Early Resolution of Claims Using Settlement Counsel

Transcription

1 Early Resolution of Claims Using Settlement Counsel Presentation to the Western Pennsylvania Chapter of the Association of Corporate Counsel Pittsburgh, PA May 6, 2014 Keith E. Whitson Schnader Harrison Segal & Lewis LLP 2700 Fifth Avenue Place 120 Fifth Avenue Pittsburgh, PA (412)

2 Keith E. Whitson Mr. Whitson is a partner with Schnader Harrison Segal & Lewis LLP, resident in its Pittsburgh office. Mr. Whitson is Administrative Partner of the Firm s Pittsburgh Office, and Chair of the Firm s Product Liability Practice Group. His practice focuses on general commercial litigation, product liability litigation, mediation and alternative dispute resolution, and appellate advocacy. He has more than twenty years of experience representing manufacturers, suppliers/ distributors, product owners and premises owners in litigation nationally, and is licensed to practice in New York, Ohio and West Virginia as well as Pennsylvania. He is the sole recipient of the 2014 Client Choice Award for Product Liability in Pennsylvania. Mr. Whitson also is very active in his Firm s pro bono efforts and serves on the Firm s Pro Bono Committee. He participates in several pro bono programs through the Allegheny County Bar Association and the Pittsburgh Pro Bono Partnership. He is a trained mediator and has counseled many clients on effective mechanisms for early resolution of claims. In 2012, he authored a chapter in Aspatore s Inside the Minds: Settling Product Liability Claims, which focused on early resolution of such claims. He is a member of his Firm s Alternative Dispute Resolution Practice Group. Schnader is committed to finding innovative ways to reach optimal results for its clients, and is an active member of the CPR Institute for Dispute Resolution. 2

3 Early Resolution of Claims Using Settlement Counsel Keith E. Whitson Schnader Harrison Segal & Lewis LLP Litigation is expensive. Most civil cases settle only after parties have invested a significant amount of time and money in litigation. Using settlement counsel dramatically increases the possibility of settling your case early, thus saving substantial litigation fees and expenses. Studies also suggest that these procedures result in reduced settlement amounts as well. This presentation analyzes the psychological barriers to settlement, the role of settlement counsel, and how the use of settlement counsel can save you money and provide other benefits. A. Why don t cases settle earlier? result: Currently, early settlement is exceedingly rare. A number of factors contribute to this 1. Lack of communication between adverse parties. Most parties feel as though they need more information before they can adequately evaluate a case for settlement. How can a party evaluate its potential liability, including potential defenses, if its opponent does not articulate its legal theory? How can a party assess its opponent s potential damages without information about the opponent s injury or its alleged consequential damages? Without such information, parties feel as though they have insufficient information with which to make a decision, and are afraid of over-paying. At the same time, parties are hesitant to give their adversary information. Disclosing information cannot help a party s own position, but has the potential to strengthen the adversary s position. Worse yet, in certain situations, too much disclosure could result in an unintended admission of liability or of some crucial fact. For these reasons, parties typically refrain from sharing information. 3

4 Without communication, parties don t get the information they need. And without that information, there is a natural reluctance to settle early. 2. Psychological factors This lack of communication also feeds emotional barriers to settlement. Parties get angry at each other, mistrust develops and misinterpretations ensue. A number of other psychological factors come into play that will be discussed below. As a result of these impulses, parties dig in their heels. The filing of a legal complaint entrenches positions even further. 3. Difficulty crossing the line between advocate and counseler? Some suggest that litigators have difficulty looking for an interest-based solution while at the same time being a zealous advocate. Uncovering early settlement opportunities is not inconsistent with zealous advocacy; to the contrary, it sometimes is the best way to provide a good result for the client. However, finding those opportunities and knowing how to address them requires certain skills that typically are not associated with trial advocacy. Many litigators are not trained to address these issues. 4. No mechanism in place. Finally and importantly, there is no established procedure in place for resolving cases prior to litigation. Most courts, including the United States District Court for the Western District of Pennsylvania, have an ADR program, and many such programs require mediation or some other form of ADR early in the process. But these court programs only apply after the jurisdiction of the Court is invoked by filing a complaint. By that time, the best opportunity to settle a case sometimes is long gone. Further, by that time, significant legal expenses may already have been incurred. B. Concept of Settlement Counsel Settlement counsel is a concept designed to address these issues. It provides a mechanism early in the process, involving someone trained in negotiation and mediation and 4

5 who is solely focused on settling the dispute, opening the lines of communication, preventing the psychological barriers to settlement from taking hold, and uncovering opportunities for early resolution. 1. What is Settlement Counsel? Someone who is both an experienced litigator and trained as a negotiator or mediator. His/her sole goal is to negotiate an early resolution of the dispute, primarily using an interestbased approach. Interest-based negotiating means focusing not on who is at fault, but what interests can be advanced. This type of negotiation focuses not on the adversary s position, but rather on the values, desires, fears and concerns that are motivating the adversary and which stand behind his/her position. By approaching the problem in this way, and not focusing on the parties positions, settlement counsel typically eliminates or reduces adversarial bargaining, thereby reducing other psychological barriers. An interest-based approach is not always the answer. Generally, it helps get past parties outward positions and opens up avenues for settlement, but Settlement Counsel who is trained in these techniques and the psychological barriers to settlement will know when to use these techniques and when to approach the dispute in a different manner. Settlement Counsel is not litigation counsel, and in fact, typically is disqualified from representing the company in litigation for the same dispute. This disqualification demonstrates a commitment both from the company and from Settlement Counsel to the process, and provides some assurance to the adversary that the company is not just using this program to get information from the other party. 2. What does Settlement Counsel do? a. First, Settlement Counsel gathers information available from the client and develops a strategy for the best approach to the adversary. This could involve speaking with witnesses, reviewing certain documents and making a general assessment from the information available. 5

6 b. Settlement Counsel then opens a dialogue with the adversary. Settlement Counsel tries to determine the source of the dispute, identifies the adversary s interests and identifies the reason why the adversary is taking his position. c. Settlement Counsel overcomes or ameliorates the emotional or psychological barriers to settlement. Merely communicating with the adversary can reverse the growing feelings of distrust. Expressing an interest in him, sometimes expressing sympathy and letting him know that the company wants to be fair are other mechanisms that will minimize anger and attribution bias. Sometimes the Settlement Counsel will convey information (explaining why something happened, explaining how the company misunderstood or how the adversary misunderstood, or in appropriate cases, explaining what the company is doing to prevent similar occurrences or situations, provide assurances, etc.) d. While addressing these potential barriers, Settlement Counsel looks for potential solutions based on the interests he has been able to uncover. Is it just recognition the employee wants? Is the adversary nervous that the company won t agree to a longterm supply agreement, and therefore, fears a loss of business? Does an injured individual want to make sure that the company is taking responsibility and ensuring others don t get hurt in the same way? By identifying these hidden interests, openings for potential settlement will appear. e. At the same time, by opening lines of communication and gathering information, Settlement Counsel can provide a thorough risk analysis early in the process. This analysis provides much better information than otherwise available, so that appropriate reserves can be set. And if settlement ultimately is not achieved, written findings can be handed off to litigation counsel so that the company is better prepared going forward. Settlement Counsel can accomplish these goals because he gets in early, knows how to deal with the potential barriers to settlement, and can break them down before those barriers take hold. Further, he has a better chance of opening lines of communication with the adversary because he has no interest in the litigation. His sole goal is to try to settle the case; if the case doesn t settle, 6

7 he goes away and the adversary can then deal with litigation counsel. It is easier for the adversary to buy-in to the process because Settlement Counsel is a step-removed from the client. C. Some Common Psychological Factors in Dispute Resolution Emotions are as important as facts in creating and sustaining conflict. In order to resolve a conflict, these emotions typically must be addressed. A party s emotions can relate to the underlying event, but also can relate to subjective beliefs about how the other side acted, how the litigation is being handled, pressure from family members or close advisors, the party s immediate needs such as financial insecurity, and other causes. Mediators are trained to address these emotions. Mediators are taught how to actively listen, and to convey to each party that their interests and positions have been heard and understood, even if not accepted. They know how to create a dialogue with each party, to allow a party to vent when necessary, and to get each party to focus on their own interests when emotions stand in the way. Settlement counsel can use these same techniques much earlier, at a time when emotions have not yet taken over the process. Settlement counsel can open a dialogue, correct misimpressions, express regret or sympathy, allow an adversary to vent, promise to exchange information, or simply demonstrate an interest in the individual. These and other acts allow settlement counsel to ameliorate anger and distrust with the company, and instead, develop a certain level of trust or rapport between the adversary and settlement counsel. As a result, settlement counsel has the opportunity to overcome a number of psychological hurdles to settlement. Emotional factors are not limited to cases involving individuals as parties. To the contrary, individual decision-makers in corporations are subject to many of the same emotions and psychological constructs. Following are some of the common psychological factors that impact dispute resolution. 7

8 1. Selective Perception. People tend to see things in a way that supports their predispositions. This phenomenon, known as selective perception, is well-established in the psychological literature. The longer a party has to form opinions about her adversary s actions or intent, the more difficult it is to overcome this barrier. Moreover, advocacy aggravates this phenomenon. Negotiation, therefore, can increase this problem if done in an adversarial context. The best way to address selective perception is to get in early, before the adversary forms opinions about the company, or at least before those opinions become hardened. Settlement counsel has the opportunity to get in early because he is hired as soon as the dispute arises (and well before litigation). He can open a dialogue with the adversary, correct misimpressions and ensure that information is passed along to her (which will tend to make the adversary s conclusions more objective). Because settlement counsel is not interested in the litigation, the adversary is more likely to listen to him. And because he is less adversarial than typical litigators, his involvement will not aggravate selective perception. 2. Anchoring. Anchoring is the tendency to stick with one s initial estimate. People form an early opinion about what is right, or about an appropriate value, and this becomes the person s initial benchmark against which they compare later proposals. Once this benchmark is set, it is difficult to convince the person that the benchmark is incorrect or unreasonable. This initial benchmark also can form part of the basis for selective perception. As with selective perception, the best way to address anchoring is to get in early before the initial benchmark is firmly grounded. Alternatively, it can be useful to recharacterize the issue or suggest new terms in order to avoid a direct comparison with the benchmark. Settlement counsel is in the best position to get in early and at the same time suggest a certain level of neutrality. Settlement counsel also is trained to reframe issues to avoid anchoring, and to introduce alternative benchmarks that can counteract the effect of the original benchmark. 8

9 3. Reactive Devaluation. Distrust of the source results in a discounting or devaluing of anything that source proposes. No matter how reasonable a proposal may be, if it emanates from an adversary, individuals typically assume the proposal is advantageous to the offeror and disadvantageous to the offeree. For this reason, proposals made through a mediator often are viewed more favorably. Settlement counsel has a degree of separation from his client so that his proposals more closely resemble a mediator s proposal. Also like a mediator, settlement counsel can make hypothetical offers. Settlement counsel also can offer information or documentation to demonstrate the reasonableness of his proposals. 4. Attribution bias. The same conduct will be viewed differently depending on the actor. People attribute external, situational causes to their own conduct, and internal or dispositional causes to their adversary s conduct. Attribution bias feeds on itself; attributions previously made provide the basis for additional, stronger attributions for subsequent conduct. Settlement counsel has the best chance of altering an adversary s view of the company s conduct, and thus preventing attribution bias from becoming an insurmountable barrier to settlement. Settlement counsel gets in early before the cycle gets out of hand. He shows concern for the adversary, shares information and explains the reasons for the company s actions. He can also shift the conversation away from blame or legal liability. When appropriate, settlement counsel also can point out inconsistencies between the adversary s view of her own conduct and that of the company. 5. Adversarial bias. There is an inherent need to be right in a dispute. Interest-based negotiations are designed to avoid a battle over who is right or who is legally liable; instead, the parties focus on their respective interests. Mediators have utilized this type of negotiating for many years, and settlement counsel are trained to use these same techniques. Further, as someone who is not interested in the litigation, settlement counsel is viewed as less adversarial than the company itself. 9

10 D. Using Settlement Counsel Saves Money 1. Reduced litigation fees The whole process is set up to encourage early resolution, saving litigation fees. Hypothetical case: basic product liability or breach of contract case where litigation expenses would be $100,000 up through the first day of trial (when settlements often occur). Estimated cost of settlement counsel = $10,000. If the hypothetical case is the company s only litigation matter, the ultimate savings will depend on whether settlement counsel successfully resolves that single case. If so, the company has a net savings of $90,000. If not, the company arguably increased its cost by $10,000. (In fact, however, without settlement counsel, litigation counsel would have been required to duplicate the investigation and negotiation later in the process. Therefore, it could be argued that there is no added cost at all). If the company has an inventory of cases, the amount of savings increases dramatically and is not dependent on the settlement of any one case. Assuming ten of the above hypothetical cases, the total litigation cost would be $1 million (10 x $10,000), and the total amount paid for settlement counsel would be $100,000 (10 x $10,000). If just one of those ten cases settles, the company will have saved $100,000 (litigation costs associated with one case), and therefore, settlement counsel will have paid for himself. If half of the cases settle, the company will have saved $400,000, almost half of its litigation budget. With an inventory of cases, the use of settlement-counsel is a low-risk proposition. Even settling a few cases early can result in savings, and potentially significant savings. Further, as the cases get more complex and involve higher attorneys fees, the potential savings increase dramatically. 2. Better resolution Studies show that mechanisms for early resolution not only save litigation costs, but also result in better overall settlements. For example, the VA Hospital in Lexington, Kentucky instituted a program to address proactively potential claims of medical negligence. The hospital advised patients when a mistake was discovered, apologized for the mistake, and explained how 10

11 it was proposing to resolve the issue. The hospital still had claims associated with some of these mistakes. However, for the period of the study, the hospital reported 170 settlements and only 3 trials. The average settlement was approximately $16,000. In contrast, a study of federal malpractice cases from that same time period found a medium award of $463,000. In addition, the hospital reported saving an average of $250,000 per case in litigation costs. With a similar system, the University of Michigan Health System reported tremendous savings in litigation costs as well as reaching a settlement that was better than we had expected just because we saved the plaintiffs time and money by cooling the adversarial nature of the claim and moving with integrity to deal with it. 3. Other savings Even if settlement is not achieved in a particular case, the use of settlement counsel may result in decreased litigation costs down the road. First, litigation counsel will have the benefit of a written report of the investigation and analysis to help guide the litigation. Second, the informal exchange of information can help streamline discovery and cut down on costs. E. Other Benefits The primary benefit of using settlement counsel is the increased likelihood of resolving cases early, and the associated savings both in litigation costs and in the amount of any settlement. Other benefits include the following: 1. Help preserve/repair relationships. This is especially important if the dispute is with an employee or business partner. 2. Early fact gathering provides a timely and more complete risk assessment, enabling the company to set appropriate reserves and plan. In addition, an assessment by settlement counsel is more objective because she is not trying to win the case and is not subject to adversarial bias. 11

12 3. Written work product from the investigation that can be handed off to litigation counsel, including complete risk analysis and summaries of any witness statements taken or research completed. 4. Potential witness as to good faith efforts. Where an adversary argues that company mistreats its employees, customers or business partners, and is only interested in a profit, the company has a potential witness to explain that it reached out to the interested party, shared information and made sincere efforts to reach a resolution. A corporate policy that tries to address potential claims proactively is useful particularly when defending against claims for punitive damages. 5. Free up litigation counsel. Especially in catastrophic cases, it may be useful to have litigation counsel fully focused on building the case, and have settlement counsel separately negotiate. F. Objections to Use of Settlement Counsel Some are reluctant to use settlement counsel because it involves an additional cost. While there is some modest cost associated with this mechanism, as explained above, litigation counsel would otherwise take many of the same steps anyway. Therefore, rather than an additional cost, it may simply be moving some of that cost earlier in the process. In addition, the use of settlement counsel can actually reduce costs, even in those cases where early settlement is not achieved. If the settlement counsel can get the parties focused on important issues, the litigation could be streamlined. Through informal document exchange, the volume of formal discovery can be reduced. Early settlement discussions also could set the stage for more cooperation during the litigation, which itself will decrease unnecessary battles. Some have pointed out that use of settlement counsel increases the number of outside lawyers that a company must oversee. While this is true, these are tasks that would otherwise be performed by litigation counsel and which would need supervision in any event. Therefore, there is no added burden to in-house counsel. 12

13 Some have asked whether in-house counsel can serve the role of settlement counsel. Assuming that in-house counsel has appropriate training in these techniques, the answer is yes, with limitations. As explained above, the ability to address the psychological barriers to settlement is an important component to the role of settlement counsel. Assuming someone on the in-house team feels comfortable with these issues and how to resolve them, that person can act as settlement counsel. However, there are limitations when in-house counsel acts as settlement counsel. First, it is critical that the adversary buy in to the process and develop a certain level of trust with the person acting as settlement counsel. When settlement counsel has a degree of independence and separation from the client, and has no interest in any potential litigation, the adversary is much more likely to develop this trust and buy-in to the system. Second, without that degree of independence, it is much more difficult to overcome some of the psychological barriers described above. For example, when settlement counsel is an officer or employee of the company, attribution bias against that person s statements will be much stronger and more difficult to resolve. It is for these reasons that most commentators recommend that settlement counsel be disqualified from representing the company in litigation. Some suggest that there can be a tension between settlement counsel and litigation counsel. This concern, however, is likely overblown. Both counsel have different spheres of responsibility. While settlement counsel can offer suggestions, litigation counsel and the company control the litigation. It is possible that litigation counsel may resist some of settlement counsel s recommendations in seeking to resolve the case, but in-house counsel is fully capable of weighing both sides and making a decision, and this should not result in tension between professionals. Some believe that engagement of settlement counsel is a signal of weakness. With more emphasis on ADR, this opinion is less prevalent today. In any event, if a company has a business policy or standard practice of using settlement counsel in a particular type of dispute, then the program has nothing to do with the merits of any particular case. Such a practice provides legitimacy to the program, and greatly diminishes any concern that use of settlement 13

14 counsel is a reflection of the company s views on the merits of the dispute. In fact, settlement counsel can be utilized in conjunction with, or at the same time, as litigation preparation. Keith E. Whitson Schnader Harrison Segal & Lewis LLP 120 Fifth Avenue, Suite 2700 Pittsburgh, PA (412) kwhitson@schnader.com 14