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Successful Mediation of Leasing Disputes

Monday, December, 8, 2014

By Steven B. Corenblum and Barry Marks


Many leasing attorneys object to mediating lessor–lessee disputes.  Some feel that the law is clear enough in favor of the lessor or lender to result in a quick victory in court. Others fear that a mediator will “split the baby” rather than give the lessor its due. 


Before turning their backs on mediation, equipment finance lawyers should recognize that leasing disputes are not always clean and simple. Disputes involving maintenance and return issues and such well-worn phrases as “reasonable wear and tear” or “surplus to lessee’s needs” can make for complicated issues unfamiliar to most judges and virtually any jury. 


In addition, not all disputes are between lessee and lessor. Lessee-vendor disputes often  involve parties that want to continue a mutually beneficial relationship while resolving a specific argument.  Lessors and lease originators often find themselves at odds over issues that may be complex and rely on industry standards and practices rather than clear

legal issues.


In all of these cases, the parties often want a quick resolution and to avoid public embarrassment or competitive disadvantage by keeping the negotiations private.  It is not uncommon for one side or the other to think it will prevail if it can just find an independent third party knowledgeable in the industry to explain the law to a less sophisticated foe.


This article examines some of the key issues involved in a successful mediation. The article is framed as a conversation between lawyer and mediator.


Selection of Mediator


 Lawyer: From my perspective, the selection of the mediator is often as important as any other issue.  A good mediator understands the equipment leasing industry and practices with specific reference to the matter at issue.  Many lawyers who are very experienced in large-ticket transactions would find themselves lost dealing with a typical broker-lessor dispute. 


 Of course, the mediator must be someone who is unbiased and is capable of seeing both sides of the question.


 It also helps if the mediator has some standing in the industry, but it is more important that the mediator have experience. Even a layman or one who knows very little about leasing can do a good job if he or she can facilitate the resolution of arguments and speak convincingly as to what is likely to happen should the matter go to trial, a situation both sides want to avoid.


 From your perspective, how important is experience in a given industry, as a mediator overall, and do you think there are other things we should look for?


 Mediator: I agree that the selection of the mediator is very important, but I do not think that the mediator must have particular subject-matter expertise in order to successfully resolve a dispute. Remember that the mediator’s purpose is to resolve the instant dispute, not to determine who is correct under the law. So a mediator who, while unfamiliar with leasing or financing issues, is able to engage the parties and inspire their trust and creativity is likely to be more successful than an equipment leasing expert to whom none of the parties can relate. I would concede that a mediator with “credentials” in the equipment leasing field may be more readily accepted by the parties at the outset, but I do not believe that this experience necessarily leads to a better result. You should look for a mediator who is intelligent, persistent and optimistic, and one who is able to assist the parties in evaluating their respective needs and the relative strengths and weaknesses of their positions.




 Lawyer: I find that if my side has practiced what is going to be said and selected who will do the speaking, much of the preparation handles itself. It is important to have the actual decision maker present (mediators insist on it) or at least be able to get to the right person quickly. In most instances, I like to do the talking, but sometimes it is better to have the initial statement made by a non-lawyer to establish how important the matter is to the actual party involved. On some occasions, it is good to have a carefully orchestrated statement made by the client to the mediator to be sure that we are able to convince the mediator that there is no bluff and the party is serious. 


 Also, preparing the client is as important as anything. The client must understand that a mediation is (from my perspective) an enhanced settlement negotiation. There will not be

a clear 100% winner walking away with all the marbles. If a client is not ready for this process and to concede some issues, I try to avoid or delay mediation.


Can you tell how well a side is prepared, and how do you react if the client does not seem to be ready to compromise? Does it help or hurt to look really intransigent?


Mediator: Remember that the opening statement is appropriately addressed primarily to the other party or parties, and the mediator is an additional beneficiary of the information and the emotionality of the presentation.  The purpose of the opening statement is not to persuade the other side that his position is wrong, but simply to cast some doubt so that the other side is willing to listen and understand the risk of proceeding to litigation. An opening statement can educate the opposing decision maker regarding facts of the case of which she may not be aware, and this may create the uncertainty needed to foster fruitful settlement discussions.  The opening statement can set the tone for the rest of the day — either for the good or bad. I often will dispense with opening statements if I feel (usually after consulting with the lawyers) that such statements will likely inflame the situation rather than set a tone that will foster open sharing of information and movement toward agreement. Interestingly, a highly charged and partisan opening statement can do as much damage to the presenting side by raising the expectations of the presenter’s client as to the positives of his case as it can by inflaming the passions of the opposite side. It is best that all opening statements be respectful and moderate in tone and substance.


The lawyer must focus on two areas of preparation before the mediation.  First, he must prepare his legal and business arguments that will be presented in the mediation, and have all the important facts at hand. Often mediations stall because questions of fact arise and neither party has access to the information necessary to answer a fundamental question — what is the useful life of the leased equipment, what is the current market value of the equipment, or how much commission was paid upon execution of the lease? It is extremely helpful for the lawyers to prepare a brief position statement setting forth the relevant facts and law as well as the perceived strengths and weaknesses of the case and to present the statement to the mediator several days in advance of the mediation. Often, I will call the lawyers with questions after reading the position statement but before the mediation so that the arguments and possible solutions are further advanced before we begin the formal process.


Second, and more important, the lawyer must prepare his client for a prolonged day of sometimes tedious negotiations, and for a result that will not be all that the client hopes, but that will be satisfactory given the vagaries and cost of litigation. Most important, the lawyer should dissuade the client from adopting a “bottom line,” for his settlement. A bottom line prevents the flexibility that is needed in the dynamic process that is a mediation.  A client that comes to a mediation with his mind already made up is not ready to listen to the other side, or to the mediator, and is therefore likely to go home in the same boat in which he arrived at the mediation. 


Selling to the Mediator


Lawyer: I wonder how you react to this comment: Often I want to present my best case to the mediator, not to get him or her on my side, but to be sure that the right message

is communicated to the other side. It sometimes helps to have the client make the point that we are ready to go to litigation if we don’t get certain points answered to our satisfaction.


Mediator: I need to know the strengths and weaknesses of both parties’ cases, so I expect that the lawyers will accentuate the positives and downplay the negatives of their respective cases. But remember that I am hearing all sides of the case, and it is up to me to help the parties separate the wheat from the chaff. I like to hear directly from the client, as that indicates that he is informed and engaged, and therefore more likely to

participate meaningfully in crafting a resolution. Also, hearing directly from the client will often enable me to better judge whether the lawyer is posturing or actually espousing the views of his client. 


Topics for Mediation


Lawyer: I think any vendor/lessor dispute is a good candidate for mediation.  We want confidentiality and not to let the world in on how we operate. Sometimes, if a vendor ships to a customer before we are ready or allows the customer to make changes in the order, we are covered by specific language in the purchase contract or order. When this is not true, we get into the classic “industry practice” argument. That is something we really want to establish before or in lieu of trial to save the cost of experts and depositions. 


Do you find yourself commenting on this and the strength of a party’s case in presenting the issues to the other side? If we have informal letters, etc., will you look at them favorably as evidence of what we can put into evidence?


 Mediator: The most important prerequisite for a successful mediation is the parties’ willingness to compromise.  The seeds of compromise can be: 1) weak legal position, 2) unfavorable facts, or 3) delay and cost of judicial resolution. If any one party does not own at least one of these components, a successful resolution is unlikely. So if a party believes that there is no “gray area” in a particular dispute, he is not likely to be willing to compromise. However, it is the rare case with facts and law so clear as to be totally free from doubt, so a party’s willingness to compromise will be influenced by her willingness

to understand the opponent’s position and therefore accept that there may be some uncertainty as to the outcome of litigation.


 In a mediation, the parties are not bound by the rules of evidence and can look at and consider any information presented at the mediation session. However, it is often important for the mediator to inform a party (usually the client himself) that the rules of evidence may prohibit a particular document or other piece of information from being considered at trial. Explaining to the parties the uncertainty of litigation, and, where appropriate, giving each party a “dose of reality” as to what may happen at trial, are some of the mediator’s most important functions. 


 Lawyer: Another issue I’d prefer to mediate is the return condition. Again, reasonable wear and tear can only be argued by experts and industry standards: very expensive. Often, the lessee is prepared to make a reasonable settlement or perhaps finance new equipment.


 How do you feel it is best to raise these issues? Should we tell you that such things are possible early on, and let you keep them to yourself until the right moment?


Mediator: I want to know as much as possible as early in the process as possible, as this will enable me to better assist the parties to reach a mutually agreeable settlement. If there is a piece of information that you do not want me to share with the other side, I am bound to keep that information confidential. Frequently, I will hold one side’s non-confidential information until I believe it can best be used to facilitate a settlement. I believe that the parties craft the settlement and I am there strictly to facilitate the process.



Steven B. Corenblum is a mediator at the law firm of Najjar Denaburg, PC in Birmingham, AL. Corenblum has extensive experience in corporate and transactional law. His current mediation practice leverages his legal and business experience, focusing on commercial disputes of all degrees of complexity, including disputes among business owners, members of professional firms, and parties to acquisitions and financings. 

Corenblum may be reached at [email protected].