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]

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The “Butt Drag” Mediation – Sexual Assault or Approved Wrestling Move?

It sounds like a scene out of Fairly Legal, the new USA network series, whose lead character is an ex-attorney who finds her true calling when she changes professions and become a mediator. This is real life, though.

The Incident: No one disputes that Preston Hill, 17, grabbed his teammate’s butt cheek to execute a wrestling move called the “butt drag” during a July, 2010 practice at Buchanan High in Clovis, California. From there, however, the parties’ stories diverge dramatically.

The alleged victim, Hill’s freshman teammate, told Clovis police that Hill rammed two fingers into his anus in retaliation for an earlier bullying incident in which the freshman stood up to Hill, a senior, for taking his water bottle.  Hill denied the allegations, telling police he used a legitimate wrestling move in order to motivate his younger teammate to wrestle. In fact, Hill said, his middle school coaches taught him the move (also known as “checking the oil”).

Prosecution: Although police could find no physical evidence of the assault, the alleged victim’s family pushed for Hill to be prosecuted.  In response, Fresno County Deputy District Attorney Elana Smith filed a sexual assault charge against Hill.  The charges, however, resulted in public accusations of overzealous prosecution against the DA’s office. Following these accusations, Smith was allegedly under pressure from her boss, District Attorney Elizabeth Egan, to dismiss the case.

The Mediation: Fresno County Superior Court Judge David Gottlieb apparently helped broker both an opportunity at dispute resolution for the two young men and their families and a way out for the DA’s office. If Hill would take part in a mediation organized by the Los Angeles Sheriff’s Department’s SHARE (“Stop Hate And Respect Others”) program with his teammate, and write an essay afterwards discussing what he had learned, then the charges against Hill would be dismissed.

Hill had initially rejected an offer by the prosecution to drop the charges in exchange for his agreement to issue an apology to his teammate, attend counseling and stay out of trouble for six months.  No one seems to know why Hill rejected that offer.

In January 2011, the Clovis Unified school board expelled Hill after a school panel concluded that Hill had bullied and sexually assaulted his teammate. The following day, Hill agreed to Judge Gottlieb’s proposed mediation.

Two days later, both boys’ parents dropped them off at the Juvenile Justice Campus south of Fresno.  Together, Hill and his teammate watched a presentation on hatred and intolerance held in SHARE’s custom 70-foot mobile theater, and then participated in a mediation session.  After the session, each boy wrote an essay on what he had learned.

Satisfaction:  According to the parties, participating in mediation was worthwhile.

“This case was not about the butt-drag, it’s about bullying and holding people accountable”, the alleged victim’s father said. When the Clovis Unified School District suspended Hill at the start of the school year and then later expelled him, it sent a message to Hill’s friends and others that bullying will not be tolerated, “My son is at peace with the whole process. We want to move on”, the boy’s father said.

Hill’s attorney, Steven Quade, said afterwards, “The case was dismissed. It doesn’t get any better than that.”

Invitation to Discuss: So, readers, what do you think about this settlement?  Was this a crime that should have been prosecuted, or was Judge Gottlieb wise to arrange this mediation as an opportunity to teach two young men how to resolve their differences without resorting to the legal system, where quite possibly neither young man would have come out a “winner”?

Let me hear what you think…

Avoiding a Sensational Divorce

The news is full of celebrity couples on the brink of divorce, including the latest victims Tiger and Elin Woods and Sandra Bullock and Jesse James.  While you may not be a celebrity, the same concepts that can help make these high profile divorces less public and painful can apply to anyone considering divorce.

The latest solution for divorcing couples is called collaborative divorce.  Collaborative divorce allows the divorcing parties to control the process and terms through a non-confrontational process, rather than proceeding through the notoriously bitter and expensive process of divorce litigation.

The Litigation Process

In litigation, each side’s attorney performs countless hours of financial research, and waits for the other side to produce their results of countless hours of research.  Parties file aggressive motions and petitions against the other, essentially “going to war” with the goal of causing as much emotional and financial injury to the other person as possible. In the end, there are relatively few forms to fill out, yet a divorce can drag on for years, all at the expense of the parties who are each trying to move on and start over.

And all too often, divorce attorneys are unaware or simply don’t care that the typical “adversary” style that works so well in the courtroom is actually fueling the fire of the already existing dispute.  Or are they unaware?  Arguably, it may be in a divorce attorney’s self interest to allow a divorcing couple to fight on indefinitely, since the attorney is being paid an hourly rate and the couple “needs to work out their issues” in order to find closure.  Of course, attorneys have ethical obligations to perform competently and diligently, and an ethical lawyer will not intentionally drag out a case for the sake of a higher fee.

The Collaborative Divorce Process

In collaborative divorce, parties agree at the outset not to take the divorce to court. The collaborative process emphasizes cooperation instead of confrontation, and problem solving instead of fault finding.  Parties agree to avoid confrontation for the sake of reaching a mutual agreement that leave their fates in their own hands, instead of in the hands of a judge.

Assisted by a trained collaborative attorney, the parties then mediate their financial, property and custody issues, and negotiate the settlement they want presented to the judge. Parties can agree to have any number of financial, emotional or spiritual advisors present to help, or parties may choose to use a single financial advisor to help maintain confidentiality of financial assets.

Benefits of Collaborative Divorce

  • Private and confidential – keeps private issues out of the public eye
  • Fast and flexible – couples decide how fast the divorce proceeds and who else is involved
  • Affordable – there is no need for a divorce to drag on for years
  • Reduces stress – benefits the adults involved AND their children
  • Parties control it – any settlement must be agreeable to both people
  • Forward-focused – focuses on solutions that allow both parties to move on
  • Positive – allows a peaceful ongoing relationship if parties so choose

Consequences of Taking a Divorce Public

  • Charlie Sheen & Denise Richards – This couple’s initially amicable divorce suddenly derailed when the media picked up on Sheen’s hateful emails and voicemails to Richards.  In response, Richards filed court papers publicly claiming that Sheen was physically abusive and addicted to gambling and porn. The couples’ two children were caught in the middle. Two years after starting the divorce, the couple settled for an undisclosed amount.
  • Christy Brinkley & Peter Cook – After ten years of marriage, news broke of Cook’s affair with a teenager he met in a toy store and this couple was headed for divorce court to resolve issues of child custody.  Cook hired a psychiatrist to say that Brinkley was “consumed by rage”. The report, however, showed that Brinkley should still get full custody of the couple’s two children. Brinkley, in turn, claimed that Cook was addicted to porn. The end result was a settlement for $2.1 million for Cook, with custody going to Brinkley, but the lasting effect on the two kids may not be known for years.
  • Paul McCartney & Heather Mills – After only four years of marriage, this couple announced plans to split in 2006.  Tabloids seized the opportunity to research Mills’ past, alleging that she was a prostitute and a gold-digger. In response, Mills accused McCartney of emotional and physical abuse.  A bad move, given the outpouring of public support for him that resulted.  Mills, however, still walked away with a settlement worth over $48 million.
  • Tricia Walsh (the YouTube Divorce) – When her husband Philip Smith, President of Broadway theater owners The Shubert Organization, “unfairly evicted” her from their Park Avenue apartment, Walsh decided to air her grievances in a 6 ½ minute YouTube video. The video publicly discussed the couples’ prenuptial agreement and described embarrassing private details about the couples’ sex life.  Three months later, a judge granted the husband a divorce based on cruel and inhuman treatment and blasted Walsh for her “calculated and callous campaign to embarrass and humiliate her husband”. Walsh received $750,000 but the eviction was upheld.