A fair number of things have been written about settlement counsel over the years (for example, a 2017 article in the Canadian Bar Journal), yet questions about what settlement counsel are and what they do remain a mystery to most. This article provides a day-in-the-life view of the role of settlement counsel in a hypothetical case—one that we hope will demonstrate what settlement counsel can add to the equation. This will help eliminate the mystery surrounding settlement counsel and open opportunities for both trial counsel and their clients in the right cases.
The Hypothetical Case
Our hypothetical case involves two companies locked in litigation involving patent claims and breach of contract claims, with many counterclaims, including an antitrust claim. The companies are represented by excellent trial counsel who have been litigating the matter for over a year. There were early attempts at settlement. Not only were those unsuccessful, they did not end well and heightened the distrust between the companies and between trial counsel.
Each side believed strongly in its positions. The outcome in the case would have a significant impact on each company, and as a result, emotions ran high and tempers were short. As with most contentious, high-stakes cases, the trial counsel were buried in extensive discovery and fighting to stay within the court-ordered schedule—all made more difficult by discovery disputes, motion practice, and related delays. The early failed settlement talks, coupled with the hostile litigation battles, left the trial firms with the strong belief that neither side was interested in wasting time on additional settlement discussions.
While the litigation war raged on, the client that eventually retained settlement counsel was very concerned about the bigger picture for the company, as well as the litigation costs (both in terms of dollars and impact on management). The result in the case would be critical to the company, but equally important were the other disputes between the companies. Absent a global resolution, follow-on cases were certain, regardless of the result in the pending case.
Introduction of Settlement Counsel
A board member of the client was familiar with settlement counsel and talked with the company’s chief executive officer (CEO) and chief financial officer (CFO) about engaging settlement counsel to see if that option might help build a bridge to resolution discussions. While the senior executives were not familiar with the concept of settlement counsel, they were willing to meet and were open to any suggestion that might give rise to realistic options. During the meeting, they learned that settlement counsel would be focused exclusively on the business issues the company was most concerned with—resolving this case and all disputes—in a manner that allowed both companies to focus on their businesses. Settlement counsel outlined a few ways in which this might be approached. The CEO and CFO were very interested in bringing settlement counsel on board, but settlement counsel recommended that, before any decision was made, the executives should first talk through that decision with their trial attorneys—emphasizing that alignment of the trial attorney with the client and settlement counsel was critical to any engagement. In the meantime, the issue of fees was discussed, and settlement counsel was open to a fee structure that made sense for the client, including working on a success fee basis, a fixed fee, or an hourly basis.
The Initial Work
The CEO and CFO discussed the idea with their trial team. The trial attorneys were generally familiar with the concept of settlement counsel but had not really worked with settlement counsel on a case. After trial counsel better understood how this multi-pronged approach would work (e.g., privilege, direction and coordination, and maintaining litigation leverage), they agreed to bring on settlement counsel, though they were understandably pessimistic about the potential for success given their past experience with settlement negotiations. Trial counsel readily agreed, however, that the case called for a global resolution that would allow both companies to focus on their upcoming business opportunities.
Settlement counsel proceeded to “get up to speed”—reviewing pleadings, key documents, and communications. Settlement counsel then met with the trial team and was given the full background on the case, and settlement counsel met with senior management to better understand what a global resolution would look like from the business perspective. Settlement counsel then prepared an initial plan for review with the client and trial team—a plan that included a risk assessment and outcome analysis, along with suggestions on how settlement counsel would be introduced to opposing counsel.
The risk assessment was a real eye-opener for the client. While trial counsel had generally described what they expected in the case, it was another thing to see, on one page, settlement counsel’s overview of the legal issues, factual issues, and probabilities of prevailing, with potential damages and costs of litigation. The risk assessment highlighted for the company what they had always suspected: While they were confident of prevailing at trial, the damages could very well be much different than what they had hoped for and the result in the case would not end the war. The company really needed a chance to see what an alternative to trial might look like—and understood the company had nothing to lose in opening the discussion through settlement counsel.
Settlement Counsel Engages the Other Side
After meeting with the client and trial team and mapping out a negotiation strategy, settlement counsel was ready to talk to the other side. Settlement counsel was given the go-ahead and contacted opposing counsel. After the expected chilly reception, opposing trial counsel indicated they would talk with their client “and get back to” settlement counsel. The response was as settlement counsel often experienced. Ultimately, though, opposing counsel was willing to meet to better understand what settlement counsel did and was proposing—and they agreed to bring a client representative to the meeting because settlement counsel would not be bringing anyone from the trial team.
The initial meeting was characteristic of most initial meetings with settlement counsel. Settlement counsel explained his role. Settlement counsel explained he represents the opposing party in resolution discussions and is not neutral. Settlement outlined the objective: to see if there was a way to resolve the dispute on a principled basis via negotiated settlement. If the other side was interested, settlement counsel would work hard to make sure the other side had everything it needed to make an informed business decision—but settlement counsel would not do anything to compromise his client’s case or litigation strategy. As a former trial attorney himself, settlement counsel understood that if the other side did not want to explore settlement, the parties should not waste time pursuing it.
The first meeting is most often “a meeting to see if there will be another meeting.” In this case, the answer was “yes”—the other side was interested in exploring settlement with settlement counsel but would do so only under a very strict confidentiality and nondisclosure agreement to protect the discussions (over and above the protections afforded under Federal Rule of Evidence 408 and those generally afforded to settlement discussions). A confidentiality agreement was, of course, agreeable in concept. The problem in this case was the sensitive nature of many of the underlying issues such that negotiating the form of the agreement took months. Getting the agreement into place required extensive input from the respective trial teams. Both trial teams were concerned that the other side was not dealing in good faith and that the discussions would somehow come back to undermine their case. Despite the concerns, a mutually acceptable confidentiality agreement was reached and the stage was finally set for resolution discussions.
The Settlement Negotiations
Settlement counsel agreed to meet with opposing counsel at their offices. Settlement counsel was prepared to outline his view of the case, complete with his own risk assessment and the prospect of future litigation if the parties could not come to global resolution. The opposing counsel ended up turning the meeting over to the opposing client’s head of litigation, and the parties started to explore key terms. As expected, the initial meetings were guarded given the deep distrust between the companies. Eventually, opposing counsel came to appreciate settlement counsel’s objective, and the parties began to work productively. They outlined settlement scenarios, terms, conditions, options—across a range of legal and business issues. Lines were drawn, and redrawn, but both sides stayed at the table. The parties were ready for a closing negotiation, which meant they had to have “the right people in the room.”
The First Mediation
Both sides recommended mediation to their clients in view of the progress that had been made through settlement counsel. The clients were willing, and the trial counsel agreed, although they were both skeptical and concerned that this still might be an attempt to interfere with the litigation leverage or litigation schedule. Settlement counsel suggested that the mediation involve the CEOs and the respective teams working on the settlement, but not trial counsel. While everyone agreed that it would be helpful to have a member of the trial team present, settlement counsel emphasized that the real purpose of the mediation was to discuss settlement terms, not the merits of the pending case. Settlement counsel’s suggested approach to the mediation ended up being too foreign for both clients and their trial attorneys, and in the end, the trial teams for both clients attended, and the CEOs did not.
The mediation was over before it really began. Extreme demands were exchanged at the insistence of the trial teams. Neither side would entertain making the first compromise. The historical lack of trust between the companies took over and precipitated a walkout. The mediation was a failure, and with trial on the immediate horizon, both sides understandably felt settlement efforts were at an end.
The Second Mediation
Despite the dramatic failure of the first mediation, settlement counsel kept the door open and continued working with his counterparts on the other side. Settlement counsel’s view was that the real purpose of mediation had been frustrated from a legal or business perspective—neither side “heard” the other side and no one had really vetted the resolution options. The emotion of the litigation prevented an effective negotiation.
A few weeks after the failed mediation, settlement counsel contacted the opposing in-house attorney. Both lamented the lost opportunity. Both agreed that there was a reason to talk, but they needed to have the right business leaders in the room.
It was clear a different approach was required. The settlement counsel and in-house attorney agreed to recommend another mediation but with a very different approach. This time the mediation would involve the client’s settlement counsel, the other side’s head of litigation, each party’s CEO, and the mediator, but not trial counsel. The CEOs readily agreed. The trial teams were understandably concerned, but communication protocols were established to allay fears. During the course of the day, the mediator suggested that the CEOs meet with the mediator alone. The long-delayed business discussions were very productive. The conversations led to a resolution of the pending case and a cessation of all disputes between the companies.
Did settlement counsel make the difference? There was no question the trial team’s legal work was essential—and critical—to developing the leverage to get to the end result. On the other hand, without the work of settlement counsel, would the CEOs have ever had the critical business discussion? The CEOs were of the mind that settlement counsel was essential—and critical—to opening the door to the real conversation needed to settle the case.
Considering that over 98 percent of cases are resolved through negotiated settlements, doesn’t it make sense to consider bringing on someone to focus exclusively on the most likely outcome? A resource with a skill set attuned to the task at hand? Settlement counsel may not be right for every case, but settlement counsel might very well be the difference in your next case “that can’t be settled.”
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