SETTLEMENT MALPRACTICE: THE DUTY TO GIVE ADR ADVICE

By John P. Blumberg

This article appeared in "Los Angeles Daily Journal"

During the Vietnam War, an American military commander said, "We had to destroy the town to save it." Hardball litigation is sometimes like that. It does not always produce the best results. This article will discuss an attorney's duty to explore settlement and to know about the alternatives to traditional litigation.

Alternative dispute resolution has reached such a level of acceptance and availability that failure of an attorney to consider its possibilities or to inform the client of its existence may amount to legal malpractice. This is not to say that every case must be settled. It is to say, however, that an attorney's duty to a client includes "the obligation to attempt to effectuate a reasonable settlement of the . . . action where the general standards of professional care [require] that the most reasonable manner of disposing of the action was by settlement." [Lysick v. Walcom (1968) 258 Cal.App.2d 136.]

A client's opposition to settlement does not excuse an attorney's duty to consider and advise the client about settlement. After all, the lawyer's superior skill and knowledge is what the client is paying for. [Lucas v. Hamm (1961) 56 Cal.2d 583, 591.] It is not uncommon for the client to have an unwarranted faith in the righteousness of his or her position. The lawyer's obligation is to bring rationality, objectivity and experience to bear on the matter.

Ambrose Bierce, in "The Devil's Dictionary", defined litigant as a "person about to give up his skin for the hope of retaining his bones" and litigation as a "machine which you go into as a pig and come out of as a sausage." As more money is poured into the litigation, positions stiffen and anger increases. We, as lawyers, must recognize that the litigation process tends to drive parties further apart, creating difficulty in approaching settlement discussions. Common sense would dictate that an early investment in the resolution of the case may pay the dividend of earlier settlement and a more satisfied client.

When should recommendations be made to consider settlement process? There is a point in the litigation when the attorneys have learned the basic facts, and their clients have begun to realize that litigation is an expensive process. In most cases, the strengths and weaknesses of both sides are known after there has been an exchange of documents and perhaps the depositions of the parties are taken. This is the time when about 90 percent of the relevant information is known, but only 10 percent of the costs of going to trial has been spent. This is the crucial point where one's client may be most receptive to advice on the economics of ongoing litigation and the benefits of settlement.

To fulfil the obligation to advise the client and, in appropriate cases, to attempt resolution by settlement, the attorney must be familiar with the various forms of alternative dispute resolution. The acronym "ADR" covers a wide variety of procedures. Each particular form has its benefits and pitfalls. The duty to discuss alternatives to litigation with the client includes explaining the advantages and disadvantages of various forms of ADR.

It has been said that "when your only tool is a hammer, everything looks like a nail." "Hammering out an agreement" at a settlement conference is not the only way to avoid the trap of ongoing contentious litigation. There are many ADR tools for the parties to consider ranging from binding arbitration to mediated litigation management agreements.

Mediation is a confidential and private process in which the mediator, who is a trained and experienced professional, guides the disputants in reaching a mutually-acceptable agreement. The mediator identifies issues, looks for areas of agreement, proposes ideas, questions assumptions and helps the parties to resolve their dispute. If agreement is not reached, the parties can proceed with arbitration or litigation. However, statistics show that about 90% of all disputes submitted to mediation with an experienced mediator are resolved to the satisfaction of the parties. The key word is "experienced."

Mediation is not learned in the practice of law or on the judicial bench. It is a skill requiring special training as well as experience that comes from facilitating many settlements. In the community of mediators there are many types of different mediation styles. Formally speaking, there are "facilitative" mediators and "evaluative" mediators. One commentator humorously described the styles of mediators as "thrashers," "bashers," and "hashers." Thrashers tear the case apart and put it back together in a realistic framework. Bashers are often retired judges who bash away at offers and demands, pushing the parties toward a middle ground or what the mediator thinks the case is worth. Hashers refuse to offer their opinion of the value of the case, believing that it contaminates the negotiation. Instead, they tend to let the parties hash it out while they provide the impetus to keep the discussions from reaching impasse.

Perhaps the most valuable trait that a mediator should possess is "horizontal thinking." By way of example, a vertical problem solver who comes to a door that is stuck or locked will push harder, bang on it, and when all else fails, try to kick it in. A horizontal problem solver will look for other ways to get in - through another door or perhaps a window. A horizontal-thinking mediator can facilitate a settlement by assisting the parties to see possibilities previously unconsidered.

Arbitration is well known to most attorneys. In its binding form, it settles the dispute promptly. Although it can be more economical than court litigation, often it is merely trading a courtroom for an arbitration room. Two benefits are that the proceedings are private, and you can select the trier of fact. There are many forms of arbitration, including "baseball arbitration," and "high/low arbitration."

Baseball Arbitration is a form of legalized gambling which has its roots in major league baseball salary negotiations. Each party gives the arbitrator its "number," which represents that party's evaluation of the damages. The arbitrator must choose one figure or the other. In another form of "baseball arbitration," the party's "numbers" are not disclosed to the arbitrator before the decision is rendered. Whichever "number" is arithmetically closer to the arbitrator's decision becomes the settlement or award.

High/Low Arbitration is another way for both sides to limit exposure and potential loss. In essence, the parties hedge their bets. Prior to the hearing, the parties agree to a dollar range above and below which the final award will not fall. If the arbitrator's decision falls within the negotiated range, the award stands. Above or below that, the high or low figure prevails. This provision limits the maximum exposure of the defendant while assuring the plaintiff of at least a minimum recovery.

Mediated Arbitration is a hybrid process in which both arbitration and mediation are used. It is appropriate in the situation where the parties want to have a variation of their day in court. The parties prepare their case for arbitration, pursuant to the relaxed evidentiary rules of judicial arbitration. This preparation forces each side to put each element of its case together at an early point in the litigation. Both sides will benefit by seeing the strengths and weaknesses which are brought out by competent advocacy. At the conclusion of the presentation of evidence, the mediator assists the parties in settlement discussions. In private sessions, the mediator can discuss weaknesses in the case and the impact of the witnesses and the evidence.

POTENTIAL AREAS OF LEGAL MALPRACTICE

An attorney who agrees to submit a client's dispute to "arbitration," may be committing malpractice if he or she does not specify the substantive and procedural parameters of the process. The California Supreme Court has held that unless there is an agreement to the contrary, an arbitrator is not obligated to follow the law or abide by the Evidence Code, and the arbitrator's decision cannot be reviewed for such errors. [Moncharsh v. Heily & Blase (1992) 3 Cal. 4th 1]. If a client loses his case because the arbitrator ignored the law, a legal malpractice lawsuit may be in the attorney's future. Accordingly, an attorney should discuss and confirm with the client the pros and cons of limiting an arbitrator's powers and establishing the right to appeal.

Another area of malpractice exposure arises in mediations where an agreement has been reached. Unlike court-conducted settlement conferences where settlements are put on the record and, thereafter, enforceable, an agreement reached in mediation is not enforceable unless it is in writing and signed by the parties. If the parties have agreed on a settlement after a mediation and one party changes his or her mind the next day, the settlement cannot be enforced. A lawyer might be sued by the unhappy client who had to spend substantial money to obtain a judgment after trial on the merits, or who loses at trial. It is advisable that the attorneys take the time (even after an exhausting mediation) to write the terms of the settlement for all the parties to sign.

Legal malpractice cases are complex. Blumberg Law Corporation has specialized in this field for many years, defending attorneys and representing plaintiffs. Our attorneys are available for consultation, representation, mediation, and expert witness designation.

A PROPOSED DUTY OF CARE REGARDING ADR ADVICE

1. Disclose the appropriate options in the litigation process that might affect the overall result, cost, relationships, speed of resolution, control over result, and emotional impact on the client.

2. Compare and contrast appropriate alternatives to litigation in light of the above factors in view of the client's situation.

3. If the client decides that an alternative to court litigation is the most appropriate vehicle to resolve the matter, the lawyer should investigate available ADR resources. The investigation should not begin and end with retired judges, particularly if mediation is the goal. Mediation is not a form of private judging, and it is not necessarily the same as a settlement conference. Such investigation should include, at minimum, the qualifications, experience, style and approach of the mediator.

4. Be familiar with the mediation process, and have a negotiation strategy; do not simply show up and expect the mediator to settle the case. Deliver a settlement brief to the mediator to aid the mediator in understanding the issues and dynamics. Begin the mediation with a strong opening statement and have documentary evidence and discovery excerpts to back up every claim or defense.

5. Educate the client about the legal issues involved in the dispute and about the mediation process in general. Understand what is driving your client; find out his or her true interests and needs, as opposed to strident positions. Prepare the client to speak to and be spoken to by the mediator. Discuss your negotiation strategy.

6. If an agreement is reached, be sure to get it in writing and signed by all parties before they leave the room.

CONCLUSION

The client who demands, at the beginning of a case, "spare no expense and go all the way," may end up being the client who, at the less-than-successful conclusion asks, "Why didn't you work out an early settlement that could have given me a better result and saved me the enormous cost of litigation?" The fact that a client is totally convinced that his or her positions are correct and wants those positions litigated fully to a judicial result does not relieve the attorney's duty to counsel and, if appropriate, recommend alternatives.

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