Negotiation

John and Pedro own a brokerage and investment company. They are equal partners in the business and split both profit (or losses) and expenses. They have been in business for ten years. When they first started the business, John’s father gifted him a small building on the edge of downtown which the two partners have since used as their office. Pedro came into the business with $100,000 in cash which was promptly invested in advertising and other business costs. John’s education is in finance and he already had five years experience in the industry as well as some client base when the partnership was initiated. Pedro was an English major with no experience in finance and no clients, but he is good with people and has acquired many more new clients than John in the last ten years. Currently, they have a total portfolio of investments of $10,000,000.00 and manage approximately 2,000 separate investment accounts. Their office building is worth $500,000. They have joint liabilities of approximately $250,000, most of which consists of $100,000 in capital improvementson their building and the rest in operating expenses.

On the liability front, Pedro was recently caught having an affair with one of the employees. The employee shortly afterwards filed a sexual harassment lawsuit against the business in the amount of $1,000,000. The case is still in the court system and no settlement offers have been extended by either side. In addition, John has recently entered rehab for a drinking and drug problem. For the last two years he has brought in only a handful of new clients into the business and Pedro has been doing most of the new client acquisition as well as the day to day work in the office. Based on all of their issues the two partners have decided to dissolve their partnership. After several attempts at informal negotiation without arriving at a settlement, the partners have decided to go to either a mediation or an arbitration in order to avoid one of them filing a lawsuit against the other one for a violation of their partnership agreement. They decide to go to a mediator.

 At the mediation, the mediator is a well-known lawyer in town with years of experience in the court system.  Both parties have heard of him and feel lucky to have him as their mediator. As the mediation begins, he notices that the parties interrupt each other repeatedly, accusing each other of being a drunk or a sex fiend, as the case may be. The mediation becomes very personal and even the lawyers appear agitated.  Therefore, he decides to place the parties in separate rooms.  At one point during the mediation, he notices that both parties want 100% of the client accounts.  Later Pedro lowers his demands and suggests splitting the accounts equally.    However, the mediator believes that Jim will reject this notion if he brings it to Jim as  Pedro’s idea because Jim has always believed that without his building and without his initial accounts and expertise in the industry that Pedro would never have been successful in the business.   The mediator therefore decides to present the idea to Jim as the mediator’s own idea.  After some discussion Jim agrees to the split the accounts equally. 

The mediation then turns to the issue of the building, and the company’s liabilities, including the potential $1,000,000 debt for the lawsuit.  Neither side wants to assume liability for the $250,000 business debt.  The two fight back and forth about this issue for over an hour and the mediation session drags on until late in the evening. Faced with the prospect of not arriving at an agreement, the mediator decides to pressure both parties with the very real possibility that the parties failure to arrive at an agreement on these issues will require them to go to trial and that a judge will then be the one to make all the decisions for them, including the issue of client accounts which has already been settled.  He then points out to them that the two have less than 30 minutes to resolve the remaining issues before he calls an end to the mediation.  With less than 10 minutes to go, the parties finally agree that Jim will assume the $250,000 in business debt and that Pedro will accept full liability for the sexual harassment lawsuit regardless of the outcome.   Jim keeps the building but gives Pedro $30,000 as reimbursement for

capital improvements conducted on the building in the last 10 years. They arrive at a complete settlement of all issues and avoid expensive and uncertain litigation.

Read the Attached Negotiation/ Mediation file and answer the three questions below.

  1. Defend the parties’ decision to move to mediation after negotiations broke down. Evaluate the outcome of the mediation based on your understanding of negotiation and mediation theory and the facts of the scenario.
  2. Assess the mediation session based on mediation theory. In particular, identify all mediation techniques which you can find in the scenario.
  3. Defend the mediator’s use of heavy-handed techniques toward the end of the mediation session.