Discretion is the better part of valor, a phrase that can be traced to a 15^th Century English writer named Caxton, became part of the English vernacular after the publication of William Shakespeare’s ‘King Henry the Fourth’ in the 16^th Century. The phrase came into the American lexicon in the 18^th Century courtesy of Benjamin Franklin’s ‘Poor Richard’s Almanac’. But what does the phrase mean and, since this is a blog about resolving disputes, does it have any application to alternative dispute resolution principles in the 21^st Century?

To me the phrase “discretion is the better part of valor” means proper judgment is better than unwarranted bravery. Trial lawyers are people of valor because they display courage, spirit, nerve, dedication, and boldness when advocating for their clients. However, there are times during the course of litigation when proper judgment is more important than valor, times when fierce trial advocacy skills are unwarranted, like when lawyers are preparing for, and participating in, mediation.

Mediation advocacy skills come from another toolbox. They are characterized by insight, knowledge, objectivity, patience, prudence, judgment, and, returning to the phrase of the day, discretion, including the wisdom to recognize that trial judges are granted broad discretion in deciding critical issues affecting the outcome and costs of trials. This is an important acknowledgment given the fact that appellate courts do not overturn decisions that are within the discretion of the trial judge unless there has been an abuse of discretion.

Since litigation is so expensive, a lawyer evaluating the risks of going to trial verses the settlement value of a case should take into consideration the discretionary power of the trial court in determining which side is the “prevailing party” for purposes of awarding litigation costs, including, in some cases, attorney fees and expert fees. This task becomes more challenging when there is a possibility of a “mixed result” because neither side can claim a complete victory. For example, when the outcome of a contract claim falls short of a complete victory for one party, then the trial court has discretion to determine which party prevailed on the contract, and it may conclude that neither party sufficiently prevailed to justify an award of attorney fees.

A recent 56 page opinion of the California Court of Appeal illustrates the discretionary power of trial judges in deciding the “prevailing party” issue and which side must bear the costs of litigation. In this breach of contract case, the plaintiff alleged various causes of action in its complaint and the defendant also asserted numerous claims in a cross-complaint. Both sides “won some” and “lost some” through pre-trial motions and trial. Due to the ‘mixed result”, the trial court determined that even though the plaintiff had been awarded substantial damages on its contract claim, plaintiff was not the prevailing party and was not entitled to an award of attorney fees under California Civil Code section 1717. The court of appeal affirmed, concluding the trial court acted within its discretion in denying the motion for attorney fees.

The court of appeal, however, concluded the trial court was in error when it denied plaintiff’s alternative theory for requesting attorney fees pursuant to California Code of Civil Procedure section 998, a statute that encourages parties to make reasonable pre-trial settlement offers and punishes those who reject them. In explaining how it was possible for the plaintiff to lose its motion for attorney fees pursuant to an attorney fee clause in the contract while being granted attorneys fees under Section 998, the court of appeal noted that entitlement to costs under section 998 derives not from which party is the prevailing party under section 1717 but rather from the defendant’s failure to accept a reasonable settlement offer under section 998.

Taking into account the broad discretion of the trial court on a wide range of issues affecting the outcome and costs of trial is always the better part of valor for litigators. It is an essential element in the thorough analysis of the pre-trial settlement value of a case and the prudent practice of many of the outstanding lawyers I have learned from over the years.

The New York Giants are playing the New England Patriots in the Super Bowl, again. What would happen if the Patriots prepared for the game by focusing exclusively on their strengths and the Giants’ weaknesses while ignoring their own weaknesses and the Giants’ strengths?  That would be ridiculous, right? Bill Belichick, Tom Brady? Forget about it. No way. Those guys will be prepared for every contingency, every angle, and every trick play.

Preparing for mediation is a lot like preparing for a football game-it requires strategic thinking and careful planning. Yet oftentimes I see parties who refuse to recognize the strengths of the opposition or acknowledge any weaknesses in their own cases. They act as if no one will be contesting the outcome if the case goes to trial.  On the other hand, parties who prepare for mediation by conducting an objective risk analysis of the strengths and weaknesses of both sides of the case almost always find reasons to negotiate a successful resolution of the dispute.

 A recent story reported in a business industry blog illustrates this point. By the way, I have deleted the references to the names of the individuals and parties involved in the story.

[Company X], a tugboat shipyard and barge repair facility, on Tuesday requested that ...[the] Circuit Judge...prevent an economics expert from testifying on behalf of a man suing the company.

[Plaintiff], 41, is suing [Company X] claiming his right arm was mangled when a large metal ball attached to a crane fell on it while he was working on a barge on the upper Mississippi River.

The company disputes [the expert's] testimony in a 13-page motion to disqualify.

"[The expert's] calculation of lost earnings and fringe benefits lack an adequate and reliable foundation," the motion reads. "At deposition, [the expert] acknowledged that Plaintiff returned to work for [Company X] on July 26, 2010. However, only her calculation of past lost wages accounts for this fact. With respect to future lost earnings and benefits, [the expert] inexplicably decided that Plaintiff would stop working on the first day of trial and would never work again. Such an assumption is unsupported in the evidence and is belied by reality."

"She calculated [Plaintiff's] lost earnings at $1.7 million."

"Even were the Court to accept [the expert's] figures and assumptions, her arithmetic is wrong. Using her own figures and assumptions, [the expert] overstates Plaintiff's alleged future lost wages by $251, 700," the motion states.

"As the foregoing illustrates, [the expert's] opinions do not bear sufficient indicia of reliability and the bases for her opinions are simply not trustworthy."

A party who ignores the possibility that such key evidence could be excluded will not be able to objectively consider the reasonable settlement value of the case, and the litigants will almost always be forced to go to trial because at least one side’s settlement value is based on unrealistic assumptions.  So on the question of lost earnings in this example, what are the chances that the motion will be granted? If it is fifty-fifty, the settlement value would be $850,000 (1,700,000 x .50), assuming 100% liability. What if liability is fifty-fifty? Then the settlement value of the lost earnings claim would be $425,000 (1,700,000 x .50 x .50). Even if the plaintiff got his expert testimony into evidence, what are the chances the damages will be reduced by $251,000 due to the alleged arithmetic errors? If there were a 25% chance of that, the plaintiff would have to do another calculation: $1,700,000 x .50 x .50 -251,000 x .25=$362,250. Under these circumstances from the plaintiff's perspective the reasonable range of settlement of the lost earnings claim is $425,000 to $362,250.

Of course the defendant may have some different assumptions about the likelihood of having its motion granted, so that the defendant's range of settlement may be different. That's okay. It should be expected.  So, for example, what if the defendant believes there is a 50% chance on liability, a 75% chance the motion will be granted, and a 10% chance the court will agree the math is wrong? The defendant's range of settlement would be $212,500 (1,700,000 x .50 x .25) to $187,500 (1,700,000 x .50 x .25-251,000 x .10).

Now we see a range of settlement that includes the plaintiff's high of $425,000 and defendant's low of $187,500. There is still a large gap but the parties are now within a reasonable range to get a deal done. By comparison, if plaintiff had assumed he had a 100% chance of defeating the motion and defendant assumed it had a 100% chance of having its motion granted, the range would have been $1,700,000 to $0. I can hear it now, "I am not going to dignify that number with a response. You tell him to get real or we will see him at trial!" And the plaintiff, "Zero? Are you kidding me? I'll see them in court!" Such failure to make reasonable assumptions about the likelihood of success almost always forces the parties into a trial that neither one really wants.

There are many variables that go into determining the settlement value of a case, and the more of them you take into consideration the more realistic the numbers will become. You would, of course, always factor in the likelihood of success on the questions of liability and damages, but what about the chances of winning or losing a summary judgment motion; a motion to preclude evidence; or some other dispositive motion? What about litigation costs and the possibility of having to pay the other side’s attorney fees if you lose? When two sides carefully think through these types of issues, they almost always come to the mediation within striking distance of each other’s settlement range and when that happens-TOUCHDOWN! Both sides win.

Even after twenty years, the so-called “McDonald’s coffee case” or “hot coffee case” is still the poster child of tort reform advocates and the rally cry of consumer attorneys. The former decry a legal system which permits such “frivolous” lawsuits while the latter complain that public relations firms distort the facts of the case to engender public sympathy for big business. Let’s pivot away from the politics of the case and, going back in time, look at the lawsuit from a neutral perspective-as people who want to resolve a dispute as efficiently and effectively as possible. Like a mediator.

The hot coffee case is reported in Wikipedia. Using the facts reported in the article, let’s consider what risks were involved in the case and identify some of the barriers to settlement. What was it about the settlement negotiations that made trial a better option for the parties than a settlement? In other words, using Fisher and Ury’s term from their national bestseller Getting to Yes, what was the BATNA-the best alternative to a negotiated agreement-for each party, and why was trial deemed to be a better option than the settlement terms that were offered? This is a question every litigant must consider in order to properly prepare for settlement negotiations.

Your BATNA becomes evident through rigorous risk analysis of the legal, economic, and emotional aspects of the dispute. You should also consider these things from your opponent's perspective. Unless you attempt to view the case from the other side’s perspective of the risks and rewards of the case, you may force your opponent to engage in a trial that no one really wants. Therefore the key to effective negotiations is finding a reasonable settlement range that takes into account the risks and rewards of trial for both sides. The plaintiff will not agree with the lowest number in the settlement range and the defendant won’t agree with the highest, but once both parties find themselves in the same settlement range, settlements almost always happen. It is the mediator’s job to help them get there. Unfortunately, it appears the parties in the hot coffee case were never in the same range until after the trial.

The Accident

• A 79-year-old woman ordered a 49-cent cup of coffee from a drive-in window at a McDonald’s restaurant. The cup had a warning label about the hot coffee.
• McDonald’s served coffee at 180-190 degrees. At that temperature, the coffee would cause third-degree burns in two to seven seconds.   
• While sitting in the passenger seat of a parked car, the woman placed the cup between her legs and pulled the lid toward her to remove it. In the process, she spilled the coffee on her lap.
• She suffered third-degree burns on six-percent of her skin and lesser burns over sixteen percent. She was hospitalized for eight days, underwent skin grafting, and spent the next two years receiving medical treatment.
• Her past medical expenses were $10,500; her future medical expenses were $2500; and her lost income was $5000 for a total of approximately $18,000.

 Pre-trial Settlement Negotiations

The plaintiff made a pre-lawsuit offer of settlement in the sum of $20,000. McDonald’s offered $800.  McDonald’s also rejected a pre-trial offer of $90,000, and then a $300,000 offer, and a final pre-trial mediator’s proposal of $225,000.

Trial, Verdict, and Post-Trial Settlement

At trial, the plaintiff introduced evidence of measures that could have been taken to reduce the risk of burning and evidence of 700 other burn victims. The jury returned a verdict that awarded the plaintiff $200,000 in compensatory damages and $2.7 million in punitive damages. The punitive damages were apparently based on plaintiff’s counsel’s argument that McDonald’s took in $1.35 million in coffee sales per day, and the jury awarded two days worth of sales as a punishment for what happened. The jury did find the plaintiff was 20% at fault, so the compensatory damages were reduced to $160,000. The judge reduced the punitive damages to three times the compensatory amount, for a total of $640,000.

Eventually the parties entered into a confidential settlement prior to the filing of an appeal, presumably in an amount that substantially exceeded McDonald’s initial offer of $800.

Observations

The settlement value of the hot coffee case must be analyzed from a pre-trial and post- verdict perspective.

Pre-trial: What were the chances the jury would find McDonald’s liable? Was the warning on the cup sufficient? Did the plaintiff have any comparative fault? McDonald’s pre-trial offer of $800 seems to indicate that it did not believe a jury would find the company liable under the facts of the case. In addition, the $800 was more than the $714 average settlement given to 700 other burn victims. The defense may have also factored in the high cost of litigation the plaintiff would face and expected a considerable discount from the plaintiff as a result.

The plaintiff though had real injuries and verifiable damages of $18,000. The plaintiff may have felt that the initial settlement offer of $20,000 was reasonable given her actual damages and considerable pain and suffering. Two-thousand dollars for pain and suffering would be more than fair and reasonable, plaintiff must have thought. But did the plaintiff factor in the possibility that a jury would not find McDonald’s liable? Did she really have a 100% chance of success? Could it have been a 75% chance, or some other number? Even if she was 100% certain that McDonald’s would be liable, did she consider that a jury might find that she was also at fault and that her damages could be reduced by some amount on a comparative fault basis?

McDonald’s turned down plaintiff’s pre-trial settlement offer of $90,000. Given the $160,000 of compensatory damages actually awarded by the jury, it seems the $90,000 offer was within a reasonable range. Without more information it is hard to tell the dynamics at this point, but it seems McDonald’s had a totally different view of the case, probably because the medical expenses were only $10,500. McDonald’s probably thought that even if it were found to be liable, an award for pain and suffering would not be more than 3 or 4 times the medical expenses, so the cap on the damages would be limited to no more than $52,000. Therefore, a settlement of $90,000 was unacceptable to McDonald’s because it represented a valuation that was almost two times the amount plaintiff was likely to get on her best day of trial.

McDonald’s then turned down plaintiff’s pre-trial settlement offer of $300,000 and the mediator’s settlement proposal of $225,000. Very interesting: generally the plaintiff would have attempted a compromise by going below her last number which was $90,000. Why did the next offer go up, and not down? Probably because the plaintiff uncovered evidence to support a claim for punitive damages, so the price of settlement went up. It is a funny thing though-most businesses do not want to settle a case based upon potential punitive damages. That is because the burden of proof is so high that it is hard to get punitive damages, so businesses adopt the attitude, “if you want punis you’re going to have to take them from me at trial.” It is a business risk they are often willing to take.

McDonald’s may have thought they could keep evidence of the other burn victims out of the trial by filing a motion to exclude such evidence. I noticed in the court docket numerous motions to exclude filed by McDonald’s, including a “Motion to Exclude Prior Deposition Testimony and Photographs of other Burn Injuries at Trial. (08/04/1994)” Apparently the motion was denied which then let the jury consider McDonald’s prior knowledge of the danger of the 190 degree coffee which apparently led to an award of punitive damages.

I recommend that every trial risk analysis include the possibility of favorable and unfavorable outcomes for law and motion matters. For example, what are the chances of excluding certain evidence and if the motion fails, could the potential damages increase? From the plaintiff’s side, a risk analysis may include the possibility of losing a motion for summary judgment or the impact on damages if a motion to exclude evidence is granted.

A final thought about punitive damages:  court’s have the authority to reduce awards for punitive damages if the amount is deemed to be excessive on constitutional grounds. Here, the trial court reduced punitive damages to three times the compensatory damages. The days of huge punitive damage awards of ten, fifteen, or a hundred times the amount of the compensatory damages are long gone. The U.S. Supreme Court opinion in the State Farm v. Campbell case (where the compensatory/punitive damages ratio was 145:1) a few years ago changed all of that. Plaintiffs need to account for that in their risk analysis and expectations. Trial courts seem to be limiting punitive damage awards in most cases to three or four times the compensatory damages, and if they don’t, an appellate court probably will.

Post-Verdict: at this stage the dynamics have shifted in plaintiff's favor. McDonald’s will have to pay $640,000 plus interest unless the verdict is reversed on appeal. Why then would plaintiff settle for an amount less than $640,000? Because there is a chance the she could lose on appeal. Then she would have to retry the case with a different jury which means an uncertain outcome and additional litigation expense. As a result, the parties settled the case.

Final Thoughts

There are other factors to consider when evaluating the settlement value of a case: the costs of litigation, the possibility of having to pay the other side’s costs and attorney fees if you do not prevail,  the time value of money, etc.. There are also other costs that are harder to gauge:  the emotional toll of participating in a trial, the time commitment, added pressures on family and business colleagues, and much, much more.

I am a great believer in the benefits of settling disputes prior to trial. It requires a realistic view of the facts and the law by both parties. That view must be shaped by realistic assumptions. You cannot compare the strongest parts of your case with the weakest parts of your opponent’s case and expect to have a meeting of the minds.

Disputes happen but reasonable people can usually find ways to resolve them in a cost-effective manner. When they cannot even agree on a possible settlement range, settlement is not possible and the dispute will spill into court. Who will wipe up the mess? A jury of your "peers"-strangers really-who may not even know what it is like to drink hot coffee.

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.

I like to read and report on appellate court cases that illustrate the benefits of self-determination in the mediation process as opposed to court-imposed adjudication in the civil trial process. It may involve a little "Monday morning quarterbacking,"  but I don't consider it to be second quessing anybody but more like watching game film to learn from past competitions and prepare for the next contest.

Today I want to report on a new California Court of Appeal case involving a homeowner and a condominium owners’ association.  It addresses the voluntary dismissal of some but not all causes of action, the question of who is the prevailing party for purposes of awarding attorney fees, and the consequences of a fully executed settlement agreement that includes a waiver of known and unknown claims. These are typical issues in every lawsuit but looking at them from a “post-mortem” perspective can increase our capacity for pre-trial solutions.

WHAT HAPPENED

It is never a good sign when an appellate court admonishes one of the parties to get her “ducks in row,” but that is what happened in this condo case. The court stated:

 A party contemplating litigation to enforce the covenants, conditions, and restrictions of a condominium project should get the "ducks in a row." That is to say, such party should be ready to go forward procedurally and prove its case substantively. Failure to do so subjects the losing party to an award of attorney fees. Here, a condominium owner filed against a condominium association. In defending the suit, the Association incurred attorney fees of a quarter million dollars. Based on faulty reasoning, the owner dismissed eight of the ten causes of action on the eve of trial. She prevailed on no level whatsoever, let alone on a "practical level." But the trial court denied the Association any attorney fees, and the Association appealed. We conclude that the denial was an abuse of discretion as a matter of law. The condo owner did not realize her "litigation objectives" on these causes of action. The Association did realize its "litigation objectives" and was the prevailing party on a "practical level." It is entitled to attorney fees as mandated by the Legislature.

Dismissal

There are potential consequences when a lawsuit is dismissed either voluntarily, as was the case in the condo case above, or involuntarily due to some court action. Depending on the state statute, the court will determine which side is the prevailing party and award that party the costs of litigation and under certain conditions, attorney fees. In the condo case, the plaintiff may have to pay up to $250,000 in attorney fees to reimburse the condo association, the prevailing party. It should be noted that a trial court can also award litigation costs and attorney fees to the prevailing party after a civil trial.

When conducting a pre-trial risk assessment, I believe it is imperative that all parties to a lawsuit consider the possibility of having to pay not only their own costs and fees but also the costs and fees of the other side. Parties must be realistic about the risks posed by the prevailing party statutes, especially given the discretion courts are given in making the determination of who is the prevailing party.

Attorney Fees

In most states, such as California, attorney fees are awarded to the prevailing party if there is a contractual or statutory basis for such an award. For example, many contracts have attorney fee provisions which provide that in the event there is litigation over the subject matter of the contract, the prevailing party will be awarded its attorney fees. Some states have enacted laws to advance a favored public policy that include attorney fee provisions to the prevailing party. In the condo case, for example, the condo association filed a motion pursuant to California Civil Code section 1354, subdivision (c), which provides: "In an action to enforce the governing documents" of a common interest development, "the prevailing party shall be awarded reasonable attorney's fees and costs."  

Litigants should be aware of the potential for having to pay the other side’s costs and attorney fees and conversely, that the other side may have to reimburse them if they prevail. Both sides of the issue should be considered when evaluating the risks and benefits of trial. Paying the other side’s attorney fees and costs is a bitter pill to swallow, especially if the issue was not fully evaluated and discussed prior to trial.

My friend at Construction Law Musings, Chris Hill, has a good post today on attorney fee provisions in construction contracts at www.constructionlawva.com.

Settlement Agreements

Settlement agreements generally contain very broad language to ensure that all claims and causes of action related to the issues in dispute are forever discharged and released. In California, Civil Code section 1542 provides that a person cannot release unknown claims. However, it is a common practice among lawyers to include a waiver of section 1542 so that the settlement and release agreement resolves all known and unknown claims that exists between the parties. This issue came up in the condo case.

The homeowner filed suit against the condo association in 2004 and settled the case in 2005, resulting in a settlement and release agreement that included a provision waiving all rights to known and unknown claims. The homeowner filed a second lawsuit against the condo association in 2008. In response the condo association argued that the homeowner’s claims were barred by the terms of the 2005 settlement agreement. The trial court agreed and so did the California Court of Appeal:

 Accordingly, we reject [homeowner's] argument that the 2005 release did not apply to unknown claims against Association that arose prior to the release. If an argument such as this were given currency, a release could never effectively encompass unknown claims. A releasor would simply argue that release of unknown or unsuspected claims applied only to known or suspected claims, making it ineffective as to unknown or unsuspected claims.

Settlement agreements are contracts. They are subject to the rules of evidence and are interpreted by the courts according to state contract law. They should be carefully drafted and reviewed before they are signed. You must be sure to precisely limit the release language to what is intended by both parties. For example, in the condo case the defendant condo association carved out of the release the homeowner’s obligation to pay monthly homeowner dues and assessments. Sometimes it is simply a point of negotiation, with the defendant wanting the release to be as broad as possible and the plaintiff wanting it to be as narrow as possible. Broad or narrow, both parties must think through the consequences of the release agreement so as to avoid any future surprises.  

As a mediator, I am an advocate for clarity, objectivity, reason, finality, and fairness. Cases like the condo case reinforce what I learned over a twenty-five year career as a trial lawyer: the outcome of a trial is never certain. The most effective trial lawyers are also effective problem solvers and counselors at law. They thoroughly consider each aspect of the dispute, they weigh the risks and rewards of trial, and they carefully explain all of the facets of the litigation to their clients. In my experience, well-prepared attorneys and well-informed clients can usually find a way to resolve a lawsuit prior to trial. Being part of the process that includes such preparation and perspective is one of the great privileges of being a mediator.

Resolving disputes through mediation is both challenging and rewarding. However, the certainty and finality of mediation also means there is less drama and truama when compared to a civil court trial. No "hail Mary" passes to win the game; no last second field goals to save the day. Instead the steady and sure process of mediation is more like the "Three Yards and a Cloud of Dust " reference that was used in the 1960's and '70's to describe the Ohio State Football teams of the legendary coach Woody Hayes, who famously said that when you throw the football three things can happen and two of them are bad(an incomplete pass or an interception). He preferred to run the football even if it meant a gain of only three yards and then a cloud of dust when the runner was tackled. A football team that strings together enough three yard gains (3.4, to be exact), will eventually cross the goal line. And so it is with mediation: parties that stick with the procees and grind it out will usually reach the goal of resolving their dispute, and when that happens, both sides win.

Conflict is inevitable in our adversary system of justice. The term “adversary system” is defined as “the jurisprudential network of laws, rules, and procedures characterized by opposing parties who contend against each other for a result favorable to themselves.”(Black’s Law Dictionary, Fifth Edition., p.49, italics added.) Since contention is a fundamental aspect of civil litigation, those of us who practice the art and science of mediation must find ways to help adversaries set aside their arsenals of advocacy skills and pick up, for a season, the tools of constructive problem solving.  

The Greek philosopher Diogenes once asked Alexander the Great what his plans were. Alexander answered that he planned to conquer and subjugate Greece. Then what? Diogenes asked. Alexander said that he planned to conquer and subjugate Asia Minor. And then? Alexander said that he planned to conquer and subjugate the world.

Diogenes asked the question again: What next? Alexander the Great told Diogenes that after all that conquering and subjugating, he planned to relax and enjoy himself. Diogenes responded: Why not save yourself a lot of trouble by relaxing and enjoying yourself now?

Mediators often employ the same line of questioning to the opposing sides in a civil dispute. Given the fact that victory in trial is not an absolute, a mediator might ask the following kinds of questions (slightly exaggerated for effect):

Mediator: If the case does not settle, what are your plans?

Trial Lawyer: I am going to use every conceivable resource to discover everything I need to know to win at trial.

Mediator: Then what?

Trial Lawyer: I am going to depose every witness I can round up.

Mediator: Then what?

Trial Lawyer: I am going to hire the best experts in the industry, and they will review all of the documents and all of the deposition transcripts in the case.

Mediator: And then what will you do?

Trial Lawyer: I will write a knock-out motion for summary judgment and if that does not work dozens of motions in limine to severely limit the other side’s evidence at trial.

Mediator: What next?

Trial Lawyer: I will prepare extensively for trial, hire trial consultants, develop fancy exhibits, and convince the jury with my winning arguments.

Mediator: If you win, what will you do next?

Trial Lawyer: I will take whatever measures are necessary to collect the judgment…unless the other side files an appeal.

Mediator: Why don’t you save yourself a lot of trouble and your client a lot of money now by engaging in serious settlement negotiations?  

Disputes happen; they are inevitable. Helping parties see beyond the conflict, the emotions, and the blame is what mediation is all about. In a variety of ways and means, a mediator will help the parties look objectively at the questions of liability, damages, costs, and collectability. The mediator will ask the parties to view the conflict, not through their eyes and experiences, but through the eyes and experiences of those who will sit in judgment, the judge and the jury. Often this point of view sheds new light on questions affecting every civil dispute:

• What do you think you will get in monetary terms if you go to trial?

• What are your chances of obtaining that outcome?

• What will it cost you to get that outcome?

• What are your chances of collecting the judgment?

Finally, another story about Alexander the Great and Diogenes: 

While Diogenes was conducting some research, Alexander anxiously asked, “How can I help you?” Diogenes replied simply: “Please step out of my light!”

My high school English teacher, Mrs. Clegg, did her best to instill in me a love for Shakespeare. She taught me to look for metaphors and similes in the great bard’s work, and to apply them to my life. Take Juliet’s famous line:”That which we call a rose by any other name would smell so sweet” (Shakespeare’s Romeo and Juliet). I took that to mean that names or titles mean less than the actual substance of a person’s character. Sadly, I never did learn to love Shakespeare, but I have come to recognize Shakespearean moments when, for example, two factions look at the same thing and draw completely different conclusions. Such will be the reaction of owners and contractors when they read Greg Opinski Construction v. City of Oakdale, a California Court of Appeal decision that was published two weeks ago.

For real property owners, the opinion, which is favorable to their interests, may have them thinking that written notice provisions by any other name would smell so sweet. On the other hand, for contractors and subcontractors, the opinion may be reminiscent of an alternative explanation of Shakespeare’s famous line which suggests it was an inside joke about the unsanitary bathroom conditions of the Rose Theatre, a local competitor of the bard’s Globe Theatre. Thus a “Rose” by any other name would smell so sweet.

The owner in the Opinski case rejected the contractor’s claims for time extensions because they were not presented in writing as required by the contract. Past appellate court decisions have given contractors a little wiggle room on oral modifications to the contract. Basically, if there was no prejudice to the owner, the written notice provisions were not strictly enforced. However, the court in Opinski held that contractors must strictly comply with written notice provisions. The contractor’s failure to do so resulted in a waiver of the claims.

LESSONS LEARNED

Contractors claiming additional time and money must strictly comply with written notice provisions. The written notice should strictly comply with the contract requirements in terms of formatting, form of delivery, and service on the owner's designated representative. The Opinski case should dispel the notion that the old “I know they knew” argument will hold up in court.

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.

Judges are people too. Some of them even have a sense of humor. Years ago Justice Sills of the California Court of Appeal began his opinion in a mechanic’s lien case I was handling with these words: “This case presents a real doozy of a puzzle in mechanic’s lien law.” At that point in my career I didn’t know that judges used words like doozy in their learned opinions.

Recently, as reported in the legal humor blog Lowering the Bar (and repeated in the Wall Street Journal Law Blog), Kentucky state judge Martin Sheehan penned a doozy of a ruling that expressed his feelings about the settlement of a case that had been set for trial in his courtroom. The judge wrote:

Such news of an amicable settlement [has] made this court happier than a tick on a fat dog because it is otherwise busier than a one legged cat in a sandbox and, quite frankly, would have rather jumped naked off a 12 foot step ladder into a five gallon bucket of porcupines than have presided over a two week trial . . which, no doubt, would have made the jury more confused ...and made the parties and their attorneys madder than mosquitoes in a mannequin factory.

Continuing his humorous theme, the judge concluded his ruling by asking his clerk to “engage the services of a structural engineer to ascertain if the return of the file to the clerk’s office will exceed the maximum structural load of the floors of said office.”

Over the years I have seen judges equally happy about the settlement of a case, although they were a tad more reserved about it than Judge Sheehan. But in my opinion their joy came from more than just the relief that the settlement helped to free up a busy court calendar or even the recognition that the settlement would result in cost-savings to the county. No, my sense of things is that judges really are people with hearts and feelings. They are public servants who are dedicated to serving people, and they know people are often best served when the fighting stops and healing begins. They know that parties who settle their lawsuits are happy as clams at high tide.

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.

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. 

Given our adversary system of jurisprudence in America, I would acknowledge that conflicts between lawyers can get downright messy. When a dispute arises, the parties have to figure out what to do about their rights and obligations under the terms of the contract, and if they cannot resolve the issues, they hire lawyers (and sometimes mediators) to help them resolve the dispute, and if they are unable to do so, a trial court judge may be called upon to decide who is right, once and for all, unless there is an appeal, then appellate justices may be asked to sort it all out. Such was the case in Kirk Crawford, et. al. v. Weather Shield Mfg.(2008) 44 Cal. 4th 541, a breach of the duty to defend case between a contractor and a subcontractor. Ben Franklin might have summarized the dispute like this:

A duty to defend provision between two lawyers is like a fish between two cats. 

The question presented in the Crawford case was whether, under the terms of the subcontract, the subcontractor was obliged to defend the general contractor/developer for construction defects allegedly caused by the subcontractor even though (1) the jury ultimately found the subcontractor was not negligent, and (2) the parties accepted an interpretation of the subcontract that gave the builder no right of indemnity unless the subcontractor was negligent.This was a huge issue in the building industry and here's where the two cats fighting over a fish comes into the picture. Actually, as you will see, the two cats attracted a bunch of other cats because this particular fish was so big.

The general contractor  was represented by an excellent  law firm and its position on appeal was supported by three other law firms who, in representing the interests of general contractors, filed amicus curiae or friend of the court  briefs. Such briefs are filed by people who want to weigh in on a case that could later affect their interests.  The subcontractor was also well represented by a fine law firm, and with  five amicus curiae briefs filed by other law firms representing the interests of various subcontractor groups. 

 The California Supreme Court summarized the defense and indemnity provisions of the subcontract as follows:

We focus on the particular language of the subcontract. Its relevant terms imposed two distinct obligations on Weather Shield. First, Weather Shield agreed "to indemnify and save [JMP] harmless against all claims for damages to persons or to property and claims for loss, damage and/or theft ... growing out of the execution of [Weather Shield's] work." Second, Weather Shield made a separate and specific promise "at [its] own expense to defend any suit or action brought against [JMP] founded upon the claim of such damage ... loss, ... or theft." (Italics added.)

When the home owners filed suit against the contractor for a variety of construction defects and the contractor filed a cross complaint against its subcontractors, Weather Shield took the position that it was not responsible for the window leaks, and refused to defend or indemnify the contractor. This kind of decision is made every day by subcontractors. But this is where the "ounce of prevention" comes into play. Instead of scrambling around to decide what rights and duties are owed at the commencement of litigation, it would be much better if some time (and even attorneys fees) were invested in the contract phase to have a clear understanding of the terms and conditions of the contract. If you want the job badly enough, maybe it will not bother you that you may be taking on the contractor's defense obligations, even if you are not negligent. The point is to make an informed risk analysis at the beginning of the project to avoid suprises later.

The contractor JMP and the other subcontractors, except Weather Shield and the framing subcontractor, settled with the home owners before trial for an amount in excess of a million dollars.That left the contractor to press its cross complaint against Weather Shield, the window manufacturer and supplier, and the framer who installed them. The jury found that the framer was liable for a million dollars in damages, and that Weather Shield was not responsible.

Since Weather Shield was not negligent it had no indemnity obligations, but the contractor JDM claimed Weather Shield had a duty to defend the contractor against the window claims from the commencement of the litigation. In essence, the contractor said to Weather Shield, you refused to defend us in violation of the subcontract, and we want to be reimbursed $131,000 for the cost of defending your portion of the window issue and we want another $46,000 for attorneys fees we spent trying to force you to pay us our defense costs. The Court held  Weather Shield had an immediate duty to assume the contractor's defense as soon as the case was tendered to it. The Court said:

By virtue of these statutory provisions, the case law has long confirmed that, unless the parties' agreement expressly provides otherwise, a contractual indemnitor has the obligation, upon proper tender by the indemnitee, to accept and assume the indemnitee's active defense against claims encompassed by the indemnity provision. Where the indemnitor has breached this obligation, an indemnitee who was thereby forced, against its wishes, to defend itself is entitled to reimbursement of the costs of doing so.

 

Here, the subcontract at issue not only failed to limit or exclude Weather Shield's duty "to defend" JMP, as otherwise provided by subdivision 4 of section 2778, it confirmed this duty. In language similar to that of the statute, the subcontract explicitly obligated Weather Shield both to indemnify JMP against certain claims, and "at [its] own expense to defend" JMP against "any suit or action ... founded upon" such claims. (Italics added.) The duty "to defend" expressly set forth in Weather Shield's subcontract thus clearly contemplated a duty that arose when such a claim was made, ⁸ and was not dependent on whether the very litigation to be defended later established Weather Shield's obligation to pay indemnity. 

LESSONS LEARNED

Most contracts will have at least two provisions in anticipation of third party claims. There will be an indemnity provision which covers losses caused by the subcontractor's negligence. There may also be a duty to defend provision which may or may not be triggered as soon as the third party claim is made, depending on the contract language. Both provisions deserve an "ounce of prevention" in the contracting phase of a project. These indemnity and defense provisions can be complicated, and they can vary in terms of what is required and when it is required. Don't assume what you see in your subcontracts is just "standard stuff". Words in a contract have meaning, and they may mean something you did not anticipate at the beginning of the project. In this case, the "pound of cure" for Weather Shield included the cost of paying for its own defense, the cost of reimbursing the general contractor for its defense of the window issue, and the cost of paying the attorneys fees incurred by the contractor to prosecute the duty to defend claim.

FINAL NOTE

California Civil Code 2782(c) provides that construction contracts for residential construction entered into after January 1, 2006, that include provisions that require subcontractors to indemnify builders and their agents against liability for claims for construction defects are unenforceable to the extent the claims arise out of the negligence of the builder or its agents.

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.

In California, the Code of Civil Procedure refers to a "neutral arbitrator" (section 1280(d)). and while the word neutral is not expressly defined in the statute, Black's tells us the meaning of the word:

Indifferent;unbiased;impartial;not engaged on either side;not taking an active part with either of the contending sides.

Under California law, a neutral arbitrator "shall dislose all matters that could cause a person aware of the facts to reasonably entertain a doubt that the proposed neutral arbitrator would be able to be impartial," including the following:

• Any ground specified for disqualification of a judge.
• Any arrangement or discussion regarding employment or services as a dispute resolution neutral with a party to the proceeding.
• Any matter required to be disclosed by the ethics standards for neutral arbitrators.
• The names of the the parties and lawyers to all prior or pending collective bargaining cases.
• Prior attorney-client relationships with a party or lawyer in the arbitration proceeding.
• Any professional or significant personal relationship between the arbitrator or the spouse or minor child of the arbitrator and any party or lawyer in the arbitration.

Each state has similar disclosure laws to ensure arbitrators are, indeed, neutral, including Texas, where a $22 million arbitration award was thrown out last week by the Fifth District Court of Appeals because of undisclosed social contacts between the arbitrator and the lawyer representing the plaintiff. The same thing happened a few years ago in a California Fourth District Court of Appeals case where the arbitrator previously represented various entities in a complicated insurance syndicate that were connected to the defendant appearing before him in the arbitration. I invite you to read both of these cases, but for my purposes here I will only summarize the alleged conflicts of interests to illustrate the simple (the Texas case) and subtle (the California case) ways such conflicts can arise.

TEXAS CASE

The Texas Court considered the following facts regarding the relationship between the arbitrator and plaintiff's counsel:

• The relationship began in 1994 when the lawyer was a clerk to a judge in the courthouse where the arbitrator was serving as a magistrate judge.
• The arbitrator and the lawyer had a social relationship that included dinners, sporting events, Christmas gifts, numerous business calls and e-mails.
• The arbitrator and lawyer acted as "strangers" when they introduced themselves to each other at the arbitration.

CALIFORNIA CASE

 The arbitrator and his law firm represented "Protections and Indemnity Clubs" which provided insurance and other business services to shipowners and others involved in the maritime industry. The P&I Clubs  procured reinsurance support from syndicates of Lloyd's of London. The respondent in the arbitration proceedings was insured through Lloyd's syndicates, and a representative of Lloyd's was present during the arbitration.

Final Thoughts

In the Texas case, the arbitrator did not recall the extent of the social contacts over a 15 year relationship until his memory was refreshed by his wife after the arbitration was concluded. However, the standard for vacating an arbitration award in Texas is whether a party's rights were prejudiced by the "evident partiality" of the arbitrator. An arbitrator exhibits evident partiality if "he does not disclose facts that might, to an objective observer, create a reasonable impression of the arbitrator's partiality."  

In the California case, the arbitrator apparently did not realize that various insurance syndicates that he and his law firm represented had some kind of connection to a party to the arbitration. However, when a Lloyd's lawyer began to monitor the arbitration, the arbitrator did not make any inquiries to see if there were any conflicts with his existing client base. In the end the California Appellate Court felt that a reasonable person could doubt the impartiality of an arbitrator who provided legal services to an insurance group that may be responsible for paying some part of the potential arbitration award. 

There are any number of reasons for failing to disclose certain facts that have nothing to do with the moral character of the arbitrator, including time constraints, faulty memory, and staffing issues. However, these cases illustrate the caution proposed arbitrators must exhibit prior to the arbitration. From simple facts about social contacts to subtle facts about complicated business structures, arbitrators must spend sufficient time to discover and disclose facts that could affect the perception their impartiality. Once such facts are disclosed, the parties can make an informed decision about selecting the arbitrator. And oftentimes, the parties will select an arbitrator despite the disclosures because of the arbitrator's reputation for honesty, integrity, and fairness-the hallmarks of all good arbitrators. 

Clients come to lawyers asking simple questions about complicated problems: What is the risk? What are my chances? Do I have a case? Clients want to know what will happen to them if they proceed through trial. And they should be worried, according to the late Oliver Wendell Holmes, Jr., because the power of the state to enforce court judgments and degrees is looming over every trial. Prediction, said he, is the object of the study of law:

When we study the law… 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 why it 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 the 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 than themselves, and hence it becomes a business to find out when this danger is to 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)

A recent California Court of Appeals case exemplifies both the power of the state to enforce judgments and the important role of risk analysis in civil litigation, and it also stands for an important principle of law, which I will address first.

In Gunderson v. Wall, a jury awarded plaintiff $1.7 million in compensatory damages and $800,000 in punitive damages against Wall and Welded Fixtures, Inc. The defendants paid the judgment and filed an appeal. In a November 2009  unpublished opinion, the Court of Appeal affirmed the compensatory damages award, but ruled there was insufficient evidence to support the punitive damages. (Click here to read the unpublished opinion.) The plaintiff voluntarily repaid the $800,000, representing the punitive damage award. However, the defendants filed a motion in the trial court seeking restitution of the interest that had accrued on the punitive damage payment during the time of the appeal. The trial court denied the motion, finding the defendant acted inequitably in response to plaintiff's post-judgment efforts to collect the judgment. Defendant filed an appeal, and the court of appeal affirmed the decision not to reimburse the defendants the accrued interest. As a result of this case, parties need to be certain they have acted reasonably in the post-judgment process if they intend to ask the court for equitable considerations, such as repayment of interest on a reversed judgment.

The Gunderson opinion and its unpublished companion opinion provide some practical insight into Justice Holmes' statements about the power of the state over litigants and the importance of risk analysis, or prediction.  

PREDICTION AND THE POWER OF THE STATE

• Will you proceed through trial for the chance of being awarded punitive damages? In California, you will have to prove by clear and convincing evidence that someone committed malice, oppression, or fraud, and if you have a corporate defendant, that a corporate officer or managing agent was involved in the misconduct (Civil Code 3294). The jury will probably be instructed that plaintiff must prove the conduct was despicable which means conduct that was so vile, base, contemptible, miserable, wretched or loathsome that it would be looked down upon and despised by ordinary decent people.  In Gunderson, the jury awarded punitive damages, but the appellate court said there was insufficient evidence to support the award.
• Your risk analysis should consider the impact of potential motions in limine on the evidence you intend to introduce at trial. In the 2009 Gunderson opinion, for example, one of the defendants asserted his fifth amendment right against self incrimination. The trial court then issued an order that precluded the defendant from presenting any evidence or cross-examining any witnesses at trial. This order was reversed on appeal, giving the defendant the right to a new trial. This also brings up the need for predicting the likelihood and expense of an appeal and a second trial.
• Gunderson used the power of the state to enforce the original judgment which included writs of execution and the installation of a receiver at defendant Welded Fixtures. The court also issued a writ of body attachment requiring defendant Wall to personally appear to answer questions about the loss of computers and financial data at Welded Fixtures.

Prediction, then, is an important element in the practice of law. It is not enough, however, to merely predict the outcome of the trial.  Each aspect of the trial has parts and subparts that must be analyzed, including the possibility of an appeal and a new trial, the costs and time associated with the litigation, and the likelihood of collecting the judgment. Trial lawyers who analyze and explain these risks to their client are the best of the best. They are true counselors at law and trusted advisers to their clients.

If a settlement agreement is breached, a lawsuit can be filed to enforce the terms of the settlement. While there are reasons not to have an attorney fee provision in some commercial contracts, settlement agreements should have attorney fee provisions, in my view. An attorney fee provision is a deterrent to any party who may want to rescind a settlement agreement, as the losing party would have to pay the other side's attorney fees.This increases the risk of trying to undo a settlement and helps the parties maintain what they bargained for: the resolution of a dispute.

A recent California Court of Appeals case addresses attorney fees and choice of law provisions in settlement agreements. (Click here to read the case.) In the Aronson v. Advanced Cell Technology, the settlement agreement memorialized  the settlement of a lawsuit that had been filed in Massachusetts and included a provision that stated it would be enforced according to Massachusetts law.  The attorney fee provision provided that the Plaintiffs in the Massachusetts action would be entitled to attorney fees in connection with the enforcement of the settlement agreement. The agreement did not provide for any reciprocal recovery for the defendant in the event of a dispute.

The Massachusetts law conflicts with California Civil Code section 1717 which provides attorney fees to the prevailing party, plaintiff or defendant, even though the contract may specify that only one of them is entitled to attorney fees.The Massachusetts law, on the other  hand, does not provide reciprocity to the left out party so that only the named party would be entitled to attorney fees in the event an enforcement action were taken.

In Aronson, the plaintiffs in the Massachusetts action filed suit in California to enforce the settlement agreement. The lawsuit was later dismissed without prejudice, and the defendant moved for an award of attorney fees in the sum of $645,000. The defendant claimed it was the prevailing party because the case was dismissed. The trial court denied the motion on the basis of Civil Code section 1717(b)(2) which says there is no prevailing party when there is a voluntary dismissal. The defendant argued that this exception under California law does not apply because the settlement agreement was to be governed by Massachusetts law. However, under Massachusetts law, the defendant was not entitled to attorney fees because the settlement agreement only specified the plaintiff as the party entitled to attorney fees. To that point, defendant argued that Civil Code section 1717 actually applied to that aspect of the case so that the attorney fee provision was reciprocal. In essence, the defendant wanted California law to apply to one aspect of the settlement agreement and Massachusetts law to apply to another aspect of the settlement agreement. The Court of Appeal affirmed the trial court's order denying the motion for attorney fees and ordered the defendant/appellant to pay the plaintiffs/respondents' cost of appeal.

Lessons Learned

• While the opinion is not earth shaking, it does illustrate, once again, that the drafting of settlement agreements should not be a simple "cut and paste" job.
• Caution must be used when agreeing to a choice of law provision. Each state has its own laws which could result in unanticipated consequences.
• Before agreeing to a choice of law provision outside of your jurisdiction you should attempt to learn how the other state's laws could affect critical terms in your settlement agreement.

Other Points of Interest

The scope of the release is also an important consideration. From the defense perspective, the release should be broad as possible to include any and all causes of actions and claims. The plaintiff, of course, will want the release to be drafted as narrowly as possible so that only those rights that are at issue in the litigation are released. In construction defect cases, the owner will only want to release patent or obvious defects and reserve rights with respect to unknown claims or conditions. Similarly, the owner will not want the release to include any warranties that would otherwise be available under the terms of the construction contract or purchase agreement..  

On the other hand, CGL policies impose on contractors the duty of cooperation throughout the claims and litigation process. A contractor who breaches this duty can unwittingly give its insurance company a free pass that excuses the insurer from its duties to defend and indemnify the contractor. Such was the result in Travelers Property v. Centex Homes, a United States District Court for the Northern District of California case. As a district court case, it has no precedential value but it is a cautionary tale for those who take positions that could be construed as a violation of the duty to cooperate. Centex could appeal the decision to the Ninth Circuit Court of Appeals in which case there may be more to report in the future.

Centex Homes was the defendant in two construction defect cases pending in the Sacramento Superior Court. Centex was being defended by its wrap policy insurance carriers (a wrap policy covers all parties in a construction project under one umbrella policy, including the owner, general contractor, and the subcontractors). Two of the subcontractors on the project, though, had separate CGL policies and Centex, as a named additional insured on the policies, tendered its defense to Travelers, the subcontractors' insurer. For each tender, Centex stated that the tender only applied to non-wrap homes.

Travelers acknowledged the tenders and on several occasions asked for information concerning the wrap policies, construction contracts for non-wrap homes, pleadings in the lawsuits, and the attorney fee rates and budgets of Centex's attorneys for the litigation involving the three "non-wrap" homes in question. Believing it had not received satisfactory information, Travelers filed a declaratory relief action in federal court and, eventually, a motion for summary judgment on the grounds that Centex breached the duty to cooperate. The district court granted the motion which meant that Travelers was excused from its duties to defend and indemnify Centex.

The factual details and legal authority supporting the district court's decision can be reviewed by clicking here. However, there are some recurring issues that are worth noting.

• When an insurance company agrees to defend under a reservation of rights, a conflict of interest or at least the perception of a conflict of interest can arise. The reservation of rights means that the insurer will pay for the defense and maybe even the indemnity but reserves the right to demand the reimbursement of those funds in the event the claims are not actually covered by the policy.
• The concern for the contractor is this: what if the attorneys hired by the insurance company to defend the contractor steer the defense of the case towards a conclusion that the claims are not covered by the policy, leaving the contractor to pay for the repair costs and the obligation to reimburse the insurance company for the defense costs?
• From the contractor's perspective, the perception is that the attorneys assigned by the insurance company may feel a divided loyalty: (1) to the contractor client and (2) to the insurance company that is paying the bills.
• From the insurer's perspective, the policy grants it the right to control the litigation, including the right to assign defense counsel to the case, and the policy also gives the insurer the right to expect the cooperation from its insured in terms of providing information and taking other steps to assist the insurer evaluate and defend the claims.
• When an actual conflict of interest exists because of the insurer's control over the litigation, the contractor is entitled to independent counsel at the expense of the insurer under California Civil Code section 2860. Independent counsel hired under this statute are sometimes know as "Cumis counsel" based on the decision in San Diego Credit Union v. Cumis Ins. Society (1984) 162 Cal App 3d 358.
•  Under California law, there are four circumstance in which a conflict will require the insurer to pay for independent counsel are: (1) where the insurer reserves its rights on an issue and the outcome of that coverage issue can be controlled by the insurer's retained attorneys; (2) where the plaintiff (property owner) and the defendant (contractor) are both insured by the same insurance company; (3) where the insurer files a lawsuit against the insured; and (4) where the insurer pursues a settlement for an amount that exceeds the policy limits without the insured's consent and leaves the insured exposed to claims by third parties.
• Contesting these types of issues must be done carefully in light of the insured's duty to cooperate. Actions to secure independent counsel or the protection of other rights under the policy must be done in such a way that does not undermine the perception that the insured is cooperating with the insurer and meeting all of its obligations under the terms of the policy. All communications from the contractor to the insured, including letters, faxes, and e-mail, should be written with the cooperation clause in mind. The same is true for telephone conversation as discussions with insureds and others are routinely noted in the claim adjuster's log.
• Pursuing a strategy of obtaining Cumis counsel has its own risks and rewards. Policyholders need to understand that an insurance company's obligations to pay for independent counsel are limited and that the potential exists that the policyholder will have to pay for a portion of the fees. This may happen, for example, when Cumis counsel's hourly rate is higher than the rate the insurance company is obligated to pay. 

Note: My colleagues at  IVAMS are sponsoring a webinar on "Cumis Counsel" on June 30, 2011, at 10:00 a.m. Click here to sign up for the event. One hour of CLE credit is available to webinar participants.

In the early 1990's, Lennar Corporation, a Fortune 500 home builder, oversaw the development of 105 homes in Glendale, Arizona. According to the opinion, nearly all of the homes in the development had construction defects. Lennar made some repairs but the complaints continued and eventually several of the homeowners filed suit and others threatened litigation. In December 1998, Lennar tendered the claims to its various insurance companies that had issued commercial general liability policies. In October 2000, two of the insurers, Transamerica and USF&G,  filed a complaint seeking a declaratory judgment that they owed no duty to defend or indemnify Lennar. Lennar filed a cross-complaint against its insurance companies for breach of contract and bad faith.  

In July 2003, the trial court granted summary judgment in favor of the insurers, dismissing all of Lennar's claims based on the court's conclusion that the defects in the homes did not constitute an "occurrence" within the meaning of the policies. The Arizona Court of Appeals reversed, holding the homeowners' allegations of damage resulting resulting from faulty construction were sufficient  to allege an "occurrence" under the policies. A year later, the insurers filed another summary judgment motion on Lennar's bad faith claim. The motion was based on the proposition that, as matter of law, the trial court's initial ruling in their favor on the occurrence issue established that the insurers had a reasonable basis for denying coverage. The trial court agreed and entered summary judgment on the bad-faith cause of action.

Lennar appealed but now it was more than 15 years after the homeowners starting complaining about the construction defects and Lennar had settled with all of the homeowners and all but three of the insurers. The appellate court reversed the trial court, holding that an erroneous grant of summary judgment does not conclusively establish that coverage is fairly debatable. As a result the case was remanded to the trial court where the case will now finally go to trial on the breach of contract and bad faith causes of action, or it may settle.

LESSONS LEARNED

• As construction defect cases are so expensive to litigate and the cost of repair is so high, it is important to lock in the coverage and defense issues as soon as possible. Some law firms have the capacity to both defend construction defect claims and provide insurance coverage counsel. Some are not expert in both fields. Assuming there is a denial of coverage or a reservation of rights, you may want to retain outside coverage counsel as early in the process as possible. Preferably one with experience securing insurance coverage for construction defect claims.
• The Lennar case has some additional points that are beneficial to policyholders. First, the court opened the door for juries to consider additional evidence on the question of whether the insurers acted reasonably in challenging Lennar's claims based on the meaning of "occurrence" in the policies. "On remand, in addition to the policy itself, the superior court may decide to admit extrinsic evidence such as judicial opinions interpreting the policy language and evidence of the understandings of these insurers and the insurance industry in general concerning the meaning of the disputed policy language." The court said the "subjective beliefs" of the insurers may also be relevant. "Also relevant may be evidence of prior positions these insurers have taken in other cases and their knowledge of positions other insurers or industry groups have taken in similar cases." 
• Second, the appellate court held that an insurer's duty to investigate a claim continues unabated even if there is a coverage dispute.

[T]he saga of this litigation illustrates the injury an insured may suffer when (as Lennar alleges here) an insurer sues over the meaning of a disputed policy term and effectively ignores its obligation to investigate the claim during ensuing protracted legal proceedings.

It will be interesting to follow this case now that it has been remanded to the trial court for further proceedings. If the case does not settle, it will go to trial. If it goes to trial, will there be another appeal? And another trial? A Fortune 500 Company like Lennar can afford to stay in the fight as long as it takes. Most smaller construction companies would have a hard time outlasting an insurance company in protracted insurance coverage litigation. In Arizona, at least, the discovery of both objective and subject evidence of insurer conduct and the possibility that such evidence may be admissible could help resolve coverage disputes earlier which would help resolve construction defect cases more effectively.

The statute provides an incentive to settle by increasing the potential exposure to paying the other side's litigation costs to the party contemplating a settlement offer. If the plaintiff's 998 offer is rejected, the defendant faces additional costs if the plaintiff is awarded a higher amount than the rejected offer; if the defendant's offer is rejected, the plaintiff could win the case, but if the damages award is less than the rejected offer, the plaintiff could be ordered to pay the defendant's litigation costs. Therefore, it is possible to win at trial but still lose the battle of who pays the freight of taking the case all the way through trial.

The California Court of Appeals published a case two days ago that adds clarity to the issue of costs and attorney fees under a section 998 offer. (Click here to read Martinez v. Metropolitan Transit Authority.) The Metropolitan Transit Authority made a settlement offer under section 998 which stated: "[MTA] hereby offers to Compromise the above-captioned matter for the total sum of $2501.00, with each party bearing their own costs."  Plaintiff accepted the offer but subsequently filed a motion for attorney fees pursuant to certain applicable statutes and argued that the section 998 offer did not preclude her from requesting attorney fees because the offer only referred to "costs" and made no mention of attorney fees. MTA argued that that under Code of Civil Procedure 1033.5 (a)(10)(B), the term "costs" includes statutory attorney fees.

The trial court denied plaintiff's motion, stating "statutory attorney's fees are an item of cost pursuant to CCP section 1033.5 (a)(10)(b)...and are therefore included in the defendant's section 998 offer, which states 'each side to bear their own costs.'" The Court of Appeal affirmed.

This circumstance calls for another "bright line rule." Unless the offer expressly states otherwise, an offer of monetary compromise under section 998 that excludes "costs" also excludes attorney fees. 

BEST PRACTICES

This case focuses on a statutory attorney fee request. Would the result have been any different if the attorney fees request was made pursuant to a contract provision? The Court did not address this squarely but did make the following observation: 

Allowable costs under [CCP]1032 are specified in section 1033.5. Section 1033.5, subdivision(a)(10) provides that attorney fees are allowable costs under 1032 when authorized by contract, statute, or law. Because attorney fees are costs under section 1033.5 it follows that when a section 998 offer provides that each party will bear its own costs the word "costs" refers to all costs described in section 1033.5, including attorney fees.

This case is a reminder that we should carefully draft our section 998 offers so that they clearly define the intended terms of the offer. It took an opinion from a court of appeal before the plaintiff in a $2500 case gave up her claim for attorney fees (assuming she does not take it to the Supreme Court of California).

While it now appear evident that costs include attorney fees, it would be a good practice to include in 998 offers a statement that each side will bear its own costs and attorney fees. That way there is no ambiguity about the intent behind the 998 offer as it relates to costs.

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.