In one videotape, a young boy helps put up a Christmas tree. In the next, he is in a wheelchair, unable to move.
The manufacturers of a car seat put him in that chair, argues Browne Greene, the plaintiff’s lawyer who recently showed the tapes to defense attorneys in a personal injury case seeking millions of dollars.
But no jury will see them, nor will they decide anyone’s guilt. The tapes are designed to scare the manufacturers into settling the case one of several tactics Greene uses to keep the other side nervous.
“Since they have the money, they have control of everything,” said Greene, a partner at Greene Broillet Panish & Wheeler LLP. “You can’t reach across and grab the money. You have to show the fear of God to get them.”
Far from dramatic courtroom antics, settlement negotiations require knowing the difference between a good hand and a bad one. In a setting that’s usually more civilized than a trial, attorneys who pound the table and demand an offer rarely get results. Settlements are more about logic than emotion.
But that doesn’t mean things don’t get ugly.
“It’s a power play,” said Gerda Govine, chief executive of G. Govine Consulting, who serves as an expert witness and mediator for employment discrimination claims. “It’s about who can throw their weight around. You’re saying, ‘I’m the one in control. I’m the one who knows what I’m doing. And the other attorneys are making mistakes.'”
There’s no way to quantify the number or dollar amount of legal
settlements, since many are confidential. But those that have been disclosed periodically illustrate the huge money involved.
Last year, El Paso Natural Gas Co. paid $1.5 billion in order to settle a nationwide class of residential and business consumers alleging the company inflated prices during California’s energy crisis. That’s $120 million shy of this year’s largest verdict award, brought against Southwestern Life Insurance Co. and others over an Alabama woman’s lapsed policy.
Local settlements have not come cheap, either. Last year, Mattel Inc. settled a shareholder class action suit for $122 million, while the City of Santa Monica collected $312.8 million from a dozen oil companies accused of polluting its drinking water.
Earlier this year, Homestore Inc. and Global Crossing Ltd. settled shareholder suits for a combined $400 million. This month, Abercrombie & Fitch Co. settled a racial discrimination class action suit in California for $40 million.
But defendants mount vigorous negotiations.
“You sometimes realize the only way to deal with them is come to them as a steamroller,” said Robert Dawson, a partner at Fulbright & Jaworski LLP. “You say, ‘This is my one chance to deal with a settlement. Get out of my way or I’ll roll over you.”
The object of the game is to break down the numbers, piece by piece, until one side puts his or her cards on the table. To do this, aggressive lawyers may challenge each others’ arguments, threaten to embarrass each others’ clients, or attempt to discredit expert witnesses.
For a softer sell, lawyers might sweet-talk or small talk their opponents, or even use humor. They may apologize for the circumstance that caused the suit. They make “non-monetary” offers, such as trade school tuition to an ex-employee who wanted to be a photographer or a cleared personnel file for an employee who had been fired.
They might stay in the conference room until late at night, or skip dinner, to force a settlement out of an exhausted opponent.
A lot comes down to the words they use.
“I might say, ‘You’re hoping in two years to get a judgment for $150,000, which I’ll appeal in four to five years, and you’ll get $50,000,'” said Dawson. “I’ll say, ‘Do you want a third of $50,000 for nothing, or after three years?’ (The one-third refers to the attorney payouts.) It’s flipping the coin and giving the lawyer on the other side something to think about, that he or she should be factoring in as to whether to fold their cards or not. That’s where the poker comes in.”
Often, attorneys use a cost-benefit analysis to reason with their opponents.
In a recent divorce case, Daniel Jaffe, a partner at Jaffe & Clemens in Beverly Hills, said he picked apart claims of his client’s ex-husband by convincing him it was too costly to keep fighting. He managed to obtain $10,000 per month in child support for his client, the ex-wife of a rock producer who had been paying $4,000 per month.
“Our legal fees were $20,000 to settle the case,” Jaffe said. “If it hadn’t settled, I would have spent a week in New York taking depositions because dad was in the music business and the costs of litigation would have been $100,000 to $150,000 per side. That gets to be an expensive hunk of litigation. He decided to give it to the mother of the kids as opposed to the lawyers, which was a smart decision.”
Divorce settlements have the added complexity of being emotionally driven. Lawyers say they have to calm their clients before they start talking settlement dollars and convincing a client of cost benefits rarely works in litigious divorces.
“‘Because you left me,’ impacts a lot of divorce cases, where people get hung up in the emotion and want to punish the other side,” Jaffe said.
Sometimes pictures speak louder than words, especially when considering a potential jury verdict. Greene uses Power Point presentations and videotaped depositions to show his opponent how a jury might sympathize with his injured plaintiff. Or, he might question the credibility of the defense witness who stutters or hesitates when asked critical questions.
Defense lawyers counter the emotional appeal by threatening their opponents with costly delays or swaying them with probabilities and statistics that favor a defense victory in court. Knowledge is also key: defense lawyers realize that certain plaintiffs’ lawyers try to get $2 million in a $100,000 case, while others begin talks at $750,000. “Part of the negotiating process is in how much they bluff and how much malarkey there is in that number,” Dawson said.
Then there are cases where the lawyers know each other too well for games. In those cases, the object becomes less about bluffing and more about reality.
“Those who really know each other and respect each other avoid game-playing,” said Manley Freid, a partner at divorce firm Freid & Goldsman. “We really know that the other guy knows what’s going on. Once you know that, it’s easier to deal with it. We get to the heart of it really fast so we can settle it, both clients are happy, they refer us cases, and we make more money.”
There are few hard-and-fast rules. Lawyers can come to an agreement at any point during a lawsuit, including just days before the trial. In many cases, lawyers settle once depositions and motions have revealed the strengths and weaknesses of each side’s case. They also settle under orders from the judge.
Some lawyers say plaintiffs prefer settling quickly but the defense, if it is a large corporation, can afford to drag the case out and pick apart the lawsuit.
But that isn’t always true.
“A couple of years ago, I settled a case in the first telephone conversation,” said Jeff Riffer, a partner at Jeffer Mangels Butler & Marmaro LLP, whose client was defending the claim. “In a five-minute conversation it was over.”
Many divorce cases are settled quickly because of a computer system called DissoMaster that calculates child or spousal support based on the assets, liabilities, income and expenses of each individual. Only those whose wealth exceeds $1 million create conflicts that require more negotiation.
Experienced attorneys typically settle more quickly. John Quisenberry, a plaintiff’s attorney and partner at The Quisenberry Law Firm, said the defense attorney usually asks what the case is really about: Does the plaintiff just want money? Does he want to prove a point? Does he want punitive damages? He tries to settle after the first phone call.
“A good defense lawyer is a problem solver. When his client has been sued, he has a problem he needs to resolve,” Quisenberry said. “He’s probably hearing from his client that this is a frivolous lawsuit, we’ve done nothing wrong. But most defense lawyers know that’s an initial reaction and their client is thinking economically and doesn’t want to spend $500,000 defending a case if he can settle.”
Settlements can happen on the phone or over coffee. Sometimes lawyers discuss settling during the breaks of a court hearing, since everyone is at the courthouse at one time. In many cases, settlements happen in the less dramatic setting of conference rooms.
Few last longer than a single day. The more complicated lawsuits and divorce settlements take longer, sometimes several months.
Many go through mediation rather than tackle the process on their own. Some lawyers say pick a mediator you trust; others suggest picking a mediator the opposing lawyer trusts.
Once in the conference room, the mediator typically spends the first half-hour or so explaining the process to both sides. Then, the lawyers and their clients go to separate conference rooms. During the rest of the day, or during most of time spent reaching a settlement, the mediator relays proposals from each side while advising them what to take and what to leave.
“It’s an interesting process,” said Connie Michaels, a partner at Littler Mendelson PC. “Literally, the mediator shuffles from one room to the other. Sometimes, at the end, everyone will shake hands. Sometimes, you go through the entire day without ever seeing the other side.”
Much of a settlement strategy depends on the credibility of the plaintiff’s case and the liability of the defense.
Greene said every case has problems, but the plaintiff must determine whether the problems are large enough to lose the case. “I can be creative and lyrical, but if you don’t have meat on the bones you can’t make chicken feathers,” Greene said.
Although it’s not required, the plaintiff’s lawyer customarily throws out the first offer, which is often very high but outlines how the rest of the settlement negotiation proceeds.
Quisenberry said the plaintiff’s lawyer typically agrees with his client on a specific number before making the inflated first offer. The offer often includes actual damages, or those that can be argued using provable numbers, plus future business losses, emotional distress or insurance coverage. Punitive damages are almost never part of a settlement discussion.
The inflated offer gives the plaintiff a starting point and the defense some knowledge of how much the plaintiff knows.
“The reason you have to do that is that the other side is convinced that’s what you’re doing,” Quisenberry said. “If you gave them your real number, it gives them nothing. They won’t do their job if they don’t beat you down some.”
The defense attorney, meanwhile, must consider damage control. The importance of confidentiality in a settlement often exceeds the desire to spend weeks or months battling over a figure.
Dawson said the in-house attorney for one of his clients once sent him a case file with the comment, “You’ll make a lot of money on this one.”
“I looked at that file and said, ‘I won’t make money because we’re going to settle this right now,'” he said. “There were a lot of huge problems. Not only were there huge problems, but I knew that the longer the case went, the more the plaintiff would learn how good their case was.”
In some cases, a corporate defendant can quickly realize how good a case the plaintiff has often before the plaintiff does. In those circumstances, companies often settle quickly. If a plaintiff is seeking $30,000 for a case he believes to be worth $20,000 if it went to trial (not including punitive damages), but the company knows the case can be worth $100,000, the company settles.
Confidentiality is often especially important. Concerns about protecting trade secrets or the concepts behind a film or TV show often lead movie studios to settle suits quickly, said Arnold Peter, a partner at Lord Bissell & Brook LLP and former in-house attorney at Universal Studios. Settlements have become so common at studios that plaintiffs’ attorneys sometimes call the company’s lawyers before they file a suit, he said.
“It’s not good for that to be played out in the media,” he said. “It’s much more important than it might be in other industries like manufacturing or retail. Essentially, they hold you hostage because they’re using the threat of publicity as a means of getting a bigger settlement.”
Some of the most successful suits against public companies have come from state Attorneys General, such as New York’s Eliot Spitzer. As a result of those actions, public companies fear market cap changes as much as liability, said Jeff Modisett, an attorney of counsel at Bryan Cave LLP and former Attorney General of Indiana.
“I’ve had a CEO turn to me and say, ‘I’ve just lost $1 billion in market cap, I can’t afford to let this go on one more day, and if I have to spend millions of dollars to get this behind me, that’s what I have to do, regardless of the merits.'”
The best settlements are those in which both parties end up making a business deal out of the negotiations. For example, a company might agree to offer discount prices to the buyer who filed the suit if he agrees to deal exclusively with that company.
“Instead of money moving,” said Riffer, “you agree to do a joint venture, and you put your resources into trying to create money for both of them.”
