10 Risk Management Tips for Starting a Mediation Practice

Vol. 2 Issue 2

By

Michael Downey is an attorney at Downey Law Group LLC, a law firm devoted to legal ethics. 

Photo of Michael DowneyAfter many years of law practice or judging, lawyers often consider starting a mediation practice, hoping that serving as a mediator will offer a change in pace and practice. Mediators generally have greater control over their schedules: they can elect to mediate or not, depending upon how much they want to work or when they want to go on vacation. Also, mediators are thought to have less stress, particularly because they do not have to worry about keeping sometimes-difficult clients satisfied. For many lawyers, these aspects of a mediation practice seem very appealing.

If you are considering transitioning to a mediation practice, you may wonder what risks a mediator encounters, and how to address and mitigate those risks. There are a range of possible unforeseen problems that might come up as a result of mediation, the most extreme being murder.

This column offers ten tips to help lawyers transitioning to mediation practices to mitigate and control risks.

1. Focus on a niche you know.

Many articles helping lawyers start a mediation practice encourage focusing the mediation practice on an area of dispute related to what the lawyer practiced. Experienced mediators generally assert that it is easier to build a mediation practice when it is focused on one or several areas of dispute resolution. In addition, by building a mediation practice related to the lawyer's law practice, the lawyer can take advantage of relationships the lawyer-mediator already has in that field.

Focusing a mediation practice on a niche where the lawyer has substantive expertise is also a great way to mitigate risk. The lawyer's substantive knowledge will help the lawyer know the problems and personalities that occur in that field. In addition, the lawyer will have much greater ability to recognize and address concerns both in trying to help the parties reach an agreement, and in trying to memorialize that agreement. A lawyer who understands divorce law, for example, will have a much greater baseline for understanding how pension or disability benefits should be treated in settlement of a marital dissolution.

2. Know your role – and the applicable rules for mediating.

The regulation of mediators remains quite decentralized in most jurisdictions. A mediator should investigate what rules govern the mediations to be handled, for example what role the mediator should have, particular procedures that should be used, and how confidentiality should be maintained.

Regulations may specify, for instance, when the mediator needs to disclose threats that a party or counsel makes during the mediation. In addition, this research should help the mediator learn more about expectations for the mediation and any immunities or protections the mediator may receive.

3. Prepare good mediation agreements that clearly disclaim unwanted liabilities.

Once you know the applicable rules, you should prepare a clear, succinct mediation agreement that makes clear your role and responsibilities, including how a mediation operates.

A good mediation agreement should also make clear the obligations of the parties, for example whether they are compelled to prepare mediation statements and participate in good faith, and whether they must maintain confidentiality regarding information learned during the mediation.

Finally, a mediator normally will want to include a clear, broad waiver of potential liabilities. This waiver may clarify that the mediator is not legal counsel to any party. Also, it may warn the parties, for example, not to rely upon the mediator for advice regarding the tax treatment of payments to be made through a settlement.

4. Prepare helpful form agreements or checklists to facilitate memorializing settlement terms.

Having relevant substantive knowledge should help a new mediator consider and prepare for issues that often arise when settling disputes in the practice area. Often mediators benefit from preparing basic agreement forms or checklists the parties can use to memorialize an agreement reached during mediation. A good form or checklist can help to prevent the parties from overlooking important aspects of a potential settlement. This will also help ensure that the parties will leave a successful mediation with enough terms memorialized to enforce an agreement, should a party later suffer settlor's remorse.

5. Disclose and address conflicts of interest.

Mediators should take care to properly disclose and address conflicts of interest that may affect their performance. The mediation rules or other standards should set forth when a current or prior representation or relationship with a party, a pecuniary or familial interest in the outcome, or some other interest or obligation may create a conflict.

A mediator should take care to make appropriate disclosures, and obtain conflict waivers or decline mediations when conflicts exist. Unresolved and undisclosed conflicts discovered after mediation commences often cause parties to become dissatisfied with the outcome of a mediation. Such conflicts may also result in complaints or claims against the mediator.

6. Abide by your mediation agreement and the applicable regulations.

A mediator who has disclaimed a lawyer-client relationship with the mediating parties, for example, should take care not to then provide legal advice to any party. Also, if the mediation agreement or rules for the mediation specify how the mediator will handle information, either in or outside the mediation, the mediator should take care to comply with those requirements.

7. Facilitate – and memorialize – negotiated settlements.

Mediators should also be mindful that the aim of mediation is ordinarily for the parties to reach a negotiated resolution of their dispute voluntarily. Mediators should avoid trying to bully or compel a party to settle. When the parties do reach an agreement, the mediator should take care to ensure the key terms of that agreement are memorialized, to reduce the risk that the parties may later be unwilling or unable to reach a final agreement.

Where the parties do not reach a negotiated settlement, meanwhile, the mediator should be willing to end the mediation without a settlement. A compelled settlement should be seen as an incorrect outcome, not a mediator's focus to maintain his or her "record" of reaching settlements.

8. Avoid post-mediation headaches.

When the mediation ends, the mediator should take care to avoid post-mediation problems. An adverse party will often lose faith in the mediation -- and become angry with the mediator -- if a mediator quickly forms a professional or other relationship with a party after the mediation. Mediators are therefore generally advised to steer clear of such post-mediation relationships.

In addition, a mediator should be careful about advising parties regarding their options when a mediation does not reach an agreement. Such guidance may be seen as providing legal advice, thus creating an inadvertent lawyer-client relationship between the mediator and the party to the mediation – and creating a risk for malpractice or other liability.

Finally, if the mediator believes a failed mediation may result in violence or illegal action, the mediator should consider taking steps to prevent such untoward consequences. Robert Badgley of Locke Lord LLP reports that a California mediator was sued and in 2008 settled for $100,000 after a husband stabbed and killed a woman leaving a marital dissolution mediation. (The author has been unable to verify Mr. Badgley's report.) Obviously, these are extreme circumstances, but mediators should be mindful that parties who do not settle may undertake desperate measures.

9. Consider growing your mediation practice as an ancillary business.

A lawyer transitioning from law practice to mediation practice may want to establish the mediation practice as an ancillary business to the lawyer's law practice. ABA Model Rule of Professional Conduct 5.7 permits a lawyer to establish a "law-related business" such as a mediation practice, and to operate that business without complying with all legal ethics rules, as long as the lawyer makes clear the two businesses are separate and a customer of the ancillary business is not a client of the lawyer. A lawyer forming a mediation practice may find forming an ancillary business provides two significant benefits. First, the lawyer will have greater flexibility marketing the mediation practice, because the lawyer's marketing efforts will not have to comply with ABA Model Rules 7.1 through 7.5. Second, having an ancillary business should help clarify that customers of the ancillary business are not also clients of the lawyer, thus avoiding unintended client and fiduciary relationships.

10. Make sure you have insurance.

If you are hoping to reduce your stress, you should also make sure that you have appropriate insurance. Fortunately, a mediation practice tends to result in relatively few claims – and mediators often avoid liability even on those few claims due to statutory or quasi-judicial immunity and the limited duties mediators owe to mediating parties.

Nevertheless, the number of claims brought against mediators has increased over the past decade. Thus, you will likely want to obtain insurance. If you continue maintaining lawyers' professional liability insurance, normally this policy will also provide coverage for claims that may result from a mediation, but you should check with your insurance agent to confirm the specifics. Also, mediators may be able to obtain mediation-specific insurance, for example through a rider issued by the mediators' mediation service provider. Finally, lawyers transitioning from an active law practice to a mediation practice should make sure they have adequate insurance to protect from claims that may result from their prior law practice. Often this involves purchasing tail insurance from the lawyers' professional liability insurer.

Hopefully, these ten tips will help you build a satisfying and successful mediation practice. 

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