Friday, March 18, 2011

Escalation

What a shame, I told the participants in a mediation recently, that you people did not call me when this controversy started as a small, almost neighborly dispute, instead of waiting until it snowballed into a giant lawsuit. In this case, the plaintiff's claimed damages had greatly escalated due to the delay in resolving the problem. That can happen in real estate or personal property disputes where a property might sit vacant or in deteriorating condition for a long time, and it can also happen in contractual disputes where the harm to one or both parties' businesses increases by virtue of the continuance of controversy. It can happen in employment litigation when a party's focus on the injustices of the past interferes with their prospects of becoming obtaining a job in the present.

Another thing that can make cases snowball out of control is attorneys' fees. In this country we are not accustomed to worrying about the other sides' attorneys' fees, because the general American rule is that each party bears their own fees. Cases in which either a statute or contract provide for attorneys' fees, however, require a different calculation. In those cases, the amount of fees can often dwarf the amount in controversy, and the claim for attorneys' fees often becomes the tail that wags the dog of the whole dispute. Another way to think of the difference is like this: if the lawsuit does not allow for attorneys' fees, the money the parties have to pay their attorneys is a sunk cost they will never recover.  But if attorneys' fees are recoverable, the case is more like a poker game, in which all the money spent on attorneys gets added to the pot the winner may recover (except that the judge, with even more power than the casino, may entirely disallow, reallocate or reduce those potential winnings).

Both factors were present in the case I'm thinking about. Deteriorating property, and accelerating attorneys' fees. Do people think about those factors at the outset of a controversy? In my experience, not sufficiently. If they did, they would put a lot more effort into resolving a dispute before it can even turn into a lawsuit, instead of making threats, charges and counter-charges, that can easily turn a relatively small problem into a gigantic problem. In such cases, the usual calculation that the cost of litigation might finally make the other side throw in the towel does not always hold. Instead, driving up the cost of resolving the case might make the other side consider it more and more worthwhile to continue to litigate, in hopes of recovering the attorneys' fees pot of gold at the end of the rainbow.  Litigants and their attorneys are motivated to keep fighting to obtain ever-increasing rewards, at the same time viewing the considerable time and effort they have devoted to the case so far as an investment they have difficulty abandoning. Nobody likes the idea of cutting their losses.

When a case spirals out of control, and people are finally forced into a mediation to attempt to resolve it, there are a few things a mediator can do. One is to warn the parties that if they don't resolve the dispute at this stage, it is only going to spiral out of control even more. An escalating controversy may present the prospect of increasing rewards, but it also presents increasing risks. Another way to de-escalate a conflict is to try to help the parties remember the relatively small problem that started the whole mess, rather than all the things that have happened since the dispute started that have exacerbated the problem. Yet another approach is to ask parties to put aside their arguments about who is right and wrong in the dispute, and focus on trying to maximize the value of the deteriorating asset. The main thing is to help parties realize that by continuing to litigate the dispute, they may only be creating a bigger and bigger hole for themselves, from which it is only going to get harder and harder to escape, and it is time to stop digging.

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