Study Shows That Settlements Result in Better Outcomes for Both Parties

A few weeks ago, I noted in passing that I had mediated several cases in a row in which the plaintiff walked away from reasonable settlement offers, only to have the court find in favor of the defendant.  It turns out that this is actually a common occurrence.  The New York Times reports that a study to be published in the Journal of Empirical Legal Studies finds that “most of the plaintiffs who decided to pass up a settlement offer and went to trial ended up getting less money than if they had taken that offer.”

The basic premise of the article seems elementary to me.   Everyone is convinced they (or their position) are unique and that others will see their position exactly as they see it. As the article notes,

“Most clients think they are completely right,” Michael Shepard, a lawyer at Heller Ehrman in San Francisco. A good lawyer has to be able to tell clients that a judge or jury might see them differently.

And it is not limited to clients – there are apparently naive, self-deluded lawyers “dismissive of the study, noting that the statistics mean nothing when contemplating a particular case, with its specific facts and legal issues, before a specific judge.”  So, the fact that people pass up perfectly reasonable settlement options didn’t seem like earth shattering news.

The two things that really made my eyebrow arch were  1) the percentage of plaintiffs who pass up settlement and “lose”, i.e., are awarded less money than they were offered.  [And yes, as a former defense counsel for various insurers, be certain that even though the defendant is still writing a check, they consider this a "win"]; and 2) the discrepancy between what happened when a plaintiff passed on a settlement and what happened when the defendant passed on it.

According to the article:

Defendants made the wrong decision by proceeding to trial far less often, in 24 percent of cases, according to the study; plaintiffs were wrong in 61 percent of cases. In just 15 percent of cases, both sides were right to go to trial — meaning that the defendant paid less than the plaintiff had wanted but the plaintiff got more than the defendant had offered.

That means that nearly two-thirds of all plaintiffs are offered more than they are awarded at trial.   That seems staggering.  Until you factor in the other half of the argument – the amount of that “error.”

The article states:

On average, getting it wrong cost plaintiffs at about $43,000; the total could be more because information on legal costs was not available in every case. For defendants, who were less often wrong about going to trial, the cost was much greater: $1.1 million.

This seems ridiculously out of proportion to me.  I would like to see more of the data or have these numbers expressed as percentages in order to determine whether which is more significant.  Which error hurt which side more?  Did the plaintiff receive $57,000 when they were offered $100,000?  Did the defendant get popped for $10 million claim when the plaintiff would have taken $9 million?  Hard to say.

Even so, it seems that while defendants are wrong only 24% of the time, their “mistakes” are far more costly.

The answer?  Well, I’m not sure there is a one-size-fits-all approach.  Like Vickie Pynchon suggests, you can’t very well tell people to take the last offer on the table.  This is, however, where a qualified, skilled, professional mediator can help the parties make pragmatic, informed decisions to resolve the issues before them.

Differing Types of Logic May Affect Negotiation

Stephanie West Allen has an interesting post over on Idealawg about how differing problem solving styles may affect communication, goal setting and mediation.  Stephanie then asked several of us whether mediation is causal or effectual.  I was quite amazed to learn that there were different types of logic – causal and effectual.  I was even more amazed to learn that there are mediation participants who actually think logically.

Stephanie quotes a passage from From “New Book Reveals Entrepreneurial Thought Process” (Research News – University of Virginia) that best explains the difference between the two:

A cook using causal logic would start with a menu or a specific recipe while a cook using effectual logic would look in the cupboards to see what ingredients might be available to create an entirely new dish.

Put that way, the vast majority of mediations I handle are causal.  They are the so-called “single issue” case where the only issue is money.  The parties want to settle at a sum that both can live with and we haggle back and forth until that number is reached.

Yes, I know that some of you believe that money is never the only issue, but I respectfully disagree.  Sure, people want to vent, but in the end, they also want a check.  I have yet to see a mediation where the aggrieved party was willing to walk away once they told off the other side.  So, the process is very familiar and very formulaic – not unlike a recipe.

Someday I hope to get to a place in my career where the cases are complex, have many moving parts and allow me to flex my effectual logic muscles.  But right now, I find my mediations are very causal.

The Story of A Sign

The Story of a Sign

This short film won an award at Cannes this year.  Take a moment to watch and then reflect on the simple power of language.

With a stroke of the pen, a stranger transforms the afternoon for another man in this emotionally stirring short film by Alonso Alvarez.

Settlement is Not Always the Desired Outcome

Over at Mediation Stuff, experienced litigator-cum-mediator John Lassey writes, The Goal of Mediation Is Not (Necessarily) Settlement.  He suggests that many would find this statement heretical.  I don’t. I could not agree more.

When I took my first mediation class, I heard someone suggest that the lawyer/mediators needed to learn how to stop being advocates for a client and become an advocate for “the deal.”  Eager to embrace my new profession, I initially thought that was interesting and profound.  But the more I mediate, the more I realize that this is bunk.

Like John says,

the primary goal of mediation of a tort case is knowledge, with settlement being a possible byproduct. The idea is to learn whether all sides are close in their thinking on the value of the case. If they are, settlement is likely to follow; if they are not — and cannot be convinced to change — settlement is not likely to follow.

Like John, I tend to go through an initial phase of analyzing whether the parties are in the same range, ballpark, zip code, bracket.   If the parties seem to be dealing in the here and now, rather than in Bizzaro world, the mediation generally proceeds.  While I use “all my powers, and all my skills” to help the parties work out a settlement when the parties are close (or at least receptive to settlement), I’ve learned to back off when the parties aren’t.  I still work hard to get the parties to exchange relevant information, to “reality test” their assumptions, to try to find some common ground to work from, but at a certain point, if the parties are thousands of dollars apart, or unwilling to move from their opinion on ultimate liability, settlement is simply not an option.  Then it seems like I’m beating a dead horse, or milking the parties for another hour of fee, and neither is right.

Construction Litigation Cases Are Starting to Clog the Docket.

Is this the harbinger of more hard times to come or might it be a good sign for the economy?

I’ve been seeing a fair bit of construction and real estate related cases lately. I think it is safe to say that litigation in real estate and construction cases increases as the economy worsens. Buyers dry up, so homeowners sue to recover or retain earnest money on deals that collapse. As new homes sit empty, general contractors and builders begin to hemorrhage money. They often find it easier (or more prudent) to pay a bank than their subcontractors and vendors. This begets litigation.

And some of the litigation is quite difficult. The cases involving contractors and subcontractors are generally easy to deal with. Most have been through it before. The hard cases are the ones with the patently naive, foolish and some might say, stupid people who were seduced by the lure of easy money portrayed in ridiculous shows like “Flip This House” and countless AM radio advertisements.

Most of these people are completely out of their depth – intellectually, financially. They lack the experience, brains, skill and most importantly, finances to build Lincoln Logs, much less build and sell homes. Now they face foreclosure, eviction, bankruptcy – and litigation. Their cases end up in mediation and I sometimes find it hard not to tell these people that reaped what they sowed.

I recently had a party, who claimed to have a real estate license, act completely shocked to find out that signing a contract for a “flip house” on behalf of a “friend” who could not qualify for financing (but could somehow come up with a huge earnest money check) was committing fraud. She had never heard the term “straw man.”

I am left to wonder, however, whether the increase in litigation is a positive sign for the overall economy. As anyone who has studied economics understands, the construction and real estate markets operate in a cyclical fashion. As the economy improves or even begins a fast growing phase, construction increases as the newly wealthy (both businesses and individuals), desire newer, larger, more well appointed homes and offices. Growth continues until the economy worsens and then drops off precipitously. Litigation follows soon thereafter, until the cycle begins again, typically a few months behind the general economy.

Since litigation also has a life cycle of its own, often taking months or years to complete, are these cases actually a sign of a recovering economy? All I know is that I am gaining a lot of experience in real estate transactions and construction.

Maybe I’ll go out later to find some houses to “flip.” Maybe then I can retire early….

In Further Praise of the Joint Session.

Last week, Geoff Sharp admitted to sitting on a draft post which modestly suggests that “lazy mediators don’t do joint sessions” or “lazy mediators only meet in private”. It appears that the gist of his post is that anyone can be an errand boy, but it takes a special kind of mediator to force the parties to sit across a table, look each other in the eye, and *gasp* communicate. He also commented upon an article (forwarded separately to us both by mutual friend/mediator/blogger Stephanie West Allen) entitled “Moving Mediation Back Toward its Historic Roots – Suggested Changes” by veteran mediator Joseph P. McMahon. Both Geoff and Mr. McMahon argue that the current state of mediation favors a “settlement conference” style of mediation that isolates the parties and minimizes real communication between the two.

Coincidentally, I have also been thinking a lot about the use of joint session since reading an article by New Hampshireite Scott Flegal entitled Advocating for Understanding. Mr. Flegal’s article discusses the “understanding based” model of mediation, which argues for the total elimination of caucus session. Flegal argues that the understanding based model promotes dialogue and joint decision making skills, while reducing distrust, both of the opposing party and the mediator – who is often viewed with distrust when he or she spends significant time with the other party, or is perceived as being unfair when playing devil’s advocate (reality testing).

Like Geoff, I think articles like these, which have appeared in Bar Journals, should spur interesting dialogue. Mediators should spend more time considering the dynamics of the conflict in front of them and decide whether to encourage the parties to hash it out in a joint session. Caucus is a useful tool, but only one of many at our disposal. [As an aside, I really dislike the "toolbox" metaphor almost as much as I dislike Biz school lingo like "incentivize" Why must we be made to appear to be plumbers or carpenters? It sounds as if we can reach into our "bag of tricks" and when the Phillips head screw driver doesn't work, we can use the needle nose pliers.]

I had a case this past Monday that likely would not have settled had I not brought the parties back together for one last joint session. The plaintiff had expressed frustration with the brief caucus sessions and had asked me to ask the defendant numerous questions. Even though the initial joint session was somewhat charged, I thought it best to get them back at one table. That’s when the real movement occurred.

I think too many mediators fear bringing the parties back to the same table unless there is some common ground already established through caucus and so-called “shuttle diplomacy.”

Is Court-Referred Mediation “Fair”?

As I was shuttling parties in and out of our room today during a court-referred mediation, I passed by a couple on a bench. They were either awaiting assignment to a mediator or were in mediation, but had stepped out of the room to allow caucus. (This courthouse has only 3 rooms for mediation, so we are forced to ask the parties to keep swapping to allow for caucus).

The man, who was visibly upset, turned to his companion and said, “After going through this, I have no more faith in the system.” In my mediation, I was having difficulty with a pro se plaintiff who didn’t think it was “fair” that she take less than what she was seeking despite several issues with her case – some procedural, some evidentiary.

I do not know for certain about what the man was speaking, but it made me stop for a moment and think. Are these court referred mediations just? Are they fair?

The cases I handle on most Monday mornings come from the Magistrate Court – that’s what we call our small claims courts. About 60% of the parties appear pro se. While there is a $15,000 jurisdictional maximum for any claim, the majority of these cases concern far less than $5000. There are disputes between neighbors and friends, vendors and clients, and complete strangers. I’ve seen cases about unpaid sales commissions, construction defects and souped up 60’s muscle cars.

The pro se plaintiffs who feel they are in the “right” inevitably ask me, “How can this be fair? They owe me money. They injured me (or wrecked my car). How can they get away with paying me less than what’s owed?”

The answer depends on the case. I analyze the situation. Sum up both sides’ strengths and weaknesses. Discuss the concepts of evidence and admissibility and hearsay and risk analysis. Sometimes it seems clear who is in “the right” (but I don’t tell them that). Sometimes, it is a toss-up. Other times, there are technical legal issues that will likely allow one party to prevail. While others involve cases that seem to have no legal remedy.

I believe that the agreements that are reached in these cases are just and fair because the process is just and fair. And I know the process is fair because, put simply, my settlement rate in these small claims cases is terrible. I am not forcing any party to accept terms with which they cannot live. The parties have time to express their needs, their concerns, their interests. They have time to reflect on how the court will look at their “evidence” or on the new information the other party just revealed (there is often little or no discovery in these cases).

I exert all the influence that I feel is appropriate, but in the end, it is the parties that make the final determination. And they often choose to allow the Magistrate to decide after each side gets 5 minutes to plead their case. Unfortunately, in many of cases I’ve handled, this is a terrible choice for the plaintiff. In the last four hotly contested mediations I conducted that resulted in impasse, the court eventually ruled in favor of the defendant.

Mindfulness, MediTation and Mediation

Stephanie West Allen of idealawg emailed me about an interesting blog post entitled, Mindfulness Meditation: For Lawyers? In the post, lawyer/psychologist Delaney Dean discusses a bar presentation in Kansas City called “Mindfulness in Mediation.” (I had no idea that the term “mindfulness” was part of Buddhist philosophy. According to the internets, it means “being aware of your present moment.” I like that concept.)

As one might expect, Dr. Dean found that most of the lawyer-participants were skeptical of the use of mediTation and the concept of mindfulness in their practices. It should not surprise many of you to know that I am not a mystical or spiritual person. But, I share Dr. Dean’s surprise at lawyers who think of mediTation as “a sort of fuzzy, or “touchy-feely”, way to avoid reality.”

When I was in what they used to call the Gifted and Talented program in grammar school, we had a teacher who taught us relaxation and biofeedback techniques. I don’t know what the “proper” terms are, but they involve breathing techniques and visualization – you are on a cloud, a Caribbean beach, etc. I guess that as an 8 year old, I didn’t ascribe anything “touchy-feely” to it. It was simply a way to clear your mind. Focus your thoughts. “Center” yourself.

These methods have served me well over the years. I’ve never hit Nirvana (I really never thought Kurt Cobain was all that talented anyway), but these methods have helped me relax, focus and reduce stress. When I was practicing law, 15-20 minutes of reflexive breathing, maybe followed by 15 minutes of “resting my eyes” (my dad’s euphemism for his afternoon nap) was a fantastic way to decompress from a long day.

Positive Attitude in Mediation

Nancy Hudgins has an excellent post for mediation advocates on her Civil Negotiation and Mediation blog entitled “Adjust Your Attitude: Go Positive!”

Nancy writes

Mediation calls upon us to use a different skill set. One that is more collegial, cooperative and collaborative. Best to leave the attack dog persona at home.

I couldn’t agree more.  In my experience, the cases that settle have parties that adopt a reasonable, objective and cooperative approach.  They realize that mediation is not adversarial and that acting like a bulldog/shark/warrior is counterproductive.

I recently entered a mediation where the plaintiff had the defendant dead to rights.  An iron clad promissory note, a clear default over a period of months and no affirmative defenses other than falling on hard times.  But the plaintiff and their lawyer realized that you can’t get blood from a stone.  They worked with the defendant to renegotiate terms that all could live with.  The plaintiff has to wait a bit longer to get his money but he felt it better than sending his lawyer to the courthouse to file post-judgment motions and seek garnishments and liens which might turn up nothing.

Remember.

Today is Memorial Day here in the United States.  Remember those honored many who gave their lives for liberty.

In Flanders fields the poppies blow
Between the crosses row on row,
That mark our place; and in the sky
The larks, still bravely singing, fly
Scarce heard amid the guns below.

We are the Dead. Short days ago
We lived, felt dawn, saw sunset glow,
Loved and were loved, and now we lie
In Flanders fields.

Take up our quarrel with the foe:
To you from failing hands we throw
The torch; be yours to hold it high.
If ye break faith with us who die
We shall not sleep, though poppies grow
In Flanders fields.

–Lieutenant Colonel John McCrae, MD (1872-1918)