Successful Mediation Tactics and Strategies

During a mediation, “a good mediator beats you up a little, too,” said panelist Patrick Meyers, chief legal officer, managing director, and partner of Consumer Capital Partners, which has a major ownership stake in burger franchisor Smashburger. “He'll tell you that you think your franchise contract is bulletproof, but here are the weaknesses I see in your argument.”

Of course, it's not just the franchisor who might have an unrealistic perspective, said Mark Leitner, attorney with Kravit ' Hovel & Krawczyk s.c. in Milwaukee. Leitner often represents franchisees who have most or all of their personal wealth tied up in their franchise, and they are seeking a fierce advocate of their position. But Leitner begins by reminding them that only 1.8% of filed cases go to trial, and they should look at mediation as a way to get some of what they are seeking. “When I prepare for mediation, I immerse myself in the facts and the law, just like in litigation. But I also try to get my client in a frame of mind to settle,” he said. “It's hard to balance ' because when I take a franchisee's case, I am affirming their version of events, but in getting them to think about settling, they might feel I'm talking out of both sides of my mouth.”

Timing

Nonetheless, Leitner said that it takes time for the parties to be ready to come to an agreement, so he usually finds that having mediation very early in a dispute is ineffective. Not only do the parties need to engage in information-gathering for a little while, but they also need to grapple with the costs of not settling. “When people are ready to fight it out, they need to fight, at least for a while,” he said on the issue of when to mediate. “But at the same time, you don't want to wait to just a few days before court because then they might be too invested in litigation, and they might decide to just roll the dice.”

Selection of the Mediator

Timing of mediation is only part of the gamesmanship that can occur, and selection of the mediator is one of the most strategic decisions that an attorney must make. “We'll start by throwing out a few names for consideration that the other side won't accept, and then we'll reject theirs,” said Meyers, drawing laughter and nodding heads from the audience members. “We save some of our preferred mediators for the second round of names.”

All the panelists agreed that they prefer a mediator who understands the unique aspects of the franchising relationship. Sometimes, a retired judge (even one without franchise knowledge) can be very effective because of his or her experience resolving disputes. Leitner said that occasionally he will be able to accept the first mediator proposed by the opposition ' if he's done his due diligence ' and he feels this gives him an edge late in the negotiations. “If it's the end of the day and you're pushing to close the deal and made your last concession, you can say to the other party, 'You picked this guy as mediator,'” Leitner said. “It doesn't often come down to that point, but sometimes it's helpful.”

Recommended lists of mediators can come from third parties, such as the American Arbitration Association, but the panelists said they are lukewarm about those options. The problem, said Jankowski, is not with the mediators, but with the rules
under which AAA mediators operate. “The AAA rules for mediation are not well-defined; there's just not enough yet to guide the process,” she said.

What to Expect

During the mediation process, mediators can be expected to provide “facilitative” or “evaluative” feedback. Facilitative mediation is designed principally to reach a settlement, whereas evaluative mediation focuses on getting the mediator to opine about the facts and the law in the dispute. “I assume I will get some of each during the day. A good mediator will use more than one technique,” said Jankowski. “Particularly if the parties are far apart, a mediator will often talk about the merits of the case.”

Evaluative mediations tend to be less effective, said several panelists, unless they are provided in disputes with some specific characteristics: both sides are well-informed about the facts; the cost of litigation is high; and the range of likely legal outcomes is narrow. Also, in a case with complex legal issues, an attorney might specifically seek a mediator who can provide detailed evaluative feedback. “In that situation, I need to know in advance that the judge is capable of doing it,” Leitner said.

The heart of both parties' case will be presented to the mediator in a written statement prior to the mediation meeting. While the information shared in the statements is confidential, opinion in the room at the symposium was split about what attorneys should reveal in those statements. Leitner said he's usually comfortable telling the mediator about the weaknesses in his case and even what he thinks are the weaknesses in the opposition's case. The same goes for the mediation session itself. “You can speak freely in the mediation, and I tell my clients that concessions made about the value of their case will not come back to haunt them if we go to court,” he said.

Moreover, many mediators will probe beyond the parties' written statements, even calling the parties individually to ask what has not been written down but that might be pertinent. Some mediators have developed their own standardized questionnaires, which are completed and provided confidentially to the mediator in advance. Panelists said the questionnaires can be very helpful in revealing potential roadblocks to a settlement. A sample questionnaire provided in the papers from the legal symposium shows questions covering issues such as the party's strengths and weaknesses in the case, possible disagreements about basic issues in the case, and the progress of prior settlement talks.

Requiring Mediation

If mediation can be so effective, one question that arises for franchisors is whether or not they should require it in their FDD. Opinion was split among panelists, as well as members of the audience. Meyers said that Smashburger does not require a mediation clause. Instead, it has an internal ombudsman who tries to resolve questions before they even become disputes. “It's worked out okay,” he said, and it consumes less of a franchisor's time and resources. “Even preparing for mediation is a lot of work for a franchisor,” he said. “It involves the entire management team and executives, and it might even involve the board of directors if it's a big case.”

However, an audience member said that he prefers mandatory mediation clauses because he has found mediation to be “very effective” for forcing both parties to “sit down and define what they want.” He added that when the clauses require that mediation be held in the franchisor's city or even in its headquarters, it puts additional pressure on franchisees to settle.

One effective option is to mandate mediation, but to narrow the scope of when it must be utilized. “I think mandatory arbitration is to the franchisor's benefit,” said Shelley Spandorf, partner, Davis Wright Tremaine LLP (Los Angeles). “But I will include carve-outs, such as for trademark violations or for disputes of $10,000 or less.”

Written Agreements

As a final observation, panelists said that attorneys must take care to ensure that if the parties come to terms, they are correctly presented in a written agreement that conforms to requirements in the appropriate state. As noted in the written paper that accompanied the panel discussion, some states will not enforce an agreement reached in mediation unless that agreement has been memorialized in writing. See e.g., Williams v. Kansas City Tile Loan Co., Inc., 314 S.W.3d 868 (Mo. Ct. App. 2010) (oral settlement reached during mediation was not enforceable because it was not reduced to a writing); Yaekle v. Andrews, 195 P.2d 1101 (Colo. 2008) (en banc) (refusing to enforce alleged written agreement reached during a mediation because it was not signed by the parties, did not indicate it was final and binding, and there was not admissible evidence of the parties' agreement since the mediation process was confidential); Reese v. Tingey Construction, 177 P.3d 605 (Utah 2008) (“A court cannot enforce the terms of an oral agreement reached in mediation without requiring the parties to disclose, and the court to consider, confidential settlement negotiations.”); and Vernon v. Acton, 732 N.E.2d 805 (Ind. 2000) (mediation settlement agreement must be reduced to a writing in order to be enforced by a court).

A few courts have upheld mediation settlements for which written and signed agreements did not exist. See Riner v. Newbraugh, 563 S.E.2d 802 (W.Va. 2002) (settlement agreement reached during mediation need not be in a writing signed by the parties in order to be enforced by the court); and Few v. Hammack Enterprises, Inc., 511 S.E.2d 665 (N.C. Ct. App. 1999) (testimony and other evidence concerning mediation settlement conference were admissible for purposes of determining whether settlement was reached and, if so, what were the terms of that settlement).

Only rarely will a mediator draft a settlement agreement, and Jankowski said that a standardized document probably will not cover all the issues that need to be addressed. Since most agreements are reached late in the negotiating day, the parties usually lack the time to write a detailed agreement on the spot. More commonly, the parties agree on a term sheet or series of bullet points that outline the agreement, which they and their attorneys sign. The document can include an acknowledgement that it will constitute an enforceable settlement even if they fail to complete a more detailed formal agreement.

Kevin Adler is associate editor of FBLA. He can be contacted at mailto:[email protected] or 301-270-2839.

Whether mediation is voluntary or mandatory, and whether it's court-ordered or required by the franchise agreement, franchisors will sooner or later find themselves mediating a dispute with a disgruntled franchisee. A session at the International Franchise Association's 45th Annual Legal Symposium on May 20-22 in Washington, DC, addressed the key issues that franchise attorneys should consider prior to and during a mediation.

Perhaps the most important benefit of mediation is the degree of control afforded to the parties in the dispute, observed Gretchen Jankowski, shareholder with Buchanan Ingersoll & Rooney PC (Pittsburgh), who was the moderator for the panel discussion. In a mediation, both parties can avoid the uncertainty, the “black box” of a courtroom in which decisions are out of the parties' control. “Any time a court makes the final decision, whether after trial or motion practice, someone other than the client is the decision maker,” she said.

Mediators push the parties to reach a solution, added panelist Richard Asbill, attorney and founder of Asbill Dispute Resolution, an Atlanta-based firm. “We've all heard the clich': 'A good business solution is better than a great legal solution,'” he said. Furthermore, the mediator provides a “reality check” for both parties because he or she is usually the first independent person who has heard both sides of the issue. In having to present their arguments to a mediator, both sides and their attorneys “find out what's really driving the dispute.”

During a mediation, “a good mediator beats you up a little, too,” said panelist Patrick Meyers, chief legal officer, managing director, and partner of Consumer Capital Partners, which has a major ownership stake in burger franchisor Smashburger. “He'll tell you that you think your franchise contract is bulletproof, but here are the weaknesses I see in your argument.”

Of course, it's not just the franchisor who might have an unrealistic perspective, said Mark Leitner, attorney with Kravit ' Hovel & Krawczyk s.c. in Milwaukee. Leitner often represents franchisees who have most or all of their personal wealth tied up in their franchise, and they are seeking a fierce advocate of their position. But Leitner begins by reminding them that only 1.8% of filed cases go to trial, and they should look at mediation as a way to get some of what they are seeking. “When I prepare for mediation, I immerse myself in the facts and the law, just like in litigation. But I also try to get my client in a frame of mind to settle,” he said. “It's hard to balance ' because when I take a franchisee's case, I am affirming their version of events, but in getting them to think about settling, they might feel I'm talking out of both sides of my mouth.”

Timing

Nonetheless, Leitner said that it takes time for the parties to be ready to come to an agreement, so he usually finds that having mediation very early in a dispute is ineffective. Not only do the parties need to engage in information-gathering for a little while, but they also need to grapple with the costs of not settling. “When people are ready to fight it out, they need to fight, at least for a while,” he said on the issue of when to mediate. “But at the same time, you don't want to wait to just a few days before court because then they might be too invested in litigation, and they might decide to just roll the dice.”

Selection of the Mediator

Timing of mediation is only part of the gamesmanship that can occur, and selection of the mediator is one of the most strategic decisions that an attorney must make. “We'll start by throwing out a few names for consideration that the other side won't accept, and then we'll reject theirs,” said Meyers, drawing laughter and nodding heads from the audience members. “We save some of our preferred mediators for the second round of names.”

All the panelists agreed that they prefer a mediator who understands the unique aspects of the franchising relationship. Sometimes, a retired judge (even one without franchise knowledge) can be very effective because of his or her experience resolving disputes. Leitner said that occasionally he will be able to accept the first mediator proposed by the opposition ' if he's done his due diligence ' and he feels this gives him an edge late in the negotiations. “If it's the end of the day and you're pushing to close the deal and made your last concession, you can say to the other party, 'You picked this guy as mediator,'” Leitner said. “It doesn't often come down to that point, but sometimes it's helpful.”

Recommended lists of mediators can come from third parties, such as the American Arbitration Association, but the panelists said they are lukewarm about those options. The problem, said Jankowski, is not with the mediators, but with the rules
under which AAA mediators operate. “The AAA rules for mediation are not well-defined; there's just not enough yet to guide the process,” she said.

What to Expect

During the mediation process, mediators can be expected to provide “facilitative” or “evaluative” feedback. Facilitative mediation is designed principally to reach a settlement, whereas evaluative mediation focuses on getting the mediator to opine about the facts and the law in the dispute. “I assume I will get some of each during the day. A good mediator will use more than one technique,” said Jankowski. “Particularly if the parties are far apart, a mediator will often talk about the merits of the case.”

Evaluative mediations tend to be less effective, said several panelists, unless they are provided in disputes with some specific characteristics: both sides are well-informed about the facts; the cost of litigation is high; and the range of likely legal outcomes is narrow. Also, in a case with complex legal issues, an attorney might specifically seek a mediator who can provide detailed evaluative feedback. “In that situation, I need to know in advance that the judge is capable of doing it,” Leitner said.

The heart of both parties' case will be presented to the mediator in a written statement prior to the mediation meeting. While the information shared in the statements is confidential, opinion in the room at the symposium was split about what attorneys should reveal in those statements. Leitner said he's usually comfortable telling the mediator about the weaknesses in his case and even what he thinks are the weaknesses in the opposition's case. The same goes for the mediation session itself. “You can speak freely in the mediation, and I tell my clients that concessions made about the value of their case will not come back to haunt them if we go to court,” he said.

Moreover, many mediators will probe beyond the parties' written statements, even calling the parties individually to ask what has not been written down but that might be pertinent. Some mediators have developed their own standardized questionnaires, which are completed and provided confidentially to the mediator in advance. Panelists said the questionnaires can be very helpful in revealing potential roadblocks to a settlement. A sample questionnaire provided in the papers from the legal symposium shows questions covering issues such as the party's strengths and weaknesses in the case, possible disagreements about basic issues in the case, and the progress of prior settlement talks.

Requiring Mediation

If mediation can be so effective, one question that arises for franchisors is whether or not they should require it in their FDD. Opinion was split among panelists, as well as members of the audience. Meyers said that Smashburger does not require a mediation clause. Instead, it has an internal ombudsman who tries to resolve questions before they even become disputes. “It's worked out okay,” he said, and it consumes less of a franchisor's time and resources. “Even preparing for mediation is a lot of work for a franchisor,” he said. “It involves the entire management team and executives, and it might even involve the board of directors if it's a big case.”

However, an audience member said that he prefers mandatory mediation clauses because he has found mediation to be “very effective” for forcing both parties to “sit down and define what they want.” He added that when the clauses require that mediation be held in the franchisor's city or even in its headquarters, it puts additional pressure on franchisees to settle.

One effective option is to mandate mediation, but to narrow the scope of when it must be utilized. “I think mandatory arbitration is to the franchisor's benefit,” said Shelley Spandorf, partner, Davis Wright Tremaine LLP (Los Angeles). “But I will include carve-outs, such as for trademark violations or for disputes of $10,000 or less.”

Written Agreements

As a final observation, panelists said that attorneys must take care to ensure that if the parties come to terms, they are correctly presented in a written agreement that conforms to requirements in the appropriate state. As noted in the written paper that accompanied the panel discussion, some states will not enforce an agreement reached in mediation unless that agreement has been memorialized in writing. See e.g., Williams v. Kansas City Tile Loan Co., Inc. , 314 S.W.3d 868 (Mo. Ct. App. 2010) (oral settlement reached during mediation was not enforceable because it was not reduced to a writing); Yaekle v. Andrews , 195 P.2d 1101 (Colo. 2008) ( en banc ) (refusing to enforce alleged written agreement reached during a mediation because it was not signed by the parties, did not indicate it was final and binding, and there was not admissible evidence of the parties' agreement since the mediation process was confidential); Reese v. Tingey Construction , 177 P.3d 605 (Utah 2008) (“A court cannot enforce the terms of an oral agreement reached in mediation without requiring the parties to disclose, and the court to consider, confidential settlement negotiations.”); and Vernon v. Acton , 732 N.E.2d 805 (Ind. 2000) (mediation settlement agreement must be reduced to a writing in order to be enforced by a court).

A few courts have upheld mediation settlements for which written and signed agreements did not exist. See Riner v. Newbraugh , 563 S.E.2d 802 (W.Va. 2002) (settlement agreement reached during mediation need not be in a writing signed by the parties in order to be enforced by the court); and Few v. Hammack Enterprises, Inc. , 511 S.E.2d 665 (N.C. Ct. App. 1999) (testimony and other evidence concerning mediation settlement conference were admissible for purposes of determining whether settlement was reached and, if so, what were the terms of that settlement).

Only rarely will a mediator draft a settlement agreement, and Jankowski said that a standardized document probably will not cover all the issues that need to be addressed. Since most agreements are reached late in the negotiating day, the parties usually lack the time to write a detailed agreement on the spot. More commonly, the parties agree on a term sheet or series of bullet points that outline the agreement, which they and their attorneys sign. The document can include an acknowledgement that it will constitute an enforceable settlement even if they fail to complete a more detailed formal agreement.

Kevin Adler is associate editor of FBLA. He can be contacted at mailto:[email protected] or 301-270-2839.