But you quickly realize that although for the moment knowledge of the dispute is restricted to people in the company, it will only be a short time before it gets out to the customers, suppliers, banks and others with whom the company does business, threatening the existence of the company.

You should consider recommending the factions mediate the dispute, if possible before litigation is filed.

Advantages of Mediation

Some advantages of mediation are:

No Publicity. No lawsuit is filed. The situation can be kept as confidential as the parties want.

Speed. Trial, or even a hearing for significant injunctive relief, will take months, if not years. And as soon as customers hear there is an internal dispute — and they will — they will take their business elsewhere, to a “stable” competitor. And this risk increases significantly if a lawsuit is filed. A mediation can begin immediately.

Possible Quick Reduction in Ill-Will. The early part of most mediations give the parties the opportunity to vent, and then to be brought by the mediation format to look for rational resolutions. The mediator could, for example, hold an immediate mediation session, not necessarily to reach resolution immediately but as a way to begin gathering information. But another objective would be to reduce the ill-will between the factions, pending one or more future sessions to be held a short time later. During the following interim, they would likely work better together, and the company’s employees will understand that they have begun to work out their problems.

Better Resolutions than are Available in Litigation. In most business divorce situations, the court at best has very limited options for resolution, usually being able only to dissolve the company and distribute the assets. The parties in mediation, on the other hand, have unlimited possibilities to resolve the dispute. The easy ones come readily to mind: one faction buys out the other, perhaps on a “push-pull” basis. Frequently a company has two or more lines of business, and different factions can take different lines into separate companies.

And courts, with crowded dockets and lack of expertise in complicated corporate structure, with tax and very complicated technical issues arising from the nature of each unique business line (hence the Business Judgment Rule), frequently make mistakes in their attempts at resolution, mistakes which the parties with their lawyers, advisors and a mediator are unlikely to make.

Complicated Issues Must be Resolved

The company’s lawyer, and the lawyers for the disputing factions, must be versed in those issues in deciding whether to go to mediation, and indeed, in choosing a mediator. And they and the mediator must be familiar with them in the mediation process.

Some of those issues are, to name a few:

Valuation (virtually all such cases require valuation of the business as a whole, and valuation of its lines, its hard assets, value claimed by each faction for work and assets previously contributed without compensation, etc.);

Possible legal restrictions on settlement by the statutes, the articles of incorporation and bylaws (or the articles of organization and operating agreements of LLCs) (e.g., companies may not purchase their own stock if it will “impair capital”; there may be shareholders who are not in the disputing factions whose rights must be preserved; labor laws may set requirements on treatment of employees in any settlement);

Rights of third parties (e.g., creditors and third parties to the company’s contracts may have guarantees and other rights from the disputing principals that must be accommodated);

Regulatory issues (e.g., brokerage firms, bars/restaurants and other businesses are frequently required to have licenses the continuation of which requires persons with certain qualification stay in management);

Tax issues (e.g., some flow-through entities incur serious consequences if the ownership of more than 50% of their equity changes).

But underlying the parties’ negotiation positions will always be their (and their attorneys’) beliefs about how favorable a resolution they would get if they filed and completed litigation. So the mediator must also be familiar with the complexities and vagaries of litigation: the remedies available, (partition? injunctive relief vs. mandamus?), motion practice, what evidence would be admissible in trial, the level of understanding of most judges with complicated business law issues, and others.

Mediation, Even Prior to Filing, is Usually the Best Decision

My experience as a transactional attorneyand a business litigator and arbitrator is that seeking to settle as quickly as possible, even before filing litigation or arbitration, has historically improved the outcomes for both (or all) disputing factions. Admittedly, business people as a class are strong-willed and aggressive, and often want to “win.” But they are also business people who regularly evaluate risk and prospective benefit, and negotiate to “deals.” With that mindset on the part of the disputing factions, the probability of a mediated settlement is greater among business persons than among most other groups. And even if the mediation does not resolve the dispute, it usually improves the tone and quality of outcomes in litigation that follows.

 Posted by Attorney Joseph R. Soraghan. Soraghan practices in legal matters pertaining to business operations and growth. He guides businesses in financing, contracts, acquisitions, mergers, and sales. Soraghan frequently resolves commercial disputes as an arbitrator or mediator, or through litigation.

The use of the term “conflict-resolution specialist” is not just careful lawyer-talk designed to convey a totally true statement without providing the information sought, it also happens to be an apt description of our profession. Whether we are seeking to solve problems through litigation, prevent them through transactional work, or just guide a client through an uncontested court process like Probate or Bankruptcy, we are all conflict-resolution specialists.

The better lawyers amongst us have learned that the most aggressive approach to a solution is only occasionally the best approach. A transactional lawyer can easily draft a highly biased document that creates a very lopsided power balance in favor of her client at the expense of the other party. But, this hyper-aggressive approach renders no benefit if it causes the other party to walk away from the transaction or, worse still, to regret signing the contract and thereby prevent the business relationship from thriving.

Similarly, any litigator that needs a document from an opposing counsel knows how to draft discovery requests and eventually obtain an order to compel. When the two lawyers have an adversarial relationship, that process typically takes at least ninety days and probably requires at least five hours of attorney time. The client is almost always better served by a lawyer that maintains a professional, collegial relationship with opposing counsel so he can place a six minute telephone call to opposing counsel and obtain the same document in a day or two. Certainly there are circumstances when we have to do things the hard way, but I would suggest that the ability and effort expended to avoid the hard way, through conflict resolution, often provides the client the best possible service.

The reason most successful law practices use this approach is because there are at least two sides to every story in real life. In fiction, on the other hand, we regularly encounter “bad guys” that act in evil ways because they are inherently evil. Those people are rare or perhaps even nonexistent in the real world. Most of us do what we think is “right” – or at least justifiable – even if our decision leaves others at a disadvantage. While all experienced lawyers know this, many non-lawyers do not think this way. The natural human reaction seems to be to vilify our perceived adversaries.

As lawyers, we see our clients react this way all the time. Initially, our clients come to us about a disagreement with another person. But, in time, that disagreement often leads to frustration with the perceived flaws of the other person. If litigation ensues, the cost to the client and increased level of frustration results in a growing dislike not only of the opposing party but also of the opposing counsel. Skilled professionals recognize the need to overcome this frustration and the resulting bitterness in order to provide some line of communication and to make progress toward resolution of the disagreement. Even when disputes between bitter, diametrically opposed parties must be resolved by a neutral third party’s decision, a lawyer’s ability to focus on actual issues allows for eventual conflict resolution.

My concern is the vast number of individuals currently involved in politics and policy making in our country who fail to recognize these basic principles of conflict resolution. The level of political discourse has become tremendously bitter and nasty because these individuals have been conditioned to vilify their perceived adversaries as if they were fictional “bad guys.” People that are skilled at manipulating rhetoric, including politicians and political commentators of all view-points, exploit this conditioning. When combined with our competitive two-party system, these rhetoricians treat political discourse like a spectator sport. We seem to make policy choices based on the personalities of the people proposing or opposing those choices rather than on the merits of the policy.

In their zeal to win the political game, these people have lost sight of the fact that political discourse is not about winning or losing but about setting goals and crafting policies to achieve those goals. Some partisans have ceased to recognize that those who disagree with them politically share their selfless motivation to do what they think is right for society. When we define our political adversaries as evil and their goals as the product of evil, compromise becomes impossible. Then, supporters of a rejected goal or policy see themselves as subject to evil rulers and the process of political discourse has failed. The government would be in a much better position to set goals and craft policies if politicians and political activists toned down their rhetoric and distanced their policymaking roles from the aggressive means used to acquire those roles.

Past bar leaders have encouraged lawyers to seek elected office in an attempt to achieve the goal of greater civility in the political process. I wholeheartedly support that effort. Of course, I would be naive to pretend that some politically active lawyers did not contribute to the hateful decline of public policy discourse. Instead of utilizing their problem solving skills to resolve conflicts and craft policy, some lawyers-turned-politicians utilize another legal skill: the ability to persuasively manipulate rhetoric to drive the opinions of others, in exactly the way I discussed above. So, I support the efforts of other bar leaders to encourage increased political participation by lawyers in order to enhance civil discourse, but recognize that there are also lawyers that exacerbate the problem.

The fairly extreme effort of changing your career path from lawyer to elected leader might be laudable, but isn’t really necessary for us to bring more civility to political discourse. Our professional position and legal knowledge makes us leaders in our community without election. When we discuss politics with others we have an obligation to do so with our legal reasoning and conflict resolution skills in place. If you believe that a particular policy proposal is flawed, consider stating your specific problems with that policy and avoiding the temptation to insult or demonize anybody who disagrees. You could even take civility a step further. For example, before stating your position, you could acknowledge that people who disagree with your policies or even your goals are still doing what they think is right.

Additionally, you could encourage people in political discussion not to reduce their complex opinions to sound bites and name calling, but instead to ferret out their beliefs and positions that underlie the sound bites and names. The media customs of the last few decades forced politicians to reduce their ideas to sound bites and thirty-second commercials, but most political discourse can and should occur at a substantially more relaxed and contemplative pace. We do not have to cede our democracy to shallow media types that seem incapable of complex thought and serious analysis.

Under the current scorched-earth model of political discourse, there is no attempt to achieve consensus. Instead, people force others to take unyielding positions, even though agreement could be reached on some of the underlying issues. In this model, the decision to make a statement is based entirely on the emotional impact of that statement without any real concern as to the truth of the statement.

Lawyers should not adopt that model, but should alter their political discourse to the sort of discourse we engage in with each other for the benefit of our clients. In this alternate conflict resolving model, the truth of your statements is paramount and the practical ramifications of decisions are more important than the emotional and rhetorical impact of those statements. Finally, we all recognize that scorched earth tactics result in, well-scorched earth. That is of no value to anyone in the future and inhibits the mutual respect needed to advance society and to address other problems side-by-side with those whom we have disagreed in the past.

If you are reading this article, then you have probably voluntarily chosen to join the Bar Association of Metropolitan St. Louis because it offers the opportunity to become a better conflict-resolution specialist and to provide better service to your clients in this and other ways. Membership is a hallmark that can communicate to the world that you value professionalism. Thank you and congratulations on your decision to follow the professional traditions recognized by our association since U.S. Grant was president.

If you are reading this and are not a BAMSL member, but you value the professionalism that membership represents and desire the opportunity to better serve your clients, please consider joining. You can easily join online at http://www.bamsl.org/. Please be aware, however, that online membership to BAMSL was not available until sometime after U.S. Grant left the White House.

If you are not a member of BAMSL and think I’m a crazy caitiff for not realizing that the best way to practice law is always maximum aggressiveness, I still hope you will consider joining or at least coming to an event or two. You will not only be in a better position to serve your clients by offering alternatives to the “scorched-earth” method, but you may find you are in a position to enhance your own quality of life and level of professional satisfaction. At the very least, you may accidentally enhance the quality of life and professional satisfaction of your opposing counsels.

This article originally appeared in St Louis Lawyer and is reprinted with permission.

It is generally agreed among lawyers that some amount of information must be possessed by both disputing parties to a mediation, if the mediation is to result in settlement. (Of course, theories on how much information is necessary, i.e. how much discovery, if any, differ with types of case and frequently from attorney to attorney.) I’ll write more about that in future memos.

However, in one of my recent mediations, an interesting related situation arose. Prior the mediation, I discussed with counsel whether each of their pre-mediation briefs should be disclosed to the other party and his counsel prior to or at the mediation. One attorney agreed to disclose, but only if the other did. The other counsel refused to disclose it, apparently for strategic reasons, so the pre-mediation briefs were not disclosed to opposing parties.

No case had been filed so no discovery had been taken. The case did not settle during the mediation session, because both parties concluded they needed more information before settlement was possible. But we continued the mediation by separate telephone conferences between me and counsel.

After the mediation session and during the ensuing telephone conferences, after further information had been exchanged, the party originally refusing to disclose his pre-mediation memorandum agreed to do so. Settlement quickly followed.

The point is this: as much information as possible should be exchanged between the parties if the probability of settlement is to be maximized. Perhaps the most important such information is the information in each party’s pre-mediation brief.

Although accepted mediation practice is that parties have the option whether to exchange pre-mediation briefs, it is those briefs more than all other types of information, which ought to be disclosed to opposing parties to increase the likelihood of settlement. This of course if logical. A main purpose for preparing a pre-mediation memoranda is to convince the mediator of the probability of a party’s success. Obviously, it is even more important in a mediation to convince the other party and his counsel of the probability of one’s success. And if that is one of the purposes of a pre-mediation brief, it only makes sense that the other party have the opportunity to review it.

It is not uncommon for counsel to hesitate to exchange the pre-mediation brief because there is some short portion of it- perhaps an important fact or legal argument-that counsel does not want to disclose yet. In that event I suggest that counsel delete that portion from the brief, and put it in a separate document to the mediator, perhaps in a cover letter or some similar document, but retain all other evidence and legal arguments in the brief, and agree to exchange it with the other party.

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