Twin Cities Business Litigation Blog : Minneapolis Business Litigation Lawyer & Attorney : Gavin P. Craig Law Firm : St. Paul, Twin Cities, Minnesota MN

Clearly, parties can elect to negotiate through the litigation process. It happens everyday. But why would any reasonable person elect to use litigation as a negotiation method? Litigation is clearly much more expensive than just sitting across the table and negotiating. The reason parties are litigating is usually because they are already in a relationship. There is either a contract existing between the parties, or some other business relationship that makes one party feel that it has lost something of value by the actions of another party.

I think it is simplistic to just take the position that litigation is just another form of negotiation. I agree that it is, but it is also much more than that. There is an excellent post on the, "Settle It Now Negotiations Blog" that discusses this very point. In negotiations, each party can control the results. Each party can agree or not agree with any proposal. Each party can control whether there is an agreement or not. But once a case is filed in a court, the rules change: the parties lose control of the schedule, and to some extent the cost of the negotiations. If the parties fail to negotiate a settlement, they also lose control of the result.

I recommend the article in the Settle It Now Blog. The suggestion is an excellent one if the parties otherwise trust each other (which is unlikely) and have a desire to continue a business relationship. But, as the old saying goes, "It never hurts to ask!" Sometimes there are surprising results.

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Agreements to arbitrate disputes are either set forth in original agreements between parties, union agreements that bind parties, (from Employerslawyer) or after a dispute arises the parties elect to take their case to arbitration. In my experience it is hard to get litigating parties to agree about anything, so an agreement to arbitrate after the parties are already in litigation is less common.

The Employee Rights Post Blog posted an interesting article about whether a party is bound by an arbitration agreement in a related agreement never seen by one party. The answer was no! Both the Employers Lawyer and the Employee Rights blogs are worth reading.

Arbitration questions and issues cover much more than labor agreements.  But the decisions in the Employer/Employee area are helpful in understanding some of the arbitration issues.   

In my practice I see two major issues relation to arbitration. The first is that many form agreements contain arbitration provisions that neither party knows or cares about when they execute the agreements. The arbitration provision is just there, and the drafter either borrowed it from another contract years ago and never updated it, or the famous, "It's always been in the contract."

Sometimes these agreements create a hardship on one or both parties, or the language forces the parties (if one wants to arbitrate) into a process that is expensive, and ill suited to help resolve the case. One good thing about an arbitration provision is that the parties can mutually agree to ignore it. Nothing forces arbitration to happen, unless one party forces the issue by demanding arbitration or if necessary, bring a motion to compel.

Arbitration has a place in the civil justice system. Many cases are better suited to arbitration before a knowledgeable arbitrator, then litigation before a judge or jury that knows nothing about the area under dispute. Construction is an area where arbitration is common and there are a number of excellent arbitrators in most areas that have the experience to give a thoughtful decision.

When the parties agree that arbitration is a good way to finally resolve disputes, it is time to be creative. Other than the standard language submitting any and all disputes to final and binding arbitration, there are a number of issues that should be considered. For example:

1.  How many arbitrators. Unless the amount in dispute is significant I would avoid appointing more than one arbitrator. They are hard to schedule, and the cost more than triples.

2.  Place of arbitration. Some agreements are silent on place, some require a place that is very inconvenient for one of the parties. Neither is a good idea. Select a location that makes logical sense considering the parties and the subject of the arbitration.

3.  Who will be the arbitrator. The parties can select an arbitrator long before any dispute. It is usually harder to agree on an arbitrator after the parties are fighting.

4.  Time for arbitration. To avoid an unnecessarily protracted process, set some limits. If the dispute is under some agreed amount, require the arbitrator to complete the arbitration within a day (or some other time period) an divide the time available for each party to present its case. This is easier in lower dollar value cases, and the lower dollar cases are where this provision makes the most sense.

5.  Limitations on authority of the arbitrator. Arbitrators have a lot of authority - more than judges as far as fashioning remedies. What about the power to make awards that are equitable in nature? There was a very interesting case in Minnesota where a contractor did a very poor job building a structure. There were lots of problems with the construction. The arbitrators order the contractor to purchase the property from the plaintiff at a certain price. This award was upheld by the court. It was also a perfect remedy in this case.

6.  Do you want the arbitrator to have the power to order discovery? This is usually a cost issue.

When parties are going to draft an arbitration provision, they need to think through what they are trying to do. An arbitrator only has the power granted in the arbitration agreement. If you don't limit the arbitrators power, it is pretty much unlimited - absent as showing of fraud. So draft carefully.
 

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I spent as fair part of my career as an in-house corporate counsel for several large corporations. I don't regret that experience at all, and I watched as corporate executives made many (sometimes costly) errors in judgment despite counsel to do something different.

But when the need for outside counsel arose (usually to defend a lawsuit, but sometimes to get specialized advice about certain areas of the law) the business almost always hired a major law firm. Why? Larger law firms are expensive, and some have a tendency to load up cases with lawyers. (Assigning multiple lawyers to a case - thereby giving all the lawyers a case where they can charge their time. )

I once called a large (I wont mention the name) firm in Washington DC to ask if they had anyone in the firm that could handle a specialized international law question. I talked to a senior partner and he set up a telephone conference with some other senior people at the firm so I could ask them about their capabilities. We had a telephone conference that lasted about 45 minutes where I asked a number of questions.

We had not even made the decision about who to hire as counsel when, within a week, they sent me a bill for $3,500.00 for the telephone call. Their theory must have been that my company should pay for the time they took to convenience me that they could handle the matter I inquired about. I told them what they could do with their invoice, but the larger lesson is that large firms need to generate fees to stay alive. So they charge everything - regardless of how inappropriate it is. I probably don't even need to mention that we elected to give the work to another (smaller) firm.

Does the corporate client get more for their money? Do they get a better result that is worth the extra money? I truly doubt it. That is not to say that larger firms always overcharge or that teams of lawyers are never appropriate. There are some issues where, because of the complexity, there is a need to get several lawyers involved, or the resources of large firms are sometimes needed.

When I set up my practice I was able to handle both large and small cases. When necessary I teamed up with other lawyers. I enjoy cases where the opposing party hires a large law firm, because they generate lots of motions and bill for every minute. The opposing party sometimes gets real sticker shock when the first legal bills arrive. I try to wait until I am sure that the other party has received bills from the law firm before I will suggest settlement discussions.

The point of this post is not that all larger law firms are bad, but in my experience they are not a bargain for the corporate client either. I once saw a $6,000,000 problem resolved by another large DC firm and the legal bills were - yes, you guessed it - a little over $6,000,000.

I handle a lot of business and commercial disputes. Usually the client is a smaller firm or an individual. I think that I bill fairly for the work I do, and I don't need to feed a large overhead. Business owners should think about the cost of legal services and at least investigate other possibilities. My recommendation - interview different firms or lawyers and ask a lot of questions. It rarely pays to get the most expensive legal services when the matter does not justify the expense. It never hurts to ask a law firm how they bill and what can the client expect for the cost! And, it can be costly to react and not ask! It is also costly to assume that the larger the firm is better at handling the matter at hand. Big does not equate to better.
 

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Continuing the Conversation about Mediation and Settlements!

I was glad to see the conversation continue about settlement and process and the view from the perspective of the client. I have my own view point and I find myself agreeing with points made by both Max Kennerly at Litigation and Trial, and Victoria Pynchon at Settle It Now Negotiation Blog.

Why Do Cases Take so Long to Settle?

Max tells an all to accurate tale of a case where everyone knows there is liability, but they play around (another word for discovery) for a year without ever resolving anything until the trial is near. After the year the parties settle in a range the attorneys on both sides could have predicted at the very beginning.

Do the Clients Know what is Going On? Whose Money is it Anyway?

So why do parties allow their attorneys to go through the "dance" and keep a case going? My first theory is that the clients (except perhaps insurance company clients) don't know what is going on. The plaintiff usually doesn't. In a business dispute parties spend vast sums of money on discovery, finding and reviewing thousands of documents. Yet in the end there are usually fewer than 10 documents that matter and usually (not always) these are found relatively early.

My second theory is that it is easy to allow inefficient and non-productive litigation to continue if your using OPM (Other Peoples Money.) It could be the shareholders money, the insurance companies money or anyone's money except the decision maker. When parties are using their own money - the dynamics can change once they receive their first billing. This is just simple economics: Will the cost of continuing exceed the cost of the possible benefit?

When there is litigation between a couple small businesses, their attention to the matter increases with the cost. When the parties have vastly different economic resources there is usually the problem with one party trying to force the other, smaller, party to settle at unfavorable terms. When I am in this situation, the larger client always hires a large, very expensive firm to handle the matter. The larger firm puts a herd of lawyers on it, researches the simplest issues of law, and files several motions to try to get the case to go away. Sometimes it works; usually it does not. The client should realize that this was a bad strategy when the cost of defending or prosecution a case approaches or exceeds the amount at issue.

Should the Parties Meet During Mediation?

Victoria likes the idea of getting people in the same room. I have earlier expressed my skepticism of this approach, not because I don't think it would be helpful, but because the client many times refuses to meet with the other side. In every case there is an element of emotion, and when your dealing with smaller businesses or disenfranchised shareholders, there is a lot of emotion. By the time you're ready to try to get the matter resolved, the parties do not want to see the other side! They hate each other!

Will All Cases Settle?

In a word "No!" And sometimes cases just need to be tried because the parties have such vastly different understandings of the facts of the value of the case.

More Recommendations!

When a party is defending a case because of "principle," everyone loses. These are bad cases for everyone. In the end "principle" usually gives way to reality of the cost of continuing.

The Unicorn Settlement.

Both Max and Victoria discuss what they call the Unicorn Settlement, where - using the definition presented by Max - the parties have a dispute, meet, discuss and settle the dispute without resorting to litigation. For most business and commercial disputes this sounds like a good deal. However, in the real world in which we live, people don't think this way, and people are usually quick to launch a lawsuit and then try to force a settlement than just try to settle. As an attorney, it is hard for me to take anyone seriously unless they actually file a case. We have all seen many threats to sue, but no real action. I think clients view the matter the same way. As the lady said, "Where's the beef."

Conclusion:

If you know where a case should settle (a range) start talking with the other attorney. I do not subscribe to the theory that the first party to bring up the possibility of a settlement is somehow in a weaker position. There earlier you start the process the better for everyone - even if you don't settle. Sometimes it takes awhile after the initial discussions.

You can't force parties to meet if they don't want to meet. If they do, great; but if not, forcing the issues does not work.

I am a fan of mediation for one very simple reason. When Party agree to settle a matter, they make their own decisions. For better or worst, they control the result. Asking a third, uninterested person or jury to make a decision for the parties that could not make their own decision, does not always turn out for the best.

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I confess that I am a big fan of the mediation process. Many times mediation represents the last chance the parties have to make their own decision, and resolve the case. A third party, unrelated to the case or the parties, helps the parties move toward a resolution.

Most Minnesota state courts require the parties in a civil case to participate in some sort of alternative dispute resolution (ADR) process. The "alternative" in ADR mean that the parties try to resolve their dispute (the case) without going through a full trial. The parties agree to one of a variety of ADR methods. While the most common ADR methods are Mediation and Arbitration, there exists many variations of these two basic methods. Mediation can best be described as assisted negotiations.

The bottom line for me is that it is far better for parties to make their own decisions than let a third party (judge, jury or arbitrator) who knows nothing about the parties, and cares nothing about the results, to make the decision for the parties. If the parties can not agree on their own, then mediation is a good alternative. For in the end, the parties get to make the decisions to settle or not to settle.

In a trial a client can have truth and justice on their side, and still end up with a bad result. That is the nature of litigation. You've got a 50-50 chance to win ("It's a crap shoot,") I tell clients. Max Kennerly has an excellent post on this subject.  But in life, when others are allowed to make important decisions for you, sometimes you don't like the result. Does this mean a party should settle every claim against them no matter what? NO! Some cases need to be tried, and the system needs to be trusted.

I think if attorneys were clear with their client's about the litigation process, even more cases would be settled. When a client is "right," and the facts support the client, it is sometimes difficult to negotiate a settlement where the client does not receive everything they think they are entitled to. But being "right" that does not make settlement to wrong business decision.  

Victoria Pynchon's excellent blog, Settle It Now has a very thoughtful article about opponents in a case meeting and negotiating eye-to-eye. In other words, the suggestion is that in a mediation the opposing parties should not be separated. In my experience it is not the lawyers that don't want to meet face to face; it is the clients. I am often asked, "I wont have to see the other side will I?" So, I agree with the thesis of the post, but clients do not alway see the wisdom of this approach.

I will discuss arbitration in a later post.

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