When a Deal is Not Equal


by Diana Mercer

July 2013

Diana  Mercer

We had this situation come up recently.  It doesn’t come up often, but it certainly comes up from time to time. 

What do you, as the mediator, do when a deal isn’t equal?  And not just sort of unequal, but big bucks unequal?  And you know your clients aren’t talking to attorneys.  What’s your role and what’s your responsibility?

I’m not pretending to know all the answers. But when this comes up at Peace Talks, we handle it in a very straightforward way, even though the client with the better end of the deal typically objects very loudly.

Please tell me what you would have done in the comment box below!  I’m really interested to hear everyone’s take on the situation. 

I know that some of this is a style issue.  I know there are mediators who don’t talk about the law in their sessions, and I know that that the “no law talk” style can be equally successful in resolving cases as our more middle of the road style.  So this essay is not a comment on mediator approaches.

Here’s my take:  Why It’s In YOUR Best Interests for Your Mediator to Explain Things Fully to Your Spouse (Even Things You Don’t Want Him or Her to Know)

A client called the other day complaining that his bill included time we spent explaining to his wife why signing the agreement they negotiated was a bad idea.

He shouldn’t have to pay for our explanation of why she shouldn’t do the deal he talked her into, should he? I know that some of this grousing is just that our mediation clients are very nice people who are having a really, really bad day. But he got me to thinking.

A few years back we had another set of clients where the husband wanted to waive spousal support (alimony) and the wife made $1million a year.  We insisted on running the California Guidelines for Spousal Support computer program and discussing the California spousal support statute even though the wife threatened to walk out of the mediation.  She felt a lot more comfortable with her husband being in the dark about what he might be entitled to claim for support (In LA, negotiations would’ve started at about $30,000 per month!).

Here’s why it’s actually better for the spouse receiving more than it was for the spouse receiving less that we explained everyone’s legal rights fully.  Counter-intuitive, I know.

Note: in last week’s example it’s is a husband receiving 60% of the assets and the wife receiving 40% of the assets, and in the older example it’s the husband waiving spousal support, so although I’ve used “him” and “her” references because last week’s case is fresh in my mind, it happens just as often the other way around.

An early criticism of mediation was that mediators would gloss over tough issues to reach agreements quickly and to go around bragging that they have a 100% settlement rate.

The main problem with this approach is that as soon as the spouse who gave up too much has a chance to think about it and talk to some friends….or an attorney, or an accountant…he or she will not sign the agreement as negotiated.

Or, if the agreement has already been signed, he or she will hire an attorney and try to re-open the case.  If there’s anything worse than getting divorced once, it’s doing it twice in the same case!

If we kept the spouse in the dark about what he or she is giving up as part of the mediation process, here’s a partial list of criteria her expensive litigation attorney would use to get the case re-opened:

  • She was feeling guilty about the situation and signed in haste
  • Her husband muscled her into signing the agreement
  • She’s not financially sophisticated and her husband and their mutual financial advisor (who took the husband’s side) talked her into a deal she didn’t understand but since she trusted both of them she just went ahead and signed
  • She didn’t consult with an attorney during the divorce
  • She relied on the mediators to inform her of her rights and the mediators didn’t do so (for whatever reason)
  • She signed the agreement under duress
  • She signed the agreement because the husband and financial advisor said to, and since it wasn’t a 50/50 agreement as provided under California law, they both violated their fiduciary duty to her

 

Do you think the Judge would re-open the case? I do.

I think the Judge might also refer the financial advisor’s breach of fiduciary duty to the wife to the advisor’s licensing board…and I think that financial advisor could be in real trouble. Big trouble.

So while the mediators at Peace Talks were stirring the pot by making sure both parties (and that financial advisor) understood how California Community Property laws work and the math behind those laws as it pertains to their individual case, the mediators were also protecting both parties and the financial advisor.

The way the Peace Talks mediators resolved the case was to create a community property division spreadsheet showing how California Community Property laws would have divided the parties’ property and contrasted it with the deal that the financial advisor had brokered and talked the wife into signing.

The Peace Talks spreadsheet showed a 50/50 division. The financial advisor’s deal was more like 37% to the wife and 63% to the husband.

We asked the wife to sign a copy of the memo showing the two spreadsheets along with a sentence “A copy of this spreadsheet was provided to me via email on [date]. I acknowledge receiving a copy of this, I’ve read it, and I understand it.”

Simple enough.

So while that doesn’t necessarily get rid of the “duress” or “I trusted my husband and our mutual financial advisor and they violated their fiduciary duty” arguments if wife has second thoughts and wants to re-open the case, but I think it provides protection against some of the strongest arguments for re-opening the case:

  • She relied on the mediators to inform her of her rights and the mediators didn’t do so (for whatever reason)
  • She signed an agreement that she didn’t understand

 

So I’m really sorry that I had to charge for that time. Trust me, I didn’t appreciate having to work on this at 11 pm on Easter so he could get his Judgment signed to accommodate their travel plans.  I also woke up with nightmares about “does the wife understand what she’s doing?”  There was no charge for that, at least.

But it’s really in YOUR best interests that your spouse understands what her rights would have been under the law.  We were protecting you when we had your spouse sign that document that the difference in the math was understood and that she was agreeing to a less than 50% split.

What do you think? What would you have done if you were the mediator in this case?



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Biography




Diana Mercer, Esq. is an Attorney-Mediator and the founder of Peace Talks Mediation Services in Los Angeles, California ( www.peace-talks.com ). A veteran litigator, she now devotes her practice solely to mediation. Outgoing and down-to-earth, she makes clients and attorneys feel at ease in solving family law disputes, divorces, custody, premarital agreements and estate planning conflicts. She is the co-author of Making Divorce Work: 8 Essential Keys to Resolving Conflict and Rebuilding Your Life (Penguin/Perigee 2010) www.makingdivorcework.com/buybook.html and Your Divorce Advisor (Simon & Schuster/Fireside 2001) and writes for the Huffington Post www.huffingtonpost.com/diana-mercer as well as her own blog Making Divorce Work makingdivorceworkblog.com. She is the co-author of Your Divorce Advisor: A Lawyer and a Psychologist Guide You Through the Legal and Emotional Landscape of Divorce (Fireside 2001). She's an Advanced Practitioner Member of the Association for Conflict Resolution (ACR) and is admitted to practice law in California, New York, Connecticut, Pennsylvania and before the Supreme Court of the United States.



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Website: www.peace-talks.com

Additional articles by Diana Mercer



Comments



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 Rina Goodman,   Seattle WA  rina@transformingconflictllc.com      07/25/13 
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There are many reasons why parties will agree to settlements that, to our way of thinking, are not perfectly balanced. In client-centered mediation, which is the form of mediation that I adhere to, I believe that my role is to help my clients achieve the outcome that they, after being fully informed of the financial and legal implications, believe reflects their values and understandings and is most fair in their eyes. On the other hand, I do tell my clients at the beginning-- at sometimes intermittently-- that in instances where there is a huge discrepancy between them with respect to their final agreement, I will check-in to insure that it is fully-informed, not coerced, and not made with the wish to "just get it over with." I will raise my concern with the party who is more favored by that settlement to find out if there is flexibility. I also will carefully explore the reasons behind the agreement and check to see if both parties are informed about their legal rights and obligations, as well as the way in which the agreement will impact each of them. Finally, I require my clients to have the Property Settlement Agreement reviewed by attorneys. While I don't wish to be an instrument of gross unfairness, I don't wish to undermine the free will of informed clients.
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 Andrea ,   Boise    07/25/13 
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Thanks for the informative article. As an attorney and a new mediator, I always struggle with when am I crossing the line and providing legal advice? It seems that explaining contractual terms or the law ought to be okay, especially when the bargaining power is so clearly mismatched. However, I'm not sure. Thoughts?
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 Diana Mercer,   Play CA  diana1159@aol.com      07/24/13 
 Thanks for the feedback! 
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Thanks for all the thoughtful comments!
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 Naomi  ,   Los Angeles CA    07/24/13 
 When a Deal is no Equal 
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Diana,I agree 100% with your methodology. In fact, I would go so far as to say that your actions are best practices and ALL attorney mediators should do what you do. Even though I don't know your specific model or processes for your particular mediation firm, I do know that you are still an ESQ.I think that your practices are in the highest conformity of the mediation rules AND the ethics rules promulgated by the state bar.As to the Mediation Best Practices: One of the hallmarks of true mediation is Transparency. You are doing your job as a mediator by providing transparency.The only exception that comes to mind is parties with evidence of domestic violence or major unhealthy control/power issues. Other than that, there is nothing to fear by being transparent.Why? Because another hallmark of mediation is Empowerment. TRANSPARENCY lifts the fog which leads to the shining sun of EMPOWERMENT. So long as the parties make a decision from a place of having all the facts, you have done your job. So while it still may feel inequitable for you, that feeling is what transformative mediation calls "your own personal directive". Recognize it and move on.In fact, having naively chosen to be a mediator long before I was a lawyer, I have pondered the ethics of the two industries for more than a decade. So here is another opinion of mine as to the legal perspective; if an attorney/mediator does not do what you do, they could be liable for legal malpractice now or at some point in the future. While the state bar occasionally issues legal ethics opinions pertaining to the intersection of lawyers-mediators, the fact remains that we are bound by two sets of rules. The PR/B&P rules as a lawyer, and the mediation code of ethics and related rules. They sometimes conflict. But as of today, there is no agency in the mediation sector that has "teeth" to enforce violations of mediation rules. As of today, the state bar does have the power to take away our license or punish us for violating our ethical rules.Therefore, mediators that are also attorneys need to be be very very careful in their dealings with parties. While mediation may still be the wild west, lawyer/mediators are already caged and penned. So we need to move with extra care.You are clearly and unequivocally following the Professional Rules of Responsibility by your actions. Even though we do not provide advice and we do not "represent" both parties, or even one party, we should still adhere strictly to the ethics rules of lawyers. EVEN IF we do not consider what we do the practice of law. Why? Because the reality is this: the state bar has left this area grey and uncertain. They have the power to decide, at any time, that they want to re-define the duties and responsibilities of lawyer/mediators. In summary my opinion is two fold: 1) your actions are best practices for a mediator; and2) your actions are best practices for a lawyer.If parties give you a hard time about this then review your retainer agreement or opening statement and try to add or adjust information to manage party expectations a bit differently.
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 Miriam Zimmerman,   San Mateo CA  mlz.dmg@gmail.com      07/23/13 
 When a Deal is not Equal 
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Although my partner is licensed as both a CPA and as an attorney, of course he cannot give advice to our divorcing clients. As part of our process, and we explain it clearly both orally and in our written Mediation Contract each has to sign, we require attorney consultations prior to the parties' signing their agreement. We explain that we do not want either of them to think later that they may have given up too much by having been in mediation. They may consult with an attorney at anytime, but before we let them sign the final MSA (Marital Settlement Agreement), separate consulting attorneys have to explain the document to each. This requirement precludes the situation described above. The attorney has to sign a short form confirming that the client understands the content of the MSA. The attorney signature pages (one from each client) are attached to the Judgment.
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