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Get A Settlement Done And On The Record Before It Is Too Late

The plaintiff and defendant in a New York medical malpractice lawsuit has come to a putative settlement agreement just before the jury rendered a verdict.  The parties failed to get the settlement on the record prior to the jury verdict and the settlement was invalidated and the verdict upheld.

In 1996, plaintiff Mahmoud Diarassouba underwent surgery to repair a chronic condition in his left knee.  Shortly thereafter, he experienced pain and discomfort in his right knee which he blamed on the surgeon and anesthesiologist for improperly repositioning the right leg during the long operation.  The condition became chronic.  In 2003, a jury found in his favor for $1.5 million.  The verdict was thrown out due to improper admission of some testimony and a retrial ordered.  The case was tried again in 2007 and while the jury deliberated, plaintiff’s counsel advised the defense counsel his client would accept a $150,000 settlement.  Defense counsel agreed.

Moments later, the judge informed the parties that they jury had a verdict awaiting them.  Plaintiff’s counsel asked the judge if the settlement could be read into the record prior to the jury verdict being read.  The judge replied in the negative.  “Once I have a verdict, I take the verdict, and then the parties are free to do what they agreed to,” the judge said. “An agreement is an agreement, counsel.”  Defense counsel remained silent. The verdict rendered by the jury was for $1.45 million.  The defense then moved to enforce the settlement which the judge granted.  Plaintiff appealed.

Last week, the appellate court ruled that the settlement was invalid.  They found that there was no written, agreed to settlement as required by the court rules.  Neither was it placed on the record in open court.  Further appeals are expected.

I have frequently advocated for my clients to settle early in litigation.  Many cases settle on the courthouse steps.  Waiting until the last possible moments to settle is not a wise course of action, as this case illustrates.  Thirteen years later, the parties in this case do not have any resolution.

Would you take less than 30%? Most Would Not.

Part of being an effective mediator is having a good understanding about how people make decisions.  After all, a mediator is assisting people in making decisions.  We all like to think we are making rational decisions.  However, that is not always the case (despite our best efforts to the contrary).

Professor Daniel Ariely (Duke University and MIT) conducts extensive research on human behavior and has written a fabulous book on this topic, Predictably Irrational.  He looks at how free! really isn’t free and how morality disappears when we’re emotionally (or sexually) aroused.

In game theory, there is a game called the Ultimatum Game.  One person is given an allotment of money, say $1000, and is told to offer a certain portion of it to another person.  If the other person accepts, they both get that amount of money.  If the second person declines, neither party gets the money.  Rationally, the second person should accept anything offered to them as any dollar they receive is more than they had previously. Studies done by Professor Ariely and his collegues have shown that most people will not accept less than 30% of the total pot.

There are a number of theories as to why the second player would act seemingly irrationally.  One is that the second player is making a “fairness” judgment:  it’s not fair that the first player is getting more than 70% of the money thus they should get nothing (while the first player gets nothing either).  Another is that the second player is setting themselves up for a better payout just in case there is a second round of the game (while there is no guarantee that there will be).

To test this further, the experimenters went to a bar where they were likely to find drunken (and hence “more rational” people who focus more on short term goals, versus the longer term goal of a better second round).  They found that most drunks would turn down deals for less than 50% of the money.

There is an interesting parallel to negotiations (and mediation discussions).  Parties to a negotiation often will get lost in the emotions of the conflict and instead of seeing their own best interests are taken care of, they become more interested in “hurting” the other party even though it hurts them as well.  If fighting over a fixed pot of money, anchoring (the first offer made by each side) becomes that much more important.

Aribtration Vacature Request Denied and Counsel Fees Charged to Filing Party

Arbitration is an alternative to a court making a decision on an issue in dispute by having an arbitrator, or private judge, make a decision on a matter. The benefits of arbitration include a quicker and less expensive trail to a decision. The disadvantage is that the ruling of the arbitrator cannot be appealed, except on very narrow grounds. Those grounds include an award procured by fraud, corruption, or undue means; evidence of partiality or corruption among the arbitrators; the arbitrator(s) were guilty of misconduct that prejudiced the rights of a party; or the arbitrators exceeded their powers. Some parties try to argue “manifest disregard of the law” as a way to vacate an arbitration award, but this ground is not specifically mentioned in the Federal Arbitration Act (FAA), which governs arbitration award vacature by courts.

The US Supreme Court recently ruled in Hall Street Associates LLC v. Mattel Inc. that manifest disregard is not among the grounds for vacature and thus cannot be used to vacate an award of an arbitrator — even if the parties agree to allow this ground for vacature by a court in their private arbitration agreement.

In November 2009, the 10th Circuit handed down an opinion which not only upheld Hall Street, but also awarded counsel fees as a sanction to the respondent of the appeal. The case is DMA International Inc. v. QWest Communications International, Inc. The court said, in part, “[U]njustified, protracted attempts to vacate arbitration awards destroy the ‘promise of arbitration’ and will not be tolerated….Thus, one who ‘assumes a never-say-die attitude and drags the dispute through the court system without an objectively reasonable belief that it will prevail’ does so at the risk of being sanctioned.”

The take-away: understand that an arbitrator’s award is likely final and has limited grounds for appealing a decision you do not agree with. If you want to limit your risk, build in a high-low scenario which limits awards in both directions or an upside-downside.