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Increased Complexity of Commercial Disputes Requires a New Approach

by Robert Bergman, Jonathan Ewing
July 2017

The cost of commercial litigation continues to rise, as a highly politicized world produces pervasive economic and policy uncertainty.  As these global and domestic litigation costs continue to rise, companies are under increased pressure to simultaneously reduce operating costs. This confluence of pressures is creating a bigger mandate for mediation as a cost-effective and expeditious way of resolving disputes.  While much attention has been recently paid to the quality of mediation, the dynamics have changed from relatively simple two-party conflicts to more complex multi-party, multi-national and multi-cultural disputes.  Exponential growth of technology and globalization has ushered in an era where simple criteria disputes have gone the way of the phone booth. Any business that is accessible over the internet is, by definition, a global company. In order to adjust to these dramatic shifts, mediation must now deploy more sophisticated tools to reach effective settlements.  By looking at mediation as a system, Next Level Mediation, LLC has been able to deploy Decision Analytics models to better support stakeholder decisions during the mediation process. 

Background

The rapid transition toward globalization – fueled largely by Internet growth - has been closely followed by a significant increase in commercial litigation transaction costs.  According to a 2010 study by Lawyers for Civil Justice (Justice, 2010),  Litigation transaction costs, independent of judgments awarded in disputes or settlements reached between parties, constitute a significant economic cost of doing business in the United States. Among the 36 survey participants who responded to this question, the total aggregate litigation cost in 2008 was 4.1 billion dollars. The average outside litigation cost, per respondent in the survey was nearly 115 million dollars in 2008 - up 73 percent from $66 million in 2000.  This represents an average increase of 9 percent each year.   According to the website Statisticbrain.com, a study conducted in 2016 by the Association of Trial Lawyers, the annual cost to the US economy for civil lawsuits was $239 Billion. That puts the annual cost to each US Citizen for civil lawsuits at $812.

During the same time period, many small to medium size businesses have created a presence on the Internet.  This growth in Internet and the new cross-border activities of many of these companies has resulted in a transnational litigation explosion in the United States and increasing transnational activity in legal practice. (III, 2013)In addition to large public enterprises, at least 50% of all small to medium size businesses in the US now have a presence on the Internet (Okyle, 2016). This meteoric rise of Internet based businesses is creating increased complexity for mediation in civil/commercial disputes and the need for more expertise in cultural sensitivity in order to insure a positive and fair outcome. Mediators now have to be sensitive to differences in language characteristics, styles of communication, belief systems, judicial systems, and access to information.

While there has been progress in improving the quality of the mediation process and the quality of mediators through formalization of certification, training, and ethical standards - little has been done in the way of formalizing underlying methodologies to match the new requirements of complex multi-cultural mediations.

Next Level Mediation has studied the increasing complexity of commercial mediation and has begun to apply more formal decision science tools (e.g. Analytical Hierarchical Process) to address this changing landscape.  Our goal was to apply these advanced tools in an effort to facilitate a transformation from a complex adversarial mediation to a more manageable collaborative business decision model.  Finding the highest leverage point to apply these tools first required understanding Mediation as a system (see Figure 1):

Mediation as a System

Figure 1 Causal Loop Diagram of Mediation System

The systems thinking model of mediation defined in Figure 1 above describes a typical set of causes and effects present in most modern commercial conflicts.  Two or more parties initially find themselves in a vicious circle (Reinforcing Loop) -  escalating the conflict environment with claims and counterclaims.  Each party supported by legal counsel and each party driven by emotion and their view of the facts and law.   In addition, if the conflict extends across national boundaries, the process of mediation will also have to comprehend judicial system variances as well as the potential of substantial cultural differences.  These  differences impede communication and deteriorate trust due to differing styles of communication, belief systems, sense of authority, and access to information.  When a mediation runs substantially longer than anticipated, there are additional stresses and  pressures generated by the conflict environment that take a toll on all parties - while also reducing the voracity of the “win at any cost” position some litigants hold.  In order to find a rational and fair solutions for the involved parties, the Mediator must deal with a complex set of causes and effects defined in the system.   In effect, the Mediator must rebalance the system illustrated above by decreasing the desire to “win at any cost” and refocusing the parties on their logical business priorities.   

By drawing attention to the weight of emotionally driven demands and the true priority of business objectives, Next Level Mediation process attempts to transforms a highly adversarial environment into a joint business decision-making platform.

Mediation becomes a Joint Business Decision using Decision Science

After careful evaluation of a number of past commercial litigation cases and the behavior exhibited during Mediation, Next Level Mediation was able to verify the system described in (Figure 1: Causal Loop Diagram of Mediation System).   From a systems thinking perspective, the structure of a system determines behavior, not the other way around (Senge, 1990) .  In the initial stages of a commercial mediation, the desire to win feedback loop is primarily responsible for model behavior and over some time interval remains the dominant loop.  The shift to a Willing to Mediate dominated loop requires a reduction in the desire to win, an increased focus on the parties’ true business priorities and an increased trust in the mediation process. 

Next Level Mediation’s scientific approach encourages clients to refocus their mediation strategy through a clearer understanding of their own emotional intensity and how it may be clouding business judgment.  This is accomplished by applying a decision methodology known as AHP (Analytical Hierarchical Process) at various stages of the process( Figure 2: Next Level Mediation Process). 

Next Level Mediation Patent Pending Process

Figure 2:Next Level Mediation Process

 

The AHP Process is based on the well-defined mathematical structure of reciprocal consistent matrices and their associated right-eigenvector’s ability to generate true or approximate weights (Saaty, 1980)

Rather than have opposing parties vent and legally joust in a setting allocated for opening statements, Next Level Mediation prefers to begin mediation with each party already in caucus where the mediator can confidentially assist each party in weighing their emotional responses.  This process involves asking each party to judge the following value tree criteria with pairwise comparison: Improve my economic recovery vs minimize my legal fees vs minimize time spent on the process vs increase cost to the opposing side vs punish the opposing side.  From the judgment matrix created by the comparisons, Next Level Mediation calculates an emotional quotient to understand which demands are emotionally driven and which demands are driven by business logic. 

By comparing the results to an additional judgement matrix of business priorities, Next Level Mediation can determine the most optimum starting point for the negotiation – thus keeping the focus on optimizing business results for both parties.  While the Next Level Mediation process has many similarities to a standard Mediation process there are also significant differences (Figure 3: Comparison of NLM Process to a Standard Mediation Process)

 

 

Figure 3: Comparison of NLM Process to a Standard Mediation Process


 

Conclusion

In a world occupied with an accelerating number of conflicts, there is an increasing need for effective neutral parties to help mediate disputes.  While there have been advances in formal training, the tools available to mediators to address the increasing complexity and nature of commercial transactional disputes has remained stagnant.   The present focus on mediation training and education fails to adequately address the complex systems that are inherent in modern business litigation.  Most negotiations between two parties involved in complex mediation tend to be inefficient because they fail to identify win-win or Pareto efficient alternatives. This situation exists because the parties involved in the negotiation value issues differently. Next Level Mediation’s Decision Science-based methodology provides for more accurate client feedback that is critical to informed decision making.  

 

Endnotes

III, D. E. (2013). Rethinking Legal Globalization: The Case of Transnational Personal Jurisdiction. William and Mary Law Review, Vol 54:1489.

Justice, L. f. (2010). Litigation Cost Survey of Major Companies. 2010 Conference on Civil Litigation.

Okyle, C. (2016). Nearly Half of U.S. Small Businesses Still Don't Have a Website. https://www.entrepreneur.com.

Saaty, T. (1980). The Analytic Hierarchy Process. New York: McGraw-Hill.

Senge, P. M. (1990). The Fifth Discipline: The Art and Practice of the Learning Organization. New York City: Doubleday.

 

 

  

Biography



Robert Bergman with Next Level Mediation provides full mediation services - including proprietary and confidential Decision Science (DS) analysis that assists each party in understanding their true litigation priorities as aligned with their business objectives. Each party receives a one-time user license to access our exclusive DS Application Cloud. We provide each party with a complimentary electronic copy of the DS Report.

A total of 45 years of experience in decision sciences, software engineering, business strategy simulation, defense, Scenario Planning, System Dynamics Modeling and market research. My background and years of experience of applying quantitative decision methodologies to improve international standards negotiations and strategic business decisions, brings a unique perspective to the mediation of business to business disputes


Jonathan Ewing works at Next Level Mediation. He specializes in Aviation, Commercial, and IP disputes.