The left side bunker on the second hole at the Yale golf course is situated 25 feet below the green. I know that eventually I will escape. The only question is when, and at what cost to my score.
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| From the Yale GC Yardage Book |
Similarly, when it comes to litigation, less than five percent of civil lawsuits are tried to conclusion before a judge or jury. Thus, for a business that finds itself in litigation, the question is not whether the parties will settle, but when. Because litigation is expensive and disruptive, a prudent business will attempt to accelerate the resolution of cases, except in the unusual case where the expected benefits from a protracted proceeding will exceed the incremental costs.
Understanding the obstacles to settlement is crucial to facilitating a more expeditious and cost effective exit from litigation:
Obstacle #1: We don’t have enough information to make a reasonable settlement decision. Litigation “discovery” (including deposition, document review and written answers to interrogatories) provides a party with the ability to obtain information about the other side’s claims and defenses. If not careful, however, discovery can take on a life of its own, as parties (or, perhaps more often, their attorneys) determine to leave no discovery stone unturned. The pursuit of discovery perfection delays settlement and comes with a substantial price tag. In their ordinary activities, businesses routinely make decisions based on imperfect information. There is no reason they should avoid doing so in order to settle a dispute.
Obstacle #2: Our company representative is adamant that the other side is fully responsible. When a business dispute erupts, a company often designates the manager who was involved in the underlying transaction to spearhead the litigation. Big mistake. The manager will not be objective. He will point the finger at the other party even if he bears some of the responsibility. To ensure it receives full and accurate information, a company should give ownership of dispute resolution to an individual who was not involved in the underlying events.
Obstacle #3: We would rather pay our lawyers than make unjustified concessions to the other side. An early emotional proclamation about principle will be long forgotten several years into costly litigation. Before a company adopts the vindication of principle as its litigation battle cry, management should let the emotion of the moment pass, and then prepare a realistic litigation budget, factoring the hard costs to be incurred as well as the downtime for employees who will be devoting their time to facilitate the litigation process.
Obstacle #4: We want to be reasonable, but the other side does not. The perceived unreasonableness of an adversary often presents the most difficult obstacle to an early settlement. Don’t consider yourself locked in to communicating only with the representative that the other side has appointed. Reach out to his or her superior, or to a member of the Board of Directors. Suggest utilizing a mediator. Any action that brings new voices to the conversation may be helpful.
Obstacle #5: If we settle this case, we’ll encourage others to start litigation against us. Occasionally, a company may find itself targeted by a claimant on an issue that conceivably could apply to others. For example, a golf-related business may have certain policies that an employee decides to challenge. The company, fearing an avalanche of claims from other employees, may determine that a strong defense of the policies is required. Most disputes, however, encompass individual circumstances that can be addressed on their own merits. The inclusion of confidentiality provisions in a settlement agreement provides additional protection that resolution will not establish a dangerous precedent.
Despite my best efforts, I occasionally find myself in Yale’s second hole bunker. My goal then becomes an early and relatively pain free escape. When a business finds itself in litigation, it, too, should devise a smart and effective exit strategy.
[The article may constitute Attorney Advertising in some jurisdictions. It is for informational purposes only and does not constitute legal advice.]
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