15 Minutes on Mediation of Arts related Disputes

I’m . The topic of my presentation is Mediating Arts Related Disputes. Mediation is a creative and powerful dispute resolution process that has become increasingly common in the arts context. This is not surprising, in light of the unique characteristics of mediation. It is the only resolution process whereby the parties remain in control, not only of the outcome but the way in which the outcome is obtained.

Mediation Distinguished

Let’s begin by distinguishing mediation from other forms of dispute resolution.

What is Mediation and How Does It Compare with Arbitration?

Mediation is a private, confidential, informal and non-binding alternative dispute resolution process whereby a neutral third-party assists the parties in resolving their dispute. Arbitration is similar to mediation in that it is also a private, confidential alternative dispute resolution process. In addition to being more formal than mediation, there is another key difference. In arbitration, a third party neutral (either a sole arbitrator or panel of 3 arbitrators) decides the outcome of the dispute. Arbitral awards are final, that is, non-appealable, and rarely subject to judicial review, unless there has been fraud or other defect in the arbitral process. Compared to mediation, arbitration is often lengthier, more formal, more adversarial, more demanding of the neutral party in terms of time and labor, and therefore more expensive.

How is Mediation Different from Litigation?

Litigation

Litigation is generally something people try to avoid. Not only is litigation expensive, time consuming and emotionally draining, it can destroy long-standing relationships between disputing parties, if not the business itself, as it plays out in public. The court’s decision is public, as well as the pleadings and testimony. As a result, litigation can have a devastating effect on the reputation of the parties. Moreover, the outcome of litigation is unpredictable, since the decision is in the hands of a judge or jury. Courts adjudicate largely in black and white, and are limited in their ability to find creative remedies. One party will generally win and one will lose.

Mediation

How does mediation compare with litigation?The distinctive characteristics of mediation are also its advantages. I will go through several advantages of mediation and discuss how mediation can help parties resolve their dispute.

Control over the Mediation Process

As I mentioned, a unique feature of mediation is that it permits the parties to remain in control. To begin, the parties can select their mediator based on expertise and style and decide what approach makes sense. The parties also determine whether the mediation will be conducted in joint session with all the parties and representatives present, or include private confidential meetings – caucuses – with each side separately.

Mediation is voluntary. Even though participation in mediation may sometimes be court-mandated, the parties are not obliged to agree to anything, and there are no penalties for failing to resolve their dispute. Just as parties can initiate mediation at any stage of the litigation, they can also suspend it at any time and proceed to trial.

At the least, the mediation will have provided an opportunity to narrow the issues and identify the interests at stake.

A mediator can be very effective in simplifying and organizing the case so that it can proceed more efficiently even if it is not resolved during the mediation. As a neutral third party with no stake in the outcome, the mediator can be an effective “agent of reality” by helping the parties to weigh the uncertainty and risks of not settling.

Creative and Durable Solutions

Mediation can foster creative solutions because the parties can take into account real business interests, including non-monetary considerations, and identify impasses to reaching a settlement. Rather than focusing on past conduct, the parties may be motivated to explore new options for mutual gain and search for ways to settle a dispute in which their real interests are not mutually exclusive or truly adverse. By shifting the focus of the discussion away from the “position” or “side” each party has adopted, and instead looking to their needs and objectives, the parties may be able to find “win-win” resolutions.

Moreover, a settlement achieved through mediation may lessen the likelihood of another dispute arising between the parties, while creating a process for them to work through future problems should they arise.

Cost and Time Effectiveness

Mediation is far less expensive than litigation. Often a dispute can be resolved in a single session. By resolving the dispute early in the litigation, or even before a lawsuit has been filed, the parties can save exorbitant sums in court costs, attorneys’ fees, discovery, and other related expenses.

Less Stressful and Emotionally Burdensome

Mediation is far less stressful and emotionally burdensome than a trial, which involves publicly reliving an upsetting experience or exposing a negative business decision that gave rise to the dispute in the first place. Resolution of the dispute through mediation, especially at an early stage of the litigation, allows parties to return to their business and personal lives and avoid the disruption of a protracted litigation.

Confidentiality

Turning now to the confidential nature of mediation. Whereas litigation is public, mediation is confidential. Parties to a mediation may therefore be open and candid about their concerns and positions in a closed, safe environment. Any statements, proposals, or offers made by the parties are not admissible as evidence in any subsequent arbitral, judicial or other proceeding. There is no public record of what was discussed during mediation sessions. All records, reports or documents received by the mediator while serving in that capacity, as well as the mediator’s notes, are confidential. Confidentiality rules also apply to any other persons attending the mediation.

Because of the confidentiality rules in mediation, some of the adverse side effects of litigation are diminished, such as damage to the parties’ reputation due to media coverage, as well as the time and stress involved in witness preparation, testifying in open court, depositions, and other disruptions. These considerations are often critical in art-related matters. The mediation process provides ample protection from having to reveal confidential information to the other side simply by advising the mediator during the separate caucus. Confidential information may include a party’s honest assessment of the strengths and weaknesses of its own case as well as the party’s final settlement position. The mediator may not repeat a confidential statement to the other side without authorization by the party affected.

Privacy and Opportunity to Listen and Be Heard in a Closed Setting

Since mediation sessions are private, no one other than the parties and their representatives is permitted to attend. The parties are therefore free to express their anger and hurt feelings directly to one another or simply to vent. They may benefit from hearing the other side’s version of the story, perhaps for the first time face to face, and may be able to identify areas of agreement and disagreement quickly.

The value in having one party listen and respond to the other party’s concerns, or to receive an expression of regret, remorse, or appreciation cannot be overstated. These interests are no less real because they are not strictly monetary or economic. Parties often feel a sense of catharsis after expressing themselves in the presence of a neutral third party—similar to having their “day in court”—and are more willing to resolve their differences, clear up misunderstandings, and search for common ground.

Preservation of Relationships

Mediation is especially suitable in situations where the disputing parties have had a long-term personal relationship, or an ongoing business relationship. Close collaborations are prevalent in the art world – for example, between an artist and dealer. If the parties are able to resolve their dispute through mediation, there is real potential that they can preserve their relationship rather than destroy it through litigation. Potential settlement terms may include a joint press release, a non-disparagement agreement, a confidentiality agreement, or a contract for future business.

Pre-Mediation Contract

If the parties decide they would like to mediate a dispute, they should enter into pre-mediation contract. This simple contract should include the following provisions.

The mediation should be confidential and non-binding.
The parties should agree on who will conduct the mediation and how the mediator will be paid. The mediator’s fee is typically split between the parties.
The parties should agree on the length of the mediation. Most mediations are scheduled for either a half-day or a full day.
The parties should agree to mediate in good faith until either party reasonably determines that it is fruitless to continue. At that point, they can decide whether to suspend mediation and resume at a later date. Alternatively, they may decide to proceed in court or before an arbitrator or panel of arbitrators.

Mediation may not be appropriate in some cases

Despite the considerable advantages of mediation, it may not be appropriate in some cases. For example, in situations where the parties may wish to establish or follow case precedent, or enforce a judgment against a third party, they will need to go to court. Due to the private and confidential nature of mediation, there would be no public vindication (unless parties agree to publicize). While some mediators may be more evaluative than others, the role of a mediator is not to offer an opinion but rather to facilitate the negotiation. Mediation would not be appropriate in cases involving deliberate bad faith, counterfeiting or piracy.

How does mediation work in practice?

Scenario of an Artist-Gallery Dispute

Let’s consider a hypothetical scenario of an artist-gallery dispute.

Hypothetical Contract Terms

Assume that Artist and Gallery A sign a written consignment agreement with the following terms.

Gallery A will have exclusive agency, that is, serve as Artist’s only dealer, for a period of 2 years. They will split the sales proceeds 50/50.
Once Gallery A has been paid for the sale of a work, it will remit 50% of the sales proceeds to Artist on a quarterly basis.
Gallery A agrees to exhibit Artist in 2 group shows the first year and 2 group shows and 1 solo show the second year.
Artist agrees to produce 15 new works of art the first year and 20 the second year.

First Year

During the first year, things are going smoothly. Artist’s works are selling well. The press is favorable. Collectors are interested. Gallery A is prompt about sending 50% of the sales proceeds to Artist quarterly, as required under their agreement.

Second Year

During the second year, however, Gallery A periodically gives advances to Artist totaling $50,000 and uses Artist's 50% share of the proceeds generated by the sales of his work to repay itself for the advances. Artist abruptly terminates his representation by Gallery A, with $30,000 of the advance payments still outstanding, and decides to work with Gallery B instead. Artist seeks recovery of several paintings delivered to Gallery A on consignment, but Gallery A refuses to return them, asserting a security interest in the works against Artist's debts. Moreover, 1 of the paintings is missing. Artist sues Gallery A for recovery of the paintings and the fair market value of the missing painting.

Gallery A counterclaims for breach of contract, claiming that Artist violated the terms of their exclusive agreement by entering into a consignment with Gallery B.

Comparing Approaches

Litigation

If the case were litigated, the court would look at New York’s Arts and Cultural Affairs Law as well as common law claims, such as breach of fiduciary duty, breach of contract, negligence and fraud. Significant time would be devoted to analyzing the facts and applicable causes of action and commencing a public adversarial proceeding. There would be discovery, itself a very time consuming process, before the court could schedule a hearing or trial. The more valuable the artwork, the more likely the attorneys would require depositions on both sides, as well as testimony from experts, and all the while legal fees would continue to spiral.

As the case proceeded, the public and adversarial nature of the dispute would distract and consume the time of both Artist and Gallery A and tarnish the reputation of the individuals and business involved. Meanwhile, as the controversy wended its way through the legal system (which could take months or even years), Gallery A’s clients might decide to take their affairs elsewhere, bills could go unpaid and employee morale would decline. Artist would also be upset and preoccupied with the uncertainty of litigation. Possibly his relationship with his new gallery would suffer.

Based on these facts, Gallery A would likely be required to return the paintings pursuant to New York’s Arts and Cultural Affairs law and then file a separate lawsuit against Artist to recover the monies owed. There is the missing painting claim to decide as well. As is often the case, neither side would be satisfied with the outcome. An appeal would always be a possibility, causing another round of strain and uncertainty.

Meditation

If this dispute were mediated prior to filing a lawsuit, there would be no public record. The parties would stay focused on their real interests and bring a resolution at a fraction of the cost. The confidential nature of the mediation process would shield the parties from public and media exposure, reputation damage, and disruption of business that necessarily result from the demands and stress of litigation. Gallery A could avoid the embarrassment of losing Artist to another gallery and for losing a painting consigned to it. Artist could avoid the public’s awareness of his finances and breach of an exclusive agreement with Gallery A.

A mediator who is a good facilitator would encourage the parties to consider creative solutions and to generate settlement options. For example, Gallery A might return a painting of equivalent value that it had purchased from Artist. Perhaps Gallery A could share commissions with Gallery B for works purchased by Gallery A’s clients.

Conclusion

Properly conducted, mediation allows parties the opportunity to resolve their dispute quietly and efficiently in terms of time and expense, while taking into account their individual interests and circumstances. Creative solutions, such as the hypothetical agreement between Artist and Gallery A, would simply not be possible in court. Mediation is particularly relevant in the art world context where relationships are complex and discretion is highly prized.

Thank you for your attention.