This article explores four factors commonly considered by franchise lawyers when selecting a mediator, and further considers whether mandatory mediation is desirable. Several franchise lawyers recently shared their views on these issues with me. Based on their collective wisdom and my own experience, I believe there are four key factors to be considered in choosing a mediator: 1) the nature and stage of the dispute; 2) the mediator’s dispute resolution skill set; 3) the mediator’s franchise legal expertise; and 4) the mediator’s success rate.
Nature/Stage of Dispute
If the dispute arises before a proceeding is initiated, counsel may opt for a mediator with solid transactional expertise in franchising. Often, the goals in pre-litigation mediation include avoiding a lawsuit, avoiding FDD disclosure of the dispute in Item 3, curtailing costs to both sides, and potentially preserving the franchise relationship. In this instance, Barkoff’s preference is to choose a mediator with “a strong transactional background” who might craft “a buy-back or settlement which possibly restructures the relationship” (quoting Barkoff). Similarly, Les Wharton, Chief Legal Officer with Coverall North America, Inc. in Boca Raton, prefers a mediator “who can adjust his or her mediation style depending on the nature of the dispute and timing of the mediation.” On the other hand, if the dispute is strictly monetary, or if litigation is underway, someone with litigation experience may be preferred. Michael Garner, the founder of W. Michael Garner, P.A. in Minneapolis, has a “slight preference for someone with trial experience because they may have a better sense of the strength of the claims.” At a minimum, Barkoff, Wharton and Garner all agree that, regardless of whether a legal proceeding has been initiated, it is important that the mediator selected has a keen understanding of the procedural aspects of the litigation process.
The mediator’s skill set is often of paramount importance. Lawyers should seek someone with credibility in the franchise community who will delve into the business and legal issues and evaluate the strengths of each side’s position. Scott Korzenowski, a Partner with Dady & Gardner, P.A. in Minneapolis, opined that “a good mediator is someone who uses his legal mind with an evaluative style to focus the parties on the risk of litigation or arbitration.” Korzenowski prefers someone who can “craft a solution and urge the parties to not leave the resolution in the hands of a judge or arbitrator” (quoting Korzenowski).
Many lawyers prefer a mediator who can persuade both sides that their case is not as good as they [the clients] think it is. “I’m looking for the mediator who can really drive people together” (quoting Korzenowski). Additionally, even if one party wants to end the mediation prematurely, choosing a mediator with “stamina to get the parties to move toward a resolution at the end of the day” is a key factor (quoting Korzenowski). Similarly, Wharton looks for a mediator “who can help squeeze the parties into a settlement” (quoting Wharton).
Choosing someone who the other side will trust is another paramount consideration. When representing franchisees, Korzenowski and Garner each look for a mediator who will have credibility with the franchisor. Conversely, when representing a franchisor in an action of dubious merit brought by a franchisee, Peter Silverman, a Partner with Schumaker, Loop & Kendrick, LLP in Toledo, looks for a “well-known franchisee lawyer who will be trusted by the franchisee” (quoting Silverman). Such a credible mediator can speak with integrity and persuasiveness when he opines that the claims are “bogus” and the franchisee needs to settle.
Finally, there is a strong preference for a forceful mediator rather than one who simply fosters a dialogue between the parties. Silverman says “a hand-holder or someone who is just facilitating discussion isn’t useful to me.” Instead, a mediator who can find common ground, “create a sense of momentum, and forge a break through” toward settlement is coveted by both sides (quoting Garner).
Franchise Legal Expertise
Whether you represent franchisors or franchisees, counsel agree that choosing a mediator with franchise expertise, particularly someone who has counseled both sides, is important. Certainly, if the outcome is likely to be determined on the interpretation of franchise law, a mediator with franchise expertise is essential. Garner and others evaluate “how long the mediator has been in the industry, whether they really know franchising or just have a passing familiarity” (quoting Garner).
In sophisticated disputes, it doesn’t matter whether the experience is based in trial practice, litigation management or transactional work. The key is that the mediator has a fundamental understanding of franchise law and experience resolving real world business issues faced by both parties in the ongoing relationship. Silverman noted that “sometimes, if I’m representing the franchisee, I will choose an experienced in-house franchise lawyer who will bring a lot of credibility to the other side.” A mediator who has had experience resolving day-to-day monetary and operational disputes within the context of ongoing franchise relationships has a much better chance of crafting a satisfactory settlement.
“Prior judicial experience doesn’t matter to me in selecting a mediator” (quoting Garner). Yet, in some instances, a retired judge with long-term, credible experience may be a good choice. In strictly financial disputes, Barkoff and others agree that franchise expertise is less relevant. Korzenowski added, “I would use someone without franchise expertise if they have a great communication style and good business perspective that can resolve the business needs of my clients.”
Ideally, the parties are searching for a mediator who not only understands the technical aspects of franchise law, but also has a proven real world understanding of the parties’ business interests and great communication skills.
Success Rate and Referrals
Everyone wants a mediator who has a proven track record of settling disputes. But the bigger question is how to measure that person’s success rate. Some measure success by the total number of mediations handled which were settled successfully. Overall reputation and credibility in the industry, coupled with compelling endorsements and referrals from other lawyers, can be a meaningful factor in assessing the mediator’s likelihood for success. In a recent article titled “Early Active Intervention”, Silverman states, “Most mediation providers provide success rates at 65% - 85%. But it’s not clear what those rates really mean. Did the cases resolve early or late, in one session or in many over time[?]” Posting of Peter Silverman to Blue Mau-Mau, Early Active Intervention, http://www.bluemaumau.org/early_active_intervention (May 23, 2010, 17:55). Often, finding a mediator who has successfully mediated a few key complex disputes is more compelling than participation in a larger number of minor or simple disputes. In my experience, more than 75% of mediated disputes settle. This is especially true if mediation occurs early in the course of the parties’ dispute and perhaps even before a legal proceeding is filed.
Mandatory Mediation Clauses/Court Appointed Mediation
As a voluntary informal dispute resolution process, it is no surprise that most franchise lawyers believe that mandatory mediation can be a waste of time. Korzenowski went further, saying “nothing is sillier than court appointed mediation. It is like drug and alcohol treatment, you can drag someone to it, but if they don’t want to be there, it won’t work.” (quoting Korzenowski). Most agree that mediation has many advantages only if both sides enter into it with a willing desire to resolve the dispute.
Moreover, there is a clear divergence of thought about including mandatory mediation clauses in franchise agreements. Barkoff elects not to include them generally. On the other hand, Wharton believes “it is helpful to add a mandatory clause because if you can get the parties in the room with a skilled mediator who can listen to both sides, the mediator can evaluate the issues offering his or her sense of the outcome if the dispute went to trial” (quoting Wharton). This early intervention can move the parties toward settlement more quickly. Garner opined that, provided “the franchisor isn’t using the clause in bad faith to drain the franchisee’s resources,” having the clause can be prudent to an early, cost savings resolution (quoting Garner).
Finally, other lawyers believe in certain circumstances that mediation can occur too early in the process to have meaningful impact. In such event, a good mediator might recommend that it be continued to permit brief discovery so that the parties can better learn the strengths and weaknesses of the other’s claims. After limited discovery, the parties can resume the mediation. A skilled mediator can then drive the parties to a more mutually informed settlement.
Whether mandated or voluntary, mediation can be successful if the parties approach it in good faith and engage a business savvy mediator with excellent communication skills and franchise expertise. Even if the dispute is not immediately resolved, early discovery and evaluation of the issues can often lead to resolution down the road long before more costs are incurred.