Over the last few months, I have served as a mediator for attorneys in unique business disputes involving the financial industry. The attorneys involved quickly were able to avoid legal landmines in two critical areas by using a local mediator with experience in that area of law. First, out-of-state mediators are often unaware of the requirements of the Minnesota Civil Mediation Act, a law that requires certain provisions be used in order to reach an enforceable deal. The attorneys are unfamiliar with our law and unaware of this potential legal problem. Second, inexperienced mediators in financial disputes may not be aware of unique regulatory restrictions in this regulated industry. The mediator should have some background in the area of law in dispute.

In one recent mediation, I worked with attorneys that came from out of state. They were unaware that Minnesota law had certain requirements for an effective and enforceable mediation. In Minnesota, mediation must follow certain basic requirements in order to have an enforceable settlement.  Under the Minnesota Civil Mediation Act, a mediated settlement agreement is not binding unless: (1) it contains a provision stating that it is binding and a provision stating substantially that the parties were advised in writing that, (a) the mediator has not duty to protect their interest or provide them with information about their rights; (b) signing a mediated settlement agreement may adversely affect their legal rights; and (c) they should consult an attorney before signing a mediated settlement agreement if they are uncertain of their rights; or (2) The parties were otherwise advised of these conditions.  Minn. Stat. § 572.35, Subd. 1.

In a landmark case, the Minnesota Supreme Court ruled that a handwritten document prepared by the parties’ attorney at the conclusion of a mediation session was unenforceable as a mediated settlement agreement because it failed to state that the document was a binding agreement.  Haghighi v. Russian-American Broadcasting Co., 577 N.W.2d 927 (Minn. 1998).  In that case, at the conclusion of the mediation, as is often common, the attorneys drafted a handwritten agreement that the parties signed (yes, even Minnesota attorneys may not know about this requirement).  However, the document did not contain a provision stating that it was binding as required by the Minnesota Civil Mediation Act.  Later, one party sought to enforce the mediated settlement agreement in court and, ultimately, the case made its way to the Minnesota Supreme Court.

The Minnesota Supreme Court ruled that the document was an unenforceable deal because it did not comply with the Minnesota Civil Mediation Act.  The supreme court found that the Minnesota Civil Mediation Act was unambiguous in its requirements: the Act clearly provides that a mediated settlement agreement will not be enforceable unless it contains a provision stating that it is binding.  The court rejected an argument that mediated settlement agreements drafted with the assistance of counsel should not fall within the purview of the Minnesota Civil Mediation Act.  Instead, the supreme court reasoned that “it is just as likely that the legislature intended that a settlement document state that it is binding in order to encourage parties to participate fully in a mediation session without the concern that anything written down could later be used against them.”  As a result, in Minnesota, a mediated settlement agreement must contain a provision stating that the settlement agreement is binding in order to be enforceable.

In the mediation I handled with out-of-state attorneys, we followed the procedures of Minnesota’s unique law. The parties were successful in reaching a settlement, which included the required language for an enforceable agreement. I have seen out-of-state mediators come to the mediation completely unaware of this legal requirement.

The second critical reason to use a local and experienced mediator has to do with understanding the regulations that govern the parties. For example, the parties in a FINRA dispute have to comply with FINRA regulations relating to settlement agreements. Typically, the parties will reach an agreement at the end of the mediation that includes a confidentiality provision. The parties do not want their deal to be shared publicly for any number of reasons; public relations, privacy reasons, etc.

However, under FINRA rules, the parties may not enter into a blanket confidentiality that prohibits disclosure of the settlement in all circumstances. There needs to be an exception to confidentiality so that FINRA and state regulators are allowed an opportunity to investigate the events giving rise to the dispute for possible regulatory violations. FINRA views such a blanket confidentiality a regulatory violation. Many mediators (and some attorneys) are unaware that parties entering into such an agreement may run afoul of FINRA regulations, which could give rise to regulatory action.

These are two critical legal landmines that justify using a mediator with local knowledge and experience so that the parties are able have a successful experience.