Back in the Dark Ages when I was still trying cases as an attorney, it was frequently considered a sign of weakness to be the first one to suggest settlement discussions. Fortunately that day has passed, and most attorneys now realize that they can best serve their clients if they help to resolve their cases as expeditiously as reasonably possible.
But this brings me to the question: what is a litigator’s job description? In my opinion, it is to provide as good a result of a dispute for our clients as we can within the law and the ethics of our profession, and for a reasonable price. In other words, it is to provide value to our clients. The job description for judges is different. It is both to arrive at as right and equitable a result as possible under the facts and the law, and within a reasonable time, and also to enable all concerned to believe that this has been accomplished. So all of this leads to a discussion about settlement conferences.
What are the biggest pitfalls working against the reasonable resolution of cases? The first and most prominent obstruction comes from attorneys who initially oversell the results they say they can obtain for their clients. Obviously we are living in a competitive world, and sometimes, just to get a potential client in the door, attorneys feel they must promise them something that they will not reasonably be able to deliver. Thereafter if a reasonable proposal is offered to settle the case for $40,000 when plaintiff/clients were earlier “promised” a settlement of at least $100,000 by their attorney, those clients after lots of cajoling may still begrudgingly go along with it. But the clients will never be satisfied, which, in turn, means that the attorney will never receive any repeat business or referrals by the clients to their friends.
The second pitfall results from attorneys not having a theory of their case. From the first time clients begin to discuss the facts of the disputes, insightful attorneys begin to form a theory of their case. Of course, there can be more than one theory, and they certainly can change. But then every motion the attorneys make (or don’t make), and questions they ask (or don’t ask), and, in fact, everything the attorneys do (or don’t do) in their cases is preceded by the question “will doing this further my chances of establishing my theory either to the jury or the judge? Then they act accordingly. Unfortunately, all too often as a judge I found that attorneys couldn’t tell me their theory at a settlement conference – because they didn’t have one – and sometimes I would not know what the attorneys’ theory was even after they had completed their opening statement at trial! And the poor results at settlement conferences, trials and motions, etc. almost always bore witness to that defect.
The third pitfall is not having the decision-makers personally present at the settlement conference. As a sitting judge, our local rules dictated that the actual decision-maker(s) personally had to be present, so if they were not – and I determined that their absence materially affected our ability to settle the case – I would set the matter for an Order to Show Cause for Sanctions in the amount of the costs of bringing the non-offending party and counsel back for a second try. Then I would also order the absent party’s decision-maker(s) to be present at the second conference, whether they are from Dallas, Chicago or wherever. (Actually, as long as I used this approach only with cases in which the absence really did make a material difference, the second conference almost never took place, because I would hear that – for some reason – the case settled “on its own,” so a further conference was unnecessary.)
And what are some tips that I have found to assist in bringing about a reasonable and prompt settlement? Actually, over the years learning about some of these was a fascinating experience. For example, at all costs the participants are to avoid what I call “poisonous words” when they are together. That means that any time counsel or a party uses words like cheat, fraud, scoundrel, liar, or even dirtbag, I would immediately interrupt and instruct them that terms like these were simply not allowable in these proceedings, because all they would do is to push people further apart.
I would also ask counsel and the parties if they felt this case was being pursued as a business decision, or instead as something based more upon emotions. Then I would tell the participants that they were fully entitled to proceed upon emotions if they wanted to, but it would be hard to settle their case because emotions are hard to quantify. This accomplished two worthwhile purposes. First it helped everyone determine if the case would stand a reasonable chance of settlement, and if it did not, it told us that we should spend the time on something else. And second, it often helped the parties to switch their focus, and actually begin to base their case upon business decisions. But this would only usually happen after those parties had an opportunity “to vent” to me as the neutral judge or mediator, thus giving rise to the feeling that they had in some way had their “day in court.”
One way for attorneys to gain credibility during a settlement conference both with the judge or mediator and with opposing counsel is, at the beginning of the session, honestly to set forth the problems in their own case. Of course, those problems are placed in the best light, and various remedies for the problems will also be confidently suggested. But then those same attorneys will have a lot more credibility when they “honestly” set forth the problems in their opposing party’s case, which will then be taken more seriously.
In addition, what I call the “psychology of numbers” is also an interesting study. Many times I found, for example, that if I pursued a settlement for $70,000, defendants would object and hold firm that this was simply too much money, and they would never go that high! But if I suggested $68,750, they would readily agree. Conversely, most plaintiffs would realize that the lower figure was only $1,250 less than the higher one, and that would give them no problem at all. So many cases will settle, as long as you do not cross some psychological barriers. It is a real study in human nature.
Similarly, in a tort case you can use a practical “formula” for arriving at a settlement figure. In doing this at a settlement conference with all counsel present, I ask plaintiff’s counsel what she thinks would be a standard, “plain vanilla” verdict from a jury on the case. Then, for example, if her response of $80,000 is not really out of the ballpark, I would agree, and then ask what her views are of the chances that her client will get a judgment at all. If she says 70 percent, I announce that at that point the case would have a settlement value in the neighborhood of $56,000, which would be 70 percent of $80,000. But then I also ask that if they get a judgment at all, what percentage of comparative negligence would the jury reasonably find against her client – because there is almost always such a finding. If she said 20 percent, then I subtract that 20 percent from the prior figure, and suggest the final settlement amount should be in the area of $44,800. The parties seem to attach significance to this formula, because it makes things seem less amorphous, and the cases will usually settle right around that figure.
There are many more similar little “tricks of the trade,” but I want to use the remaining space to focus upon some traps for the unwary once the cases are almost settled. The first is to be aware and careful of tax issues that may result from the proposed settlement, and if it is even close, always make a formal recommendation to your clients to seek competent tax advice before the settlement is finalized. In addition, always put on the record that no one present can bind any government agency to any particular tax result, so regardless of how it comes out with the IRS and Franchise Tax Board, the settlement will still be binding upon the parties.
Furthermore, under section 664.6 of the CCP, there simply is no settlement at all unless either all of the material terms of the settlement agreement are placed on the record before the court, and agreed to by all parties (I believe that this can be done by telephone conference call, as long as everything is carefully explained to the party on the telephone.), or all the terms are contained in a writing that is signed by all of the parties. (It is also a good idea to have all counsel sign the agreement approving both form and substance, but I do not believe it is legally necessary.)
Two final thoughts. First, do not forget to file a motion for a minor’s compromise, etc. in appropriate cases, and second, also decide if it is in the best interest of the parties to waive section 1542 of the Civil Code, which means that each side waives and gives up any and all claims they may have against the other, whether known or unknown. As I characterize it, that means that each side will be able to be rid of the each other’s shadow regarding anything that has happened between them up to that moment. In most cases that is a good thing, unless they have other dealings or agreements that should still be enforced. But be careful, because sometimes this can be really important.
Looking back, I believe that generally the most gratifying thing I did during my 25 years on the bench was helping people to resolve their differences voluntarily if they could. This can really be uplifting for just about every reason imaginable, and I hope that some of these recommendations will assist you to achieve that same gratifying experience
James P. Gray is a retired judge of the Orange County Superior Court, and presently works as a private mediator and arbitrator for ADR Services, Inc. He is also the author of “Wearing the Robe: the Art and Responsibilities of Judging in Today’s Courts (Square One Press, 2010), and can be contacted at JimPGray@sbcglobal.net, or through his website at www.JudgeJimGray.com.