Improving Professionalism by Improving Judgment: Keys to Advising about Settlement and Mediation

The Bencher—September/October 2016

By Laura A. Kaster, Esquire

The American Inns of Court goals of promoting professionalism, excellence, and civility are complemented by the American Inns of Court Professional Creed that includes a very specific endorsement of a kind of alternative dispute resolution (ADR) pledge: “I will represent the interests of my client with vigor and will seek the most expeditious and least costly solutions to problems, resolving disputes through negotiation whenever possible.” However, the judgment required to advise clients on dispute settlement timing and amounts is infrequently discussed in law schools and law firms, and even in continuing legal education. Many lawyers, myself included, considered that the necessary savvy would have to be a product of osmosis and experience honed over a long period of time. Nevertheless, Rule 2.1 of the American Bar Association (ABA) Model Rules of Professional Conduct (which have been adopted in 51 jurisdictions) mandates the exercise of judgment:

In representing a client, a lawyer shall exercise independent professional judgment and render candid advice. In rendering advice, a lawyer may refer not only to law but also to other considerations such as moral, economic, social and political factors that may be relevant to the client’s situation.

Therefore when a client is involved in a dispute, we must also develop the ability to evaluate the best next step, including whether settlement negotiation or mediation would best serve the client and how to advise the client on an appropriate value at which settlement would be better than ongoing dispute. The good news is that we can improve our judgment; the bad news is that we very much need to do so. We know that lawyer–client decisions not to settle are often poor. Randall Kiser and his colleagues have conducted two large data studies relating to cases in which settlement offers were made and rejected, followed by a trial. These studies clearly establish that lawyers are turning down settlements only to obtain a less satisfactory result at trial. They are not assessing the value of the case at trial correctly.

In 2008 Kiser, along with Martin Asher and Blakely McShane, published a study entitled, “Let’s Not Make a Deal: An Empirical Study of Decision Making in Unsuccessful Settlement Negotiations.” Journal of Empirical Legal Studies, Vol. 5, Issue 3, (Sept. 2008). The authors analyzed more than 2,000 California state court cases where, in rejecting settlement, over 60 percent of the plaintiffs’ counsel made a “decision error” (as defined by Kiser et al), turning down a settlement and obtaining the same amount or less at trial. The rate of decision error for defendants’ counsel (turning down a settlement only to pay the same amount or more at trial) was much lower (but not admirable): only 24 percent. Thus, just under 25 percent of the defendants in the study sample faced a verdict higher than the rejected settlement offer. However, the impact (or magnitude) of decision error was very different: The mean cost of defendants’ mistakes was $1.1 million—much higher than that of plaintiffs, which was only $43,000.

Although the first study focused on California cases, Kiser followed up with studies in New York that reached substantially similar findings with a similarly large body of data. Beyond Right and Wrong (Springer 2010). The magnitude of New York defendants’ mean cost of error was approximately 19 times the magnitude of the plaintiffs’ mistakes. And in larger cases the dollar amounts become startling. For all the cases studied, where the claim was $1 million to $50 million, the mean cost of decision error for plaintiffs was approximately $327,000, and the mean cost for defendants’ decision error was $5.326 million.

Why do lawyers and clients make these kinds of mistakes? Because lawyers suffer from the same kinds of unconscious cognitive biases and heuristics (mental shortcuts) that all decision makers do; and because those unconscious biases are exacerbated by the lawyer–client relationship. The need to serve the client and the knowledge of the outcome sought results in a species of groupthink that I call “client-think.” Decision science is a developed science whose most famous practitioner is Nobel Laureate Daniel Kahneman of Thinking, Fast and Slow. But lawyers are behind the curve in studying and employing the ideas and practices developed by these scientists and scholars.

Lawyers are invariably put into situations that constitute a perfect storm of unconscious influences calculated to impair their judgment. The lawyer and the client constitute a group of two people. In large cases, the lead (i.e., first chair) lawyer may have others working with him or her (partners, associates, investigators, paralegals, and experts). Their task is to find ways to support the client’s case and uncover weaknesses in the adversary’s case. Unconsciously, they have taken a side from the outset. Once the parties file their pleadings, submit their motions, and engage in discovery, which usually leads to disputes, the table has been set for client-think.

Groupthink, the term invented by Irving Janis, describes the kind of impaired group decision-making that led to the Bay of Pigs Invasion. Psychology Today 5:6 (Nov. 1971, 43-44,46.74-7)

Janis identified the following symptoms of groupthink:

  • The group feels it cannot fail.
  • The group rationalizes away disconfirming data and discounts warnings.
  • The people in the group believe they are inherently better than their rivals; the opposition is demonized or stereotyped.
  • Dissent is discouraged, overtly or covertly.
  • The group comes to the belief that it unanimously supports a particular proposal without necessarily asking what each individual believes (a process of polling that Kahneman thinks should be done in writing and before discussion).
  • Individuals self-censor. Few or no alternatives are discussed and people do not survey all participants.

To groupthink we add universal cognitive impediments, anchoring, sunk cost bias (especially powerful and often heard in mediation as the statement “I’d rather pay my lawyer than the other side”), overconfidence bias, and risk aversion. It is worth reading Thinking, Fast and Slow and other expositions of unconscious bias to get a feel for the insidious impact of these subterranean mental influences. But for a quick and dirty shocker about how these and other unconscious processes create attention blindness and impact our ability to simply collect the facts on which our cases may turn (let alone analyze the likely outcome), nothing is better than the YouTube video of “The Monkey Business Illusion.” A quick two or three minutes of viewing will convince you that being distracted by the task of looking for evidence to support your position can blind you to critical information that would make you skeptical about outcome. We actually see what we believe and not the other way round.

So how can we teach and learn an improved way of making critical judgments in order to provide the professional advice our clients so badly need? First we have to recognize the issue. We need to understand the mental processes that impede us and then we need to counter them. Specific training on how to prepare for settlement negotiations or mediation is not a frequent element in even trial Inn training programs. We need to know that we can improve our own ability and work to do so, including by discussing these issues at our Inn programs. We can turn to other resources on prediction and assessment, such as Superforecasting: The Art and Science of Prediction (Philip E. Tetlock and Dan Gardner, Crown 2015), and we can take the following steps:

  1. Use the devil’s advocate. Organize your team and your collection of information for better absorption of the information, avoidance of attention blindness, and to ensure better risk assessment. For example, once a team of lawyers is assigned to work on a case, assign one member of the team to play the role of devil’s advocate (i.e., assume the perspective of the adversary). This person will examine all the evidence (from the beginning) in that light, and bring damaging evidence directly to the lead lawyer and the client without gloss. The use of a devil’s advocate should not await the mock trial or jury study.
    Keep communications open. To avoid attention blindness, it is vital for the team to keep talking to the other side, trying to learn how it views the issues, the witnesses (its and yours), the arbitrators or judge, and the evidence.
  2. Involve the client. One way is to probe the client for information about the adversary’s views of the facts and other aspects of the case. It can be useful to ask the client how he or she can explain what the adversary experienced, what it wants, and how it might interpret key evidence.
  3. Do pre-mortems. Kahneman suggests doing pre-mortems. It involves having the team imagine, well before the trial, that it lost the case. Then have the team discuss the reasons for the loss. This will bring up troubling evidence or issues of law. Having this information will enhance the reliability of the team’s risk assessment.
  4. Record each team member’s views on each issue. Kahneman also suggests that before undertaking a group risk analysis, each member of the team should write down his or her views on each issue. This can also avoid the trap of groupthink. This suggestion is especially useful in firms where teams are hierarchical, because it encourages lawyers who are lower down in the hierarchy to speak up and thereby make a real contribution to the assessment process.
  5. Budget going forward. Be sure to budget and account for costs and fees going forward in assessing the value of a case for settlement. This avoids sunk cost bias. It also requires honing the skill of predicting fees and costs.
  6. Describe the case to others. Another technique is to describe your case to others (without breaching confidentiality) who have no interest in the outcome, and do not know or care what side you are on. Don’t even tell them. Then ask how they see the case, and ask what they think are the risks.
  7. Use jury studies. Undertake jury studies if the case warrants the expense, or use online jury research.
  8. Document for going forward. Keep records of your case valuations, liability assessments, and budgeting costs and fees in order to evaluate them at the end of the trial, or after a settlement, to calibrate them against actual results. By recording the settlement analysis for comparison to the eventual result at trial, arbitration, or mediation, you will be able to discern your errors or their patterns.

Inns of Court, law firms, and corporate law departments could help attorneys refine their judgment skills by encouraging them to keep a file of their risk assessments and budget estimates at various stages, to have other firm lawyers comment on them, and then to actually compare them to the final award or settlement. These are skills; they can be developed and honed, and they are precisely the kind of judgment your client is seeking from you. Over 98 percent of cases are resolved not by trial, but by settlement or mediation. The skills that can assure the best results for your client include the skill of valuing their cases.

Laura A. Kaster, Esquire, is a full-time neutral and fellow in the College of Commercial Arbitrators. She is on the arbitration and mediation panels of the AAA, CPR, FINRA, and the global panel of CEDR. Kaster is president of the Justice Marie L. Garibaldi AIC for ADR in Basking Ridge, New Jersey.

© 2016 LAURA A. KASTER, ESQ. This article was originally published in the September/October 2016 issue of The Bencher, a bi-monthly publication of the American Inns of Court. This article, in full or in part, may not be copied, reprinted, distributed, or stored electronically in any form without the express written consent of the American Inns of Court.