Why I Love Mediation and You Should Too!

The majority of franchise agreements that I come across or create these days have a mediation clause. For those of you who have no clue what I'm talking about, when a dispute arises, the disagreeing parties have only a few options: do nothing, file a lawsuit, go to arbitration, or sit down and try to work it out a/k/a MEDIATION.

This is not the first time I have addressed this important topic and you can find earlier posts here. And, full disclosure: I serve as a mediator when selected by the parties or their counsel.

But, here is why I love mediation and you should too! To help your clients or your company resolve disputes before spending a fortune.

Litigation and arbitration can burn up a very large sum of money. Remember it is a battle. The courtroom or the arbitration room is the battleground and counsel are the warriors. Let's not get too carried away here but some of these disputes run from tens of thousands of dollars to over hundreds of thousands of dollars.

Mediation is a process that allows parties to work together, usually with the help of a trained and experienced mediator (often a lawyer but not universally), to settle a dispute before an action is filed and sometimes after. Mediators come in all types (ex. commercial law, domestic disputes) and styles (ex. objective neutrals, aggressive, evaluative). But the hallmark of an effective mediator is keeping the parties engaged, keeping them talking and negotiating. Also, an astute mediator may offer "creative" solutions that the parties did not consider.

So counsel, if you have a long-standing client, wouldn't you want to save them time and money? Wouldn't it be the best advice you can provide under the circumstance? Besides, litigation or arbitration is always on the table but why not think of it as a last resort?

Company officials or franchisees, not only could you save those precious funds, but you may find a solution that preserves the relationship. The earlier you seek resolution, the more latitude you have.

Of course some disputes cannot be resolved through mediation but, even when there is a small chance of resolution, it seems like a wise investment.

And, as any commercial lawyer knows, whether a litigator or transactional lawyer, serving our clients' needs is our top priority.

Arbitration ... the good, the bad and the ugly?

Much has been written about arbitration ... and in the franchise world we discuss it quite frequently at conferences and in law journals ... and put it into play when disputes arise.

But most recently, Bruce Schaeffer at Franchise Valuations, pointed out in The Franchise Valuations Reporter (November 2015) that the New York Times published a 3-part series: Part 1 (Stacking the Deck of Justice), Part 2 (Privatization of the Justice System) and Part 3 (Religious Arbitration). To quote from the The Franchise Valuations Reporter, "According to [the] 3-part series ..., arbitration has become primarily an old boys' network and a tool to keep confidential the misdeeds of the more powerful.  The series reveals the many abuses in the process although not really focusing on commercial arbitration between businesses."

Although the Times series does not focus on the commercial world (it concentrates on consumer purchasing matters, such as cellphones, credit cards, cable companies and, to some degree, employment matters), many of the "bad" aspects of arbitration discussed in the series are seen in franchise arbitration agreements. Now when we say "bad" that is from the franchisee-aspect of the franchise equation. What may be "bad" for franchisees is usually "good" for franchisors ... after all they do write the provisions! And, the legal pendulum has swung decidedly in favor of enforcing arbitration agreements. (See the Times series)

When representing franchisees and franchisors, we lawyers struggle over the best dispute mechanism for our clients. Should we go to court? Mediation? Arbitration? Sometimes what seems to be a good idea on paper, backfires in reality. But, like the Part 1-title of the Times series, if we get to draft the Franchise Agreement, truth be known, we do try to stack the deck. This does not mean that the cards are always dealt to the franchise company's advantage, but chances are they will be.

On the franchisee-side, if you have to live with arbitration, make the most of it. Take advantage of the seemingly faster process and select counsel who is familiar with the process and can maximize the experience while reducing the costs typically associated with the judicial process.

Some of the advantages written in favor of franchise companies include:

• the location of the arbitration hearing will likely be in the company's home court
• class action arbitration or multi-party arbitration will not be permitted
• there will be no jury deciding the matter
• rights of appeal are very limited
• pre-arbitration discovery may be limited
• shared or full-cost of arbitrator's fees and administrative fees
• claims for injunctive relief may be limited or non-existent

Potential franchisees need to understand the risks and limitation associated with arbitration. Franchisors should not go too far in striking a procedural imbalance or they risk having courts declare the arbitration requirement unconscionable and unenforceable.

The ugly we will save for another day -- but when franchise disputes arise and the swords are crossed, almost everyone loses one way or another. Mediation anyone?

Could Mediation Remove the Blind Spot?

Full disclosure: I recently started mediating franchise disagreements and other commercial disputes (see my post announcing my mediation services). So far so good...

Because of this new dimension to my practice, I stay alert to articles and blogs discussing litigation and settlement, especially the psychology of the process. One blog is the Persuasive Litigator written by Dr. Ken Broda-Bahm and his team. Last week's article was "Look for the Dunning-Kruger Effect."

The main finding of the Dunning-Kruger study (done in 1999) - when it comes to self-assessing one's own skills, competent individuals were able to accurately assess their own relative ranking, but incompetent people consistently overestimated their's - did not draw my attention as much as an analogous connection mentioned: that attorneys can be poor predictors of the outcome of their own cases.They have a blind spot.

While surely this does not apply to my ability, the article makes the case:

Cases fail to settle, or settle at an inappropriately late hour, often due to the parties' failure to accurately assess their case. The attorneys, the research supports, can also be surprisingly poor predictors of their own case's prospects. The advocate's role in seeing the best in their own case, the "partisan distortion," can serve as a barrier to settlement, as well as a barrier to the kinds of honest assessment that sets the stage for the best strategy in trial. Advocates' best bet is to obtain as many neutral, or neutralish assessments as possible -- including from mock jurors -- in order to get a realistic grip on the case.

Mock juries are good if you can afford one (none of my clients have been able to); but when I have my litigator hat on, I know that I am a partisan, biased in favor of my client's case. Call it human nature, borne out by the research. Some mediators have helped me and my clients come down to earth, to better assess our chances.

While mediation may not settle your case, it may help you and your client "get a realistic grip on the case." In the franchise arena, where many options are available to settle a case, mediation may solve your dispute or open your eyes to a better strategy. And, the synergistic mediation process may lead to an outcome not previously considered. This just occurred in a mediation I conducted, where a party's creative suggestion broke the logjam.

Remove the blind spot.

Brand Enforcement

Is Brand enforcement important? Is this a trick question or just a stupid one?

During the day-to-day struggle of competition and the occasional tug-of-war between franchisors and franchisees, we may forget that brand enforcement is THE most important element of the franchise relationship.

Every location is an animated billboard for your brand, your business. And, I am not talking just to franchisors here. Franchisees, it is your brand as well! Think of it. Every time a customer visits ANY franchise location, it is a reflection of EVERY location in the system. To keep the system-wide impression sterling (not Donald), you must do your part.

Franchise agreements in all systems require uniformity, standards, inspections, and compliance. But the key is enforcement. If the franchisor does not enforce the agreement, uniformity and standards can slip radically...and the animated billboard paints a negative picture.

This is especially important for new franchise systems. Both "partners" need to live and breath the standards. Franchisors: inspect frequently, communicate clearly and enforce regularly. Franchisees: know the standards, embrace uniformity and look forward to inspection - feedback is important. Everyone has a stake in keeping the brand positive.

As a franchise lawyer, I often encounter brand enforcement in notices of default, in an arbitration or mediation and in the courtroom, Commonly, this is too late. Franchisors need to be fair and consistent but must constantly enforce. Franchisees need to remember that they joined a system and that all efforts are "common efforts" to please customers and improve the system..

With that said, franchisors MUST maintain an open, clear and sincere dialogue with franchisees, deliver the enforcement message with care and professionalism, and remain flexible enough to act on legitimate suggestions for change.

Franchisees must provide constructive comments in a non-confrontational manner - in a setting that is outside of an active inspection. Your message will carry more weight when you are in a positive mode rather than a defensive one.

Keep the billboard shining brightly!

Mediating Disputes

“Seek First to Understand, Then to be Understood.”

            Stephen R. Covey

Many franchise agreements and other commercial contracts call for mediation of disputes. It is an excellent way to preserve a relationship rather than end it. So I've decided to jump into the pool to help ...

After 37 years of practicing law with extensive litigation experience, I am pleased to announce that I am offering my services as a Mediator in franchise, commercial, employment, securities and real estate disputes.

I have mediated dozens of matters for my many commercial and personal clients to successful conclusions and I firmly believe in the process. Lawyers, as trusted advisors, are the key to the best resolutions and I see my role as a facilitator of their skills and efforts.

Recently, I completed a 40-hour mediation course and continue my active law practice focusing on franchising, general commercial litigation, employment matters, shareholder/partner disagreements, real estate matters and general corporate matters.

During my career, I have served as General Counsel to a restaurant franchise company as well as to the Ohio Petroleum Dealers and Repair Association. I have practiced in large and small firms and appreciate the challenges of each. ColumbusCEO Magazine recently profiled me as a 2015 Top Lawyer.

Based on my background and experience, I will offer a balanced approach as a qualified neutral. If you would like a copy of my resume, please let me know. Feel free to contact me at jmeaney@zainolawgroup.com or 614-975-9876.

Please keep me in mind for future referrals. Thank you.

More information available soon at www.MediatorOhio.com and www.OhioFranchiseMediation.com

Jim Meaney is a lawyer with the Zaino Law Group in Columbus, Ohio. Jim has represented franchisors and franchisees for 30 years. Jim is a co-author of “Starting a Franchise System: Practical Considerations, Planning and Development” and author of How to Buy a Franchise. 

Visit www.fddlawyer.com or www.ohiofranchiselawyer.com for more information or contact Jim directly at 614.975.9876 or jmeaney@zainolawgroup.com