By Lee Mendelson
Recently, I mediated a highly contentious corporate dissolution dispute. The case involved the two sole shareholders of a small toy company whose partnership had completely unraveled. * The plaintiff claimed that the defendant, who managed the company’s finances, owed him a substantial sum in unpaid dividends. In response, the defendant accused the plaintiff of mismanaging the business, causing multi-million-dollar losses, and being responsible for a third-party lawsuit that resulted in a significant corporate payout. The hostility between them was intense; when the company dissolved, the defendant even had the plaintiff escorted off the property by the police.
The mediation began with the plaintiff demanding five million dollars, while the defendant countered with a simple proposal for a mutual walkaway. After two hours of negotiation, neither side had budged. That was when the word no mediator wants to hear echoed in my head: impasse.
When Emotions and Biases Drive Litigation
In my experience, most business disputes end up in litigation because both sides take stubborn positions and refuse to budge. By the time they reach mediation, it is rarely because they have started to see the other side’s perspective. More often, it is because they have discovered just how expensive litigation can be. Lawsuits lead to countersuits, depositions, interrogatories, motions, and costly expert fees. Eventually, the parties realize they need to stop the financial and emotional bleeding.
The first few rounds of mediation often focus more on emotions than settlement. Business disputes are rarely just about money. Partnership dissolutions, intellectual property battles, and even seemingly simple collection cases often carry undertones of pride, betrayal, and fear of public perception. Litigants need to be heard, and they need to feel validated. That emotional need often results in opening demands or offers that are far from realistic—just as I saw in this toy company case.
Adding to the tension, cognitive biases frequently fuel impasse. Egocentric bias prevents parties from appreciating the other side’s perspective. Overconfidence bias convinces them that their case is “bulletproof,” causing them to reject reasonable settlement ranges. Regret aversion—the fear of later regretting a decision—also plays a role, as parties avoid settlement for fear of appearing weak or settling “too soon.” All of these biases were at play here.
Shifting the Focus from Positions to Interests
Another challenge was preparation. While both parties and their attorneys were well-prepared to litigate, they were not prepared to negotiate. Pre-mediation analysis—identifying true interests, evaluating risks, and establishing objective standards—was largely absent. Recognizing this, I began by refocusing the conversation on these fundamentals.
Mediation takes place on two levels: the substance of the dispute and the process of negotiation. Initially, both parties were entrenched in positional bargaining, convinced that resolution would only come if the other side fully conceded. My job was to shift the process.
I allowed the parties time to vent and exchange their initial (and highly unreasonable) offers. Then, I started guiding them toward principled negotiation—a method that emphasizes interests rather than positions. I asked probing questions to uncover what each party truly wanted, beyond just “winning.”
At first, the plaintiff insisted that his only interest was to be paid, while the defendant claimed his only interest was to pay as little as possible. But as I dug deeper, it became clear that the plaintiff was deeply embarrassed by being escorted out of the factory by the police when the company dissolved. He wanted an apology. He also wanted acknowledgment that the third-party lawsuit did not prove he had done anything wrong. Surprisingly, the defendant admitted that he regretted how the police incident had unfolded. That moment opened the door to meaningful dialogue. Both parties also acknowledged that there had been mismanagement on both sides—finally, something I could work with.
Introducing Objective Criteria
Next, I moved the discussion toward objective criteria. I reminded both parties that allegations must be proven in court and asked about documentation and discovery. The reality was sobering: neither side had strong evidence. The company had no formal operating agreement; much of its operations were based on verbal agreements, and its accounting records were far from clear. As we reviewed these weaknesses, both parties began to soften and move closer to a settlement mindset.
Tools to Break the Impasse
After several hours, the plaintiff had reduced his demand to $300,000 plus an apology, while the defendant increased his offer to $75,000. Yet, both insisted they would go no further. Another impasse.
To move the negotiation forward, I introduced bracketing. Bracketing involves proposing a hypothetical settlement range, allowing the parties to explore potential outcomes without formally committing to an offer. This creates a “safe space” for movement. After some back-and-forth, the plaintiff suggested a range of $275,000 to $200,000, while the defendant countered with $90,000 to $150,000. Eventually, they agreed to a bracket of $110,000 to $250,000.
By now, we were well past the half-day session that had been scheduled, and I needed to try a different approach.
Using a Mediator’s Proposal
Before adjourning, I offered a mediator’s proposal, which allows both sides to accept or reject a proposed settlement confidentially. This protects each party’s position and allows them to save face if they disagree. My proposal was $130,000, coupled with an apology from the defendant for the police incident, and a mutual release of liability to ensure that the apology would not create further legal issues.
The defendant accepted my proposal. Unfortunately, the plaintiff did not. I let them know I was willing to follow up as the case progressed.
The Final Outcome
Over the next several months, I continued to check in. After the defendant deposed the plaintiff and filed a motion for summary judgment, both sides reconsidered their positions. Ultimately, the case settled for $95,000. While the plaintiff would have achieved a better result by accepting my mediator’s proposal, both parties avoided the risk, expense, and emotional toll of trial.
Lessons from the Case
This case demonstrated how persistence and creativity can turn a seemingly hopeless mediation into a resolution. The strategies I used included:
- Shifting from positional bargaining to principled negotiation by exploring true interests.
- Leveraging objective criteria to evaluate litigation risks.
- Using tools like bracketing and a mediator’s proposal to create movement.
Despite repeated impasses, we ultimately achieved a resolution that allowed both sides to move forward.
Why Impasse Isn’t Failure
I have learned that impasse is not a failure—it is simply a signal that the current approach isn’t working. For business litigators and mediators, overcoming impasse requires understanding not just the legal issues but also the psychology of conflict, the timing of concessions, and the creative tools that can unlock agreement.
Mediation is rarely linear. It demands patience, flexibility, and a willingness to innovate. By recognizing when the process is stuck and adapting accordingly, mediators can help clients achieve outcomes that litigation rarely provides—faster resolutions, preserved relationships, and solutions tailored to business realities.
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Lee Mendelson is a full-time mediator with ADR Services, Inc., leveraging over 27 years of experience in civil litigation, including complex commercial disputes, insurance coverage, personal injury, and real estate conflicts. A former managing attorney and founder of Mendelson Law Group, he built a thriving litigation practice before dedicating his career to mediation. Trained at Harvard Law School’s Program on Negotiation and Pepperdine’s Straus Institute for Dispute Resolution, Lee is also an adjunct professor at Pepperdine Law, where he teaches “Negotiation Theory and Practice.”
* Please note some of the factual and identity information regarding the mediation discussed in this article was altered to protect confidentiality.
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