Last week, I mediated a very contentious dispute that was fueled by a misassumption. Only late in the mediation did the parties realize the existence of the misassumption. In the words of our President, it became a “teachable moment.” The teaching: never assume.

      The dispute was simple. A homeowner suffered a fire loss and so made a claim to her insurance company. Eventually, the claim was settled and the insurer issued two checks, payable jointly to the homeowner and her lender or mortgage company. The homeowner allegedly forged the endorsement of the mortgage company and attempted to negotiate both checks. She was able to negotiate one of them but the bank became suspicious and was able to have its depositor, the insurer, request a stop payment on the other. The homeowner then vanished. The mortgage company then requested the insurer to re-issue the second check and send it directly to the mortgage company. The insurer refused, contending it owed a duty to the insured to pay her and was concerned that the insured might reappear and request the payment. Thus, the dispute arose.          
  

      For more than a year, the parties corresponded: the mortgage company insisting that it was entitled to the re-issued check, while the insurer, citing various reasons, claimed it should hold the funds to be given to the insured, if and when she reappeared. Themes of bad faith and entitlement to punitive damages were flying between the parties.
 

      In preparation for the mediation, the insurer’s counsel sent a very thorough, detailed brief containing many exhibits. It was signed by the attorney (I will call her “Esquire, Senior”) who had been handling the matter from the beginning. Counsel for the mortgage company submitted her brief and again it was signed by the attorney (I will call her “Mortgage Attorney”) who had been handling the matter throughout.
 

      The parties then appeared for the mediation session. The Mortgage Attorney and a senior representative of the mortgage company arrived at the mediation. But, on behalf of the insurer, a junior attorney (“Esquire, Junior”) appeared without her client who was appearing by telephone. Immediately, the Mortgage Attorney and her representative became upset: they felt disrespected. They believed that – deep down – the insurer knew it  had no valid reason to not re-issue the checks for the past year or more and so  sent Esquire, Junior to “take the heat” for its “bad faith” tactics and otherwise unprofessional behavior. They believed that Esquire, Senior was “playing dirty” by not showing up  but, instead, took  the “cowardly” road of sending a junior associate to handle what  would be a very contentious and unpleasant mediation.
 

      So, if the mortgage company and its counsel were not livid about this case before, they  certainly became so. They, immediately opined: “Esquire, Senior does not even have the “guts” to show up herself.” However, being polite, they did not raise this directly with Esquire, Junior. Instead, they seethed, silently, and/or vented to the mediator during the separate sessions.
 

      Only, many hours later, as the matter was settling, did Esquire, Junior mention that solely because of a family emergency arising late the prior afternoon, Esquire, Senior could not be there: otherwise, she would have been present to “take the heat” herself. She further mentioned that it was and is not Esquire Senior’s “style” to send an associate to do her “dirty work”.
 

      Upon being told this, a palpable shift in attitude appeared on the faces of the Mortgage Attorney and her representative. They had ascribed evil motives where there were none which had fueled their anger and infected their negotiations. They had assumed, and had done so, erroneously. Had they not done so, perhaps, the mediation would not have been as contentious or taken as long to resolve.

       I have always said that litigation occurs mainly due to a lack of communication or a miscommunication. People assume the wrong things or take a communication the wrong way and sue over it, only to find out years later the error of their thinking. Here, the mediation got off to a bad beginning and lasted longer than it should have because of a misstep and misassumption.
 

      The lesson: never assume, just ask instead.

       . . .Just something to think about.

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        What is the duration of the implied warranty of merchantability under California’s Song-Beverly Consumer Warranty Act (Civil Code §1790 et seq.) (“The Song-Beverly Act”)? Is its duration simply as set forth in Civil Code § 1791.1(c):

      “The duration of the implied warranty of merchantability. . . shall be coextensive in duration with an express warranty which accompanies the consumer goods, provided the duration of the express warranty is reasonable; but in no event shall such implied warranty have a duration of less than 60 days nor more than one year following the sale of new consumer goods to a retail buyer. . . .”

       Or, is it something different? Does the statute mean what it says or something else?

       In Mexia v. Rinker Boat Company, Inc., (Case No. E045443), Division Two of the Fourth Appellate District of the Court of Appeal in California (June 15, 2009) held that these words do not mean what they say, but, indeed, mean something different.

       On April 12, 2003, Jess Mexia purchased a boat manufactured by defendant Rinker Boat Company (“Rinker”) and sold to him by Miller Landing (“Miller”). By July 2006, the boat needed repairs due to defects relating to corrosion in the engine. (Id. at 4). He returned the boat on July 8, 2005 for the repairs. When defendants allegedly failed to repair the boat so that it would conform to the applicable warranties, Mexia filed suit in November 2006.

      The trial court sustained the demurer without leave of Rinker and Miller on the grounds that this statute is a one year statute of limitations and thus barred Mexia’s claim. Mexia appealed the trial court’s judgment dismissing his lawsuit.

       On appeal, Rinker and Miller changed their argument to urge that although the applicable statute of limitations is four years, this lawsuit is still barred because Mexia was required to discover and report the defect within the time specified by the statute.

       The appellate court rejected this argument. The court determined that given the plain language of the statute, it “. . . creates a limited, prospective duration for the implied warranty of merchantability; it does not create a deadline for discovering latent defects or for giving notice to the seller.”  (Id. at 3).

       The appellate court rejected the notion proffered by Rinker and Miller “that latent defects must be discovered and reported to the seller within a specified time” (Id. at 17), claiming that this theory had no support in the text of the statute. The appellate court reasoned  that “if the legislature had intended the duration provision to impose a deadline for consumers to give notice of defect. . . it could have easily done so. It did not” (Id. at 18).

       Rather, the appellate court interpreted this “duration provision” – Civil Code § 1791.1(c) – as providing the implied warranties under the Song-Beverly Act with a limited prospective existence beyond the date of delivery” (Id. at 20) but as not imposing any sort of notification deadline. (Id. at 18).

         Based on its determination, the appellate court reversed: Mexia could allege a breach of the implied warranty even though he did not first raise the issue until more than two years after he purchased the boat.

       The morale of this story: a statute does not always mean what says. Especially where as here, the statute is consumer oriented, and enacted to expand consumer protection and remedies, a court will provide an expansive interpretation whenever possible. It will construe the statute as broadly as possible so as to implement what it views to be the legislative intent.

      . . . Just something to think about.

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       An important aspect of any dispute, be it one filed in court or simply a neighborly spat, is the expectations of the parties. Are they unrealistic or do the parties know exactly what is what and what they can expect as part of a resolution?

       When the expectations of the parties are not realistic because no one has discussed the realties with them, any attempt at alternative dispute resolution will end in disaster.

       This, again, happened in one of my mediations recently. It involved a case filed in court. Plaintiff hired an attorney to prosecute her claim against defendant. The plaintiff’s attorney duly filed and served the complaint. After the defendant was served, it turned the complaint over to its counsel who analyzed it and concluded that the otherwise applicable state statutes did not apply. Plaintiff did not have a cognizable claim. Defense counsel wrote plaintiff’s counsel to share her analysis but did not receive a response. So, several weeks later, defense counsel, again, wrote plaintiff’s counsel, sharing her analysis. Again, no response.

       The matter meandered along. Finally, the court ordered that the parties attend mediation. So, the parties scheduled a mediation with me. Defense counsel sent me a brief setting out the same analysis that she had given plaintiff’s counsel on several occasions over the past few months: plaintiff had no claim cognizable under state law.

       I started the mediation with a joint session. Plaintiff explained the substantive issues. Then defense counsel presented her analysis. As she spoke, I could see from plaintiff’s face that this was all new to her; she had not been told that her case was subject to dismissal because the otherwise applicable statutes were not applicable. After some discussion on this point, the parties broke into separate sessions.

       When I met separately with plaintiff, I could see she was clearly perturbed. She had come to the mediation with a particular mindset in terms of what she would accept to settle her case, only to find out for the first time at the mediation, that she had no case, and that any settlement would involve minimal amounts, nowhere near the amount she had in mind when she walked into the mediation.

       The mediation went downhill from there. Plaintiff needed to process the new information and until she accomplished this, she was unable to accept the “new” situation and make a demand. Eventually, she got so angry at the situation, that she stormed out of the mediation, slamming the door behind her.

       Several months ago, I read a book entitled The Science of Settlement by Barry Goldman, MA, JD (ALI ABA 2007) in which he discusses all of the psychological factors involved in negotiations. He devotes an entire chapter to “Preparation”, discussing the myriad of mind games we each play with ourselves in negotiating with others. His opening paragraphs are on point:

      “Negotiating a deal is like painting a room.. It’s all about the prep. The part where you put the paint on the walls is easy. It’s the scraping and sanding and taping that takes the time and effort.”

      “Negotiating without preparation – trusting your instincts or “going with the flow” – is a dreadful mistake. . . .”

      “Obviously, you need to know your file. . . . “The best way to sound like you know what you are talking about is to know what you’re talking about.” . . . .”  (P. 9)

       On several occasions in the past, I have written about the importance of preparing for mediation. In each blog, I have stressed that the parties need to be fully informed about all of the issues and the consequences of any decisions made at mediation, including acceptance or rejection of offers and demands. I have noted that each party needs to know the exact parameters of the dispute, and thus the potential existence or non-existence of liability and thus the possibility for damages. I have suggested that prior to a mediation, a party needs to learn what mediation is all about, what to expect, to review the issues and to analyze them. I have implored that prior to the mediation, investigate the facts and law and assess the strengths and weaknesses of not only your position but that of the other party. Step into the shoes of the other party and view the dispute from her vantage point. How does your side of the dispute look from the other person’s side of the table?

       All too often, I have witnessed parties attend mediation, believing that settlement is possible without any real knowledge of the facts and the law. Their expectations are unrealistic. As Mr. Goldman notes above, it is a “dreadful mistake” to approach mediation by simply “winging it.” Parties need to mentally process issues, i.e., to prepare. Our minds must work through the issues to reach a conclusion. We cannot just walk into a mediation, be given a reality check by the mediator or the other party and mentally process such disparate information  so quickly that we are capable of accepting a totally different reality in a nanosecond. Our psyches will not allow us to suddenly accept a settlement proposal that we thought to be anathema an hour earlier. We are not computers: we are humans and so require time to absorb and accept new ideas. Without preparation, unrealistic expectations will exist and will be the recipe for failure to reach resolution at a mediation. The effort will be futile and a valuable opportunity will be wasted.

       So once again, I urge – - do not take mediation lightly. Come prepared and you will have a great chance at settling. Come unprepared and you will be doomed to failure.
 

      . . . Just something to think about. . . .

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       Last week, I was in New York attending the 11th Annual Conference of the American Bar Association’s Section of Dispute Resolution. One of the highlights was the award of the ABA’s D’Alemberte-Raven Award to Magistrate Judge Wayne Brazil of the Northern District of California. This is a most prestigious award.

       In his acceptance speech, Judge Brazil admonished his audience of ADR neutrals that we must be cognizant and respectiful of  the dichotomy between rights versus resolution. Every litigant is entitled to the full panoply of rights accorded to her by our judicial and legal system. These rights should neither be trampled upon nor destroyed at the expense of seeking a resolution through alternative dispute resolution. Thus, while settlement of any dispute is always a goal of any neutral, it should  NOT be the SOLE goal and so overriding that it trumps the party’s right to a trial by a jury of her peers, or by the court or of any of the other rights afforded through our system of justice. Reaching a settlement at any cost cannot be the neutral’s motto. While the courthouse may be “multi-door”  (to quote Professor Frank Sanders), we cannot forget that one of those doors leads to the trial courtroom.

       I walked away from this address and the conference wondering where exactly is the line between rights and resolution. At what point does a neutral cross the line in advocating settlement over trial? At what point is pushing a settlement no longer appropriate or is too much or so over the line that it impliedly constitutes the denial of all the rights accorded to a party by the U.S. Constitution?

       I am a long way from finding the answer but I think I came a bit closer through a mediation I had the other day.

       It was a “lemon law” case. The plaintiff complained of a defect in her automobile but the defect allegedly first occurred after the warranty expired, meaning that theoretically, (or unless some exception applied) the vehicle did not qualify as a “lemon” under either federal or California law. To make matters worse, the defendant was (and is) a U.S. automaker and thus in a world of “hurt.” Because of its financial situation, even on a “good” case, it was unable to offer much in the way of settlement because it did not have it to offer.

       So. . . here we were, a plaintiff with potentially no case and a defendant unable to even offer nuisance value due to its own financial crisis.

       When defendant offered what little pittance it had, plaintiff was insulted and took great umbrage. I, as the mediator, tried to explain the realities of the situation – that plaintiff probably did not have a claim under the “lemon law” and that defendant’s economic condition and ability to settle may very well erode into nothingness in the coming weeks. Quite possibly, defendant’s economic situation will only worsen with the passage of time.

       In response, plaintiff said she did not care: it was “the principle”, and she wanted to go before the court and be heard. She wanted the court to say that what the manufacturer and dealerships had done to her was neither just nor fair.
 

      Is this where that “magical” line exists – between rights and resolution? Should plaintiff be entitled to go to court and have the court determine for her and adjudicate the “justness” or “fairness” of the situation even though the cost of the litigation will far exceed any damages plaintiff may ever collect either against the manufacturer or the dealerships? I do not know.

       We went round and around for another hour about the practicalities of the situation (i.e., cost-benefit analysis) versus plaintiff’s right to go to court. In the end, plaintiff would not agree to settle: she wanted to be heard in court.
 

      Did I, as a mediator, do my job or not do my job? Is my goal to have the parties obtain resolution at any cost? Or simply to open their eyes to the consequences of any decision they may make?  Am I there simply to “facilitate” the discussion, making sure all of the issues, interests and needs are out on the table, or am I there to assist them to reach settlement? At what costs? Rights? Or resolution?

       I do not know. When I do, I will do a sequel to this blog. But, I do know that this mediation led me to a deeper understanding of what Judge Brazil meant in describing the tension between rights and resolution.

       . . . Just something to think about.

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       Last week, my blog discussed the Nash equilibrium which states that “. . .in every situation of competition or conflict in which the parties are unwilling or unable to communicate”  “. . . both sides have selected a strategy. . . [which] neither side can then independently change. . .  without ending up in a less desirable position.” Fisher, Len, Rock, Paper, Scissors: Game Theory in Everyday Life (Basic Books 2008) at p. 18. (Emphasis original.)

       This week, I conducted two mediations in which I witnessed the consequences of this game theory. More importantly, both mediations showed me the importance of communicating with the other side prior to the mediation so that the mediation process is more effective.

       The first was a business dispute. Plaintiff was suing to collect a referral fee based on what it believed had been a referral of close to 3,000 clients to the defendant. The alleged agreement provided for a $10 referral fee for each client to be paid on a monthly basis for so long as the defendant retained the client. In calculating its damages, plaintiff assumed that for the last 3 plus years, defendant had retained these clients. It, thus, calculated its damages to be more than a million dollars.

       Evidently, the parties had not conducted discovery, and the defendant had not shared any sort of accounting records with the plaintiff prior to the mediation. During the mediation, I asked the defendant how many clients were still using defendant, only to learn that over the last three years, defendant lost more than 75% of these clients. Thus, the actual alleged damages were, in reality, far less than $100,000 ( much less the more than the over one million dollars sought by Plaintiff.)  With defendant’s permission, I shared this information with plaintiff but to no avail. Plaintiff was in disbelief and refused to discuss settlement in the amounts being offered by defendant. At this point, the “equilibrium”  was obtained: neither plaintiff nor defendant  could keep going their separate ways without escaping further loss. They must now cooperate with each by sharing accounting records to determine the best solution possible under the circumstances.

       The second mediation met the same fate: it did not settle because, like the first, it reached the “equilibrium” during the mediation. This matter was a “lemon law” case or one brought under California’s Song-Beverly Consumer Warranty Act (California Civil Code §1790 et seq) and the Federal Maguson-Moss Warranty Act (15 U.S.C. §2301 et seq).  Defendant was of the view that plaintiff’s vehicle did not qualify under California law, and the federal statute had only limited applicability to the situation. However, counsel chose not to share this view with plaintiff’s counsel until the mediation. Needless to say, when defense counsel explained her client’s position for the first time at the mediation, plaintiff’s counsel (and plaintiff) became quite upset. While both parties did continue to negotiate in hopes of resolving the matter, it was clear that  this issue was the sticking point because if defense counsel was correct, plaintiff did not have much of a case, but if plaintiff was correct, plaintiff believed the vehicle to be a strong candidate for repurchase.

       Again, the “equilibrium” was obtained. Neither side could continue with its independent strategy without being worse off.  Each must now cooperate with the other to find a solution that provides the best solution possible to their respective clients under the circumstances.

       In both instances, I believe that if the critical information had been shared prior to the mediation, the Nash equilibrium could have been successfully handled during and as part of the mediation process.

       In short, given the Nash equilibrium, it is difficult to switch from a competitive to a cooperative strategy during a mediation with any degree of success. Like everything in life, strategy “shifts” need to percolate for a bit to become effective. If a tectonic shift in strategy is in the winds, it should be implemented  prior to the mediation so that the Nash equilibrium does not thwart reaching a resolution during the mediation

       . . . Just something to think about.

      Many of you have recived information regarding the “Argus” offer. For a limited time, it is still being offered. To read more,  click here:   http://www.pgpmediation.com/argus/   

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