Mediation Case Study: Teaching Course

The Case of Hercules Construction Company and All Things Mechanical Corporation and Premier Piping, Inc.

©2007 John T. Blankenship

 1.  Teaching Notes

>> Download the full pdf: The Case of Hercules Contruction, All Things Mechanical Co and Premier Piping, Inc.

a. Introduction.

This case concerns a construction dispute between three companies in which the parties have agreed to an early intervention mediation.[i] The circumstances of the case offer opportunities to evaluate issues of mediator ethics, neutrality and impartiality, and, specifically, confidentiality in mediation.  The ethical challenges to the mediator combine to potentially blur the lens through which the mediator should be able to see some clear interest-based settlement possibilities and opportunities for consensus building.  In fact, the viability and efficacy of the mediation itself is threatened by the unexpected ethical issues which confront the mediator.  As a result, challenges, perhaps some unknown, also face the parties in their efforts to focus on some very clear interests and underlying goals which they share.

b. Factual Background.

This case involves the construction of a poultry processing plant in rural West Tennessee.  Hercules Construction Company is the general contractor for this multi-million dollar project.  The owner is a repeat customer for Hercules, as Hercules has built this same type plant on two previous occasions for the owner.  Hercules sub-contracted all the mechanical work to All Things Mechanical Corporation.  Hercules has worked with All Things several times over the last 15 years, but not on the two previous poultry processing plants.  All Things in turn hired Premier Piping, Inc. to perform one part of All Things’ subcontract work: provide and install a specialized high-pressure steam piping system which is essential for the poultry finishing process.   Premier used to be a wholly-owned subsidiary of All Things.  All Things, desiring to streamline its business and improve its bonding capacity by getting out of the complex and risky specialized piping business, sold the piping subsidiary to a long time, now former, employee who was one of the foremen of the piping company when it was owned by All Things.  As incentive to the new owner, All Things financed the entire purchase price of $250,000 over a 10 year term, and promised the new owner that Premier would get the poultry plant job.

Three things combined to doom Premier: the construction schedule was extremely aggressive, the owner and Hercules made several changes in the design as the job proceeded but would not allow any time extensions, and Premier’s new owner had never been solely in charge of a job like this before.  As a result, Premier was late in meeting its delivery and installation requirements which delayed the entire job.  Hercules, because of its huge exposure for liquidated damages to the owner as a result of the delay, demanded that All Things terminate Premier and replace it with another piping contractor.  Instead, All Things supplemented Premier by hiring additional pipe fitters and laborers without giving notice or opportunity to Premier to correct or accelerate its work, and charged the costs to Premier.  This did not satisfy Hercules so it exercised its perceived rights under its contract with All Things and hired a replacement subcontractor to do solely the piping work and withholding all payments to All Things for piping work performed by Premier.  As a result, All Things couldn’t pay Premier even its reduced payments and Premier, being unable to pay for its materials, labor and sales taxes owed to the State of Tennessee, was forced to cease operations.  Seeing no other options, Premier filed a lien against the project for $500,000 in unpaid invoices, and sued All Things and Hercules for breach of contract and contract interference respectively.  This resulted in All Things countersuing Premier, and All Things and Hercules suing each other with Hercules claiming damages of $2,500,000 representing $1,750,000 in costs for the replacement piping subcontractor, and $750,000 in liquidated delay damages owed to the owner.  All Things considers Premier responsible for Hercules’ damages and seeks a judgment against Premier for any monies Hercules is awarded.

Not only is Premier out of business, but All Things is in severe financial jeopardy because its bonding company has refused to write any further bonds[ii] until Hercules’ claim is resolved.  This has made it extremely difficult for All Things to get jobs, threatening its very existence.  “Sensing” that All Things is in financial trouble, counsel for Hercules has suggested, and All Things and Premier have agreed, to put the litigation “on hold” and engage in mediation as soon as it can be scheduled.  The parties have agreed to an attorney/mediator whom Hercules’ counsel had worked with several times and recommended as the “best there is for this kind of case.”  The mediator has made a written disclosure about the relationship[iii] with Hercules’ counsel and, there being no objections to has had the parties sign a mediation agreement which includes a provision on confidentiality.  The mediator has also conducted a telephone conference call with counsel for the parties, emphasizing, inter alia, the confidentiality aspects.

At the commencement of the mediation, the mediator explains the process, including the likelihood of private caucuses with the parties which will also be confidential as to anything that a party expressly directs not be disclosed to the other parties.[iv]  In caucus with Hercules the mediator is informed that the owner has withdrawn the delay damages that Hercules is trying to pass on in the litigation.  The owner wrote a letter to this effect that Hercules produced to the other parties.  It has become clear to Hercules’ counsel, however, that the other parties have overlooked this document.  Accordingly, Hercules directs the mediator not to disclose this fact to the other parties as Hercules wants to use the delay damages to enhance its negotiating position.  Hercules also directs the mediator to keep another matter confidential, but only from Premier.  The mediator is told that Hercules and All Things conferred before the mediation and have agreed to try and “settle around” Premier if it won’t agree to resolve the dispute on terms Hercules and All Things consider reasonable.  In this event, Hercules wants the mediator to assist them in fashioning a separate settlement around Premier, thus settling the largest and most critical part of the case.

c. Confidentiality in Mediation.  To many in the ADR field, “the importance of confidentiality is axiomatic in mediation.”[v] In fact, it has long been a widely accepted belief that, “[c]onfidentiality is one of the keys to acceptability, as well as the success, of mediation among parties to a dispute.”[vi]  By emphasizing confidentiality in this mediation, the mediator has engaged in an accepted and commonly used practice.  This practice adheres to a widely held assumption that confidentiality is essential for mediation to work properly.[vii]  And, there is plenty of “authority” for this assumption.[viii]    Interestingly, some leading scholars in the field of ADR challenge this assumption,[ix] but the absolute necessity, or benefit, of confidentiality as a general proposition is academic for purposes of this case.  The mediator has established the “rules and procedures that will be followed in the proceeding”[x] and the mediator, being a licensed attorney in Tennessee, is subject to the Tennessee Rules of Professional Conduct, specifically Rule 2.4, Lawyer as a Dispute Resolution Neutral.[xi] Subpart (b) (6) of the rule requires the mediator to discuss the rules and procedures to be followed, and subpart (c) (1) requires the mediator to “[a]ct reasonably to assure that the parties understand the rules and procedures that will be followed in the proceeding and the lawyer’s responsibility as a dispute resolution neutral.”  The mediator has established a bright line rule not to disclose matters declared confidential in caucus.  Here, the owner’s decision to not seek liquidated damages is one of those matters.  Or, is the mediator released from that pledge under these circumstances?  That question, as well as the mediator’s bright line rule, may be rendered moot in light of Tennessee Supreme Court Rule 31 discussed below.

This simulation, outside of a few mandatory instructions, is to be “played” as the mediator determines.  This is particularly true with this first ethical dilemma arising from the non-existent liquidated damages that Hercules nonetheless wants to keep on the table for negotiating purposes.  There are other ethical concerns connected to the confidentiality question; i.e., the mediator’s duties of impartiality and neutrality, and the concept of basic fairness.  Confidentiality, however, is the first critical ethical encounter.  If and how the mediator reacts and/or views the confidentiality request regarding the liquidated damages should be a point of considerable post-simulation discussion.  The request creates an ethical dilemma irrespective of any applicable rules. The direction by Hercules is clear, and the mediator’s duty to maintain this confidence, it seems, is clear.  The information itself, however, is problematic.  First of all, one may question the propriety of the tactics and conduct of Hercules and its counsel.  Is this conduct proper?  Is it ethical?  Does it constitute bad faith?  The Hercules’ representative and Hercules’ counsel may have their own interesting dilemmas.  More focus, however, will fall on the mediator due to the construction of the simulation.  The “confidential information” is perplexing because it is not technically “confidential.”  The owner’s letter has been furnished to counsel for All Things and Premier; it has simply been overlooked.  It is not Hercules’ counsel’s job to do the lawyering for the adverse parties.  And certainly the mediator cannot advocate for them.  Or, can he/she?  Still, what of the fairness to these parties and their ability to engage in informed negotiations?  If Hercules is allowed to use this information in negotiating a settlement, the important goal of achieving “high-quality consent”[xii] will be impossible to achieve, will it not?

Confidentiality in mediation generally has two main components:

  1. “Keeping it from the other side” (referring to information obtained in a private session or caucus),
  2. “Keeping it in the room” (referring to communications in related court proceedings or with persons outside the mediation).[xiii]   The focus in this simulation is on the first component, where there seems to be a dearth of literature and authoritative governing standards in comparison to the second component.  Bennett and Hughes posit that “[c]urrently there are no specific governing standards for the practice of mediation, because there are no recognized organizational entities with enforcement powers over mediators.”[xiv]  This appears to be true despite the adoption of the Model Standards of Conduct for Mediators by the American Bar Association, American Arbitration Association, and Association for Conflict Resolution, to which Bennett and Hughes allude.[xv]  Bennett and Hughes also allude to laws applicable in the specific jurisdictions where mediators practice, and to the applicable ethical codes for licensed professionals.[xvi] That is the end of the story in this case because in Tennessee there are overlapping “governing standards” which most definitely come into play. [xvii]

The mediator, being a licensed attorney, will have to comply with the Tennessee Rules of Professional Conduct (TRPC) Not only does TRPC Rule 2.4 require the lawyer/mediator to consult with the parties and act to assure that they understand the rules of procedures of the mediation, but Rule 2.4 (c) (5) specifically mandates that the mediator, “as between the parties to the dispute, treat all information obtained in an individual caucus with a party or a party’s lawyer as if it were information related to the representation of a client protected by Rules 1.6 and 1.8(b).”  Rule 1.6 is the confidentiality rule in the TRPC and subpart (a) provides, subject to specific enumerated exceptions, that “a lawyer shall not reveal information relating to the representation of a client unless the client consents after consultation, except the lawyer may make such disclosures as are impliedly authorized by the client in order for the lawyer to carry out the representation.”[xviii]

In terms of this case TRPC Rule 2.4 and its sister Rule 1.6 are thorny enough, but Tennessee Supreme Court Rule 31[xix] is even more prickly.  The Court has issued an order that this case be referred to mediation pursuant to Rule 31, which has its own “Standards of Professional Conduct for Rule 31 Neutrals” in Appendix A to the rule.  Section 7, the “Confidentiality” standard, provides in subpart (b) that, “[a] Neutral conducting a Rule 31 Mediation shall keep confidential from the other parties any information obtained in individual caucuses unless the party to the caucus permits disclosure (emphasis supplied).”[xx]  Section 7 is very similar in application to Standard V. B. of the Model Standards of Conduct for Mediators.[xxi]  Both rules mandate that everything said in private caucus is confidential and will not be shared without specific consent by the disclosing party.  This would seem to take the discretion as to which of two approaches to use for confidentiality in caucus[xxii] out of the mediator’s hands and, instead, “legislate” the approach which must be taken.  While the Model Standards are not enforceable against the mediator, there is no question as to the governing authority of Rule 31.  In fact, Rule 31 and the Tennessee Rules of Professional Conduct are expressly linked so that a violation of Rule 31 constitutes a violation of the Rules of Professional Conduct.[xxiii]

The burden on the mediator seems huge regardless of the chosen philosophy or applicable rule(s).  In fact, Christopher Honeyman’s belief that a mediator maintaining complete confidentiality is virtually an impossible task[xxiv] to fulfill is worthy of consideration, especially in light of Standard V. B. of the Model Standards of Conduct for Mediators which mandates that the mediator not even “indirectly” convey information.  “In practice, I believe, we have no way actually to follow through on this and still do our jobs… Mediators cannot avoid giving off certain verbal and nonverbal cues every time we change caucuses.  The other party, especially if competently represented, doesn’t ignore these.”[xxv]  In considering the ethical landmines in this case, even the most zealous proponent of confidentiality in mediation might reconsider their devotion and instead align themselves with Honeyman’s view that confidentiality is oversold by mediators or Professor John Lande’s doubts “about the necessity—and empirical reality—of confidentiality in mediation.”[xxvi]  Perhaps this is overstated in terms of zealots, but it does not appear even fairly debatable that a mediator absolutely must engage in detailed, specific and absolutely clear discussions with the parties on confidentiality in caucus, and that memorializing the confidentiality agreement in writing is the best practice.

Additional questions for analysis:  Is Hercules’ counsel’s conduct ethical?  Is the mediator’s conduct ethical if the mediator keeps the information confidential as directed?  Is the mediator’s conduct ethical if the mediator discloses the information?  What if the mediator determines that either course is unethical?  Is there a “middle ground” the mediator can find?  Should the mediator terminate the mediation?[xxvii]  What report(s), if any, should the mediator make to the court?[xxviii]  Would the mediator’s decisions and attendant conduct be different if the mediation was not conducted pursuant to Rule 31 and instead was purely a private, party initiated mediation?

d. Duties of Neutrality and Impartiality.

The second direction for confidentiality given to the mediator involves the same issues and attendant analysis presented in the Confidentiality in Mediation section above.  It is also intended, however, to evoke consideration and discussion of the duties of neutrality and impartiality and, perhaps, self-determination.  Mediator neutrality may be the most sacrosanct tenet of mediation.  ADR literature and various rules and standards regulating mediator conduct (e.g., Tenn. Sup. Ct. Rule 31) are replete with examples where the word “Neutral” is used synonymously with Mediator.  That mediators must be neutral is certainly at the least a “cherished assumption.”[xxix]  This assumption may be highly debatable, but the mediation literature horizon offers no signs that this assumption isn’t here to stay.  A distinction must be made, however, between mediator neutrality and mediator impartiality which are often used synonymously.  Although related, they each have distinct characteristics.  A mediator can be impartial without being neutral.[xxx]  Neutrality relates to the mediator’s relationship to one or more of the parties and is often dealt with in mediator standards and/or rules of conduct under the concept of conflicts of interest.[xxxi]  Impartiality relates to equal and fair treatment of the parties free from favoritism, bias or prejudice.[xxxii]  In this case the mediator is directed not to disclose that Hercules and All Things may “settle around” Premier.  Moreover, the mediator is asked to assist these two parties in accomplishing that goal to the detriment of Premier.  This reveals challenges to the mediator’s neutrality and impartiality.   Consider the fact that the mediator is being asked by two parties to reach goals which are incompatible with the third party’s goals.  Is there any way for the mediator to do this and remain impartial?   Consider also, however, the source of the direction.  It comes from Hercules’ counsel who has employed the mediator on several previous occasions and who is certainly a potential source of future business.  Does this compromise the mediator’s neutrality?  Would the mediator, consciously or unconsciously, cater to Hercules’ counsel?  “Relationships between lawyers, mediators, and principals in liti-mediation can be quite confusing.  Given mediators’ dependence on lawyers as regular sources of business, it should not be surprising if mediators cater to the lawyers’ interests, possibly superseding the principal’s interests.”[xxxiii]  It does seem self-evident that the evil which mediator neutrality is intended to avoid is bias.  And, “continuing relationships between lawyers and mediators can result in mediator bias . . . when one side is a repeat buyer, such as an insurance company or a lawyer who uses mediation frequently, and the other side is not, the mediator could consciously or unconsciously be affected by this.”[xxxiv]

As with neutrality, the mediator’s impartiality could be questioned based solely on the relationship with Hercules’ counsel.  It will be intriguing, however, to see if and how the mediator navigates the impartiality issues relative to Premier being the “odd man out.”  It is certainly generally accepted mediation practice to settle part of a dispute, and in essence narrow the issues, if the entire dispute cannot be settled.  But does the mediator embrace that generally accepted practice vis-à-vis Premier under the particular circumstances of this case?  Similarly, it is not uncommon when three or more parties negotiate for coalitions to develop.[xxxv]  But is this common practice somehow different in a mediation context as opposed to a conventional multi-party negotiation?  Some recognized authorities in the mediation field would argue that not only should the mediator not facilitate a settlement which leaves Premier out, but that the mediator has a responsibility to recognize the power imbalance which may exist; namely the weaker power position of Premier and the risk of a potentially unfair resolution.  And, once recognizing the power imbalance the mediator should consider ways to intervene in order to reduce the imbalance of power.[xxxvi]

Additional questions for analysis:  Is the mediator neutral?  If so, is the mediator’s neutrality challenged by the proposed two party settlement?  Is the mediator impartial?  If so, is the mediator’s impartiality challenged by the proposed two party settlement?  Can the mediator keep the proposed two party settlement in confidence and remain neutral?  What about impartial?  Can the mediator be impartial but not neutral?

e. Self-determination.

There are myriad ways in which the mediator, and parties, can handle the dilemmas created by the confidentiality directives.  It should prove intriguing to see what issues are recognized as problematic, and how they are dealt with. The concept of self-determination could certainly arise as an issue depending on how these issues are handled.  Self-determination is another fundamental, philosophical tenet of mediation.  And, as with neutrality and impartiality, it is more than a philosophical concept, it has been “codified” as essential and mandatory.  In the Model Standards of Conduct for Mediators, party self-determination is Standard No. I. “A mediator shall conduct a mediation based on the principle of party self-determination.  Self-determination is the act of coming to a voluntary, uncoerced decision in which each party makes free and informed choices as to process and outcome.”[xxxvii]  Even more important for this mediator is the Self-Determination section of Rule 31 which requires, inter alia, that the mediator: “…assist the parties in reaching an informed and voluntary settlement; …not coerce or unfairly influence a party into a settlement agreement; …not intentionally nor knowingly misrepresent material facts or circumstances; …promote a balanced process; …promote mutual respect among the parties…”[xxxviii] Isn’t the possibility of a two party settlement a fact that Premier should know?  But, would the sharing of this potential constitute undue pressure or coercion for Premier to settle?

Party self-determination can also be defined as “high quality consent.” [xxxix]  It is believed that a fundamental role of mediators “is to assist disputing parties in making their own decisions and evaluating their own situations.”[xl]  One could easily go off on a tangent (a proclivity of this ADD author) and use the self-determination issue to segue into a discussion of the whole “facilitation-evaluation debate.”[xli]  The author will resist such discussion, however, except to identify an ironic and hypocritical paradigm.  Facilitative and evaluative mediators alike believe strongly that the mediation parties (their “clients”) should respect one another and their respective perspectives.  Yet, these same mediators on either side of the facilitation-evaluation debate do not respect each other or their respective points of view.

Additional questions for analysis:  In this case should the mediator agree to mediate a settlement solely between Hercules and All Things?  Should the mediator refuse to participate in a settlement between Hercules and All Things?  If so, why?  And in declining to participate, should the mediate inform Premier of the plan of Hercules and All Things?  Does the mediator need consent of Hercules and All Things to disclose this to Premier?  What effect does each of these potential actions by the mediator have on Premier and its right to self-determination?  Does it solve the problem if the mediator agrees to assist Hercules and All Things on the condition that Premier is informed?

f. Issues, Interests and Positions.

In this case it will be interesting to see if the participants can successfully navigate through, around or over the barriers created by the ethical issues, and maintain the integrity of the mediation.  If so, their focus should shift to the substantive issues of the dispute which will require them to negotiate their respective issues, interest and positions.  “Issues are the WHAT of negotiations: the subjects, things, and topics that must be addressed in the negotiations.”[xlii]  In this case, the issues could include allegations of breach of contract and other legal theories, the parties’ respective chances of prevailing, damages, and most certainly, collectability.

“Interests are the WHY of negotiations.  They describe the reasons or the underlying needs, values, and concerns that motivate people to ask for certain kinds of outcomes.”[xliii]  This case is designed to identify interests that each of the parties have, and perhaps some shared interests, which would motivate them to resolve the dispute in some creative, and perhaps non-monetary ways.  Hercules and All Things share an established and, heretofore, profitable relationship.  All Things’ bonding capacity has been jeopardized which threatens its very existence.  All Things has a relationship with Premier which complicates the entire situation.  Furthermore, the demise of Premier’s business means that the chances of All Things collecting on any judgment it receives in the litigation, or its receivable for the sale of the business to Premier, remote at best.  Premier believes it is owed a substantial amount of money, but perhaps even more important is the personal liability that Premier’s owner has for the debt to All Things and taxes to the State of Tennessee.

“Positions are the HOW of negotiations.  Positions describe possible outcomes or solutions, i.e., how the dispute could be settled.”[xliv]  What positions the parties arrive at in this case will depend on when and if they and the mediator find a way to negotiate their respective interests.  “Mediators need to be aware of the distinctions between issues, interests, and positions.  Mediation usually begins by defining what issues to resolve, and acknowledging the parties’ initial positions on these issues.  The mediation should then proceed to explore the parties’ interests.  Finally, it moves to identification and evaluation of the options that will meet, to the maximum extent possible, the interests of all of parties.”[xlv]

Additional questions for analysis: What are the possible positions of the parties?  What are their interests?  What interests, if any, are shared or similar?  What are the possible positions of the parties?  What options are there that will meet the interests of all parties?


 

THE CASE OF HERCULES CONSTRUCTION COMPANY AND ALL THINGS MECHANICAL CORPORATION AND  PREMIER PIPING, INC.

***UNTIL THE ROLE PLAYING ENDS, PLEASE DO NOT DISCUSS THIS CASE WITH PERSONS PLAYING ROLES OTHER THAN YOUR ROLE.***

General Information For All Participants

For efficiency and to avoid confusion, all participants should use their own names.

 

This case involves the construction of a poultry processing plant in rural West Tennessee.  Hercules Construction Company is the general contractor for this multi-million dollar project.  The owner is a repeat customer for Hercules, as Hercules has built this same type plant on two previous occasions for the owner.  Hercules sub-contracted all the mechanical work to All Things Mechanical Corporation.  Hercules has worked with All Things several times over the last 15 years, but not on the two previous poultry processing plants.  All Things in turn hired Premier Piping, Inc. to perform one part of All Things’ subcontract work: provide and install a specialized high-pressure steam piping system which is essential for the poultry finishing process.  Premier was late in meeting its delivery and installation requirements which delayed completion of the entire job.  Hercules, because of its huge exposure for liquidated damages to the owner as a result of the delay, demanded that All Things terminate Premier and replace it with another piping contractor.  Instead, All Things supplemented Premier by hiring additional pipe fitters and laborers without giving notice or opportunity to Premier to correct or accelerate its work, and charged the costs to Premier.  This did not satisfy Hercules so it exercised its perceived rights under its contract with All Things and hired a replacement subcontractor to do solely the piping work and withholding all payments to All Things for piping work performed by Premier.  As a result, All Things couldn’t pay Premier and Premier, being unable to pay for its materials, labor and sales taxes owed to the State of Tennessee, was forced to cease operations.  Seeing no other options, Premier filed a lien against the project for $500,000 in unpaid invoices, and sued All Things and Hercules for breach of contract and contract interference respectively.  This resulted in All Things countersuing Premier, and All Things and Hercules suing each other with Hercules claiming damages of $2,500,000 representing $1,750,000 in costs for the replacement piping subcontractor, and $750,000 in liquidated delay damages it owes the owner.  All Things, of course, considers Premier responsible for Hercules’ damages and seeks a judgment against Premier for any monies Hercules is awarded.

Counsel for Hercules suggested, and All Things and Premier agreed, to put the litigation “on hold” and engage in mediation as soon as it could be scheduled.  The parties then filed a joint motion with the court requesting a stay in the litigation while they attempted to mediate the dispute.  The court entered a consent order staying the litigation and referring the case to mediation in accordance with Tennessee Supreme Court Rule 31.  The parties agreed to an attorney/mediator whom Hercules’ counsel had worked with several times, and someone Hercules’ counsel considered as the “best there is for this kind of case.”  The mediator made a written disclosure about the relationship with Hercules’ counsel and, there being no objection to his/her service, had the parties sign a mediation agreement he/she prepared which included a provision on confidentiality in the mediation.  The mediator also conducted a telephone conference call with counsel for the parties and emphasized the confidentiality aspect again.


 

THE CASE OF HERCULES CONSTRUCTION COMPANY AND ALL THINGS MECHANICAL CORPORATION AND  PREMIER PIPING, INC.

***UNTIL THE ROLE PLAYING ENDS, PLEASE DO NOT DISCUSS THIS CASE WITH PERSONS PLAYING ROLES OTHER THAN MEDIATORS.***

General Instructions for Mediators

For efficiency and to avoid confusion, all participants should use their own names.

Congratulations, you are the only participant who has homework for this simulation.  You are to review the Model Standards of Conduct for Mediators at www.abanet.org/dispute/documents/model_standards_conduct_april2007.pdf (or simply “google” Model Standards of Conduct for Mediators); the “Standards of Professional Conduct for Rule 31 Mediators” found in Appendix A of Tennessee Supreme Court Rule 31; and Rules 1.6, 1.8 and 2.4 of the Tennessee Rules of Professional Conduct found under Tennessee Supreme Court Rule 8 (an index with links to the specific Tennessee Supreme Court Rules can be found at http://www.tsc.state.tn.us/OPINIONS/TSC/RULES/TNRulesOfCourt/scindex.htm).

You have successfully mediated five other cases for counsel for Hercules But thus far you have had a successful and profitable relationship.  You have not mediated with the other lawyers in the case before.  Not surprisingly, you In short, you feel some pressure to do a good job for all the parties and make a favorable impression.  As discussed in the general information you have disclosed your previous relationship with Hercules’ counsel and there were no objections to your mediating this case.  All the parties have told you in your pre-mediation discussions that their goals are to settle the dispute. You sense that there are creative opportunities to settle this case, and you are confident that you can ferret them out if you can keep the parties on track.  Accordingly, you are desirous of getting to the heart of the matter.  Still, it is important to remember that for purposes of this exercise you are to focus on conducting the mediation in terms of structure, process and time as much like an actual mediation as possible.  The goal is not so much to reach agreement as it is to work through the mediation dynamics the simulation is designed to present.

The following requirements are your only mandatory instructions:

  1. You are to conduct a joint opening session in which you explain the process, including the concept of confidentiality both in general, and in caucus for anything a party directs you to keep confidential.  What else is done in the opening session, i.e., opening statements by counsel, etc… is up to you and the parties.  It is important, however, not to spend too much time in the opening session.
  2. You must caucus at least once with each party and endeavor to spend approximately the same time with each in the initial caucus sessions.
  3. You are to caucus first with Hercules.

Beyond these three requirements you have complete discretion in how to conduct the mediation, including when and how you deal with discrete issues, i.e. globally, individually, in what order, etc…


 

THE CASE OF HERCULES CONSTRUCTION COMPANY AND ALL THINGS MECHANICAL CORPORATION AND  PREMIER PIPING, INC.

***UNTIL THE ROLE PLAYING ENDS, PLEASE DO NOT DISCUSS THIS CASE WITH STUDENTS PLAYING ROLES OTHER THAN YOUR ROLE.***

General Instructions for Hercules and Its Counsel

For efficiency and to avoid confusion, all participants should use their own names.

 

 Hercules is a large general contractor and you want to find a solution that will be economical overall for your company, while maintaining, if possible, business relationships that have worked well in the past.  Hercules is a very sound company financially.  If it loses this case completely it will not be great for the balance sheet and the company’s reputation, but it will not impair the company’s operation in any significant way.  You are, in fact, confident that you will win the lawsuit, but your concerns are on collecting any judgment you get because of concerns you have for All Things financial condition.

During your first caucus with the mediator it is important for Hercules to share a negotiation “secret” that you have.  Hercules is seeking delay damages from the other parties because it owes the owner $250,000 in liquidated damages  pursuant to the contract with the owner (250 days late at $1,000 per day) due to All Things’ (through its subcontractor Premier) failure to finish the piping on time which delayed completion of the entire job.   The owner, however, has already provided a written letter waiving any delay damages because its actual damages were not that great and Hercules has agreed to give some price concessions on another poultry processing plant soon to be constructed.  Therefore, you cannot collect for those damages should the issue come up at trial.  You provided the letter as part of voluntary discovery, but so far, none of the parties have picked up on the waiver.  You want to use the delay damages as part of your negotiations, so that you will have a number you can “negotiate down” which in all reality, you are not entitled to.  You must tell the mediator that this information is NOT to be disclosed to other parties.  

Settlement between you and All Things is more important than settling with Premier.  You are confident you can win a war of attrition if you have to litigate with Premier, but the lien of Premier is interfering with the owner’s financing and is upsetting to the owner and they are insisting you take care of it.   Accordingly, you desire to settle the whole thing and get rid of Premier’s claim, which you consider to be bogus.  Still, you want to encourage settlement of the claims between you and All Things, even if it means settling around Premier without Premier’s consent, and you wish to get the mediator’s assistance in accomplishing this goal.  You do not, however, want Premier to know about it.  You are concerned that if All Things goes out of business you won’t collect anything, and you will lose one of the consistently lowest priced subcontractors you have.  So, you are “motivated” to get something done now.  You have decided that if Premier is unreasonable in its settlement negotiations you will attempt to settle with All Things and, if necessary, take over the entire responsibility of defending against Premiers claim and prosecuting the All Things’ claims against Premier.  Again, you are confident that Premier won’t be able to make it to trial, but even if it does you are not worried.  Not only is Hercules’ counsel a hard charging lawyer, but Premier’s claims are pitiful, especially considering the dollar claims against it, and you are confident you will slam Premier at trial.  You have conferred with All Things prior to the mediation and All

Things has agreed with this plan.  Together you have decided to ask the mediator to assist with this but not to disclose this to Premier.

Although you must share both “secrets” with the mediator, it is up to the mediator to decide how and when to deal with them.  You have discretion to conduct yourself in the mediation as you see fit consistent with the facts.  It is also up to you on how to share the role between company representative and counsel, but due to the dynamics of this case, counsel is to be a strong lead and the company representative in support.  Also, keep in mind the fact that Hercules’ counsel has mediated many cases with the mediator and counsel believes that the mediator, while remaining “impartial,” will help counsel accomplish the goals of Hercules.

You did agree to design changes with the owner that affected the schedule and yet you did not give any time extensions to All Things (and, as a result, Premier).  And, you put a lot of pressure on All Things and even Premier directly at times.  Still, you are confident that the mediator will see that Premier and its goofy owner are the real villains in this case.


THE CASE OF HERCULES CONSTRUCTION COMPANY AND ALL THINGS MECHANICAL CORPORATION AND  PREMIER PIPING, INC.

***UNTIL THE ROLE PLAYING ENDS, PLEASE DO NOT DISCUSS THIS CASE WITH STUDENTS PLAYING ROLES OTHER THAN YOUR ROLE.***

General Instructions for All Things and Its Counsel

For efficiency and to avoid confusion, all participants should use their own names.

 

You have discretion to conduct yourself in the mediation as you see fit consistent with the facts.  It is also up to you on how to share the role between company representative and counsel, but counsel should play a fairly active role with full support for the corporate representative.   It is up to the two of you to determine how much of the information in these instructions to share.

Being a subcontractor, All Things wants to find a solution that will be economical overall for the company while, hopefully, maintaining business relationships that have worked well in the past.  Settlement between All Things and Hercules is more critical than settlement with Premier for two reasons: Hercules can be a huge source of future revenue if you play this right, and Hercules can put you under if you don’t.  Accordingly, you want to encourage settlement of the claims between you and Hercules, even if it means settling around Premier and without Premier’s consent.  You have decided if Premier is unreasonable in its settlement negotiations you will try to settle with Hercules and take your claims against Premier to trial.  There may be some way you can “entice” Hercules to take your place in the whole lawsuit which would thrill your bonding company.  You and Hercules agreed prior to mediation to get the mediator to help settle the dispute between All Things and Hercules if Premier would not be reasonable.  You do not want the mediator sharing this with Premier.

Premier used to be a wholly-owned subsidiary of All Things.  All Things, desiring to streamline its business and improve its bonding capacity by getting out of the complex and risky specialized piping business, sold the piping subsidiary to a long time, now former, employee, who was one of the foremen of the piping company when it was owned by All Things.  As incentive to the new owner, All Things financed the entire purchase price of $250,000 over a 10 year term, and promised the new owner that Premier would get the poultry plant job.

Not only is Premier out of business, but All Things is in severe financial jeopardy as well because its bonding company has refused to write any further bonds[xlvi] until the Hercules claim is resolved.  This has made it extremely difficult for All Things to get jobs, threatening its very existence; hence the motivation to settle with Hercules.  Still, your bonding company has told you that it would be best if the Premier claim could “go away” as well.

There are hard feelings with the owner of Premier.  He has acted like a jerk and is using the power he has in having no money to thwart settlement unless he gets what he wants, whatever that is.  He neglected the job (although you were concerned he was over his head) and he has screwed everything up.  Moreover, you took a risk and did him a favor by fully financing the sale of the company to him.  The owner of Premier is not only not grateful, he says you dumped it on him to get him personally on a note to buy a company he now knows was not worth anything close to $250,000.  Well, the worth might be arguable, but it is not like he says.  And, the possibility that he may default on the note for the sale of the business which makes the whole mess even more frustrating.

You consider Premier at fault for the delay, but you also believe Hercules “muscled” you and interfered with Premier’s work.   So, for these reasons you believe Hercules to be at fault to some degree and for agreeing to design changes with the owner without granting any time extensions to you and, as a result, Premier.  Still, it is critical to find a way to resolve the Hercules claim at a minimum because it is imperative that you restore your bonding capacity.  And, it is clear that the Premier (or at least its owner) is the real villain in this case.  You do have concerns, however, for how you supplemented Premier at its cost without giving it any opportunity to cure its default.


THE CASE OF HERCULES CONSTRUCTION COMPANY AND ALL THINGS MECHANICAL CORPORATION AND  PREMIER PIPING, INC.

***UNTIL THE ROLE PLAYING ENDS, PLEASE DO NOT DISCUSS THIS CASE WITH STUDENTS PLAYING ROLES OTHER THAN YOUR ROLE.***

General Instructions for Premier Piping and Its Counsel

For efficiency and to avoid confusion, all participants should use their own names.

You have discretion to conduct yourself in the mediation as you see fit consistent with the facts.  It is also up to you on how to share the roles between company owner and counsel.  In this case, however, the owner is a very strong personality and can be obstinate and very difficult.  For Premier, the owner will probably be somewhat more dominant than counsel.  

You believe three things combined to doom Premier: the construction schedule was extremely aggressive, the owner and Hercules made several changes in the design as the job proceeded but would not allow any time extensions, and the new owner of Premier had never been solely in charge of a job like this.  You are aware of your own shortcomings, but you are convinced that Hercules is at fault and that All Things is as well for hiring additional workers at your expense without giving you a chance to get back on track and for not standing up for you against Hercules.

As mentioned above, the company owner is difficult to deal with and can be a jerk at times and he will not pay a dime to settle this case.  If anyone insists Premier paying any money then the case just won’t settle.  Premier’s owner knows that the company’s negative net worth makes it judgment proof and that there is strength in that.  He also knows that they will have to settle with him in some way to get rid of his lien which he won’t release until he is satisfied.  Premier’s owner has a major concern that he will share with the mediator if the time is right, but it is not to be shared with the other parties.  He is personally liable on the note to Premier, and he is personally liable on sales taxes to the state of Tennessee for this job.  He desparately wants to be off the hook on any personal liability because he is due to receive an inheritance; a fact he also does not want the other parties to know.  It is be very difficult for Premier to bear the costs to go to trial.  If he has to, the owner will just tell his lawyer to “show up” and tell Premier’s story and spend as little money as possible.  He is convinced that he is the victim in this case and that a judge will see that.  Even though Premier is shut down for now, the owner wants to avoid bankruptcy or shutting the doors forever.  He thinks he can open up under another name or in some way get back in business.  The owner’s inheritance won’t allow him to retire, so he will still need to make a living at some point.


[i] Although litigation has commenced, there has been no discovery except some voluntary exchange of documents, and the parties have agreed to mediate on their own.  They have made a joint request to the court and have obtained a consent order which orders mediation under Rule 31, (see infra, note 19) and allows them to select their own mediator.

[ii] Meaning a performance and payment bond which guarantees that All Things’ work under a subcontract with a general contractor will be completed and all bills paid.

[iii] The mediator has mediated five previous cases for Hercules’ counsel.

[iv] One of the two approaches to dealing with confidentiality in caucus: See Paula M. Young, Rejoice! Rejoice! Rejoice, and Sing: The ABA, ACR and AAA Adopt Revised Model Standards of Conduct for Mediators, 5 Appalachian J.L. 195, FN 1999 (2006), citing the Reporter’s Notes for the Joint Committee:  “The Reporter’s Notes acknowledge two approaches to caucus confidentiality. In the first approach, the mediator advises parties that anything they communicate in caucus is confidential unless they allow a specific disclosure. The other approach advises parties that the communications in caucus are not confidential unless a party specifically requests that the mediation treat certain information as confidential. The standard permits both approaches, but it provides that whichever approach the mediator adopts, he or she must insure that a party consents to the approach in a knowing, meaningful, and timely way.”

[v] Ellen E. Deason, Predictable Mediation Confidentiality in the Federal System, 17 Ohio St. J. on Disp. Resol. 239, 240-243 (2002).

[vi] Dennis Sharp, The Many Faces of Mediation Confidentiality, 53-Nov Disp. Resol. J. 56, 57 (1998).

[vii] John Lande, Toward More Sophisticated Mediation Theory, 2000 Journal of Dispute Resolution 321, 331.

[viii] See, e.g., Model Standards of Conduct for Mediators, Standard V; Uniform Mediation Act, Section 8; see also Michigan Pleading & Practice, Chapter 62 B:10, Mediation: “Confidentiality is at the heart of mediation…”

[ix] Lande, supra note 7, at 331.

[x] Tenn. Sup. Ct. R. 8, RPC Rule 2.4(b)(6).

[xi] Id.

[xii] John Lande, How Will Lawyering and Mediation Practices Transform Each Other?, 24 Fla. St. Univ. L. Rev. 839, 858 (1997).

[xiii] Christopher Honeyman, Confidential More or Less, The Reality, and Importance of Confidentiality is Often Oversold by Mediators and the Profession, Dispute Resolution Magazine, Winter 1998, 2,3

[xiv] Mark D. Bennett and Scott Hughes, The Art of Mediation, Second Edition, 123 (2005).

[xv] Id.

[xvi] Id.

[xvii] See e.g., supra note 10; see also, Tenn. Sup. Ct. R. 31.

[xviii] Supra note 10.

[xix] Tenn. Sup. Ct. R 31, Alternative Dispute Resolution.  This rule allows a trial court, by an order of reference, to require the parties to mediate the dispute, or engage in other ADR proceedings under certain circumstances.  The rule provides education and training requirements for Rule 31 Neutrals; establishes rules and procedures for the Rule 31 ADR proceeding, including reporting requirements for the Neutral (mediator) has to the court; ethical and other rules governing the conduct of the Neutral, etc…

[xx] Id, Appendix A, Section 7.

[xxi] See Model Standards of Conduct for Mediators, Standard V.  Standard V. B. reads as follows: “A mediator who meets with any persons in private session during a mediation shall not convey directly or indirectly to any other person, any information that was obtained during that private session without the consent of the disclosing person (emphasis supplied).”

[xxii] See supra note 4; see also supra note 14 at 62, 63, 124, 125.  Bennett and Hughes posit that “there are no firm rules about how information from a caucus should be handled,” but they actually suggest that there are four approaches for handling the issue, the first two being absolute rules and the second two being exceptions to the general rule.  The absolute rules are: “1. Nothing said to the mediators will be shared with the other party. 2. Everything said in the caucus may be shared with the other party.”  Both of the exception rules start with the mediator saying, “Everything you share with me in the caucus 3. Can be shared with the other side, unless you tell me those things that must be keep(sic) confidential. 4. Will be kept confidential unless you tell me what can be shared with the other side.”

[xxiii] Supra note 17  at General Provisions Applicable to All Neutrals, Section 9 (b).

[xxiv] Honeyman, supra note 13 at 1.

[xxv] Id.

[xxvi] Lande, supra note 7 at 331.

[xxvii] Supra note 17 at Appendix A, Section 10 Concluding a Dispute Resolution Proceeding, (b) (2): “If the Neutral believes that the participants are unable to participate meaningfully in the process, the Neutral shall suspend or terminate the Rule 31 ADR proceeding…The Neutral shall not continue to provide dispute resolution services where there is a complete absence of bargaining ability.”

[xxviii] Id  at Section 10, Obligations of Rule 31 Neutrals, (b) (1): “Advise the court before which the proceeding is pending if the ADR proceeding is, or is likely to become, inappropriate, unfair, or detrimental in the referred action.”

[xxix] Lande, supra note 7 at 332.

[xxx] John T. Blankenship, Nonbinding Methods of Dispute Resolution, class notes of 10-17-07 and 10-24-07.

[xxxi] See e.g., Tenn. Sup. Ct. R. 31, Appendix Section 6(b); Model Standards of Conduct for Mediators, Standard III.

[xxxii] See e.g., Tenn. Sup. Ct. R. 31 Section 6(a) and Model Standards of Conduct for Mediators, Standard II

[xxxiii] John Lande, Lawyers’ Routine Participation Directs Shape of “Liti-Mediation, 16 Alternatives to the High Cost of Litigation 53 (1998).

[xxxiv] Id.

[xxxv] Robert H. Mnookin, Scott R. Peppet and Andrew S. Tulumello, Beyond Winning: Negotiating to Create Value in Deals and Disputes 303 (2000).

[xxxvi] Bennett and Hughes, supra note 14 at 116, 118-120.

[xxxvii] Model Standards of Conduct for Mediators.

[xxxviii] Supra note 21 at Appendix A, Section 5 “(a) through (e).

[xxxix] Lande, supra note 12 at 857.  Professor Lande defines “high quality consent as a condition in which a principal has exercised his or her responsibility for making decisions in a dispute by considering the situation sufficiently and without excessive pressure.”

[xl] Lela P. Love, The Top Reasons Why Mediators Should Not Evaluate, 24 FLSULR 937, 939 (1997).

[xli] Lande, supra note 7 at 321; see also Leonard L. Riskin, Mediator Orientations, Strategies and Techniques, 12 Alternatives to High Cost Litig. 111 (September 1994).

[xlii] Bennett and Hughes, supra note 14 at 108.

[xliii] Id.

[xliv] Id at 109.

[xlv] Id.

[xlvi] Meaning a performance and payment bond which guarantees that All Things’ work under a subcontract with a general contractor will be completed and all bills paid.