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Destination Resolution: Find the Right Mediator for you.

When a dispute between a credit manager and a borrower goes full steam ahead with no light of resolution at the end of the tunnel, the parties don't always have to take the litigation route. There are other types of alternative dispute resolutions (ADR) to try, some of which are more appropriate than others and depend on the case. There's arbitration, where the plaintiff and the defendant bring their case outside of the courtroom in a private forum before a third-party arbitrator or panel of arbitrators, who will then hear both sides and make a decision. Then, there's the emerging ADR trend that first made its appearance about only a half century ago: mediation.

The process of mediation differs from arbitration in that a mediator will not decide the claim or make a ruling, said Karen Mart, Esq., a partner at Bell Nunnally & Martin LLP in Dallas, TX. Hart, a frequent presenter at NACM events, said that while the mediator is a third party, he or she is one who must remain neutral throughout the mediation and work with both parties to facilitate a resolution.

Whether a judge requires parties to board the mediation train lo destination resolution or the parties "buy their own boarding passes," there are a few key principles for credit managers to follow when selecting the right mediator and participating in the mediation.

First Stop: Experience

Prior to climbing aboard mediation, it's crucial that the mediator has experience with the type of industry contracts that make up the case. During one of her recent cases, Hart said a mediator was going to be used early, prior to litigation, in an effort to bypass going to court, but she and her clients needed to find someone who was knowledgeable about the oil and gas industry.

"We happened to be in Houston for this one [case], so we wanted someone who was familiar with Harris County judges and juries," she said. "... If you have a construction dispute, you may want to use someone who is familiar with the construction industry and construction contracts. They'll have a little bit of a running start versus having to educate someone who comes from a totally different area."

In a separate yet similar case, Hart said, the court ordered the parties to mediation on three separate occasions--the first two attempts were unsuccessful, despite both parties' hopes to avoid heavy-duty litigation and resolve the dispute.

During the first two go-rounds, mediation was attempted before litigation and then again during litigation. Hart said "emotions ran high" between the parties during these attempts; however, mediation proved successful when the parties selected a mediator who was both familiar with the oil, gas and construction industries as well as that specific Texas locale.

The mediator explained to each party how the trial would "play out" in front of a judge and/or jury from the area should the case go to trial, she explained. This particular mediator had a "pretty strong personality," which came in handy when the parties were miles away from reaching resolution. It was this mediation where Hart said she saw personality and industry and regional knowledge intersect--a concoction for a good mediator.

While reviewing a mediator's experience, each party should also decide who from the company will participate in the mediation process, i.e., whether the credit manager will be involved and how well the personalities of those involved will mix with the mediators style. Will the credit manager or company executive butt heads with the mediator if the latter has a strong disposition and tells it like it is?

"Or do you need someone who is going to be able to bring your client around?" Hart said. "You've got to get to know who the mediators are and to do that, you've got to talk to your attorney and colleagues in the industry and in the city in which you're going to be mediating."

Next Stop: True Neutrality

Unfortunately, there is no one-stop-shop of a resource to help you find the perfect mediator, said Bill Russell, an NACM Graduate School of Credit and Financial Management (GSCFM) instructor. Therefore, credit managers must engage in a thorough research process during their search. A simple Google search might lead you to those who specialize in what you're looking for, perhaps the attorney's website, where former clients write reviews. On the other hand, you should also talk to people who have used mediators time and time again.

"That's often legal counsel," said Russell, a former attorney. "The largest body of information about mediators resides with lawyers in the community.... If you've got an attorney involved, either in-house or outside counsel, and particularly if they've got an attorney on the other side, they will all have favorites."

A simple analysis of a mediator's record or previous and current clientele can help credit managers, for example, learn if the mediator is "borrower friendly," he explained. Talking with fellow trade creditors, especially those who belong to larger credit management departments, who've used mediation might also provide insight into a mediator's background and whether they're "truly neutral" and effective in helping settle a dispute.

Russell and Hart agreed that conflicts of interest can be problematic if, for instance, the mediator personally knows one of the parties, represents a parent company or if there's a business issue versus an actual legal conflict. Credit managers and their counsel should try to discover any "would-be surprises" with mediator conflicts prior to engaging a mediator and prior to any mediation session to avoid any bumps in the road.

Sometimes, attorneys also work as mediators outside of their law practices. This isn't necessarily a red flag, but it is something that NACM member Thomas Fawkes, Esq., a partner at Goldstein & McClintock LLLP in Chicago, IL, said would mostly likely benefit your party; that is, if the attorney's firm is solely dedicated to mediation.

"However, if you're looking for somebody who is going to be pragmatic and really understands the business issues that your client is dealing with, you may want to go with someone who mediates as a side practice and has an active law practice because they're dealing with the same types of issues you're dealing with for their client," Fawkes said. "They're going to understand the pragmatic business solutions to get to a settlement."

Furthermore, Fawkes noted that law-intensive cases, where interpretations of particular statutes and legal issues directly impact the outcome, might be better suited for a former judge who now practices mediation. After all, he or she has most likely presided over dozens of cases that featured said specific legal issues, Fawkes said, and might be more familiar with the mediation process.

It must be understood that, overall, mediation is relatively risk free, Russell added. On occasion, information will come to light about a mediator that causes concern for one or both parties. When this happens, Russell said a party can easily "throw up its hands" and say this particular mediator or ADR isn't going to work out.

"If I get into a mediation and I find the mediator is really weighted against me, I would stop everything and say, 'I'm willing to do this, but not with this person. Let's go find another mediator,'" he said.

Final Stop: A Not-So-Costly Endeavor

If you've ever needed legal service, one of the questions you probably asked yourself was, "So, how much is this going to cost?" As with any kind of service, cost plays a significant role in who you hire, which is also directly followed by a secondary question: "How long am I going to need their services?"

Time is money.

Time is money. When it comes to ADR, Hart says judges push for mediation because it saves time, judicial resources and money for everyone involved, if the case can be settled. It is, at the very least, worth a shot if a costly trial can be avoided and a successful settlement result can be achieved. Typically, mediators will charge half-day or full-day rates; however, Hart said, some mediators might charge on an hourly basis for smaller cases.

"When we're vetting potentials and we're narrowing it down to a couple of [mediators], you have to find out who has availability," she continued. "What timeframe do you have? Are you about ready to go to trial in a week? Do you have a big hearing coming up and you're trying to get the case set for mediation before the hearing to maximize your leverage?"

Credit managers have the greatest advantage when participating in mediation because they're the ones who know the case best.

In Fawkes' courtroom experience, the sought-after costs in the dispute should be considered when weighing litigation versus mediation. To explain, Fawkes used a hypothetical example of a credit manager who has a $100,000 receivable that hasn't been paid.

A client walks into his office and asks, "Should I file suit to try to collect this $100,000?" From his point of view, Fawkes tells the client that it is a tough call because the litigation process could very well end up costing the same amount should the plaintiff see it through to the end. Despite this possibility, Fawkes said he might advise his client to move forward with the suit only if mediation is an option early on in the process.

What matters is that there is a good, clear line of communication between the parties and the mediator.

But don't get too excited just yet if you're a credit manager, said Russell. If you're already in litigation, credit managers won't be making the final decision as to whether the plaintiff will accept the terms of mediation. Instead, he said, it'll most likely be the insurance company or counsel for the company who is "calling those shots."

Destination: A Creditor's involvement and Resolution

As briefly mentioned, credit managers might not be involved in the selection process of a mediator. But, that's not to say they aren't involved in the process either before or after the mediator has been selected. NACM member Scott Blakeley, Esq., a partner at Blakeley LLP in Irvine, CA, said credit teams might be involved even before mediation becomes reality due to their role in the development and interpretation of credit applications.

Before this particular legal proceeding begins, credit managers typically already have one foot in the door in terms of trying to limit the probability of a customer dispute. Within the terms and conditions of their credit applications, Blakeley said, there often lies a provision about mediation or arbitration. When a party decides mediation is the best option to resolve a dispute, the credit application will most likely become a topic of conversation with the mediator.

"If the credit team has been successful in using those terms and conditions to limit the dispute only to an ability to pay, then the mediator is going to look to a representative of the supplier who has knowledge regarding the account. That commonly is the credit professional," Blakeley said in his example. "They would be responsible for testing how the receivable was created, any disputes that may have been raised surrounding that receivable and then the documents to support their right for payment."

The creditor might not only provide sufficient documents to the mediator, but chances are that he or she will attend the mediation discussions on behalf of or with the supplier to answer any questions the mediator might ask in regards to credit. Blakeley described a credit manager as "the point person" in mediation to prove their right for payment.

Blakeley, along with Hart, Russell and Fawkes, agreed that credit managers have the greatest advantage when participating in mediation because they're the ones who know the case best, whereas the president or CFO might not necessarily know the specifics, such as a particular customer's payment history. With the authority of their employer, Russell said credit managers also have the power to accept a settlement if they see fit.

Listen as well as talk.

Regardless of whether the mediation is successful, what matters is that there is a good, clear line of communication between the parties and the mediator when everyone reaches the destination at the end of the day. Mediation is usually worth it because, regardless of the outcome, it allows both parties to gather more information on the case, which could be helpful should the dispute move to litigation.

"If you're going to do this, go into it with an attitude that you want to hear what the other side says," Russell said. "Listen as well as talk. It's often true in any kind of dispute that each side has their entrenched vision of what reality is, what truth is and what justice is. If you're truly interested in getting to a result that a court would eventually enter, you need to learn what the other side is saying and not just dismiss it; process it."

Andrew Michaels, editorial associate, can be reached at
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Author:Michaels, Andrew
Publication:Business Credit
Article Type:Cover story
Date:May 1, 2018
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