Back when I was still litigating before my general counsel days, I was invited to mediate cases for the federal court in San Francisco. Having already litigated for two decades and advocated through many mediations in the process, I thought the mediation work would be, frankly, simpler. Counsel and clients would share their perspectives and I would help them settle by, among other things, helping them handicap the likely litigated outcome. But it wasn’t so simple. Not by a long shot. Many times counsel and clients would see things as I did; other times their view of their prospects vastly differed, and those differences remained a puzzle.
Where a settlement did not come together, as a sanity check, I began regularly asking counsel to update me of the eventual litigated outcome so I could compare it with where I thought the dispute would end. For the benefit of my sanity, these updates typically matched my prior view of where things would likely end, including all of the good, bad and ugly consequences for the parties. So I wasn’t crazy, at least most of the time. However, still unanswered for me for several years was what was driving some counsel and clients to unrealistic views of the strengths and weaknesses of their positions.
Fast forward a few decades of litigating, managing disputes and mediating, and the contributing factors became more apparent. Rather than take the easy bait of blaming lawyers for keeping the meter running longer than needed, many answers instead arise from behavioral studies of how lawyers and clients process, filter, accept and reject information and form positions – often at the expense of grounded decision-making. A few examples should help here:
· In a series of studies comparing pre-trial settlement offers rejected by counsel with the eventual outcome of those disputes, the findings show that most plaintiff’s counsel optimistically err to the detriment of their clients by turning down better offers than the amount they actually recover.
· Other behavioral studies focus on client perspective, examining such phenomena as cognitive dissonance and reactive devaluation, whereby clients (and all of us) filter information we receive, holding onto the information that seems to affirm our pre-conceived notions much better than the data that cast some doubt. In other words, we hear what we want to hear and often disregard if not seriously underweight the contrary evidence. As one manifestation of this phenomena, a recent study of litigants’ perceptions found that 57% of litigants believe that they had at least a 90% chance of winning, while roughly 24% believed they had a 100% chance of winning.
So what gives? These behavioral studies point to two things: Litigators on average are overly optimistic about their clients’ prospects, and their clients are all too happy to accept the rosy forecasts – indeed to sear them into their consciousness – and disregard the cautions, conditions, howevers and on the other hands.
Now apply these concepts to client-counsel discussions at the outset of a dispute, and a strange brew is concocted. Specifically, imagine the scenario many of us have experienced – namely the request for proposal (RFP) or “beauty contest” where counsel pitch for work on a litigation matter and clients decide who to hire. A typical pattern involves a public filing of a complaint followed by many firms who monitor such filings and pitch for the representation. Clients – corporate officers and in-house counsel – invite or accept proposals that typically define the desired outcome as winning the dispute at hand. Counsel in turn then shape their proposals around the prospects of winning and the likely cost to get there. Rosy predictions and lower cost projections are better received than the other kind, counsel oblige (remember it’s ingrained in most of us), and clients often respond more favorably to the rosiest predictions (ditto here as well), retaining those optimistic forecasts with elephantine certainty to and through the later mediation process. Hence, it should come as no surprise that clients when surveyed say (and appear to believe with way too much conviction) that most of us will win almost all of the time.
So what to do? A few thoughts from a litigator turned general counsel turned mediator:
Clients:
· Focus the RFP on ending the dispute as soon as possible. Notice I didn’t use the words “win”, “prevail” or “not lose”, because the goal of almost all lawsuits should be to end them as quickly as feasible -- both because of the risks of the calibration errors discussed here, as well as the fully allocated net cost of most litigation in terms of fees, costs, disruption and loss of focus on the client’s real business (which is rarely litigation). Resist the notion that the dispute is more significant than it really is – whether from your business partners, your in-house team or outside counsel. With a vigorous discussion, the real answer often is that a litigated “win” is less valuable than the cost, disruption and dislocation of a fully litigated dispute when measured against all available alternatives. This is easier to say than to implement, because decision-makers may be passionate about vindication or prevailing for reasons more important to them than to the big picture. But a reasoned conversation or two (sometime more) about realistic options and the total impact of a fully litigated dispute often leads to a better decision and avoids the Pyrrhic victories that can otherwise take place.
· Insist upon an active and ongoing dialogue between the adversary counsel. Not emails; not texts; not self-serving letters or briefs advancing and attacking positions. Rather, insist on counsel speaking directly with opposition counsel early and often. Those exchanges invariably improve understanding all around, expose and fill gaps in knowledge and produce occasional surprises of both the good and bad kind. The same information – good, bad and ugly – allows clients to reset expectations when recalibration is needed and to do so earlier. In turn, the settlement discussions to follow are more likely to succeed.
· Insist on counsel experienced and comfortable with that ongoing dialogue. Sad to say, but it’s not in everyone’s comfort zone, whether due to fear of having your wallet picked, or difficult personalities (which may be on either side).
Counsel:
· Fashion your proposal as a dual path approach that explores ADR options concurrently with a traditional litigation path. Litigators often hesitate to suggest ADR at the outset of a dispute, concerned that the suggestion imparts a lack of confidence in your litigation prospects. In fact, the reverse is true, but this may need to be explained to clients at the beginning – particularly clients who confuse early ADR efforts with splitting the baby in half or other hallmarks of capitulation. Properly framed and executed, early mediation is a strategic and cost-saving tool to sort out any significant factual misunderstandings – on your side as well as theirs – and to narrow the scope of any remaining dispute if the dispute does not resolve right away. As well, it is an opportunity to explore alternative outcomes that a court may not order and to do so before sunk costs or other factors remove those options from the negotiating table. Doing so early also saves significant time and costs in the litigation going forward, even if an early complete resolution is not immediately forthcoming. Time saved; money saved; sometimes people saved as well.
· Propose alternative resolution paths particularly when the client’s RFP seems to focus exclusively on a “win”. This may seem counterintuitive, but in many instances client decision-makers default too quickly to the assumption that a “win” is really important. When clients do so, they miss opportunities – sometimes forever – that they regret later, or worse, blame counsel for not suggesting them earlier. Taking this approach may not change the client’s mind or immediate course of action, but when it does, the conversation typically pays significant dividends in terms of client relations. And even when the early alternatives conversation doesn’t change the course of the dispute right away, most clients still appreciate counsel’s efforts to provide those alternatives. Concurrently, clients have more control over the eventual outcome and less reason to complain later when they pay for the fully litigated outcome.
· Prepare for a series of questions or concerns when you mention ADR at the outset of the dispute: “Have you lost faith? Isn’t it too early? Won’t the other side misread the suggestion as a sign of weakness? What makes you think the other side will be reasonable? Isn’t ADR expensive?” All good questions for which reasonable responses exist:
o No, we haven’t lost faith, but we should understand why the other side appears to see things differently. If they are mistaken, we can ideally correct their misimpressions, and doing so early will reduce our costs and theirs (which can otherwise work as a counterweight to a later settlement conversation). If by chance we learn anything new or different that changes our view, it is much better that we do so early on.
o No, it’s rarely too early. We can discuss some limited exchanges of information to facilitate an early settlement conversation, preserving our other (and costlier) options for later, if needed. Even if these early efforts do not produce a complete resolution, the early ADR effort should also help us pare down the scope of the dispute, saving time and money.
o No, suggesting mediation early shouldn’t be misread if we do it right, emphasizing why we believe in our position and why we believe a neutral should help all of us test our assumptions. If we are confident in our assessment, a mediator should see things similarly and can help the other side reset expectations.
o The other side may seem unreasonable, but with the help of a seasoned mediator, they may change their view and their position. Remember, the other side has a bias against us – it’s the nature of disputes. But a mediator isn’t tainted by such biases, and their input may be sufficient to reset expectations.
o ADR does have associated expenses, including thorough preparation and the cost of a qualified neutral. However, those costs are typically a small fraction of the cost of a fully litigated matter (without even factoring in the indirect costs of most disputes). If we settle sooner, the net savings should be substantial. Even if we do not fully settle near term, we should be able to pare down the dispute and recycle much of our work and preparation. Again, money and time saved.
Certainly, other factors can impact, shape or distort the process of handicapping realistic outcomes, including substantive legal expertise, malpractice concerns, inexperience with early ADR tools, law firm economics, etc. However, with more focus on these behavioral issues and pitfalls from the outset of any dispute matter, both counsel and clients are more likely to leave the rose-colored glasses behind and resolve their disputes sooner and more efficiently.
Mark LeHocky is a former litigator specializing in complex business disputes, a former general counsel to two public companies, and a full-time mediator affiliated with Judicate West. He also teaches Mediation Advocacy at the University of California, Davis’ School of Law. His profile is on www.marklehocky.com.
