Every once in awhile, I blog about how important it is to prepare for mediation and how parties and/or counsel cannot come to mediation expecting simply to “wing it” and succeed. It will not work!

A recent mediation is a case in point. It was a straightforward collection case. Plaintiff had sold apparel to Defendant and so was owed (let us say by way of example only!) $100,000. Defendant paid $10,000 and then came to Plaintiff advising it was having cash flow problems. So, Plaintiff agreed to forgive $10,000 of the debt, agreeing to accept $80,000 (instead of the $90,000 actually owed) if Defendant made monthly payments of $4,000 plus $200/month in interest. Defendant e-mailed back refusing to agree to pay the interest; Plaintiff countered insisting that the interest be paid. Defendant then started making the monthly payments of $4,000 for the next 20 months and not paying any interest. Only once did Plaintiff complain of the lack of interest payments, claiming to be afraid to raise the issue again because Defendant might then refuse to pay at all. So, for 20 months, Plaintiff accepted the payments, remaining silent about Defendant not paying the additional $200 in interest each month.

Only after the full $80,000 was paid did Plaintiff claim that Defendant breached the agreement, urging that the additional $10,000 ( i.e., going back to the $90,000 debt) was owed. When Defendant refused to pay it, Plaintiff sued.

The parties came to mediation on these facts. Defendant was quick to point out to me that as this was an oral contract, even assuming that interest was owed, some of the payments were barred by the two year statute of limitations since Plaintiff waited awhile to file suit after receiving the last payment. Thus, Defendant urged to me that under the worst case scenario, only about half or $2000 of interest might be owed. However, Defendant also pointed out to me that Plaintiff had waived all interest by accepting 20 months of payment without complaint. Moreover, Defendant continued, there was no way Defendant owed an additional $10,000 as the original debt had been superseded by the revised payment plan. I acknowledged that I understood and pointed out that it was up to a jury to decide if the revised agreement, indeed, superseded the original agreement and if Plaintiff waived or was estopped to claim the interest after accepting 20 months of payments without complaint.

So, I then spoke to Plaintiff and counsel, pointing out the issues raised by Defendant. Plaintiff quickly dropped the demand for the $10,000 additional principal but insisted on payment of the full $4,000 in interest even though I pointed out defense counsel’s argument that half of it was barred by the statute of limitations.

So, I took the $4,000 demand to Defendant who countered with $1,000. It became clear to me that although Defendant believed it owed nothing, it was willing to make an economic decision and settle the matter to avoid the further time and expense of litigation. It wanted to be rid of what it believed to be a nuisance case.

I took the $1,000 counteroffer into Plaintiff. I was met with quite a surprise. Plaintiff advised that it was sticking with its original demand of $4,000 for interest and was unwilling to move without doing further research on the legal issues (statute of limitations, waiver, estoppel et cetera) and also search for any additional e-mails or other documents that may help Plaintiff’s case. With that, Plaintiff and counsel walked out! (Notably, Defendant had already deposed Plaintiff and so presumably, had already requested documents for which Plaintiff had already searched, located and produced to Defendant. That is, it was a bit late in the game to start looking for documents and conduct research!)

I walked into the other conference room and advised Defendant and counsel what had just happened. Needless to say, they were not at all happy; they had come to mediation to settle a case and not to have their time wasted. They were willing to make a business decision and pay money that they truly believed was not owed.

What Plaintiff accomplished by being unprepared was to engender a great deal of animosity and ill will. Whatever amount Defendant was willing to pay will, in all probably, now be much, much less to account for the attorneys fees, mediation fees and time wasted at the mediation. No doubt, Defendant may be angry and upset at Plaintiff’s “antics” and will do its best to make Plaintiff “pay” for them.

In short, any chance that the case had of settling was just torpedoed by Plaintiff’s lack of preparation and insistence on terminating the mediation to do the research and to look for documents; both tasks that should have been accomplished long ago.

The moral: don’t try to “wing” it; it will end in disaster and probably put you in a worse position than when you started!

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by Phyllis Pollack

Phyllis G. Pollack is a full time neutral in Los Angeles where, as President of PGP Mediation, she focuses on business, real estate, contract and “lemon law” disputes. She may be reached at Phone: 213-630-8810 / phyllis@pgpmediation.com / Website: www.pgpmediation.com