Contract disputes do arise from time to time. Whether the issue is early termination, delay of deliverables, breach of performance, or the like, it is best to plan for the worst and hope for the best.
When there is a dispute, whether the contract contemplates this or not, either party should consider a legal process called mediation to avoid the time and cost of fighting in court (litigation) or in arbitration, both of which are the subject of Part 6 of the series, so we will keep those topics to a minimum here.
This is Part 5 of a series providing advice to e-commerce businesses on key provisions and considerations for website development contracts. Also see:
Part 1: How to Avoid Major Disasters
Part 2: Who Owns the IP on Your Site?
Part 3: Important Cloud and SLA Considerations
Part 4: Indemnification
What is Mediation?
Mediation is a process where parties to a dispute meet face-to-face (these days, on Zoom) along with a neutral third party — called a “Mediator” — to try to resolve the dispute on their own and avoid prolonged and costly litigation or arbitration.
The mediation process varies around the U.S., but generally the Mediator and the parties work together to figure ways to end the dispute by reaching a written settlement agreement.
As a general rule and by state laws, the Mediator is not allowed to testify in court or at an arbitration about the mediation since everything related to the mediation process is confidential, unless the parties agree otherwise.
Often times the Mediator will have private telephone conversations with the parties and their attorneys to discuss the details of the dispute, which generally leads to a face-to-face or Zoom mediation conference.
However, before there is a face-to-face mediation conference the parties and their lawyers often submit confidential mediation statements (that is, position papers), or exchange non-confidential mediation statements so that they tell the opposing party what they think.
When the parties and their lawyers attend the mediation conference, they generally they are separated in different rooms (or Zoom rooms) to avoid conflict and encourage the parties to share the confidential details about the dispute with the mediator. In these separate meetings, referred to as caucuses, the Mediator discusses the issues in dispute with the intention of being honest and candid about the issues.
Also, the Mediator also discusses the likelihood of success in litigation or arbitration since if there is no settlement, the parties may end up spend lots of money and time fighting in litigation or arbitration.
What if the Contract Requires Mediation?
If the parties agree by contract to a mediation, most courts and arbitrators will require that the parties actually complete a mediation before moving forward to litigation or arbitration.
Regardless, the parties can always agree to mediate if a conflict develops even if there is no contractual requirement. Sometimes contracts require the use of third party services such as the American Arbitration Association (AAA) or JAMS shall manage the mediation as part of the alternative dispute resolution (ADR) services.
Notwithstanding the AAA and JAMS, there are thousands of professional mediators around the U.S. who make themselves available to help resolve disputes, so you should be able to find a mediator in your location.
How is a Mediator Selected?
Mediations tend to be more successful if the parties and their lawyers have trust and confidence in the mediator.
Normally there is a vetting process where the AAA or JAMS recommends a list of local mediators and then the parties conduct their own research to find the right person to serve as the mediator.
Part of the vetting process is to make sure that the mediator is not biased one way or the other, so it is important to ask the right questions find the right mediator.
Notwithstanding anything else about the mediation process, if a party and their lawyer make settlement offers during the mediation process that does not mean that the offers can be used as evidence in a subsequent lawsuit or arbitration because of Rule 408 of the Rules of Evidence:
Rule 408. Compromise Offers and Negotiations
(a) Prohibited Uses. Evidence of the following is not admissible — on behalf of any party — either to prove or disprove the validity or amount of a disputed claim or to impeach by a prior inconsistent statement or a contradiction:
(1)furnishing, promising, or offering — or accepting, promising to accept, or offering to accept — a valuable consideration in compromising or attempting to compromise the claim; and
(2) conduct or a statement made during compromise negotiations about the claim — except when offered in a criminal case and when the negotiations related to a claim by a public office in the exercise of its regulatory, investigative, or enforcement authority.
(b) Exceptions. The court may admit this evidence for another purpose, such as proving a witness’s bias or prejudice, negating a contention of undue delay, or proving an effort to obstruct a criminal investigation or prosecution.
Rule 408 encourages parties to make settlement offers since those offers cannot be used in litigation or arbitration, so it is essential that lawyers clearly mark all settlement offers under Rule 408 to protect the offer.
If the parties can resolve their disputes in a mediation and avoid the cost and time in litigation or arbitration, that can be a win-win, not to mention to allow the parties to get on with business.
The next part in this series which will describe litigation and arbitration if the mediation is not part of the contract, or the parties are unable to settle their disputes in the mediation.