Why Disputes Settle Late and not Early

Add mew articles by Westrich


Clients complain that the cost and unpredictability of resolving construction disputes — whether by court or arbitration — is too high and that the process takes too long. [1] The culture of litigation includes both court and arbitral processes, and assumes that disputes in court and arbitration will go to verdict or award. This assumption pushes lawyers to pursue expensive means to increase the odds of winning and reduce the chance of losing, including discovery, motion practice and appeals [2] that may or may not resolve the dispute. The combination of a legal services market principally based on hourly billing rates, [3] nearly limitless discovery, and the delay parties face in many courts, results in dispute resolution outcomes that are increasingly of questionable value to clients.

Moreover, the overwhelming statistics show that most commercial cases settle before verdict or award. [4] This is because as parties get close to trial, their attitude about risk changes — especially the risk of losing and not recovering their legal and expert expenses. Also, most judges prefer not to devote court time to fact-intensive cases such as those involving construction and intellectual property cases. Trial judges therefore often attempt to “force” a settlement that may not be attractive to the parties.

If a case is likely to settle, why spend so much money on a process that assumes it will not? Many would agree with one astute observer’s opinion about the cost and delay of construction litigation: “We start off knowing 80-90% of the facts; we then spend 80-90% of the costs trying to find the other 10-20% – and then learn nothing really important.” [5]

As U.S. District Court Judge Patrick J. Walsh recently said in the ABA’s Litigation Journal: ” Lawyers still conduct pre-trial as if their cases are going to trial; I think that is a mistake…Less than one percent of the civil cases that could go to trial actually do.” [T]he scorched-earth practice many lawyers employ, attempting to discover “everything” without regard to cost and aggressively litigating when production is not forthcoming, seems inconsistent with the goals of the civil rules—the just, speedy, and inexpensive resolution of the case—and what one assumes is the client’s goal: obtaining the best possible result for the least amount of money.” “Rethinking Civil Litigation in Federal District Court,” Litigation (Fall, 2013) p.6.

Lawyers think they know how mediation works and that mediation can help settle cases. Yet they often come up with reasons why mediation is not appropriate early in a dispute. Those reasons include the following:

  1. “The other side is unreasonable and mediation is a waste of time.” At the early stages of litigation, parties are often angry at their opponents, and their lawyers may give them unrealistic evaluations of the cost, time and probable outcome of the litigation. [6] How many lawyers would have accurately predicted the entire outcome of the Obamacare case [7] in the U.S. Supreme Court? Also, early on clients may not fully understand their true interests in settlement because they cannot predict the risk of winning battles and losing wars.
  2. Suggesting mediation to my opponent is a sign of weakness.
  3. We don’t know if the case will settle and therefore we must leave “no stone unturned” to protect the client”—and the lawyers. We will consider mediation after we better understand the case through discovery.

John Bickerman, former chair of the ADR Section of the ABA, recently wrote: [8]

“There is no clarity in what mediators do, and so [mediation users] have no idea what style of mediation they are buying and whether it is what they want for their dispute. In the past, some in the field have tried to define mediation as one style and ban the rest. All of the models of mediation have merit in the right circumstances.”

As a result of lawyer and client uncertainty about what mediation entails, its use, if at all, is frequently delayed until the parties have already incurred considerable pre-hearing expenses. This expense and the animosity that develops after years of litigation often dull a client’s interest in settlement.

[1] Litigation or Arbitration: View From the Trenches,” Gardner, Winston (“Bud”), Journal of Legal Affairs and Dispute Resolution in Engineering and Construction,” ASCE May 2011. The median settlement period for civil cases in Untied Stated federal District Courts is 699 days.

[2] Even arbitration can be a victim of the cost and delay of appeals. Arbitral appeals involve disputes about the scope of arbitration clauses and attacks on awards because of the arbitrator’s failure to disclose a conflict.

[3] Billing by the hour without limitation has not always been the norm. It began around 1958 when lawyers discovered that hours were a product they could sell. Before the 1970s, lawyers were not under economic pressure to bill large number of hours at high rates. See Michael Philippi of Ungaretti and Harris, “Beyond the Billable Hour,” Illinois Bar Journal February 2012, 80.

[4] “Most Cases Settle: Judicial Promotion and Regulation of Settlements,” Galanter, Marc; Cahill, Mia, 46 Stan. L. Rev. 1339 (1993-1994). Orey, Michael, “The Vanishing Trial: As Court Battles Become More Rare, Some Experts Fear the Effects on the Law,” Bus. Week. April 30, 2007 at 38.

[5] Unknown source quote in an IBA Listserv email received by the author.

[6] Goodman-Delahunty, Jane, Granhag, Par, Hartwig, Maria, Loftus, Elizabeth, “Insightful or Wishful: Lawyers Ability to Predict Case Outcomes”, Psychology, Public Policy, and Law, 2010, Vol. 16, No. 2, 133-157.

[8] Bickerman, John, “Adapting Mediation to What Users Want,” Maryland Bar Journal, March 2012 pp. 55 et seq.

Adapted from Lurie, Paul M. , Guided Choice: Early Mediated Settlements and/or Customized Arbitrations,” Journal of the American College of Construction Lawyers, Summer 2013.