Mediation As A Tool For Minimizing Risk

By William  A. Ratliff

“You’ve got to know when to hold em, know when to fold em.” –Kenny Rogers

For most people, risk is a four-letter word. It’s something lawyers deal with every day. You’re paid to minimize, evaluate, and know when risk is worth taking. When you draft a contract, your client expects you to anticipate issues before they arise, and provide for the contingencies in the contract. The goal, of course, being to eliminate or minimize the risk of bad results. If you’re a litigator, your clients expect you to know and advise them on the risk of prosecuting or defending claims.

If you’d asked me “What is the main motivating factor for parties in a mediation?” before I began mediating cases, I might have answered “money.” Maximum money for plaintiffs, minimum money for defendants. Money is certainly a component of motivation, and a measurement of an outcome’s success or failure. But in my experience, the number one motivating factor in mediation is minimizing risk of loss.

A plaintiff’s attorney typically takes cases on a contingent fee basis — investing money in expenses, costs and time — with the expectation of a payoff, and a return on his/her investment through the recovery. A defendant, on the other hand, invests in attorneys’ fees and expenses, in hopes of minimizing what s/he might otherwise pay to resolve a case.

While money is ultimately the fuel that runs the litigation engine, it’s the risk of losing money that drives the desire to settle.

I always tell parties in mediation that my job, as a neutral third party, is to help identify and discuss the risks — and thereby enable parties to make the best decision regarding whether or not to accept a settlement.

Lawyers carry a heavy burden (one that certainly used to keep me up at night), serving as “risk advisers.” The right advice can lead your client to a wise decision, and the incorrect advice can result in serious loss (either Opportunity or Actual loss). Therein lies the beauty of mediation. When attorneys do their jobs well, in assessing both risk and their client’s ability to take risks, it’s reflected in the negotiating process. Most of the time, both parties eliminate risk through a negotiated settlement.

I have a lot of respect for the lawyers I’ve served as a mediator. Most of them enter mediations having done the hard work needed to advise their clients wisely — and when this happens, the process usually results in a settlement.

When settlements cannot be achieved, the attorneys and their clients have made the decision that the risk of a good (or bad) result is worth taking. Either way, the process has worked. It’s helped show them that they’re BATNA (Best Alternative To Negotiated Agreement) is to “Hold em, not fold em.”

Enjoy the journey.

If you have any questions about how this or other related mandates may affect you or your business, please contact one of our attorneys at Wallace Jordan.

image_pdfView and Print PDF