Mediation and arbitration are the two major “alternative dispute resolution” (ADR) techniques used in business disputes. We’ve discussed arbitration in cannabis cases in several previous blog posts, here, here, here, here, and here. Although arbitration gets more attention these days than mediation (see the Supreme Court’s recent arbitration decision), mediation is probably the most commonly used form of ADR in cannabis businesses.
Arbitration is essentially stripped-down litigation, in which a third party lawyer or judge decides issues of fact and law, in a setting that in some cases is less formal and costly than going to court. Both litigation and arbitration are usually binding. Both result in an order than can be enforced like any other court order, e.g., by garnishing the losing party’s assets.
Mediation differs from arbitration in that the mediator cannot require the parties to resolve the dispute. Her role is to help parties work together to find a solution to their problem, that they both can agree on. If mediation is successful, the parties often enter into a written settlement agreement, resolving the dispute.
How mediation works in a cannabis dispute:
For our discussion, imagine a dispute between co-owners of a marijuana dispensary. Hopefully, the owners have a solid operating or shareholder agreement with a dispute resolution clause requiring mediation before litigation can be filed. Even without such a clause, once a dispute arises, the owners can make an on-the-spot agreement to mediate.
The parties must next choose a mediator. In a business dispute, it is important to choose someone who is not only an experienced mediator, but also has experience in the subject matter of the dispute. One of the responsibilities of a mediator is to give each party its real world options if those parties settle, or fail to settle, the dispute. Particularly in a cannabis case, with overlapping local, state and federal laws that are changing sometimes every week, a mediator must have knowledge not only of the applicable laws, but of the business environment.
It is important that the mediator be completely disinterested in the outcome. The mediator’s primary objective is not in benefitting either side, but in settling the dispute, if possible.
Mediating parties are often represented by counsel, although this is not necessary, especially early on in the process. Each party must present the mediator with its version of the facts and what outcome it is seeking. This can be done in written submissions before the mediation, or in oral discussions at the mediation itself. Each party can choose to share their correspondence with the mediator, or not, depending on that party’s mediation strategy.
The mediation will usually take place in a location where each party can have private discussions with the mediator. Once a party has explained its side, the mediator can ask questions, probing areas of agreement or disagreement. A good mediator will not just ferry offers between the parties, but will privately advise each side about its goals and how they can be achieved. A very good mediator will give each side candid advice about the likelihood of success before an arbitrator or a court, and will advise not only on the out of pocket costs but the opportunity costs that occur when a party chooses to spend its time litigating rather than running its business.
Mediations are often set for a single day, although multi-day mediations are common in complicated cases. Once initial information is exchanged, the mediator will work towards a solution that each side can live with, moving back and forth between each party’s room. If a solution is reached, the mediator should put at least the most important points of the solution in writing, and have each party sign the agreement.
If the mediator does not believe that the parties will settle now, she may call off the mediation for the day. She may also ask the parties to agree to meet again to continue the mediation, or to take additional steps, such as exchanging information, before reconvening. It is not uncommon to mediate at several points in the dispute resolution process, as each party gets more information about its own and the other party’s position. It may take several mediations to reach a settlement.
Next week, we will examine how a party can increase its likelihood of success at a mediation. While you can’t always get what you want….