The Essential Resource for Today’s Busy Insolvency Professional Mediation Matters

By Hon. Louis H. Kornreich (ret.) Avoiding or Overcoming an Impasse in Mediation s bankruptcy cases of all types continue to Mediation is not litigation by other means, and be filed in record numbers, the use of medi- it is not a way station to trial on the merits. Winning ation is increasing. This trend is likely to is not the goal of mediation; instead, the objective Acontinue. This article focuses on the concepts that is resolution through accommodation. To be an a lawyer must know and actions that he/she should effective advocate in a mediation, a lawyer must be take to avoid or overcome an impasse in mediation. willing to balance the interests of the client against The obstacles to reaching a settlement vary with the interests of the opposing party. This begins with Hon. Louis H. each case. Some are obvious, such as the facts and grasping the distinction between a party’s legal posi- Kornreich (ret.) law governing the dispute, the history of the parties, tion and his/her personal and economic interests. Bernstein Shur Portland, Maine business and personal relationships, the personali- ties of the parties and counsel, the justification and Positions and Interests righteousness of positions, the relative economic 2 Hon. Lou Kornreich Litigation is position-based. A position is a and social status of the parties, the experience and stance, a posture taken on an issue in an adversary is Of Counsel with talents of counsel, the style of the mediator and the Bernstein Shur in proceeding or contested matter. It may be a claim or a Portland, Maine, fear of signaling the wrong message. Other barriers defense or a value placed on damages. A position may where he is co-chair to the settlement might be less obvious. These might appear to be an objective statement, but it is usually a of the firm’s Conflict include gender, sexual orientation, race, religion and subjective conclusion based on the applicable law. Evaluation and the cultural backgrounds of the parties and counsel. However, an interest is very different. An inter- Resolution Team. To these concerns we may add the complications of est is the economic or personal stake that a party He has served as conducting a live or remote mediation during this has in the outcome of a case. It is based on needs; a mediator and time of COVID-19. consultant in several a position is premised upon wants. An effective attorney must be mindful of these Litigators translate client needs into desires, then jurisdictions, and challenges. Avoiding an impasse is not happen- he was previously 1 joust in the arena of want. In mediation, lawyers work chief judge of the stance; it is the product of hard work. in the realm of needs. Settlements are more likely to U.S. Bankruptcy occur when the discussion turns from wants to needs. Court for the District Understanding the Process Accepting this idea and conveying it to the client will of Maine, a judge Mediation is the process of resolving a dispute help counsel prepare the client to think in terms of on the Bankruptcy between two or more parties through mutual accom- needs as opposed to wants. The client who under- Appellate Panel for modation. Classical mediation was voluntary, but stands the difference between wanting X and needing the First Circuit, and a visiting judge today, mediation might be voluntary or involuntary. only Y will be open to accommodation — and bring- in the Districts In many districts, bankruptcy judges are authorized ing the client to this understanding is the lawyer’s job. of Delaware and to order mediation, so it is possible that a lawyer New Hampshire. may find himself/herself ensnared in a process in Selecting the Mediator which he/she is an unwilling participant. Selection of the mediator will involve coop-

1 Many resources are available for training in mediation, including short and long courses erating with opposing counsel. The selection pro- and written materials for bankruptcy lawyers. See, e.g., Leslie A. Berkoff & John G. Loughnane, Bankruptcy Mediation (ABI 2016). This book, available for purchase at 2 Some concepts addressed in this article first appeared in another article. See Hon. Louis store.abi.org, contains concise essays on many aspects of mediation written by several Kornreich, “Recipe for Success: Tips and Techniques for a Mediated Settlement,” Me. L. leading bankruptcy mediators. Rev. (June 18, 2020), at 18.

66 Canal Center Plaza, Suite 600 • Alexandria, VA 22314 • (703) 739-0800 • Fax (703) 739-1060 • www.abi.org cess might be straightforward, or it might become a test of might help avoid or help overcome an impasse. Some media- wills and a jockeying for position. The best way to avoid tors might be willing to propose a term sheet for settlement getting bogged down in the selection process is to agree or “arbitrate” a result when faced with a stalemate. upon a common list of acceptable candidates and conduct joint interviews. Working with Opposing Counsel Choose a mediator with knowledge of the law, an accept- Insist that all participants, including each party, counsel able style and adequate experience. People skills are essen- for each party and the mediator, sign a mediation agreement tial. Knowledge of the applicable law is important. Wisdom containing the terms of the mediator’s engagement, sched- is another factor to be assessed. Will the candidate earn trust uling, venue, confidentiality, applicable law, the nature and from all sides? Is the candidate a sitting or retired judge extent of mediation submissions, and any other provisions (and will that status help or hurt the process)? How will the governing the mediation. Work with opposing counsel to mediator respond when the parties reach an impasse? Will narrow the issues and discuss hot spots. It is also a good idea he/she be able to evaluate claims and defenses and help for- to join with opposing counsel to draft a settlement agreement mulate a settlement without losing the confidence of anyone or term sheet before the mediation. in the room? When a resolution is reached, fill in the blanks by com- An interview will enable counsel to narrow the field paring your checklist of issues with your opponent’s list. of qualified candidates and assess their abilities/styles. This will help the parties to catch nettlesome details that Remember, barring a conflict of interest, an acceptable medi- might otherwise be overlooked. Signing a term sheet or ator favored by another party should not be a problem. Going settlement agreement on the spot is a good way to avoid with an opposition’s pick is not a sign of weakness; it could “buyer’s remorse.” advance the process. Timing Preparing Yourself The timing of the mediation should be a choice for coun- Preparation is essential. Preparation for mediation sel. Early-intervention mediation is a good way to avoid the means knowing your case to the same extent as you would expenses of litigation, including the cost of discovery, but present it in court. Also, know your opponent’s case. mediation prior to discovery often results in impasse due to Prepare a checklist of every factual and legal issue. Have a lack of knowledge of the facts. Informal discovery may a realistic feel for the most likely outcome of every issue suffice but will depend on the circumstances of the case. Do at trial, and share this assessment with your client. Commit not go into a mediation without a thorough knowledge of yourself to the mediation as if it is the primary method of the facts thinking that you will learn what you need to know dispute resolution and not a weak alternative to adjudica- during the mediation. Remember that the rules of confiden- tion. Learn what the actual needs of the other party might tiality might limit your ability to use in court what you learn be by gaining knowledge of his/her/its personal and busi- in a mediation. ness circumstances. Come to the mediation with knowl- Mediation must not be too late. There comes a point edge of the industry and the opposing party’s position in when the parties are committed to their positions and the the market. Learn what you can about the negotiating style lines are drawn, even when their interests might be better of opposing counsel. These bits and pieces will help you served by mediation. This, too, may result in an impasse. avoid an impasse by distinguishing between bluster and Finding the timing sweet spot will enhance your chances substance. Strive to be the smartest person in the room — for a fruitful mediation. and the one with the level head. Managing Client Expectations Preparing the Mediator As previously discussed, clients engage lawyers to pursue Give the mediator a concise statement of the law and your their wants and needs. Lawyers are trained to convert wants list of contested facts and legal issues, with copies of perti- and needs into positions expressed as claims and defenses. nent cases and applicable statutes. Also give the mediator a Needs (i.e., a party’s actual economic and personal inter- confidential statement of the history of settlement discussions ests) are often subordinated to wants in legal positions. So, and your notion of a reasonable result. it should be no surprise to counsel after months of litiga- Insist upon at least one plenary pre-mediation telephone tion — and thousands of dollars in legal fees — when a client conference. Ex parte communications are not prohibited. exhibits a righteous belief in his/her claims or defenses. This Contact the mediator whenever you have questions or con- might make it difficult for a lawyer to refocus client attention cerns, and invite the mediator to contact you and opposing on actual economic and personal needs. A client imbued with counsel to do the same. a sense of entitlement might view his/her lawyer’s recom- In all your dealings with the mediator, your objective mendation for mediation as a lessening of the lawyer’s com- should be to impart an understanding of the legal positions mitment, which might have an adverse effect on the attorney/ and the actual needs of each party. This information will client relationship. enable the mediator to evaluate offers and counteroffers upon Damage control is essential if trust is to be restored. the merits of the litigation and upon what really matters to Education is the answer, but to be effective, the learning each party. With this knowledge, the mediator will be pre- process should begin before the parties enter the mediation pared to share his/her thoughts on possible outcomes with room. Impasse looms when the attorney/client relationship is each party when the negotiations falter. These discussions damaged. The chances for settlement are enhanced when the 66 Canal Center Plaza, Suite 600 • Alexandria, VA 22314 • (703) 739-0800 • Fax (703) 739-1060 • www.abi.org client understands the true extent of his/her interests and the pitfalls of litigation.

The Mediation Every case is different. Some situations allow for ple- nary sessions. Others require the parties to be isolated and connected by the mediator’s shuttle diplomacy. Opening statements by counsel might be helpful, but often they are unnecessary. Opening statements by clients are helpful if it appears that speaking in a confidential environment will be cathartic. This is rare in commercial cases, but opening statements by clients in consumer cases might bring under- standing to the other side. There is no secret sauce for conducting a mediation. Let the mediator set the tone and control the process. Take your time. Do not be concerned with signaling weakness. Who goes first in pitching an offer is not important. Concentrate the discussion on interests rather than legal positions. Be candid with the mediator and your opponent on whatever limitations you may have. Tackle one issue at a time. Start with the easy ones. Do not get stuck in a rut; be creative. Take breaks when things are not going well. Talk about com- mon interests such as sports or vacations to ease tensions. Spend time in caucus groups with common-interest-holders. Talk to the mediator privately. Chat with opposing counsel privately. Let the clients talk by themselves if they express the desire to speak to each other without counsel. Keep your client informed at every step. Remain civil throughout the process. Rancor leads to impasse. Being polite to a difficult opponent is not easy, but it is necessary. Lawyers must set the example for their cli- ents. Grandstanding will not earn points with the mediator and it will not lead to a settlement. Do not be the cause of a standoff. If tempers begin to flare, leave the room until things calm down. Let the mediator attempt to mitigate the differences between the parties. A good mediator will understand where each party should be if a settlement is to be reached. If the mediator cannot bridge the gap, salvage what you can by reducing the number of issues to be litigated.

Conclusion The hard work of avoiding an impasse and crafting an outcome occurs before the mediation session begins. Remember that mediation is defined as the attainment of a resolution through mutual accommodation. Be willing to accommodate the goals of the opposing party without com- promising bedrock principles and your client’s needs. Do not be dismayed if a settlement is not reached. Some cases must be tried. abi

Reprinted with permission from the ABI Journal, Vol. XXXIX, No. 11, November 2020.

The American Bankruptcy Institute is a multi-disciplinary, non- partisan organization devoted to bankruptcy issues. ABI has more than 12,000 members, representing all facets of the insol- vency field. For more information, visit abi.org.

66 Canal Center Plaza, Suite 600 • Alexandria, VA 22314 • (703) 739-0800 • Fax (703) 739-1060 • www.abi.org