Bad Faith Conduct At Mediation: One Judge Knows It When She Sees It

Gregg Bertram — Tue, 01 Jun 2010 18:33:41 +0000

It is common for experienced mediators to hear from a party in mediation that the other side is not negotiating in “good faith.” Such comments are usually driven by frustration at an opponent’s stated economic position. In a recent case, however, a U.S. Bankruptcy Judge in New York sanctioned a party for bad faith mediation conduct and attempted to objectify “bad faith.”
A mediation was ordered in In re A.T. Reynolds & Sons, Inc. , a proceeding in United States Bankruptcy Court , Southern District Of New York (Case No. 08-37739). One of the parities ordered to attend and participate was Wells Fargo Bank, N.A., the entity in possession of the debtor’s cash collateral. Other parties included the debtor, committee of unsecured creditors and Boreal, Inc., the court-approved purchaser of the debtor.
The mediation was conducted pursuant to a long-standing local court procedure in the Southern District of New York, General Order M-211, and required good faith participation of the parties. Section 3.2 of the General Order required the mediator to report willful failure of a party to attend or participate in good faith.
Wells Fargo sent a mid-level manager and outside counsel with 10 years experience to the mediation. According to the mediator, who reported to the court that these individuals failed to participate in good faith, the Wells Fargo representatives were disruptive, refused at any time to even attempt to engage in any risk analysis and threatened to blacklist the mediator throughout Wells Fargo if he reported his impressions to the court.
U.S. Bankruptcy Judge Cecelia Morris found that attendance at mediation without the ability to adjust pre-existing settlement or a refusal to engage in risk assessment constituted bad faith. Wells Fargo was ordered to pay the mediator’s expenses and the costs of the other parties in preparing for and attending the mediation.
To what extent, if any, does this ruling contribute to the development of objective “bad faith?”

How much time should be allowed for mediation?

Gregg Bertram — Fri, 05 Jun 2009 17:48:36 +0000

As mediation has evolved in the Pacific Northwest in recent years, one very clear trend is that many complex, diverse, and even multi-party cases have been scheduled for mediation in a mere ½ day. Examples include cases involving alleged professional negligence, construction defect, employment, contract and other multi-party tort cases. Allotting just a ½ day to mediate such cases frequently overtaxes the parties, their attorneys and mediators. Mediators are also rarely asked in advance for their opinion as to appropriate mediation session length.

In determining an appropriate amount of time for a mediation, the following factors are important:

1. Parties.

1) How many parties are involved? 2) Do some or all parties have prior mediation experience? 3) Does one or more of the parties or representatives bring a high level of emotion to the dispute?

Comment: Cases involving three or more parties usually require more time than ½ day. The mediator must be involved with all parties and this process takes time. In addition, if a party is new to mediation, more and not less time is often needed for that person to understand the negotiation opportunity that most mediations present. Further, if even one party is highly emotional, the mediation process is unnecessarily jeopardized if that person feels unduly rushed or pressured.

2. Attendance.

Are all parties/representatives physically present at mediation? If not, are they available by phone and, if so, in what time zone?

Comment: If a party or decision maker is not in attendance at mediation, experience has demonstrated that communications with those absent individuals are often sporadic and time-consuming. These difficulties are enhanced if several decision makers are participating remotely from one or more different time zones.

3. Number and Complexity of Issues.

Is the case simple or complex? Does it present many issues of disputed fact? Does it involve numerous legal issues? Are there pending motions and do they require discussion or analysis?

Comment. Obviously, many cases involve numerous witnesses, documents, facts and legal issues. The ½ day mediation format is almost always inadequate in these situations. Classic examples include, but are not limited to, construction claims, professional negligence suits, estate and trust cases and employment disputes. Rarely can any of the foregoing be properly negotiated in a ½ day mediation.

4. Attorney/Client Relationship.

What is the nature of the attorney/client relationship at mediation? Is it functional or is it toxic?

Comment. The attorney client relationship is frequently strained or worse by the time mediation occurs. The causes from the client’s perspective include the substantial financial and emotional cost of litigation and, possibly, the belief that his/her attorney has performed inefficiently or ineffectively. Concurrently, the attorney may have become disillusioned with the client for similar reasons. In such circumstances the mediator must affect repairs to the attorney/client relationship (often without advance warning) before settlement discussions can meaningfully occur. This kind of “mediation within mediation” also requires sufficient time to achieve success.

5. The Settlement Decision.

What are the financial and emotional implications of settlement? Does settlement require the involvement or consent of others (e.g. Lien or subrogation interest holders, professional or governmental regulatory bodies)?

Comment. The decision to settle may often have repercussions that extend beyond the four corners of the dispute itself. For example, an employer’s decision to settle an employment claim may directly influence the filing of claims by other employees. Or a defendant physician’s willingness to grant or withhold settlement consent may be influenced by requirements to report the settlement to various regulatory and/or accrediting agencies. Informed appreciation of the consequences of settlement requires and deserves sufficient time for complete analysis.

6. Settlement Terms.

Are there special conditions of settlement such as confidentiality? Have counsel brought with them to mediation a template settlement agreement or must one be created from scratch? Comment. It is vital that a mutual decision to settle be reduced to writing. The time needed to accomplish this essential task is often overlooked or underestimated by parties and counsel. Items such as payment terms, deadlines, and confidentiality frequently involve intense, time consuming negotiation. If properly documented, a settlement is usually irrevocable and important terms and conditions should never be negotiated or drafted in haste.

The initial urge to schedule minimal time for mediation should be resisted in cases that are logistically, emotionally, factually or legally challenging. The cost of mediation is typically a small fraction of each party’s total legal expenses. Mediations remain a bargain in today’s litigation environment. By planning for sufficient time, it is highly probable that the case will resolve in a constructive, civil manner. Clients who emerge satisfied from the mediation process may remain clients in the future. On the other hand, parties who leave mediation without having had a realistic opportunity to be heard may look elsewhere for their future representation.

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