Lessons About Enforcing Settlements From the School of Hard Knocks

 

As a mediator, I am in the business of getting lawsuits settled, so I take special note of court opinions where a party tries to get out of a settlement by alleging such things as fraud, economic duress, and most recently in Starpoint Properties, LLC v. Namvar, a California Court of Appeal case, coercion. Early in my career I settled a lawsuit during trial but the plaintiff attempted to back out of the deal. It took several months and additional legal fees to finally get a court order to enforce the settlement. As a result, I like to report on “settlements gone bad” cases to illustrate how settlements can fall apart and help others learn from what I and others have learned from the school of hard knocks.

The Starpoint Properties case, involving allegation of breach of contract and fraud, was settled when the parties agreed that the lawsuit would be dismissed in exchange for the right to purchase certain real property owned by the defendants in Los Angeles. The settlement agreement also included a stipulation for entry of judgment, which provided that Starpoint would be entitled to judgment in the amount of $8,362,000, plus interest, against all of the defendants named in the complaint, if any one of four events was to occur. Additionally, the stipulation expressly stated that defendants had waived their right to appeal any judgment issued pursuant to the stipulation, as well as any right to receive notice that judgment would be entered pursuant to the stipulation. When negotiating the terms of the settlement agreement and the stipulation, all parties were represented by counsel.

After three of the four events listed in the settlement agreement and stipulation occurred, Starpoint filed the stipulation and judgment was entered ex parte.  Defendant’s attempted to set aside the judgment by alleging that Starpoint coerced them into entering the settlement agreement. However, the trial court found that the claim of coercion was unfounded, and denied the motion. Defendants then appealed but the Court of Appeal found the appeal was untimely; it also noted that the matter would have failed on the merits of the case. Finally, the Court awarded attorney fees to Starpoint as the settlement agreement provided that the prevailing party would be awarded attorney fees in any action to enforce the settlement agreement.

Lessons Learned

Perhaps the most important take-away from the Starpoint case is that settlement agreements have consequences, and the courts will enforce the intent of the parties as expressed in the agreement, as it would for any contract. The court rejected many of the claims on appeal based upon the language of the settlement agreement. For example, the defendants claimed that the trial court erred in entering judgment against them on an ex parte basis, without giving them an opportunity to appear. The argument, however, was found to be without merit because appellants expressly waived their right to receive notice in the settlement agreement, and such waivers are valid under California law.

The Court of Appeal also noted other aspects of the settlement contract that could not be ignored: it expressly stated that the parties had entered into the agreement”voluntarily,” and “with full knowledge of its significance,” and that its terms had been “negotiated at arms’ length among sophisticated Parties represented by counsel.” Some may view such language as “boilerplate”, but unambiguous terms of a settlement agreement will be enforced by the courts. In this case, the Court of Appeal could not find any reason to overturn the order of the trial court-even in the face of a claim of coercion.

RON'S TOP TEN LIST: Things Your Mediator Wishes You Would Do So He Can Help You Settle Your Lawsuit

 

 

NUMBER ONE: Exchange with your opponent salient information about the case well in advance of the mediation. If you represent the plaintiff you may want to ask defense counsel what additional information, if any, is necessary for the defense to be fully prepared for the mediation. If you represent the defendant you will want to be sure the plaintiff’s counsel is fully informed about your view on the liability and damages issues. Last minute exchanges of information frustrate the mediation process because there will be insufficient time for the other side to analyze the information and review it with experts, management, and other people of influence.

 

NUMBER TWO:  Set a target settlement range prior to mediation. Your settlement range should be analyzed by considering your alternative to a negotiated agreement (BATNA). Your BATNA "is the standard against which any proposed agreement should be measured. This is the only standard which can protect you both from accepting terms that are too unfavorable and from rejecting terms it would be in your best interest to accept. (Robert Fisher & William Ury, Getting to Yes: Negotiating Agreements Without Giving In ( Penguin Books 1991).

 

 NUMBER THREE: Analyze in advance your risk versus concession points. You should consider at what point the risks of trial outweigh the concessions you must give to reach a resolution of the dispute. These are your ROCR points (Risks Outweigh Concessions for Resolution), and their confluence leads to settlements.

 

NUMBER FOUR: Prepare an effective mediation brief. Your brief should focus on the key facts of the case pertaining to liability and damages. While briefs are very helpful to mediators they serve the dual purpose of informing your opponent about the strengths of your case. Some lawyers do not exchange their briefs with opposing counsel. I think that is a mistake. A well-written brief sent to opposing counsel well in advance of the mediation allows you to inform the decision makers on the other side about your view of the world. If there is some information for the mediator’s eye’s only, you can add a confidential section to the mediator’s brief. For example, you may have some information you intend to use at trial that you don’t want the opponent to know about but could be useful information for the mediator.

 

NUMBER FIVE: Prepare your client for the mediation. You should have a pre-mediation meeting with your clients to discuss your settlement strategy, the risks of trial, the costs of litigation, including attorneys fees and expert fees, the implications of a statutory offer to compromise and the possibility of paying the other side’s fees and costs, evidentiary problems and motions in limine that could limit your ability to put on your case, the possibility of an appeal and the length of time and the costs associated with an appeal, collectability issues, and any other fact that would help your client make an informed decision with regard to the settlement value of the case.  

 

NUMBER SIX: Ensure the presence of the decision makers. Nothing sinks a mediation faster than not having the captains on board and engaged in the process.

 

NUMBER SEVEN: Show respect for other parties. The objective in mediation is to find a solution to a problem. People who feel disrespected are generally more interested in saving face than they are in resolving the dispute. While you do not have to agree with the things that are being said by your opponent, you should show respect for the other side’s point of view.   

 

NUMBER EIGHT: Be willing to listen. Effective listening may be the greatest skill-set you can bring to the mediation. Unless you attempt to see things from the other side’s point of view, you will not be able to see your case from the most important vantage points: the jury box and the bench. After all, the judge and the jury are duty bound to carefully listen to the other side at trial; you should be equally engaged and attuned in mediation.

 

NUMBER NINE: Remain flexible. Enough said.

 

NUMBER TEN: Don’t hold on to unreasonable expectations. You should not expect to settle the case based on the terms you might receive on your best day of trial. You should go into the mediation with a settlement range based on a realistic risk analysis that considers the strengths and weaknesses of your case and even takes into account the things you cannot control, like an unfavorable jury, the exclusion of a key piece of evidence, or a disastrous witness.

 

Mediation:The Antidote to the Uncertainty of Trial

 

Mediation is the antidote to the uncertainty of trial and most often leads to the timely, cost-effective resolution of disputes. In mediation, the people with “skin in the game,” the litigants, not jurors, judges, or appellate court justices, decide how and when the conflict will end.  On the other hand, litigants who proceed through trial are subject to the rules of the court and the full power of the state to enforce court judgments and decrees. If an appeal is filed, the process of resolving the dispute may be extended for years.    

The uncertainty of trial and the power of the state were illustrated in Garbell v. Conejo Hardwood Floors, a recent decision published by the California Court of Appeals, where the jury did not view the expert testimony the way one of the parties expected. The trial court did not view the law the way the other party expected. And the appellate court took away the cost award, including consultants and experts fees, of the party that lost the case but was deemed the prevailing party by the trial court. The purpose of this post is to summarize the salient points of the decision and in the LESSONS LEARNED section below, apply them to a hypothetical mediation and pre-trial risk analysis.

Here’s what happened: The Garbells had an $822,000 fire loss at their home, only half of which was covered by insurance. The insurance company paid $424,000 to the Garbells for the covered part of the loss and filed a subrogation action against the flooring contractor who was accused of starting the fire. The homeowners also filed a claim against the flooring contractor to recover the $400,000 of personal property destroyed in the fire that was not covered by insurance. The flooring contractor settled with the insurance company in the subrogation action but defended itself against the claims of the homeowners at trial. The jury found that the damages were $822,000, with the flooring contractor being responsible for fifty-five percent of the loss and the homeowners being responsible for forty-five percent on comparative fault principles. . As a result, the trial court awarded $28,000 in damages to the homeowners, representing the net amount after the subrogation payment and the homeowners’ comparative fault were taken into account. In addition, the trial court awarded costs to the flooring contractor because the homeowners had rejected a $100,000 settlement offer from the flooring contractor and only received a net award of $28,000. Both sides appealed the judgment.

On appeal, Canejo Hardwood contended there was insufficient evidence for the Garbell’s expert to conclude that a carelessly discarded cigarette caused the fire and even if the fire was caused by a cigarette, there was no evidence that the cigarette belonged to one of its workers. Canejo Hardwood also argued that it did not have control over the garage where the fire started after its men left for the day. The Court of Appeal noted, “The jury disbelieved this theory. While we might have reached a different conclusion based upon the evidence, we do not second guess the jury. We therefore conclude there was sufficient evidence of causation to support the jury's finding of negligence.”

The Appellate Court also rejected the Garbell’s argument that the trial court miscalculated their damages by deducting the insurance payment they received after determining comparative fault for the total property loss. The court reached this decision following an extensive review of subrogation laws and the collateral source rule, with the court concluding there was no error in the damage calculation.

Finally, the Appellate Court did agree with the Garbell’s that the trial court erred in awarding costs to Canejo Floors. The court determined that for purposes of awarding costs, the trial court should have looked at the gross amount of the judgment-$452,000-instead of the net award of $28,000. Since the judgment of $452,000 exceeded the Code of Civil Procedure section 998 offer to compromise, costs should not have been awarded to Canejo Floors, and the case was remanded to the trial court for a reconsideration of the motion for costs.

LESSONS LEARNED

A pre-trial risk analysis of the legal and economic implications of going to trial is always appropriate. You want to see if you can negotiate a settlement that is better than an uncertain result at trial. The term negotiators often use is BATNA: what is your best alternative to a negotiated agreement? In other words, what are your chances of getting a better result at trial than you can through negotiations. Here are a few things you might consider in a hypothetical pre-trial assessment:

·         Plaintiff has damages that exceed $822,000.

·         If plaintiff gets everything he wants, he will be awarded $398,000 after the insurance company gets compensated $424,000 on its subrogation claim.

·         Defendant offers to settle the case for $100,000.

·         Plaintiff does not want to accept the $100,000 but knows there may be a settlement range of $398,000 to $100,000. This is where a good mediator can help the parties bridge the gap.

·         How can Plaintiff justify taking less than $398,000 and convince the defendant to pay more than $100,000?

·         Plaintiff must realize that his claim could be reduced through comparative fault principles. Is it possible that a jury could find the plaintiff at fault for 45% of the $822,000 loss? If so, is there some percentage of your claim that you would discount to take this possibility into account? Is it possible that the jury could find the plaintiff entirely at fault because the defendant did not have control over the garage at all times?

·         Defendant must realize that it is possible that the jury will find that the plaintiff has no comparative fault. Is there some amount more than $100,000 that you would be willing to pay to take this into account?

·         If there is comparative fault, what is the likelihood that the court would deduct the subrogation payment from the net amount after the comparative fault calculation?

·         Even if you think there is no implicating evidence because the fire destroyed the evidence of the cause of the fire, what are the chances that a jury will believe the testimony of plaintiff’s expert witness?

·         Given these factors, is there a way to reach a compromise? If you are the defendant, do you want to spend more on experts and consultants when you realize you may not get your costs of litigation back because the plaintiff need only prove damages above your 998 offer when it is undisputed that the loss exceeded $822,000 and even after the subrogation claim is paid off, the plaintiff will still have a good shot at getting a damage award above $100,000.01? And if you are wrong, plaintiff will be the prevailing party so that you won’t get your costs back and there will be a chance you will have to pay the plaintiff’s costs

·         Is there an attorney fee provision that you should consider? What are the chances that the other side will be deemed the prevailing party? What are your chances of being the prevailing party? Do you want to take the risk of paying your own attorneys fees, and those of your opponent?

·         If there is an appeal, what are the chances of prevailing, how long will it take, and how much more money will you have to spend?

There is no doubt that some cases must be resolved by trial. This usually happens when the parties’ pre-trial valuations of the case are wildly disparate. But in most cases, reasonable, objective people can find a way to look at the legal and economic factors to find a way to reach a compromise. Sometimes the gap is closed when an additional factor is taken into account: the emotional toll of a trial on litigants, including the pressure felt by families, shareholders, and partners, and the diversion of time, money, and energy from the people and goals that matter most in life.

 

Settlement Negotiations and Interest-Based Bargaining

 

Most of my mediations involve traditional bargaining over money. Sometimes referred to as “positional bargaining,” the process looks something like this: Party A has a claim against Party B for breach of contract, negligence, etc. Party A wants money as compensation for the loss. Party B does not want to pay any money or at least not the amount being claimed. They attempt to settle the matter through numerous rounds of offers and counter-offers, with the mediator assisting the parties in the process.  Most often the matter will be settled, with Party A feeling he did not get enough money and Party B feeling he paid too much.

While the everyday world of most mediators who assist in the resolution of civil disputes involves traditional bargaining, the initial mediation training they receive focuses on interest-based bargaining which often results in thoughtful solutions for mutual gain. For example, an orange is held up and the story is told of two sisters who both want the fruit. The subsequent fight is elegantly resolved when the sisters begin to speak to each other about their interests, and they learn that one wants to eat the fruit and the other simply wants the peel as part of a recipe for dinner; they rejoice to learn that both of their interests could be met by carefully pealing the orange.

A similar example of resolving a dispute through interest- based bargaining is the story of sisters fighting over their deceased mother’s wedding ring. Family unity is wonderfully restored when the sisters start talking about what they really want: one wants to wear the ring and the other wants to remove the diamond from the ring and have it made into a necklace. The conflict is resolved when the one who wants to wear the ring decides to replace the diamond her sister wants with her own birthstone.  

While these stories nicely illustrate how family conflicts can be resolved, does interest-based bargaining actually work in the rough and tumble world of business disputes or personal injury claims? When there is a fight over money, can the parties fashion a resolution that involves more than money? The answer to that question is this: it depends. It depends if there is an ongoing relationship that both parties want to preserve. For example, in the construction industry, a construction dispute between a general contractor and a subcontractor could be resolved if the subcontractor expressed an interest that goes beyond a cash settlement and the contractor expressed an interest in preserving a relationship with a valued subcontractor. Perhaps the subcontractor would take less than he thinks he is owed if the general contractor agreed to give the subcontractor opportunities to bid on future work.

Interest-based bargaining can also be used to successfully resolve a business dispute where the parties have more than just money with which to bargain. The Facebook litigation between Mark Zuckerberg and his former Harvard colleagues, who claimed that Facebook was based on their idea for a social network called Connect U, is an example of this. It has been reported that the case was settled by Facebook paying $65 million, with $20 million paid in cash and $45 million being paid in the form of a stock swap for Connect U stock. This appears to have met Facebook’s interest in limiting its cash contribution to the deal while giving the Connect U people value in the form of Facebook stock which, if you follow the markets at all, turned out to be a good deal.

There may be situations in personal injury cases that would benefit from interest-based bargaining. Perhaps the plaintiffs are interested in preserving the memory of a loved one who is lost in a tragic accident or motivated to see that measures are taken to prevent such accidents in the future.  A defendant unable to meet the financial demands of such a plaintiff could expand the settlement potential of the case by addressing plaintiff’s non-monetary interests in the form of a memorial or some form of educational platform.

It is wise to think about the other side's interests, even in adversarial proceedings. The bottom line is that interest-based bargaining in business disputes or personal injury matters can work under certain circumstances. When a dispute arises the parties should consider whether there are non-cash considerations that could be explored as additional incentives to settle a dispute. 

To Kill a Compromise: What Capitol Hill and All Disputants Can Learn From Atticus Finch

President Obama, House Speaker Boehner, and other Washington politicians are engaged in budget and debt ceiling negotiations that affect each of us but, sadly, we hear a lot of the same old blame game, and not nearly enough about compromise and resolution. Both sides seem to be locked in their positions which does not leave much room for compromise.

Every lawyer's hero, Atticus Finch, the wise and ethical lawyer in To Kill a Mockingbird, has this conversation with his young daughter, Scout, about compromise:

Atticus Finch: Do you know what a compromise is?

Scout: Bendin' the law?

Atticus Finch: Uh, no. It's an agreement reached by mutual consent. Now, here's the way it works. You concede the necessity of goin' to school, we'll keep right on readin' the same every night, just like we always have. Is that a bargain?

Atticus also taught Scout how to get along with folks:

If you just learn a single trick, Scout, you'll get along a lot better with all kinds of folks. You never really understand a person until you consider things from his point of view... Until you climb inside of his skin and walk around in it.

Atticus's counsel is good for politicians and for ordinary folks embroiled in disputes, large and small: Try to see the dispute through the eye's of your adversary. Social scientists have found that objectivity does not come to human beings naturally. In fact, we seemed to be pre-wired with certain propensities that make it difficult to get past our particular view of the world. Here are a couple of their findings regarding human nature:

ATTRIBUTION ERRORS

When we succeed, we generally attribute success internally to personal skills and gifts. When a rival succeeds, we tend to believe it was do to external factors such as luck. When we fail or make a mistake, we will more likely use situational factors rather than blame ourselves. When others fail or make mistakes, however, we will often assume it is due to internal factors such poor character, laziness, or other inherent traits .

REACTIVE DEVALUATION

Humans have a hard time receiving information from their adversaries. In fact, the perceived source of the information has a lot to do with our perception of it. We discount whatever the other side offers, even if it is favorable. In one study from the 1980's, people were asked to react to a proposal that the Soviet leader Gorbachev made to reduce nuclear warheads by 50 percent. When the proposal was attributed to Ronald Reagan, 90% of Americans reacted favorably. When the proposal was attributed to an unnamed third-party, 80% thought it was a good idea. But when the proposal was attributed to Gorbachev, only 44% of Americans thought it was a good idea.

And so I say to President Obama, Speaker Boehner, their respective party loyalists, and to all of us who are trying to resolve a dispute: compromise is not "bendin'"the law. It is an agreement by mutual consent. It is about getting the job done. It is about putting aside pre-conceived notions about the other side's motivation and character; it's about acknowledging that both sides have strengths and weaknesses in their positions; it is about setting aside words of conflict in favor of words of hope and healing.

Compromise begins when we climb inside the skin of our adversary and walk around in it. Absent that minimal effort we most likely will kill any hope of a compromise.

The Path of the Law is No Joking Matter

Lawyer jokes. Many lawyers are offended by them. While they are sometimes offensive, they are often humorous, and some even have an element of truth to them, like the one below:

A judge tells the taxi driver to take him to the halls of justice." Where are they?"asked the driver.

"You mean to say that you don't know where the courthouse is?" asked the incredulous judge.

"The courthouse? Of course I know where that is," replied the driver. "But I thought you said you wanted to go to the halls of justice."

Stepping up from the world of jokes and tall tales to dramatic moments at the movies, we hear Paul Newman's character saying in The Verdict , "The court exists to give 'em a chance at justice."

We can pass off such views as merely being an attempt at humor or entertainment. However, we should take pause when similar sounding statements are made by credentialed professionals like the great Oliver Wendell Holmes, Jr., an Associate Justice of the Supreme Court of the United States for 30 years, who is reported to have said to one young lawyer who entered his courtroom:

"This is a court of law young man, not a court of justice!"

While such statements seem shocking, how can justice always be perfectly administered by the imperfect men and women of our legal system, including lawyers, judges, and jurors? How can even well-meaning people always accurately apply the common law that has evolved over hundreds of years and the modern statutory law enacted by the competing interests of political bodies? Even though we have the best legal system in the world, is it reasonable to expect that justice can always be served given the indeterminate character of language and the changing mores of a diverse population? Justice Arthur Gilbert of the California Court of Appeals recently gave a speech based on the supposition that our expectations that the law will provide a fair measure of predictability and certainty is, in many cases, an illusion.

If these things are true, then, one of the most important attributes for lawyers is the ability to predict the outcomes of trials. In a famous law review article entitled The Path of the Law, Oliver Wendell Holmes, Jr., two years before his appointment to the U.S. Supreme Court, wrote about the awesome power of the state to enforce the judgments of courts and the important role lawyers have in trying to predict what will happen at trial:

When we study the law we are not studying a mystery but a well known profession. We are studying what we shall want in order to appear before judges, or to advise people in such a way as to keep them out of court. The reason this is a profession, why people will pay lawyers to argue for them or to advise them, is that in societies like ours the command of the public force is intrusted to judges in certain cases, and the whole power of the state will be put forth, if necessary, to carry out their judgments and decrees. People want to know under what circumstances and how far they will run the risk of coming against what is so much stronger then themselves, and hence it becomes a business to find out when this danger should be feared. The object of our study, then, is prediction, the prediction of the incidence of the public force through the instrumentality of the courts. (The Path of the Law, 10 Harvard Law Review 457 (1897))

Most civil cases settle before trial. In California state courts, about 90 percent of the civil cases are settled prior to trial, and in Federal Court, the rate is closer to 95 percent. However, those who do not settle their cases before trial do not necessarily do better in court. In fact, a recent study has shown a propensity for decision errors when offers of settlement are rejected. Plaintiffs committed decision errors, receiving an award at trial that is less than or equal to the last offer made by defendants, in 61.2 percent of the cases in the study. Defendants made decision errors, having to pay damage awards to plaintiffs that were greater than or equal to the last demand made by plaintiffs, in 24.3 percent percent of the cases in the study. However, it should be noted that the mean cost of the error for plaintiffs was $43,000 while the defendants, when they made a mistake, the mean cost was $1,140,000.

Trial lawyers must be more than predicting machines, they must be effective counselors who explain not only the chances of winning or losing, but also explain what can happen when "justice", at least their clients' view of justice, is not served in court. What are the practical consequences of losing, what can happen if you win but are not deemed the prevailing party by the court, are there litigation risks that are not obvious to a layman? What happens when offers of settlement are rejected and the result at trial is not as good as the rejected offer? All of these questions must be explored well in advance of trial. 

A recent unpublished case in California, illustrates the unpredictable path of the law: A trial over the purchase of real property resulted in a finding by the trial court that neither side performed their duties under the purchase agreement. Nevertheless, the defendant filed a post-trial motion for attorney fees and was awarded $538,884. On appeal the plaintiff asked, in essence, how could the defendant be the prevailing party when the trial court said he did not perform his duties, and when the he voluntarily dismissed his cross-complaint?  The Court of Appeals affirmed the decision of the trial court, stating that the defendant was the prevailing party under the laws and facts of the case.

Lawyer jokes can be funny, but there is nothing funny about the unanticipated consequences of a trial. The power of the courts to enforce their judgments and decrees is no laughing matter, either. That is why I am such a proponent of mediation. It is a dispute resolution process that allows the parties to decide, not judges or juries, what is in their best interests, according to the best predictions their lawyers can make. 

A Hard Lesson About Settlement Agreements

Settlement agreements should not be the product of a cookie cutter operation. They must be carefully crafted to fit the laws and facts of the case. Considerable thought should be given to the scope of the release language in the agreement. We are again reminded of these fundamental principles by the unfortunate result in a California Court of Appeals case called Leung v. Verdugo Hills Hospital, a case in which the appellate court apologetically reached its conclusion while asking the California Supreme Court to reconsider a common law rule regarding releases that led to a very harsh result. 

The facts of the case are very sad: an infant suffered irreversible brain damage when his "bilirubin" reached toxic levels. In the medical malpractice action against the pediatrician and hospital, the parents of the child settled with the doctor for $1 million, the limits of his malpractice insurance, in exchange for a release of liabiity.  The trial court ruled that the settlement did not meet the standard of good faith under California Code of Civil Procedure sections 877 and 877.6, because it was grossly disproportianate to the doctor's potential exposure in the case. Nevertheless, the parents and doctor decided to go through with the settlement.

The case was tried to a jury, which found both the hospital and the doctor negligent, and awarded damages of $78,000 for past medicals, $250,000 for noneconomic damages, $82 million for future medicals, and $13 million for loss of future earnings. Apportioning fault, the jury found the hospital was 40% negligent, the doctor 55% negligent, and the parents 5% negligent. The trial court entered judgment which declared the hospital was jointly and serverally liable for 95% of all economic damages and severally liable for its 40% share of noneconomic damages.

The hospital appealed, claiming that the release and settlement agreement with the doctor acted as a release of the hospital's joint and several liabilty for economic damages. The hospital argued that in cases where there is a single injury:

Under the common law release rule, a release for consideration of one tortfeasor operates as a release of the joint and several liability of the other joint tortfeasors.

The Court of Appeals agreed and reversed the judgment of the trial court as to the hospital's joint and several liabilty for the economic damages. The judgment was affirmed insofar as it imposed several liability on the hospital for $250,000. Unless the California Supreme Court grants review of the case and decides to change the common law rule that led to this unintended outcome, the settlement and release agreement with the doctor wiped out $95 million, money that the jury felt was necessary to care for the future medical and finanicial needs of the child.

Lessons Learned

1. The Court noted that plaintiff could have avoided the result had the settlement agreement contained a covenant not to sue agreement rather than a release of liabilty. That way there would not have been a release of all who were potentially jointly and severally liable, only a promise that the party paying the money would not be subject to future collection efforts.

2. Plaintiffs must be very cautious about the scope of the release. Be sure you are releasing only those rights you intend to let go.

 

 

March Madness: Attribution Errors, Scorched Earth Litigation, and Dispute Resolution

The NCAA Basketball Tournament, known as March Madness, is upon us. Each year college basketball fans are captivated by this great sporting event, where winners advance toward the championship and losers go home. Trials are like that: eventually there is a winner and a loser in every case. Except the loser does not always go home; sometimes he appeals. In a recent case the California Court of Appeals alluded to another march (Sherman's) and another kind of madness when it used the term scorched earth litigation to describe the hard fouling, take charge lawyering in the case.

 After the trial's conclusion, the court made a number of comments indicating the case was a "disaster" and had gotten completely "out of hand." Among other things, the court referred to "scorched earth litigation" and said that attorneys for both parties were "obstructionists." (Click here to read the case*

Scorched earth litigation tactics are often the product of what social scientists and negotiation experts call "attribution errors." When a person makes a mistake, he will attribute situational factors as the reason for the problem rather than blame himself: I was careless; I was exhausted; I was ill. On the other hand, the same person who makes allowances for himself will attribute the actions of his adversary to internal factors: he is dishonest; he is a cheater; he is immoral.

I have seen attribution errors by lawyers many, many times: A claim for extras is not because of a legitimate disagreement about the contract documents, but because the contractor intentionally underbid the work and now is asserting frivolous claims. An owner rejects a claim for extras not because he really believes the work is included in the contract price but because he wants to get something for free. Of course personalities and pettiness can create conflict, and there are those who prosecute or defend claims without good cause; but most often claims can be resolved when people are willing to attribute human error as the cause of the dispute rather than human failings.

That is not to say that construction claims are always easily resolved. Construction is a risky business, and when things go wrong parties do go into self-preservation mode. However, litigation is costly enough without burning money to destroy the other side. Objective risk analysis is essential. It is not enough to convince yourself that you are right, but can you convince a judge or 12 jurors? Will they be able to comprehend your arguments, sort through the piles of evidence, and make the correct decision? Have you spent enough time listening to the other side's arguments to see if there is any common ground or how a judge or jury might react to their side of the case?

In addition to a comprehensive legal analysis of a claim and an objective view of the psychological barriers to conflict resolution, serious consideration must be given to the economic analysis of a claim. Often parties will think in terms of the likelihood of success in prosecuting or defending a claim, with only a secondary thought being given to the costs of litigation and the risks of having to pay the other side's costs and attorneys fees. This phenomenon is illustrated in the recent construction law case mentioned above.

The plaintiffs were homeowners in Newport Beach, California. They filed a lawsuit against their home improvement contractor, alleging claims for breach of contract, fraud, accounting, and violations of California Business & Professions Code section 17200, a law designed to protect competitors and consumers from illegal, fraudulent, and unfair business practices. As a result, it appears the lawsuit was framed in such a way that the dispute was not just about the work being done right or on time or within budget, but the contractor was accused of fraudulent, illegal, and unfair business practices. (Attribution errors?) The contractor filed a cross-complaint for $84,000 against the homeowners and, apparently, the lawyers began the litigation equivalent of a  "full-court press" that eventually lead to the trial court judge's condemning remarks about scorched earth litigation.

Ultimately, the jury found against the homeowners and in favor of the contractor, awarding $20,401, substantially less than the $84,000 the contractor had sought. The contractor then filed a cost memorandum seeking more than $105,000 in costs.The trial court awarded a little more than $28,000 as the reasonable costs of the litigation. This amount included an award of $3700 out of the $36,000 sought for expert witness fees under California Code of Civil Procedure section 998, a law enacted to encourage settlements. The contractor appealed, claiming the trial court committed error by not awarding more for the costs of litigation. The court of appeals affirmed the trial court's order, and awarded the homeowners their costs on appeal.

Apparently attribution errors extended to the arguments before the court of appeals, as the appellate court noted:

[Contractor] somewhat histrionically insists there was a "procedural ambush" and a deliberate attempt to deprive [him] of the right to respond, rather than an error on the [Homeowner's] part.

And the scorched earth litigation continued on appeal:

After considering a 42-page opening brief, a 33-page response, a 39-page reply and a record exceeding 1200 pages on appeal from what should have been a simple motion to tax costs, one can perhaps begin to understand the trial court's reaction.

SCOREBOARD

First Half (trial court phase): Homeowners-$0; Contractor-$20,000 out of $84,000 in damages plus $28,000 out of $105,000 in costs.

Second Half (appellate phase): Contractor-$0; Homeowners- awarded costs of appeal.

We do not know how much the parties paid in attorney fees. Probably a lot. Presumably there was no attorney fee provision in the construction contract so each side had to bear their own fees.

I often wonder about cases like this. Would the contractor have come on so strong, spent so much money, and fought so hard if the lawsuit had been limited to construction issues instead of the additional allegations of fraud that impugned his reputation and character? What could have been done to avoid such an outcome? Here are a few questions worth considering the next time you are contemplating going to trial:

  • Is it possible that you misjudged the motivation of the other side?
  • Does the amount in dispute justify the expense of trial?
  • Are you willing to bear the emotional toll and the distractions that trials entail?
  • Have you thought about how a trial, win or lose,  will affect your family, partners, or shareholders?
  • When deciding to take the case through trial, did you factor in your attorneys fees and costs of litigation and the possibility of having to pay the other side's attorneys fees and costs, including their expert witness fees? 
  • Did you conduct an objective risk analysis of your chances of prevailing?
  • Will a jury understand your case?
  • If you factored in costs and fees, did you consider that the court might not award you all the costs and fees you would be asking for?
  • Did you consider the possibility of an appeal and even a retrial?
  • Did you factor in the time value of money?

Of course, some cases have to go to trial because the results of the parties' risk analyses are in different brackets (my last shot at a  March Madness reference, I promise). But in most cases, when parties objectively consider their legal and economic risk analyses, and the psychological barriers to resolving their conflict, common ground can be established and the dispute can be amicably resolved prior to trial.

 *The Court of Appeal designated the featured case as one not suited for publication in the Official Reports which means it can not be cited or relied upon by courts or parties.

The Social Network: Communications During Mediation Are Not In The Public Domain

The California Supreme Court has reaffirmed confidentiality as a core principle in the mediation of disputes in California. The plaintiff in  Cassell v. Superior Court sued his former lawyers, Wasserman Comden, for legal malpractice arising from a mediated settlement, and he wanted to use information from the mediation session to prove his case. (More about that case later.) A more high profile case has the 9th Circuit Court of Appeals currently wrestling with mediation confidentiality in the Facebook litigation where the Winklevoss twins have appealed to the 9th Circuit Court to get out of a settlement that reportedly gave them $20 million in cash plus 1.25 million shares of Facebook stock (estimated to be currently worth $150 million). An interesting side note is the Winklevoss twins also had a dispute with their lawyers, Quinn Emanuel, arising out the mediation that lead to that settlement with Facebook, the settlement they are now trying to get out of. (Click here to read the Supreme Court of New York's opinion about the $13 million dollar attorney fee dispute.)

Public policy favors the pre-trial settlement of disputes, and mediation is considered by many to be  the most effective alternative dispute resolution procedure. To encourage parties to openly discuss their disputes without fear of having their communications turned on them at trial,  the California legislature enacted confidentiality laws to keep mediation information private. When people try to get out of a settlement agreement by claiming  fraud, economic duress, or some other legal theory to rescind a contract, and they attempt to use confidential information from a mediation, the courts are reluctant to consider such information. For example, during oral argument in the Winklevoss' appeal to the 9th Circuit, the judges expressed concern about  letting them use information obtained in their mediation with Facebook. Check out this YouTube video of the oral arguments by two exceptional attorneys before three outstanding jurists.  

 

Unlike the the Facebook litigation where one party is attempting to use confidential mediation information against the other party to the lawsuit, the new California Supreme Court case of Cassell v. Superior Court presents a situation where the client is suing his lawyer for malpractice based upon the words and conduct of his lawyer during the mediation. In essence, the client argued that the lawyer used undue influence, pressure, and fraud to induce him to settle the lawsuit for an amount that was less than they had agreed upon in their planning meeting before the mediation.

Prior to the trial of the malpractice lawsuit, the defendant lawyers asked the court to exclude any evidence of their words and actions related to the mediation based on the confidentiality laws. The trial court agreed that such communications were confidential, even in malpractice actions filed by clients against their lawyers. The client appealed the case and the Court of Appeal reversed, reasoning that the confidentiality provisions of the Evidence Code applied to disputes between parties to a lawsuit but such protections should not be extended to disputes between clients and their lawyers. The California Supreme Court disagreed, saying that the applicable statutes mean what they say: all communications related to a mediation are confidential. 

Instead, such attorney-client communications, like other communications, were confidential, and therefore were neither discoverable nor admissible-even for proving a claim of legal malpractice-insofar as they were "for the purpose of, in the course of, or pursuant to a mediation...."

Lessons Learned and Some Practical Applications

  • Mediations really are confidential.
  • Mediations are not mandatory; they can end at any time or be continued to another date. If you are too tired to proceed, take a break. One of the complaints of the plaintiff in the Cassell case was that the settlement happened after 14 hours of mediation; he was tired and felt pressure from his lawyers to settle the case.
  • Mediations, like trials, can terminate a lawsuit; therefore preparation is essential, and it is the key to success in mediation. Lawyers must be prepared to clearly present the law and facts of the case; just as importantly, they must ready their clients for the mediation experience.
  • It is good to set a settlement value before the mediation but you should remain flexible during mediation in case you learn something new or gain a different perspective during mediation. The plaintiff in the Cassell case based his malpractice action in part on the fact that the case settled for less than he and his lawyers had agreed upon before the mediation. That is not unusual. A good mediator can help parties see cases from a fresh perspective which may alter the reasonable settlement value of the case. Better to get that perspective from a mediator than from a juror in an interview after an expensive trial that may bring you less than you expected.
  • The Winklevoss twins argued that the term sheet that memorialized the settlement deal did not contain the essential elements of an enforceable contract. If you had a chance to look at the YouTube video of the oral argument before the 9th Circuit Court of Appeal, you saw Chief Judge Kozinski and the Winklevoss' lawyer debating the sufficiency of the term sheet as an enforceable settlement contract. Judge Kozinski noted that the term sheet included the number of shares, the amount of cash-"everything you would want in a contract." Nevertheless, in the lessons learned category, it is important to remember that a settlement agreement is a contract and must meet the minimum requirements to be enforceable.

One final note, a humorous one( to me, anyway),  from the oral argument in the Facebook litigation. Senior Judge J. Clifford Wallace asked how the brilliant, Harvard-educated Winklevoss twins, who were being advised by high-powered lawyers and their father who is a business expert, could have been tricked into settling their lawsuit.

"Isn't it a little difficult to say...that they were taken advantage of?" Judge Wallace asked them.

The Winkevoss' lawyer responded that it was true his clients " were not behind the barn door when brains were passed out." But, he said, "The same is true with Facebook."

 

 

 

 

Payment Bonds and Attorneys Fees: Leveling the Playing Field

Among the legal risks that must be analyzed in any litigation is the possibility of having to pay the other side's attorney fees if one loses at trial. In many states, attorney fees are available to the prevailing party if there is a contract provision for attorney fees or when a statute provides for them. A new California Court of Appeal case expands the general rule in construction cases where there is a performance bond in dispute.

In Mepco Services, Inc. v. Saddleback Valley USD, the prime contractor sued the school district for breach of contract on a school modernization project. Like most contracts for public works, the contract at issue did not have a provision for attorney fees. However, the school district filed a cross-complaint against the contractor for breach of contract and asserted a claim against the contractor's performance bond. 

The contractor prevailed at trial and requested, and was awarded,  attorney fees even though there was no provision for them in the prime contract. The Court of Appeal affirmed, holding that the prime contract required a performance bond, the bond provided that the school district would be entitled to an award of attorneys fees if it filed an action on the bond and, under California Civil Code section 1717, such provisions in contracts ( and now bonds which are incorporated into contracts) are reciprocal so that the prevailing party on the performance bond is entitled to an award of attorney fees.

Observations and Applications

  • This decision could have a chilling affect on public owners filing cross-claims on performance bonds. Under Mepco Service, the public owners now face exposure to having to pay the attorney fees of contractors which removes an advantage public owners generally have when the prime contract does not have an attorneys fee provision.
  • Public owners facing this situation should force the prime contractor to apportion at trial the attorney fees incurred in defending the performance bond claim from those incurred in prosecuting the breach of contract claim. The school district did not raise the apportionment issue at trial and the Court of Appeal ruled the argument was waived on appeal.
  • Given the possibility of having to apportion fees, counsel for prime contractors should keep track of the fees incurred for prosecuting the breach of contract claim vs. defending the performance bond claim. If the owner raises the argument, you will be prepared to introduce the appropriate evidence at trial.

 

The Perfect Recipe for Improving Negotiating Skills and Settling Lawsuits

The airwaves are full of cooking shows. Rachel this and Iron Chef that. But for me, it is the Man v. Food show that takes the cake and,  if you have ever watched the show, a lot more than that. The star of the show, Adam Richman, goes around the country taking on a variety of eating contest: eat a bucket of hotter- than -blazes chicken wings in 30 minutes, down 6 mammoth milkshakes in 90 minutes, and much, much more. My family has actually gone to eat at two of the restaurants featured on the show: a BBQ place in St. Louis and a Mexican food place in San Diego. Although we have not attempted the food eating challenges, we have enjoyed the meals and in unison have repeated Adam's mantra upon partaking of the delicious food-"Oh my goodness, oh my goodness." Anyway, in honor of Man v. Food, here is this week's post, subtitled The Secret to Cutting Onions and Deals(Without Crying).*

Resolving disputes is a little bit like cutting an onion: you have to pass through several layers before you get what you want, and along the way you will likely feel some discomfort. The secret to cutting an onion without crying is a primer for "getting to yes" in the world of dispute resolution.

·         Know the score about onions (and litigation). Onions are chock-full of a chemical compound called sulfoxide. When onions are cut, this compound is released into the air as a vapor. When the vapor encounters your eyes, it dissolves into a form of sulfuric acid, and your eyes become irritated. Armed with this knowledge, you can employ techniques that will minimize the discomfort, some of which are noted below. In litigation, you must know that 95% of all civil court cases are settled prior to trial (the percentage is even higher in Federal Court). Establish a litigation plan with that reality in mind. Take steps for an early evaluation of the strengths and weaknesses of your case. Early evaluation leads to early resolution, and early resolution will minimize your client's discomfort; and you will be considered a wise and trusted counselor

·         Use a sharp knife (to carve out your discovery). A dull knife will crush the onion cells more than a sharp blade, and the crushed cells will release more of the onion vapor into the atmosphere. Therefore, use a sharp knife! In litigation, you may be tempted to use discovery to crush your opponent. In reality, the dull knife of discovery can crush your ability to resolve your dispute in a reasonably efficient manner. You must use a sharp knife as a discovery tool! If your discovery plan is inefficient, the enormous cost of litigation for both sides may affect your ability to settle your case.  

·         Slice the onion under running water (and keep your vision clear).
In theory, if you cut an onion under running water the sulfoxide will not become airborne, and the irritant will not get into your eyes. Lawyers and their clients encounter many irritants in our adversarial system of justice that can blur their vision about the realities of their cases. In preparing for mediation, you must run your claims and defenses under the cool waters of reason, logic and experience. You must factor in your trial judge's practices, procedures, and proclivities with respect to the evidence you intend to present at trial. You must objectively consider whether you will be able to get into evidence all facets of your case in chief in order to properly evaluate the risk of trial.

·         Cover your eyes with protective goggles (but don't forget about the other people in the room).
This is a viable solution because the irritants in the air are prevented from touching your eyes, but the goggles will not protect anyone else in the room. Often, litigants will have the protective cover of counsel and feel confident about their chances at trial, but they may not consider the risks or consequences to the other people who may or may not be present in the conference room during negotiations: spouses and children; business associates; shareholders. Unless they've been through it before, your clients will not appreciate the personal and professional toll that is paid at trial. But you know, and you must help your client understand what a trial entails, not just in dollars and cents, but in terms of common sense. How many days or weeks of work will your client miss due to the trial? Will a spouse or child be required to testify at trial? These kind of questions must be fully considered before your client can reasonably gage the impact a trial will have on his personal and professional life.

·         Chill onions (and emotions) before cutting.
When onions are chilled the vapors are less likely to become airborne when the onion is cut. Similarly, emotions that rise up in litigation must be cooled down before mediation. Your fiery brand of advocacy that is so effective in trial will not serve you well during settlement negotiations. Such emotions will certainly offend the other side and most likely render you unable to read the signs and posturing that would otherwise signal progress toward settlement.

·         Don't chop the onion root (or settlement opportunity) until the very last.
The vapor that irritates your eyes is highly concentrated in the root end of the onion. You can minimize the tears by cutting the root end of the onion last. Likewise, you should never cut off the possibility of settlement, or at least be absolutely sure there is no possible way to resolve the dispute without a trial. Before terminating settlement discussions, you should always consider your BAT NA-best alternative to a negotiated agreement-before proceeding to trial. In other words, if you don't settle the case, what is the most likely outcome if the case proceeds through trial? What are the chances of prevailing? What will it cost in terms of time and money? Conversely, what are the chances you could lose the case at trial? If that were to happen, would your client have to pay the fees and costs of your opponent? These issues and many others must be clearly understood before cutting off settlement negotiations.

 

        Let's face it, no matter how you slice it, some cases must be tried. But given the statistical likelihood of settlement at some point prior to trial, it is essential that you develop the skills and aptitude of a problem solver. Granted, a serious discussion about dispute resolution skills does not often include references to onions, but a recognition of the irritants that often cloud a litigator's perspective can help you develop a conscious strategy to avoid them.

                                                                         

*Adapted from "The Secret to Cutting Onions Without Crying" cited in Wikipedia, "Onions".

Draft Settlement Agreements with Care or You May Give Up More than You Bargained For

 

The first sentence in an appellate opinion can strike fear in the heart of any advocate. I should know. Nearly twenty years ago the California Court of Appeal began its opinion on a losing appeal of mine with this sentence: “This case presents a real doozy of a puzzle in mechanic's lien law.” Last week, in a case involving an attempt to undo a settlement agreement by way of subrogation and reverse an award of expert witness fees, the California Court of Appeal began its opinion even more dramatically: “What the heck?!? At one point, the trial court commented, ‘This is one of the most screwed up cases I’ve ever seen.’ We heartily agree.” Click here to read the opinion.

Why highlight such a “screwed up” case in a blog dedicated to helping people resolve construction disputes? Well, we can learn a lot from the opinion-someone else’s pain can be our gain, so to speak. First, the case reminds us that settlement agreements are contracts with consequences. And second, rejecting statutory settlement offers also has consequences.

Facts About the Case

A man was injured when he stepped on a nail in a restaurant that was being refurbished. As a result of the accident, the man’s leg was amputated, and he sued the restaurant and property owner, alleging that they “negligently managed, controlled and supervised the demolition being done on the premises, and failed to take reasonable precautionary measures to protect him from a risk of harm, which caused his injuries.

Essex Insurance Company provided a defense to the purported property owner who was not its named insured, but did not discover its mistake until after judgment was entered following a jury verdict in the plaintiff’s favor. Litigation ensued over Essex’s obligation to pay the judgment. Essex eventually entered into a global settlement with the plaintiff that had the effect of resolving three lawsuits, including the personal injury action and a bad faith action plaintiff brought against Essex, in exchange for a lump sum payment. The settlement agreement did not allocate the payment among the three lawsuits or resolve issues regarding the identity of Essex’s insured.

Essex then sought indemnity from plaintiff’s physician who had treated him after the accident with the nail, on a theory of equitable subrogation for his proportionate liability for the amount Essex paid in settlement. The doctor filed a motion for summary judgment, which the trial court granted on the basis that Essex had waived any claim for equitable subrogation. In a post-judgment order, the trial court also awarded the doctor the cost of his expert witness fees. On appeal, Essex challenged both the judgment and the order. The Court of Appeal " agreed with the trial court that Essex must lie in the bed it made,” and affirmed.

Settlement Contract

The settlement agreement between Essex, the property owner, and the plaintiff included a lump sum payment of $700,000 which resolved three pending cases, including a bad faith action against Essex. The settlement agreement did not allocate payment amounts among the three pending cases; there was no statement about how much was being paid to compensate plaintiff for his personal injury. Accordingly, the trial court found Essex had impliedly waived its subrogation rights when it failed to enter into separate settlement agreements or otherwise apportion the amount paid among the three lawsuits. The Court of Appeal agreed:

Essex’s contention, however, shows why an implied waiver is applicable here — without resort to extrinsic evidence that is most likely inadmissible, it is impossible to prove how much was paid to settle each claim. Moreover, Essex ignores the other issues it failed to address in the settlement agreement apart from apportionment of the damages between the three lawsuits that shows it did not step into its insured’s shoes in paying the settlement, such as the failure to identify its insured or to apportion damages between economic and non-economic damages.

On appeal, Essex contended the trial court should have considered the inference that the settlement payment was compensation for the personal injury claim of the plaintiff and even suggested that evidence outside the body of the settlement contract could be offered to show the intent of the parties. The Court disagreed, stating that such extrinsic evident would most likely be inadmissible and that in any event, Essex waived its right to equitable subrogation by its actions.

Expert Witness Fees

The doctor made a statutory offer of settlement to Essex in compliance with California Code of Civil Procedure section 998. (Click here for a previous post on statutory offers: Settlement Negotiations: Don't Get Smacked by the Statutory Stick.) The good doctor’s offer to Essex was this: dismiss your claims for a waiver of costs. Essex did not accept and after the trial court ruled in favor of the doctor, he asked for an award of costs that included payment of his expert witness fees of $28,000. Essex opposed the award on the grounds that the statutory offer for a waiver of costs was not given in good faith. In denying Essex’s challenge to the order to pay expert fees, the Court of Appeal noted:

An offer to compromise may be “realistically reasonable” and justify cost shifting even though the party receiving the offer is unlikely to accept it as a consequence of the party’s skewed valuation of the case. Here, Essex recovered nothing from Dr. Heck. Dr. Heck’s offer is presumed reasonable and it is Essex‟s burden to show otherwise.

As a result, Essex was ordered to pay the doctor's expert witness fees. Thus, not only did Essex lose the right to shift the burden of its settlement payment to the doctor through equitable subrogation, the doctor was able to shift the costs of litigation onto Essex through the statutory offer procedures of Code of Civil Procedure section 998.

Lessons to be Learned

  1. Settlement Agreements are contracts. They will be interpreted and enforced according to the standard rules of contract interpretation and the laws of evidence. Therefore, settlement agreements must be written with the utmost care. In particular, one should be concerned about the scope of the release to be sure that the intent of the parties is accurately reflected.
  2. Statutory offers must be considered in the light of the laws of the local jurisdiction where the case is pending. It is not wise to react emotionally to a statutory offer of settlement. One should seek to evaluate such offers based upon objective criteria rather than the party's skewed valuation of the case, as noted in the Essex case. Remember, the party challenging the statutory offer generally has the burden of proving it is unenforceable.

So now you know about the "What the heck?!?" case. I hope it will help you when you are attempting to resolve your next case, even if it presents a "doozy of a puzzle."

Study Shows Attorney Overconfidence is a Barrier to the Efficient Resolution of Disputes

 

Barriers to conflict resolution are many, and much has been written about them. In Insightful or Wishful: Lawyer’s Ability to Predict Case Outcomes, a legal studies research paper for the new law school at the University of California at Irvine, noted American psychologist Elizabeth Loftus addresses another barrier to settlement that we lawyers are loath to admit: overconfidence. Indeed, the “saber rattling” of mediation colloquy can sound like the dramatic dialogue out of a Star Wars movie:

Luke: Soon I’ll be dead and you with me. Translated: We’re spending a boatload of money litigating this case but you will run out of money before we do.

The Emperor: [laughing] Perhaps you refer to the eminent attack of your rebel fleet? Yes, I assure you, we are quite safe from your friends here. Translated: Perhaps you refer to your army of expensive expert witnesses. They are no threat to us. I assure you we are prepared to destroy their testimony.

Luke: Your overconfidence is your weakness. Translated: Your overconfidence is your weakness.

The Emperor: Your faith in your friends is yours. Translated: Don’t count on the jury to bail you out of this one.

But lawyers are supposed to be confident, right? Yes, but there is a difference between having confidence and the courage of your convictions and overconfidence and the consequences of poor judgment. In an amusing analogy, Professor Loftus compares and contrasts lawyers and weather forecasters.

First, meteorologists cannot in any way influence the outcome of their predictions. Nothing they do can make it rain. Lawyers, on the other hand, can behave in ways that influence the case outcome. Because they have this opportunity, they may overestimate their own capacity and neglect the importance of factors beyond their control. Second, lawyers have a much keener interest in the goals of their predictions than do meteorologists. Because of this, lawyers might be susceptible to over optimism and wishful thinking.

The central focus of Professor Loftus’ study is the degree of accuracy in lawyers’ forecasts of case outcomes. To read the entire research paper click here. (PDF)  Meanwhile, the following quotes provide a glimpse of her insightful observations :

In summary, whether lawyers can accurately predict the outcome of a case has practical consequences in at least three areas: (a) the lawyer’s professional reputation and financial success; (b) the satisfaction of the client; and (c) the justice environment as a whole. Litigation is risky, time consuming, and expensive.

The consequences of judgmental errors by lawyers can be costly for lawyers and their clients, as well as an unnecessary burden on an already overloaded justice system. Ultimately, a lawyer’s repute is based on successful calculations of case outcome. A lawyer who advises clients to pursue litigation without delivering a successful outcome will not have clients for long. Likewise, a client will be most satisfied with a lawyer who is accurate and realistic when detailing the potential outcomes of the case. At the end of the day, it is the accurate predictions of the lawyer that enable the justice system to function smoothly without the load of cases that were not appropriately vetted by the lawyers.

A lawyer who cannot accurately predict the outcome of a case or who does not thoroughly and efficiently appreciate the litigation risks may ignore alternatives to trial and advise the client to reject reasonable settlement offers. A lawyer who underestimates potential outcomes may advise the client to accept an unreasonably lower amount in settlement than is warranted.

Another factor that might affect the realism of lawyers’ assessments of future goals is perception of control. The extent to which an individual believes he or she can take steps to increase the likelihood of a desirable outcome has been shown to bias confidence estimates in those outcomes. When an event is perceived to be controllable, overconfidence is likely. This bias is linked to what Langer (1975) called an illusion of control, defined as “an expectancy of a personal success probability inappropriately higher than the objective probability would warrant”.

Lawyers frequently made substantial judgmental errors, showing a proclivity to over optimism. The most biased estimates were expressed with very high initial confidence: In these instances, lawyers were extremely overconfident. These findings are consistent with a large body of literature documenting overconfidence in a range of judgments.

With regard to gender, we replicated results obtained by Malsch (1990) that female lawyers were better calibrated than their male colleagues. Male practitioners were more overconfident than female practitioners. These findings are in line with gender differences observed in research on metacognition.

One implication of the present findings is that lawyer performance can be improved by implementing case management strategies that take into account the potential overconfidence biases of the litigators.Case consultations with legal peers can take place informally. For example, in many legal firms, regular meetings are held where cases are periodically reviewed so that the partners can manage the caseload efficiently and ethically. These meetings provide ideal opportunities to obtain objective opinions from other legal professionals in the form of third-party feedback about the strengths and weaknesses of a case and the likelihood that the stated goals can be achieved.

 

This study shows that lawyers can be too confident. When lawyers do not fully assess the risks or acknowledge certain aspects of the case that may be beyond their control, over-(and under) valuations can happen, making settlement impossible. Objectivity requires lawyers to walk a fine line, some would call it a high wire balancing act, between zealous advocacy and wise counsel. Indeed, wisdom is the safety net that keeps litigators from crashing to the earth.

May the Force be with you.

 

 

A New Case Upholding Customized Dispute Resolution Provisions

It is an interesting paradox that construction professionals who devote their lives to building unique structures according to customized plans generally use "cookie cutter" form contracts to govern the duties and obligations of the parties. When a construction dispute arises, most construction professionals and their lawyers will spend many hours scrutinizing the contract documents to analyze their rights. Since so much time is spent evaluating the contract after the dispute, shouldn't there be at least an equal amount of time and thought put into it before the project begins? Instead of standard cookie cutter provisions, doesn't it make sense to think about the risks of the project and clearly define what will happen in the event of a dispute?  I have been preaching this sermon for many years, and recently posted an article on the subject called, Resolve Construction Disputes More Efficiently With Customized ADR Provisions.

A new case in California  (PDF) illustrates the benefit of customized contract provisions related to dispute resolution. The case involved the proposed development of a parcel of property and a contingent lease for a drug store build-out for Rite Aid. Here is the smart part of what happened: the lease agreement did not have the standard "prevailing party" language in the event of a dispute. Instead the lease stated that the prevailing party is entitled to "reasonable expenses," and then listed what the parties meant by that term: attorney fees, court costs, witness and expert fees.

The developer won the case and asked the court to award reasonable expenses including attorney fees and expert witness fees. Rite Aid challenged the developers request for $83,000 for expert witness fees in a motion to tax costs. The trial court denied the motion and Rite Aid appealed the judgment in favor of the developer, including the award of expert witness fees.

The California Court of Appeal affirmed the award of expert witness fees, holding that the the lease expressly called for them as an item of cost. The Court gave deference to the fact that this was a customized provision negotiated by sophisticated parties:

This does not mean-and we do not hold-that expert witness fees are recoverable in every case where "costs" are merely mentioned in a contract. A general cost provision should be interpreted according to the established statutory definition. But where sophisticated parties knowingly and intentionally negotiate a broader standard into their contract-and particularly where, as here, that standard specifically includes "witness and expert fees"-the intent of the parties should be upheld by the court. (Emphasis added.)

In most states, there are other ways to obtain an award of expert witness fees. I wrote about them in a post entitled, Settlement Negotiations: Don't Get Smacked By The Statutory Stick. But statutory awards of expert fees are discretionary awards made by the trial court after certain facts are established to the satisfaction of the judge. This Rite Aid case, on the other hand, provides a blue print for construction professionals who want to clearly define what will happen to the losing party in the event of a dispute rather than hoping for the favorable discretion of the trial court.

 

 

OVERCOMING BARRIERS TO CONFLICT RESOLUTION

 

Yesterday a district court judge appointed a special master to mediate a lawsuit between four major record labels and Jammie Thomas, a Minnesota woman who allegedly downloaded and distributed more than a thousand songs on the internet in violation of federal law. The case is deemed by many to be a vanguard in the music industry’s effort to thwart the practice of peer to peer (P2P) file sharing, which is costing the music world a bundle, according to industry experts. The strategy seems to be that the threat of a lawsuit and heavy fines will deter music lovers from unlawfully downloading and distributing music to their friends.

The special master/mediator, Jonathon Lebedoff, a former chief magistrate judge of the District of Minnesota, has a great deal of mediation experience-he was responsible for the settlement of the Dalkon Shield litigation, for example. Nevertheless, the good judge must overcome a number of barriers to resolve this conflict.

Barrier No. 1-Mediation is Less Likely to Succeed if it is Involuntary

Mediation is based on the premise that parties who voluntarily participate in the process and agree to devote their time, money, and resources toward problem solving will be sufficiently invested to find a way to resolve their dispute. In this case, the record industry and Ms. Thomas were ordered to mediate the case prior to July 16, 2010, and Plaintiffs’ representative, Recording Industry Association of America, was ordered to pay the special master $400 per hour to conduct the mediation. In my experience, parties who are ordered to mediate a dispute rarely have the requisite personal investment to fully engage in the mediation process and maximize the opportunity to settle the case. They simply show up to comply with a court order but their hearts are not into it. Furthermore, unless the parties decide it is in their mutual best interest to have one side pay for the mediator, it is unwise to force one side to pay for the mediator because the side being forced to pay the full freight will resent it and the side going along for the free ride will not be sufficiently invested in the process to care if it succeeds or not.

Barrier No. 2-Bad Timing Can Destroy the Chances of a Successful Mediation

The best time to mediate a case is when both sides feel they have sufficient information to analyze the risks of trial and calculate the reasonable range of settlement. If parties attempt to mediate too early, the defense may feel it needs more information before a reasonable offer can be made; mediate too late and the plaintiff may have spent so much money on the litigation that its only viable option to recoup its fees and costs is to proceed with trial. If you wait to mediate the case until after the verdict, then the prevailing party has less risk to consider and will be less flexible in the negotiations.

In the Jammie Thomas case, the special master/mediator is being asked to mediate a dispute that has already resulted in two jury verdicts in favor of the record companies. The first trial resulted in a jury award of $222,000 in statutory damages which was thrown out by the trial judge. The second trial resulted in a jury award for $1,920,000 in statutory damages which the trial judge reduced to $54,000.

Thus Judge Lebedoff must try to facilitate a settlement by helping Ms. Thomas see the wisdom of  paying all or part of the $54,000 and convincing the record companies to waive their right to appeal the trial judge’s reduction of their seven-figure verdict. This will not be easy.

Barrier No. 3-Litigation Risk Analysis Should Include Collectability

Assuming liability and damages have been properly analyzed, the collectability of a judgment must be factored into a litigation risk analysis. In other words, does the defendant have sufficient assets to satisfy a judgment? If not, it may be very difficult to settle the dispute. With nothing to lose, a party may not feel it necessary to work out a compromise.That seems to be the case with Ms. Thomas.

Ms. Thomas is a young mother of four who works as a natural resource coordinator for the Millie Lacs Band of Ojibwa Indians. While I know nothing about her finances, it is interesting that the record companies are the ones who seem anxious to get the case settled, not Ms. Thomas. Perhaps they realize that they are spending a lot of money to enforce a judgment that may not be collectable.

Greg Sandoval of CNET News reported in January 2010 that Ms. Thomas rejected a settlement offer of $25,000. In response, according to Mr. Sandoval, the record companies released the following statement, "It is a shame that Ms. Thomas-Rasset continues to deny any responsibility for her actions rather than accept a reasonable settlement offer and put this case behind her[.]"

Barrier No. 4-A Zero-Sum Attitude in a Dispute Resolution Setting

Commercial mediation works very well when all the parties share the same objective: the resolution of a dispute. But when a party simply wants to prove it is right and that the other side is wrong, reason or logic rarely prevail in a mediation session. This zero-sum attitude does not take into account the emotional and financial toll of a trial, an appeal, and perhaps more trials and appeals.

This seems to be the situation that Judge Lebedoff faces as the mediator in the Jammie Thomas case. One of her defense lawyers told CNET that they have always sought a $0 award and that the defense lawyers planned to challenge even the reduced damage award. And though the Plaintiff record companies appear to want to settle the case, Mr. Sandoval reports that they would be just as happy to appeal the ruling of the district court judge that greatly reduced the statutory damage award.

Fortunately, all of these barriers can be overcome if the parties will set aside their trial advocacy skills and focus on their negotiation advocacy skills.This change in attitude coupled with the problem solving skills of Judge Lebedoff can overcome any barrier that may exist. Best wishes to Judge Lebedoff and the parties in the upcoming mediation.

 

SHARPENING YOUR NEGOTIATING AX: PREPARATION PRECEDES THE SETTLEMENT

 

 

 

 

 

 

 

 

I like Abraham Lincoln’s adage about preparation: If I had eight hours to chop down a tree, I'd spend six hours sharpening my ax.” This post is about sharpening our negotiating axes through a pattern of preparation that includes rigorous legal analysis. My friend and fellow mediator, Don Philbin of San Antonio, Texas wrote one of the finest articles I have read on the subject entitled, “Prepare for Mediation: A Multidisciplinary Approach to Negotiation Preparation." You can read his article by clicking here. (PDF) It will surely sharpen your negotiation skills and help you efficiently resolve many difficult disputes. Here is a summary of Don's article:

  1. Rigorous Legal Analysis Forms the Basis Negotiation Preparation.

[Preparation] is the be-all of good trial work. . . . Everything else, felicity of expression, improvisational brilliance, is a satellite around the sun. Thorough preparation is that sun.         -Louis Nizer

In reviewing the essentials of the rigorous legal analyses that lie at the base of any economic analysis, New York litigator Louis Solomon concludes that “the importance of intelligent, critical, analytical, yet realistic case evaluation cannot be overstated.” Solomon notes that case evaluations should begin early and be updated consistently, including at certain regular intervals.The goal is assessing risk, not achieving perfection. In a recent article, he condenses the evaluation process into five key steps:

identify potential issues;

evaluate issue relationships and overall case bearing;

evaluate the risk or probability of each outcome (fact and law intensive);

evaluate possible upside and downside exposure; and

identify the indirect and collateral issues from the client’s perspective.

2. Decision Tree Analysis Helps Develop and Test Scenarios

In decision tree analysis, you establish the key events of the litigation through trial. You then estimate the probability for success of the key events and the dollar values of the potential final outcomes. A decision tree visually depicts this process in as much detail as may be desired. A more complex decision tree may include the chances of success of potentially dispositive motions, such as summary judgment, or the impact of rulings on certain key evidence. On the other hand, a basic decision tree may only depict liability and damage issues.
 
When evaluating liability and damages, you start with the basic question: what is the chance of prevailing on the issue of liability? If liability can be established, what is the amount that will be awarded for damages? The outcome will provide a range for settlement purposes

The process itself is as valuable as the result because it structures our analysis and focuses our attention on the component parts of the problem. In considering the range of outcomes and their probabilities, the parties not only come to a more realistic view of their options, they are able to communicate those scenarios in a common vernacular.

You can read my post on decision trees entiled, Dispute Resolution, Decision Trees, and Albert Einstein by clicking here.

3. Anchoring

As we move from dispute analysis to negotiation planning, we are often faced with the decision to either make the first offer or await one from the other side. That decision turns on a number of variables. One commentator argues that anchoring “describes the process by which the human mind does virtually all of its inferential work.” Anchors function much like our “gut” reactions to the value of an object or lawsuit – the “thin slice” our subconscious sends our conscious mind to evaluate. The more relevant information our analytical mind has, the less we are swayed by an unreasonable anchor. Mistaken or misguided anchors can increase the odds of impasse and have other unintended consequences.

4. Preparation Provides a Framework for Options

Litigants must make choices [about the claims] or turn them over to others for a binding decision. Unwilling to drain every swamp looking for evidence, they are often faced with making decisions with less than perfect information. The challenge then is to make the best decision with the information they do have or budget an appropriate amount based upon the developed choices. Economic analysis helps narrow the field from the legally possible to the economically viable

Outstanding trial lawyers spent considerable time and effort honing their skills to be effective courtroom advocates. But since most cases settle before a verdict is reached, it is equally important to develop effective negotiation advocacy skills. I hope you will spend some time with Don's article to help you sharpen your ax.

NEGOTIATING DISPUTES WITH THE WORDS OF A WIZARD IN MIND

 

Bear with me as I pay my respects to a lifelong hero who influenced my life for good:

John Wooden, the Wizard of Westwood, was the greatest coach of all-time. He passed away June 4, 2010; 4 months shy of his 100th birthday. While he will be remembered for his 10 NCAA basketball championships as the head coach of the UCLA Bruins, he always considered himself first and foremost a teacher. He taught principles of living based on his Pyramid of Success, and shared his wisdom through sayings that have been quoted for decades in virtually every educational, athletic, professional, and business forum and setting.

Even though I was never very good at handling a basketball (giving hard fouls was my forte), I have been pretty good at finding ways to sharpen my skills as a negotiator and a mediator.

 Here are a few of the things I learned from Coach Wooden’s playbook:

  • PREPARATION: “Failure to prepare is preparing to fail.”
  • HARD WORK: “Nothing will work unless you do.”
  • PATIENCE: “Do not let what you can not do interfere with what you can do.”
  • PERSEVERANCE: “It’s not so important who starts the game as who finishes it.”

And here is how I have applied these sayings of his to the field of negotiations and dispute resolution:

  1. If you do not prepare for mediation, you are preparing for the mediation to fail. Claims are not settled in a vacuum, they must be rigorously measured against the realities of trial before the negotiations begin. Questions about liability and damages, evidence and admissibility, costs and fees, must all be evaluated; the impact of litigation and trial on clients in terms of time, emotion, and resources must be scrutinized; and an objective study of the strengths and weaknesses of the other side’s positions must be undertaken in advance of the mediation. This is not to say that extensive discovery on every conceivable issue must be completed but sufficient thought must be given to these issues to enable you to negotiate to the best of your ability and with your client’s best interests in mind.
  2. Mediation does not work unless the parties are willing to work on both objective and subjective levels. They work better when lawyers are willing to set aside trial advocacy skills in favor of negotiation advocacy skills.  They work best when both sides focus on finding ways to resolve the dispute instead of perpetuating it.
  3. Do not let the tactics of the other side interfere with the implementation of your settlement strategy. You can not control your opponent but your preparations will enable you to take control of the negotiations by anchoring the offers and demands within a reasonable settlement range based on the facts of the case, the applicable law, and the record of verdicts in similar cases. Studies have shown that the first party to make a reasonable demand or offer anchors the negotiations in his favor. Thereafter, the negotiations tend to be driven in that direction.
  4. Have the mindset that you are going to see the mediation process through to the end. Be prepared to endure the ups and downs of a mediation session. Don’t allow your emotions to take you out of your game plan. Unfortunately, I see this happen all too often. For example, plaintiff believes the reasonable range of settlement to be $500,000 to 250,000. The defense, believes the settlement value is between $150,000 to 225,000. In other words, unbeknown to each other, they begin the negotiation with only $25,000 separating Plaintiff’s potential lowest demand and the defendant’s potential highest offer. However, the plaintiff wants to give himself plenty of room to negotiate so he makes an initial demand of $1,000,000. The defendant’s reacts emotionally to this number: “It’s outrageous; they are not negotiating in good faith; I’m not even going to respond with a counter offer.” After some time, defendant may respond with an equally ridicules number, $25,000. How does the plaintiff react? The same way and before you know it, both sides become frustrated and the mediator declares an impasse. If you are going to convene mediation, be prepared to finish the process. Allow the mediator to help the parties work through the process to find clarity and to maximize the chances for a reasonable resolution of the dispute.

Mediators are not miracle workers; they can not create a settlement out of thin air, and no amount of their “hot air” will convince parties to settle a case that has not undergone rigorous analysis by both sides. Take a page from Coach Wooden’s playbook: prepare, work hard, control what you can, and endure to the end. And when you are in the middle of a difficult negotiation, remember one more thing John Wooden taught, "Flexibility is the key to stability."

Thank you, Coach Wooden. Thanks for everything.

SETTLEMENT NEGOTIATIONS: DON'T GET SMACKED BY THE STATUTORY STICK

 

Parties hungering for their day in court must digest the potential repercussions of the carrot and stick procedures enacted by their respective legislatures to encourage the pre-trial settlement of disputes. Federal Court Rule 68 provides that a plaintiff whose judgment is less than defendant’s statutory settlement offer may be required to pay defendant’s costs, including deposition costs, filing fees, and other costs incurred after the offer expires. In certain cases, Rule 68 can also be used to cut off plaintiff’s claims for attorney fees incurred after the settlement offer.  Some state courts rules, such as California’s Code of Civil Procedure section 998 and Texas’s Rule 167, add to the list of recoverable costs, attorney fees and expert witness fees in cases where the terms of the statutory settlement offer were more favorable that the final judgment. 

 

It has been suggested that the correct usage of the carrot and stick idiom is actually “carrot on a stick,” referring to the hapless donkey tricked into pulling a cart by the lure of a carrot dangling from a stick. But studies have shown that rewards alone have little impact on cooperation among human beings, although punishment alone can be motivational.  But when rewards and punishment are combined the effect on cooperation is dramatic, suggesting that the more realistic image of the donkey and the cart would have the driver holding the stick attached to a carrot in one hand and a prodding stick in the other. Similarly, in civil trial courts, the benefits of compromise alone may not be enough to induce parties to negotiate in good faith, but when combined with the threat of having to pay the other side's costs, litigants are generally sufficiently motivated to settle their lawsuits.

 

In California, for example, a party may serve a written offer to compromise prior to trial, and if the offer is rejected and the opponent does not receive an award at trial greater than the offer, then the party that rejects the pre-trial offer may be ordered to pay the offeror's costs. This gives the parties strong financial incentives to make reasonable settlement offers and burdensome disincentives to discourage the rejection of them.

Unfortunately, some litigants do not even consider the possibility of paying the other side's costs when considering the settlement value of their cases, or, in some states where attorney and expert witness fees can be awarded, they make the mistake of only evaluating general litigation costs such as filings fees, the cost of deposition transcripts, and service of process fees.  When a statutory pre-trial offer is made, the trial lawyer must understand that the offer has created a floor that must be exceeded in order to collect his costs and avoid having to pay his opponent’s litigation costs.

 

The possibility of a statutory offer of settlement can induce parties to participate cooperatively during a mediation session. In preparation for mediation, counsel will usually calculate the settlement value of a case by analyzing the likelihood of success at trial both as to liability and damages. The damage estimate will then be discounted by some percentage to reflect the possibility that the trial will not proceed according to plan. If, however, counsel must also consider whether the damage award will exceed the amount of a "statutory offer," then the analysis becomes more complicated and the stakes at mediation increase.

 

For example, suppose plaintiff's counsel believes his case is worth $1,000,000 in damages, but for purposes of settlement discussions considers $800,000 as a reasonable amount for settlement. Without the carrot and stick of a statutory pre-trial offer, plaintiff's counsel need only worry about the other side's costs if no money is awarded at trial. Being extremely confident, counsel considers the likelihood of a jury awarding nothing to be zero. Therefore, counsel concludes $800,000 is the minimum amount that should be accepted at mediation.

 

On the other hand, suppose counsel's preparation includes an analysis of the other side's costs and what would have to be achieved at trial to avoid having to pay them, and then he fully explains the ramifications of statutory offers to his client.prior to the mediation. Now he will be better prepared to evaluate the risks of trial should the other side's best offer be less than he expected, say $500,000. As a result, plaintiff's counsel will be in stronger negotiating position and better able to meet the needs of his client, knowing the likely floor that he must exceed at trial in order to prevent his client from having to pay defendant's costs which, for a million dollar case, could be hundreds of thousands of dollars..Given this risk, plaintiff's counsel will be more willing to come off the original  $800,000 target number during mediation.

 

The possibility of paying the other side's costs, especially if they include attorney and expert fees, is a powerful incentive to negotiate in the utmost good faith. As demonstrated above, the cost-shifting feature of statutes such as Federal Rule 68 and California Code of Civil Procedure section 998 can be a carrot to entice reasonable settlement offers and a big stick to discourage rejection of settlement offers. Use this tool to your advantage at mediation. You will increase your negotiating leverage while demonstrating that you are a wise steward of your client's litigation dollars.

DISPUTE RESOLUTION, DECISION TREES, and ALBERT EINSTEIN

 

Alternative dispute resolution often means we have to take an alternative approach to the way we think about resolving disputes. Albert Einstein wisely said, “You cannot solve a problem by thinking the same way that created the problem.”  We often see this when attempting to mediate construction dispute where the residual animosity of the construction project is contagious, infecting management, counsel, and even experts with such anger and recriminations that objectivity is diminished or even lost, and when that happens mistakes are made during the negotiations.

Studies have shown that parties to a civil dispute who fail to settle their cases prior to trial often make mistakes in establishing the settlement value of their cases and as a result do worse at trial than they could have done in settlement negotiations. According to a recent study, plaintiffs, more often than defendants, make valuation errors in unsuccessful negotiations, evidenced by the fact that a high percentage of them receive somewhat less at trial than they could have received in settlement. When defendants get it wrong, on the other hand, they do it in spectacular fashion, with verdicts coming in much higher than they could have settled their cases for. In short, plaintiffs are wrong more often but when defendants are wrong, they pay a very high price.

With so much at stake in properly setting the value of a case, construction lawyers should give as much care in objectively analyzing their cases as their clients give when preparing their bids or scheduling their jobs, with every detail of the lawsuit being analyzed for success or failure, from the filing of the complaint to the preparation of dispositive motions to a jury returning a verdict; and even to the possibility of an appeal.  This can effectively be done through decision tree analysis.

Decision Tree Analysis

Prior to mediation, you should prepare a negotiating strategy based on the settlement value of your case. If you represent the plaintiff, you must establish the lowest settlement amount that would be acceptable to your client. If you represent the defendant, you must determine the highest amount your client is willing to pay to settle the case. Whatever side you are on, this bottom line settlement number approximates your best and final offer that you would make during mediation. In their seminal book, Getting to Yes, Fisher and Ury call this number your BATNA-the best alternative to a negotiated agreement. In other words, your client would rather  go to trial than accept an amount lower than the bottom number in your settlement range if you represent the plaintiff, or if you represent the defendant, your client would prefer going to trial rather than pay more than the highest number in your settlement range. In order to establish your BATNA, you must consider the point at which the risks of trial outweigh the concessions your client must make to reach a resolution of the dispute. Decision tree analysis is a great tool to help you help your client understand the settlement value of his case.

In decision tree analysis, you establish the key events of the litigation through trial. You then estimate the probability for success of the key events and the dollar values of the potential final outcomes. A decision tree visually depicts this process in as much detail as may be desired. A more complex decision tree may include the chances of success of potentially dispositive motions, such as summary judgment, or the impact of rulings on certain key evidence. On the other hand, a basic decision tree may only depict liability and damage issues.
 
When evaluating liability and damages, you start with the basic question: what is the chance of prevailing on the issue of liability? If liability can be established, what is the amount that will be awarded for damages? The outcome will provide a range for settlement purposes.

Suppose you believe there is a 60% chance liability will be established and if established, the low, medium, and high ranges of damages are as follows: 50% chance the damage award will be $250,000; 30% chance it will be $500,000; and a 20% chance it will be $1,000,000. A decision tree based on these assumptions would look like this:


             Jones v. Smith →liability→yes 60% →damages → 50% $250,000
                                    ↓                                             
                                                                                              30% $500,000
                                    no 40%                                   
                                                                                              20% $1,000,000
                                    ↓
                                    no damages

Next you would factor in the 60% possibility of liability to determine the range of values and the average expected value:

Low Range                              Medium Range                       High Range

(.60 x .50 x 250,000)               (.60 x .30 x 500,000)               (.60 x .20 x 1M)
           
$75,000                                   $90,000                                  $120,000
                       
Average damage award = $285,000 (75,000+90,000+120,000)

This decision tree would enable you to advise your client that the average value of the case is in the range of $285,000, assuming a 60% chance of establishing liability.

You will also want to advise your client of the total average cost of litigation, which would include the average damage award and the estimated attorneys fees and costs. Assuming fees and costs of $100,000 for each side, the total average cost of the litigation for the defendant would be $385,000 (average damage award + estimated attorney fees and costs); for the plaintiff, the average value of the case would be reduced to reflect the net amount the client would actually receive, $185,000 (average damage award – estimated fees and costs). Risk analysis is not complete, however, without factoring in the possibility of having to pay the other side’s attorney fees and costs that may be awarded to the prevailing party under state or federal law.

Of course, decision tree analysis is only as good as the assumptions upon which it is based. The results, however, can provide your clients with valuable information about the potential trial outcome and the cost of litigation. You can then negotiate using objective criteria that more times than not will lead to an amicable resolution of the case.

Negotiations and the Samurai Code: Seven Habits of Highly Effective Negotiators

Veteran Utah trial lawyer Harold G. Christensen recently published Samurai Lawyer, a pithy book that provides excellent counsel to trial lawyers based upon “The Samurai Way” of living (and dying, I might add). However, given the fact that more than ninety percent of civil cases settle before trial, it is negotiation skills, not trial skills, that are most often called upon by litigators, and yet relatively little attention is given to them 

 In Japan, samurai were warrior servants who embodied the law of bushido, a Japanese word formed from two other words: bukyo, meaning “The Warrior’s Creed,” and shido which means, “The Way of Gentlemen”. Litigators who adopt these principles to enhance their negotiating skills will resolve their clients’ disputes more effectively and will become more than courtroom warriors; they will be valued as wise and trusted counselors at law.

                                                           I. VISION

A successful negotiator has outstanding vision; he sees both the strengths and weaknesses of his case. He has the capacity to look beyond the narrow focus of advocacy and peer into the broad spectrum of possible outcomes through the eyes of the judge or the jury. He meticulously evaluates the law and facts advocated by his opponent, knowing, as did the samurai, that “You must understand the conditions on the opposite shore to comprehend your side of the river.” This perspective minimizes negotiating mistakes, which, studies have shown, occur more frequently with plaintiffs, but that when defendants do make them, they are really big mistakes resulting in awards much higher than plaintiff’s last pre-trial settlement offer.

                                                           II. PREPARATION

Samurai negotiators know “When you’re thirsty it’s too late to start thinking about digging a well,” so they prepare for the negotiations in every detail. Foundational questions include:

  • What do I want to accomplish through the negotiation?
  •  What outcomes would not be acceptable?
  • Why would these outcomes not be acceptable?
  • What are the terms that I must have vs. terms I would like to have?

In their seminal work, Getting to Yes,” Fisher and Ury suggested that negotiators prepare by determining their BATNA, their best alternative to a negotiated agreement. In other words, the client would rather  go to trial than accept an amount lower than the bottom number in her settlement range, if she is the plaintiff, or if she is the defendant, she would prefer going to trial rather than pay more than the highest number in her settlement range. In order to establish their BATNA, successful negotiators determine in advance the point at which the risks of trial outweigh the concessions their client must make to settle the case.

Trial risks can be effectively evaluated through decision tree analysis, in which the key events of the litigation through trial are projected, and an estimate of the probability for success or failure of these events is assigned. A decision tree visually depicts this process in as much detail as may be desired. A more complex decision tree may include the chances of success of potentially dispositive motions, such as summary judgment, or the impact of rulings on certain key evidence. If, on the other hand, the evaluation is limited to liability and damages, the basic question is what are the chances of prevailing on the issue of liability? If liability can be established, what is the range of damages likely to be awarded? The outcome will provide a range for settlement purposes.

 

                                                            III. Benevolence

“A wise man hears one and hears ten,” so goes the Japanese proverb. Litigators are not known for their benevolence in the courtroom; however, it is an important characteristic for negotiators, who must look beyond economics to see if there are additional motivating factors on the other side of the table. Successful negotiators consider the following:

           

  • What are the conditions and circumstances of the other side?
  • What is the financial condition of the other side?
  • What business or personal pressures is the other side facing?
  • What would my interests be if I were on the other side?

 

In addition, such things as the titles and responsibilities of the other side’s negotiating team, and their respective ages, length of employment, and relevant experience should be considered. But it does not stop there; successful negotiators also take into consideration the age, health, and financial condition of their clients, including the impact of the litigation on work and family, for successful negotiators understand that, win or lose, trials exact a price beyond money from all of its participants.

 

                                                             IV. WISDOM

Often, litigants negotiating a dispute will fall into the “You go first” trap. They want the other side to make the first offer and this often leads to frustration, mistrust, and, ultimately, an unsuccessful negotiation. Wise negotiators understand, “Knowledge without wisdom is a load of books on the back of an ass.” They recognize the psychological affects of anchoring and framing, concepts that inure to the benefit of the party who is willing to make the initial move during negotiations. Anchoring occurs when one of the parties makes the first reasonable settlement offer, one that suggests that the target figure is within reasonable range of the likely outcome if the case were to proceed to trial. Studies have shown that the party making the first reasonable offer will likely succeed in the negotiation as the other side must respond to the range that has been set.

Framing is a concept that gives the wise negotiator additional advantages by providing persuasive context to the negotiations. It can cause the other party to focus on features within a desired construct while disregarding other aspects arising from the disputed event. For example, in the realm of politics, we see national leaders framing the debate over health care. While one side has attempted to frame the debate by focusing on the importance of extending health care for everyone, the other side seems to have taken control of the debate by framing the issue as the nationalizing of health care for the benefit of a small group of uninsured people at great cost to the majority of Americans who are content with the status quo. As a result, the party in power has been put on the defensive and has been forced to react within the framework established by the “loyal opposition.” For the litigated case, framing is most effective during the initial phase of negotiations, either during pre-settlement correspondence, in mediation or settlement briefs or during a joint mediation session prior to caucusing. Thoughtfully done, framing can influence the subsequent behavior of both sides: for the “framer” it provides a pattern for organizing and shaping persuasive arguments, while placing on the other side the onus of responding within the desired framework.

                                                            V. HONESTY

Litigators may enlist many strategies during settlement negotiations: anchoring, framing, indifference, aggression, to name a few; but the samurai negotiator understands that honesty and integrity are perhaps the two most powerful tools available to him. He recognizes the truth of the Japanese proverb, which states, “Darkness reigns at the foot of the lighthouse.” Honesty can provide the light that engenders trust; trust will beget understanding; and understanding most often results in the resolution of a dispute, not because either side concedes it is wrong, but because of enlightened self-interest. Honesty also protects the negotiator who may be tempted to blur the line between “puffing” and deceit during negotiations. “ Indeed, cases from twenty-eight states hold that '[a]n attorney can be liable to a non client, even an adversary in litigation, for fraud or deceit.' " Shafer v. Berger Kahn, et.al. (2003) 107 Cal. App. 4th 54. 

 

                                                            VI. LOYALTY

Hojo Shigetoki was a samurai warrior of the Kamakura period of the 13th Century. His writings influenced generations of samurai who followed him. He said this about loyalty: “When one is serving officially or in the master's court, he should not think of a hundred or a thousand people, but should consider only the importance of the master.” Of course attorneys have the highest ethical obligations to their clients. Occasionally, however, clients may call into question the motivation of their attorneys during negotiations. In a recent case that cast into question the breadth of the mediation privilege in California, a client sued his lawyer for malpractice on the basis that the attorney forced him to settle the case. Cassell v. Superior Court, Cal App 4th 2009/B215215. The samurai negotiator always places the interests of his client ahead of all other considerations.

 

                                                            VII. COURAGE

Some trial lawyers feel that settlement negotiations are for the faint of heart. Samurai negotiators understand this mentality. In fact they know there are certain cases that must go to trial, and they prepare for that possibility. But they also know that most of the time, lawsuits are resolved through negotiations, so they prepare themselves and their clients accordingly. This takes professional courage. Clients focused on justice do not always appreciate being told that a judge or jury may not agree with them. At the risk of offending or even losing their clients, samurai negotiators fully inform their clients of the realities of the case: that the costs of litigation may outweigh the upside potential of the damage award, that the judge may limit critical evidence, that the jury may not believe the expert witnesses, or any number of things that make ceding control of a case to a tribunal of strangers a very risky proposition. This leads samurai negotiators to engage in settlement negotiations prior to trial as forcefully and effectively as they would prosecute a trial, for they know, as the samurai knew, that “A good sword is the one left in its scabbard.”