Mediation Before Litigation or Arbitration

by S. George Alfonso
The Law Offices of S. George Alfonso, PLLC
Worldwide – World Class

and
Of Counsel
Carstens Allen & Gourley, LLP

Summary

This article highlights the potential advantages of seeking dispute resolution between parties through mediation (informally or formally), before the commencement of litigation or arbitration. ¹ Engaging in mediation prior to litigation or arbitration may help facilitate clearer communication between the parties and reveal useful information which may facilitate a partial-to-complete settlement of the disputed issues, thereby avoiding costly and unpredictable litigation or arbitration.

The Fog of War

Throughout my career as a litigator and arbitration counsel, I’ve experienced the inherent unpredictability that arises out of every lawsuit and arbitration proceeding. Mike Tyson once said “Everybody’s got a plan until they get punched in the face.” Iron Mike’s famous quote, illustrates how strategies that may appear concise and actionable before battle begins, can often quickly disintegrate into muddled confusion once the “Fog of War” sets in. This is true for parties regardless of whether they are the plaintiff or defendant in a lawsuit or the petitioner or respondent in an arbitration. ²

The onset of the Fog of War results in the parties losing a respective amount of control – ceded to the time table of the governing authority (judge or arbitral tribunal), as well as the rulings issued and the facts which exist and come to light through the discovery process and the controlling law based and rulings made in the case. Once commenced, there exists an uncertainty and level of risk which can be very difficult to calculate, control or foresee.

Mediation a Method of Dispute Resolution A/K/A “Problem Solving”

In my practice, the issue of dispute resolution or “Problem Solving” usually concerns U.S. or international clients and commercial contracts in which the parties (two or more), have entered into and one or more dispute(s) has/have arisen. ³ When possible (all other parties to the dispute must agree to do so at the time), I recommend my clients engage in the process of dispute resolution through mediation (“Informal Mediation” or “Formal Mediation” as discussed herein).

What is Mediation (“Informal” and “Formal”)

Mediation, as noted in footnote number one, unlike arbitration, is a non-binding process, which means that no one in the process, including the “Mediator” (if any), possesses the authority of a judge or an arbitrator to issue any type of binding judgment or award for or against a party in the dispute.

Informal Mediation

Informal Mediation is a loosely structured exchange of ideas and communications between the disputing parties, whereby the parties directly engage in communications with one another in an effort to resolve some-if-not-all of the currently existing disputes. When feasible (and agreed to by the disputing parties), I encourage my clients to seek to resolve disputes through Informal Mediation. These direct communications may be between the company owners/officers or counsel for the respective parties. ⁴

Formal Mediation

The other mediation option available (again – if agreed-upon between the parties), is Formal Mediation whereby all parties agree to jointly hire a professional mediator (usually a retired judge or attorney) to organize a meeting of the parties at one time whereby the mediator meets independently with each party, and possibly together as well, in order to seek an agreed-upon resolution as to some-if-not-all of the dispute(s). ⁵

As with Informal Mediation, the Mediator possesses no binding authority to issue any rulings, judgments or awards to any party, merely suggestions as to how to resolve the current dispute(s). The Mediator’s fee is typically paid for by an equal distribution of all parties who have agreed to Formal Mediation. Formal Mediation is usually conducted in-person at the Mediator’s office in order to facilitate the most effective communications between all parties. However, post-COVID, many Mediators have loosened this requirement, and in international disputes in particular, in-person Formal Mediation may not always be feasible. ⁶

Why Engage in Mediation (Formal or Informal) Before Filing?

There are numerous reasons to consider pre-litigation or pre-arbitration mediation with all parties in a dispute (whether Informal or Formal Mediation).

Additional Communication Can Facilitate a Resolution of a Dispute

The parties’ engagement in Informal or Formal Mediation will necessitate inter-party communications that may bring another party’s position or opposition to a matter into greater clarity, thereby providing an opportunity to better understand the dispute from their perspective and potentially provide a meeting of the minds through compromise.

Pre-Litigation/Arbitration Reconnaissance (In Coordination with Counsel)

The statements and disclosures by parties during Informal or Formal Mediation can often-times result in the gleaning of valuable of information through other party’s(ies’) disclosures (intentional or otherwise), which may be used to decipher some of the goals, and objectives and even the internal concerns of another party. Such information may be of substantial value, whether or not some-to-all of the dispute is settled at this stage.

Designating and retaining experienced litigation and arbitration counsel at the initial outset and in preparation for pre-litigation/pre-mediation can further enhance the effectiveness of mediation. Bringing counsel on board at the earliest possible time will allow him or her the opportunity to compile, organize and draft one or more “Confidential Demand Package(s)” (“Demand Package”), to present to the other party(ies), which can succinctly set forth your company’s position and responses in anticipation to counter-arguments. ⁷ Such preparation by counsel will also provide an effective opportunity during the mediation process to analyze all disclosed information by the other party(ies), for its maximum effect, which may be utilized in the settlement negotiations or subsequently in the litigation/mediation proceedings should such action become necessary.

S. George Alfonso founded The Law Offices of S. George Alfonso, PLLC over thirty years ago. Mr. Alfonso provides U.S. and international businesses with representation regarding commercial contract negotiations and drafting (including international trade and defense-related matters), U.S. litigation/arbitration.

Mr. Alfonso also serves as Of Counsel to Carstens Allen & Gourley, LLP, an international IP firm. As the basis for this article, Mr. Alfonso’s practice also includes U.S. dispute resolution (problem solving) both prior to and after the commencement of litigation or arbitration on behalf of his clients.

S. George Alfonso
The Law Offices of S. George Alfonso, PLLC
SGeorge@WorldWideCounsel.Net

AND
Of Counsel
Carstens Allen & Gourley, LLP
SGeorge@CAGLaw.com

Mediation, both informal and formal, can not be binding, in that no ruling can be enforced against any party, the mediation process requires the agreement between the parties to the dispute in order to effectuate a settlement pertaining to some-to-all of the disputed issues. ↩︎
Arbitration is a binding process, identical to a trial, to which each party to a contract must agree within the terms of the contract itself to the specific arbitration terms, in order to be required to participate in the arbitration process and be bound by any award which may be issued by the arbitral body. International arbitration is typically included in an international contracts’ “Dispute Resolution Section” and should be a requirement in any international commercial contract. If your company engages in international transactions all of your company’s international contracts should be reviewed in order to insure each agreement contains an updated and well-drafted Dispute Resolution Section. The parties’ agreement to enter into arbitration in the Dispute Resolution Section of the contract should include the location of in which the arbitration is to take place (venue), as well as the choice of law (procedural and substantive), the number of arbitrators and the arbitral body of which the parties agreed to use in the event of a dispute, such as for instance, the International Chamber of Commerce (“ICC”). If the parties agree to arbitration in the Dispute Resolution Section, they may further agree for the arbitration process to be the sole and exclusive method to resolve disputes (rendering lawsuits prohibited under the terms of the Dispute Resolution section). ↩︎
Contracts may be bi-lateral in nature (two parties to the contract) or multi-party (more than two parties signing the contract). It is critical to realize that in any multi-lateral contract, all parties should be required to agree to the Dispute Resolution Section (including all arbitration provisions) of the contract. If, regarding a four-party contract, only three of the parties agree to sign the contract containing the Dispute Resolution Section, the result is the fourth party has not agreed to arbitration and has created not only for itself (no obligation to appear or participate in any arbitration), but has also effectively created the risk of the “Empty Chair Defense” scenario, to be employed by the other two parties to the contract who did agree to arbitration in the Dispute Resolution Section. The Empty Chair Defense may arise in arbitration when the Respondent(s), throughout the arbitration process and the hearing simply point to the Empty Chair of the party that did not agree to arbitration and blame that party for all evils, wrongs and damages. The Empty Chair Defense can be a very difficult scenario for a petitioner in any arbitration proceeding to overcome. ↩︎
In some instances representatives of the companies have a good rapport with one another. In such cases, I typically do not object to my client engaging in direct communications with their counterpart(s), as long as my client understands our jointly devised strategy and is comfortable in effectively communicating with the other party(ies). Further, at this stage in pre-litigation or pre-arbitration mediation, there is no requirement or obligation to disclose to the other party(ies) that your company has retained counsel. Your company may enjoy the benefits of counsel, while communicating directly with the party(ies) in conflict in order to foster a more cordial line of communications in an attempt to keep tensions low by preventing the direct involvement of counsel vis-à-vis the disputing party(ies). ↩︎
In most U.S. jurisdictions trial courts order the parties to a lawsuit to Formal Mediation. The actual mediation typically occurs long after the lawsuit has been filed and often-times closer to the trial date, often after the close of discovery. Delaying mediation until this time period results in substantial legal work and fees being incurred before the mediator has ever been provided an opportunity to try and resolve some-to-all of the issues. ↩︎
I am a strong proponent of all-party in-person mediation as there is no substitute for the inter-personal communication and speed of ideas that occurs when all parties to a dispute are in the same office, working in real time with the mediator. ↩︎
In the instances where there are more than two parties to the dispute, counsel may draft separate and distinguishable Confidential Demand Packages to issue to each party in the dispute, without the disclosure to one disputing party of the existence or issuance of the uniquely drafted Confidential Demand Package to the other disputing party. ↩︎