There Is Creativity Even in A Straightforward Settlement

Recently, a mediator colleague lamented that the settlements reached at his mediation were more and more following a predictable range and pattern.  I thought about this in connection with a lender-guarantor dispute that I mediated.

The matter was very straightforward.  The underlying debtor had filed for bankruptcy and was no longer a going concern.  The guarantor of the debt was creditworthy, and the lender sued the guarantor for all amounts due and owing under the loan, including interest and attorneys’ fees.

The parties had engaged in good faith settlement negotiations prior to the mediation but were very far apart.  The lender was not willing to discount the debt while the guarantor was seeking a discount in exchange for early payment.  No surprise, the parties were at a complete standstill at the start of the mediation.

I recognized from the parties’ previous exchange of settlement offers that while the lender was very focused on recovering the entire amount owing, it was less concerned with the timing of when it would receive payment.  Accordingly, I began the mediation by pointing out to the guarantor the benefit of a payment plan in lieu of paying the entire settlement sum at the time of entering into the settlement agreement. Specifically, in this high-interest rate environment, with money market and short-term treasury accounts paying as much as five percent interest, the guarantor could take advantage of earning relatively risk-free money by paying the lender over time instead of making an early settlement payment.

Using that logic, the parties reached a settlement with the guarantor agreeing to pay the settlement sum over a four-year period.  Doing so allowed the guarantor to reap the benefit of earning interest on the settlement sum while paying the lender over time. In this case, a little creativity resulted in a settlement that was straightforward but avoided protracted further negotiations.