Tuesday, March 25, 2014


Another Court of Appeal opinion in California reaffirmed the rule that penalty provisions in settlement agreements are not enforceable. In a settlement agreement entered in Purcell v. Schweitzer, the plaintiff agreed to accept payments totaling $38,000, but provided that in the event of a default, judgment in the full amount of $85,000 could be entered. Evidently hoping to make such a judgment enforceable, the settlement agreement also recited that the $85,000 "is an agreed upon amount of monies actually owed . . . and is neither a penalty nor is it a forfeiture." Further, the agreement set forth a host of reasons why an $85,000 judgment was reasonable, and barred the defendant from appealing or otherwise contesting this amount.

No dice, said the Court of Appeal. The additional amounts over and above the damages and interest resulting from breach of the settlement agreement, could not be justified, and the contractual language attempting to characterize these amounts as something other than a penalty was swept aside as contrary to public policy.

It is understandable that parties that agree to accept payment plans are interested in whatever measures they can impose to incentivize the paying party to make all of the payments on time. I expect they will continue asking for such provisions. Paying parties can feel fairly safe making those agreements first in the hope that they will actually be able to make all the payments on time, but second in the comfort of knowing that such penalties will probably be held unenforceable.


Wednesday, March 19, 2014

Settlement confidentiality

A recent case from the Court of Appeal in Florida illustrates the perils of confidentiality clauses in settlement agreements, but something more as well. Patrick Snay brought an age discrimination suit against a private school that did not renew his contract as headmaster, and settled the case for $80,000 plus $60,000 in attorneys' fees. So far, so good. The settlement agreement contained a strict confidentiality clause prohibiting the plaintiff from disclosing, directly or indirectly, any information whatsoever about the existence or terms of the agreement to anyone except professional advisers. But Snay's daughter, who was a student at the school, and apparently had also suffered as a result of the dispute, had to be told something, Mr. Snay figured. So he simply informed her that the case was settled and that he was happy with the result.

Snay's daughter promptly published the following on her facebook page:
"Mama and Papa Snay won the case against Gulliver. Gulliver is now officially paying for my vacation to Europe this summer. SUCK IT."
The school refused to make the $80,000 payment. Snay moved to enforce the settlement agreement. The trial court granted his motion, but the Court of Appeal reversed, holding that he had breached the agreement by informing his daughter that the case was settled and that he was happy with the result.

On one level, the case simply provides a cautionary tale about the drafting and enforcement of confidentiality clauses. These need to be considered very carefully! Had the parties inserted language commonly used that permits them to announce that the case has been resolved to both parties' satisfaction, but bars any further disclosures, the problem could have been avoided. Had family members been included in the list of people to whom disclosure could have been made, the problem could have been avoided. Had the father simply told his daughter that he could not say anything to her about the case at all, the problem could have been avoided. Had the father, despite his breach, sworn his daughter to secrecy, most likely the problem could have been avoided. Perhaps better yet, had the daughter, who appears to have been affected by the case to such an extent that she needed counseling, participated in some fashion in the settlement negotiations so that she better understood all of the reasons that the case was being resolved, the problem perhaps could have been avoided. (See my prior post on agents, noting the importance of including all affected parties so as to avoid miscommunications.)

On another level, this case might be about more than a breach of a confidentiality clause. It has been widely reported that it was the daughter's facebook post that cost her father the $80,000 settlement payment. Strictly speaking, that is not true. The daughter was not a party to the settlement agreement, and the school could not refuse to perform based on her actions. The Court of Appeal makes clear in its opinion that it was only the father's comments to his daughter that breached the settlement agreement, not the daughter's facebook post. So why did the court even mention the details of the daughter's facebook post, or the fact that it was disseminated to her 1200 facebook friends? It's hard not to draw the conclusion that the tone of the facebook post influenced first the school's decision to withdraw the agreed-upon payment, and second the Court of Appeal's decision to validate this refusal to perform the agreement.

A settlement agreement is supposed to represent peace. Ideally, both parties should be at peace with the result. It's best not to view settlement as a victory or defeat for one side or the other, but instead and most importantly as a peaceful resolution of the dispute that benefits both sides, especially compared to the costs of continued conflict. I am of course speculating here, but perhaps because she was not included in the settlement negotiations, and perhaps because she had suffered herself as a result of her father's dismissal from her school, Snay's daughter was not fully at peace with the result. She needed to take a final jab at the family's adversary, and brag about their victory. What she might not have understood was that such jabs are not considered good form after cases are settled, and that they create a new offense, stirring up all of the negative feelings created by the dispute itself. Likely the school had its reasons for not renewing the contract, valid or not, and its officials probably felt the payment was excessive, and only justified to avoid the even higher costs and risks of continuing the litigation. I'm speculating about that as well, but that is usually the employer's response to discrimination claims by employees.

There are good reasons for confidentiality provisions in settlement agreements. They should be drafted carefully, of course, so they don't turn into a trap for the unwary that can allow the other side to renege on its promises. But they also serve the purpose of enforcing good behavior on both sides, allowing them to remain at peace.


Friday, November 22, 2013

Civil collaborative law

Collaborative law has firmly established itself in the family law arena, where parties (and attorneys) are often willing to commit in advance to do everything they can to resolve divorce cases out of court. Not so much on the civil side, where the whole idea appears antithetical to traditional litigators. There have been attempts in the past to make civil litigation more, well . . . civil, but the codes that were created in some jurisdictions to encourage more gentlemanly (or ladylike) conduct never seem to get at the root of the problem. The root of the problem lies in the nature of the adversarial system itself, and its tendency to encourage adversarial behavior.

More recently, however, it seems that an increasing number of civil litigators may be starting to experiment with ways of resolving contested civil cases with little or no reliance on the court, or at least with trying to reduce the cost and acrimony associated with discovery, motion practice, and other nasty features of civil litigation. Some call this movement "planned early negotiation." Others call it "integrative law." In some ways the idea seems a throwback to a bygone era (which may never have existed) in which attorneys maintained more trusting relationships with opposing counsel, and attempted to resolve disputes in a reasonable way. A more collaborative approach also seems to flow naturally into mediation, as opposed to the way mediation usually arises in hotly contested cases, as a temporary truce called in the middle of a war.  

Since the majority of cases are going to be resolved by negotiated agreement, why start a conflict resolution process by filing a lawsuit, and then preparing for a trial that in most cases is never going to happen? Wouldn't it make more sense to steer the case toward a negotiated resolution from the outset? I have been shifting my own approach to litigation in this direction: trying to keep clients out of court altogether if possible, trying to resolve problems in litigation with less court assistance, and trying to steer cases toward a negotiated resolution. I still feel the need, however, to keep the hammer of litigation in my back pocket. Lawsuits are also a legitimate form of "alternative" dispute resolution. Even if most cases should be settled, some should still go to trial. And even in the vast majority of cases resolved by negotiated agreement, the threat of litigation was still probably a factor contributing to those resolutions.

What I understand from others who have tried to advance the discipline of civil collaborative is that most civil trial lawyers feel the same way I do. Thus, one of the chief stumbling blocks to developing civil collaborative practice has been the resistance of civil trial lawyers to sign participation agreements of the type recommended in family law cases, in which the attorneys who work on resolving the case agree in advance that if they fail to achieve an agreement, they will not be the attorneys representing the clients in any court case. Are such agreements essential to the practice of collaborative law? Or can we develop a species of more cooperative dispute resolution in the civil area that does not require the use of participation agreements? If such a movement is going to succeed, I think we might need a better name for it than any that have been proposed so far. Collaboration just sounds too foreign to what clients expect from civil litigators, and what we expect from ourselves. How about constructive dispute resolution?  

I think it's possible to achieve better results within litigation by attempting to resolve issues in cases without motion practice, and by relating to opposing counsel with a view toward reaching settlement, rather that conducting settlement discussions only as a time out from unrelenting hostility. It's even possible to resolve disputes without filing a complaint at all. The difficulty arises when opposing counsel has not signed on to the same program. And that is where the collaborative family lawyers are probably a step ahead of the civil litigators who are attempting to practice in a more cooperative way.


Wednesday, September 11, 2013

Crisis and Opportunity

The September issue of Advocate magazine (published by CAALA, the Consumer Attorneys Associations for Southern California) contains an article I wrote prompted by the funding crisis in California courts. These court cutbacks, which will cause delays and other problems in working cases through the court system, should cause the consumers of court services--both litigants and attorneys--to rethink the way they use the court system.

The title is borrowed from the fall conference I am helping to organize for the Southern California Mediation Association. Part of my article describes the new "Select a Mediator" program designed by SCMA in response to the closure of the LA County Superior Court's ADR program.

I also offer some suggestions for conducting litigation in an era where courts have fewer resources to deal with motions and trials. Lawyers and litigants are going to have to negotiate their way through pre-trial proceedings without bringing every controversy to a judge. That's a necessity caused by budget cutbacks, but doing that might also prove to benefit the parties by reducing the costs of court resolution of every dispute within a case.


Thursday, January 24, 2013

More changes coming to state courts

The grand unwelcome budget-cutting experiment in which California courts are currently engaged may result in the undoing of reforms courts have developed over the past several decades to better manage their caseloads. Ideas that both the federal and state systems now consider best practices, such as the individual calendar system and closer judicial involvement in pre-trial proceedings, are in danger of being thrown out. Case in point: the LA County Superior Court, the largest local court system in the country, is seeking to jettison case management conferences, one of the main tools the court has at its disposal to check in with the parties early in the case and help steer cases to resolution. The court is also planning a return to master calendars for some categories of civil cases. The only rationale for these changes is that this kind of individualized case management consumes a fair amount of judicial and administrative time. But scrapping case management conferences could leave the court with no contact with counsel unless there is motion practice--and the court is also trying to discourage motion practice! The danger is that these unsupervised cases will simply languish in the system and contribute to increasing backlogs.

The prevailing forecast in our state court system is therefore for greater delays and less judicial attention. If only the courts could figure out a cost-saving way to divert their caseloads to other forms of resolution. But wait! Wasn't mediation supposed to do that? Right now a fairly large proportion of the court's caseload is sent to mediation, which has a high success rate in resolving litigated disputes. These dispositions save court personnel time in reduced motion practice, settlement conferences, and trials.

With the courts in financial crisis, one might expect them to propose even greater use of outside ADR procedures. Ironically, however, the court's mandated budget-cutting will more likely lead to less ADR. That's because the proposed reduction in judicial supervision, as well as the planned elimination of the court's own administration of ADR panels, will create fewer opportunities to prod the parties into seeking mediation or other alternative dispute resolution procedures. Leaving the courts without an effective procedure to refer cases to ADR also raises questions about the court's ability to comply with Code of Civil Procedure sections (C.C.P. 1141.10 et seq. and C.C.P. 1775 et seq.) that mandate the referral of certain categories of cases to arbitration or mediation. The courts will need to design effective alternative procedures to accomplish the same result, and it is not clear that they have the resources to do so.

Prior posts in this series:

I.    Ten courthouses

II.   Court-annexed mediation not dead yet

III.  Free mediation revisited

IV.  New rules


Wednesday, January 02, 2013

Anatomy of a negotiation

The "fiscal cliff" negotiations of the last couple of months present an interesting case study showing the stages of negotiation usually necessary to make a deal. Congress set the process in motion more than a year ago with a budget agreement that essentially forced the two parties to make this deal by the January 1 deadline, otherwise a set of consequences would take effect that neither side wanted.

That created a situation not unlike the typical lawsuit, in which the court sets a trial date that will force both sides to incur substantial cost and risk, an event the parties can only avoid by making a deal that neither side views as optimal, but that is usually better for both sides than the alternative. To get to that point, however, parties often need to pass through a series of stages not unlike the Kubler-Ross model of the stages people usually go through to enable them to face the inevitability of death.

I wrote a series of posts on my mediation blog over the past couple of months, outlining as they took place the steps the parties followed to arrive at the negotiated agreement Congress just passed on January 1, 2013.

I.   Openings - the parties make unrealistic opening offers and demands.

II.  Impasse - negotiations break down in the middle stages.

III. Plan B -  the parties explore the alternatives to a negotiated agreement.

IV. End game -  the parties finally abandon previously inviolable positions.

V.  Who won? - the post-mortem.
This negotiation, led by the White House, but mainly between the Democratic and Republican leadership of the House and Senate, took a few surprising twists and turns, but in the end followed a familiar pattern to a predictable result.


Wednesday, December 19, 2012

Planned Early Negotiations

Abraham Lincoln, who was a famous trial lawyer before he became a famous president, is supposed to have said:

Discourage litigation. Persuade your neighbors to compromise whenever you can. As a peacemaker the lawyer has superior opportunity of being a good man. There will still be business enough.
It sounds like a recipe for turning away business, but perhaps Lincoln was also describing a range of services that even a trial lawyer could provide to help clients resolve conflict without litigation. 

I'm not talking about what Professor Marc Galanter described years ago as litigotiation, which is a prevalent form of litigation that recognizes that most cases are eventually going to be resolved by a process of negotiated agreement, and uses all the processes of the court system as leverage and as aids to that negotiated outcome.  I'm talking about a method of lawyering that avoids the court system altogether, except perhaps as a fallback if the ADR process fails.

The legal profession is only beginning to formalize such a process. I recently picked up a book the ABA released last year called Lawyering with Planned Early Negotiations: How You Can Get Good Results for Clients and Make Money, by John Lande. Lande shortens his ungainly book title to the acronym of PEN, for planned early negotiations. I'd just as soon tell clients I will try to resolve their dispute if possible without litigation, and I've been telling clients that for years. Still, I'm happy to see that somebody has tried to create some structure and guidelines for doing that. Lande even includes a helpful CD full of form agreements and other documents that might be useful in this type of practice.

So what is lawyering with planned early negotiations? Basically it means the lawyer is going to advise the client from the outset that the lawyer is going to try to solve the client's problem through negotiation, rather than a traditional adversarial approach to litigation. Clients are often reluctant to hear that message, instead usually wanting to know how their lawyer evaluates their chances of prevailing in court. But if we are honest with clients, we have to tell them in most every case, that the chances that their case will be resolved in court are fairly small. Most cases are going to be resolved by negotiated agreement anyway, so it makes sense to set the client's expectations for that from the start. As long as we're doing that, it makes sense to suggest trying to get to that point without litigation, a less familiar pathway for lawyers and clients.

To practice with the expectation of a planned early negotiated resolution might require changes to lawyer's engagement letters and creative fee arrangements. Lawyers then have to get used to the idea of forming constructive relationships with opposing counsel, which will help in exchanging information with the other side in a cooperative and informal way. Attorneys have to reach out to the other side to agree on a process that is likely to resolve the dispute without litigation. Lande also includes tips on negotiating and other techniques that are familiar to people working in the mediation world.

Divorce lawyers have led the way in this field, building up an elaborate body of collaborative practices, including what is known as the participation agreement. Such agreements generally require that if the parties fail to reach a negotiated settlement, the first set of professionals will be disqualified from representing the parties in court. This gives parties and lawyers maximum incentive to succeed in settling the case, and little incentive to litigate.

Can such an approach take hold in the commercial litigation context? It sounds like the opposite of the way I was taught to litigate years ago, when a particularly aggressive style of litigation was in favor, one that considered it almost unethical to do anything that would make your adversary's life easier. But it's really not all that different from the way many litigators have learned to practice. We often send out a demand letter as an invitation to a negotiation as well as a threat of litigation. We are supposed to try to resolve discovery and other disputes without bothering the judge about every disagreement, and it's usually in our clients' interests to do that. All trial lawyers recognize that the vast majority of cases will end in negotiated resolution, so we act as settlement counsel in cases we are simultaneously litigating, and conduct ourselves in a way that is not going to antagonize the other side unduly so as to jeopardize the ongoing settlement negotiation. Some firms use separate settlement counsel and trial counsel working simultaneously on a case, keeping each focused on their conflicting objectives.

The difference between the PEN process and customary litigation practice may come down to a decision at the outset of the case to put the threat of litigation into the background, instead of initiating a case by threatening or actually commencing a lawsuit. Corporate lawyers do that all the time. They can be just as aggressive as litigators, but they know they are employed to make a deal, that they might be blamed if they blow the deal, and that they will not be the ones to handle the case if the deal falls apart and litigation ensues. If business trial lawyers started adopting the PEN approach, they would have to start acting more like those corporate lawyers, which still allows them to advocate strongly for clients, but in the context of a planned negotiated resolution of the dispute.

In my litigation practice, I have had some success with an approach like the one Lande is describing. My fee is generally lower in such cases, but client satisfaction is generally higher, and I avoid the risk that can happen in litigation of a case getting bigger and more expensive than a client can afford, which can be disastrous for both the lawyer and the client. If I can provide the same or better outcome for a client without having to a resort to a process that, let's face it, is more fun for lawyers than it is for clients, what possible reason would I have not to offer it?


Tuesday, November 27, 2012

Ten courthouses

Although the budget crisis in California has lasted for years, the state court system has until now managed to avoid the worst possible scenarios. Courts have survived these hard times by depleting their reserves and diverting their capital budgets for operations. Having exhausted those strategies, and with no prospect of restoration of full funding in sight, the courts have finally had to grapple with some huge funding shortfalls. This month, the Los Angeles County Court system announced their plan to deal with budget shortfalls by closing 10 regional courthouses, including the branch courthouses in Beverly Hills, Malibu, Pomona, and Whittier. These facilities may end up staying open only for such purposes as paying traffic tickets. Their courtrooms will be shuttered.

This news is tragic, because it means increased delays throughout the system, particularly for civil cases, dramatically reduced staffing, and increased costs. It also marks the end of a concept of neighborhood justice that all these branch courthouses represented. In a far-flung county as large as Los Angeles, that concept spared a lot of people a lot of long trips downtown. Now litigants will have to adjust to a more centralized, more crowded, and much slower system.

For my practice, the solution of closing 10 regional courthouses was probably the best of all possible bad worlds. I've never been much of a believer in scattered regional courthouses, and I always file downtown, and usually end up defending cases filed downtown, even when the parties are from the West Side or the Valley. One reason is that I have officed downtown for more than 20 years, and like being able to walk to court. I also probably have some big city biases against regional courts, even though the clerks in those places are usually more friendly than they are downtown, and the judges are just as good. So I'm happy I won't ever have to drive to Pomona or Beverly Hills for court appearances anymore. (If only they would also close Van Nuys and Santa Monica!) On the other hand, I'm not going to be happy about the increased delays we can expect downtown.

Courthouses function as gateways as well as destinations. Litigants commonly think of the courthouse as the place that will decide their dispute. But the courthouse might be better thought of as an intake system for disputes. Resolution of the dispute may be farmed out to an arbitrator or a mediator, or parties may reach a resolution by their own devices. Very few civil cases end by trial. If we think of the courts more as an intake system than as a final destination, I wonder how efficient it is going to prove to force litigants to start their journeys in the massive downtown courthouse. Faced with that prospect, will litigants devise other ways to commence the process?


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