March 4, 2013, Winter Edition
Early Dispute Resolution
By Elliot Hicks
Business owners grudgingly accept lawsuits as a part of doing business. If you’re doing what it takes to advance your business, you will suffer the bumps and bruises that result in your name on a legal pleading. You may even be the one who files the lawsuit.
Almost any money you can recover in a lawsuit is eaten up by lost employee time, and, perhaps more importantly, the business owner’s loss of focus on healthy profits. If you are the one sued, you can never win.
What if there was a way to reduce the money you spend on a lawsuit by 70 to 80 percent? What if you were able to reduce the precious time you spend on a lawsuit by a similar number? What if you could keep your employees focused productively on their jobs instead of practicing to testify, testifying at depositions and testifying at trial?
Like all other businesses, you have a need to resolve your cases quickly. You have no need to wallow in interminable litigation or to play the litigation lottery in a place like the courtroom, where sympathy can become the deciding factor in the case.
There exists an approach to litigation called early dispute resolution (EDR) by which a company can become systematically and dramatically more assertive in pushing for mediation as soon as the company becomes aware of a possible claim against it. In EDR, parties make fervent efforts to resolve the claim immediately after they become aware of a dispute without diving into the abyss of scheduling orders, interrogations, depositions and trials, taking every opportunity to engage one another at the earliest possible stages of the claim.
Toro Company was an innovator of the EDR approach. As a manufacturer of lawn care products for home and industry, many of the lawsuits Toro faced were traumatic injuries that resulted in high-dollar claims. Toro developed an EDR plan that had the company acting with strike-force speed in engaging injured people who somehow notified the company that they may bring a claim against it. They settled overwhelming numbers of those claims before involving any lawyers. When they involved their settlement lawyers in a case, they acted with similar alacrity to settle claims.
Toro and its lawyers have said the program has resulted in dramatic savings for the company for the following reasons:
• The number of pending cases was reduced by 75 percent;
• The total of attorneys’ fees and expenses paid out over eight years was reduced by 78 percent;
• The average payout due to lawsuits was reduced by 70 percent and
• The life span of a claim was reduced from two years to eight months.
Though an innovator of this approach, Toro is not alone in using the EDR model. Several other companies have adopted this approach with similarly compelling results.
An EDR program requires commitment to a style of handling cases that is a departure from the norm for most. The client works with its own risk managers and settlement counsel to develop settlement representatives, well-trained employees who can personally engage with anyone who the client learns has been involved in an incident that might result in a claim or lawsuit. This settlement representative resolves any issue he or she can by essentially engaging in aggressively hospitable claimant service, making every small concession the company can reasonably make to resolve the matter to the claimant’s satisfaction.
That’s giving away the store, isn’t it? Well, no. The quicker a lawsuit is settled, the better. The client may pay some money that is deserved and some that is not, but it avoids the tar pit of litigation required to discover the facts necessary to get a fairer settlement or low trial verdict.
If the matter cannot be resolved at the settlement representative stage, the client engages settlement counsel to contact the claimant in an attempt to hold a mediation within the next 60 days. A mediation is when a person skilled by experience or training is brought into the discussion between the client and claimant to encourage a nonbinding resolution of the claim. Settlement counsel contacts the claimant’s attorney to offer a plan for the mediation, proposing to the attorney a mediation agreement that is fair to both parties, providing for document exchange and very limited investigation.
Time is of the essence. Settlement counsel will control everything possible to investigate, mediate and resolve the claim within 60 days.
Discovery will be limited by agreement. Settlement counsel will want to agree to take a sworn statement of the claimant that is strictly limited to a very brief time—say, 90 minutes. The statement is privileged and confidential, meaning that both parties agree the contents of the statement can never be used against the claimant in any legal action that may result. The confidentiality agreement puts the fears of both the claimant and the attorney to rest. If the claimant wants to take a statement of the company’s representative, the same rules apply to that statement.
The claimant agrees to provide all medical records, documentary support for any financial loss and other information that may bear upon the claim. The company agrees to supply the owner’s manuals, schematic drawings of the premises or any other limited items that might be useful. Settlement counsel will perform much of the investigation informally or with the aid of his or her own professional investigators.
This limited investigation process leads to a session with a mediator upon whom the parties can agree. One will want to select a mediator who will work hard for a settlement and not a passive person.
Representatives for the parties will have a firm agreement that the parties share the cost of the mediator equally. This gives the claimant stakes in the mediation so it won’t be taken lightly.
The EDR approach to claims requires a commitment from the company and its insurer, as well as significant trust among the defense team. Several aspects to this method of addressing lawsuits are designed to foster that trust.
It works well when the settlement counsel serves for a flat fee per case instead of an hourly fee. Counsel then has no apparent reason to drag the case out beyond the self-imposed deadline of 60 days. The client’s interest in quickly resolving the case mirrors the counsel’s own desire to do the same.
If the mediation is not successful, settlement counsel does not automatically become litigation counsel. The client can take the case to another lawyer for the litigation. Counsel is judged on his or her administration of a single effort—getting the case settled quickly at a low overall cost.
Attorneys come into the legal system determined to find fairness. The business person’s mindset, though, is that while they want fairness, they must have efficiency above all. It would be nice if one could avoid paying any claims when the business is not at fault, but the primary focus of an early settlement program is to get out of the dispute right away, even if someone gets a couple of undeserved dollars.
When word gets out that you’re just handing out money, won’t every faker within a country mile line up to take your handout? This approach requires a true partnership between business and legal advisors. You count on your lawyer to know your business well enough to evaluate the cases in which an EDR approach works and to recognize when the claimant is just taking advantage of you.
You fiercely fight the bogus claims to win and to show you’re not a stooge, but you resolve the close calls to save the company money.
The business saves. That’s the bottom line.