If you have read my prior posts, you know that I am a firm believer in the "twenty percent rule," which means that no matter how good your case is, there is always at least a twenty percent chance you will lose in litigation. In this post, I'd like to offer some additional thoughts on uncertainty in the current litigation environment.These observations should be taken with a grain of salt. They are the views of one lawyer/mediator and thus are subjective and necessarily based on a limited sample size. They may simply reflect the views of an older person. To quote Bob Dylan:
"I was so much older then/I'm younger than that now."With that said, it seems to me that there is more uncertainty regarding the outcome of commercial litigation now than there was 20 years ago. The change is subtle and varies among jurisdictions.In the federal court system, judges seem much more willing to decide cases on summary judgment than they were even ten years ago. I have read more and more decisions where federal judges essentially just decide the entire case (including damages) on summary judgment even though the case seems to have rather obvious issues of fact that should be tried.On the one hand, some would argue that this adds to certainty, as it means the case is not put in the hands of a six person jury. On the other, it means that one person is going to decide the entire case.Federal judges tend to be well-qualified and experienced, and they try to get it right. However, all judges are human and do not always decide cases correctly. In the insurance area (one of my primary practice areas), there are countless examples of federal judges making incorrect guesses regarding state insurance law. (For the non-lawyer readers, federal courts deciding state law questions are required to apply the law of the state in which they sit, and may have to guess how the state courts would decide if there is no clear state court precedent). I am currently writing a law review article on this subject, but my article on insurance coverage for construction defects covers one area where the federal courts repeatedly incorrectly applied Georgia law until corrected by the Supreme Court of Georgia. There are many other examples.If you think you are protected by an appeal, think again. Reversals in the federal system are becoming very rare. Although federal appellate courts are supposed to review cases granting summary judgment de novo (meaning to take a fresh look at the issue), this now seems much more theory than practice.In the state court system, results are also uncertain. Most state court trial judges carry enormous case loads, and have had to deal with staff cuts. Cases involving hard legal issues merit careful thought and study, but the practical realities can intrude.In Georgia where I practice, appellate review in the state court system is more likely to result in a reversal than in the federal system. However, the results are still not predictable.The legal profession must share some of the blame. Throughout most of my career, it was standard practice for lawyers to conduct a thorough legal analysis of all but the most routine issues before filing a case or an answer. Today, clients rarely want to pay for this even though, in reality, a thorough legal analysis almost always results in better strategic decisions and better results. Many lawyers thus file briefs that do not adequately address the issues, and overworked judges with few resources decide cases without the benefit of being provided sound legal analysis and sometimes even citations to controlling precedent. Westlaw and Lexis, the two large providers of legal databases, now make access to the parties' briefs in cases accessible. Thus, when one runs across a questionable court decision, it is often possible to review the briefs filed by the parties in advance of that decision. There are instances where questionable decisions seem to have resulted from the lawyers simply not making the correct arguments. Unfortunately, the resulting decisions become precedent, which only adds to the uncertainty.What does all this mean for mediation? If a lawyer or a party is absolutely certain about its legal position, it should be very careful. There are certain cases where there is a controlling precedent directly on point, but they are relatively rare. Other than such cases, the chances of a court getting it "right" (from your point of view) are probably less certain than in the past.Thus, when a mediator suggests that the result may be less certain than you may think, pay attention. The "twenty percent rule" may be creeping closer to the "twenty-five percent rule."
Litigation is usually a pretty binary process. One side wins and the other loses. The decision is framed by the pleadings and the claims and defenses of the parties and a third party (judge, jury or arbitrator) makes a decision.
One of the great things about mediation -- particularly in complicated commercial and intellectual property cases -- is that it does not have to be a binary process. The possible results are limited only by the imagination of the parties (perhaps assisted by the mediator) and their willingness to make a deal.
In cases that lend themselves to a variety of possible solutions, it is important to avoid "narrow framing." Narrow framing refers to a decision making process in which possible options are framed, much like litigation, in a binary manner: Do we keep or fire an employee? Do we buy a product or not? Do we pay X dollars for a release?
Better decision-making often results from widening or broadening the frame of reference, or, put another way, considering all of the possibilities. Chip and Dan Heath cover this subject in detail in their new book Decisive, which is well worth reading.
When parties are locked in litigation, they often tend to focus on the details of the case and the merits of their position. Although this is natural and understandable, it may prevent the parties and their counsel from stepping back and considering other possible solutions. A mediator can often help take off the blinders.
In order for a mediator to help the parties widen their frame of reference, the mediator must have an understanding of the dispute before the mediation. This means that the mediator should ask for mediation statements and copies of the relevant contracts, pleadings and other documents well in advance, and should take the time to review them. Separate meetings or conference calls with the parties and counsel in advance of the mediation can also help.
Examples of solutions from widening the frame of reference might include modifying a contract to fit a business relationship that has changed over the years instead of litigating over it or cross-licensing of intellectual property to benefit both parties. Stepping back and looking at the possibilities, especially if they can provide a positive outcome for both parties (the proverbial "win/win" solution), is almost always worth doing.
Sometimes, simply having another pair of eyes review the matter from a neutral point of view is enough to spur the process. It also helps if the mediator has relevant experience, and knowledge of how other parties have solved similar disputes.
Although true "win/win" solutions are not always possible, broadening the frame of reference will certainly increase the possibility of finding one.
I recently attended a joint meeting of the Atlanta Bar Association Construction Law and Dispute Resolution Sections. The speaker was Steve Nelson of SureTec Insurance Company. Steve is from Texas and, although he runs an insurance company, he spends most of his time mediating huge, multi-party cases (typically, 20 or more parties), often involving construction defects. He is a very successful mediator and gave an energetic and extremely interesting presentation.
The most interesting thing about Steve's presentation was that the vast majority of his cases settle based on a mediator's proposal, meaning a settlement proposed by the mediator that the parties can either accept or reject. Although a mediator's proposal often represents a final attempt to bridge the gap between the parties, Steve is known for making mediator's proposals, and now even has attorneys asking to skip the niceties and go straight to the mediator's proposal.
Steve has developed a unique skill set (and reputation) in settling a particular kind of extremely difficult case. In the type of cases Steve handles, a mediator's proposal is necessary just to cut through the otherwise endless posturing and "tit for tat" moves that often characterize mediation and that would simply be untenable among more than 20 parties. Also, based on Steve's presentation, it appears that his cases typically involve "getting to a number." This means that Steve must convince the defendants to come up with a pot of money that the plaintiffs will accept, as well as agreement among the defendants as to how much each will pay.
In other types of cases, the mediator's proposal probably should be reserved as a last effort to bridge the gap between the parties. "Cutting to the chase" may be attractive to some, but for most parties, much of the value of mediation lies in providing an opportunity to tell their side of the story. As I've previously written, in these times in which few parties can afford to try civil cases (and many judges try to avoid civil trials), mediation provides the best available substitute for a day in court.
Further, business cases often involve complicated and sometimes on-going relationships. It would be virtually impossible in such cases for a mediator to move immediately to a mediator's proposal suggesting how the parties should continue to do business or unwind their relationship.
That said, the mediator's proposal can be a valuable tool. In most cases, once the issues are aired out, the range of reasonable settlements is pretty clear. If the parties negotiate into that range (what I call the "zone"), the mediator can pretty much sit back and let the negotiations play out to resolution.
In other cases, the range may be crystal clear, but the parties just cannot get there by themselves. Many times, the lawyers for the parties know exactly what the range is, but the clients just will not move into it. In these circumstances, a mediator's proposal may be the only way to close the gap.
A mediator's proposal is, however, a somewhat risky strategy for the mediator. The only certainty is that it will put an end to the mediation, either with both parties accepting the proposal or one or both sides walking away. For this reason, I prefer to get the parties' permission before offering a mediator's proposal.
From the standpoint of mediation theory, note that Steve's approach -- or any approach in which a mediator's proposal is offered -- is the antithesis of "facilitative mediation." Facilitative mediation is a process where the mediator offers no opinions or evaluation, but simply serves as a go between (some would say a "note carrier") for the parties.
In this regard, another Texan, John Nance Garner, who served as Franklin Roosevelt's Vice President from 1933 to 1941, famously remarked that the office he held was "not worth a pitcher of warm spit." The view here is that the same might be said for facilitative mediation.
The timing of a mediation is important and can substantially alter the chances of reaching a settlement. I have generally suggested that mediation should be held as soon as the parties have sufficient information to make informed decisions about a settlement. This post will offer some additional thoughts this basic issue.
Mediators rarely have the ability to control the timing of mediation. If one of the parties does not seem ready to settle, a mediator can suggest the further exchange of information and that the mediation be continued at a later date. Unfortunately, this is often not practical. Once the parties have decided to mediate, at least one of the parties is likely to view mediation as a one shot proposition. With this reality, the parties and counsel need to be as prepared as possible to move forward.
Although every person is different, there are certain patterns, or types, that one often sees in client representatives for mediation, which, in turn, present different needs for effective mediation preparation. Counsel need to be sensitive to these needs and client representatives may wish to engage in some candid introspection so that they recognize the information they will need to move forward. There is no right or wrong here, but simply a recognition that people are different.
1. The Pragmatist. This representative views litigation as a reality that should be resolved as quickly as possible. Once a pragmatist has the big picture, the settlement range becomes clear. Pragmatists will not insist on having every last piece of information and make decisions easily. Pragmatists are among the easiest representatives in mediation, although they may become frustrated if the other side is not equally ready to move forward. A pragmatist will be ready to mediate early in litigation, or perhaps even in advance of litigation.
2. The Stickler. A stickler wants as much certainty as possible before making a decision. Certainty means information and proof. Sticklers are openly skeptical of the opposing party's case and will insist that the opposing party be put through the paces to prove its position. Sticklers tend to identify strongly with their side and are reluctant to accept any possibility that their side might not prevail. Sticklers can be difficult in mediation, but, on the other hand, their approach can sometimes be effective. Sticklers will generally not be ready to mediate until a substantial amount of information has been exchanged, which generally means after discovery in the litigation.
3. The Procrastinator. A procrastinator is reluctant to make a decision. As such, it is generally fine for a procrastinator if the litigation runs its course for a while. Many procrastinators are really trying to avoid being second-guessed by others in their company. Procrastinators tend to need information, but they also need buy-in from their superiors on any settlement decision. Counsel need to make sure that the information is provided and that any necessary approvals in the chain of command have been obtained. Procrastinators will often not be ready mediate until late in the litigation process. However, if necessary approvals can be obtained, they may be prepared to move forward at an earlier time.
For counsel, the key is knowing the client representative and the client. This is not always as easy as it sounds. Asking questions such as "what information do you need to move forward," and "what would you view as a win" can help. As always, being a lawyer is at least as much an art as it is a science.
For client representatives, some candid introspection may be in order. If you do not feel ready to move forward, tell your counsel and let counsel know what more you need to make a decision.
Again, there is no right or wrong here. We are all human, and all of us probably have a bit of the pragmatist, the stickler, and the procrastinator in our DNA. Knowing your needs and tendencies (or those of your own client) will help prepare for (and time) a successful mediation. To quote Adam Smith: "The first thing you have to know is yourself. A man who knows himself can step outside himself and watch his own reactions like an observer.”
In addition to knowing one's self, one has to make a judgment about the other side and when it will be ready to mediate. If one side is represented by a pragmatist and the other by a stickler, an early mediation is likely to fail because the stickler will not yet have enough detail to go forward. A candid exchange between counsel can help address this issue, but, again, doing so is as much an art as it is a science.
Probably no case has drawn more public attention since the O.J. Simpson trial than the Casey Anthony case. Today, to the surprise of many, the jury found Ms. Anthony not guilty on charges that she murdered her child.
Regardless of what one thinks of the verdict, the result in the Anthony case is an important reminder that you never know what is going to happen when a case goes to a jury. When the case goes to the jury, there is nothing to do except wait for the result.
In mediation, the parties do not lose control of the process. The parties decide whether to settle, and the case will settle only if they agree. However, remembering the uncertainty inherent in not settling and leaving the result to a jury is often a powerful incentive for making a deal!
The difference between mediation and arbitration still confuses many people, including those sophisticated in business. A Legal Guide that I just wrote for AVVO explains the difference. Click here to access the Guide.
I was recently reminded that a good mediator needs iron in the pants (or, if applicable, skirt). What does this mean? It means that successful mediations often take time, and a mediator needs to be able to keep the mediation going and to stick with it.
So long as the parties are making progress, a mediator should press forward. Often, this makes for long days. I recently participated in a mediation that concluded at 10:30 p.m. I think my personal record is 1:30 a.m. Both cases settled.
Sometimes it makes sense to continue the mediation to another day. However, that is not always possible. Representatives may have flown in from out of town and may not be able to stay another day. Continuing the mediation to another day may also risk losing any momentum that has developed toward settlement, but that depends on the particular circumstances.
In any event, iron in the pants is a good quality for a mediator to have.
I once had a case in mediation where my client was willing to make a major concession that went far beyond standing on its legal rights, which, in this particular instance, were quite clear. The mediator appreciated our approach, thanked us for being reasonable, and went to the other room.
However, after meeting with the other side, the mediator informed us that the other side did not think that this was a major concession, even though the mediator readily acknowledged that it was.
Apparently unable to move the other side off of an unreasonable position, the mediator started asking my client to make additional compromises. It was almost as if the mediator was saying, "Well, I can't talk any sense into them, so I'll try beating on you for a while, even though I think you are right." Needless to say, this went over in our room like a lead balloon.
The mediator's attitude seemed to be that the other party's subjective beliefs were entitled to at least equal weight with any objective evaluation of the law. Emotions and subjective beliefs are of course often at issue in mediations. But a mediator has to be able to deal with them, not just give in to them.
By giving equal -- if not controlling -- weight to the other party's subjective beliefs as to an objective view of the law, the mediator completely lost credibility with my side. The parties made no progress, probably ended up further apart, and the mediation was a failure.
This result was not surprising. A mediator needs to be an advocate: Not an advocate for either party, but an advocate for a reasonable settlement. If the mediator is willing to take positions that lack support, logic, or that appear -- without reason -- to favor one side over the other, the mediator loses credibility, just as would any other advocate.
Sometimes, litigants ask why they should consider compromising a claim. They may express supreme confidence in the case, stating that "there is no way we can lose," and expressing extreme reluctance to take anything less than one hundred percent of what they want.
Litigants need to remember the "twenty percent rule." The "twenty percent rule" is not an original idea of mine; it was mentioned in a discussion I had a couple of years ago with a very experienced and somewhat crusty old litigator who did a very able job mediating a case for me. The rule does, however, encompass thoughts I have had for many years. The twenty percent rule just puts these thoughts and concepts in a much more compact and easily understood package.
The twenty percent rule is this: No matter how good you think your case is, no matter how good your lawyer is, and no matter how obvious you think the result should be, there is always a twenty percent chance you will lose in litigation.
Why is the twenty percent rule true? Because unforeseeable things happen in litigation. Star witnesses blow up in depositions or on the witness stand, even if they are well prepared. There may be a document or email out there that you (and your lawyer) did not know about when the case was filed.
But, most importantly, cases are resolved by judges and juries. Judges and juries are human beings, and, given that fact, may not see things your way. Judges and juries may seize upon facts and issues that you know are irrelevant to the dispute, but which become highly relevant, because they get to decide the case, not you.
Judges and juries may simply like the other side better than you. Maybe your confidence will be perceived as arrogance. Maybe the other side has an explanation that resonates. If you do not think these factors are important, you should know that, in large cases, parties hire psychologists and sociologists as jury consultants. Jury consultants can provide tremendous insight into how jurors from the area will look at a case, and their research often reveals surprises.
Judges can also be a factor. In a couple of recent important cases, I have actually seen judges simply ignore key legal issues that were potentially dispositive, and that were thoroughly briefed and presented to them. Why? I do not know, but can only assume that addressing the issues would have made it more difficult for them to reach the result they had decided to reach. Intellectually defensible? Of course not, but this stuff happens in the real world.
I am not suggesting that the civil litigation system is irrational. I am not suggesting that you should evaluate a case with the assumption that an irrational result will be reached. Most of the time, the system works and reaches a rational result. Usually, the party wins that should win. But the twenty percent rule does come into effect. And if you are considering a settlement, you should keep the twenty percent rule in mind in your analysis.
What does this mean for mediation? Well, first, it means that mediation is a process parties should definitely consider. Second, it means that parties should have a little flexibility in mediation and with regard to settling. The system is not perfect, and will not always reach the result you believe it should. The old saw that "a bird in the hand is worth two in the bush" may be something you should consider.
This is the last of a series of posts on insurance issues that can arise in connection with the mediation and settlement of claims. The first post provided a general discussion of the issues. The second post discussed mediation of claims where the insurer is reserving rights. This post will discuss mediation of coverage litigation – a contest between the policyholder and the insurer.
There is no magic to resolving coverage disputes. There are, however, a few points that separate this type of mediation and claim from other commercial disputes.
Insurance coverage battles tend to be hard fought. There is often greater strife between policyholders and insurers than in cases involving other litigants.
From the policyholder’s perspective, the insurer gladly took the policyholder’s premium, and has now failed to perform. The insurer has forced the policyholder to engage counsel, often at considerable cost, in order to get the insurer simply to do what it should have done in the first place. A mediator may thus have to help diffuse the policyholder’s emotions.
The cause for the insurer’s attitude may be more difficult to ascertain. As a general rule, insurers seem to hire coverage lawyers with a pugilistic bent. These lawyers have probably recommended a coverage position to their client, and now have to defend it. The claims handler to whom they report may have encouraged the position, and may also be bent on defending it. The mediator will thus have to assess the strength of the carrier’s position. If the carrier’s position appears less strong than the carrier believes, the mediator’s challenge may be getting the carrier representative to understand there is some real risk.
Legal issues often predominate. More than most cases, coverage cases usually involve legal disputes. The mediator will thus want to encourage the parties to cover all outstanding legal issues in the mediation statement. In preparing for the mediation, the mediator will need to understand the legal issues fully, and may need to be prepared to offer an independent assessment at some point during the mediation.
If the issue appears to be a close question, reminding a carrier of some of the basic rules may be helpful. These rules typically include that ambiguities will be construed against the insurer, and that any exclusions will be interpreted narrowly.
The risk of a bad precedent may be significant. It must be remembered that insurance coverage disputes typically involve form contracts that tend to be litigated repeatedly. Thus, if a case involves an undecided point of law, the carrier may wish to settle, if only to avoid the risk a judicial precedent that could affect other cases.
Carrier representatives often need to justify a settlement internally. Insurance companies often have complicated reporting structures with multiple levels of authority. If a claims representative initially took an aggressive position regarding a claim, it is a safe bet that the representative has duly reported and defended the position to superiors. If a settlement would result in a substantial change in the company’s internal evaluation, the claims representative will need to justify it.
A mediator can be very useful in this regarding in providing feedback. If the feedback is specific and well-reasoned, it may provide the claims handler with the information necessary to change the internal evaluation, and hence to allow the case to settle.
However, it may well be impossible for the carrier to process this feedback during a mediation session. Therefore, coverage cases are more likely to involve multiple sessions than other cases.
Look for signs of flexibility coming into the mediation. Insurance companies often mediate coverage disputes when there is some concern that their position will not be sustained. The mediator should determine if the carrier has recently replaced its counsel or brought in additional counsel, as such a change may also reflect either concern or a changing attitude. Similarly, the mediator should determine if the claims handler has been in the case since the beginning or is new. A new claims handler may also signal a different attitude.
Bad faith, or extra-contractual liability, can be significant. As discussed in the second post in this series, carriers typically want to avoid exposure for bad faith, or, as the carriers sometimes put it, extra-contractual liability. If the policyholder is claiming bad faith, the mediator will want to understand the basis for the claim and the strength of the claim under applicable law (bad faith risk can vary substantially from state to state).
If the risk of bad faith appears minimal, the carrier is probably not going to give it much weight during negotiations. If there appears to be some real risk, then avoiding extra-contractual exposure, may motivate the carrier to settle. At the same time, the insured will need to understand that it is far easier to settle a claim if any settlement payment is “contractual” and not “extra-contractual.”
Insureds need to understand they can lose, too. Insurance carriers tend to be represented by coverage experts. Carriers do not lose every coverage battle. On the contrary, they often win.
Insureds may want to see things only their way. They may not understand the legal nuances relied upon by the carrier. Mediators can help insureds understand these issues, but, most importantly, that a win is probably not a sure thing.
Mediating coverage litigation does provide a challenge. However, a good mediator, particularly one that understands the coverage issues, will probably be able to help the parties reach a settlement.