RAE GROUP ADR NEWSLETTER
Recession’s Impact on Settlements
As the economy has turned from bad to worse, mediators are noticing an interesting, but not unexpected trend: based on economic concerns: parties are increasingly willing and motivated to settle cases.
From the plaintiff’s point of view, motivation for settlement has changed drastically. During sound economic times, plaintiffs were dreaming about how to spend their settlement monies, what luxury or convenience goods to purchase. Now plaintiffs evaluate settlement offers in terms of how much debt can be retired, whether a home can be saved from foreclosure, or whether it can pay living expenses until a new job is found. Plaintiffs are also more concerned than before in the terms of a settlement offer. They are increasingly circumspect of payout schedules, believing that an offer of payment over time is a potential signal that the defendant is illiquid and that bankruptcy is a possibility. Even if the defendant is solvent, a payment plan increases the chance that the defendant will default, especially since some courts require that a case be dismissed once the parties enter into a settlement agreement. Since a court is divested of jurisdiction once a case is dismissed, a Plaintiff must file a new actionto enforce a defaulted settlement agreement, further delayingreceipt of payment and increasing costs to Plaintiff. Plaintiffs can also be affected if the economic conditions are adversely affecting legal counsel. An attorney feeling economic pressure will be more likely to have discussions with a client regarding whether the client’s demands are reasonable and the problems inherent in collecting on judgments. While such talks are often necessary, their need is questionable when motivated by the attorney’s, rather than the client’s, welfare.
Defendants adversely affected by the economy also face different realities and motivation in settlement negotiations. Even if a defendant believes that a settlement is in its best interest, a decrease in revenue, increased cost of production, and the tight credit market may make it difficult, or even impossible, to fund a settlement. Thus, Defendants are increasingly interested in entering into settlements paid over time. At a time when Plaintiffs are less interested in structured settlements, reaching an agreement becomes more difficult, even when the parties can agree on the settlement amount. Defendants may also face a problem with Counsel similar to that faced by Plaintiffs. ADefendant with economic woes may turn into a non-paying client. Once that occurs, Counsel may feel pressure to drop the client, if possible, as too many non-paying clients threaten the viability of the law firm. In response, Counsel may exert pressure on the Defendant to settle quickly on less advantageous terms.
Thus, economic concerns are likely to affect one or more of the participants in mediation, including Counsel. A skilled mediator will carefully listen to what the parties say in conference and in caucus and consider how economic pressures on the parties (and Counsel) are affecting negotiations. For example, with respect to settlements paid over time, a mediator should help the parties resourcefully develop solutions that alleviate the real concerns of the parties, such as suggesting structuring payments over time accompanied by a conditional stipulated judgment. Further, a mediator will have to deal with the emotion caused by such economic distress to help the parties come to a mutually acceptable agreement. While conducting the mediation, a mediator who takes into account how the participants are affected and coping with the economic downturn will help the parties better focus on settling the dispute. These mediators will help promote settlement, while mediators who are adamant about sticking to the issues such as liability and damages and pound on the parties to try to reach settlement, without addressing the impact of the economy on mediation participants will more likely waste everyone’s time.
The recession is fueling reasonable settlements that are paid out now, rather than over time. A mediator must meet head-on the economic concerns of all participants and manage their economic fears. While mediations have not turned into fire sales, the recession has caused the mediator, and all the participants to become more pragmatic and to settle for what is attainable today, rather than the possibility offered by tomorrow.
The author, Jay Lazrus, is an experienced attorney and neutral. For more information, or to retain his services as a mediator or arbitrator, please visit his website at com or go to and select him as your neutral.
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