IN BRIEF
- What are the best practices of some of those well-experienced in mediating an M&A dispute?
- Analyzing the process is key to a successful negotiation, and key considerations also include assessing whether the dispute is right for mediation and how to adequately prepare for the mediation.
- Another key is rethinking what success will mean for your client coming out of the mediation.
When deciding whether to mediate a mergers and acquisitions (M&A) dispute, and then preparing for the mediation, there are a variety of factors that both in-house counsel and external counsel should jointly evaluate. We recently consulted with a panel of experienced business mediation and litigation attorneys, an experienced professional business dispute mediator, and experienced in-house counsels of public companies who considered these topics. Here are some of their key thoughts.[1]
Is the Dispute Right for Mediation?
The initial question that should be addressed by all parties is: why mediate the dispute? The parties should first consider the cost of having to mediate an M&A dispute. This evaluation should include not only the economic loss, but also the business implications (and political implications) in proceeding to court to obtain a determination versus mediation. Of course, the parties should also consider the reality of the legal document they are working with, i.e., what it says and what their rights are under the document. Rick Duda, in-house counsel with Ingredion Incorporated, noted that counsel must ensure that there is a mediation clause in the agreement. Obviously, there are other facts to consider; for example, not obtaining a court decision may be against an entity’s business interest so that it may not be the right thing to do strategically. In-house counsel must consider all these factors alongside the external legal team to ascertain the pros and cons of mediation.
Business litigation attorney Matthew Allison of Baker McKenzie noted that sometimes it is a question of timing. If both sides are willing to mediate the dispute, this is an affirmative statement that the parties are willing to resolve the claim. Also, this is a good time to walk through the process. In addition, counsel should consider that there is flexibility in terms of scope of what can be mediated as well as cost—when is the right time? In mediation, the only thing limiting the parties is their own creativity and willingness to resolve their dispute as opposed to obtaining a ruling.
Mediation can also be a good tool to bring business partners to the table to talk things out. Ideally, this allows each party to calmly evaluate and assess its case. Time and neutral evaluation may allow tempers to cool down and avoid suit. There is a countervailing concern, which Matthew Allison identified, that one does not want to be forced into a corner to resolve an issue or prevented from pursuing their claims. The panel also referred to a famous quote by Sandra Day O’Connor: “[T]he courts of this country should not be the places where resolution of disputes begins. They should be the places where the disputes end after alternative methods of resolving disputes have been considered and tried.”
Preparing for the Mediation
Mediator Stuart Widman of Wildman Law Offices often sends a template to the parties to be used when preparing their mediation statements. Included in this template is a request to identify the preferred type of mediation (facilitative, evaluative, or a blend). Mediation statements should include enough information to mediate, but not so much that extensive discovery results. Consider early on the key information you may want to share with the other side to the negotiations about your case. Rick Duda noted that key information will make a difference if there is going to be anything accomplished in the mediation—so why not give to the other side? Matthew Allison stated that counsel and clients must keep in mind that they are presenting their case to the other side. Therefore, having sufficient information to outline or support points and arguments may be necessary.
However, even if the information exchange is protected by privilege, counsel must consider whether full discovery still works for the company overall. Counsel and their clients may not want information in the other side’s mind if at the end of the day the mediation is not successful. Counsel may want a clean slate if it falls apart, so even limited discovery could be instructive for future discovery requests if litigation goes forward.
Also consider that sometimes a reporting deadline for one side can impact negotiation and warrant holding off on resolving matters, or push matters into litigation. For example, maybe it is more up front to recognize this if no one is doing anything now to advance this process. Therefore, it may make sense to do something to move the timeline. Business litigation attorney Brian Laliberte of Tucker Ellis noted that most seasoned lawyers on both sides of a case recognize this and tend to find ways to eliminate public company reporting deadlines as an impediment to a deal, especially if the potential wait time is relatively short and the economic incentives are large enough.
Know Your Client
Both in-house and external counsel must be sure to understand the client’s business and its position in the marketplace. Brian Laliberte emphasized that defining the client’s objectives early at the outset of a case is critical. This exercise allows for a better client relationship and more effective advocacy, especially during mediation when difficult decisions must be made. Outside counsel must therefore communicate early and often with their client as to how things are going. Risk tolerances change as cases progress, and outside counsel must stay dialed-in to their client’s internal and external settlement pressures or lack thereof. Critical questions typically include:
- Is the company willing to take a case to trial?
- What is their trial experience?
- What are the internal implications for in-house counsel?
- What are the economic and noneconomic costs of a settlement?
Heather Clefisch, in-house counsel with Spectrum Brands, believes that clients should spend a lot of money on prep time, and then counsel should remind the client to compare the cost to the total cost to mediate the case versus take it to trial.
It is important early on and throughout the process to assess and critically evaluate all aspects of the dispute/case. Understand the matter and the governing/applicable law. Also, consider the client’s potential risk exposure. Brian Laliberte typically uses the following guidelines to ascertain his client’s position regarding mediation and settlement early on:
- Internal—How will senior management, the board, etc. react?
- Financial—How will a settlement or adverse verdict affect the client’s financial health, stock price, etc.?
- Investors—Will investors pursue claims if stock value declines?
- Public Relations—How will the public and/or customers perceive claims, settlement, or an adverse verdict?
- Regulatory—Is the client in a regulated industry? Will regulators take notice of a private civil suit? A settlement? A verdict?
- Investigate the court’s track record in similar cases, e.g., scope of discovery allowed, published dispositive motion decisions, affirmances and reversals on appeal, etc.
- Determine whether jury verdicts have been reported in similar cases and the outcomes in the same or similar jurisdictions, i.e., plaintiff/defense verdicts, compensatory damages, punitive damages, etc.
- Assess the likelihood of success on the merits.
Set the Stage for Mediation
The lawyer should communicate regularly with both the company and with opposing counsel, avoid becoming a polarizing figure in the dispute/case, and maintain his or her integrity and credibility. Brian Laliberte and Matthew Allison agree that having integrity and credibility in the mediator’s eyes also is critical. Both try to be as cooperative and accommodating as possible without compromising their respective clients’ positions.
It is difficult at times for litigators to mediate effectively when there is an information deficit. Litigators must ensure that they have as much information as the discovery process can yield prior to mediation, and that they have accounted for critical facts in their settlement analysis. Mediators and litigators alike should do their best to determine whether one side or the other is blocking or filtering important information before recommending or making a bad deal during negotiations.
Counsel should be transparent when possible during negotiations to obtain clear authority to negotiate and use specific settlement terms. Counsel should be sure to keep his or her word. This goes to build rapport and to be perceived as acting in good faith. Do not take an extreme position if it will not go anywhere. Time the mediation to maximize potential outcomes. Brian Laliberte believes that litigators, especially those with considerable trial experience, should show the other side their best case early and often. This includes “bad facts.” Such facts should be acknowledged, and the reasons they do not affect the case should be explained proactively. In complex cases, demonstrative exhibits may assist counsel in demonstrating the strength of the client’s claims or defenses such that a settlement looks more appealing during mediation than a jury trial.
Preparing for mediation, and setting the stage with the parties and the mediator, will facilitate a better mediation process. Remember that a mediator will measure the credibility of genuineness and good faith of parties, and it matters as to how the mediator works with them and proceeds. Matthew Allison prepares his client for the concept of a separate caucus because it is important they understand that the purpose is to allow the mediator to use all the tools in their toolkit to get a deal done. Brian Laliberte typically tries to select a solid client representative who, if necessary, can have an effective and direct conversation with the mediator about settlement considerations, monetary parameters, and broader issues that may affect whether a deal can be achieved.
What Is Success in a Mediation?
If counsel has prepared for the mediation and done risk analysis, then both counsel and the client can evaluate whether the result makes sense. Success is not always winning, but rather getting what the company needs as opposed what the company wants. Success could cost a lot of money and getting things resolved sooner may have more value.
In Summary
A few final takeaways from the panel’s experienced business disputes mediator Stuart Widman include:
- M&A has a high potential for disputes after closing, so parties should consider putting a dispute resolution clause (including mediation) in the deal documents.
- Mediation entails lots of “Ps”: preparation, persistence, patience, and possibility.
- The right mediator may reality test the parties’ expectations.
- “Success” in mediation can mean many things: partial settlement, full settlement, avoiding bad precedent, saving resources, etc.
- One of The Rolling Stones’ song lyrics captures an important strategic mediation concept: “[Y]ou can’t always get what you want, but if you try some time, you just might find, you get what you need.”
[1] This article summarizes comments from the speakers at a program from the ABA Business Law Section Annual Meeting in Chicago on September 13, 2017, in which the Dispute Resolution Committee’s panel included: Matthew Allison, Esq., Partner, Baker McKenzie LLP, Chicago; Heather Clefisch, Vice President & Division General Counsel, Spectrum Brands Inc., Madison, Wisconsin; Rick Duda, Associate General Counsel, Ingredion Incorporated, Chicago; Brian Laliberte, Esq., Counsel, Tucker Ellis LLP, Columbus, Ohio; and Stuart Widman, Esq., Principal, Widman Law Offices, Chicago. Leslie Berkoff, Esq., Partner, Moritt Hock & Hamroff LLP, New York City, and John Levitske, Senior Managing Director, Ankura, Business Valuation Dispute Analysis practice, Chicago, co-chaired this program.