A Time to Cut Costs

Photo by Hugh Williams.

No in-house counsel needs to be told that litigation is costly and that large litigation is enormously costly. One of the many ways to reduce litigation costs is to settle cases early when that can be done at a reasonable expense. Early settlements avoid not only litigation costs but also risk to the client's reputation, management distractions and the possibility of an adverse outcome.

Ultimately, the question is: What is the cost of these benefits of early settlement? Not every case should be settled early. Companies have good reasons to avoid early settlements. And certainly opponents can be unreasonable in their demands. However, with major cases it generally makes sense to at least evaluate the benefits of early settlement.

Early Case Assessment

To evaluate whether an early settlement overture is prudent, counsel must assess the case as thoroughly as possible. What are the underlying facts, applicable law and considerations bearing on the settlement value of the litigation? There should be a focus on both liability and damage issues. Often this analysis must be done with incomplete information because discovery will not be complete and may not have even started if an "early" settlement is contemplated.

Nonetheless, the more comprehensive the initial case assessment, the easier it is to develop an effective strategy. If and when a decision is made to explore a resolution, it is necessary to decide how to approach the opposition. For reasons described below, it is often useful to enlist the services of a mediator.

Early Settlement

• There are several arguments often made against early settlement talks and mediation, including:
•  Raising the issue of settlement early is a sign of weakness;
•  The case may get better with discovery;
•  The mediation process will reveal information to the opponents; and
• Some hard-nosed litigation will soften up the other side.

Each of these points has some validity. However, the weight of each depends on the particular circumstances of each case. Large litigation tends to be sui genesis. No rule fits every case, and the reasons to avoid an early settlement will not always apply.

There are cases where a suggestion of early mediation is not a sign of significant weakness. For example, if what is involved is a disagreement between contracting parties, the parties are likely to have discussed resolution before litigation commenced. If properly presented, mediation may be put forward as merely a continuation of those efforts even if a lawsuit has been filed.

As to the other arguments, the relative strength of a party's case generally gets either better or worse during discovery. Knowledgeable inside and outside counsel may have some insight early in a case into whether improvement or deterioration of the prospects of success is likely. At the same time, counsel often does not know what the other side has in the way of evidence or what might lurk in voluminous, and so far unreviewed, emails.

Therefore, a lawyer or client cannot be certain if the case will get better or worse. Although disclosing your main themes in the mediation may have some downside, it is not often a great downside and needs to be weighed against the value of an early resolution.

As a result, we come back to the conclusion that an overall evaluation must be done based on all the facts and circumstances of each case to determine whether an attempt at early settlement is warranted.

What Mediation Adds

Mediators can educate the parties on the merits of a case. Often, early settlement talks go nowhere for a variety of reasons, including:

• The parties don't know their own case very well;
• Parties don't understand their opponents' case very well; and
• The parties assess both their case and their opponents' case with the prejudice and emotion of the advocates or participants, not the eyes of neutral sophisticated observers.

As a result of any combination of these reasons, the parties almost always have mismatched evaluations of a lawsuit.

Mediation can educate the parties on the strengths and weaknesses of both sides' positions. The natural tendency of each party to a dispute will be to try to convince the other side and the mediator (if there is one) that the party knows everything it needs to know about a dispute, and that the party's "position" is the right one.

The reality is often different. A mediator can assist the parties and their understanding of the value of the case by encouraging the exchange - under mediation privilege - of briefings that lay out the key factors in the case.

Putting down in writing the strengths and weaknesses of a client's case is often a useful educational exercise in itself. In conjunction with a review of the opponent's briefing, preparation for mediation can lead to new awareness and help narrow the differences in the evaluations of a given case.

A good mediator will encourage parties to share information in an effort to help each side understand the case better. It is true that there is often concern that some tactical advantage or surprise might be lost - but the reality in modern litigation is that providing carefully selected information early can be worth more than saving it for dramatic use at trial.

The calculation is simple: Few key pieces of information escape notice until trial (and most cases are never tried anyway) but may have a meaningful impact on the other side's own evaluation of the value of his or her case in the settlement process.

The mediation process can help force participants to look more closely at their own and opposing positions, and receive some input from a respected neutral observer. The skilled mediator is careful in dispensing his or her views of the merits because the neutrality and credibility of the mediator are essential to the success of the mediation process.

If the process helps bring the respective parties' evaluation of their positions more closely in line with each other, it can materially improve the chances of settlement. The mediation process may also be the only chance the client gets to hear the unvarnished merits and demerits of its case. Obviously, this can be extremely valuable, particularly early in a case when strategic decisions are being made.

Another value added by mediation its effect on the settlement process. The likelihood of an early resolution often can be evaluated in just one mediation day. By contrast, a settlement discussion without a mediator can often devolve into a long and desultory settlement dance with little learned about the merits of the case or the opponent's position. If evaluating settlement prospects quickly without appearing anxious is an important goal for the client, mediation is a great help.

Once parties arrive for the mediation, the mediator's job is to foster constructive consideration of the issues. The first event is often an opening presentation. Mediators often encourage counsel to avoid being overly strident and to think carefully about mediation tone, making concessions, focusing on the key issues and maintaining credibility.

The opening session of a mediation is often the only time during litigation and before a trial when the parties have the opportunity to talk directly to the decision makers. Mediators help the parties engage in constructive and frank dialogue about what the case is about, and they help the parties focus on the key issues.

One valuable tool a mediator has for trying to bring a matter to resolution is access to information about what both sides are thinking. During the course of the day, the mediator spends time with each side alone in private caucus. Discussions with parties in private caucus are generally much more constructive than with their adversary sitting across the table.

The parties generally feel more comfortable giving information, pushing and being pushed and having limits tested in private caucus. If a mediator can use the insights gained during these private sessions to help move the discussions forward and lead the parties to realistic expectations, the chances of settlement improve.

Often the bargaining process in settlement gets bogged down by egos and minor tactical considerations. The relative size of changes in offers and counteroffers can take on an exaggerated importance that obscures and detracts from the real goal of ultimate resolution of the dispute. A skilled mediator usually tries to avoid back and forth bids in small steps and is much more than a messenger. He or she subtly guides the parties to a range of possible resolutions while trying to suppress the effects of ego and gamesmanship.

The way mediators achieve this is difficult to describe in detail because it is as much an art as a science and because all cases and personalities involved are different. However, the skill involved and the use of creative ways of developing settlement ranges can be vitally important to arriving at a successful result.

Conclusion

Litigation expense can be quite large in absolute terms and relative to the amount in dispute and the cost of settlement. Early settlements can result in saving both sides litigation expense, and that savings can help bridge gaps to settle some cases. Mediators can bring real value to the resolution of disputes by speeding up the settlement process, causing the parties to educate themselves and facilitating negotiations.

About the author: Gregory Markel chairs the litigation department at Cadwalader, Wickersham & Taft. He concentrates his practice in securities, antitrust and other complex commercial litigation. Jed Melnick, a skilled mediator of complex disputes, assisted in the preparation of the article.