A Mediator’s Proposal – Whether, When, and How It Should Be Used

As most mediators know, a mediator’s proposal is a settlement proposal that the mediator makes to all parties, and each party is requested to accept or reject it, on the exact terms proposed, in a confidential communication to the mediator. It calls for either an unconditional “yes” or “no” response, without modification, and the mediator is not permitted to disclose the responses that he or she receives unless both responses are “yes.” Thus, if one party says “yes” and the other party says “no,” the one who said “yes” will not be prejudiced if settlement negotiations (or subsequent mediations) occur at a later stage of the litigation.

In this article I will assume that the dispute that is the subject of the mediation is ostensibly a money dispute that is either in litigation or, if not settled in the mediation, would proceed to litigation (or arbitration), and that all parties are represented by counsel. The reason I say that the dispute is ostensibly about money is that, in almost all cases, including the money cases, there is an emotional component. That is why, as noted below, it is important for the mediator to permit the parties to vent their feelings (usually anger at their adversary), and for the mediator to validate those feelings, whether or not the mediator considers those feelings rational, before beginning the risk analysis and reality testing phase of the mediation. For simplicity, I will assume that there are only two parties and one dispute (which could involve more than one issue), but a mediator’s proposal can also work when there are multiple parties and multiple disputes.

When Should a Mediator’s Proposal Be Used?

A mediator’s proposal should be used only as an “end-game,” i.e., only after all other attempts to avoid impasse have failed. Before considering the use of a mediator’s proposal, the mediator should first avoid making what I consider the ten mistakes that even good mediators may make. My list of those 10 mistakes is:

1. Failing to get the right persons at the table.

2. Failing to explain the mediator’s role as “agent of reality.”

3. Permitting settlement negotiations to begin prematurely – i.e.,

a. prior to permitting the parties to vent; and

b. prior to risk analysis and reality testing.

4. Failing to orchestrate the negotiations:

a. by discouraging “out of the ballpark” offers or demands; and

b. by discouraging moves that send the wrong signal.

5. Failing to recognize that unrealistic expectations must be lowered gradually.

6. Being evaluative (a) too early or (b) in a joint session.

7. Failing to suggest ways to avoid reactive devaluation of sensible settlement proposals from the adversary.

8. Believing “bottom line” offers or demands.

9. Failing to “test the waters” before making a mediator’s proposal.

10. Being impatient or failing to be persistent or giving up prematurely.

Although a full discussion of these 10 mistakes is beyond the scope of this article, some of these mistakes will be referred to below.

It is important to emphasize that every other possible impasse breaking technique should be used by the mediator before resorting to a mediator’s proposal, including attempting to narrow the gap by using the conditional offer technique. For example, by asking the defendant in caucus, “If I could convince the plaintiff to reduce its demand to $X, would you be willing to increase your offer to $Y?” Conversely, in a caucus with plaintiff, you can ask “If I could convince the defendant to come up to $Y, would you be willing to come down to $X?” Even if the mediator knows from a confidential caucus communication that a party is willing to come down to $X or up to $Y, an offer that a party perceives that its adversary needs to be convinced to make may have a greater psychic value to the other party than if that offer was freely given by the adversary.

The longer the negotiation process continues, the easier it becomes to close the gap and help the parties reach agreement without the need to resort to a mediator’s proposal. That is because the more time that the parties have invested in the mediation process, the more they are motivated to have it succeed rather than fail. In cases where the definitive settlement agreement is likely to have contentious issues (e.g., provisions relating to confidentiality, non-competition and non-disparagement, and provisions for liquidated damage or other remedies if those provisions are breached), it may make sense to suggest that the parties first try to agree on the terms of the definitive settlement agreement, leaving the dollar amount blank for later negotiation. Once the parties have agreed on the terms of the definitive settlement agreement, the likelihood of reaching agreement on the dollars increases because the parties are more motivated to avoid a failed mediation in which they have already invested the time to agree on the non-monetary issues.

The above represents only the first of the 8 topics contained in Mr. Hochman’s article.  The other 7 topics are:

When Should a Mediator’s Proposal Not Be Used?
What Are the Possible Disadvantages of Making a Mediator’s Proposal?
How Should the Mediator Prepare the Parties For a Mediator’s Proposal?
What Criteria Should the Mediator Use in Formulating a Mediator’s Proposal?
What Are the Advantages of a Mediator’s Proposal?
Is There Anything a Mediator Can Do If Only One Party Accepts the Mediator’s Proposal?
How Should the Parties Be Instructed to Respond to a Mediator’s Proposal?

Click here to view a copy of the entire article in PDF format that answers these questions

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Stephen A. Hochman

Stephen A. Hochman recently retired from the New York City law firm of Friedman, Wittenstein & Hochman, where he practiced from 1987 – 2006, first as a partner and later as counsel.  He was a founding partner in the firm now known as Kramer, Levin, Naftalis  & Frankel, where he… MORE >

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