(Un)Common Sense Lawyer: Portland, Oregon Small Business Law Blog

The Florida Bar Journal recently included an article titled: Five Compelling Reasons to Build a Presuit Mediation Clause Into Your Business Contracts.  The article’s author, Mike Christiansen, comes down in favor of mediation clauses in business contracts because mediation is:

1. Fast;
2. Cheap;
3. Informal;
4. Empowering; and
5. Confidential

Frankly, I have mixed feelings about contracting for mandatory mediation in business contracts.  Mediation is great for resolving business contract disputes between rational people, especially if they have a history of dealing with each other and plan to continue dealing with each other into the foreseeable future (a retail business and a supplier, for example).  But, if both parties are already too far apart on the issue of performance, then neither party is likely to come to mediation with an open mind, making the process something of a farce.

Mediation pros

Confidentiality

I’m going to start with number 5 on Mr. Christiansen’s list, because it might be the most compelling.  In Oregon, and anywhere else for that matter, if you file a suit in a county circuit court, the pleadings and transcripts of hearings and trials are public records.  Sometimes you don’t want to advertise your disputes.  Whether it’s personal, cultural, or purely for business reasons, mediation is a way to resolve problems without filing anything public.   In the first place, mediation, like all other settlement negotiations in Oregon, are not admissible in court under ORS 36.222, so you needn’t worry about your mediation efforts being used against you later.  Secondly, and more importantly if you really value discreteness, you and the other party can agree that all mediation communications and the terms of the agreement are confidential as provided in ORS 36.220.

Expediency and cost

Mediation can be resolved much quicker than full-blown litigation.  The list of private mediators in Oregon is lengthy, and you can certainly find one to handle your business contract dispute without much delay.  Although you’ll likely need multiple sessions and have to pay the mediator for his time, you’re still going to spend far less and get an agreement reached (assuming both parties are willing to negotiate in good faith) much more quickly than you would through arbitration or the circuit courts.  10 hours of mediation at $150 an hour is $1,500 or $750 for each side.  The filing fee alone for claims of $10,000-$50,000 in Multnomah County is $197; bump that up to $335 if you’re seeking damages between $50,000 and $149,000; and add $50 for each motion; oh, and of course there are the usual attorney fees, which average $230 per hour in Oregon.  10 hours of legal fees at that rate would be $2,230.  Do the math.

Informal

If you’ve never had the privilege of seeing the inside of a courtroom, let’s just say that mediation doesn’t have quite the same stuffy, formal, rigamarole.  You won’t be questioned and cross examined by attorneys.  In fact, you probably won’t even have attorneys present at the actual mediation sessions.  You won’t be sworn in, and there won’t be a judge or jury.  You can speak frankly and the mediator will do his best to facilitate communication.  Mediation sessions are usually done at the mediator’s office, which is a little less intimidating than the inside of the courthouse.

Mediation cons

Requires an open mind

Successful mediation requires two sides to open-minded, respectful, and willing to negotiate in good faith.  In a high-conflict case with irrational parties, mediation probably won’t be very successful.  This is something to consider before you commit yourself to mediation in every contract your Oregon business enters into.  You may want to consider limiting the issues subject to mediation so that an obvious material breach like non-payment  needn’t be subject to a fruitless negotiation.

Mediation is non-binding

A mediator does not have the same authority as an arbitrator or a judge.  Mediators cannot decide for you and, until the agreement is formalized into a contractual settlement for consideration, the results of mediation are non-binding.  This means that if you come to an understanding during mediation contingent upon the parties’ lawyer drafting an agreement and something falls through, your agreement isn’t enforceable.

The verdict

Pre-suit mediation can, and that’s a qualified can, be a good idea for your standard Oregon business contracts.  The downside is minimal, and possible quick, cheap, and confidential resolution make mediation a good first step in any contract dispute.  But be careful to handcuff yourself to mediation in every contractual agreement over every term of the contract.  The last thing you want is to drag someone into mediation when the only dispute is about when they’re going to pay for the service or goods you’ve already provided.  In that situation, anything standing in the way of you and a favorable arbitration result or judgment is just a hassle.