Many lawyers and litigants have the misconception that the parties do not have enough information to settle early in the litigation (or pre-litigation), and therefore, consider mediation only on the eve of summary judgment or trial. As a former commercial litigator, I once shared the misguided idea that for many cases, some amount of litigation and expense was necessary before the parties could settle.
As a mediator, I like many others, believe early mediation can be beneficial to parties and can result in similar negotiated settlements to those reached much later in litigation—not to mention, save the parties substantial time and money.
So why do some early mediations succeed and why do others fail? And what steps can negotiators take to maximize the chances of early resolution?
When Mediation May Be Too Soon
For most cases, if the parties want and are ready to settle, they can do so at any stage in the dispute, and the agreements reached likely will not differ much regardless of the timing of the negotiations.
That said, there are some cases where early mediation is unlikely to result in a settlement.
Emotions can impede settlement for all types of cases, including commercial disputes. In other words, one or more of the parties is not ready to settle. They may be too emotionally charged to think rationally about their chances of success. They may feel principled and entitled to their day in court. They may need their voice to be heard and mistakenly believe that a trial is their only forum. Eventually, however, after emotions dissipate, parties will start to realize that their day in court may not be for years, and in the interim, litigation is filled with tedious discovery, motion practice and the growing costs affiliated with both—not to mention, the increasing risk and uncertainty that comes with leaving the outcome in the hands of a judge or jury.
Similarly, in some commercial cases where there are large dollar amounts at stake and case law is split or undeveloped, the parties may need some amount of litigation to see how the deck starts to stack—for or against them.
There are also disputes involving inequities in power and money where one litigant may want to hold off on negotiations because they think they can outspend and outlast their adversary and obtain a more favorable settlement in the future.
For these cases, early mediation may not lead to settlement.
But for those who are ready to settle, what steps can they take early in the dispute to maximize their chances of reaching a negotiated outcome?
3 Tips to Maximize Settlement in Early Mediations
Contrary to common misconception, the parties do not need to litigate through the end of discovery to reach an informed negotiated agreement. Instead, they need to thoroughly prepare, collaborate with one another, and not rush the mediation process.
1. Be Prepared and Conduct a Thorough Evaluation of the Case.
In the wise words of Benjamin Franklin: “By failing to prepare, you are preparing to fail.” Thorough preparation is critical before any mediation. This entails a detailed cost-benefit analysis that considers the expense of litigation, benefits of settling at different points in time, as well as an economic evaluation of the strengths and risks of your case.
To make mediations productive, lawyers must educate themselves. They should know the relevant case law, their client’s factual record, and take time to map out the case strategy, how the timing of trial may impact their client, and the costs of the litigation.
Then prepare an economic analysis to determine a reasonable range of settlement values. Look at each stage of the litigation and each legal issue. Identify where the client may face risk and how that risk may economically change the outcome. Calculate the client’s best and worst cases at trial and the probabilities of each of those occurring. Mediators often tell you to know your “BATNA”—best alternative to a negotiated agreement—but you also need to know the likelihood of that happening and translate that probability into an economic value so that you can evaluate proposals. For example, if your best case at trial is $1 million, but you have only a 30% chance of winning in five years, and it will cost you $200,000 in legal fees, an $800,000 settlement today may not be a reasonably obtainable outcome.
Generally, the information necessary for the parties to determine what constitutes an acceptable resolution is just as available at the outset of the case as it is later in the litigation. Unless the case involves a novel area of law, current legal precedent is what you will rely on throughout the litigation, and it similarly provides you with a sufficient basis to economically evaluate your chances of success at the outset of a dispute. While there is always some uncertainty, you can factor that into the economics.
In addition, lawyers must prepare their clients. Early in the dispute, a party may be willing to walk away from a reasonable settlement because they think they can get a better deal later in the litigation. Accordingly, lawyers must ensure their clients understand the case valuation. Also, it is a mistake not to discuss with your client the financial and emotional toll that litigation and trial can take, not to mention the investment of time that is required and the procedural stages ahead of them. It is important for counsel to talk to clients about how most cases do not go to verdict; they settle at some point, typically after significant time and expense. Mediation and settlement provide the parties a chance to eliminate risk and achieve certainty. There’s an economic value to that that can and should be calculated before mediation.
