How Do You Settle Halfway? Settlement Structures Part II

From John DeGroote’s Settlement

Perspectives

In You Can Win by Settling Halfway:  Settlement Structures Part I, we discussed when it might pay to settle halfway — when you might resolve parts of a dispute to “streamline the matter, limit expenses, and refocus the parties on resolving what’s left.”  While Part I outlined several high-level examples of how it works in theory, here’s a successful example to demonstrate how settling halfway can work for you.

What’s Really in Dispute?

I got called into a dispute between my client at the time and a recently departed executive.  The former executive disagreed with the compensation he was paid as he left.  Like many claims involving former execs, the stakes were high, and the emotions ran higher.  Both sides wanted to prove that they were right, and the case would not settle.  Once I really understood each side’s position — on the facts and in the broader context — an opportunity to settle halfway began to emerge.

Behind the emotions and the egos were only two claims; for confidentiality’s sake we’ll call them the “cash claim” and the “equity claim.”  The cash claim was simple and straightforward.  As is often the case, the equity claim was neither.  It involved a claim for company stock, was dominated by uncertainties but driven by big numbers, and would require discovery, expert witnesses and lawyer attention nobody really wanted to pay for.  Since we all try to avoid big investments with unsure returns, I thought the equity claim might give us something to work with to streamline the case.

Eliminating the Rabbit Trails — Actually Getting It Done

I approached the other side to discuss ways to litigate the case more efficiently, and thankfully they listened.  Keying off the exec’s understandable desire for vindication — which contributed to our inability to settle — and his rational desire to limit his fees and costs, we agreed on a way for him to get his day in court with little up-front investment.

We agreed the dispute would be resolved as follows:

• The case would be limited to the executive’s most straightforward claim — whether he was entitled to anything under his cash claim;
• All other claims, including the equity claim, were waived with no admission of who was “right”;
• We would confidentially arbitrate the case with 1 arbitrator (named in our agreement), in 1 day, with 25-page briefs, 3 hours of testimony per side, and no involuntary discovery;
• The arbitrator’s decision would be limited to one number:  the amount to which the executive was entitled, if any, on his cash claim; 
• The arbitrator’s award could not exceed the total amount of the cash claim;  and
• My client agreed to pay whatever the number was within 30 days of the decision without appeal.

Why Did Everyone Agree to This?

This arrangement gave the executive a “free shot” at my client on his best claim. Without spending $100,000-plus to litigate the equity claim, he would still get his day in court on the cash claim, need only 1 day away from his new job, and risk no chance of reputational damage.  My client would lose the ability to take the exec’s deposition and to appeal — both of which cost money — but my client would get a confidential hearing that would not bind it in any similar disputes.  Importantly, my client’s biggest downside risk was immediately eliminated;  as soon as the agreement was signed, we would have a cap on our exposure — which the CFO always appreciates. 

Overall, this was a straight Getting to Yes outcome for everyone, no matter the result.

My Deal Won’t Work for Your Case

Convincing the other side, and your own client, to limit their options in a case without knowing all the facts isn’t easy, no matter how much money everyone saves.  You won’t convince anyone with my terms or random proposals, but you can settle halfway if:

• you carefully consider what motivates the other party (and their lawyers);  and
• you tailor your proposal to satisfy these needs. 

If you do, you just might narrow your case to one that saves time, money, effort and risk.

Before I go I might be tempted to tell you who “won” this case in the arbitrator’s eyes, but — now that you see how much we saved in fees, exposure and time — does that really matter?

I welcome comments on this or any post. Please feel free to comment using the “Add a Perspective” link above, whether you use your actual name or pseudonym.  If you don’t feel comfortable commenting directly on this site, I can easily be reached by email at jd[at]johndegroote[dot]com.

                       

John DeGroote

John serves as a mediator and arbitrator in complex business, technology, and intellectual property matters involving parties and interests around the country and beyond — often before litigation is filed. Prior to his service as a mediator and arbitrator, John served as the lead settlement negotiator in hundreds of cases,… MORE >