Why Cases Settle – Why Cases Don’t Settle

By Leonard J. Frankel, Jerome J. Dobson and Charles E. Reis, IV

When approached about writing this article my first thought was, of course, I could write an article about why cases do or do not settle. Having conducted approximately three hundred mediations I certainly have my opinions, but I also realize that counsel have their opinions that may well differ from mine. Consequently, it was agreed that this topic should be addressed from three perspectives: the mediator, plaintiff’s counsel and defendant’s counsel. I was thrilled when Jerry Dobson (plaintiff’s counsel) and Chad Reis (defendant’s counsel) agreed to participate.

As a mediator I am extremely pleased with the process. I have seen cases settle when after reading the parties’ mediation memorandums I believed there was no way an agreement would be reached. I have had mediations settle when counsel told me neither side wanted to participate but they were only appearing because a court ordered them to mediate. And to the contrary, I have read memorandums and thought to myself, this will be easy to resolve, and then seen parties reach an irresolvable impasse, at least for that day. Although most mediators’ settlement percentages are much higher than that of baseball superstars’ batting averages, we all have cases that, no matter how hard we try, do not settle. The mere fact that the case did not settle does not mean that the mediation was not worthwhile, but that is a topic for another day. So what are the major reasons, from the view of a neutral, that cases settle or fail to settle? Here are my views, not necessarily in order of importance.

Mediator’s Perspective

A.  Open mind.
What is the frame of mind of the participants who come to the table? For the process to be successful persons participating must be willing to listen to other side. Some people arrive intent on stating why they are going to win the case and showing no interest in their opponent’s position. Mediation is generally successful when the participants are willing to compromise their positions. Compromise is not a dirty word, nor does it mean that the parties need to split the difference between the opening demand and the opening offer. To the contrary, I do not believe I have ever seen that happen.

From my perspective, if the participants come to the table with an open mind, willing to listen to the arguments of the other side, consider the interests of the parties involved, settlement will more likely than not be achieved. However, when either side takes the position that, “my position is absolutely right”, and, therefore, we will not vary from out stated position, settlement is unlikely to occur. On occasion I have stated in my opening statement that if this case settles, the plaintiff will receive less than it was thought they would receive when the process started and that the defendant will pay more than they thought would be paid when the process started. At the end of a successful day I have had more than one participant recall that statement to me and acknowledge its accuracy.

B.  Authority to settle.

Settlement is more often achieved when participants with the proper authority are at the table. They need to have the ability and authority to vary from their stated positions when it is reasonable to do so. There are times when the problem is inevitable. That most often occurs when a party is a governmental agency and a board or council must approve any settlement. However, when mediators meet and discuss problems that arose during mediation, frequently they will lament the fact that defendant sent a junior attorney to represent a corporation, a corporate representative who had no real authority, or an adjuster whose authority was well below what was required for settlement. See, Nick v. Morgan’s Foods, Inc., 99 F. Supp.2d 1056 (E.D. Mo. 2000), aff’d 270 F. 3d 590 (8 Cir. 2001), where Judge Sipple sanctioned defendant and defendant’s counsel for not having a corporate representative with sufficient authority attend mediation. He wrote, “(f)or ADR to work, the corporate representative must have the authority and discretion to change her opinion in light of statements and arguments made by the neutral and opposing party”. Supra., at 1062.

Most mediators have experienced caucuses where one side is spending most of their time on the telephone bringing the ultimate decision maker up to date. Unfortunately that person does not have a real sense of the dynamic of the process. Therefore, it is much easier to draw a line from which no one can deviate and put off settlement for another day.

C.  Preparation.
Cases are more likely to settle when the lawyer has prepared for mediation and he/she has prepared the client for mediation. Just as you would not go into court without being prepared you should not come to the mediation without adequately preparing.

Some lawyers take a very lackadaisical attitude about mediation. I am not certain whether they have no faith in the process or they believe the mediator should do all the work.

If you have questions about the mediation process or your mediator’s style, call the mediator in advance and discuss it. A mediator, unlike a judge or arbitrator, is not a decision maker. Consequently, there is no prohibition against ex-parte communication with the mediator. The U.S. District Court for the Eastern District of Missouri, recently amended its local Rule 16-6.04 to allow for pre-mediation ex-parte communications.

   D.  Client participation

One of the many benefits of the mediation process is that it gives the client an opportunity to participate in the process. The client needs to understand that they have the opportunity to speak and should be encouraged to do so. There are several reasons to do so. A party is allowed to vent without interruption and the limitations of the rules of evidence. In all likelihood it is the first time they are telling their story to a neutral party, i.e., someone without a vested interest in the outcome. A party also has an opportunity, when appropriate, to make a sincere apology without recrimination that what is said will be used against him or her. Studies have shown that a proper apology is a powerful tool which facilitates settlement.1 additionally, if a settlement is reached it is the client’s settlement, not the lawyer’s and certainly not the mediator’s. The client should be an active participant is determining the terms of the agreement.

Plaintiff’s Perspective

As a plaintiff’s employment lawyer, I believe that mediation has proven to be an effective mechanism for resolving employment discrimination claims. This article analyzes the mediation process from the plaintiff’s perspective and offers suggestions regarding timing, preparation and handling of mediations in employment-related cases.

The approach counsel takes towards mediation should depend upon the specific factors present in that case. Factors which must be assessed include the nature and strength of the plaintiff’s claims, the identity of the employer and the extent of its resources, desire of the employer to settle, the amount of discovery that will be required, the plaintiff’s goals, and jurisdiction and venue.

A. When to Mediate

The first question is when to mediate. Some cases, but not all, are appropriate for early mediation. Such cases include: sensitive allegations in which the employer has a strong interest in avoiding publicity, such as a sexual harassment claim against a high ranking official of the employer; a discrimination claim in which there is strong liability but limited damage potential, such as where plaintiff obtained comparable employment shortly after cessation of employment or where the employer is small and has limited resources; or a claim in which the plaintiff is emotionally fragile and unlikely to withstand the emotional trauma of highly contentious litigation. In such cases, plaintiff’s counsel should not hesitate to suggest early mediation to opposing counsel or the Equal Employment Opportunity Commission (EEOC). The EEOC has a voluntary program for mediation before commencement of its investigation. The EEOC provides a mediator, (either a specially-trained EEOC employee or an outside attorney), at no charge to the parties.

There can be several disadvantages to early mediation for plaintiff. First, plaintiff will have to assess the value of his/her case with less knowledge than if extensive discovery had been conducted. Second, plaintiff will likely receive a lower offer from the employer in early mediation than would likely be received after substantial discovery. Third, the employer may not be serious about settlement at an early stage, and may use the mediation as a means to learn about plaintiff’s case without risk or expense. Finally, if plaintiff submits a low demand in an effort to achieve an early settlement and the case does not settle, the employer will view plaintiff’s last demand as a ceiling. This creates a psychological barrier to employer paying more than that number even when a larger settlement is appropriate after the case has been more fully developed by plaintiff.

B. Preparation for Mediation

The most important task before mediation is to properly prepare the plaintiff for the process. Counsel should first conduct a realistic valuation of the case. In order to do this effectively, counsel must assess, as accurately as possible, plaintiff’s lost wages and benefits, the potential value of plaintiff’s claim for emotional distress, the likelihood of punitive damages and the attorney’s fees and costs incurred. In addition, counsel must also assess the risk of loss through summary judgment and/or trial, and reduce the case valuation accordingly. These calculations should be shared with the client openly and candidly.

Counsel should also review with the client the remaining obstacles to final resolution of the matter through litigation. This includes the remaining discovery that must be conducted, the likelihood defendant will file (and may win) a motion for a summary judgment, the physical and emotional demands of a trial, post-trial motions, and the appellate process. A review of the remaining litigation hurdles and the possibility of an adverse outcome often makes the client more amenable to settlement by mediation.

It is also helpful to review the mediation process with the client. The client should be forewarned that mediation often takes all day and that the employer may make several very low offers before getting serious. The client should also be warned that opposing counsel’s opening statement may attack the plaintiff and be difficult to listen to. Client should be advised that part of the mediator’s job is to poke holes in his/her case and the mediator will emphasize the weaknesses in the case. If these issues are addressed with plaintiff before mediation, the process will go more smoothly when the plaintiff hears these uncomfortable truths at the mediation.

C. Mediation

Plaintiff’s opening statement presents an opportunity to set the right tone for the mediation. It is helpful to thank the employer for its willingness to meet and discuss possible resolution, and to express plaintiff’s good faith willingness to try to settle. This author prefers to highlight only several of the strengths of plaintiff’s case and express confidence that plaintiff will obtain a successful verdict. It is often counter-productive to present a detailed opening statement which recites all of the employer’s real or perceived transgressions and which portrays the employer as callous or evil. Such an approach often makes the employer angry, an unwise strategy when you are trying to convince that same party to surrender large sums of money.

There is no magic formula for calculating plaintiff’s opening demand. The initial demand should achieve two goals: it must be high enough to leave the plaintiff with sufficient room to make concessions and still arrive at an acceptable settlement figure, but it should not be so high that it turns off the employer and causes it to terminate the mediation.

Conversely plaintiff should not put too much weight in the employer’s initial offer. The employer’s succeeding offers will give the plaintiff a better idea of what the employer is willing to do to resolve the case. Offers may also be accompanied by verbal signals. For example, it is fine to tell the mediator when you make a large drop in your demand that you expect the employer to respond with a significant increase in its offer.

As the parties get closer to an agreement, counsel should be wary of exposing plaintiff’s bottom line too soon. It has been this author’s experience that once you tell the mediator your bottom line, the mediator promptly begins to explore how much lower the plaintiff will really go. By exposing the bottom line too soon, a party loses its negotiating leverage.

If the parties negotiate to impasse, the mediator may make a mediator’s proposal. The mediator’s proposal is a number selected by the mediator which is intended to push both parties to a number to which they have been unwilling to go. If both parties agree to the mediator’s proposal, a settlement is achieved. However, if one side accepts the proposal and the other rejects it, the party rejecting the proposal is not told that the other side accepted.

If the case is settled at mediation, it is best to prepare and execute a complete settlement agreement and release at that time. Some mediators have the employer prepare a draft settlement (without the settlement figures) and forward it to plaintiff for review in advance of the mediation. This allows the parties to resolve all issues and execute all papers at the mediation. In most cases, however, when a settlement has been achieved, a hand-written agreement containing the essential terms is prepared and signed by the parties, with the understanding that a more complete settlement and release will be executed subsequently. This can result in additional delay which is usually to the detriment to the plaintiff. It is strongly recommended that a hand-written settlement include a payment date by employer soon after the plaintiff executes the more formal settlement agreement and release.

D. Other Considerations

One of the advantages of mediation is that the parties can agree on creative solutions that cannot be obtained by a trial. An agreement to transfer or promote plaintiff, change a discharge to a voluntary resignation, a favorable letter of reference, extended health insurance benefits, and cleaning up the plaintiff’s employment record are among the provisions which can have real value and which are unlikely to be achieved through trial.

Even if the mediation does not result in a settlement, the process can be of great value to the plaintiff.
Plaintiff should view mediation as an opportunity to learn about the employer’s defense and its view of the case. Plaintiff may learn the employer places great reliance on a defense or argument of which plaintiff was previously unaware or which plaintiff did not understand. It is far better to learn this information at mediation than to first encounter it in a summary judgment motion or at trial. At mediation, plaintiff can learn what the employer views as its strengths, as well as the employer’s responses to the plaintiff’s arguments.

A successful mediation does not happen by accident. It is the product of preparation, hard work and a willingness to compromise.

Defendant’s Perspective

A.  Introduction

There is no question that a plaintiff and a defendant approach a claim from vastly different perspectives. The plaintiff is claiming that he has been damaged in some manner, whether by loss of a job, injury, damage to business, or emotional loss, and is normally seeking money damages to be compensated for the loss. While plaintiff believes that the damage is apparent, a defendant must determine not only if that damage is real, but also whether it is responsible for the claimed loss since the defendant is the one from whom any compensation will be had. Thus, a defendant must make an assessment whether it should settle the case, and pay a plaintiff for any claimed loss.

There are enumerable reasons why cases do not settle, many of which are beyond the defendant’s control. The plaintiff or his counsel may have misperceived facts or liability, grossly overvalued the case, or there is some emotional component that prevents settlement. However, this portion of the article concerns what a defendant and its counsel can do to evaluate a claim so a determination can be made of whether to pursue a resolution of the case.

While there are rare cases in which settlement negotiations need to commence at or about the time of the occurrence giving rise to the claim, those cases are the exception rather than the rule. In almost all cases, it is incumbent for the defendant’s lawyer to provide the defendant with the necessary information to make a reasoned decision whether an attempt should be made to resolve the case, and, if so, the parameters within which to settle the case. Without the information necessary to make a critical assessment of liability and damages, a defendant is less likely to enter into meaningful settlement negotiations.

B.   The Client

With respect to representing any client, it is essential for a lawyer to understand his client. When given a case to defend, a lawyer must discern what the client wants him to do in providing a defense, as well as be aware of the client’s goals and expectations. It is equally important that the lawyer communicate to the client what is necessary to defend the case and what facts must be learned so an analysis of liability can be made early on in the case. In handling the case, a lawyer must keep the client informed of the developments in the case so that a client can adjust his expectations in accordance with the facts and potential liability. If a client’s expectations are unrealistic, then the likelihood of fruitful settlement negotiations is remote.

A lawyer must also be aware of the client’s knowledge of the type of claim asserted. For example, the client may be in-house counsel who is extremely knowledgeable in patent or commercial transactions, but has limited knowledge of employment law or product liability. It is incumbent on the lawyer defending the case to provide the client with the necessary information to understand potential liability in the area of law the claim is being asserted. Further, the lawyer defending the case must understand whether the client desires to resolve the matter based upon a business decision, or seeks a judicial determination to resolve issues that affect the integrity of the defendant or may be reoccurring to the defendant.

C.  Fact-Finding

In order to make any reasoned decision about settlement, a lawyer defending a case needs to provide his client with the necessary information to determine whether liability exists. At a minimum, the lawyer needs to obtain the relevant documents and to interview significant witnesses that may be aligned with the defendant. If information from third parties is available with regard to the plaintiff’s version of the account and/or damages (i.e. unemployment files, administrative proceedings, accident reports, police records, health care records, and employment records), those records should be obtained. Independent witnesses should also be interviewed. If the matter is in litigation, interrogatory answers and relevant documents should be obtained from the plaintiff. Further, if the claim is already in litigation, the plaintiff should be deposed to obtain a definitive position from the plaintiff concerning the facts and alleged damages. The deposition of the plaintiff will also allow the defendant to assess the demeanor and credibility of plaintiff.

Prior to settlement discussions or mediation, plaintiff’s counsel may want the deposition of a decision-maker or the alleged wrongdoer if plaintiff’s deposition is taken or contemplated. At that point, the lawyer defending the case and the client must determine whether a significant risk exists that the value of the case is increased if defendant’s witness is perceived to be a poor witness. In this scenario, a defendant should consider initiating settlement negotiations before any depositions are taken. However, if defendant’s principal witness is deposed, not only will the plaintiff’s counsel be able to better assess the case, but it will also provide defendant a more realistic view as to how its’ chief witness would testify if the case proceeds to trial.

D.  Preliminary Steps Before Settlement Discussions

After gathering information concerning the case, a lawyer defending a case must assimilate the information obtained, and provide an analysis to the client on liability and damages so that the client can make a reasoned decision as to whether the case should be settled, and if so, for what amount. If the client does not have a clear understanding of potential liability, the chances of settlement are remote. Further, the client must also be given an understanding of the venue, potential jury make-up, and the proclivities of the trial judge to make a better decision with regard to settlement. The lawyer for the defendant should provide his client with an assessment of the abilities of plaintiff’s counsel, the likelihood of the granting of a dispositive motion, and verdicts of other similar cases in that venue.

With respect to plaintiff’s damages, the lawyer defending the case must provide the basis for which plaintiff is claiming damages, whether those damages are real, and whether plaintiff has mitigated those damages. It is important for defense counsel to provide the client with an assessment of plaintiff’s chances of winning, and the verdict range if plaintiff would prevail.

While a budget should be prepared for the client after the case is assigned to defense counsel, the lawyer defending the case should also provide the client with a revised budget for costs and attorneys’ fees should the case go to trial, so that the client can evaluate the costs of litigation versus settlement.

After all of the above information is provided to the defendant, the lawyer defending the case and defendant’s representative should thoroughly discuss the case and make a determination whether to engage in settlement discussions, and, if so, the parameters of any settlement discussions. In these discussions, the lawyer for the defendant can answer the questions of the client, and make sure the client has sufficient information about the case. Furthermore, after this dialogue, the representative of the defendant may need to consult with someone in a higher position for authority to settle, and that person may become the contact for continued settlement negotiations. Also, the terms of a settlement or release should be discussed with the client, and a draft of settlement documents should be approved by the client prior to settlement negotiations commencing.

If the case is to be mediated, it is important for the lawyer defending the case to identify mediators who are not only knowledgeable in that area of law, but who also have been successful in resolving claims. The lawyer defending the case should communicate his recommendations about potential mediators to his client so there can be agreement on potential mediators before the selection of the mediator is discussed with plaintiff’s counsel.

E.  Settlement Discussions and Mediation

While many courts require the parties to participate in some form of alternative dispute resolution, counsel for the defendant should also look at mediation as a meaningful opportunity to resolve the case. Even if it appears that the parties are far apart, mediation gives counsel for the defendant an opportunity to understand plaintiff’s theories, and the potential strengths and weaknesses of the case. Getting the parties to the table to discuss the issues can lead to surprising results with respect to settlement.

Prior to any mediation or when submitting an offer, a proposed release or settlement agreement setting forth the non-monetary terms defendant wants to resolve the matter should be submitted to counsel for plaintiff so that negotiations do not later become stalled or delayed by ancillary terms. Submitting a proposed settlement in advance gives counsel for the parties an opportunity to work out those terms either prior to the mediation or concurrently with the monetary negotiations.

f the matter is being mediated, it is important to give the mediator a position paper setting forth the facts and the law, as well as information regarding damages, and any significant documents that support your client’s position. The position paper will put the mediator in a better position to understand the issues, and move the settlement negotiations in a more expeditious fashion. While a mediator expects counsel to be an advocate, taking positions that are unfounded or that are easily contradicted, causes that party to lose credibility not only on that issue, but on other positions put forth by that party. Likewise, during an opening statement at the mediation, taking positions that can be easily disputed causes the party advocating such positions to lose credibility not only with the mediator, but also with the opposing party and his counsel.

If the matter is not in mediation and settlement negotiations are at an impasse because plaintiff’ counsel is unaware of certain facts or documents that are detrimental to plaintiff’s case, a strategic decision needs to be made whether to disclose that information in order for plaintiff and his counsel to take a more realistic view of the case. If the facts or documents are going to be required to be disclosed at some point during discovery, then defendant’s counsel needs to weigh the benefit of disclosing the information to break the impasse of the settlement discussions or waiting for the opportune moment to strike a fatal blow. The timing of the disclosure of such evidence depends greatly on plaintiff’s counsel and the amount of damages involved. However, most experienced plaintiff’s counsel will be more objective in re-evaluating the case and their settlement position when presented with detrimental evidence. Further, when the disclosure is made also greatly depends on the goals of the client, whether an early resolution or a judicial determination is sought.

It is also essential that a proper decision-maker with full settlement authority be present at the mediation on behalf of the defendant. Most courts require that a decision-maker with authority to resolve all issues be present at the mediation. From a practical standpoint, having a representative of the defendant with authority to settle the case present at the mediation also allows that representative to make a first hand assessment of plaintiff and his counsel and to become engaged in evaluating issues that are raised at the mediation. If the representative is participating only by telephone, then that representative is not part of the dynamic and is at a disadvantage to adequately react to the issues and demands presented at the mediation.

Finally, if a settlement document is agreed to in principle prior to the mediation, then it is quite possible for the settlement document to be put in final form and signed by the parties at the mediation. Thus, other extraneous factors will not come into play which could later cause the settlement to become disputed.

F.  Conclusion

Defendants often point to unrealistic demands from a plaintiff or his counsel as the principal reason for failure of settlement negotiations. While many factors can cause settlement negotiations to fail, from the perspective of counsel who represents defendants, a significant reason why settlement negotiations fail is the lack of information that the defendant and its representatives have with respect to liability and damages. Thus, counsel representing the defendant must inform the client of the facts, law, and potential damages to allow the defendant to make an informed decision on how to proceed in settlement negotiations.

News and Articles