Mediation and Other Forms of Alternative Dispute Resolution: A Perspective for Cannabis Businesses

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Recently I attended an informative program on mediation hosted by the San Francisco Bar Association (the “BASF”). In this blog, I share a handful of the panelists’ excellent observations and offer up a few thoughts of my own about the value of well-managed alternative dispute resolution, especially mediation, to cannabis operators.

What is Alternative Dispute Resolution (“ADR”)?

As you probably know, alternative dispute resolution (“ADR”) is a lawyer’s term of art that essentially means procedures available to resolve disputes outside of a trial before a judge and jury.  

Types of Alternative Dispute Resolution

The two most common forms of ADR are mediation and arbitration, although there are many other types of ADR available to disputing parties. The American Bar Association, in its “Dispute Resolution” primer, lists twenty-two different types of ADR as being the “most common.”  

Some forms of ADR, such as early neutral evaluation or a pro tem trial, are only available through the courts when litigation is already underway. Because of this, I disfavor the often-quoted definition of ADR as “any method to resolve a dispute other than litigation.”

Instead, I prefer to think of ADR as a tool-kit of possible ways to resolve a dispute without submitting the matter to a jury (or a judge in the case of a bench trial without a jury) for a determination of each party’s rights, obligations and remedies under applicable law. Some forms of ADR can be every bit as binding and final as trial litigation. In fact, some are even more so, such as binding arbitration with an express prohibition on any appeals. However, most forms of ADR are non-binding, meaning that any opinions expressed in the ADR have no effect on the legal rights and obligations of the parties. In other words, the disputing parties can simply move forward as if the non-binding ADR never happened.

Mediation and its Benefits

Mediation is a classic form of non-binding ADR, normally pursued by litigants in the hope of reaching a quick split-the-baby settlement. But disputing parties would be wise to view mediation as helpful even if it doesn’t produce such a settlement. Mediation can be far more “strategic” and broadly helpful than that.

For example, here are some of the specific benefits of mediation called out by the BASF panelists which felt particularly important to me as a cannabis attorney:

1)  Mediation gives each of the parties an opportunity to be heard and to work together; it is a quasi-collaborative process.

Sometimes disputes are advanced by people who just want to be heard and taken seriously. Mediation forces the parties to listen to one another and listening improves mutual understanding. Furthermore, mediation under the guidance of a strong mediator forces the parties to be civil again. All non-binding ADR, but especially mediation, tends to work better when the parties avoid trash talk, for example.

In the cannabis industry today, there is a wide range of players, many of whom have very different experiences, expectations and ways of doing business. Partly because of this, disputes are common and cannabis operators are encouraged to consider these “interpersonal” benefits of ADR over civil litigation. Put a little differently, within non-binding ADR, there is no one to push a party involuntarily into a resolution. Rather, each party must, through a series of threats and offers, entice the other parties to voluntarily agree to end their dispute.

Mediation is therefore fundamentally about looking for common ground in a quasi-collaborative manner, i.e., collaborative even though separated by the mediator as a go-between. For this reason, commercial disputes are often good candidates for mediation. Mediation more often allows the parties to try to preserve and maintain some form of ongoing working relationship. It should, therefore, come as no surprise that most of our firm’s commercial agreements, joint venture arrangements, and licensing contracts provide for “stepped” dispute resolution including pre-litigation mediation.

2) Mediation is confidential.

Mediations are never recorded or open to the public. Litigation before a jury exposes all parties to each jury member’s prejudices and airs the dispute in a way that could harm everyone’s reputation, including the victor’s.  In heavily regulated industries, such as cannabis and banking, litigants will often prefer private ADR over public litigation just to keep the spectacle (and the specifics) of their disputes away from reporters and regulators.

3) Mediation is highly flexible.

Although a mediator cannot compel any party to take action, the mediator can manage the mediation so that it addresses the needs of the parties in a tailored way. The BASF panelists, for example, spoke convincingly of their many experiences resolving disputes over the span of weeks or months. Sometimes mediation is most effective when all parties sit in the same room thereby allowing each party to size up the resolve, integrity, and persuasiveness of the other parties; sometimes mediation is most effective when all parties are separated and the mediator spends his or her time shuttling from one room to another, slightly modifying the message for good effect.

The point is simply this: because civil litigation is confined by court rules and the rules of civil procedure, it is very hard to approach the process of civil litigation creatively. Sometimes the process of civil litigation can drive litigants into entrenched positions and produce sub-optimum results. If handled well, ADR can be infinitely more flexible.

4) ADR can be cost-effective.

Lastly, it is often said that ADR is preferred over litigation because it is cheaper. This is an oversimplification. For example, some ADR proceedings can be extremely expensive to conclude, such as arbitrations following years of discovery and weeks of hearings before a panel of highly-paid arbitrators, each of whom are compensated for their time by the disputing parties themselves (in contrast to judges and juries who are paid through taxes). Moreover, conducting non-binding ADR just to be followed by the same scope of litigation is hardly a satisfying outcome.

However, well-managed ADR can be extremely cost effective. For example, commercial parties can agree when they enter into contract that any disputes will be resolved through binding arbitration before just one arbitrator rather than a larger panel of several arbitrators and the contracting parties can agree up front to express limits on costly discovery (for example, no more than five depositions, etc.). Similarly, after a dispute has arisen, the parties can use well-managed ADR to narrow the scope of the dispute, for example, using mediation to identify a very narrow set of questions of fact or law to put to an arbitrator for determination.

Put simply, ADR can be very helpful, especially if used early in a dispute, to control costs because it forces the parties and their attorneys to engage actively in thinking about creative ways to end the dispute sooner rather than later. In this regard, cash-strapped clients should give serious consideration to ADR as a path within their control towards a more speedy resolution of their disputes.

At Rogoway Law Group we have extensive experience with pre-litigation mediation, as well as drafting commercial agreements, joint venture arrangements, licensing contracts, and other contracts for “stepped” dispute resolution. Please reach out if you are in need of assistance with such a matter.

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