What To Do When Parties Attribute Bad Faith Motives To Each Other

Nearly all mediations involve parties that view the same facts in a very different light.  But in a great many mediations, the parties go further:  they are convinced the other side is not taking its position in good faith, but rather is knowingly lying or engaging in some nefarious scheme.  It is, for example, all too common in a commercial mediation to walk into one caucus room and be told that the other side knows it is lying on a particular point, and they walk in the other caucus room and hear the identical assertion. 

Why is this phenomenon so common?  I think this is due, in part, to the fact that when there are strong emotions underlying a position, the parties just cannot believe someone can hold a contrary position in good faith.  Another factor may be that parties unconsciously seek to quell doubts about their own position by convincing themselves the other side is not only wrong, but also acting in bad faith. 

Whatever the cause, the view that an opponent is acting bad faith can be a serious impediment to settlement.  It is much more difficult to make concessions and reach a middle ground with someone acting in bad faith.  You would be giving some ground not just to an opposing view, but to someone acting immorally.  It is also harder to shed feelings of insult, anger and other emotions if you believe the other person is intentionally causing those feelings. 

 So how do you deal with this?  There is no magic bullet, of course, but I suggest two contradictory approaches, each of which can be effective in the right situation:

  1. Point out the extreme nature of a party’s belief.  I have summarized a party’s view in this way:  “So you believe that every single thing that the other person has said is all a complete lie, and they are really executing a scheme to do ________.”  Sometimes putting it in such stark terms can jolt someone into recognizing at least some good faith on the other side.
  2. Point out why this makes settlement so much more inviting:  I have summarized a party’s view on the other’s bad faith, and said:  “Is this a person you want to keep fighting or going to court against?”  Sometimes the recognition of how awful they consider the other person can cause a party to think they need to settle the issue and be done, or to decide that they don’t want to risk fighting this person in court. 

While, as I said above, there is no magic bullet, I don’t think it advisable to try to avoid it or sugar coat it the issue of bad faith.  If people believe the other person is acting maliciously, that belief needs to be listened to and reality tested so that people can honestly confront the nature of their dispute.

A New Twist on a Contractual Mediation Requirement

Arbitration clauses are increasingly common in both commercial and consumer contracts, and some of those clauses now require that the parties mediate before commencing an arbitration.  Such a clause can be beneficial because, while parties all know the advantages of an early settlement, many litigators view an early request for mediation as tantamount to an acknowledgment of the weakness of their position.  A contractual mediation requirement enables early settlement discussions without triggering this real or perceived problem.

One problem with such mediation clauses, however, is that they can be difficult to enforce.  The remedy for a violation of such a clause might be nothing more than a stay of the arbitration pending completion of a mediation, and just asking for such a remedy might trigger the “fear of showing weakness” concern the clause was intended to eliminate.

In Makeen v. Woodstream Falls Condo. Ass’n (In re Makeen), B.A.P. (10th Cir. 2020), the court noted that the mediation clause at issue provided for $25,000 in liquidated damages if a party failed to comply with the mediation requirement, a provision that would seem to single-handedly eliminate any enforcement issues for a mediation requirement.  The court did not, however, deal with whether the liquidated damages provision was enforceable, and Illinois, like virtually all jurisdictions, has specific requirements for such clauses to be enforceable.

My takeaway:  Given that that a liquidated damages provision will not likely cause any harm, and that it also has a fair shot at being enforceable, it would seem worthy of inclusion in many contractual mediation provisions.

Covid Update:  If you’ve been wondering whether to mediate by Zoom or any other video platform, take the leap.  Parties and mediators are getting increasingly comfortable with this procedure and finding similar rates of settlement.

Securing Binding Mediation Agreements in a Virtual World

It is critical, at the end of a successful mediation, to secure a binding agreement to the material terms of the settlement, even if the parties intend to later draft a more formal document. This is typically done by having the parties agree to a settlement term sheet. What you want to avoid is creating any delay in making this term sheet binding, because any delay gives a chance for a party to experience buyer’s remorse and try to back out of the deal.

Securing agreement to the term sheet at the end of a virtual mediation can be tricky unless the parties have an electronic signature program such as DocuSign ready to go. Even emailing a document to each side to print out, scan, and return can create a delay that could unsettle the agreement.

A simple method that I’ve used is where the mediator emails the agreement to both sides and simply asks for a response to that email confirming agreement. This creates a written record of agreement, and can be done while the mediation session is still going on, thereby eliminating any delay in getting a binding agreement.

But is this email system binding? In Overfield v. Starbucks Corp. (D. Kan. 2020), even though there was an in-person mediation, rather than have the agreement signed then and there, the mediator emailed the document to both sides about an hour later, to which both parties responded “Yes, agreed.” The court found this agreement binding. So, emailing an agreement to both sides, and requesting a response indicating their agreement, should be a viable and quick way of securing a binding contract.

Enforcing a Mediation Confidentiality Provision

In Tellis v. LeBlanc, (W.D. La. 2020), in the course of litigating a motion to strike a jury demand, the defendant cited facts it had learned in a prior unsuccessful mediation about the nature of the plaintiff’s case. The plaintiff moved for sanctions based on defendant’s use of that information because the communications in the mediation were supposed to have been privileged and confidential.  The court agreed that the use of the information was improper, but found no evidence that the defendant had acted in bad faith, and therefore denied the request for sanctions. The court noted that the disclosure was made for no purpose other than to highlight a position asserted in a brief, and that there was no effort to prejudice the plaintiff in any improper way.

Takeaway: While assuring privilege and confidentially in a mediation, either contractually, by court rule, or by statute, is essential, it can be difficult to obtain a remedy if one party subsequently violates the confidentiality of the mediation.

Interesting side-note: In the background section, the court noted that the magistrate who conducted the mediation ordered the parties to submit confidential statements before the mediation containing a “bottom-line settlement proposal.”  I have never encountered this, and feel it could well create an obstacle to successful a negotiation.  If anyone has seen this technique used in a mediation, I’d love to hear whether it was helpful or not.

What Can You Do With New Facts Learned In Mediation?

In Homes v. Navigators Specialty Ins. Co. (E.D. Tex., 2019), the plaintiff filed a complaint, six months later the parties mediated unsuccessfully, and a week later the plaintiff sought to amend the complaint to add new parties.  The court denied the motion to amend in part because the plaintiff delayed seven months before seeking to amend when the plaintiff had all the necessary information at the time the case was first filed.

While this holding is fairly straightforward, in its discussion the court noted that had new facts supporting the amended complaint first been learned in the mediation, the amendment might have been timely, because leave to amend was sought only a week after the mediation had concluded. Although not discussed by the court, this poses the challenging question of whether it is allowable to use facts learned in a mediation to amend a pleading, given the confidential and privileged status of all mediation communications.

The answer to this question is far from clear and might vary from state to state. In Illinois, for example, the Illinois Uniform Mediation Act provides that mediation communications are privileged, which means they cannot be used as evidence. This, however, only precludes using a new fact learned in mediation to prove an allegation; it may not be a bar to using a fact learned in mediation to merely allege a new claim.

My standard mediation contract, like those of many other mediators, has the parties agree that mediation communications are confidential and can only be used to resolve the lawsuit. Would a court hold that such a contract precludes amending a pleading based on facts learned in a mediation?  Would a court find that amending a pleading was a breach of such a contract and strike the pleading?

While the law is unclear, from a policy perspective using something learned in a mediation to amend a pleading runs contrary to the goal of enabling parties to talk freely in a mediation without fear of statements later being used against them. My takeaway is that one should be thoughtful before revealing a new fact to the other side in mediation, because it is not clear whether any such fact could or could not be used to make a new allegation. One suggestion would be to disclose the fact in confidence to the mediator, in caucus, and discuss the pros and cons of revealing that fact to the other side.