Bob Meynardie Archives - NC Business Lawyer https://nc-businesslawyer.com/category/bob-meynardie North Carolina Business & Construction Lawyers Wed, 06 May 2020 01:06:52 +0000 en-US hourly 1 https://wordpress.org/?v=6.6.5 https://nc-businesslawyer.com/wp-content/uploads/2020/03/cropped-Meynardie-Nanney_favicon2-32x32.png Bob Meynardie Archives - NC Business Lawyer https://nc-businesslawyer.com/category/bob-meynardie 32 32 Contract Performance in a Pandemic https://nc-businesslawyer.com/contract-performance-in-a-pandemic Tue, 05 May 2020 13:50:00 +0000 https://nc-businesslawyer.com/?p=49809 Introduction Although the best drafted contracts anticipate risks and attempt to allocate them among the contracting parties, it is unlikely any contract fully anticipated the economic and commercial impact of the novel coronavirus pandemic.  But how is a retail store able to meet its lease obligations with no revenue coming in?  How can a construction […]

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Introduction

Although the best drafted contracts anticipate risks and attempt to allocate them among the contracting parties, it is unlikely any contract fully anticipated the economic and commercial impact of the novel coronavirus pandemic.  But how is a retail store able to meet its lease obligations with no revenue coming in?  How can a construction supplier meet its obligations if the product or raw materials are simply not available? We are not experiencing the economy slowing to a trickle, in many sectors the faucet went from wide open to completely closed in a matter of weeks.

If the current commercial slowdown and/or governmental directives are impacting your ability to perform contractual obligations, can you be relieved of those obligations.  The very unsatisfying answer is, it depends.  Unfortunately, there are no definitive answers but there is some interesting case law from North Carolina and elsewhere.  Click here for an interesting article describing several cases that came out of the 1918 flu pandemic.  

For our analysis, the starting point, as always when analyzing contractual rights and obligations, is the contract itself.  Absent a contract provision that anticipates and addresses the specific circumstances, either a government shutdown or more specifically a “pandemic” provision, the most likely place to find relief is in a force majeure clause.  Without contract relief, there are several legal doctrines that may provide excused performance in specific circumstances.

Force Majeure

The first question is whether your contract contains a force majeure clause.  The term literally means “superior force” in French.  If your contract contains such a clause. it is designed to excuse performance in the event that some superior force prevents performance but whether you can expect relief from this clause depends upon the language used.  A very broad clause will read something like this:

Party A shall not be liable for any failure or delay in the performance of its duties to the extent the failure or delay is caused by a force majeure or event beyond its reasonable control, including, but not limited to, any fire, act of God, war, government action, act of terrorism, epidemic, pandemic, natural disaster or other major upheaval.  If such an event occurs, Party A’s duties and obligations will be suspended immediately and without notice, until such time as Party A, in its sole discretion, may safely perform its duties.  If performance is not possible due to such event, performance of duties is excused. 

If your contract excuses performance under terms like these you do not need to read any further.  Your contract is very unlikely to contain this broad a clause but more narrowly tailored clauses may also provide relief.

Frustration of Purpose

The doctrine of frustration of purpose may be available as a defense to performance in some cases as a result of the pandemic.  For instance, assume you rented an AirBnb in Augusta, Georgia because you miraculously obtained tickets to the Masters tournament this year.  In all likelihood, the doctrine of frustration of purpose would allow you to back out of the rental when the Masters was cancelled as a result of the pandemic.

In North Carolina, the doctrine of frustration of purpose requires “an implied condition to the contract” such that a change in that condition could excuse performance. Faulconer v. Wysong & Miles Co., 155 N.C. App. 598, 602, 574 S.E.2d 688, 691 (2002).  However, “[i]f the frustrating event was reasonably foreseeable, the doctrine of frustration is not a defense.  In addition, if the parties have contracted in reference to the allocation of the risk involved in the frustrating event, they may not invoke the doctrine of frustration to escape their obligations.  Brenner v. Little Red Sch. House, Ltd., 302 N.C. 207, 211, 274 S.E.2d 206, 209 (1981).

Impossibility and Impracticability

Contractual performance may be excused where the otherwise breaching party could not perform because performance was impossible.  For instance, in UNCC v. Greene, 111 N.C. App. 391, 397, 432 S.E.2d 699, 702 (1993), the court excused the failure to convey an easement as contracted after the property in question was condemned by the government.
 
Impossibility of performance and commercial impracticability are similar and under North Carolina law difficult if not impossible (pun intended) standards to meet.  For instance, in Knowles v. Carolina Coach Co., 41 N.C. App. 709, 714, 255 S.E.2d 576, 579 (1979), the hour rejected impracticability in a lease dispute even when the landlord was partially responsible for the tenant’s inability to meet rent obligations.  A distinction can be made for the current circumstances based upon the inability to anticipate these circumstances.  However, the Knowles court cited with approval a California decision rejecting the defense for a car dealership that could not sell cars after all manufacturers switched to wartime production during World War II.

Illegal Contracts

A basic premise of contract law is that an agreement to perform an illegal act is null.  On March 27, 2020, Governor Cooper issued a “Stay at Home” Executive Order that restricted “mass” public gatherings.  A contract for the use of a wedding hall for 100’s of guests, which was legal on March 1st, became an illegal contract.  Either party should be able to terminate the contract under the illegal contract doctrine.  This example might also fit the frustration of purpose doctrine.

The doctrine makes a contract the performance of which would be illegal non-enforceable.  A through review of the contract and the various restrictions imposed during the pandemic is necessary, however.

Relief in Construction and Sale of Goods Contracts

In addition to these general legal doctrines, there is potential relief in specific types of contracts.  For instance, many construction contracts contain force majeure clauses, which may provide relief but may also indicate that the basis for non-contract based relief was anticipated and therefore unavailable.  Construction contracts also contain specific provisions for delayed performance and some may have provisions related to unexpected cost escalation.  We have addressed cost escalation in a webinar, which can be found here and are currently preparing a webinar on delays, which will be posted on this site when available.

The Sale of Goods is governed by the Uniform Commercial Code and the answer to whether relief is available may be different in that context.  We have addressed the issue of performance relief in that context in a separate post, which can be found here.

Disclaimer

This post is an overview of certain contract law principles and is not to be considered legal advice.  Contract law varies from state to state and contracts governed by the laws of other states may be subject to different interpretations.  Likewise the principles described above may be interpreted differently under different circumstances.  You should contact your attorney who will analyze the applicable facts, the contract, and applicable law.

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]]> Payroll Protection Program Loan Forgiveness https://nc-businesslawyer.com/payroll-protection-program-loan-forgiveness Mon, 04 May 2020 02:05:00 +0000 https://nc-businesslawyer.com/?p=49816 So, you got a PPP Loan, what now?  The key feature of the PPP loans is the ability to turn them into grants, i.e., forgiven.  But there are rules you must comply with to maximize the amount forgiven.  The PPP is a work in progress so the SBA may change some of the guidelines but […]

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So, you got a PPP Loan, what now?  The key feature of the PPP loans is the ability to turn them into grants, i.e., forgiven.  But there are rules you must comply with to maximize the amount forgiven.  The PPP is a work in progress so the SBA may change some of the guidelines but here is the best information available at the moment and some questions that need to be answered.

How Do I Figure Out How Much Of The Loan Will Be Forgiven?

Start by reading the Loan Agreement and SBA Note you signed.  Your loan documents should spell out the requirements but probably do so in a way that leaves as many questions as answers.  Ultimately, loan forgiveness is spelled out in Section 1106 of the CARES Act (read it here), which states that the loan can be forgiven up to the full principal amount plus accrued interest if the Borrower (i) uses all of the proceeds for eligible purposes; (ii) maintains employment levels; and, (iii) maintains compensation levels within the “covered period.”  There is a lot to unpack here to ensure maximum forgiveness.

What Costs Are Eligible To Be Forgiven?

The first thing you should keep in mind is that to be eligible the costs are specific costs that are “costs incurred and payments made during the covered period.” §1106(b).  The covered period is the 8 week period beginning on the date of loan origination.  This raises the question of whether cost incurred prior to the covered period but paid during the covered period is eligible.  For instance, if your loan funds on May 4th and you use some of that loan to pay rent that was due on May 1st, is that rent payment eligible.  What if the loan funds on May 4th and you want to use the proceeds for July 1st rent?  The covered period expires June 28th.  If you prepay rent on June 27th is that incurred during the covered period?  So far there is no guidance on these technical questions but if you want July’s rent to be included in calculating forgiveness you should make the payment within the 8 week covered period.

Section 1106(b) makes the loan forgivable for payments made for (1) Payroll costs; (2) Any payment of interest on any covered mortgage obligation (which shall not include any prepayment of or payment of principal on a covered mortgage obligation); (3) Any payment on any covered rent obligation; (4) Any covered utility payment.  Rent and mortgage interest are self-explanatory but what are eligible payroll costs and eligible utility payments.

A ‘‘covered utility payment’’ means payment for a service for the distribution of electricity, gas, water, transportation, telephone, or internet access for which service began before February 15, 2020.  This is a pretty broad definition of utilities but timing issues could arise here also.  Many VOIP phone services, for instance, offer discounts for paying annually in advance.  Is a pro rata portion of telephone service eligible if the annual payment was made outside the 8 week covered period?  Is the entire year eligible if paid within the covered period?

Payroll costs are perhaps the most complicated part of this calculation for two reasons.  First, the definition of payroll costs leaves some questions unanswered and second there are two payroll-related tests that, if not met, could reduce the amount of forgiveness even if you used the entire loan for eligible costs.  Section 1106 defines payroll costs by reference to Section 1102. §1102 defines “payroll costs” as the sum of payments of any compensation with respect to employees that is:

  1. salary, wage, commission, or similar compensation; payment of cash tip or equivalent; payment for vacation, parental, family,
  2. medical, or sick leave; allowance for dismissal or separation;
  3. payment required for the provisions of group health care benefits, including insurance premiums;
  4. payment of any retirement benefit;
  5. or payment of State or local tax assessed on the compensation of employees; and
  6. the sum of payments of any compensation to or income of a sole proprietor or independent contractor that is a wage, commission, income, net earnings from self-employment, or similar compensation and that is in an amount that is not more than $100,000 in 1 year, as prorated for the covered period;

Use of the loan proceeds to replace net earnings from self-employment is clearly within the definition of eligible payroll costs but on its face is limited to sole proprietor’s self-employment income.  Of course, including a sole proprietor’s self-employment compensation but not a partner’s makes little, if any, sense.  This Forbes article implies that the exclusion is to prevent partners obtaining loans at the same time as the partnership.  That makes sense but the article then goes on to say that the SBA Guidelines allow the self-employment income of a partner to be treated as payroll costs.  Although lenders do appear to be allowing the inclusion of this income in the calculation of loan amounts, the Guidelines themselves are silent on this point.

Banks have begun accepting proof of self-employment compensation even if it is not reported on Schedule C (sole proprietor’s business income) but no guidance has been issued on whether this compensation which supports the loan amount will also be included in the calculation of forgiveness.

What Other Rules Could Result In Reduction or Elimination of Forgiveness?

The goal of the PPP, as its name implies, is to provide small businesses a means for continuing to meet payroll or to re-hire furloughed employees.  In short, to protect payroll.  Although non-payroll expenses will qualify for loan forgiveness, the Act includes two tests that reduce the amount of the loan that can be forgiven if not passed.

Although using the loan for qualified expenses will result in loan forgiveness, the amount of forgiveness will potentially be reduced by two things:

  1. the percentage by which the business’s full time equivalent employees are reduced during the “covered period” compared to one of two prior periods at the borrower’s election (2/15/19-6/30/19 or 1/1/20 and 2/29/20).
  2. the amount by which any employee’s salary or wages are reduced more than 25% of the total salary or wages of the employee during the most recent full quarter during which the employee was employed before the covered period.

The first test potentially results in a percentage reduction of the forgivable amount.    Full Time Equivalent employees is not a defined term in the statute but is defined elsewhere.  However, there are working definitions in other federal statutes.  For instance, under the Affordable Care Act, the total number of hours worked by part-time workers in a month is divided by 120 hours to determine the FTE for that month.  The IRS also uses of 30 hour per week but uses 130 hours per month instead of the ACA’s 120 hours.  As an example, assume your small business has 12 part-time employees, who collectively worked 1200 hours between January 1, 2020 and February 29, 2020.  That is 600 hours per month divided by 120 hours or 130 hours means you employed 4.6 – 5 FTEs depending on which statutory definition is used.  As long as you employ the same number of FTEs during the covered period all of your eligible expenses would apply to loan forgiveness dollar for dollar.

The second test reduces the loan forgiveness amount by the amount any employee’s salary or wages are reduced more than 25% of their wages for the most recent full quarter before the covered period.  In other words, any employee that received a salary or wages during the last full quarter prior to the covered period must be paid 75% of the salary or wages they were paid in that quarter or the amount of loan forgiveness is reduced by the amount that threshold is not met.  Of course, this could lead to absurd results.  An employee who quit at the end of January, would presumably have to be paid 75% of the amount they were paid in January even though they were no longer employed before the shutdown and have no intention of returning to work.

To qualify for forgiveness then, the borrower must use the funds for eligible purposes and show that salaries and wages were maintained at a minimum of 75% for each employee and that the number of FTEs did not decrease during the covered period.  Documentation requirements will vary by lender but the lender is not charged with verifying the accuracy of these documents.  Instead, fraudulent filings will be dealt with by the SBA.

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]]> Exploring Neutrals’ Neutrality: A Narrative Approach https://nc-businesslawyer.com/exploring-neutrals-neutrality-a-narrative-approach Sat, 04 Apr 2020 20:52:50 +0000 https://nc-businesslawyer.com/?p=49778 Neutrality and perhaps as important the perception of neutrality is one of the most precious assets a mediator brings to a mediation.  In facilitative and evaluative mediation, the two predominant models used in civil case mediation, mediators work hard to maintain their ability to engage the parties from a position of neutrality.  This tension is […]

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Neutrality and perhaps as important the perception of neutrality is one of the most precious assets a mediator brings to a mediation.  In facilitative and evaluative mediation, the two predominant models used in civil case mediation, mediators work hard to maintain their ability to engage the parties from a position of neutrality.  This tension is never higher than when we use evaluative skills as a neutral.   To the extent we evaluate the claims — either voluntarily or at the request of a party — the perception of neutrality can evaporate quickly.  Once a neutral expresses an opinion or evaluation, the parties may perceive that the mediator is defending that opinion instead of serving from a position of neutrality.  Facilitative mediation training spends a great deal of time dealing with this issue.  

Narrative mediation theory, which I have been exploring here, posits that actual neutrality is impossible because we are all subject to the inherent biases that are based upon who we are — gender, race, socio-economic backgrounds.  From the narrative perspective, a mediator cannot serve a wholly impartial function.  However, acknowledging the cultural biases that constantly influence us makes it much easier to treat the parties impartially.

Remember that narrative mediation theory is premised upon the belief that people understand the events in their lives — including the conflict events — as part of a story.  In order to understand those events people place them into the context of a story or narrative.  These narratives, in turn, are based upon assumptions (or discourses) that are different for different people depending upon their cultural context.  For instance, people from different countries or cultural backgrounds will interpret events differently because of the narrative through which they understand those events.

Understanding these differences, narrative mediators recognize that we too interpret events through our own cultural discourses.  In other words, we come to every mediation with our own biases in how we see the world.  This is perhaps obvious but what is important to learn here from the narrative perspective is that we, as “neutrals,” must critically examine those biases as they might affect our neutrality.  

Whereas it is true that mediators come into every conflict with inherent biases based upon their background and experiences and therefore are not neutral as narrative mediation uses that term, this is not the type of neutrality the Courts require of “neutrals.”  Nor is it the definition of neutrality that is critically important to serve impartially as a neutral in civil litigation cases.

Neutrality as we define it is better described as impartiality.  It is undoubtedly true that a 60 year old male caucasian mediator will not naturally place employment discrimination events described by a female person of color into the same narrative discourse as the storyteller.  It is also true, however, that a mediator who understands his or her cultural biases is far more likely to be able to understand the teller’s discourse and narrative than one who assumes he is neutral.  It is the ability to understand the narrative and its underlying discourses that allows a good mediator to demonstrate the impartiality necessary to serve as a neutral.

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]]> Is Your Mediator Stupid Enough? https://nc-businesslawyer.com/is-your-mediator-stupid-enough Fri, 03 Apr 2020 12:51:57 +0000 https://nc-businesslawyer.com/?p=49768 I recently read an interesting article by a mediation trainer suggesting that he actively encourages new mediators to become “more stupid.”  In the article, Michael Jacobs contends that “stupidity and ignorance are essential assets” of a good mediator.  His point is that mediators — like most people thrust in the middle of disputants — have […]

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I recently read an interesting article by a mediation trainer suggesting that he actively encourages new mediators to become “more stupid.”  In the article, Michael Jacobs contends that “stupidity and ignorance are essential assets” of a good mediator.  His point is that mediators — like most people thrust in the middle of disputants — have an almost insurmountable desire to figure out the problem and lead the warring factions to a resolution and that this should not be our role.  Jacobs contends that

The success of mediation is often in direct proportion to the mediator’s ability to resist the impulse to coax the parties in the right direction.

A facilitative mediator’s role, according to Jacobs — which parrots in some ways the narrative mediation model that I have begun to explore in this blog — is to “walk behind the parties and simply pick up the stuff they drop.”   The practice of stupidity is a recognition that the mediator’s role is not problem solving.  Instead, conscious ignorance is a pre-requisite to the process of discovery.  Listening (picking up what the parties are dropping) without judgment clouded by our own opinions (practicing stupidity) is for Jacobs the essential task of the mediator.  Does the not so simple task of listening with empathy to the  narrative constructed by the parties open the space to alternative narratives and resolution?

We have all had mediators who believe they understand our case better than we do after an hour long general session. If we hired that mediator because of his or her experience in the substantive area of law, they may have been justified in thinking that the parties wanted some forceful evaluative form of mediation.  It has never been successful in any mediation I have been a part of because there is always so much more to the conflict than just the substantive dispute.  

I think Jacobs’ point is that through empathetic listening and forcing the parties to explain their position rather than leading them toward a solution that may be obvious to a neutral is the best way to allow them the space to understand the other narrative.  That’s not exactly how he put it but is my narrative-based interpretation.  In any event, the article is worth your time.  Read it here.

Conflict ‘shrinks’ us.  The stories disputants construct … feature clear cut dichotomies of who’s right and who’s wrong.  This kind of clarity leaves little room for doubt.

And little room for a negotiated peace.

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]]> Coronavirus Aid, Relief, and Economic Security Act (CARES Act) – Forgivable Small Business Loans https://nc-businesslawyer.com/coronavirus-aid-relief-and-economic-security-act-cares-act-forgivable-small-business-loans Sat, 28 Mar 2020 21:49:06 +0000 https://nc-businesslawyer.com/?p=49743 Read how federal legislation is helping small business remain afloat during the pandemic shutdown.

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The Coronavirus Aid, Relief, and Economic Security Act (CARES Act), signed into law on March 27th, is the third significant piece of legislation enacted by Congress since the emergence of the new coronavirus and COVID-19.  This Act follows the Coronavirus Preparedness and Response Supplemental Appropriations Act signed into law on March 6th and the Families First Coronavirus Response Act signed into law on March 18th.  There are a number of provisions in the new bill that are designed to help small businesses.  

The first, and most important, provision for small businesses is the Paycheck Protection Program (“PPP”).  The PPP offers loans to businesses with fewer than 500 employees, some businesses with up to 1,500 employees, 501(c)(3) non-profits and 501(c)(19) veteran’s organizations.  Self-employed and sole proprietorships may also be eligible.  The loans would require no personal guarantee or collateral with interest rates no higher than 4%.  Lenders are expected to defer fees, as well as principal and interest repayment for six months to a year.  Most importantly, some or all of the loans would be forgiven if the employer continues to pay employees at the normal rate.

DOES YOUR BUSINESS QUALIFY?

If your business has fewer than 500 employees for whom it paid salaries and payroll taxes, was operational on February 15, 2020, and is impacted by COVID-19, it is probably eligible for a PPP loan.  There is a certification requirement that the business was impacted by COVID-19 and that the funds will be used to maintain payroll and other obligations — such as a mortgage or lease.

Borrowers will have to make a good faith certification:

(I) that the uncertainty of current economic conditions makes necessary the loan request to support the ongoing operations of the eligible recipient;
(II) acknowledging that funds will be used to retain workers and maintain payroll or make mortgage payments, lease payments, and utility payments;
(III) that the eligible recipient does not have an application pending for a loan under this subsection for the same purpose and duplicative of amounts applied for or received under a covered loan; and
(IV) during the period beginning on February 15, 2020 and ending on December 31, 2020, that the eligible recipient has not received amounts under this subsection for the same purpose and duplicative of amounts applied for or received under a covered loan.

WHAT CAN I USE THE LOAN PROCEEDS FOR?

  1. Payroll Costs;
  2. Costs related to the continuation of group health care benefits;
  3. Employee compensation;
  4. Mortgage Interest;
  5. Rent;
  6. Utilities;
  7. Interest on debt incurred before the covered period.

WHAT IS THE MAXIMUM AMOUNT MY BUSINESS CAN BORROW?

The maximum loan your business can qualify for is the lesser of 2.5x the average monthly payroll for the year prior to the date the loan is made plus the amount of certain other SBA loans or $10 million.  

WILL MY BUSINESS'S LOAN BE FORGIVEN?

The amount of the loan used to meet payroll costs during the 8 week period following the issuance of the loan, as well as rent or mortgage payments and utility payments are forgivable as long as these obligations were in place before February 15th.  The amount forgiven is reduced by any reduction in in pay of any employee beyond 25% of their prior year compensation.  Borrowers who re-hire workers previously laid off are eligible and reduced payroll as a result of the lay-offs would not be included in any reduction of the forgiveness.

An eligible recipient shall be eligible for forgiveness of indebtedness on a covered loan in an amount equal to the sum of the following costs incurred and payments made during the covered period:

  1. Payroll costs.
  2. Any payment of interest on any covered mortgage obligation (which shall not include any prepayment of or payment of principal on a covered mortgage obligation).
  3. Any payment on any covered rent obligation.
  4. Any covered utility payment.

WHAT LIMITS ARE THERE TO LOAN FORGIVENESS

Although the statute provides for loan forgiveness the amount of forgiveness will potentially be reduced by two things:

  1. the percentage by which the business’s full time equivalent employees are reduced during the “covered period” compared to one of two prior periods at the borrower’s election (2/15/19-6/30/19 or 1/1/20 and 2/29/20).
  2. the amount by which any employee’s salary or wages are reduced more than 25% of the total salary or wages of the employee during the most recent full quarter during which the employee was employed before the covered period.

WILL MY BUSINESS HAVE TO MAKE PAYMENTS ON THE LOAN?

Loan fees, as well as principal and interest payments, will be deferred so if you qualify to have the loan forgiven the PPP loans will effectively become grants.

WILL THE PPP BE EFFECTIVE TO KEEP SMALL BUSINESSES IN BUSINESS?

The PPP is a great start in that it allows employers to take out forgivable loans to pay employees.  However, although it appears to provide relief to small business owners to help with non-payroll expenses (e.g., loan proceeds may be used to pay rent etc.) its limitations on forgiveness together with the definition of maximum loan amount means that loan proceeds used to pay rent are almost certainly going to reduce the amount of forgiveness.

For instance, a small business takes a maximum loan of 2.5x its average payroll.  Lets say hypothetically the average monthly payroll is $10,000 and the loan is therefore $25,000.  The covered period is 8 weeks so in order to avoid losing forgiveness of the loan, the employer would have to use $20,000 to pay its employees (its actually more complicated because of the calculation of FTEs).  Unless rent and utilities are less than $2,500 per month some of the business’s expenses would not be covered by the loan/grant.

Although the CARES Act will get money into the hands of small business employees if their employers are willing to navigate this loan/forgiveness/grant minefield, it does not help small businesses pay rent and other necessary expenses even though the bill’s provisions suggest that intent.  A simple amendment to allow the maximum amount of the loan to be 2.5x the average cost of all allowable expense categories would make this a much stronger support.

WHAT IS THE PROCESS FOR APPLYING?

In short, nobody knows yet but it is likely to be similar to SBA loans since the PPP loans will be administered through the SBA.  However, since there are no collateral or personal guarantee requirements there is hope that the process will be streamlined.  The lenders I have spoken to do not yet have applications or further information from the SBA but we will update this information when available.

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]]> Virtual (On-Line) Mediation https://nc-businesslawyer.com/virtual-on-line-mediation Sat, 21 Mar 2020 15:23:36 +0000 http://nc-businesslawyer.com/?p=49733 Bob Meynardie is now offering virtual mediation.

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Life has changed at a blistering pace as a result of COVID-19.  The courts are essentially shutdown and deadlines have been extended.  Social distancing and sheltering in place as well as travel restrictions obviously impact scheduled mediations and scheduling mediations. On March 17, 2020, the North Carolina Dispute Resolution Commission issued the following statement:

“all mediations under a DRC program shall be conducted remotely, if all parties agree. Rule 4 of the MSC and FFS Rules provide a mediation may be conducted via electronic means with the agreement of all parties.  If all parties fail to provide their consent to conduct mediation via electronic means, the matter shall be rescheduled after April 12, 2020.”

I have been conducting virtual meetings for several years using the Zoom platform.  Although using it for mediations is new for me, Zoom is perfectly designed for remote or virtual mediations.  The platform allows for a general session, provides the mediator the ability to establish breakout rooms, to move parties between rooms, and for screen sharing and a virtual whiteboard.

Addressing Objections to Virtual Mediation

Attendance:  MSC Rule 4 allows attendance at mediation via electronic means only with consent of all parties.

Privacy/Recording:  MSC Rule 4 prohibits recording the proceeding by any participant.  Zoom allows for video recording but only the host (mediator) has that capability.  Of course, it is possible for a party to screen capture the general session but any such recording would be a violation of the rule and would not be usable.

Privacy / Private Sessions: Zoom allows the host to establish breakout rooms.  Participation in any room would be controlled by the mediator.  Obviously the parties and their counsel could mute their microphones and communicate privately by “virtually sending the mediator out into the hall.”

One of the most valuable aspects of in-person mediations is the one on one time lawyers spend getting to understand the spoken and unspoken views of their clients with respect to the dispute.

Zoom’s breakout rooms allow the parties and their counsel to have these same conversations.  Since the participants are working from home or office, they may not utilize the time away from the mediator to have these discussions.  Naturally, we discourage multi-tasking or any other activity that distracts from these valuable interactions.

Commitment to the Process:  We have all been on teleconferences and perhaps video conferences where one or more participants is “multi-tasking.”  Most of us have been in mediations where one or more parties is there without any commitment.  Resolution or impasse in virtual mediation is no different from in person mediation.  Resolution comes from commitment, attitude, preparation and all the other things we have discussed on this blog regardless of whether the mediation is in person or virtual.

Sharing Information:  Zoom allows the parties to share a powerpoint or other graphical information or evidence directly on the platform.  Of course, email and other means of sharing are available as well.

Advantages Of Virtual Mediation​

Travel: There are no geographical restraints. The only requirement to participate is an internet connection.

Time: Saves significant travel time even where all parties are local

Scheduling: Because there is no travel and because parties and their counsel can work from their office or home it should be much easier to schedule convenient mediation times.  

Lower Key Atmosphere: The prospect of a face to face mediation is stress inducing for most parties.  Meeting on-line may reduce that stress.

Flexibility: Virtual mediation allows for more flexibility in scheduling and conducting the mediation.

To Schedule A Virtual or In Person Mediation Click Here

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]]> What Every Advocate Should Know About Narrative Mediation https://nc-businesslawyer.com/what-every-advocate-should-know-about-narrative-mediation Mon, 16 Mar 2020 14:13:00 +0000 http://nc-businesslawyer.com/?p=49683 Become a better negotiator by understanding the psychology of narratives.

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As briefly described in a previous post, I have been studying a mediation model called narrative mediation and implementing some of its techniques in my practice.  Narrative mediation techniques are focused on improving the relational aspects of conflict — that is improving the relationship of the parties.  This is why narrative mediation has a strong foothold in family mediation and community mediation in some places and why it is not a predominant model in civil litigation.

However, after a year or two of studying this model and using it in my civil litigation practice, I believe it is a mistake to simply ignore what we can learn from it simply because the model is focused on a different (broader) goal than simply resolving the dispute. Mediators and advocates alike can gain insights and sometimes a pathway to settlement that can be missed in a more traditional problem-solving model.  As a way of examining conflict it not only adds to a mediator’s toolbox but is useful to advocates in their negotiations.  For this reason, this post is the first in a series on narrative mediation as taught and how it is impacting my negotiations and mediations.

Why Should You Care About Narrative Mediation Theory?

In my experience as both an advocate and a neutral, one of the primary reasons that resolving conflicts is difficult is because the parties have different “facts.”  What do you do when your opposite party in a mediation (or negotiation in general) has a different set of facts.  There is only one objective set of facts, right?  So, the other side must be lying or acting in bad faith in some way.  This conclusion can be an insurmountable obstacle in mediation.

The question for a mediator (and an advocate trying to resolve the conflict) then is how do we help parties resolve a dispute when both parties have perfectly credible and completely opposing views of the facts.  Mediators try to find common ground, help the parties explore the costs and risks of not settling and the possibility that the judge, arbitrator, or jury might see those facts differently than they do.  In most cases, this analysis facilitated by a good mediator is enough to accomplish the task of finding a compromise that both parties can live with.  Mediation as civil mediators, myself included, were trained (primarily what is called facilitative mediation) is very effective but what if there were techniques that could not only help more cases settle but could help the parties find more than a grudging compromise.  In my experience understanding the narrative mediation perspective and some of its techniques offers such an opportunity.

Is there such a thing as objective truth?  Lawyers are trained to seek the truth; what makes good lawyers may be a conviction that there is an objectively defined truth.  But the focus on objective truths is a handicap in many mediations. Settlement in mediation is almost never reached by a determination of THE truth. Trying to find it may in some instances help the parties understand how their subjective understanding of the truth has lead to conflict but it often is not only a waste of time but may also lead to a loss of a mediator’s most important tool: perceived neutrality.  Time and time again as a mediator, the truth as understood in one room differs significantly from the truth in the other room(s).  Mediators hear completely irreconcilable versions of the facts all the time.  Fortunately, it is possible to resolve civil disputes without finding the “objective” truth.

Mediation is not good at discovering the objective truth, nor is that it’s purpose.

I often tell litigants that if they want someone to tell them they are right and the other side is wrong mediation is the wrong place.  This is why narrative mediation and the techniques employed by narrative mediators can be so valuable.

What Is Narrative Mediation?

Narrative Mediation has been described as both an approach and a methodology.  Although the methodology is important and shares many ideas with facilitative mediation, it is beyond the scope of this introduction.  Understanding the approach and the perspective of narrative mediators is valuable even without studying the model’s techniques.

Narrative mediation is based upon the premise that people understand facts (what we might call objective facts) by placing them  into a story or narrative.  That is, the facts themselves do not stand alone.  Usually, many details of the story are not known.  The gaps in the narrative are filled by assumptions that are framed by our past experiences, dominant story themes, and cultural context.  As Gerald Monk — one of the chief proponents of the model — said in an interview: “We have this capacity to, very quickly, make meaning of any human event by linking particular, discrete plot events and combining them, to be able to then tell a story. This capacity of human beings to make meaning through the story is a very central element of narrative work.”  Through what is called de-constructive listening, among other techniques, narrative mediation attempts to understand the basis of the “conflict narrative.”

Monk and others are focused on a different goal than simply settlement.  Since civil litigation mediation is focused on settlement, one of the primary benefits of understanding the narrative approach is to open the parties to the possibility that their facts might fit a different narrative.  To oversimplify, by helping the parties see the controversy from the other’s perspective hopefully leads to a loosening of the belief that the other is a “bad guy.”  This in turn opens the wider opportunity for compromise.

How Does This Help My Client?

Some civil litigation conflicts are based upon a different interpretation of legal/contractual rights and obligations, some are based on one party having the leverage to take unreasonable positions, and some are based upon a lack by one party or the other of a full understanding of the provable facts (Note the lack of the term objective facts).  Whatever the reason, conflicts that are not quickly resolved all meet the following generic description by Gerald Monk:

I think that all conflict, that I can think of, comes down to a mismatch of expectations about what you thought should happen.

Understanding the basis of the differing expectations provides space for possible resolution even if the goal is not restoring a long-term relationship.  Much of this exploration is probably better done with the help of a neutral but it is a mistake for advocates to rely solely on the mediator to explore the foundations of the conflict.  In any event, it has long been my belief that the more you know about what your neutral is trying to accomplish the more likely the neutral is to help you accomplish it.

In future posts I intend to explore in more detail the theoretical underpinnings of narrative mediation, how those theories guide the techniques of narrative mediation, and how these techniques differ (or are similar to) from what we do in facilitative and evaluative mediation.

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]]> Bracketology https://nc-businesslawyer.com/bracketology Thu, 04 Jul 2019 22:20:00 +0000 http://nc-businesslawyer.com/?p=49454 In virtually every mediation that bogs down, I am asked about the use of brackets. Brackets have their place but to state the obvious: the use of brackets will not change parties’ calculation of their BATNA (Best Alternative to Negotiated Agreement), will not affect their underlying interests, or their perception of the right or wrong […]

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In virtually every mediation that bogs down, I am asked about the use of brackets. Brackets have their place but to state the obvious: the use of brackets will not change parties’ calculation of their BATNA (Best Alternative to Negotiated Agreement), will not affect their underlying interests, or their perception of the right or wrong of a settlement. These are the real drivers toward settlement and every advocate — and mediator — should address these issues directly with their client. So, what purpose(s) does bracketing serve in a negotiation?

What are brackets?

Bracketing is essentially conditional negotiation. One party suggests that they will offer X if the other party agrees it will demand Y. Instead of making an incremental offer or demand the parties make conditional offers and demands conditioned upon the other party’s response. In truth every demand and countering offer is a form of bracket. But brackets as we define them are the use of these upper and lower limits as conditional moves.

How are they used in mediation/negotiation?

In a hypothetical mediation, the claimant is seeking $2 million and the respondent is offering $25,000. They each make successive moves to $1.75 million and $75,000. For one or more iterations, the parties move in lock-step. That is for every $5,000 one party moves, the other party makes a corresponding move. In theory, once the parties are within a “reasonable” negotiating range, the moves should be designed to communicate a message. Prior to reaching that range though, the only message is you are not in a range I am comfortable having a real negotiation. In our case, both parties are sending the same signal. Small movements when the gulf is this large communicate nothing more specific than the parties do not see the case in the same light.

In order to accelerate the discussion, one party suggests bracketing as a method of getting to the reasonable range and more importantly to communicate to the other side what “reasonable” means to them. So, the respondent suggests that they will offer $150,000 if the claimant will agree to reduce their demand to $600,000. The claimant will then respond in one of a variety of ways but one useful piece of information can be communicated by countering with a different bracket. The Claimant therefore counters with a proposed bracket of $500,000 and $1,000,000.

Although the brackets are far apart, the message is clear that the Claimant will accept a settlement below $1,000,000 and the Responsdent is willing to pay more than $150,000. Still a huge gulf but much less than before. The other thing that might be inferred is that both parties might be willing to settle in the middle of their proposed bracket. That is, $375,000 for the Respondent and $750,000 for the Claimant. If so, the gap has been reduced from more than $1.6 million to $375,000. Still a long way to go but perhaps a resolution is now within site.

Benefits of Brackets

  • Time Saving — Incremental offers and counter-offers can be painfully slow. If used properly, the use of brackets can significantly accelerate the process.  Conditional offers can encourage larger moves because they are conditional.
  • Communication — Brackets can communicate the parties negotiating posture more clearly than incremental changes. A defendant who believes the Plaintiff has severely overvalued their claims may find it difficult to bring the Plaintiff into their “ballpark” through incremental offers. Take for instance the party who repeatedly matches the other parties’ moves in order to keep the mid-point at a level beyond what the other party is willing to pay. The defendant makes increasingly smaller movements to signal this position but the Plaintiff simply matches.
  • Momentum — Conditional negotiation can allow the parties to build momentum by making larger moves than they would with a non-conditional change in position.  Technically the proposal of a conditional bracket does not change a party’s position unless the condition is accepted.
  • Encourages further negotiation — Many negotiations get to a point where the parties believe that further negotiation is pointless even when there may still be an opportunity.  Brackets can change this dynamic in a way that additional offers and counter-offers might not at the same time providing real feedback on the usefulness of continued negotiations.

How/when should you use them?

Conventional wisdom warns not to use brackets early in a negotiation. In my experience, parties suggest the use of brackets only after the negotiation has bogged down and the parties are “not in the same ballpark.” Notwithstanding this CW, you would be hard pressed to explain why brackets could not be employed to good effect much earlier in the negotiation. Likewise, conventional wisdom as expressed in the literature does not provide a rationale for its conclusion. Several recent articles suggest that it is never too early to introduce brackets, particularly if the alternative is impasse.

The premature use of brackets may communicate too much information too soon.

Although an early bracket suggestion may be of value in many cases, the caution is that the premature use of brackets may communicate too much information too soon. In most mediations, the parties come into the day with wildly different beliefs about the value of the claims and therefore with wildly different expectations for the outcome of negotiations. Premature use of brackets can shortchange the very important progress that mediation can achieve to move expectations of the warring factions toward each other by being too blunt.

How do you respond to a proposed bracket? The response might be a counter-bracket or a rejection of brackets altogether. In one recent mediation, parties traded simultaneous alternative brackets and movement in their actual offers and demands. This can be very effective if the messages sent by the simultaneous offers is consistent. It is obviously not productive if the simultaneous offers send conflicting messages.

Once brackets are introduced, when should you revert to traditional bargaining? The flip answer is when they have done their job. That is when the gap is narrow enough to make traditional offers and counter-offers likely to succeed. Ideally, brackets will lead to a situation where the top of a defendant’s bracket is within the plaintiff’s bracket and/or the bottom of a plaintiff’s bracket is within the defendant’s bracket.

Problems Caused By Brackets

Like any offer or demand, the number sends a message as does the amount or percentage of movement. The party receiving this message interprets it, usually with the help of the mediator, based upon a variety of clues. Eventually, the amount of the other party’s move in relation to your last move and the calculated mid-point are the messages most frequently received — intended or not. In my experience, brackets are almost universally received as the proponent’s suggestion that they will settle at or near the mid-point of the bracket. If this is not the case, that message should be expressed or a potentially fatal miscommunication will have occurred.

In summary, brackets can be a useful tool for changing expectations, accelerating movement toward the settlement range, and communicating parties’ expectations. We will save the concept of a settlement range for another discussion but it is that definable range in which a case will settle (every mediation has one, unfortunately not every mediation reaches it).

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