Friday, April 22, 2011

Risk in Litigation

I have nothing substantive to add about the ups and downs of seven years of litigation in the Barbie vs. Bratz doll wars case. I'm not going to do an analysis of the legal issues in the case, even though they are somewhat interesting. All I want to do is remind people that this is the sort of thing that happens in litigation. Mattel won a $100 million judgment against its rival MGA a couple of years ago. That judgment was reversed last year, and in a new trial, MGA this week won an $89 million jury verdict against Mattel. In the same case.

Was it worth it? MGA may have won the case (of course it's not over yet), but its brand may no longer be viable. Mattel shut down a competitor for a while, but may have to pay them more than the value to Mattel of doing that. The parties have already spent many millions of dollars litigating this case. If both sides had the option of doing the whole thing again, I have a feeling they both might decide to just not even bother.

Parties to litigation, and their attorneys, should be reminded that results in any seriously contested case are a lot more difficult to predict than most of us care to admit. Here we had top notch trial attorneys on both sides. How well could they predict the outcome? Seemingly not very well. And how much can hiring the best trial attorney you can afford help in preventing loss, or insuring victory? The great trial lawyer Edward Bennett Williams guessed that hiring the best trial attorney in the world (him) might improve your odds in a case that could go either way, from 5 in 10 to something like 6 in 10. I think most experienced trial attorneys have enough humility to recognize that they cannot guarantee a victory in any case. Most have snatched victory from the jaws of defeat, and vice versa. Most have seen cases reversed on appeal, and most have seen trials come out differently, either for or against, than they expected. I have certainly seen all that, and in both directions. I used to think that the most valuable service I could perform for clients was to predict the results of taking a case to court. Now I lean more towards the view that the most valuable service I can perform as an attorney, is to remind clients of the costs and risks of continuing to litigate. In a case like the Barbie v. Bratz marathon, one hopes the parties would have the opportunity to understand that each of them might win $100 million or lose $100 million, and it is difficult to predict which outcome is more likely. Plus each side faced the certainty of enormous legal bills, thousands of hours of distraction, and untold damage to each company's business. Parties need to compare those prospects to the deal that is on the table, and then make an informed decision about whether litigation presents a more attractive alternative.

I have nothing against trials. In fact, I love trials, and I'd like to do more of them. But people need to understand the risks and costs involved. I tell parties in mediations that I conduct, that if they still want to litigate after they have a full appreciation of the costs and risks, then God bless you. That is what the courthouse is for. Just don't walk into that casino unless you can afford to lose your stake and then some.

Monday, April 18, 2011

How to win an argument

I spent the day Sunday watching and judging high school debate, a great opportunity to observe what works and what does not work in argument. In one of the debates, on the proposition that convicted drunk drivers should be required to display special license plates, the opposing team argued that breathalyzer-interlock devices are more effective than drunk driver license plates. In response the proposition team made the mistake of trying to shoot down the interlock idea: interlock devices are too expensive, they do not alert the police and other drivers to possibly dangerous drivers, etc. They fell into the trap of thinking that because they had to prove that their idea is good, it follows that they had to prove that the other side's idea is bad. If the proposition team had simply said that they welcome other approaches to dealing with the problem of drunk drivers, but that we should still adopt their license plate idea as one available tool for reducing drunk driving, they could have won the debate.

A mistake we often make when we are trying to win an argument comes from reacting negatively to everything the other side is suggesting. (See my previous post on knee jerk responses.)  We sometimes forget that we don't always have to defeat the other side's suggestion to prevail with our own. Often it is more effective to respond positively to the other side's ideas and try to find a way to accommodate them. Of course there are times when we need to prove that the other side has their facts wrong, or that they are asking for more than they are entitled to, but that doesn't mean you have to fall into the trap of disagreeing with or trying to disprove every single thing the other side is saying. Sometimes you are more likely to carry the day if you agree with some of the other side's points, or at least express interest in their ideas, and explore where they might lead.

In mediation, parties have a hard time resolving conflicts if they spend all their time trying to win by making the other side lose. Instead they should try to display openness to the other side's position, and look for ways to transcend the subject of the original dispute. Mediation works by building on areas of agreement, more than by arguing about areas of disagreement. Parties sometimes need to move beyond the subject at which they are at odds, and focus instead on areas of common interest. Below is a video illustrating how to win an argument by transforming the topic, the great ice cream debate from the movie, Thank You for Smoking. As the protagonist points out in the movie, this technique might even be more effective in persuading a third party of the merits of your idea, than in persuading the other side. That means that what I am talking about is not only a useful approach in mediation, because it breaks the cycle of an endless, unwinnable argument, but it can also work in a more traditional adversarial setting as well.



For an illustration of how NOT to argue, go to this classic clip from Monty Python demonstrating just how pointless it is simply to contradict everything the other side says.

Tuesday, April 12, 2011

Condoning fraud?

Even if there hadn't been a movie making this whole story famous, those of us concerned with the law and mediation might still follow the saga of the lawsuit between Mark Zuckerberg and the Winklevosses with interest.  Yesterday the twins were dealt a setback in their efforts to overturn a settlement they claim was fraudulently induced. Here is the Ninth Circuit opinion's description of that settlement agreement:
Affter a day of negotiations, ConnectU, Facebook and the Winklevosses signed a handwritten, one-and-a-third page “Term Sheet & Settlement Agreement” (the Settlement Agreement). The Winklevosses agreed to give up ConnectU in exchange for cash and a piece of Facebook. The parties stipulated that the Settlement Agreement was “confidential,” “binding” and “may be submitted into evidence to enforce [it].” The Settlement Agreement also purported to end all disputes between the parties.
People might be surprised to learn that this sort of thing happens in mediation. Even in a dispute worth tens of millions of dollars, the parties sometimes conclude a day of mediation with nothing but a hastily-prepared handwritten term sheet, leaving a number of items open for future clarification, and contemplating a further long form agreement.  They do that because they do not want to leave the table without some documentation of the deal, otherwise the deal might fall apart. But they don't have time to think about all the details required to finish a complete agreement. In this case, where the parties scrawled out a document that was labeled both a term sheet and a settlement agreement, and that said it was both confidential as well as admissible in evidence, the agreement seems to express contradictory purposes. What happens when the parties sign such a flawed document, and never sign the final agreement they were contemplating? Two questions were decided by the panel in the Winklevoss v. Facebook case. (1) Was the handwritten agreement definite enough to be enforceable? and (2) Does the parties' agreement to maintain mediation confidentiality bar a claim to set the agreement aside based on alleged fraudulent inducement?  The panel answered "yes" to both questions.

Mediation participants, and mediators, sometimes worry whether the agreements they commit to paper after a long day of negotiation will contain enough of the necessary verbiage to make them enforceable. (See my previous post on that topic.) This case illustrates a variant of that concern. Here the parties signed a document that was sufficiently vague that at least one of the parties thought (perhaps only in hindsight) that it should not be enforceable if the parties never completed a more detailed agreement. This problem is not confined to mediation. Here in Hollywood, players are used to making handshake deals, or sending quick letters confirming their participation in large projects. These short form deals omit many important points, and do not always make clear what happens if the parties fail to sign a fully-detailed, heavily-lawyered document. Both in that context, therefore, as well as the mediation context, it is a good practice to specify what happens in that event. It is not difficult to include a sentence that says that if the parties fail to complete a long form agreement, the term sheet either is, or is not, intended to be binding. (It might be enough to just label it as either a binding agreement, or as a non-binding term sheet.) There is really no excuse for not covering that point in even the briefest of documents. Parties should understand that if there is language expressing the intent that the document is intended as a binding settlement, then it probably will be held binding even if the parties fail to complete a longer agreement, and even if the term sheet has holes and ambiguities in it.

Another point mediation participants should understand, as is also illustrated by this case, is that mediation confidentiality can preclude evidence of all kinds of alleged wrongdoing that may have occurred in the context of a mediation session. The Cassel case, discussed in a previous post, shows that even claims against a party's own attorneys may be barred by mediation confidentiality. (In that state court case, it was a strict state statute that barred evidence of alleged attorney misconduct, while interestingly in this federal case, it was the parties' mediation agreement that precluded evidence of the alleged fraud.) This case, which I don't think raises quite the same troublesome questions as Cassel, holds that because of mediation confidentiality, parties may not use evidence of anything said in the course of a mediation to overturn the agreement itself. That result is not as troublesome, because it is based on a rule, similar to the parol evidence rule, that may apply in other contexts as well. And also because parties should understand that they always have the option not to close, and that if they do sign a binding agreement at the mediation, then the agreement is all they have. That means that if somebody lied to the Winklevosses to induce them to accept shares in Facebook in settlement of their claims, whether their own attorneys or their adversaries, it is tough luck for them, but they should have been aware of that.

The court is not too sympathetic to the Winklevoss twins, given their ability to obtain expert counsel and perform their own due diligence, and given the court's evident feeling that the value of the settlement may have turned out to be better than they should have expected even if allegedly crucial information had not been withheld. In other cases, however, enforcing mediation confidentiality may prevent less sophisticated parties from obtaining redress for fraud or other trickery in the course of mediation. Parties therefore may have to approach mediation as they would a game of poker. They may need to understand that the law of the jungle applies in mediation, even more so than in court, or in transactions out of court. That means you should be cautious about taking anything the other side says at face value. You may have no recourse if someone lies to you. People can bluff, and they can hide material facts. (Parties can lie and cheat in court also, but there is a record of it, and a right to appeal.) If we apply the principle of mediation confidentiality strictly, parties have little protection against fraud or abuse. That means that if you walk out of mediation without a deal, then no harm, no foul. And if you walk out of mediation with a deal, the deal is all you have. Your complaints about the process will not get you far in court. That is why, as I've argued previously, mediators should take some time and trouble to make sure the parties understand and are satisfied with whatever result they obtain in mediation.

(AFP/Getty image from Forbes website)

Monday, April 11, 2011

Neutrality

I will admit that I am not entirely comfortable with the idea of the mediator as a neutral. I prefer to think of the mediator as an advocate for each side in turn. Sometimes I feel that my role is to coach each side into negotiating the best deal they can get. Sometimes I try to persuade each side of the strengths of the other side's position. And sometimes I act as the advocate for agreement as opposed to the drawbacks of continued conflict. In none of these roles do I feel strictly neutral.

I also think parties need not choose a mediator who is strictly neutral in the sense of having no connections to either party, or in terms of having a more defense-oriented or plaintiff-oriented background. Parties might even prefer a mediator who seems disposed toward the other side's point of view because the other side is more likely to listen to that mediator.  The important thing is that the parties--and the mediator--are aware of potential biases, because it may not be possible to avoid them. The mediator needs to persuade each side that he can be effective despite, or perhaps even because of, his own biases.

If the mediator cannot do that, lack of neutrality can be fatal to the success of a mediation. Witness what happened in Libya this week. A delegation from the African Union, including several heads of state, went first to Tripoli where they appeared to have persuaded Qadaffi to agree to a cease-fire and a road map toward a more democratic government. Then they traveled to Benghazi, where the rebels immediately rejected the deal, stating that no agreement in which Qadaffi remains in power would be acceptable. One reason this proposal may have been shot down so quickly is that the mediators lacked credibility with the rebels. The rebels know that these other African heads of state have been close to Qadaffi in the past, and they may be suspicious of any deal they propose, even though this deal may represent substantial progress, and even though it may be better than the status quo. To maintain credibility these mediators needed to distance themselves from Qadaffi. Perhaps they also would have had more success had they chosen to visit the rebels first, instead of appearing as a delegation of Qadaffi's friends bringing Qadaffi's offer to them.  Instead of acting as honest brokers, they may have appeared to be supporters of Qadaffi making a last ditch effort to keep him in power. Perhaps some form of negotiated resolution of this dispute will still succeed, but whatever mediators are involved now may have their work cut out for them to restore a semblance of neutrality to the process.

Thursday, April 7, 2011

Brinksmanship

Watching the ongoing negotiations over a budget deal needed to avert a government shut-down, which are approaching the eleventh hour tonight, once again we see a pattern that is common in labor negotiations and many other kinds of negotiations in which parties are forced to stay up all night, and the outcome remains in doubt up until the deadline or even beyond the deadline. It's not just procrastination that creates this dynamic.  In the budget negotiations, there are some serious substantive issues at stake, and the ultimate shape of the deal does make a real difference in people's lives. But in terms of large issues such as the size of this year's deficit, the difference between the two sides is tiny, and the outline of the ultimate deal is already pretty well known to the parties. So why is it so difficult to close?

What seems to matter more than the substantive issues are more fundamental issues of political power, and public perception. When this episode is over, who will the public think has won? If the parties fail to reach agreement, who will people blame? Republicans who remember history know that the last time they forced a shut-down of the government, when Newt Gingrich was Speaker, the public mostly blamed the Republicans. This time, however, their Speaker has kept a low enough profile, and enough members of the public are worried that the government is not doing enough to control spending, that Democrats might wonder whether people are going to blame them.

For members of Congress who will have to vote on it, the issue ultimately boils down to whether they really want a deal or not. Will they feel better with a negotiated outcome that does not fully satisfy either side's interests, or would they really rather force a government shut-down to prove that they would prefer to allow a disaster to happen rather than compromise their principles? Neither choice appears to be a good one, and people's principles don't always tell them how to choose between two bad alternatives, neither of which satisfies their principles. The most decisive consideration for many Congressmen may be how their vote will affect their ability to get re-elected next year.

In negotiations over private deals, parties often face a similar moment where the shape of the deal becomes known, and the only question parties have to decide is whether the deal on the table is better than no deal at all. That can be an excruciatingly difficult decision to make, and people don't generally make that decision until they have to.  Often late at night.

(Reuters photo from The Atlantic)

Tuesday, April 5, 2011

Momentum

The TV series Fairly Legal, which recently completed its first season, bears about as much resemblance to actual mediation as most lawyer shows bear to actual law practice. I have no problem with that;  the show does not purport to be a documentary. It is entertainment. At least one idea in the show, however, appears more realistic than actual mediation practice. That is the idea that mediation should be viewed as an ongoing process. Parties on TV seem to understand that it might take three or four sessions to resolve a dispute. Before they can do that, they might need to express their feelings by walking out the door. Or they might need to undertake some investigation of facts disclosed during an initial session, to prepare a response. Or they might need time to think about what occurred at a mediation session before they can come to terms with it. Although they sometimes have to be coaxed back to the negotiating table, they usually seem to understand that they need not view mediation as a failure just because the dispute is not resolved in the opening session.

On TV, it seems that one of the parties always walks out of the first mediation session after about five minutes, and the mediator then has to go running after them, engage in some investigation herself, and catch up with them later in their offices or on the street. Most of these depictions of mediation practice do not happen in real life: I always discourage parties from walking out after five minutes; I don't barge into people's offices (I do follow-up by phone); and while I sometimes do a little online research, I don't go hunting down additional evidence for the parties. On the other hand, it would be refreshing if real life parties and mediators saw mediation as a continuing process, instead of how they often view it, which is as a one time all-day or half-day event. At the end of the day, the parties either reach a settlement of the case, or return to battling it out in court.  If they don't settle, they still might have laid the groundwork for a settlement they will either reach on their own, or perhaps with the assistance of a judge or another mediator just before trial, but they usually don't expect to have an ongoing relationship with the mediator to help them continue that process.

While the parties might expect the mediation to be a one shot deal, there are a lot of things that can prevent a deal from happening in the first session: somebody may not be well-prepared, somebody who should be involved may fail to attend, one or both sides may decide they need more information before they can make a settlement offer, a party may receive information during the course of the mediation that they need time to process. When any of those things happen, and we cannot work around it, I try to get the parties to agree to return for another session in a week or a month. But settlement momentum is sometimes lost during that break, and the parties sometimes get bogged down in wasteful litigation activity. Offers sometimes come off the table, and parties may move farther apart. If instead parties had the expectation that the first time they meet their mediator--just like the first time they appear before their judge, or the first time parties in counseling meet their therapist--might not be their last, they might not view the initial session as the make-or-break activity that is often the case now, and they might be less likely to take actions harmful to the settlement process during the time between sessions..

A cynic might point out that of course it is in the interest of mediators to encourage parties to come back for multiple sessions. And that might be true, just as it is true for psychiatrists or ski instructors. But I'm also quite happy to see a case resolve in a day or less. In a lot of cases, I know that the first session is all I'm going to get, and I will make every effort to get the case resolved in the time we have. What I don't like to see, however, is for people to give up on mediation just because they did not succeed in settling their dispute in the first meeting. In some cases, there are obstacles that can make it too difficult to do that, and the parties just need to come back and give it another try. The settlement track should stay open, and parties should be willing to continue as long as negotiations are productive. A persistent attitude will prevent the loss of settlement momentum.