MEDIATING IN “GOOD FAITH” IN FLORIDA

THE REQUIREMENT OF “GOOD FAITH” IN FLORIDA MEDIATION 

How many times have you heard an attorney end his mediation opening statement by proclaiming that his or her client is attending the mediation in “good faith?”  Is there actually a requirement of good faith in mediation?  If so, what does it mandate and who enforces it?  In Florida, these questions may depend on the court in which litigation is occurring.

There is no general statute or rule requiring a party to show good faith in a Florida state court civil action.  In fact, the only requirement of Florida Rule of Civil Procedure 1.720 is that a party appears at the mediation.[1]  There are statutes, however, which require good faith in the attempted resolution of certain disputes such as those between governmental entities (Fla. Stat. 164.1058) and some insurance claims (Fla. Stat. 627.745).  In addition, local rules in some circuits have good faith requirements.  In the Ninth Circuit, while there is no overarching good faith requirement, Section 8 of the rules of the Complex Business Litigation Court states that “[t]he court will impose sanctions upon Lead Trial Counsel and parties who do not attend and participate in good faith in the mediation conference.”

Similarly, there is no federal rule of civil procedure that mandates good faith in mediation and the author is unable to find any good faith requirement in any of the civil court local rules.  Many case management orders, however, require that “all parties shall participate in good faith in mediation.”  Until very recently, the United States Bankruptcy Court for the Middle District of Florida not only required good faith but also required a mediator to report to the judge when a party does not mediate in good faith.

Rules and orders such as those referenced above beg the question: what constitutes good faith?  Better yet, what is bad faith?  Unfortunately, none of the cited rules defines the term.  In a 2004 report, the ABA Section of Dispute Resolution cited to a 2002 article by Professor John Lande entitled Using Dispute System Design Methods to Promote Good Faith Participation in Court-Connected Mediation Programs, 50 UCLA L. Rev. 69 (2002).  In this article, Professor Lande found that in cases alleging bad faith in mediation, courts found bad faith in which a party violated certain court rules such as by failing to attend the mediation or failing to submit a pre-mediation memorandum.  Courts were split in cases in which a party failed to provide a representative with sufficient settlement authority.  As long as a party appears at and participates in mediation, however, a good faith requirement, generally, does not require the party to make a “suitable” settlement offer or even any offer at all.[2]

Alleging bad faith at mediation is almost always the responsibility of a party.  In fact, Florida’s Mediator Ethics Advisory Committee (MEAC) has opined that it is a violation of a mediator’s duty to maintain confidentiality if the mediator makes an allegation of bad faith to the court even when a court order requires the mediator to do so.  MEAC, however, provides an exception when a court rule specifically requires a report by the mediator.

In conclusion, there are no hard and fast rules regarding “good faith” in mediation.  Clearly, the term is ambiguous and subjective.  At a minimum, attorneys should strictly adhere to court rules and orders governing mediation, appearing at the mediation with the appropriate individuals and complete settlement authority and submitting mediation statements when required.  Otherwise, it is suggested that attorneys utilize common sense when participating in mediation.  Paraphrasing Justice Potter Stewart’s famous quote regarding pornography; good faith may be hard to define but it is likely that a judge will know it when he or she sees it.


[1] Appearance requires the physical presence of a party or party representative having full authority to settle, the party’s counsel of record, if any, and a representative of an applicable insurance carrier with full authority to settle up to the plaintiff’s last demand or policy limits.  Having full authority to settle means the final decision maker as to all issues presented in the case and the legal capacity to execute a binding settlement agreement on behalf of the party.

[2] It should be noted that there are other instances in which bad faith was found such as failing to notify the other party prior to mediation that a client intends to refuse to pay any amount at settlement or even filing a summary judgment motion just before mediation.

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THE USE OF DECISION TREES IN MEDIATION

Attorneys have long used probabilities for success as a rough tool for estimating potential damages in litigation.  A simple calculation would go something like: “we have approximately $100,000 in damages but only a seventy-five percent chance of winning the case.  Accordingly, the value of the case is $75,000.”  Such a simple calculation, however, does not fully and accurately take into account all of the possible outcomes of a case.  As a result, attorneys are increasingly turning to “decision trees” to evaluate cases by using weighted averages of all possible outcomes and their associated costs/values.

It should be made clear at the outset that a decision tree analysis can still be highly speculative.  Depending on the case, outcomes and damages can be difficult to predict.  The resolution of a single factual dispute may radically change the outcome of a trial, as may the make-up of a jury or a change in judges.  Decision trees are also dependent on the lawyer creating them including realistic expectations as to possible outcomes.  As the saying goes: “garbage in, garbage out.”  Properly developed, however, a decision tree analysis may assist in developing a basis for settlement goals either in advance of or during a mediation.

Daniel Klein’ article “Decision Trees and the Arboretum” states that there are four steps in creating a decision tree:

1. Listing the possible outcomes of litigation;
2. Considering the costs and/or gains associated with each possibility;
3. Discounting each possibility by an estimated probability of its occurrence; and
4. Multiplying each possibility by its probability to get an overall estimated case valuation.

Let’s start with listing the possible outcomes of litigation in a case which the only possible outcomes (other than settlement) are that it will be resolved at summary judgment or it will be decided at trial. Let’s further assume that we are creating the decision tree for the defendant. In addition, we will not consider the possibility of an appeal. Thus, the possible outcomes are:

1. Prevail with summary judgment motion;
2. Lose summary judgment motion;
a. Win at trial
b. Lose at trial

Note that the possible outcomes of win at trial and lose at trial come into play only as a consequence of losing the summary judgment motion.

Once the possible outcomes have been laid out, we must estimate the costs and/or gains associated with each possibility. For the purposes of this exercise, we will assume that attorney’s fees are not available to the defendant and that recoverable costs are negligible. In creating our decision tree, we will estimate that it will cost the client $35,000 in order to prevail on a summary judgment motion. It will cost $100,000 to win at trial. If we lose at trial the high end of the range of damages is $200,000. Adding the $100,000 in attorney’s fees results in a total cost of $300,000. The low end of possible damages is $30,000 resulting in a total cost of $130,000. The mid range of potential damages is $100,000 which results in a total cost of $200,000.

Perhaps the most critical element to creating a decision tree is estimating the probability of each possible outcome. My experience is that litigation attorneys are typically overconfident about their cases. If you ask two opposing attorneys what each believes is their likelihood of success, both may say seventy percent which means that, combined, they are overestimating their chances by a total of forty percent. Accordingly, in working with decision trees, attorneys must try to be brutally honest in their predictions. Alternatively, they might make an estimate and then reduce it by ten or fifteen percent to assure a reasonable outcome of the decision tree.

For the purposes of our exercise, let’s assume that the defendant has a 60% chance of prevailing on summary judgment. If it does not prevail on summary judgment, however, it only has a 50% chance of winning at trial. Finally, if it loses at trial, there is a 50% chance that the plaintiff will be awarded the medium level of damages, a 30% chance of receiving the low end of damages and a 20% chance of receiving the high end of damages.

There are several decision tree software programs on the market for purchase. A free resource for creating simple decision trees is “Occam’s Tree” which may be found on the internet. Our resulting decision tree using Occam’s Tree may be viewed at the end of this article by clicking on the word “tree”.

Based on our best predictions, our decision tree suggests a defense value for settlement purposes of our case is $80,800. Remember that the same computations may not work for the plaintiff if, for example, attorney’s fees are recoverable for the plaintiff or the plaintiff’s attorney is working under a contingency fee arrangement.

As noted above, the trial process is fraught with uncertainties and it is difficult to predict whether one will prevail much less the amount of a judgment. In addition, factors such as a client’s or the opponent’s level of aversion to risk, level of emotion or desire to stand on principle affect the amount for which a case may settle. The use of a decision tree, however, provides at least a platform for making outcome predictions and, in doing so, for estimating the settlement value of the case. Ask your mediator for assistance with a decision tree when preparing for your next mediation.

http://decisiontree.kleinmediation

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Preparing Your Client for Mediation

Recently, a third-year student in my class at Barry University School of Law argued that, in preparation for a mediation, it was important for a lawyer and the lawyer’s client to establish the client’s “bottom line” in advance of the mediation.  After debating the issue, I raised the broader question of what steps should be taken to prepare a client for mediation.  This article discusses some thoughts on topics that should be addressed with a client before mediation to increase the possibility that the mediation will succeed.

1.   Contrast the goals of mediation and litigation.

Mediating a case is and sometimes should be difficult for a good trial attorney because the goals of litigation and mediation are quite different.  In addition, the two processes require different legal skills.  If it is difficult for lawyers, it may be just as hard for a client to comprehend the different settings.  It is, therefore, important that clients understand that mediation is not meant to be an adversarial process.  Whereas trial may be all about “winning,” mediation is about resolution which often requires creative problem-solving, consideration of the other party’s interests, evaluation of the potential consequences of not reaching agreement and, in many cases, compromise.  Certainly, a client must be prepared to hear things from the other side with which he/she disagrees without allowing it to affect his/her ability to make decisions.  A client should also know in advance that his/her previously aggressive, “take no prisoners” attorney may follow a different approach during mediation and may even admit to the mediator that there are weaknesses in the client’s case.

2.   Review the mediation process.

While it is good to educate your client about the standard mediation process (mediator’s introduction, parties’ statements, caucus, etc.), it is more important for the client to appreciate that mediation is his/her opportunity to decide how a dispute is to be resolved.  A mediator may, within ethical boundaries, promote evaluative discussion of the case and challenge each party’s position but, unlike a judge or jury, has no power to mandate any resolution.  Additionally, clients must recognize that the remedies that may be granted at trial are limited.  No court can order that an apology be made or a letter of reference written.  With mediation, the possibilities are limited only by the will of the parties.

3.   Explain confidentiality.

A client certainly needs to know what can and cannot be shared after a mediation is finished but perhaps the more important aspect of confidentiality is that the client may speak freely to the mediator.  The client should be encouraged to share (during caucus) his/her concerns about the case and any underlying motivations that may not be readily apparent.

4.   Explain the alternative to a mediated resolution.

If the dispute is not resolved at mediation (or soon thereafter) what will be required of the client?  Has a suit been filed?  Is discovery complete?  When will a trial take place?  Will the client have to pay attorneys’ fees and/or costs going forward?  How much to get through trial?  How much time will the client and his friends and family have to invest in the case?  If the client wins at trial is an appeal likely?  What is the client’s best day in court?  What is the client’s worst day? 

5.   Review bargaining principles and begin managing client expectations.

It is imperative that a client attend mediation with an open mind.  A lawyer does not serve a client well by inflating the client’s expectations prior to a mediation.  The client must be prepared to listen objectively to the other side, the mediator and the client’s counsel and to re-evaluate the case as new information is learned and the pros and cons of the case discussed.  At the same time, it would be naïve to believe that a client did not enter negotiations without some resolution in mind.  The lawyer’s job before mediation is to use his/her experience, knowledge of the case and relationship with the client to attempt to insure that the client attends mediation prepared to listen and evaluate the case and alternatives for settlement.

It is also suggested that lawyers discuss the bargaining process with clients.  Many mediations begin with what is often referred to as “positional bargaining” with each side either making exorbitant demands or offering nominal settlement consideration.  During this stage of the bargaining, parties are more likely to be more emotional, call each other names and express frustration with the other side.  Perhaps one of the parties has to be given an opportunity to vent his/her emotions before true negotiations may begin.  Perhaps the other client’s lawyer has not prepared his/her client as well as you have or believes that it is necessary to “send a signal” to your client by making what everyone knows is an unreasonable offer.  Regardless of the reason, clients should know that mediations may move slowly at first.  Eventually, however, a successful mediator will begin to focus the parties on the strengths and weaknesses of their cases and on the risks and benefits of resolution versus moving forward with the dispute.    

6.   What, if any, additional information does the client need to be able to resolve the dispute?

There are many advantages to early resolution of a dispute.  Beyond saving time, money and inconvenience, early resolution may, for example, permit the parties to repair a damaged relationship.  One cannot, however, expect to successfully mediate if you and the client do not have enough information upon which to base negotiation strategy and make informed decisions.  If information is needed, can it be gathered at the mediation?  Might the parties agree to an informal exchange of documents?  Can mediation occur after written discovery is conducted?  Or is it necessary to complete all discovery before mediating?

7.   Discuss who should attend the mediation?

Individuals who are parties to a dispute must attend a mediation but who is the appropriate person to represent a corporation or other business entity?  Might a person who caused or was involved in the dispute create unnecessary tension or animosity at the mediation or might he/she be helpful in developing a resolution either because of his/her particular knowledge or because an apology may be warranted and beneficial.  What about a family member, friend or other supportive person?  While these individuals may not be permitted to attend if the other side objects, almost every lawyer has likely experienced a mediation when a last minute telephone call delayed or derailed a settlement.  If your client is likely to need someone else’s support or approval, it is preferable to prepare to have them in attendance from the start. 

8.   What information will be presented to the mediator in advance?

Find out what the client wants the mediator to know and provide it to the mediator in time for the mediator to prepare to effectively use it.  In most cases, legal arguments and conclusions about the strength of your case or the weakness of the other party’s while helpful are not going to be decided or agreed to during a mediation.  What is equally helpful is a chronology of events and the evidence upon which it is based.  Also, are there any psychological, emotional or relationship issues of which the mediator should be aware?  Finally, what, if any, information can the mediator share with the other side?  Are there witness statements or other documents that might convince the other side to adopt a more reasonable approach during the mediation. 

A well-prepared client may not only increase the likelihood that mediation will be a success but also decrease the time that it takes for a resolution to be reached.  Lawyers should prepare for mediation as they would prepare for any other important event such as depositions and significant hearings.  Part of that preparation is to insure that clients enter mediation with sufficient knowledge of the case and the mediation process, an appropriate frame of mind and reasonable expectations as to the possible results.

Mark L. Van Valkenburgh