Using the pending summary judgment motion to settle your case — twice!
Don’t you just love it? Your employment case is in the discovery stage when the defense suggests an early mediation. No promises, of course, but the defendant thinks it would be a “productive exercise” to see if the parties can find a settlement before the litigation fees and costs get too far out of control. It’s a reasonable suggestion since defendants generally understand that as the case rolls on, they are paying for their own legal counsel, and thanks to FEHA, are likely carrying the tab for the plaintiff’s legal fees as well.
On the other hand, what’s the case really about? You know what your client has told you, and what your own investigation has turned up, but what does the defendant – who generally has the documents and witnesses under its control – have up its sleeve? Still, it doesn’t hurt to find out. So you agree to mediation, select your mediator, and schedule the date.
And then the defendant’s summary judgment motion is filed. Your opposition is not due for a number of weeks after the mediation, plenty of time if the mediation is not successful − and yet − there it is, casting an uncertain shadow. On the one hand, the motion is a nice roadmap to the defendant’s case. It lays out the legal arguments you will have to deal with, identifies some key witnesses, and discloses some key documents. On the other hand, the motion is not completely fallacious. It will take some work to unearth those questions of fact, to impeach those declarations, to find those other documents that the defense chose not to include. Whether you admit it to yourself or not, the judge just might go for a motion like this.
What do you do about the mediation?
If you choose to proceed with the mediation, you clearly aren’t going to negotiate with a gun to your head; you’re not going to discount your case just because the defendant recycled some paperwork from cases long past. So you pretend the summary judgment doesn’t exist or is so fatally flawed that it’s not worth the pixels it’s displayed on. “Look, my client complained about sexual harassment by his supervisor, and the next day he was fired. Sure, I know they claim that the termination decision was made by HR a week before my client complained, but the supervisor knew the complaint was coming and influenced the HR decision before the complaint could be made – classic cat’s paw. We’ll raise a question of fact without any trouble. Our opening demand is $450,000.”
(By the way, have you noticed there has been substantial “opening demand inflation” over the past five years, inflation that certainly outstrips the CPI? The question is, do the more aggressive opening demands result in increased final settlement amounts? Or do the higher demands just lead to ever smaller opening offers and increased negotiation tension, with settlement amounts remaining in the same range as the pre-inflationary demands? Someone ought to do a study on this.)
In the defense camp, of course, the opposite story is playing out. The defendant is all cocky and smug − even if the attorneys keep it well hidden under the mask of professionalism. “Well, we feel very confident in our summary judgment, and we’re just not that interested in paying a significant sum in settlement when it’s so obvious this case will be over once the judge reads the briefs. The termination decision was made based on poor performance before the plaintiff made any complaints, and the supervisor simply had no role in the termination decision. We understand that there’s an infinitesimal possibility that the judge will commit reversible error and erroneously deny the motion, but the odds of that are so low that you’re more likely to get rain in Southern California. Nonetheless, we are here in good faith; we want to help the plaintiff; and we don’t want the plaintiff’s attorney to have to do all of that fruitless work opposing the summary judgment for nothing … so here’s $5,000.”
And we’re off!
The problem of mediating under the shadow of summary judgment
• The parties are mediating different cases
The problem with this scenario is that each party is now negotiating a completely different case. The plaintiff is trying to settle a wrongful termination case based on evidence that he was fired just one day after complaining about sexual harassment; and if the defendant wants to argue the decision was made a week before without knowledge of the impending complaint, the plaintiff is sure he’ll be able to prove this is false. After all, the plaintiff “was a model employee with nothing but positive employment evaluations.” This is a strong case with healthy economic and general damages, not to mention attorney’s fees and a realistic chance at punitives. The summary judgment motion is a nuisance, nothing more.
The defendant, on the other hand, is negotiating a case it sees as nearly frivolous. Far from a “model employee,” the plaintiff was, in the defense’s eyes, a problematic employee with attendance and discipline problems. The decision to terminate the plaintiff’s employment was made by HR and the company owner without any input by the supervisor, and was made a full week before the plaintiff made his harassment complaint. The defense has the documents, emails, and witnesses to back this story up. Granted, a jury might find the plaintiff sympathetic, but given the near impenetrable strength of the summary judgment motion, this case is never getting before the jury.
At the mediation, let’s assume the parties and mediator have explored every variety of non-monetary options to bring these parties together, and are left with a power negotiation over money. The plaintiff, ignoring the summary judgment, aims for a number like $175,000, which he believes is the value of the case assuming he survives summary judgment, which he is certain he will. The defense, relying on the strength of the summary judgment, negotiates towards a number like $25,000, a generous sum in its mind for a case where the employer did nothing wrong. The mediator has done what she can to get the parties to consider the case from every which perspective, but to no avail. The parties and their lawyers have unshakable faith in their ability to win/defeat summary judgment.
Without more, this $150,000 gap is not going to be bridged at the mediation. The plaintiff, who sees this as an easy winner with high damages, is not going to take $25,000; the defendant, who also sees this as an easy winner with no liability, is not going to pay $175,000.
So should this mediation never have taken place? Or is there something “more” here that, like Mighty Mouse, can come to save the day?
Luckily, there is “more” here, a force that will allow this case to settle at this mediation, despite the parties’ unshakable faith in victory. Indeed, it is the summary judgment motion itself that holds the key. But before we get there, we need to look at the underlying dynamics a little more closely.
• Understanding what is going on – identifying the target
Starting at the beginning: the parties have a dispute. This dispute will be resolved one of these days, our legal system will see to that. The legal resolution process may be messy, it may be expensive, it may be time consuming, it may even be embarrassing, but it will resolve this dispute…one of these days. Justly (in the eyes of the winner) or unjustly (in the eyes of the loser), thanks to the mob wisdom of 12 strange strangers (with the possible assist from a learned judge and three learned justices), the case will someday be over. This legal dispute resolution process – this trial and possible appeal – is critically important to the mediation process because it becomes the target to beat.
In contrast to this trial path, mediation is all about creating options. Indeed, in mediation, the parties try to beat the target by creating options they like better than the trial path. Mediation is about understanding true needs, desires, interests, wishes, fears, and motivations. It’s then about trying to invent settlement options that address those needs better than the alternative, which is generally continued litigation and trial. If the parties can create a settlement option that they both like better than the target, then they can shake hands and call it a day, a good day. That is our goal in mediation, is it not, to create a tomorrow that the parties like better than the trial path they are on today?
For the negotiation geeks among us, trial is generally your BATNA (Best Alternative to a Negotiated Agreement). Every settlement option is compared to the alternative, which is the litigation process and trial, to determine if the settlement proposal is any good. In our example, the way it stands now, the plaintiff’s choice is a settlement of $25,000 on the one hand, or continuing the litigation towards SJ and trial on the other. If these are the only options, based on how the plaintiff sees the case, trial sounds pretty darn good. For the defendant, its choice is a settlement where it pays $175,000 − or continuing to summary judgment and possibly trial. Based on how the defendant evaluates its BATNA – a clean victory at summary judgment or trial – the trial path looks best. Because the parties in this mediation do not believe the settlement option to be superior to the trial option, there is no deal.
• Shooting for different targets
What’s the problem here? The problem is the parties are shooting for different targets. The target the parties are trying to beat – the trial path – is not perceived to be the same in each room. The plaintiff is trying to obtain a settlement that beats its view of the trial option (a sure win with lots of damages); the defendant is trying to obtain a settlement that beats its view of the trial option (a sure defense verdict). Barring some secret undisclosed motivation (such as the plaintiff needs $25,000 to pay for a surgery for his child; or the defendant needs to resolve this case at any price in order to consummate a major merger), this case is not going to settle until the parties’ views of the trial risks are a little more aligned. They need to be shooting, if not for the same target, at least for targets that are close to one another.
Did you ever notice that the first two-thirds of your mediation session involve discussions about the case, the facts, the legal theories, the judge, the damages, etc.? The mediator might even tell you your case stinks (hopefully with some subtlety and a smile on her face). And then in the last one-third of the mediation, the case is completely ignored and the focus is strictly on the numbers – numbers that have no real relationship to anything tangible in the case? You know what’s happening in those first 3 to 4 hours? The mediator is helping the parties better understand what that trial option really looks like. She is making the effort to better align the parties’ understanding of their true BATNAs, their true trial option, the targets. She is trying to disabuse them of the overinflated and inaccurate view of trial that they carried with them into the mediation process at the outset, and to see the trial option a little more realistically and objectively.
• Using the mediator to understand the real target
This realignment process makes sense, and is indeed at times critical to success. Think of it this way: You are finally buying your dream Tesla, and Elon Musk offers you financing at 8.5 percent. Do you take this deal? It depends, doesn’t it, on your alternatives? If your best alternative (your BATNA) is 28 percent financing from the dude in the back alley, then that 8.5 percent looks mighty attractive. On the other hand, if your best alternative is 3 percent from your cousin Vinny, then you can probably pass on the dealer’s offer. You’d rather have a 3 percent loan than an 8.5 percent loan. As you can see, it is imperative that, in making this financing decision, you know what your real financing options are, not the financing options you think you can get, or the ones you want to get, but the actual true financing options available to you. Your true BATNA. After all, the worst case scenario would be that you believe you can get 3 percent financing so you turn down the dealer’s offer of 8.5 percent, only to discover that the best you can really get is Back Alley Bart’s 28 percent. That would not only stink, it would be a tad embarrassing when you have to explain your negotiating prowess to your spouse. In other words, it is in your best interest to understand as clearly and objectively as possible what your alternative really is, not what you want it to be.
Which brings us back to mediation. It is absolutely in your and your client’s best interest to understand as clearly and as objectively as possible just how strong or weak your trial path really is. This means that at some point you have to stop drinking your own Kool Aid and look as objectively as possible at what your trial option looks like so you will know to the extent possible whether the best deal you can make at mediation is in fact better than, or worse than, your true BATNA, your true trial alternative. Of course you think you can show the supervisor had some input into the termination decision, but you don’t have that evidence yet; and the defendant is claiming to have irrefutable evidence to the contrary. You think your client is, as he has maintained all along, the best employee the company has ever had with no disciplinary problems, hence any termination must be pretextual, but the defendant claims to have evidence that the plaintiff was serially tardy and just recently failed to show up to work after failing a drug test. You need to know whether your real BATNA is Cousin Vinny’s 3 percent loan or Back Alley Bart’s 28 percent; you need to know as clearly as is possible what your litigation path really looks like.
The mediator is there to help you with this process. When the mediator is questioning your case, asking about evidence, exploring legal theories, studying witness credibility, he is doing this to help you. It’s not a challenge to your skill or abilities as a trial lawyer or an attack on the veracity of your client. It’s just an effort to explore the realities of the trial option as objectively as possible so you can better determine whether, if you don’t cut a deal, you have a 3 percent loan or a 28 percent loan waiting for you, or something in between. And with this information, you will better be able to evaluate the wisdom of taking Elon Musk’s 8.5 percent settlement offer.
The mediator is doing this in both rooms, of course. The fact is, both plaintiff and defendant generally come into mediation with inflated views of their trial option, and through the mediation process, a little objectivity can be infused. Indeed, if all goes well, while the plaintiff and defendant will likely never come to the same “valuation” of the trial option, they will generally come close enough to make the litigation/trial path a beatable target for each of them.
Using the pending summary judgment to settle the case…twice
But what happens when that summary judgment motion is just too attractive to the defense? What happens when they are just so sure they are going to win the case that they don’t put any meaningful value on the trial option and insist on only a low settlement figure? And at the same time, the plaintiff is just so convinced that not only will summary judgment be defeated, but he will hit it big at trial and score a multiplier on his attorney fee application? In other words, what happens when, because of the pendency of the summary judgment, the parties’ perceived BATNAs are so far apart that there is no settlement value that both sides would consider superior to their trial option? Can this case nonetheless settle at mediation?
•The answer is yes. You will just need to settle it twice.
Practically speaking, what happens if the plaintiff defeats summary judgment? The case will continue to exist, the parties will again be racing towards trial, and at some point the parties are going to discuss settlement again, either with or without a mediator. The key difference will be in the defendant’s evaluation of its BATNA. The defendant will have to acknowledge that the case is now “worth” more since the defendant took its best summary judgment shot and lost. The defendant may still win the case, but now it will have to do so in front of a California jury, a much riskier proposition than the mere submission of papers to a sitting judge. Because of this post-summary judgment reassessment of the litigation/ trial alternative, the parties’ valuations may now be close enough to one another to allow for a settlement proposal that each side will consider superior to continued litigation. Of course, that settlement figure will now probably be closer to the plaintiff’s $175,000 than to the defendant’s original $25,000.
On the other hand, if the defendant prevails on summary judgment, the case will likely be over, barring appeal (and possibly a fee application by the defense). Under this scenario, the plaintiff will have to acknowledge that his litigation alternative now looks pretty darn glum. Because of the plaintiff’s post-summary judgment reassessment of his litigation/ trial alternative, this case too could settle, possibly for a waiver of fees and costs in exchange for a dismissal to avoid the appeal. In other words, even with a granting of the summary judgment, the parties’ valuations of the case will likely be pretty close to one another to allow the parties to explore a settlement that each would prefer to continued litigation.
•So if the parties are going to settle after the summary judgment regardless of how the judge rules, why not settle it at the initial mediation, twice
At the mediation, the parties can agree to take the case through summary judgment, and if the motion is granted, then the case will settle at $X; but if one cause of action survives the motion, then the parties will settle at $Y. The case settles at mediation; it’s just that the amount of the settlement will depend on how the judge rules at summary judgment. Once the judge rules, regardless of how the decision comes out, the case is over and the parties have their peace.
In the context of the hypothetical above, a settlement at mediation could be: if (a) the court denies the summary judgment in whole or in part, then, because the case has more value, the defendant will pay the plaintiff $150,000 in exchange for releases and dismissal; but if (b) the court grants summary judgment so that there is no case left, just post-judgment motions and appeals, then the case has very little value and the parties waive fees and costs and execute releases (or maybe there’s a small payment).
The point is, once the judge rules, the parties’ evaluation of the case will be pretty evenly aligned such that they are both now – finally – trying to beat the same target; they are both trying to find a deal they like better than the same trial option. Therefore, do that analysis, that realignment, at the initial mediation and figure out what an acceptable settlement would be if the motion is granted, and if the motion is denied.
Settling twice in other contexts
Settling it twice works whenever there is a dispositive trial event on the horizon that is creating a fundamental difference in the parties’ evaluation of their litigation option. Summary judgment is the most common such event, but not the only one. Think of the class-action scenario. The parties vehemently disagree over whether the case will be certified as a class, and this is creating an irreconcilable view of the value of the case. The targets – the perceived BATNAs – are just too far apart to find a settlement both sides would prefer to continued litigation.
But once the court decides the certification issue, the parties’ views will become more closely aligned. If the class is certified, the parties can agree to a reasonable settlement for the class; if the class is not certified, the parties can agree to a reasonable settlement for the individually-named plaintiffs. So at the mediation, settle it twice. Settlement A will be in effect if the class is certified; settlement B will govern if the class is not. Why wait for the court to rule before returning to the settlement dialogue; settle it now while the parties are present with their counsel and the mediator, just come up with two settlement options conditioned on how the judge rules.
The take away from all of this? If a case is not settling at mediation, ask why? If the answer is that the litigation option is just too attractive for both parties, then there is a serious disconnect somewhere. Both parties cannot be right that they have a 90 percent chance of winning at trial. Someone is going to be gravely disappointed. If the reason the parties’ views are so irreconcilable is the pendency of some dispositive judicial event, the mediation can still be a success. Settle the case twice. You will still give the parties the certainty and finality they crave, they just won’t know exactly which deal will be in effect until after the court rules on the pending motion. But either way, the resulting settlement will still be preferable to continuing with the litigation. And isn’t that the goal?
Michael D. Young is a full time neutral with Judicate West in California, focusing on employment, intellectual property, and other complex civil matters. He is a Distinguished Fellow and past President of the International Academy of Mediators, and was an adjunct professor in negotiation and mediation at USC Law School for nearly a decade and at Pepperdine Law School. He welcomes your comments at Mike@MikeYoungMediation.com, or join the conversation at www.MikeYoungMediation.com/ ask-a-mediator.
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