What Constitutes Bad Faith in Mediation?

While mediation is designed to avoid some of the contentiousness generally associated with most litigation, it is not uncommon for an attorney or party who becomes frustrated with the process to respond to an adversary’s actions during the course of the day by hitting them with the ultimate angry accusation: “That’s bad faith.”

But is it? Black’s Law Dictionary defines “bad faith” as “[t]he opposite of ‘good faith.’” (Well, that’s helpful.) But it goes on to describe bad faith as “generally implying or involving actual or constructive fraud, or a design to mislead or deceive another, or a neglect or refusal to fulfill some duty or some contractual obligation, not prompted by an honest mistake as to one’s rights or duties, but by some interested or sinister motive.”

So do the various tactics about which lawyers and their clients complain during a mediation meet this standard? Let’s take a look:

1. The Zero Dollar Offer. Most mediators and plaintiffs’ counsel have been involved in at least one mandated mediation during which a defendant responds to an opening demand with an affirmative declaration that no monetary offer will be forthcoming, often accompanied by a generous proposal to refrain from seeking costs or fees should the lawsuit be promptly dismissed. While taking such a position is highly unlikely to foster a productive mediation, and will likely promptly bring negotiations to a halt, declining to pay anything in exchange for a pre-trial resolution is not bad faith, as a party has every right to fully defend against allegations asserted against it. (The analysis might change if a defendant affirmatively requested to mediate absent a court order and then offered nothing – but such chutzpah is extremely rare.)

2. The Best Day in Court Demand. On the flip side, defendants often pound the table when confronted with a proposal by a plaintiff’s lawyer that carefully calculates each and every penny of the alleged pecuniary losses, adds in the maximum recovery for other compensatory damages, predicts the amount of attorneys’ fees she will incur, and makes a demand equal to this entire amount, with no discount for early resolution, and refuses to move substantively off of such an opening. But plaintiffs also have a right not to compromise their claims, and accusations of bad faith in this scenario are similarly misplaced. Moreover, during the course of a mediation a plaintiff usually retreats from that “best day” position rather quickly, especially when the defendant indicates a willingness to compromise.

3. The Threats. On infrequent occasions, litigants and their attorneys use the confidentiality provisions of the mediation proceedings to make assertions and arguments they would not otherwise make in a public forum. For example, they will suggest that if a case is not resolved to their satisfaction during mediation, they will move to add parties or claims, counterclaims, or cross claims that might “make matters worse” for their adversaries – even if they know such claims are short of factual or legal merit. It can be a fine line between aiming for strategic leverage and acting in bad faith. It suffices to say that lawyers should avoid making affirmative misrepresentations even in a confidential proceeding where their statements are generally inadmissible.

4. The Absence of Authority. Perhaps the closest a party can come to bad faith in mediation is sending a representative who lacks actual power to resolve the case. This occurs more often than not on the defense side of the caption (although plaintiffs will occasionally attempt to avoid appearing and empower their counsel to negotiate on their behalf). Although mediators understand that many entities have a corporate structure that might preclude sending the “ultimate” decision maker to every mediation, most orders directing parties to mediate dictate that someone must be in attendance with “full authority” to settle. With this in mind, businesses should carefully consider providing designated representatives with a substantial degree of discretion to resolve the case within an appropriate range (i.e. “full authority”) as opposed to remotely setting a dollar amount in stone before the negotiations even begin.

Allegations of bad faith in the course of a mediation are more often than not simply rhetorical expressions of one side’s displeasure with another’s tactics. Nevertheless, parties should consider coming into every mediation not only with individuals present with full authority to settle, but with flexibility, an open mind, a willingness to listen, and a spirit of compromise to make the process efficient and effective.

Eischens + Vogel Mediation Solutions mediates many types of civil disputes, from employment to personal injury to commercial matters. For more information and to schedule a mediation, visit our website.