Liens in Civil Case Mediations

By James A. Wall Jr. and Suzanne Chan-Serafin

The greater the lien, the more the defendant will be asked to pay.

This article provides a concise overview of civil case mediations, discusses liens and the effect they have in mediations, and offers suggestions to mediators and lawyers to enhance the effectiveness of mediations.

Effect of liens in mediation. To investigate the effects of liens in mediations, we observed 100 mediations that addressed personal injury, employment, medical malpractice, automobile accidents, and contracts. Our observations of these mediations indicate that liens and outstanding bills are often in place. When the plaintiffs (and their lawyers) recognize they have an outstanding lien, a potential lien, or an outstanding bill, they conclude it will be paid from the amount obtained from the defendant. Therefore, the plaintiff usually builds this amount into her demands. In fact, the size of the lien is a major determinant of the plaintiff’s opening and subsequent demands. The lien is also important to the defendant because the plaintiff’s demands are directed toward him. Therefore, the greater the lien, the more the defendant will be asked to pay. And there is another consideration for the defendant: The lienholders or creditors have the right, if they so choose, to demand the payment from the defendant.

Most plaintiff lawyers are well aware of the existence and size of the liens; however, some are inattentive. When asked by the mediator if a lien exists, some admit they don’t know because they haven’t thought about the lien or because they haven’t read the contract to determine if a third party has a contractual basis for the lien. To save face in front of their clients, some lawyers will respond that they don’t think there are any liens. A less damaging but rather obtuse posture is the plaintiff lawyer’s acknowledgement of liens, accompanied by the admission that there is uncertainty as to their amount. A somewhat less damaging inattentive miscue occurs when lawyers believe they know the amount of the lien but are mistaken.

In addition to inattentiveness, we found some instances of procrastination. On occasion the plaintiffs and their lawyers believed that a lien would be put in place if the potential lienholder knew about the suit, but they did not want to deal with the lien in the mediation. For example, in an automobile accident suit, the plaintiff’s insurance company had paid her medical bills, and the insurance contract “perhaps” (plaintiff lawyer’s word) gave the company the right to execute a lien for repayment. When asked if there was a lien, the plaintiff lawyer responded, “No,” and when asked if the insurance company would bring a lien in the future, the lawyer said, “Don’t mention this to the other side. I don’t want to open that can of worms here.” The plaintiff lawyer then built the medical expenses (or lien) into his opening demand, plus a multiple for pain and suffering. When the mediator took the demand into the defendant’s room, the defense lawyer assumed that the medical bills had been paid (because he knew the plaintiff worked at a firm that provided health insurance) and that no lien was in place. Consequently, he made a very low opening offer; the gap between the opening offer and the plaintiff’s demand was substantial, and the mediator’s hands were tied vis-à-vis the lien because he honored the plaintiff’s request to not share the lien information.

When the lawyers are attentive to liens as well as punctual, the mediation can unfold in a productive fashion, but this progress can be impeded by large fixed liens. In the simplest, fixed-lien scenario, the plaintiff builds the lien into his or her demand and explains this to the mediator. This information assists the mediator in selling the plaintiff’s demand to the defendant because the mediator can point out that the demand is high but that a considerable amount of this will go to paying the lien. Much less will go into the plaintiff’s pocket. This information also allows the mediator to portray the plaintiff in a positive manner. A small or moderate built-in lien facilitates the mediation because the plaintiff can demand less, but when the lien is large it can spawn a difficult mediation. At times the lien is so high that the defendant’s offer does not cover it. Also, a large lien very often motivates the defendant to challenge the veracity of the bills and the lien. Subsequently, the mediation stalls. In addition, a large lien can encourage the defendant to press the plaintiff to seek a reduction of the lien. Instead of pressing the plaintiff to reduce the large fixed lien, the defendant can tack around the issue by offering to assume the lien. He or she will then reduce his or her offer by some percentage of the lien amount.

The mediation is more productive when the plaintiffs as well as the defendants acknowledge that the lien can be reduced and both allow for the reduction in their negotiations. Typically in this situation, both sides will hedge. Here the astute mediator will allow the two sides to hedge for a few sessions and then ask them to shift from lien discussions to specific “money only” offers that incorporate their lien estimates.

A different—and frequently successful—mediation tactic is to obtain an agreement, in principle, that the lien can and should be reduced. Subsequently, in a joint plaintiff-defendant session, the mediator informs the lienholder via telephone that an agreement requires the lien be reduced by a certain amount.

Suggestions. Civil case mediation has about an 80 percent effectiveness rate, but this rate can be enhanced if mediators consider and address the effects of liens in mediations. We proffer the following suggestions. Prior to the mediation, mediators should ask plaintiff lawyers if liens are in place and the amount. This information establishes a logical basis for plaintiff demands and provides the mediator with a framework for the plaintiff’s case. Mediators should request that the plaintiff’s lawyers bring proof of the liens or unpaid bills to the mediation. Without proof of the lien, defendants will assume sandbagging is in place. Both lawyers should be asked to explain the nature of liens to their clients and to inform them of potential or existing liens. Mediators should advise plaintiff lawyers to discuss the lien with the lienholder prior to the mediation in order to determine the lienholder’s flexibility. In most cases the mediator should encourage the plaintiff’s lawyer to accept the defendants’ offer to assume the lien. Assumption of the lien allows the mediation to move forward, although the plaintiff attorneys’ fee will be reduced. The mediator should instruct the defense lawyer to refrain from suggesting that the plaintiffs negotiate reductions from the lienholders. In and prior to the mediation, the mediator should note the value of negotiating a lien reduction. Simply put, the lien reduction is in the plaintiff’s best interest because it raises the amount the plaintiff will receive from the settlement. Also, it increases the probability of the settlement and gives the mediator some ammunition for supporting the plaintiff’s case. Once the mediator has determined there is a lien—prior to the mediation—he or she should schedule sufficient time to negotiate with the lienholders.

For More Information About the Section of Dispute Resolution

- This article is an abridged and updated version of one that originally appeared on page 28 of Dispute Resolution, Summer 2007 (13:4).

- For more information or to obtain a copy of the periodical in which the full article appears, please call the ABA Service Center at 800/285-2221.

- Website: www.abanet.org/dispute.

- Periodicals: Dispute Resolution Magazine, published four times per year; Just Resolutions eNews, an electronic newsletter published ten times per year providing current information on how to build a successful ADR practice, updates on Section and Committee activities and ADR legislation, and articles by Section members.

- CLE: Annual spring conference, the world’s largest ADR conference; spring and fall advanced mediation or arbitration training institutes; teleconferences.

- Books and Other Recent Publications: Making Money Talk: How to Mediate Insured Claims and Other Monetary Disputes; The Negotiator’s Fieldbook; Advanced Arbitration Insight: 20/20 DVD ; Creative Problem Solver’s Handbook for Negotiators and Mediators, vols. 1 and 2.

- Member Benefits: 20% or greater discount on all Section publications; 50% off Ohio Journal of Dispute Resolution; registration fee discounts at annual spring conference; discounted liability insurance for arbitrators and mediators; monthly e-mail updates of conferences, trainings, and job opportunities.

James A. Wall Jr. is a curators’ professor at the University of Missouri; he may be reached at . Suzanne Chan-Serafin is an adjunct assistant professor in the School of Business, Utah University; she may be reached at .

Copyright 2008

Back to Top