Jeff Kichaven writes on mediation for the International Risk Management Institute. First published on IMRI.com.
Mediators and lawyers can sometimes cross the line of common decency—bordering on committing illegal acts—particularly during difficult mediations. Strong-arm tactics do not help the process, however. A settlement for settlement’s sake does all parties a disservice.
Mediator misdeeds can teach us powerful lessons about proper and improper behavior by lawyers as well as mediators. Consider a situation where a property dispute tears apart brothers living on separate continents. One brother, Manny, participates in the mediation by telephone from a foreign land, while the other brother, Harry, participates with three other lawyers by his side. The disputed estate includes several parcels of real property. Complex “company structures” are involved in the ownership of these properties.
During the mediation, Harry’s lawyers told Mad Maxx the mediator that any agreement reached needed to be subject to getting proper tax advice because of its complexity. During the teleconference, which lasted several hours, the parties reached agreement in principle concerning the commercial settlement proposal, which provided that Harry’s interest in the properties would be transferred to Manny in return for the payment of $1, and that Harry would relinquish his interest in the family companies. Harry’s lead counsel declared that he thought they had done enough for the day and that everyone was hungry, tired, and worn out. He suggested adjourning until they were rested and could deal more constructively with the outstanding issues. But Mad Maxx would hear nothing of it. He insisted that the mediation continue until a settlement was reached, no matter how late or how long, and the fatigued lawyers foolishly capitulated.
The agreement was signed later that night, before tax experts had been consulted. As surely as night follows day, once tax experts were consulted, it was considered that the agreed-upon amount would have undesirable taxation consequences for Harry. Attempts by his lawyers to have the price varied failed. A lawsuit resulted.
The Mistakes Made
Mad Maxx the mediator was trying to help, and he thought that what he did was right. But he deserves to be sued, and he probably deserves to lose. His behavior was not only incompetent, it was unethical. And his malpractice insurance carrier may even have substantial reason to deny coverage. The silver lining in Mad Maxx’s plight is that both mediators and lawyers can learn from his horrible example, and thereby raise the standards of practice in the respective professions and help prevent disasters such as the one from which the unfortunate Harry suffered.
The Avoidable Sin of the Mediator: Insistence
Beware of the mediator who says, “My client is the deal.” That mediator is likely to become a bully, much like mediator Mad Maxx. Do you want to run the risk that, late at night, when you are tired, hungry, can’t concentrate, and want to leave that your mediator will turn into a merciless bully? No, the goal of mediation is not “agreement for agreement’s sake.” Rather, the goal is for the parties to make a clear decision as to whether or not they want a deal and, if so, its terms.
When that decision point is reached, settlements will be the natural byproduct, most of the time. A few cases will not settle, and that’s good, because sometimes the available settlement option really is worse than the unpleasant prospect of continued litigation. This is the only set of outcomes that is truly consistent with the paramount value set forth in every set of ethical standards for mediators that I have ever seen: informed self-determination by the parties in the resolution of their own disputes. Harry never reached the point where he could make a clear decision. That’s because he never had access to all the information he needed to make a sound decision, especially tax advice. Mad Maxx bulldozed ahead anyway, to Harry’s great disservice. It was bad mediation practice on Mad Maxx’s part. But Harry’s disaster is not the fault of Mad Maxx alone.
The Avoidable Sin of the Advocate: Abdication
As improper as Mad Maxx’s bullying was, he could still win this case. That’s because the extent to which Mad Maxx was unethical is exceeded only by the extent to which Harry’s tired lawyers were incompetent. How could they abdicate their responsibilities so completely to a mediator? Didn’t they realize that, while they owed his client a duty of undivided loyalty, the mediator did not?
Even in a mediation, a lawyer is still a lawyer, and the duty to represent the client’s interests zealously within the bounds of law still applies. Even in a mediation, a lawyer can never pass off his client responsibilities to another—especially not to a mediator, who is engaged by both sides, whose loyalties are by definition different than those of the lawyers. In California, as a matter of law, a client represented by counsel cannot “reasonably” or even “actually” rely on the advice of anyone else on matters within the scope of that counsel’s representation. Wilhelm v Pray, Price, Williams & Russell, 186 Cal App 3d 1324, 1332 (1986).
The tired lawyers were profoundly wrong when they allowed, or maybe even required, their client to rely on the advice of another on matters within the scope of their representation. If similar legal principles govern in the country where this mediation took place, then the reasoning of Wilhelm might protect Mad Maxx from the tired lawyers’ claim for contribution.
The Avoidable Consequence for the Mediator: A Potential Loss of Malpractice Coverage
Perhaps a more interesting question from a risk management perspective is whether Mad Maxx’s errors and omissions (malpractice) policy is obligated to provide him with a defense. His engagement in this matter was expressly “as a mediator.” But dictating detailed contract terms is not part of the practice of mediation. At least in California, it is the essence of the practice of law. [People v Merchants’ Protective Corp., 189 Cal 531, 535 (1922). See generally, The Rutter Group California Practice Guide, Professional Responsibility (2003), Vol. 1, Ch. 1, pp. 45–51.]
If mediation is to develop as a profession separate from the practice of law, and nonlawyers are to be allowed to mediate without being guilty of the “unauthorized practice of law” (a crime in most places), then mediators must stay away from those tasks that are at the heart of law practice. Mediators must not be allowed to draft contracts that affect the legal rights of others, as mediator Mad Maxx did here.
Formal ethical standards for mediators have not evolved to this point. That’s because too many mediators, like Mad Maxx, are inappropriately attached to “settlement for settlement’s sake” as their goal. So many, in fact, that I doubt that mediation organizations, if left to their own devices, will take that step any time soon. If mediators do not move to more appropriate ethical standards voluntarily, some insurer’s coverage lawyer is going to push us there, because a strong case can be made that Mad Maxx’s malpractice policy does not provide coverage in this case.
Many attorney-mediators have malpractice policies that cover mediation services only, and do not provide coverage for law practice. The premiums for such policies are lower than for policies that cover both mediation practice and the practice of law. If the act of drafting contract terms is the exclusive domain of law practice, as it is in California, then Mad Maxx’s malpractice insurer might be justified in denying him coverage for this claim if his policy covers mediation services only, and not the practice of law.
And, if this analysis is correct, situations like Mad Maxx’s could get worse still. In many American jurisdictions, his conduct could also get him disbarred. If, by dictating the settlement agreement, he was doing so on behalf of both Harry and his brother Manny—the party’s opponent in the then-pending litigation. This is the quintessence of an actual conflict of interest! Assuming that the conflict was waivable (which it probably was not), did mediator Mad Maxx even try to get written, informed, prior waivers of that conflict, as lawyers’ ethical codes would generally require him to do?
In a civil lawsuit, mediator Mad Maxx might be subject to a direct claim by Harry for legal malpractice. When Mad Maxx started dictating the settlement agreement, his sins went beyond the ethical lapse of undertaking the legal representation of clients with an actual, unwaived conflict of interest. He also acted incompetently toward Harry, one of his “clients,” when his legal work exposed him to adverse tax consequences. His personal silver lining may be that, if he still carries legal malpractice insurance, that carrier may still obligated to cover this claim.
The Lessons Learned
Never hire a mediator who serves the agreement over the client. This type of mediator does not owe the client the same duty of undivided loyalty the client’s own lawyer does. The client must be protected from mindless pursuit of “settlement for settlement’s sake.”
Never ask a mediator to draft a settlement agreement. That’s the job of lawyers. If a mediator starts to do so, he or she should be told, politely but firmly, to stop.
Limit the mediator’s role in drafting a settlement agreement. Good mediators know how to help without crossing the line. Better mediators will use better mediation techniques, asking questions rather than making statements. Of course, these questions must be posed as in a spirit of honest curiosity. The lawyers must be free to answer in any way that is consistent with the discharge of their fiduciary obligations to their clients.
Know when to call it a day. In some cases, it is appropriate for a mediator to be firm in encouraging (but never forcing) parties to stay until an agreement is signed. In cases where the only, or dominant, issue is “What must defendant pay as the price of a release from the plaintiff?”, the firm approach generally works well. These include, for example, most employment, personal injury, medical malpractice, and other cases with consumer-type plaintiffs. If the mediation of such a case adjourns without a signed “deal,” it generally takes all the king’s horses and all the king’s men to put the deal back together again, even if the adjournment is only overnight. In the commercial, as opposed to the consumer, context, parties are generally better able to prevent their buyer’s or seller’s remorse from becoming so severe that it undoes the deal.
And if the deal becomes undone? Well, as Jim Melamed of Mediate.com sagely said in one of the first mediation trainings I ever attended, “If the deal isn’t right on Tuesday, it probably wasn’t really right on Monday, either.” Any lawyer who allows himself and his client to be bullied into signing a deal that isn’t really right deserves to find himself a defendant in a malpractice suit.
Although I have analyzed some behaviors that are inappropriate for mediators, it is much more difficult to set forth a clear, comprehensive declaration of just what a mediator’s duties are and what a mediator’s role is. Mediator Mad Maxx should have done something to help make sure that everyone involved understood the risks and consequences of leaving without a signed deal, but what exactly? What is the boundary between proper mediator behavior and improperly hijacking the lawyer’s role, interfering with the integrity of the attorney-client relationship, and commandeering the role of lawyer as well as the role of mediator? Mediator Mad Maxx went too far, of that I am sure. For now, that conclusion will have to be enough.
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