When 'Winning' is the Expensive Solution (Legal Times)

Mon, Apr 16, 2007

Kathy Bryan

In my years directing litigation and acting as a legal counselor to Motorola, I often realized that lawyers and businesspeople tend to approach litigation and conflict differently. Once when I was telling a senior manager how much a lawsuit was going to cost if it proceeded to trial, he asked me, “Do you know how many thousands of semiconductors I have to make to cover that cost?”

To the manager, I was talking about taking away from the company’s profitability. Of course, I knew that we usually filed suits only as a last resort in egregious situations. Still, the business perspective is that litigation is a waste of money and internal resources, and it diverts critical attention away from the primary goals of business.

This kind of resistance turned out to be a good thing for me and for the company. It taught me to step back from the litigation strategy in the individual case and think in a larger sense about how litigation can affect business. Unfortunately, it can be too easy for the manager, in-house counsel, and law-firm advocate to become embroiled in the facts and legal arguments in the case and miss the bigger business picture—and, as a result, miss opportunities for earlier resolution. This bias toward advocacy is simply human nature.

Organizations should consciously counteract this bias. They must systematically pursue alternatives to litigation, even while continuing the litigation on a parallel path. This approach is not a sign of weakness. It’s a recognition of the stark reality that research has shown that about 98 percent of cases settle before trial. The timing of the settlement should be directly focused on avoiding the bulk of the legal costs, which tend to come during the heaviest part of the discovery process and when dispositive motions are filed.

At Motorola, in reviewing newly filed lawsuits, my outside lawyers frequently told me, “We have a great summary judgment motion. We just need to do a bit of discovery and file the motion before approaching settlement.” What actually happened next, however, was that the case was off to the races by the time settlement was seriously pursued. Although we always want more information before entering into serious settlement discussions, more information does not necessarily result in a better outcome for the business, even in complex cases.

We need to find a way to consider resolution earlier in the process. Or, better yet, to avoid the dispute in the first place. Negotiation and mediation should be evaluated and pursued in most cases. This “business approach” to conflict prevention should be actively promoted. Of course, not all cases benefit from an early effort at resolution. In some cases, one side has nothing to lose by proceeding to a trial, and in this situation, companies may very well want to gamble on a judge or jury decision.

TAKE A DEEP BREATH

How can managers convince their lawyers, both inside and outside, that settlement should be discussed early in the case,when emotions are running high and the perceived goal almost always is winning the case? Here are some general rules.

First, redefine the goals and articulate the broader business purpose. No one wants to lose, but the cost of a categorical “win” must be compared with a speedier, party-crafted resolution.

Second, focus on the benefits of a negotiated or mediated settlement that is not a loss or a “split the baby” result but one that puts the business in a better position, or at least restores it to its pre-suit status, and leaves the managers satisfied. I fail to understand why anyone would think they would reach a better result when a third party decides their fate.

Third, if at all possible, seek an agreement to stay formal discovery while the discussions proceed. This keeps the costs in check while the parties move along on a negotiated or mediated track.

STEP BY STEP

Beyond those general approaches, here are five systemic techniques that can create a culture that promotes early resolution and can overcome the tendency toward advocacy bias:

1. Plan for conflict. In the course of running any business, conflict is inevitable. Disputes will arise, and parties will have different views of the facts and of their rights. Instead of relying on litigation to sort things out, organizations should strive to be more savvy about conflict.

There are three primary characteristics of conflict-savvy companies. First, they actively use conflict-prevention and riskmanagement techniques and practices. For example, many companies in the construction industry have already identified best practices, such as using a dispute-prevention review board. The practices make it possible to avoid disputes entirely or resolve construction issues in a timely way before they wreck the project. They have been shown consistently to reduce the time, cost, and overall negative effect of disputes.

Second, these companies realize that the root cause of many disputes actually is a failure to communicate. We often think we are communicating, but we are not being candid or clear. We fail to check if we are being heard. And, most significant, we fail to listen. Instead, it’s all about our own position. We focus on what we want and what we think of the issues.

In doing so, we are focusing on our own position’s strength— to the exclusion of everyone else’s needs. A skilled mediator can help overcome communication issues and use techniques that open and clarify communications.

And third, these businesses spend time at the outset to develop the relationships needed to resolve conflicts in their early stages. Other cultures often are better than we are at this. In China, for example, parties spend significant time at the start of a deal to develop relationships and understand their partners. Consequently, they spend much less time involved in litigation later.

My motto is that time spent up front in relationships is pure investment in the long-term harmony of a deal.

2. Assess cases early. It is human nature to become involved in your perspective and entrenched in your views. The best way to counter the advocacy bias is to have checks and balances in the system that provide alternative perspectives at key points in the process.

Moreover, we seem to be better at increasing complexity than we are at using simple approaches that make a difference. We hire the best and the brightest lawyers to review the issues and provide profound analysis, which can then increase the complexity.

Instead, drill down to the issue’s essence early in the course of the dispute. Ask what is at stake in the matter without the emotion or advocacy. What does the business need? Write this down in simple terms. Consider how the goals might be achieved outside of the courtroom.

Trial lawyers often state, and juries consistently confirm, that there are only a few key themes in most complex cases. Those themes are defined by only a few documents and pieces of pivotal testimony. Develop each theme and the supporting evidence, but don’t be sidetracked by the mountains of additional information that are developed in cases. One manager I’ve worked with says that anything, no matter how complex, can be described in one page. I agree.

Using these skills and employing a formal early-case-assessment program will develop the clarity needed to find resolution opportunities. Most of these programs have the following elements:

• A set time for an evaluation early in the case (for example, 30 days after the complaint is filed)

• A written review of the case’s strengths and weaknesses

• A cost/benefit analysis that includes the cost to complete the case through trial

• An evaluation of the special circumstances that might apply in a particular matter, such as publicity, precedent, the importance of maintaining relationships, or timing considerations

• A strategy review with a dispassionate outsider to the conflict, such as the general counsel, head of litigation, or uninvolved business manager

• A feedback mechanism to give the business the benefit of “lessons learned” from the case and the resolution process.

The review’s outcome should be a commitment to pursue negotiation or mediation with a defined resolution strategy or, alternatively, a confirmation of the litigation strategy. Without a formal program, cases usually move too quickly and early settlement opportunities are gone.

3. Use empathy and the power of apology. This certainly isn’t appropriate in all cases. But research has shown that empathy and apology have incredible power to alter entrenched positions.

Lawyers often discount the emotional side of a case and prefer to focus on objective facts. Still, unforeseen possibilities can be created when emotional aspects are respected. For example, a completely intractable plaintiff in a hotly contested case will become willing to listen to a new proposal after his position has been recognized in a joint mediation session. I’ve seen it work.

4. Realize that dispute-resolution clauses aren’t boring— they’re essential. Educate business managers and lawyers about the importance of thinking through the key aspects of a dispute resolution clause early in the negotiation of a transaction. When the clause is left to the end of the negotiation and the request goes out as an afterthought, a valuable resolution opportunity may be lost. I recommend a multistep clause—negotiation, mediation, and then arbitration or litigation—that includes a defined time frame meeting the business objectives. Take the lead with the business to analyze the timing, forum, choice of law, and other variables that can be committed to a deal’s dispute-resolution clause—and particularly whether arbitration or litigation should follow mediation.

5. Consider separate settlement counsel. This technique is rarely used, ostensibly because of the cost of this “dual track.” But a skilled settlement counsel can create options that litigation- track lawyers cannot. In a particularly difficult toxic-tort class action, Motorola employed settlement counsel who provided insights and kept the lines of communication open at times when no one else was talking to one another. With the high cost of discovery today, an agreement to use settlement counsel at the outset of some cases, particularly if the suit is stayed, has tremendous cost-saving potential.

A business or legal department that employs these techniques will uncover the possibilities for negotiated and mediated settlements at the earliest possible opportunities. That makes good business sense.


Kathy Bryan is president and CEO of the International Institute for Conflict Prevention and Resolution in New York.


She was formerly the head of litigation and a legal counselor for Motorola, Inc. She can be contacted at www.cpradr.org.

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