Experts in Mediation: Catalysts for Resolution
by Roger M. Deitz

An expert has traditionally been regarded as a credentialed spokesperson engaged to endorse the position of his or her client. The expert is paid for his or her review and is paid for his or her time to testify.

To regard an expert as a catalyst for resolution may appear contradictory to the expert's perceived role as a paid advocate. Experience, however, has shown many instances where an expert engaged by one party has assisted in a negotiated resolution endorsed by all parties. This article will explore the role of experts in mediation, the numerous contributions experts can and do make to resolution, and the many ways experts can bring added value to the resolution of securities disputes. It will address these roles from the perspectives of the advocate, client, opponent, and mediator. 

An Expert Can Assist Before a Claim is Brought 
Mediation often occurs before a statement of claim is filed. An expert can make many contributions: identifying issues in dispute, marshalling facts, and bringing key elements into focus. For counsel unfamiliar with securities disputes, an expert can be an invaluable resource in understanding the facts and the issues, and in identifying the salient aspects of both.

An expert can be extraordinarily valuable, as well, in selecting a mediator. Many experts have participated in securities mediationsi i and have worked with many mediators. This experience can be extremely useful in selecting a mediator who is appropriate for a dispute and the personalities of the parties. 

An Expert Helps Clarify the Issues 
An expert will help the client, attorney, and mediator understand the issues in dispute and articulate the issues without the emotion of the parties or the advocacy of counsel.

The success of mediation rests upon each side's readiness to listen to the other and to honestly comprehend and respond to each other. Mediation is not evidentiary. It is not necessary to prove the facts at issue. Nevertheless, the more effectively each side can marshal and present its facts, educate the other side to these facts, and counter opposing facts the more likely resolution will be achieved.

For instance, an expert can help the parties reconcile out of pocket damages, avoid debate over computational issues, and free the parties and their counsel to focus on resolution alternatives and problem solutions.

The Role of An Expert 
The parties and counsel must recognize the expert as someone who can contribute to resolution and to the process of resolution. All sides may more readily accept experts who appear regularly in securities matters, especially experts who are engaged by both claimants and respondents. Those experts who normally appear only on behalf of investors or on behalf of brokerage firms will have to establish credibility with all sides to be a useful force for resolution. Even an expert who is not accepted by all sides should be able to present numerical data in a format that will provide information to expedite the resolution process. The expert should be able to simplify rather than complicate settlement discussions. 

Much depends on the mediator and his or her disciplines, background and skill. Some mediators may have excellent dispute resolution skills, but, for subject matter expertise, the parties may more readily look to a respected expert. Even when the mediator's securities knowledge is considerable, the expert may be a better medium for effective delivery of authority, especially on more subjective matters, such as custom and practice issues.

The expert's best role is as an honest broker rather than an advocate. An expert will save time and money by effectively presenting data and explaining its significance. For example, an expert can testify that account activity represents a certain turnover or that the level of activity is consistent with an investor's stated objectives. The expert cannot, however, indicate whether an investor knowingly ratified the transactions. An attorney should not ask or expect an expert to opine on issues beyond his or her knowledge.

Experts who have participated in numerous arbitrations bring another strength to settlement: these select experts have the background and ability to anticipate possible outcomes. This expertise can be useful not only to a mediator but also to counsel and the client who have engaged the expert. Counsel should respect an expert's views, even if they conflict with the client's expectations or counsel's assessment of a case.

It is most important that the expert be a help and not a hindrance. The expert who is unwilling to listen to the other side or who turns a blind eye to persuasive but unwelcome facts will be an obstacle towards resolution. Indeed, these qualities will undermine the expert's effectiveness at an arbitration hearing or trial.

It is necessary to prepare the expert and all other participants in the mediation to anticipate an expert's participation and to establish at the outset how the parties, counsel, and the mediator want to interact with the expert. In addition, the role of the expert may change as the case progresses.

Sometimes an expert, not unlike many attorneys, feels he or she must communicate the full text of a prepared statement. This delivery often has a negative impact on reconciliation. Counsel, in an effort to demonstrate to the client or the other side the expert's prowess, may allow this to happen. The mediator may be reluctant to publicly contain such exposition. A private caucus between the mediator, counsel, and the expert can craft a methodology better suited to negotiation avoiding a presentation that will polarize the parties. 

If the expert is positioned to save time, eliminate issues, isolate unimportant facts, and identify areas of mutual agreement, energies can be focused on key issues and core facts. A sophisticated expert can help move a dispute away from unimportant and factually unsupported issues. The world of securities disputes is a small community. A well-known and respected expert speaking softly will bring enormous power and credibility to a claim

Preparing the Client for an Expert's Participation in Mediation 
It is important to discuss the expert's role with the expert and with the client. Most clients will not have worked with an expert and will have an incorrect or unrealistic expectation of the expert's role. In addition many clients, especially investors, will have no experience in mediation or arbitration.

The lawyer should discuss the expert's role independently with the client and jointly with the client and expert sufficiently in advance of the mediation to permit additional preparation if necessary. It is important for the client to see mediation as a team effort and not to expect the expert to be an advocate or someone who will be other than totally forthright with facts, including facts which may be adverse to the client's interests. 

After listening and considering information presented by the opposing side in a mediation, it is not unusual for an expert, engaged by the other side, to counsel his or her client to settle based upon newly disclosed information. For example, in one case an expert's recommended settlement was rejected by her client. She declined to participate in the subsequent arbitration and exactly what she warned against happened. Her former client, rather than collecting damages, was ordered to pay a substantial debit balance.

An expert can justify the client's reassessment and acceptance of a settlement without the client losing face. 

Preparing an Expert for Mediation 
Never assume that the expert knows what behavior is appropriate for mediation. Prepare the expert and indicate what is expected. This should be a collaborative process. Ask the expert for his or her input and how he or she can best contribute to a negotiated resolution. Many experts are qualified as mediators. Use this expertise.

A cost-effective way to bring in an expert is by telephone. Discuss the expert's participation not only with the expert but also with your adversary and the mediator. To bring an expert into mediation without advising the mediator or the other parties will diminish an expert's utility. Most mediators will not exclude anyone from the mediation. However, to introduce an expert by surprise undercuts the mediator's ability to draw on the expert to achieve resolution.

Ethical Issues

Is an expert disqualified because of confidentiality from testifying in court or arbitration if mediation is not successful?i ii 

Can the expert change his or her opinion as a result of facts learned in the mediation?

May an expert use information acquired in mediation when testifying or advising in subsequent unrelated matters?

If the expert perceives a problem with the level of representation of the attorney, does the expert have a duty to inform the client?

Who is the expert's client and what is the duty of loyalty owed to the client? Does this depend solely upon who is paying the expert?

These are particularly difficult questions and often are not easily answered. Some may be addressed by open communication and adequate preparation before the mediation. Confidentiality issues are often addressed by contract, statute, court rules, or other professional norms or rules. Nevertheless, it is very important that the scope of confidentiality in mediation be fully understood and agreed to by all participants, including the expert.i v 

The Parties Can Authorize an Expert to be Engaged as Advisor to the Mediator: The Neutral Expert 
In particularly complex cases at the suggestion of the parties or at the request of the mediator, the mediator is authorized to engage an expert to advise the mediator. In these cases the expert is chosen jointly by the parties and the mediator. The expert's fees and expenses are apportioned by agreement among the parties. Although this is not an infrequent occurrence in cases involving highly intricate or scientific issues, its success in those disputes has not yet migrated to securities. In part this may be due to subject matter expertise of many mediators in securities disputes. v However, in cases where the amount in dispute is substantial, engaging an expert to assist the mediator is an option the parties may consider.

The Expert Can Help the Mediator 
An expert acts as a reality check. An attorney may not have advised his or her client of the uncertainties of arbitration or the strengths of the other side.

The client needs to understand the realities of the case. The expert often will have seen issues that may become problems, such as items on the client's tax returns, trading in other accounts, or other facts the defense may use. The expert can help the mediator help the expert's client reach a balanced understanding of the issues, defenses, and risks of the case.

An expert may distract from the purpose of the mediation. Because the expert speaks with authority, the presence of an expert may polarize the parties. An experienced mediator will quickly recognize this and take steps to use the expert as a force for conciliation. 

Properly engaged in the mediation process an expert can deflate the puffery of a statement of claim. Often the puffery may have been made in the expert's client's claim by an overly ambitious or inexperienced attorney asking for punitive, RICO or other damages unwarranted by the facts of the case. By the time the mediation takes place, the client may have become convinced he or she is entitled to these demands.

Mediation is a price discovery mechanism. It also has many other benefits. The expert can bring not only knowledge, but objectivity to the process. The expert will work to bring the client to reality. On the defense side, for instance, this can mean moving the client away from indignation or fear for reputation to a reasoned view of the situation. A client who is unprepared may reject a generous offer because of a false insistence on a result the arbitrators are unlikely to render. An expert can help in the diplomacy with the client. 

With counsel's permission, it is not uncommon for an expert to call other experts and make a list of facts or issues on which they agree. Indeed, the two experts may make a joint presentation of the facts they agree upon. When two experts are engaged, the mediator may suggest that the experts caucus without counsel, especially before a face to face session. Particularly where the experts know and respect each other, a skilled mediator will use this good working relationship to advantage.

In a complex case, the parties may engage an expert to perform an analysis agreed upon by both sides. This alternative can be analogized to an engagement under Statement of Auditing Standards 75, an agreed upon procedure engagement. 

A client may have lost faith in his attorney. The expert may, by default, become an advisor to the client, guiding the client through the process and helping the client place settlement options in context. 

How Does the Mediator Deal With an Expert Who is Perceived as an Obstacle to Resolution? 
The expert should not displace the central role of the parties.

The mediator can meet separately with the expert. If two experts are present this is often an effective method to achieve consensus, at least, on the numbers, although the consequence of the numbers will remain subject to difference. Private meetings by the mediator with an expert should be undertaken only with counsel's prior approval. 

Consider the opposing party's view of the expert. Often the work of an expert for only one of the parties can skillfully be adopted by all parties with a savings of time that otherwise would be devoted to debating the profit and loss, turnover rate, cost equity ratio, or other standard which the parties consider key to the case. An expert agreed to by both parties may clarify the issues. 

An expert can be a powerful force for resolution. Properly engaged, an expert will contribute enormously to a favorable result, to a client's understanding of what happened, and to why a negotiated solution may be in the client's best interest.

i This article arose from a program sponsored by The Association of the Bar of the City of New York on November 16, 1998, which the author moderated. The author expresses his appreciation to panelists: experts Howard Berg, Mary Calhoun, Patrice Stewart, Ross Tulman, and panel members Norman B. Arnoff and Fred Pieroni. The author also acknowledges the input and suggestions of members of the Experts' Roundtable. An article by the author of similar title and subject appeared in the 1999 PLI Securities Arbitration Course Materials. This current article is a much revised version. Second reprint rights reserved by the author.

ii In four years from inception through July 31, 1999, the NASD Regulation mediation program has grown to 853 mediators. During this time 3,056 claims were closed through its mediation program. In 1998, that was 20% of all NASD cases. Settlements occur in approximately 80% of the mediated cases. Also, see, Alternative Dispute Resolution Act of 1998 28 USC 651 through 658.

iii See, Fields-D'Arpino v. Restaurant Associates Inc., 98 Civ. 7902, March 24, 1999, 1999 U.S. Dist. LEXIS 3393 (New York Law Journal, March 25, 1999, and March 26, 1999) where a law firm was disqualified from representing a corporate client in a dispute that an associate of the firm had attempted to mediate and discovery regarding the mediation was prohibited. While this case involved the ethical obligations of an attorney, the principles would appear to apply to a non-attorney acting as a neutral.

iv See, Proposed Model Rule of Professional Conduct for the Lawyer as Third Party Neutral, CPR-Georgetown Commission on Ethics and Standards in ADR, Draft for Comment, April 1999, cpr-george.html at Although the Proposed Model Rule addresses the ethical obligations of lawyers serving as neutrals, many of the issues in the proposed Rule and Commentary are applicable to the obligations of all participants in the mediation process. 

v In response to the demand for mediators with subject matter experience, the NASD has established a panel of practitioner mediators, individuals with experience in the securities industry who become trained as mediators. Much mediation of securities disputes are actually neutral evaluations where the "mediator" makes a determination of the outcome of the dispute and then attempts to "sell" his or her conclusion to the parties.

* Mr. Deitz is Chair of the Committee on Alternative Dispute Resolution of The Association of the Bar of the City of New York. He is also co-chair of the subcommittee for commercial disputes of the State of New York Unified Court System Alternative Dispute Resolution Advisory Committee. Mr. Deitz is a distinguished neutral of the CPR Institute for Dispute Resolution and Special Master of the Supreme Court of the State of New York - Appellate Division. He is a public member of the National Association of Securities Dealers National Arbitration and Mediation Committee and is Chair of its Mediation Subcommittee. Mr. Deitz has participated in over three hundred mediations, often with experts, whose contributions he has found extraordinarily valuable.

Reference: Securities Arbitration Commentator, Vol. X, #11&12

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