A Practical Guide to Mediation for CPAs

Article excerpt

An emerging process for helping CPAs manage their exposure to the risk of litigation is the increasing use and availability of a form of alternative dispute resolution (ADR) know as mediation. The advantages of the process a not one sided; the other party--the user of the CPA's services--also has the potential to benefit from it.

There have been several articles (see accompanying list) explaining various ADR procedures. But these articles either emphasize arbitration or stress the advantages of mediation from a legal point of view. For the CPA firm considering mediation, there is essential information to be absorbed, including appropriate engagement letter clauses, the extent to which various insurers embrace mediation, and an understanding of the mediation process from the CPA's point of view.

Most underwriters of CPA professional liability insurance now allow mediation as an ADR method and some even subsidize it in whole or part (Exhibit 1). (Exhibit 1 omitted) At least one major CPA firm is testing the use of mediation in disputes with its clients by including mediation clauses in its engagement letters for certain of its offices. Many judges, because of court overload, require disputing parties to use mediation in the hope of avoiding lengthy court hearings. A lengthy hearing usually occurs when a case includes a great deal of factual material, as in many disputes involving financial matters.

WHAT IS MEDIATION?

Mediation as it relates to resolving a dispute between a CPA firm and a client or other third party is a facilitated negotiating process in which the firm and the other party to the dispute meet with a neutral third party, the mediator, whose sole function is to try to assist the parties in reaching an acceptable settlement. Mediation is generally a quick procedure that, if properly organized, can be accomplished in a few meetings, with an extremely high success rate. The process is voluntary and either party can terminate it at any time.

Who Can Assist with the Process? The parties may retain attorneys or conduct the process without them. It is unusual for the parties to come to a mediation conference with an attorney, although there generally are consultations prior to or after a particular conference. In complex cases, however, liability insurance underwriters may also suggest the presence of a CPA firm's attorney at the conference. The parties should be represented by persons from their organizations who know the facts behind the dispute and have the authority to resolve the dispute or have easy access to someone who has such authority. This ability to negotiate and settle is essential to the mediation process.

There are several organizations equipped to assist in the preparation of an agreement to mediate and the selection of a qualified mediator. The leading organizations that operate nationally are shown in Exhibit 2. (Exhibit 2 omitted)

The AAA experience is that settlement is reached in 80% of the disputes submitted to it. JAMS/Endispute, Inc. has reported that 90% of the cases submitted to it during 1992 were settled. Other knowledgeable mediators state that 60% to 95% of all disputes are settled by mediation.

How Does Mediation Differ from Arbitration? Mediation is a voluntary dispute resolution process that does not become binding unless the parties reach their own settlement of the dispute. Arbitration differs in that an arbitrator makes a determination to resolve the dispute that is binding on all the parties. Mediation is also more effective in saving the relationship between a CPA firm and its client in the event of a dispute.

Mediation is Preferable to Litigation Even if a CPA firm is victorious in litigation, there is usually a large out-of-pocket cost for counsel, experts, depositions, copies of documents, etc. Litigation also takes its toll through the high cost in time lost from work and emotional trauma.

Satisfaction with litigation is generally low because control, by the involved parties, is lost in the process. …

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