Congress Eliminates Mandatory Arbitration of Workplace Sexual Assault and Harassment Claims

On February 10, 2022, the Senate passed the Ending Forced Arbitration of Sexual Assault and Sexual harassment Act of 2021 (HR. 4445). When signed by President Biden (expected any day), it will amend the Federal Arbitration Act (FAA) to bar forced pre-dispute arbitration of workplace sexual assault and sexual harassment claims. The law will also bar waivers by employees of the right to bring such claims on a class basis.
The new law also requires that a court—not an arbitrator—decide whether a claim constitutes sexual harassment or sexual assault, even if the arbitration agreement requires such decision be made by the arbitrator.
In light of this development, we suggest employers who require employees to sign mandatory arbitration agreements include a “carve-out” for claims of workplace sexual assault or harassment. At a minimum, any arbitration agreement should contain a carve-out for disputes that are barred by applicable federal or state law.
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Sure You Can Require Employees to Arbitrate Claims, But Should You?

California currently permits employers to require workers to submit claims arising from their employment to binding arbitration. Excluded are workers’ compensation controversies or disputes relating to employee benefit plans; but most other disputes, including claims of discrimination, harassment, retaliation and wage-hour violations may be arbitrated, outside of court. Before taking the arbitration plunge, however, I urge my clients to give careful consideration to the following points before requiring their employees to submit to mandatory arbitration.

 

Pros of Mandatory Arbitration

Arbitrator, Not Jury, Decides the Case

The biggest advantage of arbitration for business defendants is the fact that both liability (i.e., whether you did anything wrong) and damages (what is the employee owed) are decided by a single (usually) arbitrator rather than a panel of jurors who are generally relative strangers to the legal process and who invariably bring their own experiences into the decision-making process. Some jurors have concealed bitterness toward institutions in general and employers in particular. They bring this into the deliberations and it injects uncertainty and risk for the employer defendant.

If the claim is submitted arbitration, the parties generally, though not always, agree upon an arbitrator. If the parties cannot agree, there are mechanisms available for the court or an Alternative Dispute Resolution provider to select the specific arbitrator. Any arbitrator I agree upon will be a retired judge with demonstrated expertise in employment law. I spend time researching potential arbitrators and this often includes informal input from other employment lawyers on their experience with the arbitrator.

Arbitrators are typically less likely to inject huge bias against the employer and can be skeptical of an employee’s claims, particularly if they strain credibility. If the arbitrator is a retired judge, he/she will have seen literally thousands of witnesses on the stand demonstrating various degrees of (dis)honesty and will have a much better handle on this than an average juror. Arbitrators are far less likely to award punitive damages and the damages award in general may be more carefully tailored to the facts of the case. Put another way: some jurors don’t know the value of a buck.

Confidentiality

As a general matter, employers tend to prefer not to air dirty laundry in public. Arbitration creates an avenue for private resolution of disputes without making the evidence or outcome public. Sealing testimony, documents or rulings in the civil court system is extraordinarily difficult if a case proceeds through trial to verdict or appeal.

Predictability

When a court schedules a case for trial, this almost always represents the court’s best estimate when it can try the case. It is never set in stone and, as a consequence, a trial can be continued multiple times resulting in duplicative last-minute preparation, increased cost and witness unavailability. Additionally, even when a trial commences, there are long hours where the parties and their attorneys sit in the hallway waiting for the court to attend to unrelated emergency matters, late jurors, late witnesses or other issues.

When an arbitration is scheduled, it is considered a firm date. Not to say that continuances never occur, but it is generally not for the convenience of the arbitrator. Judges are chiefly concerned with the welfare of the jurors; arbitrators are concerned about the convenience of the parties and lawyers, since they rely on lawyers for their reputation and repeat business. Additionally, arbitration hearings can be scheduled as long as the parties are comfortable, generally between 8 or 9:00 a.m. and 5:00 p.m. on successive days, which results in an overall shorter hearing than a trial with continuous interruptions.

Ability to Preclude Class Actions

It is legal to preclude arbitration of class actions. This can be a huge positive for large-scale employers, such as chain retailers, because it prevents employees from banding together and multiplying their claims under a single action. Lawyers interested in pursuing class-action lawsuits are far less interested in pursuing a single plaintiff lawsuit with the same allegations because the upside attorney fee potential is minimal. For most smaller employers, 100 employees or less, this is not as important since meaningful class actions are less common.

No Right of Appeal

As demonstrated below, this is either a pro or con depending on how the arbitration hearing is conducted and the award. However, there are extremely limited bases to seek review of an arbitrator’s ruling or award. This can cut off the right of an employee who is unsatisfied with the award to drag the process (and costs) on and on with one or more appeals.

Cons of Mandatory Arbitration

Cost

Arbitration is incredibly expensive for employers. This is primarily because, under California law, the employer must pay 100% of the arbitrator’s fee. To better understand this burden, consider a recent case in which I spent hours trying to hunt down a high quality, but reasonably-priced, arbitrator for an employment lawsuit involving discrimination and wage-hour claims. I could not find a retired judge below $700/hour and most were higher, with at least one charging $1,200/hour. For a 5-day arbitration hearing—which is not overly long if there are witnesses—my client was required to deposit approximately $50,000 three months before the arbitration hearing date. This is money that, regardless how well my client did at the hearing itself, it would never see again. Arbitrators cannot order a losing employee to pay any part of the arbitration fees to the employer. In my humble view, this cost can amount to denial of due process.

Study Suggests Employees Actually Do Better in Arbitration

Notwithstanding my suggestion that arbitrators tend to be more conservative than jurors, a 2019 study by the U.S. Chamber Institute for Legal Reform found that employees actually do better in binding arbitration.

No Right of Appeal

If the arbitrator makes a ruling that is against the applicable law, and it harms the employer’s case, there is no way to challenge the ruling.

Inability to Control Admission of Certain Evidence

This factor may or may not be important. However, if there is a very bad piece of evidence for the employer, such as an email or a hearsay statement that would not, under proper application of the rules of evidence, be seen or heard by the trier of fact (i.e., the jury), it is effectively impossible to prevent the arbitrator from knowing about it, since he/she must know about it to decide whether it is admissible. If he/she excludes it as evidence, while he/she should not consider it, as a practical matter there is no way to “un-ring the bell.”

Loose Application of the Rules of Evidence

Some arbitrators do not rigidly apply the rules of evidence. This injects uncertainty into the hearing and outcome, which is not usually good for employers.

Conclusion

On balance, I believe arbitration is a fantastic way to resolve disputes rapidly, particularly for large-scale employers where cost is less of a factor, preventing class actions is a major concern or where confidentiality is important. For employers that do not strictly fit this description, however, I cannot recommend mandatory arbitration because even the smallest dispute is likely to cost tens of thousands of dollars in arbitrator’s fees. As a consequence, an employer can be forced to settle a defensible case because it will cost more to pay for the arbitration.

Employers wishing to further explore this question should contact their experienced employment law counsel or [email protected]

 

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Do The Facts Or The Law Still Matter In Mediation?

[This originally appeared in the Los Angeles Daily Journal.]

I was recently vetting some potential mediators with a colleague whose opinion I generally respect. In response to one of his proposals, I said, “yeah, but I’ve heard he doesn’t really know employment law.” My colleague responded, and I’m quoting, “I’ve become increasingly jaded that mediators believe the law and facts are impediments to the process.” This struck me as an interesting remark and I’ve continued to ponder it.

There is good reason for lawyers in the defense bar to be at least occasionally jaded about ADR methodologies. I’ve blogged a fair amount about the frustration we feel in knowing that many neutrals feel no compunction about bypassing or loosely enforcing evidence rules when conducting a binding arbitration. In my view, this undermines predictability and erodes the process. On the other hand, at least in the employment context, it is generally the defense that seeks to compel arbitration.

What about mediation? Are the law and facts of a case a waste of time–not only irrelevant, but actually impediments to the mediation process? There’s no point in fence sitting, so I’m going to commit to the ostensibly untenable view that this is both true, and false.

Yes, it’s true. All those times I diligently pursued discovery, and groomed my case to get it in front of a mediator; all that effort I spent meticulously crafting a brief, with notated exhibits; all that time I spent explaining, trying hard to educate the neutral why we had every right to whatever it was we were looking for–all that time and energy was wasted. Utterly.

This is because, from the mediator’s point of view, the deeper my client and I are entrenched in our position, believing our stance is firmly rooted in favorable law and good facts, the harder and longer she will need to work to get us to contribute, to give, to help her bridge the wide gulf that presently divides the parties.

Sure, she read my brief. She was paid to read it. And she has to know what the dispute is about. She might even be slightly impressed with my evidence gathering and presentation of the law. But beyond that, her focus needs to be much more on the dynamics of the parties. What’s at stake? Is the lawsuit ostensibly about money, but really about jealousy or feeling unappreciated? She knows the quicker she penetrates to the heart of the dispute the better her chances of finding a solution. The law and the facts–those that support a claim or defense–might really be impediments if they’re so good for one side that there’s little fear or risk.

I’m speaking here only of the very best mediators. I’m not talking about carrier pigeons, who simply shuttle demands and offers back and forth until the parties–basically on their own–get close enough that one caves simply to avoid seeing the neutral any more. Neither am I referring to mediators who use the raised-voice-cram-down method, essentially trying to procure settlement through intimidation. Interestingly, there is a place for both styles of mediators; they actually can get some cases resolved, but only certain kinds of cases, and the process can be torturous and messy.

The neutrals truly worth their fees, though, go well beyond shuttling demands and fist pounding. They take the time to get the psychic lay of the land. They determine which of the many impediments to settlement will be the biggest challenge and concentrate their energies there. In many instances, at least in the psychology surrounding what it will take to satisfy, scare or discourage the plaintiff sufficiently to reach a settlement, the admissible facts or applicable law may play only a minor role.

* * *

No, it’s false. I promised an inconsistent, untenable view and I will deliver. From the perspective of any civil defendant, the facts and law cannot be an impediment to settlement. There is nothing more important. Sure, the venue, judge and opposing counsel can play a role in the outcome of a lawsuit, but we rarely, if ever, highlight these inputs in a mediation brief or presentation. They are unspoken intangibles.

When a defendant or its lawyers permit the law and the (likely admissible) facts to take a back seat in the mediation process, it is regrettable. If it happens, the defendant trades its status as an agent, capable of acting, evaluating and defending its actions as appropriate or lawful, for the identity of a faceless, soulless “deep pocket,” nothing more.

It is routine, in cases in which the defendant has both a solid legal defense and good facts, for the mediator to harp away on the exorbitant cost of defending the case through trial and the risk, however small, of an adverse verdict. Of course it is–where else is she going to apply pressure to persuade a confident defendant to fork over what it will take to reach a settlement?

I don’t begrudge any defendant the need to think long and hard about defense costs when engaging in settlement negotiations, even if a case seemed otherwise completely airtight. But I believe a defense lawyer’s role in mediation requires him to continuously redirect the discussion back to the favorable law and facts when the neutral attempts to discount these to bring the parties closer (i.e., get my client to pay more). It is crucial to push back against this tendency to marginalize law and facts. In most instances, they are our only leverage.

This is not to say that, backstage, in confidential communications with our clients, we aren’t completely open and honest about risks and costs, regardless how solid its defense may be. In many instances, a defendant’s blind adherence to some good law and facts would be a recipe for disaster. After all, nobody knows what a jury will think and do. But these words are exchanged in private. At the mediation poker table, the defense lawyer must resist a neutral’s efforts to treat the facts and the law as impediments.

Except, of course, when the facts and the law aren’t so favorable.

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Learn To Negotiate Like A Transactional Lawyer

I recently had lunch with  Mark Fingerman, a Los Angeles lawyer who has successfully transitioned from being a litigator to a full-time mediator. As I often do, when I get an opportunity to talk shop with mediators, I asked Mark some of his tips for successful negotiation. To my surprise, although Mark had been a litigator his entire career, his advice was to go a different direction entirely. “Litigators can increase the likelihood of success at mediation,” he said, “by acting more like transactional lawyers.”

This notion immediately made a lot of sense. After all, while it’s the mission of a transactional lawyer to get the best possible deal and terms for his client, their negotiations should very rarely result, as it so frequently does in the litigation context, in a stalemate. While a party to a lawsuit will sometimes view proceeding to trial as the best alternative to a negotiated agreement (aka “BATNA”), the job of transactional lawyer is generally to reach agreement and get the deal done.

While Mark’s advice made a lot of sense to me in the abstract, I started thinking what does this mean? What does it mean to negotiate less like a litigator and more like a transactional lawyer?

I followed up with Mark after our lunch, and suggested this might be fertile ground for a blog post. He was pleased for the opportunity to explain his statement in more detail, and also suggested that this very topic is one that he covers extensively in a CLE program he offers to law firms and bar associations called Mediation: Prepare to Succeed.† Here’s what Mark said:

“This involves, among other things: preparing for the mediation as a negotiation, including identifying the interests of the parties, settlement ballpark and necessary deal points; focusing at the mediation on reality and problem solving instead of advocacy and pressure; using the mediator to gain and communicate information useful to making a deal rather than trying to turn the mediator into a super advocate.” 

A major difference I see in Mark’s approach from the approach we typically take is his shunning of our common tendency to try to leverage the mediator to apply pressure on our opponent that we cannot otherwise apply. This is indeed a departure.

After all, we often draft extensive mediation briefs, with cites to specific exhibits, that are little different from the brief we might submit if the neutral were sitting as an arbitrator who would issue an award, and not a mediator engaged to facilitate settlement. In an earlier era, it was common to do a mini-presentation of the arguments and evidence we expect to present at trial. In sum, we attempt to persuade the mediator of the merits of our case, with the hope she will step into the next room, caucus with our opponent, and, acting as our “super advocate,” pound them into submission.

So, if there’s no pounding, what should go on? Just as Mark points out, the mediation becomes less about applying pressure and more about “focusing . . . on reality and problem solving.”

This is all good. But I still found myself wondering more about how transactional lawyers approach negotiations. So I consulted a book about lawyering from the perspective of a career transactional lawyer. In Lawyering: A Realistic Approach to Legal Practice, M&A specialist James C. Freund says this in his introduction to the discussion of negotiating a deal:

“Most of what takes place in the course of negotiations can be characterized as either attempting to get a leg up on your adversary or striking a compromise between your respective positions. I firmly believe that the key to effective negotiating lies in achieving a functional balance between these two seemingly inconsistent aspects. If all your efforts are directed toward gaining advantages over your adversary, you will undoubtedly come on too strong; and where the parties possess relatively equal bargaining power, with freedom to consummate the transaction or not, you may cause your client irreparable harm–such as losing the deal.” (Id. at 188 (emphasis added).)

Again, from a transactional lawyer’s perspective, the goal is not to pound the other side into submission or walk away with no deal. Instead, in the interest of getting the deal done, Freund counsels that we strive to achieve a balance between getting a leg up on our opponent and striking a compromise. Makes sense, doesn’t it?

†Mark Fingerman encourages anyone interested in this presentation to reach him by email at: [email protected].

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When You’re Negotiating Against A More Powerful Opponent

One of my favorite books about negotiation is Getting To Yes by Roger Fisher and William Ury. As the book jacket suggests, it really is “for everyone who has ever worried about what to do in a disagreement or dispute.”

Since I suspect that the majority–if not the vast majority–of negotiations are between parties of unequal bargaining power, I thought it might be interesting to dip into the book and see what Fisher and Ury recommend one do when he/she/it is negotiating against a more powerful opponent. One of the tools the authors advocate in this situation is for a negotiating party to formulate a Best Alternative To A Negotiated Agreement (BATNA). Just by knowing their BATNA a party becomes empowered in any negotiation.

The easiest way to get a feel for what the authors are talking about is by using their example:

“Consider a wealthy tourist who wants to buy a small brass pot for a modest price from a vendor at the Bombay railroad station. The vendor may be poor, but he is likely to know the market. If he does not sell the pot to this tourist, he can sell it to another. From his experience he can estimate when and for how much he could sell it to someone else. The tourist may be wealthy and ‘powerful,’ but in this negotiation he will be weak indeed unless he knows approximately how much it would cost and how difficult it would be to find a comparable pot elsewhere. He is almost certain either to miss his chance to buy such a pot or to pay too high a price. The tourist’s wealth in no way strengthens his negotiating power. If apparent, it weakens his ability to buy the pot at a low price. In order to convert that wealth into negotiating power, the tourist would have to apply it to learn about the price at which he could buy an equally or more attractive brass pot somewhere else.” (Id. at 107.)

Since I’ve visited the Bombay railroad station–it’s actually called the Victoria Terminus–this was an easy bargaining situation to picture. The authors just left out the part about the cows wandering along the platform. In any event, as they point out, “the relative negotiating power of two parties depends primarily upon how attractive to each is the option of not reaching agreement.” (Id. at 106.) If you can have a very attractive BATNA, your chips have greater value.

How do you strengthen your BATNA? The authors suggest this “requires three distinct operations: (1) inventing a list of actions you might conceivably take if no agreement is reached; (2) improving some of the more promising ideas and converting them into practical options; and (3) selecting, tentatively, the one option that seems best.” (Id. at 108.)

If we transition this discussion into a familiar setting, the pre-suit mediation of a hypothetical employment dispute, it may become easier to see how the whole BATNA thing might play an important role. Consider, for example, a single plaintiff who has a claim against her employer for gender discrimination. The parties engage in a mediation to see if the case can be resolved before she actually files a lawsuit. The individual employee might be anxious going into the mediation, since her employer is a large corporation with sophisticated lawyers at its disposal (at least they look sophisticated) and both she and her lawyer know it will cost a lot and be an uphill battle to pursue the case if the corporation is not inclined to settle. This sounds like an unequal bargaining position, doesn’t it? If they go in “cold” as it were, hinging their hopes on the corporation’s generosity, they’re likely to get steamrolled into agreeing to a settlement far below full value.

What can they do to enhance their BATNA and take away some of the corporate defendant’s power? Let’s apply the 3 step approach from Getting To Yes. First, the plaintiff and her lawyer “invent a list of actions” they might take if the dispute doesn’t resolve at mediation.  Here are some I invented for them:

  • Go ahead and file a lawsuit and serve aggressive discovery. (True, it’s not very original.)
  • Explore pursuing a class action instead of a single plaintiff case.
  • Aggressively investigate whether there are quality witnesses who will support plaintiff’s case.
  • Propose a second mediation session after the plaintiff has completed some (hopefully damaging) discovery.
  • Associate additional reputable counsel to help level the playing field.
  • Explore forum shopping options. Perhaps the corporation expects a lawsuit would be subject to mandatory arbitration, but the facts or current state of the law weakens the assumption that arbitration will be a suitable forum?

Step 2: “improving some of the more promising ideas and converting them into practical options.” I like the idea of a class action as a practical alternative option to a single plaintiff case. This is bound to put pressure on the corporation, as a class action carries both greater risk and greater expense. How to “improve” this idea? Do some investigation. Talk to plaintiff’s female colleagues. Even if their cases would not be particularly strong if pursued individually, they might have a chance in a class action situation.

Step 3: selecting which option seems best. Let’s assume there is some chance the plaintiff and her lawyer could organize and successfully pursue a class action (but would still prefer to settle her single plaintiff case at mediation), the question becomes whether to share your option with the opponent during the bargaining process. The authors say this:

“The desirability of disclosing your BATNA to the other side depends upon your assessment of the other side’s thinking. If your BATNA is extremely attractive–if you have another customer waiting in the next room–it is in your interest to let the other side know. . . However if your best alternative to a negotiated agreement is worse for you than they think, disclosing it will weaken rather than strengthen your hand.” (Id. at 109.)

Here you will need to make an honest assessment. Is the notion of converting the plaintiff’s case into a class action really just pie-in-the-sky? The corporation’s lawyers are naturally going to wonder, if the plaintiff reveals her class action alternative, why her lawyer isn’t pursuing that in the first place if there’s really a viable class. The corporation, knowing class certification can be a challenge which, if lost, tends to shake out meritless individual claims, might not be particularly cowed by the prospective of a weak class action.

On balance, I would probably not reveal this BATNA to the opposition, even if the plaintiff and her lawyer believe a class action is a viable alternative. What’s important is the actual balance of power, not just the corporation’s perception of the balance of power. Going into the mediation with the knowledge that she has a decent BATNA should give the plaintiff and her lawyer the resolve not to cave too easily.

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How Well Should You Know Your Arbitrator?

This cautionary tale comes from a case called Mt. Holyoke Homes, L.P., v. Jeffer Mangels Butler & Mitchell, LLP (No. B243912). The facts are straightforward. Mt. Holyoke Homes hired Los Angeles law firm Jeffer Mangels Butler & Mitchell to provide legal services in connection with a real estate development.

When lawyers at the Jeffer firm failed to timely challenge the California Coastal Commission’s exercise of jurisdiction over Mt. Holyoke’s application for a development permit, Mt. Holyoke sued the firm for legal malpractice. Jeffer Mangels petitioned to compel arbitration, which was required under its engagement agreement with Mt. Holyoke. The law firm also sought to recover unpaid legal fees.

The parties jointly selected Retired Judge Eli Chernow to serve as the arbitrator over the malpractice action. According to the case, Judge Chernow made the following disclosures at the outset of his engagement:

“Judge Chernow disclosed that Defendants’ counsel had represented a party to a mediation before him within the past five years, but stated that he was not aware of any relationship with any party or attorney involved in this matter that would impair his ability to act fairly and impartially. Judge Chernow later disclosed that he had known Benjamin Reznik for many years. He also disclosed that he had conducted an arbitration and a mediation involving Adler more than five years earlier. The parties agreed to his appointment as arbitrator despite these disclosures.”

Judge Chernow ultimately issued an award in Jeffer Mangels’ favor on the grounds that its members had not breached the applicable standard of care nor caused Mt. Holyoke’s damages. He awarded the law firm $18,132.81 in unpaid legal fees, $285,000 in attorney fees incurred in connection with the arbitration, and over $150,000 in costs.

Smelling a rat, one of the Mt. Holyoke plaintiffs scoured the internet looking for evidence of bias on the part of the arbitrator. According to the case:

“She discovered for the first time a previously undisclosed resume in which Judge Chernow had named Robert Mangels, a name partner in JMBM, as a reference. She found a link to the resume on the Internet site of the National Academy of Distinguished Neutrals. Mangels was the first of three “References” listed on the resume.”

Reasonable minds will differ on whether this was really smoking gun evidence of bias. Judge Chernow signed a declaration attesting to the fact that the “resume” had been prepared 10 years earlier and that “he had listed Mangels as a reference only because Mangels was a well-known and highly-regarded litigator who was familiar with his abilities as a neutral.”

The trial court, unimpressed with the internet revelations, granted Jeffer’s petition to confirm the arbitration award and denied Mt. Holyoke’s petition to vacate the award. But—you guessed it—Mt. Holyoke appealed, and the California Court of Appeal held that it was error for the trial court to deny the petition to vacate the award based on the revelations of Judge Chernow’s . . . er . . . sordid past with Robert Mangles. The Court said:

“ . . . the connection between the undisclosed fact of the arbitrator’s naming an attorney as a reference on his resume and the subject matter of the arbitration, a legal malpractice action against the law firm in which the same attorney is a partner, is sufficiently close that a person reasonably could entertain a doubt that the arbitrator could be impartial. We conclude that Judge Chernow was required to disclose the fact that he had listed Mangels as a reference on his resume. Judge Chernow did not state in his declaration that at the time of his required disclosures he was not aware that he had listed Mangels as a reference on his resume, and there appears to be no reasonable dispute that he was aware of that fact at that time. His failure to timely disclose this ground for disqualification of which he was then aware compels the vacation of the arbitrator’s award.”

The real loser here is Jeffer Mangels or its malpractice carrier, who now have to re-try and, presumably, re-win the malpractice case. Perhaps there really was bias, though I doubt it. Judge Chernow is a pretty well-respected neutral. However, this case highlights the risks if you don’t know your arbitrator really, really well (or if you actually do know your arbitrator really, really well). I never said arbitration wasn’t risky, expensive and unpredictable.

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Settlement Negotiations: Anchors Aweigh!

Buyers snatched up a weathered house on my street late last year, and I soon learned they intended to remodel and “flip” it for a profit. A couple of weeks ago, the house, completely remodeled with the addition of a swimming pool, went on the market for a price that frankly stunned many of us in the neighborhood. Naturally, everyone likes to make a profit, particularly if the whole point of buying the house was to fix it up, turn around and sell it. But, these “flippers” had set the asking price at a fantastic 3½ times the home’s original sale price, well outside what any of us thought was reasonable.

This was running through my mind when I came across an article in last Friday’s Wall Street Journal about the wisdom of pricing real estate too high or too low. The article cited a recent study in the Journal of Economic Behavior & Organization addressing the notion of “anchoring.” Discussing this study, the WSJ article said:

“The research explores a behavioral trait called ‘anchoring.’ That is a common tendency to rely on the first piece of information offered (the ‘anchor’) when making decisions. Once buyers have an anchor, they typically interpret other information involved in the sale around it.”

It struck me that this “anchoring” phenomenon must have some application in other corners of the negotiation world, including what I do, settlement negotiations. We toss around terms like “low ball” and “inflated demand,” but I’ve never given too much thought to the deeper psychological implications of the launching point for negotiations.

I decided to solicit some thoughts on this point from experts, so I asked two prominent Los Angeles neutrals, Mark Loeterman (mlmediation.com) and Jeff Kichaven (jeffkichaven.com), for their view on the notion of “anchoring.” First, though, I reflected how I receive an extremely high asking price when shopping to purchase a piece of property or commencing a settlement negotiation. I’ve never had the experience of shopping for real estate without some kind of budget. If a house is priced outside that budget, even factoring in some cushion for negotiations, I won’t even look at it.

In the context of settlement negotiations, a ridiculously high demand can have a similar effect. While I don’t usually have the luxury of passing or ignoring a settlement demand, an outrageously high demand can have the effect of “anchoring” in my mind the notion that the case probably won’t settle, at least until something drastic happens to force my opponent to be reasonable.

Both neutrals I spoke with echoed this as a legitimate concern when dropping anchor. Jeff Kichaven pointed out that, “Sometimes opening numbers are so high, or so low, that they seem untethered to the realities of the negotiation, and are dismissed out of hand.”

What to do? If anchoring works because it sets the stage for all negotiations that follow, but must not be so overreaching that it “alienates” (my term) the parties, then it makes sense to push the envelope, but not too far. As Mark Loeterman remarked, “For anchoring to work, set initial offers and demands at the far edge of the credible zone so they can be rationally defended and invite further bargaining.”

Otherwise, it is not clear whether an overly aggressive opening demand or offer can be forgotten or cloud the entire negotiation. As Jeff Kichaven pointed out, “The interesting question to which I do not know the answer is whether “absurd” numbers also influence the later negotiations, or whether they are truly forgotten, and forgiven, as the negotiation goes on.”

So, when commencing negotiations, drop anchor, but do it with care, lest you do more harm than good.

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Five Ways To Improve Your Client’s Experience At Arbitration

I last wrote, rather flippantly I thought, about why, when given the choice, I generally shun arbitration in favor of mediation. One of the comments I received, from über-neutral Deborah Rothman, suggested that I owed it to my readers to check out the set of Protocols developed by the College of Commercial Arbitrators to address the kinds of issues I raised in my post. Well, I did. And it turns out this user-friendly, publicly available monograph, Protocols For Expeditious, Cost-Effective Commercial Arbitration, has a fair amount to offer on the subject of . . . well . . . making commercial arbitration more expeditious and cost-effective. Thank you, Deborah.†

By way of introduction to the Protocols, I thought it made sense to highlight just a few of the suggestions contained in the Protocols aimed specifically at outside counsel. (There are also separate Protocols for business users and arbitrators.) Here you go:

1.  Know What You’re Doing.

I spent so much of my post bashing arbitrators, that I managed to overlook a very important point: it helps if the lawyer advocates have a clue what they’re doing. We generally assume this means having a grasp of the body of law governing the subject of the dispute. While that’s surely crucial, the Protocols point out that it is equally important that counsel understand the unique rules of arbitration advocacy. As the authors comment:

“Counsel who agree to represent parties in commercial arbitrations need to have a solid understanding of the arbitration rules that will apply, the practices of the provider that is administering the arbitration, and the growing body of state and federal arbitration law. They should know how to navigate the arbitration process in an economical yet effective way.” (Id. at 61.)

2. Select Arbitrators With Proven Management Ability.

I would argue that careful selection of the neutral is the single most important step when engaging in any form of alternative dispute resolution (ADR). This Protocol recommends going even farther. It suggests:

“Counsel should do a thorough ‘due diligence’ of all potential arbitrators under consideration and should, consistent with the Code of Ethics for Arbitrators in Commercial Disputes, interview them concerning their experience, case management practices, availability and amenability to compensation arrangements that would incentivize them to conduct the arbitration efficiently and expeditiously.” (Id. at 62.)

3. Seek to Limit Discovery In A Manner Consistent With Client Goals.

I have mixed feelings about this Protocol. One of the problems I’ve historically had with arbitration involves limitations on scope of discovery. It’s fine for the parties to have a goal at the outset to limit discovery to only what is necessary. But it can become a problem if the parties (or one of them) are too optimistic, leading to an overly restrictive scope of discovery. This is what the drafters of the Protocols have to say:

“Discovery is far and away the greatest driver of cost and delay in litigation and in arbitration. . . Outside  counsel have an obligation to make sure the client understands the limitations inherent in arbitration discovery, to assess how much (if any) discovery is truly needed in the case, and to ascertain how much time and money the client is willing to expend in turning over stones.” (Id. at 64.)

See, it’s this “how much (if any) discovery” nonsense that troubles me. In my experience, a client’s case rarely gets worse by conducting discovery, and generally it gets an awful lot better with sufficient discovery. I do recognize that, at some point–generally earlier than later–discovery begins to yield diminishing returns. But the only time I’ve had a bad outcome at an arbitration was when I inherited a case on the eve of the arbitration hearing from a rather dim-witted colleague and the only discovery permitted and conducted was a set of document demands. It was the very worst experience. I say this: if don’t want to conduct discovery then forget arbitration and forget hiring a lawyer and bring your dispute in small claims court. Seriously.

4.  Periodically Discuss Settlement Opportunities With Your Client.

Being an effective, client-centric litigator, whether in trial court or arbitration, requires us to think simultaneously in two different directions. It can be challenging. Even as our client’s case improves, we need to continue questioning whether their interests would truly be better served by negotiating a settlement. This is one of the reasons I think we should strive to adopt the Mr. Spock way of purely rational, objective thinking.

The Protocols authors say this:

“[P]ropitious opportunities for settlement often appear at multiple points during arbitration, including during discussions with opposing counsel in preparation for the preliminary conference, after briefing or rulings on significant threshold matters, on completion of all or particular discovery, after submission of dispositive motions, during the hearing, and after submissions of post-hearing briefs. At all of these stages, outside counsel should re-evaluate their initial case assessment and discuss with the client the pros and cons of pursuing settlement.” (Id. at 65.)

5. Recognize and Exploit The Differences Between Arbitration And Litigation.

Pretty much consistent with my post, the Protocols dispel any lingering hope we may have for success at summary judgment or rigid adherence to the rules of evidence. The drafters say:

“Counsel should . . . keep in mind that dispositive motions are rarely granted in arbitration, and should employ such motions only where there will be a clear net benefit in terms of time and cost savings. Counsel should be aware that arbitrators tend to employ more relaxed evidentiary standards, and should therefore avoid littering the record with repeated objections to form and hearsay.” (Id.)

Yes, your otherwise valid evidentiary objections in an arbitration hearing may not be worth the cost of your breath. They are, both literally and metaphorically, “litter,” or useless trash. They could actually irritate the arbitrator (not to mention your opponent). While the Protocols topically suggest we should “exploit” these differences between arbitration and litigation, neither the Protocol nor the accompanying comment offer much advice about how to turn the lack of available dispositive motions or rules of evidence to our advantage. I’m unconvinced.

While it’s unlikely to provide any immediate relief, one of the Protocols urges lawyers to “work with providers to improve arbitration processes.” (Id. at 67.) I suspect (but have not yet confirmed) that there may be a corresponding Protocol aimed at arbitrators which suggests they give serious consideration to advocates’ comments and suggestions. At least for now, I will continue to prefer mediation to arbitration as an effective form of ADR. However, the Protocols seem to invite a dialogue, which would seem like a step in the right direction

†Ms. Rothman, along with Curtis von Kann, are Associate Editors of the Protocols. Thomas Stipanowich is the Editor-in-Chief.

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I Don’t Always Do ADR . . .

But when I do, I vastly prefer mediation to arbitration. Here are five reasons why:

1. The Split-The-Baby Problem.

I’ve had retired judges and other neutrals tell me they don’t like presiding over arbitrations because they invariably lose a future potential client: the lawyer for the losing side. There is one thing arbitrators will try to do to temper this inevitability: they may issue a “split the baby” award, giving an allegedly aggrieved plaintiff something even if he failed to prove his case or suffered no damages. While many will argue that a small “split the baby” award is far better than a runaway jury verdict, in cases involving fee-shifting statutes, such as employment discrimination litigation, the employer who might have won outright in front of a jury is forced to pay the “prevailing” plaintiff’s attorney’s fees (in addition to the arbitrator’s fees and costs).

2. Informality Is Not Necessarily A Good Thing.

It is often thought that arbitration is preferable to a bench or jury trial because the proceedings tend to be more informal. Informality might sound good, but it can be a problem if your arbitrator decides to relax the rules of evidence (which is typically within her discretion) and your opponent’s case hinges on an item of otherwise inadmissible evidence, such as a hearsay statement.

3. No Appellate Review.

What do you do if you lose the arbitration due to a clearly erroneous ruling by the arbitrator? Don’t look to any appellate court for relief. While it is true that the Federal Arbitration Act (FAA) and other schemes may create a situation in which some appellate review is available, the circumstances and scope of review is inevitably limited compared with a state or federal appellate court.

4. Good Luck With That Summary Judgment Motion.

While it can be argued that certain courts are more or less likely to grant meritorious summary judgment motions, many will agree that obtaining summary judgment in a case pending before a private arbitrator may be the toughest sell of all. Without naming names, I suspect there are two reasons for this. First, an arbitrator who grants summary judgment is foregoing a significant income opportunity. While many first-rate neutrals are so fully booked they have no trouble filling time gaps created by a vacated arbitration hearing, this is not always the case. Second, a party who is deprived its right to a full evidentiary hearing because of a summary judgment will almost certainly feel shorted. Her lawyer is unlikely to hire the neutral again.

5. It’s Damn Costly.

Many practitioners feel as I do that arbitration is just too costly to be seriously considered as an alternative to resolving a dispute in state or federal court. In addition to the arbitrator’s hourly rate, which equals or exceeds that of most lawyers, many ADR providers tack on large administrative charges. Those of us that represent employers in employment litigation are stuck trying to explain to our clients why they must deposit, in advance, all of the arbitrator’s fees and costs.

I recognize these are pretty broad strokes. But in most instances, given the choice between a bench or jury trial and a binding arbitration, I’d prefer to stay in court and try to resolve the case through mediation.

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Lawyers: Channel Your Inner Spock

The media, film, and TV have long fueled a belief that the most important quality any lawyer can possess is the ability to conduct a withering cross-examination of a pivotal witness. As practitioners, we know better. The ability to think, argue and write clearly and persuasively is vastly more useful to the careers of most lawyers, at least in the real world.

One quality that does not receive much attention, but that is unquestionably something our clients pay for and (should) expect, is the ability of lawyers to approach, apprise and navigate through any situation using logical, intelligent analysis, with a minimum of ego or emotion.

I recently came across an article, in the May, 2013 issue of For the Defense magazine, in which a seasoned Georgia mediator, Christopher Ziegler, suggests, in the context of mediation negotiations, that we emulate Mr. Spock from an obscure and little known TV show called Star Trek.

I’ll confess up front that I never watched much Star Trek. This isn’t to suggest that I was doing anything better with my time. I wasn’t, unless Wild Wild West or Gumby could somehow be considered higher quality programming.

My point is that I never really paid much attention to the show or to Mr. Spock’s qualities. But in reading Mr. Ziegler’s article, “Two Emotion-Based Enemies Of The Good Deal,” I’m convinced he is onto something. Ziegler writes that attorneys and their clients mediating cases “should never act out of emotion . . . [but should adhere to a] plan, which is presumably based on analysis, logic, and reason.” Id. at 37.

Ziegler suggests that Mr. Spock, being half human and half Vulcan, “was extremely intelligent, pragmatic, and well-reasoned, never allowing his emotions to foil the best and most ‘logical’ decisions.” Id. at 38.

I cannot think that Ziegler is suggesting we should be Vulcans who are altogether devoid of emotion. After all, compassion and empathy are vitally important traits for any professional. We are not machines or computers. Rather, his point is that, when participating in a mediation, our clients should be able to look to us to advocate and negotiate in a cool, objective, non-emotional way. Discussing Spock, Ziegler writes:

“Whenever a tough decision had to be made, Spock’s decision, or his advice, was always based on the most logical, intelligent analysis, not on ego or emotion. Thus, if the most logical, best way to save the entire crew from some dilemma meant that Spock had to die, Spock would announce without emotion or drama that the necessary decision would be the course of action that would result in his death. Spock had no ego, felt no anger, and shed no tears. With an analysis free from emotion, Spock could matter of factly make a cool-headed, rational decision even if emotion would have frozen others.” Id.

While Mr. Ziegler writes about striving to quell ego and emotion during mediation, I would argue that the best lawyers are those who try to maximize cool, logical analysis and minimize ego and emotion in every aspect of their practice, not just during mediation. Certainly, a Spock-like lawyer does not storm out of a mediation early just because his opponent is not making rapid or satisfactory movement (Ziegler’s point). But he also refrains from ego-driven, ad hominem attacks during depositions or in law and motion papers. He does not allow his ego to escalate a conflict where his client’s interests are better served by seeking a compromise or otherwise de-escalating the conflict. The point is that the best lawyers are not just monkey-scribes, ghost writers or hired guns. The best lawyers bring sanity to situations that can otherwise be less than sane.

And I expect some of the very best lawyers may also have pointed ears.

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Could The Legal Profession Ever Become Extinct?

Could licensed lawyers ever go the way of the Dodo and S & H Green Stamps?

I came across this recent article in the Wall Street Journal about the growing interest by non-traditional law school students in signing up for selected law school courses and seeking non-JD graduate-level law degrees (i.e., a Masters) in discreet areas of the law, such as health care, etc. The article got me wondering whether anything could ever bring about a long-term shift away from a world in which graduate students incur huge debt to obtain JD degrees, sit for an arduous 18 hour bar examination, get their license, only to learn that: (1) there are too few available jobs for newly-minted lawyers; (2) many lawyers will only use a fraction of the information we learned during law school; and (3) although we are “fiduciaries” only about 31-38% of the public trusts their lawyers–anything could cause a glacial shift away from this world into one in which tasks and responsibilities traditionally handled by licensed lawyers are done instead by non-lawyers who may (or may not) have specialized training to enable them to assume that responsibility or perform that task.

While I’m just musing, some wonk has surely crunched the numbers and stands ready with a handy statistic about how much this change has already occurred. After all, NOLO has been around since the 1970s. LegalZoom and similar providers have (apparently successfully) developed products and services specifically designed to omit lawyers from supposedly “simple” transactions such as corporate formation, or the drafting of a trust or will. Sophisticated organizations, including realtor associations, already provide for arbitrations with non-lawyer industry experts serving as the neutrals to resolve a dispute. I also know of potentially expensive and protracted divorce disputes that were resolved with reduced time, expense and pain through the involvement of psychologist-lawyer mediation teams.

Let me be clear about what I am not talking about. Professors, bloggers and writers have discussed ad nauseam the disruptive and earth-shaking changes in the business of law (along with the “business” of teaching lawyers their trade) which have largely occurred over the past half-decade. I neither pretend nor want to contribute to this discussion. This is not about The New Normal, whatever you may think of that label. I don’t care whether or how NOLO or LegalZoom might impact the annual Profits Per Partner at Skadden (it won’t) or the profits of a sole practitioner in Visalia, California (it might), or will cause some random law school to shut its doors.

I’m talking instead about the future of our profession. The future of the idea that we are a civilization that needs expensive intermediaries, people specially trained to do our thinking, drafting and arguing for us. That we are a civilization in which two people who reach an agreement need two (or more) comparatively expensive people to reduce it to writing. Or that we lack the ability to argue effectively on our own behalf, without a mouthpiece, about anything more serious than a small debt or a traffic ticket. Are we still going to be that civilization in the future? Or could we ever evolve into a civilization in which lawyers are those jokers they talk about in history books? “I once saw one!”

What, if anything, does it say about the interest, ability and willingness of the public to commit to become more do-it-ourself with regard to tasks and responsibilities formerly handled exclusively by licensed lawyers? By the same token, what could it say about the interest and willingness of people who once thought they wanted to be a licensed lawyer to elect instead to focus their education on a sub or sub-sub-speciality of law (saving $100,000 + in tuition in the process)?

I’m not suggesting any of this could happen soon. Our systems are not ready for it. For example, while citizens are presently free to represent themselves in civil and criminal courts, I can’t even begin to suggest that it’s a good idea for anybody. I’ve been practicing in courts for 20 years, but it would never (ever) occur to me to represent myself in any criminal matter beyond a speeding ticket (and even then). But, like all things, this could change. If criminal and civil courts ever became pro se-friendly . . . (Don’t laugh. Stop it.)

I’m also not taking the position that a civilization without a legal profession would be better or worse than ours. Just different.

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Demystifying The Notion Of A “Mediator’s Proposal”

Every lawyer whose practice includes mediating civil cases is bound at some point to come face to face with the concept of a “mediator’s Proposal,” also called a “mediator’s number.”

Here’s what happens: the parties have been mediating several hours or all day and they’ve reached a stalemate. For sake of example, let’s say that the plaintiff in an employment dispute has reduced her demand to $250,000, but signaled she does not intend to negotiate further without some radical movement by the defendant. At the same time, the defendant employer’s counsel has told the mediator they do not intend to come above $150,000.

At this juncture, the mediator could adjourn the mediation, particularly if she feels the parties have been negotiating in good faith and there are legitimate, insurmountable obstacles to settlement. However, if the mediator believes both sides genuinely would like to resolve the dispute, but just can’t reach a consensus, even after considerable arm-twisting, she may offer to give a “mediator’s number” as a theoretical last-ditch attempt to reach a settlement. (I say theoretical here because most hard-working mediators will continue the process even after the mediation session has adjourned through telephone calls to the lawyers and/or corporate representatives for both sides.)

The mediator meets together with all counsel, but not the parties or corporate representatives. She gives the parties a number at which she thinks the case should settle, recognizing it is going to be less than the plaintiff demands, but more than the defendant is presently willing to offer. In the hypothetical above, the mediator might give $210,000 as her “mediator’s number.” The attorneys consider the number and either recommend to their client that they take or reject the number. Any party that is willing to accept the number advises the mediator confidentially. In this way, if only one side is willing to accept the offer, the other side is not made aware of this fact, which would surely jeopardize the willing party’s ability to credibly negotiate for a more favorable number at some later time. However, if both (all) parties confidentially accept the “mediator’s number,” she advises counsel and a settlement is reached.

I’ve heard of another version of this, in which each party confidentially tells the mediator his/her/its “bottom line” number. If the parties are within a previously agreed upon percentage or dollar amount, the mediator then discloses this spread as a “bracket” and urges the parties to find a meeting place.

I’ve never had a dispute in which the mediator gave a “mediator’s proposal” and the case did not ultimately settle at or near that number. But that doesn’t mean a “mediator’s number” is a good idea in every case. First, if you get a clear impression that the mediator is not completely impartial, then you might get a number that is skewed in favor of your opponent. It’s not always easy to tell if the mediator is biased, since part of her job is to “sit on” both sides in order to get them to come to the table. What you might interpret as evidence of bias might actually be a mediator doing a damn good job.

Second, if you and/or your client are truly entrenched in your position, and you really do not want to pay much more than you’ve offered, a “mediator’s number” could have the adverse effect of giving your opposition some undeserved false hope that her case is worth more than it reasonably should be. Until proven otherwise, I generally expect neutrals, both mediators and arbitrators, to “split the baby” in every instance. Thus, in my example above, I think it is much more likely that the mediator will conjure a number somewhere in the middle between the parties’ respective positions, than that she would give a number that is especially favorable to the defense–even if she thinks the plaintiff’s case stinks. Remember, the mediator’s job is to get the case settled, not make sure the settlement is appropriate to the facts of the case.

Finally, the possibility of a “mediator’s proposal” illustrates a larger point concerning mediation. Just as attorneys come in varying sizes, shapes and skill sets, so do mediators. It pays to be picky when selecting your mediator. Do your homework. This does not mean holding out for a mediator that is bound to be on your side. On the contrary, it can be much more important to have a mediator whose opinions your opponent (and her client) are likely to credit. But you should hold out for someone you reasonably expect will work hard to settle the case.

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