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Making the Most of Mediation in the Court of Chancery

Articles & Publications

March 29, 2012
Morris James LLP
Delaware Business Court Insider

Court of Chancery Rules 93, 94, 95 and 174 and 10 Del. C. § 347 provide an excellent opportunity for parties to mediate disputes meeting certain requirements with a Court of Chancery judge or master acting as a mediator. Rule 174 governs mediations in cases already pending in the Court of Chancery, while 10 Del. C. § 347 and Court of Chancery Rules 93, 94 and 95 govern disputes filed as “mediation only” matters in the court. Under Rule 174, parties to an ongoing case pending in the Court of Chancery may agree to mediation.

Under 10 Del. C. § 347, parties may agree to have a business dispute mediated, as long as at least one party is a business entity; at least one party is a business entity formed or organized under Delaware law or having its principal place of business in Delaware; no party is a consumer with respect to the matter in dispute; and if the dispute involves solely a claim for monetary damages, the amount in controversy exceeds $1 million. If a dispute does not meet these requirements but the parties wish to obtain the insights of a judge, they should consider hiring a former chancellor, vice chancellor or judge from another court to act as a mediator.

Just because parties may seek mediation of their dispute in the Court of Chancery does not mean they necessarily should. Mediation is not a cure-all; it requires effort by both sides and counsel to work. Counsel will need to evaluate whether mediation is likely to be effective. If the nature of the dispute or a party’s temperament makes any kind of compromise impossible, there is no point in wasting the time of a busy jurist or the efforts of counsel on a futile process.

Timing is also important. While mediation early in a case can make sense from a cost perspective, it may be unlikely to succeed if there has been little to no discovery. Parties may not have a realistic view of the merits of their claims before document and deposition discovery is complete. If, for example, the action is likely to turn on the testimony of a particular witness who has not been deposed, then it might not make sense to seek mediation prior to such a deposition. Depending on the nature of the case, parties may wish to consider exchanging a few key documents prior to mediation in order to improve the chances of a successful mediation.

Assuming the parties decide to pursue mediation, they will need to file a writing reflecting their agreement to mediate. Parties in an already pending case should be prepared for the possibility of the presiding judge seeking assurances that the parties have exchanged settlement offers and representations from counsel that they believe the mediation could resolve the matter before assigning the matter for mediation to another judge. The Court of Chancery judges are busy and should not have to expend time and effort mediating a dispute where the parties are simply too far apart. It is also not in the parties’ best interests to delay litigation while pursuing a mediation doomed to fail.

Once the parties have sought mediation, there will likely be a call with the mediator to discuss scheduling and logistics. Counsel should consider the form and potential exchange of mediation statements before the call with the mediator. The Court of Chancery mediation guidelines provide that mediation statements should not exceed 15 pages. The guidelines also state that mediation statements should include a description of the parties, identification of mediation attendees, a brief factual summary, a summary of the law, an honest assessment of the strengths and weaknesses of the claims, a brief history of prior settlement negotiations, and the amount of fees and expenses incurred to date as well as the likely fees and expenses, including expert fees, if the matter is not settled.

If the parties have not had the opportunity to engage in briefing, such as briefing a motion to dismiss or for summary judgment, exchange of mediation statements could be a good idea. Such an exchange allows each side to see how the other side views the case. If, on the other hand, the dispute is fairly clear-cut and the parties have already engaged in briefing, then exchange of mediation statements might not be necessary. Another possibility is to split up the mediation statement so certain portions, such as the assessment of claims and a party’s current settlement position, remain for the mediator’s eyes only, while the remainder of the statement is exchanged with the other side. Parties may also wish to consider preparing a short memorandum of understanding or term sheet for the parties to sign at the mediation if the mediation is successful.

The Court of Chancery rules require that at least one representative of each party with authority to resolve the matter attend the mediation. Counsel should make sure the representative for their client has the requisite authority. It is also a good idea to caution the representative against making travel arrangements early in the afternoon on the day of the mediation because the mediation could go late into the day.

Clients who have not participated in mediations before should be prepared for a long day with a significant amount of downtime. It can take hours to reach a point where hard numbers are exchanged, particularly in a complicated dispute where the parties have had little opportunity to exchange their views of the case. An impatient client needs to understand that the mediation process takes time.

Clients also need to be prepared for the mediator’s approach and style. Some judges may adopt a more conciliatory approach as mediators, while others may adopt a more pressure-oriented approach. Clients should understand that the mediator may tell them things they do not want to hear, but that the mediator is likely doing the same thing to the other side. A mediator’s goal is to facilitate a settlement, not to rule on the merits of the case.

Even if mediation is unsuccessful, the parties and mediator may consider it fruitful to continue the mediation on another day. An unsuccessful mediation may also lay the groundwork for subsequent negotiations between the parties and eventually result in a settlement. By considering some of the issues set forth above, counsel can maximize the chances of a successful mediation.

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