You’ve agreed to mediate, but quite frankly you aren’t too optimistic. The last settlement offers weren’t even “in the same zip code.”
So how can it be that the mediation success rate is a whopping 85%? What can a mediator do that you and your lawyer can’t do?
Getting to the Same Zip Code
Mediators are neutral “reality agents.” As neutral third parties, they do three things well.
First, they get everyone on the same page as to the important facts. Simple factual misunderstandings are common in litigation, particularly early on. Mediation is probably the first time the parties have sat down to “hash out” the facts. The results can be eye-opening.
Second, mediators relax the human tendency to overestimate the strength of one’s own case and weaknesses in the other side’s case. In separate confidential caucuses with each party and his or her attorney, a mediator can have frank discussions about a case’s strengths and weaknesses.
Third, mediators can help parties establish a range of settlement values.
While it depends on the type of case, lawyers frequently do this by
- Adding up a claim’s likely provable damages.
- Subtracting any uncollectible portion of this amount.
- Multiplying this net figure by the percentage likelihood of success at trial (yes, subjective).
- Subtracting future legal fees and expenses to try the case. Like Step 2, this is done in a confidential session.
Both parties going through these steps with a mediator frequently can generate settlement offers in or approaching the same zip code.
Closing the Gap
“Saving face” and party animosity frequently keeps the parties from making offers directly to each other once they start to close in on the same zip code. A mediator as a neutral third party can bridge this gap. A few examples:
Blind Bidding. The mediator can ask each party to submit confidential offers to the mediator. If the offers are within a previously agreed upon dollar range of each other, the mediator will disclose the offers to the parties and they then split the difference. If outside the range, the offers remain confidential and the parties proceed by other means to narrow the gap.
Conditional Offer. If the mediator senses Party A is willing to settle for X (or certainly if Party A says he or she will settle for X), the mediator can go to Party B and propose, “If I can get Party A to settle for X, are you willing to offer Y?,” to show that the parties are getting within range of each other.
Mediator’s Proposal. If toward the end of the mediation the parties are close but nonetheless are stalled, if the parties agree, the mediator can present his or her own proposal. This may not settle the case that day, but it can be a basis for settlement at a later date.
Last Best Offer. Similarly, the parties can submit confidential “last best offers” to the mediator who recommends one of the two.
Cash will be the main part of a settlement, but non-cash elements can help close a deal. For example:
Continued Business. Depending on animosity, the parties can agree to do business with each other in the future, but with, for example, price breaks, product upgrades, better lease terms, and similar “sweeteners.”
Apology. Frequently a written apology is important to a party who feels wronged. The issue will be whether it’s public or confidential.
Confidentiality. A “covenant of confidentiality” that the settlement will not be disclosed to third parties can be used. These are difficult to enforce but may provide additional comfort.