The less than stellar result of the case did not hit the legal team like a thunderclap that forced us to reevaluate and change our ways. I don’t think we even discussed it formally. However, in hindsight, the win that felt like a loss made a big contribution to how my approach to litigation and settlement opportunities changed over the next twenty years. I learned that the most important imperative is to understand the difference between cases that you must take to final judgment versus cases you are willing to take to trial. The cases you must take to final judgment are centered around something fundamental to your business. For example, when you terminate one of your senior executives who has corruptly influenced procurement decisions, you must take the ensuing wrongful termination case to its conclusion. A financial settlement will be viewed as condoning corrosive behavior and will make a dreadful statement to your team about what you really value. In other words, the cases you must take to final judgment are existential: either the company cannot exist if it does not prevail, or something about the case will cause the company to compromise a fundamental value if you choose to settle.
Deciding whether a case fits in the “must not settle” category will require thorough analysis and should rarely produce a “yes” answer. Deciding whether a case falls in the “willing to keep litigating through trial” category is a bit simpler. Do you think you can win? If the answer is yes, ask next, “Why do you think so, and will the case have to be tried?” Answering those questions is a great starting point for inside and outside counsel to determine the approach for a mediation or settlement conference.
Believing that a case can be won does not mean that it will be won or that winning will not ultimately feel more like losing. Thus, being willing to litigate, up to and including through trial, should also mean that you want to make serious efforts to settle the case. Mediations and settlement conferences usually provide the best opportunity to have those efforts bear fruit. The introduction of a neutral third party can have a powerful effect on how litigants view cases, so while many cases do not require that intervention, parties and their counsel should make the most of the opportunity when it is there.
But too often litigants and their lawyers view settlement conferences as a step to be endured before getting to the main event. Mediations are largely voluntary events, but the same view often holds true. Because most cases do settle it might seem strange that this view persists. I believe the reason is that too many litigation teams view the mediation or settlement conference as another opportunity to win the case. Trial lawyers are perhaps the most naturally competitive people on Earth—you can’t put them in a situation that they won’t try to win, whether it’s a jury trial or ordering lunch. Viewing every situation as an opportunity to win can make outside counsel impede instead of facilitate a successful mediation.
Successful mediation requires that the question of authority is thought through well in advance of the event. You need to decide where your bottom line is and arm the negotiating team with enough authority to get there. When you have too many disputes to handle personally, you need to train surrogates in how to use their authority wisely and develop a level of trust in them to provide sufficient authority. The first few times I found myself in the position of sending a surrogate to a settlement conference instead of being the surrogate, I discovered that I had checked neither of those boxes.
We had an employment discrimination case we had acquired in a merger of public companies that I thought we should settle, but my colleagues were less certain. We had no hope of winning a summary judgment motion, so the case had reached the “try or settle” decision point. Instead of fighting to get the necessary authority for that stage of the case, I sent my associate GC to a mandatory settlement conference with a five-figure number, $90,000 if I remember correctly. (I had more authority than that but held back the last $50,000). I did not expect it to be enough but hoped that the gap would at least be narrowed between the plaintiff’s prior half-million dollar demands and the nuisance value number we had previously offered. The conference was set to start at 9:00. An hour or so later, my phone rang.
“Where do we stand?” I asked my associate GC.
“I am going to need more authority,” she said, guessing that I had more to give.
“OK, how far apart are we?”
“We are at $90,000; plaintiff has come down from $500,000 to $480,000.”
“OK, come home and let’s discuss what happened.”
What had happened was that the judge had asked the parties privately for their final numbers at the start of the conference. My colleague had answered the question directly and used her full authority when she was still many miles from a deal. It happens a lot and says a lot about why some judges do not make very good mediators. But it also showed that I had failed to impart to my team how to handle the situation. The former employee’s counsel was not near her final number but had nowhere to go when my colleague used her full authority on the first exchange of numbers. Too late for that case, I imparted to my team the lesson I had learned from hundreds of experiences in that situation—do not use up your authority unless you are very close to making the deal.
But what if you show up with “enough” authority to make a deal and the other side is unreasonable? Perhaps the answer is that the person clinging to an unreasonable position may know full well that they are putting forward a losing argument. They may have their own problems with emotion and reason on their side and have themselves not been given enough authority to get to a deal. You cannot pummel someone who lacks authority into accepting your position. They simply cannot meet your demands. If you insist on demonstrating that you are right, you will not make the deal, and you might damage the relationship. As one of my colleagues said to me in private when I had just spent fifteen minutes eviscerating the utter stupidity of the argument put forward by a junior lawyer of an important supplier on a key point in a negotiation, “Have you considered the possibility that he understands everything you are saying and does not have permission to agree with you?” I calmed down, apologized to my opposite number in the negotiation, and accepted that we were not going to finish that day. The deal was completed three weeks later, and the relationship stayed strong.
Returning to my initial experience with the federal judge where I fumbled the authority question, there was one other subsequent conversation worth noting. I asked our CFO a few days after the experience, “If I went nuts and exceeded my authority at a settlement conference, would the company pay what I agreed to?” He looked at me quizzically and replied, “We certainly would. We would also probably fire you. Where is this going?” I replied, “That’s all I needed to know.” From then on, whenever I was asked “Do you have full authority to settle this matter?” I could confidently reply, “Yes, your honor, I have full authority.”