reach an interest-driven decision in a subsequent arbitration stage, the parties imposed constraints on the neutral in two ways.
First, the baseball last-offer structure gave the neutral less discretion and no creativity in decision-making. I was to choose only between the final offers created by the parties themselves, and no more. Creativity was left to the mediation. To be sure, the issues, questions and observations shared in my evaluation undoubtedly influenced the parties’ approach to fashioning the offers they made during the mediation, leading to the final offers which each might submit for decision.
But that is exactly what they wanted to happen. Baseball arbitration motivated them to negotiate reasonably in mediation, based on the logical assumption that the arbitrator would pick the more reasonable of two final offers.
Second, the parties also had expressly instructed in their initial agreement that, if mediation failed and I was presented with such a choice, I should pick the resolution that appeared to me closest to the outcome most likely to be made in a court proceeding involving the facts and circumstances as I understood them.
IV. NARROWING OF ISSUES BEFORE DECISION.
Fourth, another med-arb virtue is its creation of a process in which issues can perhaps be narrowed in the mediation phase, thus reducing the number of issues or the amount in controversy that needs to be decided by the arbitrator. That is true whether evaluation is part of the process or not, but the evaluation component increases the odds of issues being so narrowed.
That happened in this case, though not formally. While I did not rule on any issues, my evaluation included questions and impressions as to most issues. This seemed to cause at least some of them to fall by the wayside, or at least become prioritized, by the time mediation began-certainly by its end.
V. TESTIMONY AT THE EVALUATION SESSION.
Fifth, it is important, as the parties agreed in our case, to require business people knowledgeable about the case to attend all sessions, particularly the first one toward obtaining the evaluation. They should be prepared to discuss the facts and answer questions, even if they are not sworn.
Observing their demeanor in such a setting is helpful for a neutral being asked to consider likelihood of success, particularly in a case where important issues turn on witness credibility. For the same reason, it is also a good idea to provide the evaluator with excerpts from videotaped depositions of other key witnesses who do not attend. Simply showing such excerpts as part of an opening presentation can be helpful, but leaving the excerpt with the neutral to review later, along with other evidence, can be valuable.
One potential criticism of this process, particularly from the trial lawyers, likely will be that it substitutes an even more informal ENE process for the already informal arbitration format. That denies due process protections of sworn witnesses, cross-examination, and the like.
There are, of course, ways to increase due process during the evaluation stage. For example, an agreed upon number of fact witnesses could be sworn at the live session and cross-examined at least to some extent.
But remember that this process was these parties’ choice. They were tired of litigation, and were looking for an adequate yet efficient way to reach a final result. Less was more for them, just as the shorter brief is usually the better. Perhaps, however, as suggested below, parties to disputes in which little discovery has occurred thus far will want to introduce some greater due process into the evaluation stage.
VI. LIMITS ON AMOUNT OF EVALUATION SUBMISSIONS.
Sixth, another important issue that the parties should carefully consider is limits on submissions.
They should not just limit briefs’ page lengths, but also place limits on numbers and pages of all documents, deposition excerpts, expert reports, and other evidence. There needs to be limits, or the parties will end up trying the entire case, and costs will escalate.
But limits that are too strict–i.e., closer to what one might expect in a mediation-can result in the evaluator/arbitrator not seeing evidence on issues that may be important. The neutral may be forced to assume, without at least an offer of proof, that there is no supporting evidence.
Sometimes such issues become more obvious during the live session itself, after each party has seen the other’s submission and they both begin for the first time to hear, and listen to, difficult objective questions from the evaluator. Thus a process for reply submissions can be valuable-but again, it must be kept under control by agreed limits, or the efficiencies sought will be lost.
VII. USE OF NEW EVIDENCE FOR EVALUATION.
Seventh, the parties should consider and attempt to agree upon from the outset whether they will be permitted to submit evidence that was not already produced in discovery, including documents or declarations by witnesses.
In a case that has been litigated extensively, as here, one might think this issue would not be significant. But it was. I received newly drafted declarations, including from a witness who had never been deposed, and from another who explained and supplemented deposition testimony. One declaration attached what I was told were documents that had been sought, but refused, during discovery.
In a dispute that is still in its infant stages, it is more reasonable to expect that previously undiscovered information may be submitted. In either situation, the parties should consider to what extent such new material may be used; whether there will be an opportunity in the evaluation stage to obtain or offer responsive evidence, or at least make offers of proof, and make arguments; and how this affects the costs that are trying to be kept under control by this ADR process.
VIII. HANDLING OF INDIVIDUAL PARTIES.
Finally, if there are multiple parties to a pending court action, such as individual executives being sued in their personal capacities, the agreement should include them in the process, or at least address its impact on them. In the case detailed, for example, the corporate parties agreed to dismiss the individual defendants, since they had agreed to a process that would result in an agreement or decision between them, with which they could live without further responsibility by individuals.