Mediation - An Alternative (or An Accompaniment) To Arbitration and Litigation

Frequently, I am contacted by franchisees whose relationships with their franchisors have soured, and who have sued their franchisor or who want to sue their franchisor – immediately. Sometimes instituting legal action against the franchisor is the franchisee’s only option, but, often times, the parties could more amicably and efficiently settle their dispute through negotiations in a mediated atmosphere.

A Franchise agreement signifies an ongoing commercial agreement between contracting parties, but the agreement usually has elements of an imbalance of bargaining power and business experience. Additionally, the parties often face many external commercial pressures. Mediation can be used to balance the bargaining power and to negotiate fair results.

Good things can happen when adverse parties meet with each other and discuss their differences. Mediation helps facilitate those positive results.

Mediation is a non-binding form of alternative dispute resolution, whereby a third-party neutral (often an attorney) helps the stakeholders of a controversy negotiate a mutually-agreeable resolution. Mediation may occur at any time, from before filing to within days of the commencement of trial. Mediation is used to solve all types of conflicts, from franchisee to franchisor disputes to entire associations of franchisees and beyond.

I have attended over 300 mediations for franchisees, to help them resolve their disputes with their franchisors. In my experience, three things are necessary to maximize the likelihood for success in a mediation: (1) a skilled mediator; (2) decision-makers in attendance from both sides; and (3) both sides motivated to want to “make a deal”.

While mediation implies that parties sit face-to-face, the strategy of “shuttle diplomacy,” where the mediator serves as an intermediary between the parties, proves to be useful when adverse parties cannot bear to be in the same room with one another and when the mediator wants to speak candidly, but separately, with the parties.

Mediators use the appropriate techniques to open and improve dialogue between parties in an effort to reach agreement without the use of the courts system. Typically, the mediator will begin with the background of the dispute; indeed, a major hurdle in the mediation process is identifying the actual problem. The mediator helps facilitate the parties’ understanding of each other and bridges the gap between them through dialogue.

Additionally, mediation is adopted to anticipate problems, grievances and difficulties between parties before they even arise! Through proper handling and management, these conflicts are often avoided entirely. This type of conflict prevention, frequently between franchisees and franchisors, enables parties to effectively handle complaints when the first sign arises and, therefore, minimizes the possibility of evolution into a full-blown dispute.

Confidentiality is one of the hallmarks of the mediation process. The mediator informs the parties that all communications between them must be kept confidential. In most cases, information disclosed in mediation cannot be introduced as evidence in the event the matter proceeds to court. This confidentiality clearly contributes to the high rates of success and integrity of mediation.

It is important to note that parties entering mediation do not forfeit any legal rights or remedies, and, if the parties do not reach settlement, each side has the ability to enforce their rights through the appropriate court or tribunal procedures.

Most importantly, it is a good idea to hire an attorney early in the game to help facilitate resolution of a dispute. An experienced franchise attorney will help someone in need to avoid potential pitfalls.

I wish to thank C. J. Kuhn, an associate attorney at Dady & Garner, P.A., for his assistance in preparing this article.

J. Michael Dady is the founding partner of Dady & Garner, P.A. of Minneapolis and New York, and has represented franchisees and dealers in their business-threatening disputes with their franchisors and suppliers. Michael Dady is widely regarded as one of the most prominent franchisee attorneys in America, and was recognized by Franchise Times as one of the top 100 franchise lawyers in America. Michael Dady may be contacted by email at jmdady@dadygarner.com, or by telephone at 612-359-9000. To learn more about Michael Dady and his firm, please consult the firm’s Web site at www.dadygarner.com.