It is always better to settle. This is the conclusion drawn in a soon-to-be released study of civil lawsuits: “. . .most of the plaintiffs who decided to pass up a settlement offer and went to trial ended up getting less money than if they had taken that offer.” (“Study Finds Settling Is Better than Going to Trial” by Jonathan D. Glater, New York Times, August 7, 2008.)

       According to the study, defendants made the wrong decision to proceed to trial in 24% of the cases while plaintiffs committed this same error in 61% of the cases studied. In only 15% of the cases – did both plaintiff and defendants choose correctly: as a result of a trial, defendants paid less than the plaintiffs demanded but plaintiffs did obtain more than defendants offered in settlement. (Id.)

       This study will be published in the September issue of The Journal of Empirical Legal Studies by Randall L. Kiser, principal analyst at DecisionSet, Martin A. Asher, an economist at the University of Pennsylvania and Blakeley B. McShane, a graduate student at the Wharton School of the University of Pennsylvania and is based on a study of 2,054 cases that went to trial between 2002 and 2005. It found that,

      “On average, getting it wrong cost plaintiffs at about $43,000; the total could be more because information on legal costs was not available in every case. For defendants, who were less often wrong about going to trial, the cost was much greater: $1.1 million.” (Id.)

       Does this mean that lawyers may not be explaining enough to their clients? That is, not giving them the full and complete picture about the risks of trial? Or, are the clients simply not listening? Quite possibly, both answers could be correct. Without doubt, the study found that over the last forty years, “poor decisions to go to trial have actually become more frequent.” (Id.)

       The study further found that this poor decision making could not be correlated to such factors as the lawyer’s experience, where she attended law school or the size of her firm but rather, with the type of case. That is, for a plaintiff, a contingency fee case will more often go to trial while for a defendant, a case in which no insurance coverage exists, will more often go to trial. (Id.) Why? It has to do with risk taking and/or risk adversity: “. . .people are more adverse to taking a risk when they are expecting to gain something, and more willing to take a risk when they have something to lose.” (Id.)

       In practical terms what does this mean? It means that a party’s BATNA or Best Alternative To A Negotiated Agreement (February 28, 2008 Blog) which oftentimes means going to trial is actually a party’s WATNA or Worst Alternative To A Negotiated Agreement.
 

      It means that going to mediation should be taken seriously and utilized to the utmost since it offers a better outcome than trial. By settling at mediation, both plaintiffs and defendants will do much better than had each proceeded to trial.

       . . . Just something to think about.   
 

       No doubt, you have been part of a negotiation or a mediation in which the following oxymoron is apparent: one party wants to be rid of something she claims has no value, but, yet, at the same time is reluctant to part with it. Have you ever wondered what is causing this seemingly “irrational” behavior?

       About twenty-eight years ago, Richard Thaler first observed “the endowment effect” which is “once someone owns something, he places a higher value on it than he did when he acquired it.” (“It’s Mine, I Tell You.” The Economist [June 19, 2008] Science and Technology Section.)

       This observation was controversial for many years since it stems from “irrational” behavior. As economists always assumed that “individuals acted to maximize their welfare,” they could not accept the notion that the “. . .value someone puts on something. . . depends on whether he actually owns it.” (Id.).

       But, thanks to modern science, researchers have been able to actually view the “endowment effect” on the brain and determine that it effects the brain “. . .by enhancing the salience of possible loss.” (Id.) That is, the endowment effect causes individuals to feel a sense of loss. But why? Does it stem from “irrational” or “differently” rational behavior?

       It seems that the endowment effect has nothing to do with wealth, transactional costs or even emotional attachment. Rather, as Owen Jones, a professor of law and biology at Vanderbilt University and Sarah Brosnan, a primatologist at Georgia State University suspect,

      “. . .in the evolutionary past, giving things up, even when an apparently fair exchange seemed to be on offer, was just too risky. These days, . . .there are contracts, rights and other ways of enforcing bargains. Animal societies have none of these mechanisms. As Adam Smith observed in the “Wealth of Nations,” “nobody ever saw a dog make a fair and deliberate exchange of one bone for another with another dog.” ”

       Experiments have revealed that the endowment effect has deep revolutionary roots but that the strength of the effect varies with the “evolutionary salience” of the item in question. The effect is shown when food is being traded, but not when the trade involves toys or bones. Food is important to us all, but not toys or bones! (Id.)

       An alternative theory is that the endowment effect relates to trade. According to Steffen Huck, an economist at University College, London,

      “In societies with markets, customers can go elsewhere. But in a small, tribal society there may be no alternative seller. In that case, those who were reluctant to trade might get better prices. It may thus make sense for an owner to be psychologically predisposed to hold out for a high price as soon as someone else expresses interest in one of his possessions. . . .” (Id.)
 
       With a moment’s reflection, one can readily see the results of this “endowment effect” in negotiations and mediation. In my mediation practice, I handle many lemon law disputes in which the consumer is seeking to have the automobile manufacturer repurchase or replace the vehicle now claimed to be “lemon.” While at the same time, the consumer urges that the vehicle is a “lemon” (which means, under California law that it has a “non-conformity” that substantially impairs the use, value or safety of the vehicle) and thus, theoretically, has little or no “value,” the same consumer displays the endowment effect by being unwilling to return the vehicle to the manufacturer unless he receives a lot of cash in exchange. Many times, in the end, the consumer is willing to keep the vehicle, if she is paid some cash by the manufacturer for her “inconvenience.” That is, as much as she wants to get rid of the vehicle because it is “unsafe,” at the same time, she does not want to suffer the sense of “loss” that goes along with returning the vehicle to the manufacturer. The consumer’s behavior is similar to those of students in a famous experiment in which they “. . .were surprisingly reluctant to trade a coffee mug they had been given for a bar of chocolate, even though they did not prefer coffee mugs to chocolate when given a straight choice between the two.” (Id.)
 

      So, the next time you are negotiating and find that either you or the other party seemingly wants to trade a tangible or intangible item of value, yet, as the same time, balks at doing so, remember – it is not “irrationality” that is causing this behavior but rather the sense of loss stemming from the endowment effect.

      . . . Just something to think about.
    

       On October 23, 2006, I wrote a blog entitled “When Public Policies Collide: Something to Think About” in which I discussed the appellate decision in Simmons v. Ghaderi.  That  court determined that the lack of consent by Dr. Ghaderi was more important than honoring and upholding mediation confidentiality. It held that California Evidence Code §1119 (providing for confidentiality in mediations) should not be applied such that the trial court could take evidence of what occurred during the mediation to determine if an enforceable oral settlement had, indeed, been reached.

       Based on the prior decisions of the California Supreme Court, upholding mediation confidentiality to the fullest and broadest extent possible, one might speculate that California’s high court would reverse. And, this is, indeed, what happened. On July 21, 2008, the California Supreme Court (Case No. S147848) reversed the appellate court, concluding that the lower court, “. . .improperly relied on the doctrine of estoppel to create a judicial exception to the comprehensive statutory scheme of mediation confidentiality and that the evidence relating to the mediation proceedings should not have been admitted at trial.” (Id. at 2).
 

        The facts are simple: In this wrongful death action, the plaintiffs, representing the deceased, attended a  mediation with defendant Lida Ghaderi, M.D. and her malpractice insurer. At the beginning of the mediation, Dr. Ghaderi provided her insurer with a written consent to compromise the matter for a sum not exceeding $125,000. The Honorable Robert T. Altman, retired, was the mediator and obtained plaintiff’s agreement  to settle for $125,000. Upon being told that plaintiff agreed to settle, Dr. Ghaderi orally reneged on her consent and left the mediation. The issue: was there an enforceable oral settlement?

       As in its prior decisions, the Court discussed the legislative history of the mediation confidentiality statutes in California and the public policy and the thinking of the California Law Revision Commission behind these statutes. It concluded that based on these statutes, the written agreement drafted at the end of the mediation is not admissible “. . . under [California Evidence Code] §§1119, 1122 and 1123 as there was no express agreement that it could be disclosed, and it was not signed by defendant or her attorneys.” (Id. at 13). The Court further noted that the parties agreed that the oral settlement agreement was not admissible as it did not meet the requirements of the Evidence Code sections at issue. (Id.).
 

      The Court then discussed the appellate court’s application of the estoppel doctrine to hold that the trial court could determine if a settlement did, indeed, occur. Noting that in its previous decisions, it has held that “mediation confidentiality is to be strictly enforced” (Id. at 14), the Court was unwilling to create a judicial exception. It found that the facts in this matter did not implicate constitutional guarantees such as due process or the right to confrontation nor were there any express waivers of confidentiality signed by the parties. (Id.  at  15). Rather, here the facts implicated only the policy choice by the legislature that some bad faith actions by one or more parties to a mediation may go unpunished due to the cloak of confidentiality. Consequently, the Court was not inclined to agree with the appellate court that the judicially crafted exception of estoppel should be applied to mediation confidentiality.

       For many of the same reasons, the Court rejected the application of an implied waiver exception:

      “The Legislature chose to promote mediation by ensuring confidentiality rather than adopt a scheme to ensure good behavior in the mediation and litigation process. The mediation statutes provide clear and comprehensive rules reflecting that policy choice.” (Id. at 22).

       In the end, the Court reversed and remanded for further proceedings consistent with its decision.

       So. . . once again mediation confidentiality wins out. . . and like that commercial about Las Vegas. . . what goes on in mediation, stays in mediation.

       . . . Just something to think about.     

       Mediation is very popular. More and more, it is being used as the way to resolve disputes. In California, many statutes and contracts require that parties attempt to mediate prior to filing suit; otherwise, the prevailing party will be barred from recovering attorneys’ fees.

       These points were, once again, confirmed in a recent unpublished case, Lange v. Schilling, Court of Appeal of the State of California, Third Appellate District, Case No. C055471 (5/28/08). At issue was the provision in the standard California residential real estate  purchase agreement barring attorneys’ fees for a party who commences litigation without first attempting to mediate the dispute.

       It seems that in July 2003, plaintiff Lange (a real estate broker representing himself) purchased a lake house from Dwight and Linda St. Peter – the sellers - who were represented by the defendants. Thereafter, plaintiff allegedly discovered various construction problems and misrepresentations. Claiming he was unable to locate the present whereabouts of the sellers, he filed the complaint without first attempting to mediate. He then hired an investigator who located the sellers and provided plaintiff with their current address. Plaintiff then served defendants by mail. Approximately three months later, plaintiff entered the defendants’ default.

       Thereafter, plaintiff’s counsel wrote to defense counsel, offering to stay the litigation so that the parties could mediate. Apparently, there was no response, and so plaintiff (after agreeing to set aside the default) proceeded with the litigation.

       After a trial by jury, plaintiff obtained a mixed verdict and was awarded $13,475. He then filed a motion for his attorneys’ fees in the sum of $113,000 which the trial court granted but reduced to $80,710.26.

       The defendant appealed, contending that since plaintiff failed to attempt mediation prior to litigating pursuant to the contract provision, he was not entitled to his fees.

       The appellate court agreed. Quoting California  Civil Code §1638, the court noted that “ “[t]he language of a contract is to govern its interpretation, if the language is clear and explicit, and does not involve an absurdity.” ”

       The appellate court noted that this contract provision evinces a strong policy in favor of mediation and is understandable. “ “[T]he public policy of promoting mediation as a preferable alternative to judicial proceedings is served by requiring the party commencing litigation to seek mediation as a condition precedent to the recovery of attorneys’ fees. . . . [H]ad the parties resorted to mediation, their dispute may have been resolved in a much less expensive and time-consuming manner. ” (Citations omitted.) ”  (Id. at 7.)

       The appellate court continued:

      “Here, plaintiff spent more than $113,000 in attorneys’ fees to recover a $13,000 judgment. “The economic inefficiency of this result may have been avoided if, prior to judicial proceedings, a disinterested mediator had explained to [the parties] the costs of litigating the dispute through to a judgment or a final resolution by an appellate court.”(Citation omitted.)” (Id. at 8.)

       The court refused to excuse plaintiff from meeting this pre-condition  simply because he could not locate the sellers to make the request. The facts showed otherwise. Once plaintiff filed suit, he hired an investigator who located them within two weeks. In the court’s view, the plaintiff could have just have easily hired the investigator to locate them and request mediation before filing and serving his lawsuit. The court did not accept plaintiff’s belated efforts - to locate the sellers and then offer mediation only after serving them with the lawsuit - as constituting “substantial compliance” with the contract provision.

       Finally, the court rejected plaintiff’s contention that the sellers waived the mediation provision by not taking plaintiff up on his offer to mediate, but, instead, proceeding with litigation.

       In sum, the court, quoting Frei v. Davey (2004) 124 Cal App. 4th 1506, 1508, stated “This provision “means what it says and will be enforced,” ” (Id. at 10) and reversed the fee award.

      The appellate court spoke with wisdom when it pointed out that a mediator – as a neutral third party - can provide a valuable reality check by pointing out the inefficiency of spending more in attorneys’ fees than the case is worth. It also spoke volumes in noting that mediation can resolve disputes “in a much less expensive and time-consuming manner” (Lange v. Schilling, supra, at 7) than litigation.

       In short, .. . mediation comes in handy and if  required by  a statute or contract, it should be utilized. . . if for no other reason than to  insure the recovery of attorneys’ fees later on. . . .

       . . .Just something to think about.  

       My mediation practice is “court-oriented;” I handle disputes that are filed in court. A recent research paper by Leonard L. Riskin and Nancy A. Welsh involving court-oriented mediations in ordinary civil suits caught my attention. It is entitled “Is That All There Is?: “The Problem”: In Court-Oriented Mediation” and is published by  Penn State University – Dickinson School of Law as Research Paper No. 01-2008. ( George Mason Law Review, Vol 15, 2008)

       The thesis is that “the problem” in such mediations is that everyone but the plaintiff is a “repeat” player. Both the plaintiff’s and defendant’s attorney have been involved in many mediations as has the insurance adjuster, and obviously, the mediator. The only one “new” is the plaintiff who is often a “one-shot” player.

        The repeat players tend to define quite narrowly   both the issues to be mediated and the set of available remedies, and often do so based on a tacit understanding and  without any explicit discussion. As the authors explain, these repeat players “. . .tend to focus narrowly on two questions: First, what would happen if the parties litigated this case? Second, how much is the defendant willing to pay and the plaintiff willing to accept to avoid the delay, risks and costs of trial.” (Id. at 4.)

         Consequently, the plaintiff or one-shot player finds herself in a mediation in which the agenda and parameters have been totally set and controlled by the repeat players. Often, because either the attorneys and/or the insurance adjuster do not feel comfortable doing so, no consideration is given to the plaintiff’s underlying interests, especially her psychological or emotional or non-legal needs. (Id.). The plaintiff or one-shot player is thus forced to participate in a process that addresses the very narrow issues of liability and monetary damages but ignores the underlying issues that plaintiff probably brought with her to the mediation – wanting to understand exactly what happened (i.e. what gave rise to the dispute) and why on a behavioral, cognitive and emotional level. Should the matter settle, the plaintiff is left feeling empty and wondering “is this all?” Because the underlying issues were never addressed during the mediation, the plaintiff, although now in the receipt of the money, does not achieve a behavioral, cognitive and emotional resolution. She may have money but no real closure.  

      The consequences? Both the clients and the attorneys have been deprived of “. . .  opportunities for better processes and better outcomes, robbing mediation of its greatest potential for helping parties.” (Id. at 38.) That is, by the dominance of the repeat players at a mediation and their ability to define the “problem,” set the “agenda” and control the “remedy,” mediation as a process is grossly underutilized.

       The authors suggest that to avoid this, the repeat players should invite the plaintiff – the one-shot player - to “ ‘map the problem’, i.e., explor[e] the situation comprehensively . . .without preconceptions about what is relevant or important.” (Id. at 49.) As a result, not only will the  legal and economic issues  be considered but so will be the cognitive, behavioral and emotional aspects of such issues.

       Once the parties including the plaintiff have “mapped” or defined the “problem,” they should then advise the mediator exactly which of these issues should be addressed in the mediation. (Id. at 53.) Once the “problem” has been defined and set by all of the parties and counsel, both the repeat and one-shot players can mediate each issue, hopefully reaching a resolution that truly   provides closure to all concerned.
 

      To the repeat players, a   mediation is just another day at work – involving “legal issues that are ‘ordinary’ and amounts of money that are ‘ordinary.’ But to the one-shot players, these disputes are typically extraordinary, once-in-a-lifetime events. And, every litigant brings along a unique history, circumstances and interests.” (Id. at 76.)

       In sum, as the Honorable Wayne D. Brazil noted:

         “Transparency, by itself, is not sufficient. . . [T]ransparency  about process can acquire its full constructive power only when we include all the participants in the mediation in the key decisions about which process routes we should follow. In short, inclusiveness is essential to maximizing both the reality and the potential of process transparency.” (Id. at 83.)

       So. . . in your next mediation, include the “one-shot” players: I mean, really include them. Make them a true part of the process.

       . . . Just something to think about. 
 
  

      There is diverse opinion within the mediation community on whether a mediation should start with a joint session or separate sessions. How I start a mediation session depends on the type of dispute and the parties involved.

       In those instances in which I do start with a joint session, I often witness the parties and/or their attorneys not using this opportunity effectively; they limit their opening statement to a factual recitation, keeping it “short and sweet.”

      In his June 26, 2008 article entitled “Opening Statements in Mediation Talks Are Often Missed Opportunities”(opening-statement-in-mediation-talks-are-often-missed-opportunities) in the Los Angeles Daily Journal, Robert A. Steinberg suggests that the joint session should be viewed as the opportunity to soften up the other party and to humanize the situation: to put a face and feelings to the cold hard facts.

      As a means of using the joint session to your best advantage (and to obtain creditability), Mr. Steinberg suggests several tools.

      The first one is simple: introduce or re-introduce yourself, explain who you are and who is sitting with you. Explain that your client (if a representative of a company) has the full authority to settle the matter. State how you would like to be called and ask this question of the others.

      Engage in small talk: try to find something in common with the other side so that you can create some bond or commonality with the other party. It may be something as simple as how bad or good the traffic was to get to the mediation, or a recent sporting event or news (e.g. Dodgers, Angels, Lakers, Clippers, Kings, etc.).

      Mr. Steinberg next suggests that you state your belief in the mediation process, that you believe it is a process that works and that you are at the mediation in good faith to settle the dispute. But, he admonishes, these comments should be stated only with sincerity; if you do not believe in what you are saying, it will show.

     He also suggests that, where appropriate, you should acknowledge the other person’s strong feelings, and you should state that you are not there to embarrass, upset or anger the other party. At the same time, “be careful not to say you understand the other side and its feelings. People sometimes do not like being told someone understands their feelings. Sympathize, do not empathize.” (Id.).

      Thus, where a personal injury or death is involved, it is proper to express sympathy, but do so, only if you can be sincere.

      Mr. Steinberg next suggests that you explain that you have thoroughly and objectively evaluated the matter and then state your position, its basis and note the fact that the parties have a good faith disagreement. As the author notes, “This is your best opportunity to show the other side that there is reason to your position and that the possible trial result, in view of the reasonableness of your position, is uncertain.” (Id.).

      Finally, “close by emphasizing your willingness to listen and work through problems and your hope that, with effort and patience, on all sides, an agreement may be reached.” (Id.). The author again emphasizes to humanize yourself and your client.

      In sum, be positive, be human and focus on the issues at hand. Or as has been often said, “separate the person from the problem”  because “the person is not the problem; the problem is the problem.”

      . . . Just something to think about.
 
 

       In November 2007, I wrote a blog entitled “Fairness To Me” in which I discussed a study involving Capuchin monkeys seeking fairness to themselves but not for their companions, or the “what’s in it for me”snydrome.

       Now, another study shows that we define “fairness” depending upon if we are referring to ourselves or to the other party. In the July 1, 2008 science section of the New York Times, John Tierney discusses the notion that “Deep Down, We Can’t Even Fool Ourselves.” In his article, Mr. Tierney discusses moral hypocrisy:

      “The moral hypocrite. . . has convinced himself that he is acting virtuously even when he does something he would condemn in others.”

        To explain this “self-halo” effect, Mr. Tierney points to an experiment by two psychologists, Piercarlo Valdesolo and David DeSteno in which they tested people’s reactions to a certain situation:

      “You show up for an experiment and are told that you and a person arriving later will each have to do a different task on a computer. One job involves a fairly easy hunt through photos that will take just 10 minutes. The other task is a more tedious exercise in mental geometry that takes 45 minutes.”

      “You get to decide how to divvy up the chores: either let a computer assign the task randomly, or make the assignments yourself. Either way, the other person will not know you had anything to do with the assignments.”

      “Now what is the fair way to divvy up the chores?”

       As may be expected, when this question is posed in the abstract, everyone says it would not be fair to take the easy job, giving the harder one to the other person.

       But, when the person is faced with the actual situation and must choose which task to assign herself, more than 75% take the “easy road,” - i.e. the simpler task. Then, when later questioned about it, the participant views herself as acting very fairly. Or, in the words of the researchers, the participants were “moral hypocrites,” as “they were absolving themselves of violating a widely held standard of fairness. . . .” (Id.). In sum, a double standard of moral fairness exists in the world.

       How does this relate to negotiation and mediation? In any negotiation, each party brings with her a moral sense of “fairness.” This study shows that the standard is probably a double one. Each party subconsciously says to herself, “I will determine fairness to me by a different standard than how I determine fairness to you.” Or, “my definition of what is fair to me does not necessarily apply to what is fair to you.”

       Thus, during a negotiation or mediation, each party should attempt to be cognizant of the double standard that is probably in use and work towards mitigating its effects. Such cognitive awareness will go a long way toward reaching a compromise. If anything. . . such self-awareness may lead to a little empathy – or judging “fairness” from the other party’s shoes!

       . . . Just something to think about.   

       I am in the business of resolving disputes – a “peacemaker” – as many of my colleagues would say. I was reading an article online the other day, and suddenly it dawned on me that the lack of empathy may be the major reason for many disputes.

       The article, entitled “Empathy deficit disorder – do you suffer from it”? by Amanda Robb, appears on Oprah.com. Initially, Ms. Robb explains how she was quite unempathetic when her roommate and “boon companion for three years” came in and announced she had just been fired. Looking back, those fifteen years, Ms. Robb realized how badly she had dealt with the situation. As explained to her by psychologist Douglas LaBier, Ph.D., director and founder of the Center For Adult Development in Washington, D.C.,

      “. . . virtually everyone learns the basics of empathy in childhood (from our parents comforting us when we’re in distress),. . .

      . . . empathy is “the ability or the willingness to experience the world from someone’s point of view.” (Id.).

       Looking back, Ms. Robb realizes that she was not brought up to be empathetic. Her mother never displayed such a trait.
 But, according to Dr. LaBier, Ms. Robb is not alone: “empathy deficit disorder (EDD) is rampant among Americans:” (Id.).

      “. . .we unlearn whatever empathy skills we’ve picked up while coming of age in a culture that focuses on acquisition and status more than cooperation and values “moving on” over thoughtful reflection. . . . EDD is at the heart of modernity’s most common problems, macro (war) and micro (divorce).” (Id.).

       Which got me thinking. . . are disputes being created because the disputants have EDD: they are unable or unwilling to view the situation from the other’s person’s shoes? Are these disputes then ballooning or mushrooming into serious matters, even becoming cases in court because the parties’ attorneys –in accordance with their oath to represent their clients zealously and with loyalty – do not apply much needed (or any) empathy to the situation? Would the application of more or (even any) empathy to any potentially volatile situation early and often pretermit the dispute?  Perhaps. I suspect that a dose of empathy would make some disputes – although not all of them – dissipate. (Think about the effect that a doctor’s apology to a patient has had in alleged medical malpractice situations.) Obviously, there are some disputes that only money can cure. .. ! But for the rest. . .  there is empathy!

       . . . Just something to think about!

       More times than not, in order for the parties to reach a resolution at mediation, they must attend the mediation. While this may seem axiomatic, in reality, not all of the necessary parties always show up at a mediation. In most instances where a party does not attend in person, it is difficult, if not impossible, to reach a resolution. Unsurprisingly, the matter does not settle. 

       This simple fact was the subject of a motion for sanctions before the Third Appellate District in the California Court of Appeal. In Campagnone v. Enjoyable Pools & Spas Service & Repairs, Inc. (C055050), the court denied the motion for sanctions solely because the applicable local rule was not explicit enough to put the defaulting party on notice of its obligation. However, the court admonished the parties about the value and importance of mediation.

       In this case, plaintiff Robert Campagnone suffered severe injuries when the filter in his swimming pool exploded. After a jury awarded him $2.4 million in damages against both the manufacturer of the filter, Sta-Rite, and the seller and installer of the filter, Enjoyable Pools, the defendants appealed.

       As part of its process, the appellate court offers mediation (‘court-ordered” mediation) in which the first four (4) hours of the mediation session are furnished to the parties at no cost. If the parties wish to continue with the session, financial arrangements must be made with the mediator.

       The parties took advantage of the “court-ordered” mediation. However, Sta-rite did not notify its excess insurer (National Union) of the mediation session much less that its attendance was mandatory.

       Well. . . the matter did not settle at mediation. So, plaintiff filed a motion for sanctions against Sta-Rite, its counsel and its excess insurer seeking attorney’s fees, mediation fees and the expenses of participating in the mediation process because of Sta-Rite’s failure to notify the excess insurer of the mediation and the latter’s failure to attend.

       In its discussion on the virtues of mediation, the court noted that its court program had an over 50% settlement rate which occurred “. . .prior to the preparation of the appellate record, briefing and oral argument. By doing so, [the parties] saved substantial time and expense, achieved a result acceptable to each party, and moved on with their lives or business rather than having prolonged the litigation.” (Id. at 2).

       The court then stated the obvious:
     

      “For mediation to be effective, the parties must attend all mediation sessions in person, with full settlement authority. And when potential insurance coverage may apply, a representative of a party’s insurance carrier must attend all mediation sessions in person, with full settlement authority.” (Id.).

      In sum, the court, in principle, agreed with plaintiff but declined to order the sanctions as the local rule in point did not put Sta-Rite on explicit notice of what was required. However, the court did admonish that henceforth it would award such sanctions. It stated that “. . . at a minimum, a reasonable sanction is the cost of their wasted time for a period of four hours . . . plus the court’s cost to process the sanction motion.” (Id. at 6-7).

       In this way, the court is enforcing the obvious:

      “. . .It is self evident that for a mediation to succeed, each of them must attend every mediation session in full, with full settlement authority.”
(Id. at 6).

       I devote this blog to this point because although this simple fact may seem obvious, I have had too many mediations in which it is “inconvenient” for a party to appear in person such that the party either does not appear at all or simply appears by telephone – and then wonders why the matter did not settle. This court opinion explains the “why.”

       . . . Just something to think about.

       My mediation practice consists of cases filed in court (or litigated cases). Often times, the parties settle using an installment payment plan and a stipulated judgment. For example, defendant agrees to pay x amount a month, and if she defaults, plaintiff may file a stipulated judgment for y amount which is often a higher amount than the agreed upon settlement amount less credit for payments made.

       In Greentree Financial Group, Inc. v. Execute Sports, Inc. (Case No. G039326),(greentree-financial)  Division Three of the Fourth Appellate District of the California Court of Appeal held that such a practice may be illegal as constituting an unenforceable penalty.

       In this case, Greentree sued Execute Sports, Inc. (“ESI”) for breach of contract claiming $45,000 in damages. Just before trial, the parties settled. ESI agreed to pay $20,000 in two installments. It also signed a stipulation for entry of judgment memorializing this installment payment plan. The stipulation also provided that if ESI failed to make one of the payments, Greentree would be entitled to have judgment entered for all of the amounts sought in the complaint including interest, attorney’s fees and costs, less any amounts already paid.
 

      As may be surmised, ESI defaulted: it failed to make the first installment payment. Greentree then sought to have judgment entered for the $45,000 in damages as claimed in the complaint, plus $13,912.50 in prejudgment interest, plus $2,000 in attorney’s fees and $320 in costs, for a total of $61,232.50. Although ESI opposed this, claiming it to be excessive, the trial court entered the judgment.

       ESI appealed claiming that the stipulated judgment constituted the enforcement of an illegal penalty. In contrast, Greentree urged that the amount was a valid liquidated damages provision in a contract between the parties.

       The appellate court agreed with ESI, noting that the breach to be analyzed, is not of the underlying contract that caused the lawsuit, but of the stipulation or settlement agreement. (Id. at 4). That agreement called for a payment of $20,000. In light of that, the court queried: does a penalty of $61,232.50 (or three times that amount) bear a reasonable relationship to the possible actual damages that could flow from breaching this agreement? The appellate court answered “No!”
 

      The appellate court found that Greentree had offered no evidence of what damages would flow from ESI’s failure to pay the $20,000 as promised. Typically, such damages would include interest at the prevailing rate. (Id. at 5). But here, the “damages” were not interest and late fees, etc. but triple the amount.

       As the court explained:

      “Here, the judgment would have been enforceable if it had been designed to encourage ESI to make its settlement payments on time, and to compensate Greentree for its loss of use of the money plus its reasonable costs in pursuing the payment. The amount of the judgment, which awarded  Greentree approximately $40,000 more than the settlement amount, does not merely compensate Greentree – it rewards Greentree by penalizing  ESI. . . .

      “If the sum extracted from the borrower is designed to exceed substantially the damages suffered by the lender, the provision for the additional sum, whatever its label, is an invalid attempt to impose a penalty as its primary purpose is to compel prompt payment through the threat of imposition of charges bearing little or no relationship to the amount of the actual loss incurred by the lender.” (Citation omitted)”. (Id. at 5).

       The appellate court reversed and remanded the matter to the trial court with directions to reduce the judgment against ESI to $20,000 plus post judgment interest and costs. (Id. at 8). Since the stipulation did not contain any provision for the award of attorney’s fees (i.e. $2,000) or a prejudgment interest (i.e. $13,912.50), these amounts could not be included in the judgment, as well.

       So. . .the next time you find yourself settling a case by using a stipulation to enter judgment upon default in installment payments, make sure that the default amount bears a reasonable relationship to the range of actual damages you or your client might suffer as a result of a breach of the settlement agreement and not the underlying agreement. Otherwise, the default judgment amount may not be enforceable.

       . . . Just something to think about.