Mediation in the Equipment Finance Industry

The role of the mediator is to reduce obstacles to communication, assist in the identification of issues and exploration of alternatives, and otherwise facilitate voluntary agreements resolving the dispute. Unlike a court case or arbitration, the mediator does not make substantive decisions for any party. Rather, he is responsible for assisting the parties in reaching informed and voluntary decisions. Good mediators do this by using their knowledge and experience to get the parties to explore the strengths and weaknesses of their positions, authorities that might impact their positions, as well as alternatives both positive and negative. For example, the mediator might explore with a lessee and its counsel the applicable provisions of Article 2A and discuss why otherwise viable claims might not prevail against a finance lessor. The mediator might also engage in an analysis of the cost of protracted litigation, what actually occurs at trial (which is why it is helpful to have a mediator who has actually tried cases) and the risks all parties take (even in trying the proverbial “slam dunk” case). The mediator does not make decisions for the parties, but good ones make the parties understand the risk they are taking and examine creative solutions.

While often confused as such, mediation is not arbitration. Arbitration is a process whereby a neutral third person or panel, called an “arbitrator” or “arbitration panel,” considers the facts and arguments presented by the parties and renders a decision. Thus, the arbitrator or panel replaces a judge or jury. In either event, court case or arbitration, a decision on the specific issue presented is made for the parties. In mediation, the parties decide what they will do, and their decision can encompass the issues formally presented in any court case or arbitration, or any other issues they elect to resolve or they choose to use to resolve their dispute. This is one of the prime attributes of mediation; by controlling the decision-making process, the parties can explore alternatives and make “business decisions” that are simply unavailable with a court/arbitration decision.

What Happens at Mediation?

While every mediation is different and every mediator conducts mediations differently, some general processes apply.

In attendance at the mediation are the parties (if an entity, someone with full authority to resolve the matter on behalf of the party); their counsel; if appropriate, expert witnesses or consultants; and the mediator. If a particular person is viewed as necessary or an impediment to a resolution, this should be discussed with the mediator and addressed in advance of the mediation. Consider what message is sent or you want to send in having particular people participate. Also consider who on the other side makes decisions for it, and which of the decision makers is listening to you and wants to resolve your issue; you want to try to have this person attend.

Typically, the mediation will commence with a general session with everyone in attendance. The mediator will explain the mediation process so everybody understands his/her role and the “ground rules.” During this general session the parties, usually through their counsel, make an opening statement expressing their position (both factual and legal). The opening statements may raise questions by the mediator or the other parties. Particular attention should be paid to the mediator's questions; he is likely doing so to raise matters he wants the parties to think about. The opening statements and questions may lead to a dialogue and, as long as it is productive, the mediator will probably allow it to proceed. Once this process ceases to move the matter along, the mediator will usually split the parties into separate rooms; have separate conversations with the parties; and engage in “shuttle diplomacy” among the parties. At various points, the mediator may bring everybody back together, have a discussion among counsel only or seek to speak to the parties alone.

Parties and their counsel need to determine what role each will play. Some counsel prefer to have the client say nothing. Many clients wish to utilize the opportunity to speak directly to their adversary, who may share the same concerns of litigation risk, expense and distraction (especially if the person present is one they have confidence in). In any event, the parties want to project strength, but must also show a willingness to make peace and lay that framework with the right tone.

Most importantly, everybody must be committed to the process. Be patient. Don't be frustrated with “insulting” offers. Don't go backward. Don't start with a “take it or leave it” or “best” offer. Nobody believes any of these tactics, and all they do is foster bad feelings. On the other hand, consider what your adversary needs/wants and try to structure offers that address that. There is nothing wrong with a win-win solution. Use the mediator. Have him help the parties communicate with and understand each other; let him float trial balloons; let him address irrational positions. Work with the mediator in the creative process; have him help you understand and challenge your adversary's positions. Counsel should consider using the mediator to validate what they have been telling their client; sometimes hearing it from someone else makes it ring.

It is hoped the parties will reach an agreement, and a written agreement signed by the parties will be prepared and executed. Be prepared to complete this agreement at the mediation. Sometimes drafting the settlement agreement creates its own issues. If there is particular language or a special provision you desire, think about it in advance of the mediation (perhaps even drafting the language/provision you desire) and include it in your proposals. If the mediation does not result in a settlement agreement, attempt to determine what needs to be done to arrive at a settlement and agree on a protocol to get there. If appropriate, have the mediator supervise fact gathering or evaluation, and schedule a further session after providing adequate time to consider the necessary open items.

Why Mediate?

It works. It is generally accepted that the success rate for mediation exceeds 80%. Unlike any other dispute resolution mechanism, the parties control it. Many parties have been gung-ho about trying matters, having their day in court, but as the trial begins and progresses wish they had the opportunity to come to a business solution with their adversary. This is the chance to do so without the pressure of a trial looming.

Mediation is quick. Lawsuits can take forever (and are taking longer as courts throughout the country cut back to address funding shortfalls). Discovery lags on forever; just obtaining a hearing to remedy delay and evasive conduct can take months. Many cases come to a standstill just waiting for time to get before a judge. Arbitration is likewise slow; many times delayed while it is determined whether a matter is subject to arbitration and whether the parties are entitled to discovery. The arbitrator's decisions on these preliminary issues may be challenged in court. Due to this, some arbitrations take longer than lawsuits. On the other hand, mediation is typically concluded within a few weeks.

Mediation is cheap; all you are paying for is the mediator (whose fee is usually split among the parties). A lawsuit, as we all know, is very expensive. Even arbitration, while designed to be less expensive than litigation, is quite expensive (filing fees can run thousands of dollars and the parties pay for the arbitrator(s) and arbitration site).

Anybody who has been through a trial or arbitration knows the pressure that comes with it. A trial or arbitration, and the process leading up to it, demands so much time and causes great distraction to the parties. There is no anxiety and there is minimal distraction with mediation. Because the parties control the mediation process, there is nothing to get worked up about. To the contrary, the parties should look forward to the opportunity to resolve their difference fast, cheap and in a mutually beneficial manner.

It is confidential. Naturally, the level of confidentiality afforded is determined by the rules that govern the particular mediation. For instance, in Florida all mediation communications are confidential and, with limited exceptions, a mediation party has a privilege to refuse to testify and to prevent any other person from testifying about mediation communications. This confidentiality extends to information obtained during private caucus, which may not be revealed by the mediator to any other mediation participant without the consent of the disclosing party. So, what you privately discuss with the mediator stays in the room unless you allow otherwise. You can concede things to the mediator without your opposition knowing so. This frequently gets parties that were stuck in litigation mode positions moving again. If the governing jurisdiction does not afford a level of confidentiality satisfactory to the parties, they should consider adopting another jurisdiction's rules if they are allowed to do so.

When Should You Mediate?

In a nutshell, as soon as you are ready. Many court rules require mediation before a case is tried; but that does not mean you have to wait until shortly before trial to mediate or can't mediate multiple times. Early mediation, if successful, achieves the goals of both quickness and avoiding the cost of litigation. Even if unsuccessful, the parties gain a better understanding of their adversary's positions, which helps them better understand their positions. Uncertainty is oftentimes an impediment to resolution at early mediation. If so, the parties should at least try to create a framework to address the unresolved issues. For instance, the parties might agree to conduct limited discovery and then return to mediation, or obtain expert analysis and then return to mediation. The key is to keep the process moving toward a resolution.

What Disputes Should Be Mediated?

Anything. The greater the value of the relationship, the more at risk and the increased potential for salvaging something beneficial, the more it should be mediated (and the earlier it should be mediated to avoid hardened positions and feelings that are the natural result of litigation). Lessor-funder and lessor-vendor issues, where the relationship is beneficial to the parties and they want to save it by devising creative ways to solve issues and keep doing business together are perfect examples. Oftentimes the parties learn at mediation of an issue their business partner is trying to address that can be solved by modifying the way they conduct their dealings without substantial consequence to either party. While it would have been nice to have attended to this at an earlier opportunity, unfortunately that does not frequently occur. Through mediation, these parties can work through the problem in a collaborative process that makes them feel good about the relationship (maybe even better than before the issue arose since they solved it together). Even when the relationship is lost (or the parties do not wish to continue it), as is common with lessor-lessee issues, mediation can accomplish the lessor's goal of getting paid at the earliest opportunity and perhaps address the lessee's desire to have cash flow or equipment performance issues resolved.

What Should I Look for in a Mediator?

Someone who understands my business, the law affecting my dispute, and the alternatives to a mediated solution. While a really good mediator can mediate any dispute, it is helpful (both to the process and to gain the parties' confidence) that the mediator understand leasing and the applicable law. Through this knowledge, the mediator can help the parties explore alternatives and challenge poor positions. A frank conversation with a lessee's counsel about hell-or-high-water provisions and UCC ' 2A-407 might get a lessee to withdraw unfounded defenses. A lawyer experienced in actually trying cases can discuss the difficulties in presenting evidence, the substantial costs and the risks associated with any trial.

What Should I Do in Advance of Mediation?

Analyze your and your opponent's positions to evaluate their relative strengths and weaknesses. Create a “wish list”; if you could write a settlement agreement and compel your opponent to sign it, what would it say? Also determine what your bottom line is. These should include both monetary and non-monetary matters, those involved in the dispute as well as other concerns that could be addressed or could be advantageous. You wouldn't believe how many times a party is asked what it wants and can't answer.

Even though it may not be required by the applicable rule, you should provide the mediator with a detailed summary that identifies the significant issues (monetary and non-monetary), identifies the significant facts, provides the pertinent documents, and identifies the significant legal principles. Not only will the summary save time at the mediation having to explain this to the mediator, but it also will give the mediator an opportunity to think and: 1) devise alternatives the parties may not think of, and 2) create questions and a strategy to probe your opponent.

Sometimes a pre-mediation conference to address unusual issues is advisable. Resolving these items before the mediation date helps move the process along, plus the parties don't wish to be involved. Things that can be decided include where the mediation will occur and whether a particular person should or should not be there (and does that person need to be present in person).

Conclusion

Remember all those times you said, “I wish I had done something earlier to settle”; mediation is your opportunity to do so in a quick and cost-efficient manner that does not commit you to anything or in any way infringe on your ability to carry on with your suit if it is unsuccessful. Mediation is your chance for a potential win-win. At the end of the day, you have nothing to lose, and the potential exists for substantial savings in time, distraction and money.

Steven N. Lippman was an attorney representing lessors and financial institutions for 25 years in matters throughout the country. He is now focusing on mediation and can be reached at [email protected].

Many of us have participated in mediation as a party or counsel. Perhaps it was a simple action against a lessee for default of a lease, a claim by a lessee that the leased equipment failed to perform, an action against a vendor or a claim that a lender failed to provide agreed-upon funds. Some have served as the mediator. I have filled all of these roles, serving countless times as counsel, as a mediator and, unfortunately, as a party. Others have heard of mediation, but have never participated. Still others have never heard of mediation, or confuse it with arbitration. This article discusses what mediation is, what happens at mediation, why mediate, what to look for in a mediator, and how mediation is an underused tool in the equipment leasing field.

What Is Mediation?

Mediation is a process in which a neutral third person called a “mediator” acts to encourage and facilitate the resolution of a dispute between two or more parties. It is an informal and nonadversarial process, with the objective of helping the disputing parties reach a mutually acceptable and voluntary agreement. Most importantly, in mediation the decision-making authority rests with the parties.

The role of the mediator is to reduce obstacles to communication, assist in the identification of issues and exploration of alternatives, and otherwise facilitate voluntary agreements resolving the dispute. Unlike a court case or arbitration, the mediator does not make substantive decisions for any party. Rather, he is responsible for assisting the parties in reaching informed and voluntary decisions. Good mediators do this by using their knowledge and experience to get the parties to explore the strengths and weaknesses of their positions, authorities that might impact their positions, as well as alternatives both positive and negative. For example, the mediator might explore with a lessee and its counsel the applicable provisions of Article 2A and discuss why otherwise viable claims might not prevail against a finance lessor. The mediator might also engage in an analysis of the cost of protracted litigation, what actually occurs at trial (which is why it is helpful to have a mediator who has actually tried cases) and the risks all parties take (even in trying the proverbial “slam dunk” case). The mediator does not make decisions for the parties, but good ones make the parties understand the risk they are taking and examine creative solutions.

While often confused as such, mediation is not arbitration. Arbitration is a process whereby a neutral third person or panel, called an “arbitrator” or “arbitration panel,” considers the facts and arguments presented by the parties and renders a decision. Thus, the arbitrator or panel replaces a judge or jury. In either event, court case or arbitration, a decision on the specific issue presented is made for the parties. In mediation, the parties decide what they will do, and their decision can encompass the issues formally presented in any court case or arbitration, or any other issues they elect to resolve or they choose to use to resolve their dispute. This is one of the prime attributes of mediation; by controlling the decision-making process, the parties can explore alternatives and make “business decisions” that are simply unavailable with a court/arbitration decision.

What Happens at Mediation?

While every mediation is different and every mediator conducts mediations differently, some general processes apply.

In attendance at the mediation are the parties (if an entity, someone with full authority to resolve the matter on behalf of the party); their counsel; if appropriate, expert witnesses or consultants; and the mediator. If a particular person is viewed as necessary or an impediment to a resolution, this should be discussed with the mediator and addressed in advance of the mediation. Consider what message is sent or you want to send in having particular people participate. Also consider who on the other side makes decisions for it, and which of the decision makers is listening to you and wants to resolve your issue; you want to try to have this person attend.

Typically, the mediation will commence with a general session with everyone in attendance. The mediator will explain the mediation process so everybody understands his/her role and the “ground rules.” During this general session the parties, usually through their counsel, make an opening statement expressing their position (both factual and legal). The opening statements may raise questions by the mediator or the other parties. Particular attention should be paid to the mediator's questions; he is likely doing so to raise matters he wants the parties to think about. The opening statements and questions may lead to a dialogue and, as long as it is productive, the mediator will probably allow it to proceed. Once this process ceases to move the matter along, the mediator will usually split the parties into separate rooms; have separate conversations with the parties; and engage in “shuttle diplomacy” among the parties. At various points, the mediator may bring everybody back together, have a discussion among counsel only or seek to speak to the parties alone.

Parties and their counsel need to determine what role each will play. Some counsel prefer to have the client say nothing. Many clients wish to utilize the opportunity to speak directly to their adversary, who may share the same concerns of litigation risk, expense and distraction (especially if the person present is one they have confidence in). In any event, the parties want to project strength, but must also show a willingness to make peace and lay that framework with the right tone.

Most importantly, everybody must be committed to the process. Be patient. Don't be frustrated with “insulting” offers. Don't go backward. Don't start with a “take it or leave it” or “best” offer. Nobody believes any of these tactics, and all they do is foster bad feelings. On the other hand, consider what your adversary needs/wants and try to structure offers that address that. There is nothing wrong with a win-win solution. Use the mediator. Have him help the parties communicate with and understand each other; let him float trial balloons; let him address irrational positions. Work with the mediator in the creative process; have him help you understand and challenge your adversary's positions. Counsel should consider using the mediator to validate what they have been telling their client; sometimes hearing it from someone else makes it ring.

It is hoped the parties will reach an agreement, and a written agreement signed by the parties will be prepared and executed. Be prepared to complete this agreement at the mediation. Sometimes drafting the settlement agreement creates its own issues. If there is particular language or a special provision you desire, think about it in advance of the mediation (perhaps even drafting the language/provision you desire) and include it in your proposals. If the mediation does not result in a settlement agreement, attempt to determine what needs to be done to arrive at a settlement and agree on a protocol to get there. If appropriate, have the mediator supervise fact gathering or evaluation, and schedule a further session after providing adequate time to consider the necessary open items.

Why Mediate?

It works. It is generally accepted that the success rate for mediation exceeds 80%. Unlike any other dispute resolution mechanism, the parties control it. Many parties have been gung-ho about trying matters, having their day in court, but as the trial begins and progresses wish they had the opportunity to come to a business solution with their adversary. This is the chance to do so without the pressure of a trial looming.

Mediation is quick. Lawsuits can take forever (and are taking longer as courts throughout the country cut back to address funding shortfalls). Discovery lags on forever; just obtaining a hearing to remedy delay and evasive conduct can take months. Many cases come to a standstill just waiting for time to get before a judge. Arbitration is likewise slow; many times delayed while it is determined whether a matter is subject to arbitration and whether the parties are entitled to discovery. The arbitrator's decisions on these preliminary issues may be challenged in court. Due to this, some arbitrations take longer than lawsuits. On the other hand, mediation is typically concluded within a few weeks.

Mediation is cheap; all you are paying for is the mediator (whose fee is usually split among the parties). A lawsuit, as we all know, is very expensive. Even arbitration, while designed to be less expensive than litigation, is quite expensive (filing fees can run thousands of dollars and the parties pay for the arbitrator(s) and arbitration site).

Anybody who has been through a trial or arbitration knows the pressure that comes with it. A trial or arbitration, and the process leading up to it, demands so much time and causes great distraction to the parties. There is no anxiety and there is minimal distraction with mediation. Because the parties control the mediation process, there is nothing to get worked up about. To the contrary, the parties should look forward to the opportunity to resolve their difference fast, cheap and in a mutually beneficial manner.

It is confidential. Naturally, the level of confidentiality afforded is determined by the rules that govern the particular mediation. For instance, in Florida all mediation communications are confidential and, with limited exceptions, a mediation party has a privilege to refuse to testify and to prevent any other person from testifying about mediation communications. This confidentiality extends to information obtained during private caucus, which may not be revealed by the mediator to any other mediation participant without the consent of the disclosing party. So, what you privately discuss with the mediator stays in the room unless you allow otherwise. You can concede things to the mediator without your opposition knowing so. This frequently gets parties that were stuck in litigation mode positions moving again. If the governing jurisdiction does not afford a level of confidentiality satisfactory to the parties, they should consider adopting another jurisdiction's rules if they are allowed to do so.

When Should You Mediate?

In a nutshell, as soon as you are ready. Many court rules require mediation before a case is tried; but that does not mean you have to wait until shortly before trial to mediate or can't mediate multiple times. Early mediation, if successful, achieves the goals of both quickness and avoiding the cost of litigation. Even if unsuccessful, the parties gain a better understanding of their adversary's positions, which helps them better understand their positions. Uncertainty is oftentimes an impediment to resolution at early mediation. If so, the parties should at least try to create a framework to address the unresolved issues. For instance, the parties might agree to conduct limited discovery and then return to mediation, or obtain expert analysis and then return to mediation. The key is to keep the process moving toward a resolution.

What Disputes Should Be Mediated?

Anything. The greater the value of the relationship, the more at risk and the increased potential for salvaging something beneficial, the more it should be mediated (and the earlier it should be mediated to avoid hardened positions and feelings that are the natural result of litigation). Lessor-funder and lessor-vendor issues, where the relationship is beneficial to the parties and they want to save it by devising creative ways to solve issues and keep doing business together are perfect examples. Oftentimes the parties learn at mediation of an issue their business partner is trying to address that can be solved by modifying the way they conduct their dealings without substantial consequence to either party. While it would have been nice to have attended to this at an earlier opportunity, unfortunately that does not frequently occur. Through mediation, these parties can work through the problem in a collaborative process that makes them feel good about the relationship (maybe even better than before the issue arose since they solved it together). Even when the relationship is lost (or the parties do not wish to continue it), as is common with lessor-lessee issues, mediation can accomplish the lessor's goal of getting paid at the earliest opportunity and perhaps address the lessee's desire to have cash flow or equipment performance issues resolved.

What Should I Look for in a Mediator?

Someone who understands my business, the law affecting my dispute, and the alternatives to a mediated solution. While a really good mediator can mediate any dispute, it is helpful (both to the process and to gain the parties' confidence) that the mediator understand leasing and the applicable law. Through this knowledge, the mediator can help the parties explore alternatives and challenge poor positions. A frank conversation with a lessee's counsel about hell-or-high-water provisions and UCC ' 2A-407 might get a lessee to withdraw unfounded defenses. A lawyer experienced in actually trying cases can discuss the difficulties in presenting evidence, the substantial costs and the risks associated with any trial.

What Should I Do in Advance of Mediation?

Analyze your and your opponent's positions to evaluate their relative strengths and weaknesses. Create a “wish list”; if you could write a settlement agreement and compel your opponent to sign it, what would it say? Also determine what your bottom line is. These should include both monetary and non-monetary matters, those involved in the dispute as well as other concerns that could be addressed or could be advantageous. You wouldn't believe how many times a party is asked what it wants and can't answer.

Even though it may not be required by the applicable rule, you should provide the mediator with a detailed summary that identifies the significant issues (monetary and non-monetary), identifies the significant facts, provides the pertinent documents, and identifies the significant legal principles. Not only will the summary save time at the mediation having to explain this to the mediator, but it also will give the mediator an opportunity to think and: 1) devise alternatives the parties may not think of, and 2) create questions and a strategy to probe your opponent.

Sometimes a pre-mediation conference to address unusual issues is advisable. Resolving these items before the mediation date helps move the process along, plus the parties don't wish to be involved. Things that can be decided include where the mediation will occur and whether a particular person should or should not be there (and does that person need to be present in person).

Conclusion

Remember all those times you said, “I wish I had done something earlier to settle”; mediation is your opportunity to do so in a quick and cost-efficient manner that does not commit you to anything or in any way infringe on your ability to carry on with your suit if it is unsuccessful. Mediation is your chance for a potential win-win. At the end of the day, you have nothing to lose, and the potential exists for substantial savings in time, distraction and money.

Steven N. Lippman was an attorney representing lessors and financial institutions for 25 years in matters throughout the country. He is now focusing on mediation and can be reached at [email protected].