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May 29, 2014 Articles

Mediation as an Effective Alternative in Bankruptcy Litigation, Part III

Know the various pitfalls and pratfalls experienced by mediating attorneys.

By Leif M. Clark

This series of articles is devoted to the subject of mediation in bankruptcy—why people may not be using it, how it can be used effectively, pitfalls to avoid, and ethical issues that can arise. Part I looked at why bankruptcy lawyers often think they can do without mediation—and why they might often be wrong about that. Part II discussed ways in which mediation can be used effectively in a variety of bankruptcy contexts. This is Part III in that series.

Pitfalls and Pratfalls
Mediation calls on a unique set of skills for a lawyer to exercise. The lawyer serves as part advocate and part counselor, both an information seeker and an information broker. As in many other scenarios in which lawyers operate, mediation requires preparation and the development of a coherent strategy. Just as often, and just as in other situations, however, the lawyer in a mediation has to be willing to be flexible and to have the ability to adapt to fluid situations.

Lawyers bring their unique personalities to the table in mediations just as they do in other contexts. Mediators might hope that a given mediation will become a life-changing experience for the lawyers and their clients, but it rarely is, actually. Still, mediation is like litigation in the sense that, if it is to be successfully pursued, lawyers have to find ways to moderate some of their more reactive tendencies. We refer to someone who reacts unpredictably in a way that hurts those around him or her as a “loose cannon” for a very good reason:

From the 17th century to the 19th century, wooden warships carried cannon as their primary offensive weapons. In order to avoid damage from their enormous recoil when fired they were mounted on rollers and secured with rope. A loose cannon was just what it sounds like, that is, a cannon that had become free of its restraints and was rolling dangerously about the deck.

The Phrase Finder, s.v. “loose cannon.” (The phrase was apparently first imagined by Victor Hugo in an 1874 novel, Ninety Three: “The carronade, hurled forward by the pitching, dashed into this knot of men, and crushed four at the first blow; then, flung back and shot out anew by the rolling, it cut in two a fifth poor fellow. . . . The enormous cannon was left alone. She was given up to herself. She was her own mistress, and mistress of the vessel. She could do what she willed with both.” The term “loose cannon” is itself attributed to one Henry Kingsley in his book Number Seventeen, published the following year: “At once, of course, the ship was in the trough of the sea, a more fearfully dangerous engine of destruction than Mr. Victor Hugo’s celebrated loose cannon.”)

An unrestrained lawyer, like a loose cannon on deck, damages his or her own interests more than he or she injures the enemy.

Which brings us to the subject of pitfalls and pratfalls. As my audience is lawyers, most of this focuses on silly things lawyers can do in mediations. However, there are things it is advisable to advise your client to avoid doing, too. Here are some things I’ve seen or heard about in mediations, in no particular order.


1. “This is our final offer.” The only thing that is final in a mediation is the rejection of an offer without a counter. The threat of “final offer” rarely delivers any real value to the process, other than to communicate your frustration. It rarely leads to an acceptance and more frequently results in the termination of the settlement process. Settlement is about finding a resolution that is viewed as mutually beneficial, so stating that a given offer is “our final offer” tells the other side you are no longer interested in a mutually beneficial solution. You are only interested in a solution that is beneficial to your client. That is unlikely to result in an acceptance by the other side.

2. “I’m not going to bid against myself.” There is a natural sense of proportionality that most of us operate under, and that is the genesis of this statement. We want to hear what the other side offers first, and respond to that, because in that way, the other side sets the bracket for our upside and our downside. Sometimes, however, a mediator understands that the position that a party has staked out is simply too extreme to even communicate, without upsetting the dynamic. In that circumstance, when a mediator asks a party to reconsider a position, it is not because the mediator is doing the bidding of the other side, but because the mediator appreciates that the position urged by the party will not likely lead to settlement.

3. Drinking your own Kool-Aid. There is a place for believing everything about your case. But mediation may not be it. Confidence in your case is, of course, important. However, settlement involves a recognition that there is a certain level of risk associated with your position. Here’s a simple test: If the other side’s chances of prevailing are 0 percent and you value them as such in assessing your position, crafting your proposal, and considering responses, then you should have no trouble giving your client a letter of guaranty that he or she will prevail. I’m still waiting for the day when a lawyer says “OK!” to that suggestion.

4. Coming without a decision maker. Nothing is more frustrating than to have reached a settlement point, only to learn that someone else needs to be consulted in order to approve the number. Sometimes, of course, it is the nature of the client (usually a public entity) that creates this dynamic. Other times, however, it might be that the range of settlement turns out to be outside the authority given to the person who was proffered as the person with authority to settle. This can become an ethical issue as well. If you know this will be a problem, tell the mediator in advance.

5. Coming without the information needed to settle. Often this means information about cash flows or values or future obligations. Not everything can be anticipated, but what can be anticipated should be. Otherwise, the mediation bogs down for lack of information. A variation on this theme is information that keeps changing. Sometimes there is a reason for this. Nonetheless, it should be avoided if possible because it undermines your client’s credibility.

6. Posturing for your client. Theatrical performances are great for the courtroom. They are not so great in mediation. A show of righteous indignation presented to the mediator accomplishes nearly nothing. It cuts off honest communication and turns the mediator into something other than what the mediator actually is—a neutral.

7. Service of process. Every once in a while, someone will decide that a mediation is the perfect opportunity to finally serve process on someone who has otherwise been difficult to serve. Please refrain from this temptation. Few things could be more destructive of a mediation than a process server showing up.

8. Making plans to leave early. Mediation sometimes takes time. Sometimes it takes more time than you planned for. So be it. But if you or your client have made the mistake of booking other matters for that day, then you have unilaterally curtailed the mediation process and left a very bad taste in everyone’s mouth. The better course, obviously, is to alert the mediator in advance that this is going to be an issue.

9. Being too stingy with information. This is a difficult issue, actually, because in some cases, not disclosing information is important. However, there often comes a time in the process when information simply must be shared if a settlement is going to occur. It ought to be acceptable, for example, to share information that will come out in discovery in any event, especially if there is a high likelihood of settlement being achieved. Again, if settlement involves the ability to perform, then a party should not be surprised that the other side wants some verification of that ability.

10. Mindreading. This is another difficult one because, in one sense, this is what lawyers are paid to do. We analyze situations, try to imagine likely scenarios, and try to anticipate the moves of our counterparties. We also imagine that we can read the judge’s mind. However, an important skill in mediation is to step away from our tendency to think the worst of our opponent, to impute the most nefarious motives to our counterpart counsel, and the like. The reality is that, most of the time, what we think the other side is thinking is simply wrong. One of the reasons for joint sessions is that they tend to defuse some of these notions and foster a dialogue. And that can happen provided both parties are not only honest in presenting their real concerns but also rigorous about listening.

There is a natural tendency we all have when we are engaged with an adversary. While they are talking, we are developing our response in our minds. The problem with this, of course, is that when our minds are engaged in structuring a response, we are not actually listening to what is being said. Instead, our brain fills in the spaces when we weren’t actually listening with what we think the other side said (or probably said or was intending to say or was really saying, etc.). In other words we too often don’t hear what is being said to us. Instead, we hear what we are saying to ourselves. Resisting this impulse takes patience and awareness. It is almost always worth the effort, however.

Related to this “mindreading” is the tendency to assume that every word a judge utters from the bench is a clear indicator of the judge’s intentions in the case. In so many cases, a party will read from a transcript some comment made by the judge from the bench as certain proof that the judge favors the party’s position and dislikes the opponent. This overlooks the humanity of judges, who sometimes react to what is taking place in the courtroom with a sharp observation or a harsh warning. Sometimes the judge is just venting or, perhaps, indicating where the line is that a party should not cross. It is a mistake to generalize too much from this.

In general, lawyers do their best work in mediations when they focus on finding common solutions to mutual problems. They do their worst work when they treat the process as essentially adversarial. It really is not. Each side has interests. The key is to find where these interests overlap. Often an important notion to keep in mind (and this is even more true for clients) is that matters are more likely to be settled when parties are focused on the present and the future, rather than the past, and when parties make decisions out of their head rather than out of their gut. Rarely does a mediation ever resolve who was right or who was wrong. If the goal of a party is to get that sort of resolution, then the entry fee is to go to court and obtain a favorable judgment.

If, on the other hand, the goal is to reach a settlement, then focusing on common interests is more likely to yield a resolution that is acceptable for everyone.

Keywords: bankruptcy and insolvency litigation, mediation, negotiation, settlement

Leif M. Clark – May 29, 2014