A Lesson on Settlement Negotiations

As originally reported by California’s leading legal journal The Recorder, the case of Hernandez v. Schaefer Ambulance Services Inc., BC451751 (L.A. Super. Ct., filed Dec. 22, 2010) has become a classic example of how NOT to settle a case.

Summary of the Case

While transporting patient Pablo Valdez Hernandez from an El Centro hospital to a psychiatric facility in San Diego, EMTs left the patient’s left arm unrestrained because he was non-combative.  While travelling west on Interstate 8, one EMT heard a buckle hit the floor and, as he reached back toward the patient, Hernandez leapt out of the moving vehicle onto the freeway.  According to Hernandez’ attorney, C. Michael Alder of AlderLaw PC, the ambulance company’s negligence in failing to adequately secure Hernandez resulted in severe and permanent brain injury to his client.

The Botched Hallway Negotiations

Alder took the case to trial in January 2012, asking for $21 million in damages.  Before closing arguments, defense attorney James E. Siepler of Pollard, Mavredakis, Cranert, Crawford & Stevens offered to settle for $1.25 million, but Alder turned it down.  After only four hours, the jury announced that they were prepared to deliver a verdict.  The short deliberation indicated that it was likely the verdict would be for the defense.

Alder, worried that his client would get nothing, made a last-minute hallway settlement attempt.  The defense, however, was now only willing to settle for $200,000.  After several rounds of offers and counter-offers, Alder finally secured an oral agreement to settle the case for $350,000.  After a sidebar conference, Los Angeles Superior Court Judge Michael Johnson announced to the court that a settlement had been reached and released the jury for comments.  In the moments after, Siepler asked to put the settlement on the record, but it didn’t happen because plaintiff’s attorneys were already following the jury out into the hallway… where they were shocked to learn that the jury had been prepared to offer the plaintiff a $9 million dollar verdict.  At that point, Judge Johnson later stated for the record, “all hell broke loose”.

The Post-Trial Battle

Now the parties are locked in a bitter post-trial battle.  At a hearing on April 25th, the defense requested a dismissal with prejudice, accusing Alder of “egregious misconduct” in that he either falsely told the court that the parties had reached settlement or later falsely told the court that he did not have his client’s authority to settle.

Alder admitted that he made a mistake accepting a settlement offer without his client’s consent, but claims it was an honest one that resulted from the time pressure to obtain some kind of settlement for his client before the jury returned.  “It was a chaotic event and it didn’t go well,” Alder said, “but there was no fraud”.

At the conclusion of the hearing, Judge Johnson found no “egregious misconduct” that required dismissal of the case and ordered a retrial in January 2013.  He also granted the defense the opportunity to amend its answer and file a counterclaim regarding the settlement negotiations.  Johnson is now taking fire for allowing a retrial that appears to prejudice the defendant, since the plaintiff could use the first jury’s results to either amend their complaint to a higher demand or as the gauge for a new round of negotiations.  As the defense puts it, “If plaintiff is allowed to get away with such gamesmanship in this case, there is nothing to prevent any plaintiff’s counsel from testing the waters with one jury, settling the case without authority from the client, interviewing the jurors to see which way they actually were leaning, and then repudiating the settlement and seeking a retrial”.

Lessons Learned

While we wait to see what will happen with the retrial of Hernandez v. Schaefer Ambulance Services, here are some valuable tips that can help you and your client now.

Perform Accurate Case Valuation

Approach negotiations with the expectation that the case will proceed to trial.

    • Know the strengths of your case.  What elements need to be proved for each claim made?  What evidence is required to support each element?  Where will each piece of evidence come from?
    • Acknowledge the weaknesses of your case.  While you will present a strong case, the other side will also present their most vigorous defense. What affirmative defenses were made?  What viable claims might the other side have to support those defenses?  How can you best refute those claims?
    • Gather all the information you can.  Participate in mediation or conduct discovery that helps you understand all of the facets and aspects of your case, even those that might not be readily apparent.
    • Be confident but practical.  Each side should theoretically be willing to settle for their estimation of the likely judgment plus/minus the cost tolitigate.  Let’s look at an example:
      • Plaintiff thinks there is a 60% chance that he can get a $1 million settlement, but it will cost him $300,000 to litigate the matter.  Therefore, plaintiff should be willing to settle for anything over (60% * $1 million) – $300,000 = $300,000.
      • Defendant thinks there is a 40% chance that plaintiff can get a $750,000 verdict, but it will cost the defendant $200,000 to defend against the lawsuit.  Defendant should be willing to settle for anything less than (40% * $750,000) + $200,000 = $500,000.
      • Based on the analysis above, this case should probably settle anywhere between $300,000 – $500,000.

Make Sure You Have Authority to Settle

An attorney must be specifically authorized to settle and compromise a lawsuit; the relationship with the client does not provide an implied authority to bind the client to a settlement. Levy v Superior Court (1995) 10 C4th 578, 586, 41 CR2d 878. See Gauss v GAF Corp. (2002) 103 CA4th 1110, 127 CR2d 370; 6 Witkin, California Procedure, Proceedings Without Trial §120 (5th ed 2008); California Trial Practice: Civil Procedure During Trial §16.33 (3d ed Cal CEB 1995).

Get Your Settlement in Writing

California Code of Civil Procedure (CCP) §664.6 requires that settlement agreements either be “in a writing outside the presence of the court or orally before the court” in order to have a judgment granted pursuant to the settlement terms.  To ensure its enforceability, make sure that your settlement is in writing or is entered into the court record.

Be Honest

California Rule of Professional Conduct (RPC) 5-200 prohibits attorneys from “deceiving the court, opposing counsel, or an opposing party by making false statements or misleading statements or failing to disclose a material fact when disclosure is necessary to prevent a fraudulent or criminal act”.  Lawyers may be subject to discipline for engaging in conduct involving dishonesty, fraud, deceit or misrepresentation.

Keep It Confidential

Keep offers and counter-offers confidential by presenting them within the context of mediation.  Last-minute panic, caused by presumptions about what the jury will or will not award, can lead to rushed negotiations that are not in the client’s best interest.  All conduct, statements and materials prepared for the purpose of mediation remain confidential after the mediation concludes, offering the most private forum available for negotiation discussions.

Lisa Fiance, Esq. is a licensed California attorney, formally trained mediator, and the owner of Epiphany ADR.

[The Recorder], [The National Law Journal], [Judicial Hell Holes], [Red Law LLP]