What To Expect In A Mediation And How To Avoid Costly Mistakes

What to Expect in a Business Mediation and How to Avoid Costly Mistakes

This post started as an email. We were preparing to mediate a large cross-border litigation matter for a Vietnamese client. The case had many moving parts: complex international legal issues, multiple parties, and a lot at stake.

I wrote a detailed briefing for our client to help them navigate the day. The case resolved before the actual mediation, but the advice holds up. This post is that briefing, in blog form.

Mediation Is Not a Business Meeting

Most businesspeople walk into mediation thinking it will feel like a normal negotiation. It will not.

Mediation is a structured negotiation run by a neutral mediator with one job: settle the case. If you treat it like an ordinary business meeting, you can give away leverage without realizing it and end up paying more than you should (or accepting less than you should).

Before publishing this, we ran it by several experienced mediators. A few were not thrilled to see parts of their playbook described so plainly, but they generally agreed the guidance below is consistent with how mediations actually work.

What Is the Purpose of Mediation?

A mediation is a structured meeting to determine whether a case can settle without more litigation.

It is not a trial. No one rules on who is right or wrong. The mediator is not a judge.

The mediator pushes both parties toward agreement by testing each side's position until both sides move. That is their job. Everything else flows from that.

A mediator cannot force anyone to do anything. But a good mediator can persuade, pressure, and use reputation and credibility to move both sides toward settlement.

Choosing the Right Mediator

I am a huge fan of mediation, but only in front of a truly excellent mediator.

Mediations take serious preparation and usually consume an entire day. They are expensive. Great mediators settle cases that neither side thinks can settle. Mediocre mediators tend to waste everyone's time. Great mediators almost always cost more than mediocre ones, and they are almost always worth it. Saving $2,500 and then spending an additional $75,000 to get to trial is not saving money. It is losing $72,500.

It is not only important to choose an excellent mediator. It is important to choose the right mediator for your case and for the dynamics of the dispute.

One mediator I often use is a pitbull. He is smart, tough, and relentless.

An hour in, he's a pitbull who has bitten into your leg. He won't let go until the case settles—even if it takes until 10 p.m. He is not warm. He is not emotional. He sorts through complicated cases methodically and then squeezes both sides until something gives. He will not suggest a lunch break if he thinks hunger will help close the gap between the parties. If your case needs hard pressure to settle, he is outstanding.

Another mediator I love was a highly respected judge for about 30 years. He is excellent at persuading parties what will happen if they go to trial, and he is equally good at showing each side that they are overestimating their strengths and underestimating their weaknesses. He has seen more trials than most lawyers ever will, and ignoring his judgment is risky. He is also genuinely kind and particularly good at resolving emotional cases. I have never had a client who did not like him.

He has a way of saying something like this: "I understand why you are angry. I understand why you want your day in court. But I have been with you for six hours and I can see how much your business matters to you. It is clear to me that you have better things to do than spend the next year spending time and money preparing for trial, then spending three weeks living in a courtroom. If we can reach a reasonable settlement today, will you welcome getting your life back?"

That approach settles the kinds of cases that brute force does not.

How Does Business Mediation Work?

Many mediations now take place by video conference. Years ago, they were almost always in person.

Most mediations start with everyone in one room (or one virtual room) while the mediator explains the ground rules. After that, the mediation moves into separate breakout rooms. Each side stays in its own room. The mediator moves back and forth for the rest of the day.

The mediator will take your strongest points, strip out the emotion, and deliver them in a way the other side can hear. When they come back to you, they do the same in reverse. Keep this in mind every time the mediator enters your room.

One practical point before the day begins: the person with authority to settle must be present or immediately reachable for the entire mediation. Not "available in principle" while multitasking through other meetings. If that person is not you, make sure they have cleared their calendar. A mediation where the decision maker cannot be reached when a number is on the table is a wasted day for everyone.

What Does the Mediator Actually Do?

The mediator is not your advocate and is not there to protect you. Your lawyer is your protection.

I always tell my clients this: a win for the mediator is a settlement. Any settlement. That settlement might be for $10 million, or it might be for $10,000. Either way, it is a win for the mediator. That means the mediator will push the plaintiff to accept $10,000 and push the defendant to pay $10 million. The mediator's goal is a number, any number, in the middle.

Expect pressure to settle. At some point the mediator will walk into your room and deliver what litigators call the "parade of horribles." This is a methodical walk-through of everything that could go wrong at trial: the weak witness, the unavailable witness, the damaging document, the unpredictable jury, the hostile judge, the months of additional fees. The point is to unsettle you. It usually works.

When I was a young lawyer, I once convinced a mediocre state court judge to rule in my client's favor without a trial. Opposing counsel was a friend. As we were drafting the judge's order, he whispered, "See you in the court of appeals."

He appealed, and we agreed to mediate.

I went into the mediation cocky. We had "already won," and I figured our chances on appeal were good.

The mediator was a retired judge I respected. He told me, "Dan, you did a great job with that trial judge. An incredible job. You should be proud."

I was thinking: I am.

Then he said, "But I assume you've researched this judge's record on appeal, and you know her decisions are often overturned. This decision will likely be overturned too, no matter how well you argue. When that happens a year or two from now, your client starts over. Even if you have better than a 50 percent chance of winning, you are not seeing a judgment for at least two years, likely three. Your ruling is valuable right now because it gives you leverage to settle. If you walk out of here without a settlement, the value of your case will drop fast."

The case had its greatest settlement value in that room, on that day.

We settled. Late. Around 8 p.m.

Whatever the mediator does, do not take it personally and do not let it rattle you. The mediator is doing the same thing to the other side in the next room. This is not misconduct. It is how mediators create movement. Their job is to push. Your job is to think clearly and make good decisions.

How to Act When the Mediator Is in the Room

Mediation should be strategic. Words, tone, and reactions matter.

The single most important rule: do not say or do anything that signals you are willing to pay more money (or accept less money) while the mediator is in the room. Not as a joke. Not as a hypothetical. Not with body language.

I often tell clients to look "unreasonable" early.

If you are suing for $5 million and the other side opens by offering $7 million, do not look pleased. Act indifferent. Stick to the plan. Say you cannot imagine taking less than $15 million. Do this even if you know the odds of ever getting more than $10 million are low.

The mediator does not expect a non-lawyer to have a precise sense of merits and odds. The mediator does expect the lawyers to understand them.

In real life, that often means I will tell the mediator something like: I understand the odds of getting $10 million are not better than 50-50. But my client makes the decision today, and they are not persuaded of that.

Why do I do this? Because it can scare the other side, and because constant toughness throughout the entire mediation is often what moves the numbers. If the other side smells weakness early, it will pounce.

Also, remember that normal business signals can be poison in a mediation. In a boardroom, nodding shows you are listening. In a mediation, a nod can be interpreted as movement. Smiling when a number is mentioned, looking relieved, saying "that's not unreasonable," or "we just want this over" are all leaks. An experienced mediator will use those leaks to push the settlement number against you. Keep a neutral face until the mediator leaves. Then you can celebrate privately.

I once mediated against a large Texas company. We represented the plaintiff. An ocean-going vessel broke down due to fault of the Texas company, and my client suffered millions in damages. We sued for millions.

But there was a major issue: international maritime law would not allow us to recover anything close to what we had demanded in our complaint.

Opposing counsel was a Texas lawyer who almost certainly had never handled an international maritime case. He proved it with his opening offer: $1 million at about 9 a.m.

This was a terrific opening offer, because it was better than anything we could hope to get at trial. But we acted completely indifferently when given this terrific opening offer, and we stayed tough all day. By 6 p.m. we had pushed the number up significantly. My client then suggested we should walk and see if they offered more later.

I told my client: if we walk out, the next thing they will do is hire Seattle counsel (where our case was pending) who knows international maritime law. That lawyer will learn that our real ceiling is less than $1 million, file the right motion, and likely win it. We need to settle today.

We did. And it was an excellent result.

The point is discipline. We never revealed how happy we were with the early offer. We held our line, and we made the deal better.

How to Answer Money Questions

If the mediator asks you a direct question about money, your answer is simple: "I need to speak with my lawyers first." Then do exactly that. Wait until the mediator leaves the room, confer privately with counsel, and decide what message goes back.

If the mediator asks, "Could you go to $850,000 to settle this?" the wrong answers are "maybe," "possibly," or "if they come down." The right answer is to say, neutrally: "I need to speak with my lawyers first."

I have seen clients do this hundreds of times. No competent mediator pushes back.

Why Is There So Much Waiting?

One of the biggest surprises for clients is how much waiting there is. There will be long stretches of silence, sometimes hours.

This is normal. It does not mean the deal is dead. It usually means the mediator is spending time with the other side. Plan for it. Bring work, bring a book, have something to do so the waiting does not get in your head.

What Does Mediation Confidentiality Actually Mean?

Mediation is confidential, but many clients misunderstand what that means in practice.

Confidential generally means your statements in mediation are not supposed to be used later in court the way testimony would be. It does not mean the things you say have no consequences inside the mediation itself.

The mediator will use what you say to shape the negotiation and to pressure both sides to move. Assume that your urgency to settle, or your fear of trial, will be handed to the other side.

Confidential does not mean consequence-free.

Do You Have to Settle?

No. You always have the right to say no and walk away. If a deal is not reached, the case continues.

No settlement is better than a bad settlement. Walking away makes sense if the other side is far outside any number you have authorized, if you need internal approval before going further, or if something new surfaces that needs careful review.

Sometimes the best outcome of a mediation is learning what the other side will and will not do, then using that information to plan the next stage of litigation.

What Happens When a Deal Is Reached?

If both sides reach agreement, mediation often ends with a short written document signed that day: usually a term sheet or mediation agreement, followed later by a longer formal settlement agreement.

This final stage is the most dangerous part of the day. By 7 p.m., everyone is tired and wants to go home. That is exactly when vague language slips into settlement documents. A clause that feels "close enough" at the end of a long day can become a serious dispute six months later.

Do not sign just to end the day. If a term is ambiguous or feels wrong, say so and spend the extra time to fix it. Late-day fatigue is cheap. Re-litigating an unclear settlement is not. I always plan for the signing process to take at least another hour. I often use that phase to get food so I am not negotiating complicated terms while tired and hungry.

Read the release language with special care. "We settle this dispute" and "we release each other from all claims" are very different things. Term sheets drafted in haste often include the broader language when clients believe they are only resolving the lawsuit at hand. A broad mutual release can extinguish claims you did not know you had, including claims tied to the same business relationship but unrelated to the dispute being mediated. Equally dangerous: signing away more than you intended and discovering months later that the other party disagrees about what was resolved.

I once negotiated against an insurance company in a complicated case. We reached agreement and were handed a pre-drafted settlement contract, which was unusual. The case wasn't about insurance, but the settlement terms were. I am not a coverage specialist, so I called a friend who is.

He explained that the proposed agreement was a trap, but also that the people in the room likely did not understand what the language actually did. He told me to change a few words that would look harmless to the other side, sign it, and then file a new lawsuit a few days later.

I followed his instructions. We signed our revised version, and a few days later, we filed the new lawsuit. The insurance company was furious. I suggested we mediate again, before the same mediator.

Before that second mediation, I told my client not to expect a great result. There was only so much money we could possibly collect, and trial would be expensive. Our plan was to push as high as we reasonably could and then settle. That is what we did. After a long day, we settled for an additional amount close to six figures. This was "found money" that my client got by refusing to sign the first agreement and convincing the opposing side to sign the second.

The Bottom Line

Mediation is often the most efficient way to end a dispute, but it rewards discipline.

The mediator's job is to drive a settlement. Your job is to avoid giving away leverage while your lawyers negotiate the best deal possible.

If you remember only one thing, remember that when the mediator is in the room, keep a neutral face. Let the mediator wonder where your ceiling or floor is. Step back, speak privately with your lawyers, and move deliberately. That discipline is the difference between a settlement you can live with and a mistake you'll regret.

What to Expect in a Mediation and How to Avoid Costly Mistakes

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.