What Is Professional “Bad Faith” In Mediation?

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Bad faith?! (photo by Marilyn Swanson)

By: Donald L Swanson

What is professional “bad faith” in mediation?

I’m not talking, here, about sanctionable conduct. I’m talking, instead, about things like professional courtesy and civility—a standard of behavior that one professional owes to another to make the professional system work efficiently and effectively.

The following are two hypothetical examples of mediation strategies and tactics, followed by this question for each example:

Is such conduct, orchestrated by the attorney for a party, acceptable mediation behavior—or is it “bad faith”?

I’m offering no answers here—merely raising questions and hoping for answers and explanations from others.

Example # 1

A widow is asserting wrongful death claims from a vehicle accident that killed her husband, based on the defendant’s negligence. In a pre-lawsuit mediation, the widow and defendant’s representatives have been negotiating for several hours, and the distance between them is starting to get close.

Defendant’s representatives sense the widow’s emotional fragility. So, when she makes a counter-offer, defendant’s attorney announces that all offers are rejected and that the mediation is over—and they march out of the mediation.

As the defendant’s representative hope—and are counting on—the widow goes over the edge. Her first reactions are: “What just happened?” And “I would have taken their last offer, if I had known it was their final one!” And “Go bring them back and accept their last offer!”

Widow’s attorney spends the next hour explaining that, (i) defendant’s actions are a “stunt” to elicit fear and a panic reaction, and (ii) the best way to respond is to call their bluff. Widow finally steps back from the edge and agrees to the attorney’s recommendation.

As it turns out, the stunt backfires, and the case settles for an amount close to the widow’s last offer in mediation.

QUESTION:  So . . . is defendant’s mediation stunt acceptable mediation behavior—or is it “bad faith”?

Example # 2

A small manufacturer develops a new product for commercial use and places it into the stream of commerce—without adequate testing. One customer places a huge order, manufacturer delivers the product, and customer pays the purchase price and installs the product. In very short order, the new product fails to perform [fortunately, safety is not an issue]. Every one of the installed product fails.

Customer files suit, claiming huge amounts of damages. Those damages, if awarded, would put the manufacturer out of business.

Manufacturer’s engineers and managers are in denial, and they come up with ten technical reasons why the product failures are someone else’s fault. And the discovery process serves to debunk each of those ten reasons—one by one. But the engineers and managers are still in denial, ignoring their attorney’s warnings about their exposure—and about the need for a bankruptcy in the event of a judgment against them.

So, when a court-ordered mediation arrives, defendant’s lead attorney decides upon this strategy:

  • to send the engineers and managers to the mediation with a young attorney, so the lead attorney won’t be compelled to make, in joint session, an argument the lead attorney doesn’t believe in;
  • to instruct the young attorney that, in no circumstance, should a settlement offer be made above a specified (very low) amount; and
  • to hope the opposing party or mediator will bring the engineers and managers to their senses on risks in the case.

So, the mediation occurs but, of course, does not settle. Instead, the engineers and managers, at their next meeting with the lead attorney, exclaim, “We could lose this case!” To which the lead attorney reacts to herself with, “Mission accomplished!”

What happens next is that defendant’s lead attorney reopens negotiations and makes an offer based on manufacterer’s inability to pay a substantial judgment. And the case then settles for a relatively-small amount that defendant can actually pay.

QUESTION:  So . . . is the mediation strategy by manufacturer’s attorney acceptable mediation behavior—or is it “bad faith”?

Conclusion

What do you think?

** If you find this article of value, please feel free to share. If you’d like to discuss, let me know.

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