Beyond Right and Wrong
Randall Kiser
Beyond Right and Wrong The Power of Effective Decision Making for Attorneys and Clients
Randall Kiser DecisionSet1 550 Hamilton Avenue, Suite 100 Palo Alto, CA 94301 USA
[email protected]
ISBN: 978-3-642-03813-6 e-ISBN: 978-3-642-03814-3 DOI 10.1007/978-3-642-03814-3 Springer Heidelberg Dordrecht London New York Library of Congress Control Number: 2009941064 # Springer-Verlag Berlin Heidelberg 2010 This work is subject to copyright. All rights are reserved, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilm or in any other way, and storage in data banks. Duplication of this publication or parts thereof is permitted only under the provisions of the German Copyright Law of September 9, 1965, in its current version, and permission for use must always be obtained from Springer. Violations are liable to prosecution under the German Copyright Law. The use of general descriptive names, registered names, trademarks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. This book does not contain and is not intended to be a substitute for legal advice. The ideas and strategies contained in this book may not be suitable for a reader’s circumstances, and readers should consult with a professional and conduct independent research before taking any specific action. The views expressed in this book are those of the author and do not necessarily reflect those of any organization or business with which he is affiliated. Cover design: WMXDesign GmbH, Heidelberg, Germany Printed on acid-free paper Springer is part of Springer Science+Business Media (www.springer.com)
Acknowledgements
This book reflects thousands of interactions with judges, clients, attorneys, law professors, insurance company executives, law students and mediators. I have a sense of gratitude for every person who shared minutes or hours of their time to relate their experiences and impart their insights. Jeffrey Rachlinski expressed an early interest in my empirical research regarding attorney-client decision making, and I recall distinctly his initial, lengthy email sent at dawn on a Sunday morning. His analytical rigor and constructive criticism refined the research later described in my Journal of Empirical Legal Studies (JELS) co-authored article, “Let’s Not Make a Deal: An Empirical Study of Decision Making in Unsuccessful Negotiations.” Some of the key concepts in the JELS article are carried over into Chapter 3 of this book, although I am solely responsible for this substantively different treatment of legal decision making. The legal community’s immediate and broad interest in the JELS article provided fresh impetus to complete this book, a task started in 2004 and completed about a year after the article’s publication. I thank each individual who found the article useful, thought the subject of attorney-client decision making deserved more extensive attention, and encouraged me to finish the book. Special thanks are due to Samantha Cassetta and three anonymous reviewers for their review of and comments on portions of this book. I also thank Wiley-Blackwell and John Wiley & Sons, Inc. for permission to reprint some sentences excerpted from the JELS article. All errors, of course, are mine. The editorial and production departments at Springer-Verlag greatly facilitated the metamorphosis from manuscript to book. Anke Seyfried, in particular, was invariably efficient, knowledgeable, direct, and enthusiastic. My wife, Denise, made a major contribution to this book. Her steadfast and selfless support during the years spent on research and writing turned a daunting endeavor into an enjoyable challenge.
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Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1 Purposes and Premises of this Book . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2 Organization and Philosophy of this Book . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.3 What Attorneys Think About Other Attorneys’ Decision-Making Skills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Part I 2
3
1 3 4 6
Evidence
Prior Research on Attorney-Litigant Decision Making . . . . . . . . . . . . . . . 2.1 The Paradox of Copious Lawyers and Scant Data . . . . . . . . . . . . . . . . . . . 2.2 Empirical Legal Research on Judge, Jury and Attorney Decision Making . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2.1 Judge-Jury Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2.2 Punitive Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2.3 Judges’ Assessments of Juries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2.4 Attorney-Jury and Attorney-Attorney Agreement . . . . . . . . . . . 2.2.5 Attorney-Litigant Negotiation Positions, Assessments and Outcomes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2.6 Disparities In “Same Case” Evaluations and Outcomes . . . . . 2.2.7 Comparisons of Predictions and Outcomes . . . . . . . . . . . . . . . . . . 2.2.8 Damages Award Predictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2.9 Overview of Judge, Jury and Attorney Decision Making . . . 2.2.10 Attorney-Litigant Decision Making in Actual Cases . . . . . . . . 2.2.11 Kiser, Asher and McShane Study of Attorney-Litigant Decision Making . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3 Chapter Capsule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11 11 15 17 19 19 20 20 21 22 23 24 24 27 27
A Current Assessment of Attorney-Litigant Decision Making In Adjudicated Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 3.1 The Fifty Percent Implication . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
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3.2 New Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2.1 The Four Datasets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2.2 VerdictSearch Publications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2.3 Case Database Selection Criteria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2.4 Attorneys in Dataset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3 Concepts and Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3.1 Negotiation Disparities and Decision Error . . . . . . . . . . . . . . . . . . . 3.3.2 Underpricing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3.3 Overpricing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3.4 Negotiation Disparities Without Decision Error . . . . . . . . . . . . . . 3.3.5 Effect of Negotiation Disparity on Decision Error . . . . . . . . . . . . 3.4 Overall California Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.4.1 Costs of Decision Error . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.4.2 Negotiation Disparities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.5 New York Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.6 40-Year Historical Study . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.6.1 Historical Decision Error . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.6.2 Historical Cost of Decision Error . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.7 Attorney-Mediator Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.7.1 Attorney-Mediator Decision Error . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.7.2 Attorney-Mediator Negotiation Disparities and Settlement Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.7.3 Tentative Conclusions About Attorney-Mediators . . . . . . . . . . . . 3.8 Predictor Variables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.8.1 Context Variables Trump Actor Variables . . . . . . . . . . . . . . . . . . . . 3.8.2 The Five Major Context Variables . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.8.3 Two Secondary Context Variables . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.8.4 The Major Actor Variables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.9 Chapter Capsule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Part II 4
32 32 33 34 35 36 38 39 39 40 41 42 42 44 45 46 46 47 48 49 51 51 52 53 54 71 76 85
Causes
Psychological Attributes of Decision Errors . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 4.1 Perceptions of Adversaries and Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 4.1.1 Fundamental Attribution Error . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 4.1.2 Selective Perception and Memory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97 4.1.3 Self-Serving Bias . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102 4.1.4 Reactive Devaluation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104 4.1.5 A Practical Example Of Overcoming Self-Protective Biases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107 4.2 Evaluations of Risk and Reactions to Perceived Risk . . . . . . . . . . . . . 108 4.2.1 Framing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111 4.2.2 Anchoring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
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4.3 Reactions to Threatened Changes in Position and Status . . . . . . . . . . 4.3.1 The Endowment Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3.2 Status Quo Bias . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3.3 Overconfidence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3.4 Confirmation Bias . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3.5 Representative and Availability Heuristics . . . . . . . . . . . . . . . . . . . 4.3.6 Hindsight Bias . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3.7 Discounting Of Future Payments and Costs . . . . . . . . . . . . . . . . . . 4.3.8 Sunk Cost Bias . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.4 Chapter Capsule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
120 120 122 124 126 129 132 133 136 139
Institutional Impediments to Effective Legal Decision Making . . . . . 5.1 Law School Education . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.1.1 Separation of Legal Education from Legal Practice . . . . . . . . 5.1.2 Testing Law Students’ Reasoning Skills and Moral Judgment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.1.3 An Example of Law Student Decision Making . . . . . . . . . . . . . . 5.1.4 Deficiencies in the Case Method of Teaching . . . . . . . . . . . . . . . 5.1.5 Attempts to Change Law School Curriculum . . . . . . . . . . . . . . . . 5.2 Law Firms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.2.1 Conflicts Between Efficient Problem Solving and Billable Hour Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.2.2 The Consequences of Avoiding “The Big Picture” . . . . . . . . . . 5.2.3 “Due Process” and the Elevation of Process Above Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.2.4 Competitive Market Pressures, Undue Deference to Client Expectations and Inappropriate Client Involvement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.3 Mental Impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.4 The Disappearing Civil Trial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.4.1 Settling Without Benchmarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.4.2 Causes and Motivations for Pre-Trial Settlements . . . . . . . . . . . 5.5 Chapter Capsule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
141 143 144
Part III 6
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145 148 150 156 164 166 169 172
174 182 188 189 192 195
Consequences
Legal Malpractice Liability For Settlement Counseling and Decision Errors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.1 Malpractice Claims Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.2 Competing Policy Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.3 Malpractice Claims Arising from Settled Cases . . . . . . . . . . . . . . . . . . . 6.3.1 Inadequate Advice Regarding Settlement and Trial Prospects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.3.2 Client Coerced into Settlement by Attorney . . . . . . . . . . . . . . . .
199 200 202 204 206 209
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6.3.3
Attorney’s Mistakes Prevented Client from Obtaining a Better Settlement or Prosecuting Case to Trial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.3.4 Attorney’s Delays Caused Client to Forego More Favorable Settlement Terms . . . . . . . . . . . . . . . . . . . . . . . . . . 6.3.5 Conflict of Interest, Fraud and Collusion with an Adverse Party . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.3.6 Attorney Did Not Transmit Settlement Proposals to Client . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.3.7 Failure to Conduct Adequate Legal Research, Discovery and Investigation Before Settlement . . . . . . . . . . . . 6.3.8 Attorney Not Authorized to Consent to Settlement Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.3.9 Settlement Agreement Defectively Drafted . . . . . . . . . . . . . . . . . 6.3.10 Client Misunderstood the Settlement Agreement . . . . . . . . . . . 6.3.11 Failure to Advise of Uncertainty of Law and Anticipate Judicial Error . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.4 Malpractice Claims in Adjudicated Cases . . . . . . . . . . . . . . . . . . . . . . . . . 6.4.1 Attorney Remiss In Failing To Initiate Settlement Negotiations, Solicit A Pre-Trial Settlement Offer Or Otherwise Effectuate Settlement . . . . . . . . . . . . . . . . . . . . . . . . 6.4.2 Client Inadequately Apprised of Risk of an Adverse Verdict . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.5 Defenses to Settlement Malpractice Claims . . . . . . . . . . . . . . . . . . . . . . . . 6.5.1 The Client’s Consent Bars a Challenge to the Adequacy of the Settlement Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.5.2 The Client’s Ratification of the Settlement Agreement . . . . 6.5.3 The Client’s Failure to Prove Reliance on the Attorney’s Advice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.5.4 The Judgmental Immunity Rule and the California Model Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.5.5 The Client Cannot Prove Damages Proximately Caused by the Attorney’s Negligence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.5.6 Another Attorney’s Negligence as an Intervening or Superseding Cause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.5.7 Reduction of Malpractice Awards by the Amount of Attorneys Fees the Client Otherwise Would Have Paid the Attorney . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.6 Chapter Capsule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
211 214 215 218 219 223 225 226 227 231
232 235 237 238 240 240 241 243 245
246 247
Ethical Implications of Attorney-Client Counseling and Decision Making . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 249 7.1 A Profile of Disciplinary Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 250
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7.2 The Duty to Communicate all Material Facts and Events to Clients . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.3 The Duty to Exercise Independent Judgment and Render Candid Advice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.4 The Duty to Provide Adequate Advice to Enable Clients to Make Informed Decisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.5 The Duty to Identify and Protect Clients with Diminished Capacity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6 The Duty to Competently, Independently, Diligently and Expeditiously Represent Clients . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.7 The Duty to Abide by Client Decisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.8 The Duty to Prevent Conflicts of Interest in Aggregate Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.9 The Duty to be Candid and Truthful in Communications with Clients, Opposing Counsel and the Courts . . . . . . . . . . . . . . . . . . . 7.10 Chapter Capsule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Part IV
252 257 260 262 266 270 272 274 279
Solutions
8
Obstacles to Becoming an Expert Decision Maker . . . . . . . . . . . . . . . . . . . 8.1 Defenses and Barriers to Sound Decision Making . . . . . . . . . . . . . . . . . 8.1.1 Defenses to Learning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.1.2 Distortions of Reality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.1.3 Attorney Belief System Defenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.2 Myths and Misconceptions About Decision Making Expertise . . . . 8.2.1 Intelligence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.2.2 Education and Experience . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.2.3 Peer Ranking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.2.4 Intuition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.3 Chapter Capsule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
283 284 285 288 293 295 296 298 302 303 307
9
Personal Expertise in Legal Decision Making . . . . . . . . . . . . . . . . . . . . . . . . 9.1 Phase One: Finding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.1.1 Still The Messenger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.1.2 Bottom-Up Decisions Beat Top-Down Decisions . . . . . . . . . . 9.1.3 Challenge Your Perceptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.1.4 Give Vivid Pictures Time to Fade . . . . . . . . . . . . . . . . . . . . . . . . . . 9.1.5 Credit Randomness its Due . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.1.6 Deal with Attribution Errors Early . . . . . . . . . . . . . . . . . . . . . . . . . . 9.1.7 Diversify the Team . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.1.8 Time Does not Take Sides . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.1.9 Align Client Objectives and Attorney Incentives . . . . . . . . . . . 9.1.10 Consider Appointing Separate Settlement Counsel . . . . . . . . .
309 310 311 311 313 314 315 316 317 318 319 321
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9.2 Phase Two: Binding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.2.1 Start with Ideals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.2.2 Switch Sides to Debias Judgment . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.2.3 Think Divergently . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.2.4 Stop Pattern Matching . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.2.5 Work Well with Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.2.6 Consider Whether a Litigation Attorney or a Trial Attorney is Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.3 Phase Three: Solving . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.3.1 Don’t Follow Your Gut . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.3.2 Search for Disconfirming, Discrepant Facts . . . . . . . . . . . . . . . . 9.3.3 Pay Attention to Base Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.3.4 Prepare to Justify Your Case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.3.5 When in Doubt, Act it Out . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.3.6 Step Off the Information Treadmill . . . . . . . . . . . . . . . . . . . . . . . . . 9.4 Phase Four: Testing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.4.1 Find Your Inner BATNA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.4.2 Separate Facts from Theories, Values and Beliefs . . . . . . . . . 9.4.3 Enlarge the Pie Before Cutting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.4.4 Subjective Fairness Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.4.5 Think and Communicate Affirmatively . . . . . . . . . . . . . . . . . . . . . 9.4.6 Depressed People Make Depressing Deals . . . . . . . . . . . . . . . . . 9.4.7 Fatigue Stifles Creative Problem Solving . . . . . . . . . . . . . . . . . . 9.4.8 Use Email Carefully . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.4.9 Get a Grip on Mongo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.5 Phase Five: Choosing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.5.1 Perform a Premortem on Overconfidence . . . . . . . . . . . . . . . . . . . 9.5.2 Take the Outside View . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.5.3 Keep Positions Aligned with Facts . . . . . . . . . . . . . . . . . . . . . . . . . . 9.5.4 Separate the Primary Decision from the Secondary Decision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.5.5 Assumptions Were Made to be Explicit and Tested Continuously . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.5.6 Walk Around the Sunk Cost Trap . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.5.7 Past Performance Is No Guarantee of Future Results . . . . . . 9.5.8 Funny Things Happen on the Way to the Forum . . . . . . . . . . . 9.5.9 Linear Thinking Leads to Impasse . . . . . . . . . . . . . . . . . . . . . . . . . . 9.5.10 Appeals are Part of the Settlement Equation . . . . . . . . . . . . . . . 9.5.11 Moderate the Mediator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.6 Phase Six: Checking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.6.1 Pin Yourself Down for Some Real Feedback . . . . . . . . . . . . . . . 9.6.2 Don’t Just Provide Feedback – Discuss it . . . . . . . . . . . . . . . . . . 9.6.3 Learn from Surprises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.7 Chapter Capsule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
322 323 324 325 326 327 328 330 330 332 333 334 335 336 337 338 339 340 341 342 343 344 345 347 348 349 350 351 353 354 354 355 356 357 358 359 362 363 364 365 366
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Group Expertise In Legal Decision Making . . . . . . . . . . . . . . . . . . . . . . . . . . 10.1 Deficiencies in Group Decision Making . . . . . . . . . . . . . . . . . . . . . . . . . . 10.1.1 Elements of Defective Group Decisions . . . . . . . . . . . . . . . . . . 10.1.2 Group Polarization and Groupthink . . . . . . . . . . . . . . . . . . . . . . . 10.2 Characteristics of Effective Decision-Making Groups . . . . . . . . . . . 10.2.1 High Reliability Organizations (HROS) . . . . . . . . . . . . . . . . . . 10.2.2 Expert Teams . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.3 Steps to Improve Group Decision Making . . . . . . . . . . . . . . . . . . . . . . . . 10.3.1 Ask For Multiple Opinions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.3.2 Cross-Pollinate the Team . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.3.3 Proliferate Team Leaders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.3.4 Appoint a Devil’s Advocate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.3.5 Seed the Brainstorm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.3.6 Promote a Good Fight . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.3.7 Build Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.3.8 Reach a Consensus, Don’t Build One . . . . . . . . . . . . . . . . . . . . . 10.3.9 Schedule a Last Clear Chance Meeting . . . . . . . . . . . . . . . . . . . 10.4 Chapter Capsule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
367 368 370 371 376 377 383 385 385 386 387 389 389 391 392 394 395 396
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Peer Review, Client Evaluations and Law Firm Audits . . . . . . . . . . . . . 11.1 A Brief History of Quality Management in Law Firms . . . . . . . . . . 11.2 Peer Review in the Medical Field . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.2.1 The Inception of Medical Peer Review . . . . . . . . . . . . . . . . . . . 11.2.2 The Modern Medical Peer Review System . . . . . . . . . . . . . . . 11.2.3 Confidentiality of Medical Peer Review . . . . . . . . . . . . . . . . . . 11.3 Peer Review in Law Firms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.3.1 Priorities in Law Firm Peer Review . . . . . . . . . . . . . . . . . . . . . . 11.3.2 Confidentiality of Attorney Peer Review Proceedings . . . 11.3.3 Professional Ethics and Attorney-Client Privilege . . . . . . . . 11.3.4 The Role of Confidentiality in Peer Review . . . . . . . . . . . . . . 11.3.5 The Structure of Law Firm Peer Review . . . . . . . . . . . . . . . . . 11.4 Client Evaluations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.4.1 Challenges of Evaluation Design and Analysis . . . . . . . . . . . 11.4.2 Sample Questions to Probe for Decision-Making Skills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.5 Assessments and Audits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.6 Chapter Capsule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
397 399 400 401 402 403 404 404 405 407 410 412 413 414
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418 419 422
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 425
Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 431 Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 437
Chapter 1
Introduction
Let us endeavor to see things as they are, and then enquire whether we ought to complain. Whether to see life as it is, will give us much consolation, I know not; but the consolation which is drawn from truth if any there be, is solid and durable: that which may be derived from errour, must be, like its original, fallacious and fugitive. Samuel Johnson, Letter to Bennet Langton (1758)
Attorneys and clients make hundreds of decisions in every litigation case. From initially deciding which attorney to retain to deciding which witnesses to call at trial, from deciding whether to file a complaint to deciding whether to appeal a verdict, attorneys and clients make multiple, critical decisions about strategies, costs, arguments, valuations, evidence and negotiations. Once made, these decisions are scrutinized by an opponent intent on exploiting the consequences of any mistake. In this intense and adversarial arena, decision-making errors often are transparent, irreversible and dispositive, wielding the power to bankrupt clients and dissolve law firms. Although attorneys and clients may regard sound decision making as incidental to effective lawyering, sound decision making actually is the essence of effective lawyering. An attorney’s knowledge, intelligence and experience are inert resources until the attorney decides how to deploy those skills to serve the client’s interests. Those decisions, in turn, largely determine a case’s course and outcome. Very few cases are lost because attorneys and clients do not understand the law; losses are more often traceable to poor quality decisions than poor quality research. The unfortunate consequence is that legally meritorious claims and defenses, advanced by technically competent attorneys, can be lost through bad decision making. As one major law firm declares in its Wall Street Journal advertisement, “Being a good lawyer takes more than being a good lawyer.”1 In most cases with disappointing results, there is a point where an effective decision could have averted an adverse financial outcome. The ability to identify and seize that pivotal opportunity separates novice decision makers from experts. 1
(2007, December 3). The Wall Street Journal, p. A8.
R. Kiser, Beyond Right and Wrong, DOI 10.1007/978-3-642-03814-3_1, # Springer-Verlag Berlin Heidelberg 2010
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1 Introduction
An effective decision’s capacity to circumvent a financial disaster, in litigation phases ranging from pre-trial settlement negotiations to new trials in remanded cases, is illustrated in the actual cases briefly described below.2 Each case presented at least one opportunity to insert a protective decision in front of a startling outcome: l
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A plaintiff demands $13 million to settle a breach of contract case and refuses to accept the defendant’s settlement offer of $500,000. At trial, the plaintiff recovers nothing and the defendant is awarded $22 million under its crosscomplaint against the plaintiff. An arbitrator issues an award against a defendant in the amount of $175,000. The defendant rejects the award and exercises its right to a new trial before a jury. The jury returns a verdict of $2,025,000 against the defendant, an amount nearly 12 times larger than the arbitration award that the defendant rejected. A plaintiff declines a defense settlement offer of $100 million in a securities class action case. After a four-week trial, the jury takes less than two days to render a verdict in favor of the defendant. A defendant employer rejects the plaintiff employee’s offer to settle a sexual harassment case for $75,000 and a job transfer. Five years later, an appellate court upholds a $2 million award in favor of the plaintiff employee. In a legal malpractice action, the plaintiff demands $325,000 to settle. The defendant law firm does not make an offer to the plaintiff until the day of trial, at which time it offers $50,000. The plaintiff declines the $50,000 offer and the jury later renders a verdict of $7 million against the law firm. Including interest, the amount ultimately paid by the law firm to satisfy the judgment is $10 million. A defendant successfully appeals from a $675,000 award entered against it. As the defendant requested, the appellate court reverses the lower court’s award and remands the case for a new trial. Upon retrial, the jury finds against the defendant and awards the plaintiff $2.2 million, roughly triple the amount of the original award from which the defendant appealed.3
In each of these cases, attorneys and their clients passed a decision inflection point and proceeded to a major, yet entirely avoidable, adverse outcome. Looking back on cases that went awry, clients have claimed “our lawyers did not do what they were supposed to do,” attorneys have blamed “stupid jurors” and “runaway juries,” and both clients and attorneys bemoan the apparent vagaries of the civil justice system. For readers whose reaction to these adverse outcomes is anything other than “tough luck,” this book presents compelling data, concepts and 2
Many decisions, of course, are high quality decisions with bad outcomes, i.e., good processes accompanied by bad results. The emphasis here on effectiveness promotes closer scrutiny of both poor quality decision making and arguably good quality decision making with adverse outcomes. This emphasis also shifts attention from fault-finding to improvement. 3 Each case scenario is based on an actual case on file with the author. The outcome of subsequent appeals, motions, and settlement negotiations, if any, and the existence and importance of noneconomic factors are unknown.
1.1 Purposes and Premises of this Book
3
correctives that could prevent their own cases from becoming exemplars of catastrophic decision making.
1.1
Purposes and Premises of this Book
This book is written for attorneys who aspire to become better decision makers, clients who seek realistic guidance in making legal decisions and law students who wish to spare clients the ordeal of trial and error training. Its objective is to teach attorneys, clients and law students to make effective decisions in resolving civil litigation cases. Its underlying premises are that ample room exists for improvement in attorney-litigant decision making, trial outcomes can be predicted with greater accuracy than is presently achieved, decision-making errors about case strategies and pre-trial settlements can be reduced, and tough decisions about cases are best made within an analytical framework rather than behind a courtroom counsel table cornered by intuition, hunch, instinct, and hope. To obtain maximum benefit from this book, attorneys may need to recognize that their experience in decision making is not equivalent to expertise in decision making, clients may need to acknowledge that their confidence in decision making is different from proficiency in decision making, and law students may need to discover that their knowledge of the law does not automatically impart competence in decision making. Effective decision making, in short, is a distinct skill. Contrary to popular perceptions, effective decision-making skill has little relation to experience, intelligence, education and professional reputation. As Oliver Wendell Holmes observed, “some of the sharpest men in argument are notoriously unsound in judgment. I should not trust the counsel of a smart debater, any more than that of a good chess-player.”4 Technically competent attorneys, therefore, are not necessarily effective decision makers, and many effective decision makers are not recognized as experts in any particular practice area. Knowing “what” and selecting “how” are independent yet complementary skills. In endeavoring to become expert decision makers, attorneys, clients and law students inevitably will shift their focus from how to prevail in a trial to how to resolve a case through settlement. This shift follows from the fact that about 95% of all civil litigation cases are resolved without a trial. Making decisions about whether to settle and the terms on which to settle, consequently, is more important in the vast majority of cases than an attorney’s trial skills. Although many clients initially resist the idea of settling a case and prefer to vindicate their positions at trial, the reality is that nearly every case is involuntarily dismissed or eventually settled. In the vast majority of cases, clients have a greater likelihood of making a devastating settlement decision in a mediation session than watching their attorney 4
Holmes, Oliver Wendell. (1858). The autocrat of the breakfast-table (pp. 16–17). New York: Dutton, Everyman’s Library.
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1 Introduction
conduct a devastating cross-examination at trial. Because a settlement is the most likely result in civil litigation, the critical factor that separates successful litigants from unsuccessful litigants often is the quality of their decision making. Contrary to legal stereotypes, the party most likely to win a case is not the one that can afford the best trial attorney but rather the party that forms the best attorney-client decision-making team. This book’s emphasis on decision-making skills also promotes the ethical practice of law and enables attorneys to fulfill their professional obligations, as envisioned by the American Bar Association (ABA). In its Model Rules of Professional Conduct, the ABA demarcates four roles attorneys assume when representing clients: advisor, advocate, negotiator and evaluator.5 Only one of those roles (advocate) requires conventional courtroom skills and tactics, while the other three roles (advisor, negotiator and evaluator) mandate proficiency in the broader skill set that underpins decision-making acumen.
1.2
Organization and Philosophy of this Book
Like any distinct skill, decision-making acumen is acquired by objectively assessing one’s performance, identifying the impediments to superior performance, evaluating the consequences of continued suboptimal performance and improving performance through a rigorous and testable regimen. This book, accordingly, is organized to address four questions critical to developing expert skills in legal decision making: l
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Do attorneys and their clients make financially sound decisions about pre-trial settlement offers in civil litigation cases? What psychological and institutional factors affect decision making in civil litigation cases? What are the legal and professional consequences of making ineffective decisions about the settlement or trial of civil cases? How can attorneys and clients improve their decision-making skills in all phases of civil litigation?
Stated differently, this book examines the quality of decisions made by attorneys and clients, explains why attorneys and clients make both effective and ineffective decisions, outlines the legal malpractice and ethical implications of ineffective decisions and shows how to make better decisions. Part One of this book reviews prior research on attorney-litigant decision making and the disparities between the predictions of attorneys and clients and their actual case outcomes. It then summarizes recent research results regarding nearly 11,000 5
Center for Professional Responsibility. (2007). Model rules of professional conduct (p. 1). Chicago, Illinois: American Bar Association.
1.2 Organization and Philosophy of this Book
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pre-trial settlement decisions made by attorneys and clients in California and New York. Part Two examines psychological factors that contribute to the decision-making shortcomings described in Part One and considers how institutional factors (law school education, law firm culture, and the judicial system) may affect attorneys’ forecasting and problem-solving skills. Part Three explains the legal and ethical consequences of inadequate or inaccurate legal advice, showing how poor quality counseling about settlement prospects can become actionable malpractice and a breach of professional ethics. Lastly, Part Four describes why attorneys find it difficult to learn better decision-making skills, how individual attorneys and clients can improve these skills, what techniques groups employ to develop superior decision-making skills, and how law firms can utilize peer review, evaluations and audits to enhance their attorneys’ decision-making capabilities. This book differs from other books and articles on settlement negotiations in that it places greater weight on scientific evidence than the war stories of attorneys, mediators and judges; it assumes that empirical studies are more instructive than anecdotes and statistics are more dependable than surmise. The overall philosophy of the book is to bump, when possible, the legal field from the narrative to the empirical, from qualitative conjecture to quantitative proof. As a result, this book may be less entertaining than popular books on negotiation and litigation and actually will require considerably more work on the reader’s part. For the determined reader, the additional cognitive effort, hopefully, will be rewarded by a more durable understanding of what really happens in litigation decision making and what has proven effective in improving its quality. This book defers to the time demands placed on busy, hyper-scheduled attorneys, clients and law students. Each chapter may be read without reading the prior chapter, and the summary at the end of each chapter can be used as a snapshot of that chapter. Attorneys who want to read only about improving their decisionmaking skills, for example, may move directly to Chapter 9. Reading the book in a piecemeal or abbreviated manner conveys the key points to readers with very limited time, but it is not recommended. Nevertheless, some readers have less than an hour to read the material most pertinent to their needs, and this book is structured to accommodate the narrowly focused as well as the broadly inquisitive reader. Two important clarifications are necessary. First, the term “decision making” used throughout this book is a compact substitute for the more expansive set of cognitive skills identified by psychologists as judgment, decision making and problem solving.6 Non-psychologists might call these skills “good sense,”
6
“Decision making has been defined as ‘the ability to gather and integrate information, use sound judgment, identify alternatives, select the best solution and evaluate the consequences.’” Salas, Edward, et al. The making of a dream team: When expert teams do best. In Ericsson, K. Anders, et al. (Eds.). (2006). The Cambridge handbook of expertise and expert performance (p. 441). New York: Cambridge University Press. Cf. Tichy, Noel M., and Bennis, Warren G. (2007). Judgment (p. 287). New York: Penguin Group. (“We make a distinction between judgment and decision making”).
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1 Introduction
“practical,” “good judgment,” or simply “wisdom.” Second, although this book emphasizes empiricism over anecdotes, readers do not need a background in statistics, mathematics or psychology to understand it. This book deliberately excludes decision-making models, tables and charts that require familiarity with probability theory, regression analysis, game theory, decision tree algorithms, t-tests, p-values and Bayesian analysis. These complex methods and tests are highly valuable tools for decision makers, but they are excluded here for a simple reason: attorneys generally don’t like them, don’t understand them and won’t use them. Readers seeking a more scientific or statistical analysis of attorney-litigant decision making may wish to review the author’s article, “Let’s Not Make A Deal: An Empirical Study Of Decision Making In Unsuccessful Settlement Negotiations,” co-authored with Martin A. Asher and Blakeley B. McShane of The Wharton School, and published in the Journal of Empirical Legal Studies, Vol. 5, No. 3, pp. 551–591 (September 2008).
1.3
What Attorneys Think About Other Attorneys’ Decision-Making Skills
If attorneys question the importance of decision making to clients or doubt that the quality of decision making varies among attorneys, they may be surprised to see what their colleagues say about the profession’s decision-making capabilities. Recent advertisements in The Wall Street Journal, placed by the nation’s leading law firms, appear to capitalize on the perceived inadequacy of their competitors’ decision-making skills: l
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“We believe that what separates us from the pack is not what we do, but how we do it – aggressive not conservative, team players not one-man-bands, problem solvers not just legal practitioners.” “I don’t need theories from my lawyers. I need answers. Ever get a three page memo from your lawyer when you’re looking for quick, to-the-point advice? At Nixon, Peabody LLP, we know that you prefer simple, clear and practical to rambling and theoretical. Your world is complicated enough.” “Major litigation is rarely straightforward. Working with your law firm should be.” “The best attorneys know how to balance aggression with delicate handling.” “I don’t need lawyers who win at all costs. I need them to win, but calculate the costs.” “You need lawyers who will simplify the process – not complicate it further. At Winston & Strawn we’re committed to helping our clients find the most direct route to a successful outcome. When you’re faced with complex litigation, choose a law firm that will help you chart the right course.” “If your lawyers seem more concerned about enumerating your options than helping you choose among them, you might wonder whose interests are really
1.3 What Attorneys Think About Other Attorneys’ Decision-Making Skills
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being served. At Nixon Peabody LLP, options are clear, advice is candid, and your needs always come first.”7 The message these major law firms deliver is compellingly persuasive to clients who feel corralled by legal naysayers, precisionists and deconstructionists: we’re not like other law firms; we communicate directly, don’t waste time on papering the file, give direct advice, avoid complicated and theoretical discourses, know better than to use heavy-handed litigation tactics indiscriminately, provide counsel about a realistic set of alternatives, and expeditiously guide clients to resolutions. They appeal to the client declaiming in one advertisement, “I need lawyers who are more concerned about managing my risks than their own.”8 When law firms direct advertisements like these to the nation’s largest and most sophisticated consumers of legal services, criticizing the decision-making and problem-solving skills of attorneys in other law firms, what weaknesses in the profession are they trying to exploit? Why do these advertisements highlight client dissatisfaction with the problem-solving capabilities, judgment and decisionmaking skills of their attorneys, while avoiding any criticism of their legal knowledge? What information do these law firms have that indicates clients are frustrated with attorneys who are long on legal theories and short on practical solutions, quick to generate alternatives but unable to rank them? These questions, central to a profession ethically required to advance and protect clients’ interests, are addressed in this book.
7
(2007, February 5). The Wall Street Journal, p. A4. (2007, September 13). The Wall Street Journal, p. A4. (2007, September 18). The Wall Street Journal, p. A6. (2008, March 31). The Wall Street Journal, p. A4. (2008, May 20). The Wall Street Journal, p. A17. (2008, September 23). Palo Alto Daily News, p. 6. 8 (2008, May 20). The Wall Street Journal, p. A17.
Part I Evidence
Chapter 2
Prior Research on Attorney-Litigant Decision Making
Nothing is more dangerous to a new truth than an old error. Johann Wolfgang von Goethe, Proverbs in Prose (1819)
Despite the filing of 15 million new civil cases every year, little attention has been given to the decisions made by attorneys and their clients in initiating, prosecuting, defending and attempting to resolve those cases.1 The perceived “litigation explosion” has not ignited a commensurate investment in empirical studies to describe the underlying reasons and motivations for filing and maintaining civil actions, the psychological and financial obstacles to conflict resolution, and the economic utility of decisions about settling cases or bringing them to trial. Academicians have analyzed these subjects, but funding for their research is miniscule relative to the impact of litigation on the nation’s economy. As Lela Love, a law professor and the chair of the American Bar Association’s Section of Dispute Resolution, notes, “We really know very little about conflict and its dynamics.”2
2.1
The Paradox of Copious Lawyers and Scant Data
The dearth of data about litigation is perplexing in a country with the highest concentration of attorneys per capita and a tradition of giving every citizen her day in court. Although the legal services industry is a major force and business in the American economy, affecting nearly every aspect of risk assessment from automobile design to pharmaceutical research, from kindergarten field trip waivers 1
Ostrom, Brian J., Kauder, Neal B., and LaFountain, Robert C., Eds. (2001). Examining the work of state courts 2001: A national perspective from the court statistics project (p. 16). National Center for State Courts. (January 2008). Appendix – Workload of the Courts. The Third Branch, 40(1). Administrative Office of the U.S. Courts Office of Public Affairs. 2 Love, Lela P. (March 2007). Voice of experience. Just resolutions eNews. ABA Section of Dispute Resolution. Available June, 2007 at http://abanet.org/dispute/voice.html
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2 Prior Research on Attorney-Litigant Decision Making
to Fortune 500 companies’ earnings guidance, the quality of data regarding one of America’s greatest growth industries is distressingly poor and grossly disproportionate to the industry’s impact on the national economy. Basic information regarding total national legal compliance and net litigation costs, for example, is not available. “The fund of basic information does not exist,” law professor Marc Galanter said in 1994. “It is as if we had a medical establishment,” he adds, “consisting entirely of practicing physicians with no research institutes like the National Institutes of Health and no public health monitoring facilities like the Centers for Disease Control.”3 Fourteen years later, little had changed, as law professor Theodore Eisenberg observes: “Policymakers and interest groups regularly debate and assess whether civil problems are best resolved by legislative action, agency action, litigation, alternative dispute resolution, other methods, or some combinations of actions. Yet we lack systematic quantitative knowledge about the primary events in daily life that generate civil justice issues.”4 Although the nation cannot track key data regarding the civil justice system and the legal services industry, its expenditures on legal services increase at rates much higher than the nation’s inflation and GDP growth rates. Between 2000 and 2005, total revenue for the legal services industry increased from $161 billion to $222 billion, and average profits per partner in the nation’s 100 top-grossing firms increased from $800,000 to $1,060,000.5 To place these figures in perspective, in 2005 the total amount spent on legal services exceeded the total amount spent by all American businesses on research and development and was more than twice the total amount the federal government spent on research and development.6 Americans thus paid more money for legal services than their businesses invested in securing a competitive advantage in the future. Another perspective is that, although 1,400,000 Americans are diagnosed with cancer every year and cancer kills about 560,000 Americans every year, total annual expenditures on legal services are about 50 times the amount the National Institutes of Health spend on cancer research.7
3
Galanter, Marc, et al. (1994, January–February). How to improve civil justice policy. Judicature, 77(4), 185, 230. 4 Eisenberg, Theodore. (2008, November 12). The need for a national civil justice survey of incidence and claiming behavior (p. 1). Available at SSRN: http://ssrn.com/abstract¼1305385. 5 United States Bureau of the Census. (2008). Table 1249, professional, scientific, and technical services — estimated revenue: 2000 to 2005. Statistical abstract of the United States 2008. Washington, DC. McCoy, Blythe. (2006). Trends & business strategies in the legal industry . . . the law firm perspective. Thomson West. Willing, Richard. (2006, May 1). Top law firms rake in bigger bucks. USA Today. (2006, May). Prime movers. The American Lawyer. (2005, June 28). The American Lawyer reports law firm revenues top $46 billion in 2005 am law 100 rankings. Business Wire. 6 National Science Board. Chapter 4 – Research and Development: National Trends and International Linkages. Science and Engineering Indicators 2008 (pp. 4–5, 4–13). Arlington, Virginia: National Science Foundation. 7 American Cancer Society. (2007). Estimated new cancer cases and deaths by sex for all sites, US, 2007. Cancer Facts & Figures 2007. Atlanta: American Cancer Society. (2006, May 19). Cancer Research Funding. National Cancer Institute Fact Sheet.
2.1 The Paradox of Copious Lawyers and Scant Data
13
The nation’s expenditures on legal services reflect its relatively large population of attorneys. Nearly one in every 262 Americans is an attorney, and every weekday morning 1,143,358 chairs throughout the nation await indentation behind a lawyer’s desk.8 By way of contrast, the total number of civil engineers in the United States is 256,000, and the number of physical scientists is 199,600.9 There are 173,000 law offices around the country, compared with 55,000 engineering services firms and 16,000 scientific research and development establishments.10 While more than 1.1 million active attorneys provide legal services, medical care is available from only 800,000 active physicians.11 Indigent citizens can avail themselves of more civil legal aid programs than federally funded community and migrant health care centers.12 Despite the large number of attorneys, the high demand for legal services and the intensive legal regulation of modern life, scant data exist regarding the economic benefits of legal services expenditures, the accuracy of attorneys’ advice and judgment and the efficacy of their representation in lawsuits. As law professor Douglas Rosenthal observes, “we ourselves have no reliable information about how competent, in the aggregate, lawyers actually are.”13 This paradox is evident to economists and psychologists: The appropriateness of lawyers’ probability judgments has important implications for the quality of their service – decisions about whether to sue, settle out of court, or plead guilty to a lesser charge, all depend on a lawyer’s judgment of the probability of success.
8
American Bar Association. (2007). National lawyer population by state. Compiled by ABA Market Research Department, Chicago, Illinois. United States Census Bureau, Population Estimates Branch. (2006). Estimated Population by State: 2000–2006. 9 U.S. Department of Labor, Bureau of Labor Statistics. Engineers. Occupational outlook handbook, 2008–2009 Edition (p. 6). National Science Foundation, Division of Science Resources Statistics. (2001). Scientists, Engineers, and Technicians in the United States: 2001 (NSF 05-313). 10 United States Bureau of the Census supra note 5, Table 1247, Selected service-related industries – establishments, employees, and payroll by industry: 2003 and 2004. 11 U.S. Department of Health and Human Services, Health Resources and Services Administration, Bureau of Health Professions. Table 201, total and active physicians (mds) and physician-topopulation ratios, selected years: 1950–2000. National Center for Health Workforce Analysis: U.S. Health Workforce Personnel Factbook. United States Bureau of the Census supra note 5, Table 1249, professional, scientific, and technical services — estimated revenue: 2000 to 2005. Ratios, selected years: 1950–2000. Cauchon, Dennis. (2005, March 2). Medical miscalculation creates a doctor shortage. USA Today. 12 Houseman, Alan. (2007). Civil legal aid in the United States: An update for 2007. Center for Law and Social Policy. Houseman, Alan W. (2005). Civil legal aid in the United States: An overview of the program and developments in 2005. Center for Law and Social Policy. United States General Accounting Office. (2000). Community health centers: Adapting to changing health care environment key to continued success (p. 43). Rosenbaum, Sara, Shin, Peter, and Darnell, Julie. (2004). Economic stress and the safety net: a health center update. The Henry J. Kaiser Family Foundation. 13 Rosenthal, Douglas E. (1976). Evaluating the competence of lawyers. Law & Society Review, 11, 257.
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2 Prior Research on Attorney-Litigant Decision Making Surprisingly, then, there is relatively little research assessing the calibration of lawyers’ probability judgments in their day-to-day practice.14
Like medical practice before the advent of national databases recording patient outcomes, the legal services industry generally has eluded quantitative accountability and comparability in outcome assessment and peer benchmark performance standards. Consistent with the profession’s lack of objective performance standards and the absence of comparative quality measurements, the typical fee agreement in a litigation matter contains a clarion disclaimer of responsibility for the primary purpose of the retention: results. The lack of data about legal services in general and litigation outcomes in particular contrasts sharply with businesses’ rapidly expanding reliance on analytics. For more than two decades, businesses have evolved from subjective evaluations to quantitative analysis, from making decisions based on intuition and hunches to relying on data and algorithms. As Ian Ayres, a law professor and author of Super Crunchers notes, “We are in a historic moment of horse-versuslocomotive competition where intuitive and experiential expertise is losing out time and time again to number crunching.”15 This shift to quantitative analysis has occurred in virtually every major business sector except law. Even sports teams, as shown in the popular book Moneyball, are more likely to employ analytics than law firms.16 Companies that are data driven, “from automobiles, to textiles, to computer software, to baseball,” explain Stanford University professors Jeffrey Pfeffer and Robert Sutton in their book Hard Facts: Dangerous Half-Truths and Total Nonsense, consistently outperform their competitors: “Organizations can gain competitive advantage if they take the trouble to substitute facts for common lore and to test conventional wisdom against the data.”17 The competitive advantage of analytics-driven companies is reiterated by management professor Thomas Davenport in his Harvard Business Review article, “Competing on Analytics:” “Virtually all the organizations we identified as aggressive analytics competitors are clear leaders in their fields, and they attribute much of their success to masterful exploitation of data.”18 Apart from comparing gross revenue and profits per partner with competitors, law firms are not competing on analytics. Despite the widespread use of analytics in the business world, law firms are not running horse-versus-locomotive races, as depicted by Ian Ayres, but are still pitting their thoroughbreds against another 14
Koehler, Derek, Brenner, Lyle, & Griffin, Dale. The calibration of expert judgment: heuristics and biases beyond the laboratory. In Gilovich, Thomas, Griffin, Dale, and Kahneman, Daniel (Eds.). (2002). Heuristics and biases: the psychology of intuitive judgment (p. 705). Cambridge: The Press Syndicate of the University of Cambridge. 15 Leonhardt, David. (2007, September 16). Let’s go to the stats. The New York Times. 16 Lewis, Michael. (2005). Moneyball. New York: W.W. Norton & Co. 17 Pfeffer, Jeffrey and Sutton, Robert. (2006). Hard facts: Dangerous half-truths & total nonsense (p. 14). Boston, Massachusetts: Harvard Business School Press. 18 Davenport, Thomas. (2006, February). Competing on analytics. Harvard Business Review, pp. 99, 106.
2.2 Empirical Legal Research on Judge, Jury and Attorney Decision Making
15
firm’s thoroughbreds. Law firm clients, consequently, have become accustomed to working in two different realms. The first realm, outside their lawyer’s office, is increasingly directed by data and requires quantitative justification for decisions and objective evidence of accomplishment within budget. The second realm, inside their lawyer’s office, is characterized by “on the one hand this, on the other hand that” legal advice, lengthy narratives and memoranda, caveats that loom larger than general propositions, and attorneys who submit a total fee projection and then “blow through it in half the time.”19 Law firm clients who would be aghast if their financial institution relied on a personal interview instead of a credit score in making a $100,000 loan decision nevertheless are comfortable turning a $50,000,000 case over to an attorney who will not employ a quantitative analysis to assess case outcome probabilities and whose own record of trial losses, case management, cost control and decision errors is unknown. Clients reluctant to invest $5,000 in a mutual fund without checking its Morningstar rating retain attorneys to purchase buildings, sell businesses, and license patents based simply on a colleague’s recommendation or another lawyer’s referral. This anomaly arises not by client choice but rather by necessity; comparative performance data simply are not available.20
2.2
Empirical Legal Research on Judge, Jury and Attorney Decision Making
Although many aspects of legal practice remain in a pre-reformation mode – their language cryptic, their rituals opaque and their prefects autonomous – one aspect of the legal system sparked early and earnest quantitative research: decision making by judges, juries and litigation attorneys. One prong of this research focused on judge-jury agreement, i.e., whether judges and juries make similar determinations of guilt, liability and damages. A second prong concentrated on attorney and litigant predictions about case outcomes, i.e., whether attorneys and clients make accurate or over-optimistic assessments of what a judge or jury will decide at trial. As explained below, this research generally shows that judges and juries have similar opinions about how cases should be decided, but attorneys and clients are 19
(2008, November 7). Interview with Craig Nordlund, General Counsel of Agilent Technologies, reported in Silicon Valley: In the beginning. San Francisco Daily Journal, p. 1. 20 For the businesses and insurance companies that claim to employ quantitative methods for selecting and evaluating law firms, one may question their usefulness when 54% of corporate counsel report that they fired their primary law firms in the last 18 months and only 31% would recommend their primary law firm to another company. Source: BTI Consulting Group. (2006, March 3). Client Satisfaction with Law Firms Plummets [Press Release]. See also BTI Consulting Group. (2008). The survey of client service: Performance for law firms: The BTI client service A-team (reporting only 34.6% of corporate counsel surveyed in 2007 would recommend their primary firm).
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not particularly accurate forecasters of trial results. The neutral roles of judge and jury are associated with relatively consistent and predictable case evaluations; the roles of advocate and litigant, however, are marked by conflicting and inaccurate case assessments. The research regarding decision making in civil cases suggests that judgments about risks and consequences are altered when attorneys and clients assume partisan roles. People whose judgment is otherwise sound and whose predictions are otherwise accurate lose their acuity when they adopt the roles of advocate and litigant. Because judges once acted as attorneys and jurors have been or may become individual plaintiffs and defendants, it appears that attorneys and their clients are not permanently misaligned decision makers but may act that way when they become legal representatives or parties in actual cases. The fact that jurors’ opinions are consistent with experienced judges’ opinions also indicates that jurors’ verdicts are not wildcards but rather predictably reflect the values, rules and decision-making processes judges employ. Judges and juries, in short, seem to agree on what is the “right” result, but attorneys and clients in litigated cases have seriously disparate views of how cases should and will be resolved. David Donoghue, an intellectual property attorney and partner at Holland & Knight in Chicago, reflects on attorneys’ difficulties in predicting case outcomes and opines that law school education itself may contribute to the gap between attorneys’ predictions and jurors’ verdicts: As a child, my dad (a criminal defense attorney) routinely asked my family and me to predict the outcomes of his trials. We were usually correct. My dad was not. At some point during law school, I stopped being able to predict his case outcomes.The law changes how you think. Perhaps lawyers become too clouded with burdens of proof and rules of evidence to appreciate how a jury sees a trial. As a federal district court law clerk, I had a similar experience. I saw a number of trials and as we waited for the jury, we would often try to predict the results in chambers. The only people who reliably predicted the results were those without law degrees.21
Noting that “legal training hinders your ability to understand, persuade and communicate with juries” and attorneys usually have little in common, socially or economically, with jurors, Patricia Steele, a jury consultant, voices a similar sentiment: “Lawyers are skilled at many things, but understanding and connecting to jurors is generally not one of them.”22
21
Donoghue, David R. (2007, July 6). Juries get it right – 80% of the time. Chicago IP Litigation Blog. Available at http://www.chicagoiplitigation.com/2007/07/articles/legal-news/juries-get-itright-80-of-the-time/ 22 Steele, Patricia. (2006, Summer). To deal better with juries, stop thinking like a lawyer! Defense Comment, 21(2).
2.2 Empirical Legal Research on Judge, Jury and Attorney Decision Making
2.2.1
17
Judge-Jury Agreement
The conventional wisdom is that attorneys and their clients cannot accurately predict case outcomes because juries are unpredictable. Media coverage of celebrity trials bolsters this perception and invariably includes references to the O.J. Simpson murder trial and the multi-million dollar verdict in the McDonald’s spilt coffee case. Empirical research, however, does not support the conventional wisdom but rather demonstrates that jurors usually make deliberate, thoughtful, and intelligent decisions that comport with a judge’s opinion of what the verdict should be. “Lawyers entertain longstanding perceptions of the jury as biased and incompetent, relative to the judge,” writes law professor Kevin Clermont. But, after reviewing the extensive research regarding jury decision making, Professor Clermont concludes that lawyers’ perceptions of jurors’ ineptitude are groundless: “There is, however, no actual evidence that juries are relatively biased or incompetent.”23 Although the jury system may be a convenient scapegoat when trial strategies and forecasts go awry, it does not deserve the invectives thrown at it. The fact that some attorneys and clients do not comprehend how a jury will decide their cases does not mean that a jury’s methods and decisions are incomprehensible any more than a medieval craftsman’s inability to understand how the Romans built the largest unsupported concrete dome over the Pantheon proves that the Romans, too, had no idea of what they were doing. Although one may conclude that attorneys and clients are often poor forecasters it does not follow that jurors are unpredictable adjudicators. During the last 40 years, studies consistently demonstrate that jurors understand trial evidence and the applicable law, and judges agree with their verdicts in the large majority of cases. The first major study of judge-jury agreement, The American Jury, was published in 1966 by law professors Harry Kalven and Hans Zeisel. The study was based on questionnaires completed by more than 500 judges in 4,000 civil trials throughout the United States. The judges recorded their opinions of the difficulty of the case and how they thought it should be decided before the jury rendered its verdict, avoiding the possible effects of hindsight bias. In 78% of the cases, the judge agreed with the jury’s verdict. The cases on which they disagreed did not reflect any bias in favor of or against plaintiffs; in 10% of the cases the judge would have issued an award for the plaintiff when the jury’s verdict favored the defendant, and in 12% of the cases the judge would have ruled in favor of the defendant when the jury rendered a verdict for the plaintiff.24 “The central
23
Clermont, Kevin M. (2008, March 22). Litigation realities redux (Legal Studies Research Paper Series, Research Paper No. 08-006, p. 32). Cornell Law School. 24 Kalven, Harry, and Zeisel, Hans. (1996). The American jury. Vidmar, Neil. (1998). The performance of the american civil jury: An empirical perspective. Arizona Law Review, 40, 849, 853. See Kalven, Harry. (1964, October). The dignity of the civil jury. Virginia Law Review, 50(6), 1055, 1065–1066.
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findings from Kalven and Zeisel’s research,” state law professors Neil Vidmar and Valerie Hans, “are that agreement between judge and jury was substantial and that most instances of disagreement could not be ascribed to jury incompetence or unwillingness to follow the law.”25 The 78% agreement rate between judges and juries is especially impressive when compared with decision making in other fields, explains Kevin Clermont: “this 78% agreement rate proves better than the rate of agreement on dichotomous decisions between scientists doing peer review, employment interviewers ranking applicants, and psychiatrists and physicians diagnosing patients, and almost as good as the 79% or 80% rate of agreement between judges themselves making sentencing decisions on custody or no custody in an experimental setting.”26 Kalven and Zeisel’s findings have been replicated in many other studies conducted after 1966; and in one study conducted by the University of Chicago Jury Project, the judges disagreed with the jury’s finding of liability in only 1% of the cases.27 Those other studies also show that a case’s complexity and the amount of expert witness testimony do not affect significantly the extent of judge-jury agreement, indicating that juror comprehension and jury verdict concordance with judges’ opinions do not diminish with case difficultness.28 Even in the specialized area of child support awards, which are determined by judges, experimental research shows that potential jurors reporting for jury duty “follow a predictable and rational course in their intuitive lawmaking” when presented with hypothetical child support cases. In 89% of the hypothetical child support cases, the jurors’ intuitive opinions about an appropriate amount of child support did not vary from the state guidelines by more than 20% although the jurors were unaware of the guidelines; and their average award in one hypothetical child support case “was coincidentally a perfect match” to the amount established by the state guidelines.29
25
Vidmar, Neil, and Hans, Valerie. (2007). American juries: The verdict (p. 149). Amherst, New York: Prometheus Books. 26 Clermont supra note 23 at 31. 27 Vidmar and Hans supra note 25 at 149–151. Galanter, Marc. The regulatory function of the civil jury. In Litan, Robert E., Ed. (1993). Verdict: Assessing the civil jury system (p. 70). Washington, D.C.: Brookings Institution Press. 28 Vidmar and Hans supra note 25 at 150. See Wissler, Roselle L., Hart, Allen J., and Saks, Michael J. (1999). Decision making about general damages: a comparison of jurors, judges and lawyers. Michigan Law Review, 98, 751. Heuer, Larry, and Penrod, Steven. (1994, February). Trial complexity: A field investigation of its meaning and its effects. Law and Human Behavior, 18(1), 29–52 (evidence complexity, legal complexity, and quantity of information were not significantly related to judge-jury verdict agreement). Robbennolt, Jennifer K. (2005). Evaluating juries by comparison to judges: A benchmark for judging. Florida State University Law Review, 32, 469, 477. 29 Ellman, Mark, Braver, Sanford L., and MacCoun, Robert. (2006). Intuitive lawmaking: The example of child support. Papers presented at the Second Annual Conference on Empirical Legal Studies, New York University, November 9–10, 2007. The potential jurors’ congruent opinions about child support awards contrast sharply with attorneys’ perceptions of child support awards.
2.2 Empirical Legal Research on Judge, Jury and Attorney Decision Making
2.2.2
19
Punitive Damages
Empirical research also challenges the popular conception that juries are more likely to award punitive damages or a higher amount of punitive damages than judges. Comparing judges’ decisions in 101 cases with jury verdicts in 438 cases, law professor Theodore Eisenberg and his colleagues concluded that “juries and judges award punitive damages in approximately the same ratio to compensatory damages.”30 Although he found some variability in the incidence of punitive damage awards, Eisenberg concluded that “the differences in punitive award rates more likely are a function of case selection than of juror’s relative harshness in bodily injury cases.”31 Eisenberg’s conclusions are consistent with studies by Thomas Eaton and Jennifer Robbennolt, who found that juries did not award punitive damages more often than judges and made similar decisions about the appropriate amount of damages.32 The empirical studies on juries’ decisions, in sum, “provide evidence of massive stability and consistency in jury decision making.”33
2.2.3
Judges’ Assessments of Juries
Judges not only agree with jurors’ verdicts in the vast majority of cases but they support their deliberative processes as well. Multiple surveys of more than 1,400 state and federal court judges demonstrate that judges respect both jurors’ capacity for objective evaluation and their sound judgment in rendering verdicts. The surveyed judges, report professors Vidmar and Hans, “gave very positive evaluations of the jury for its competence and its fairness” and “generally reported that the juries had made the correct decision and had had no difficulties applying the In interviews with attorneys representing parties in contested divorce cases, where child support and property division were disputed issues, the attorneys “report that they have difficulty discerning court standards and that they cannot predict the outcomes of court processes . . . Even the lawyers in our sample who do think there are set standards and who do say they can predict outcomes differ in their opinion of the content of those court standards; obviously, they cannot all be correct.” Erlanger, Howard S., Chamblis, Elizabeth, and Melli, Marygold S. (1987). Participation and flexibility in informal processses: Cautions from the divorce context. Law & Society Review, 21, 585, 599, cited in Galanter, Marc, and Cahill, Mia. (1994, July). Most cases settle: Judicial promotion and regulation of settlements. Stanford Law Review, 46, 1339, 1385. 30 Eisenberg, Theodore. (2006, July). Juries, judges and punitive damages: Empirical analysis using the civil justice survey of state courts 1992, 1996, and 2001 data. Journal of Empirical Legal Studies, 3(3), 293. Cf. Hersch, Joni, and Viscusi, W. Kip. (2004). Punitive damages: How judges and juries perform. Journal of Legal Studies, 33(1), 1–36. 31 Eisenberg supra note 30 at 293. 32 Vidmar and Hans supra note 25 at 311. 33 Galanter, Marc. The regulatory function of the civil jury. In Litan, Robert E., Ed. (1993). Verdict: Assessing the civil jury system, p. 83. Washington, D.C.: Brookings Institution Press.
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appropriate standards to the case.”34 The curious conclusion is that, although attorneys and the public may perceive jurors as impressionable if not wayward, the most authoritative sources – the judges who actually weigh the evidence alongside them – consider their deliberations to be commendable, their verdicts fair.
2.2.4
Attorney-Jury and Attorney-Attorney Agreement
Shifting from the study of judge-jury agreement to attorney-jury and litigant-jury agreement, one finds large disparities between what attorneys and their clients expect to occur in a case and what actually happens at trial. These disparities are evident in experimental studies of hypothetical cases as well as data compiled from actual cases and are directly proportional to attorneys’ confidence levels. Attorneys with the highest level of confidence in their assessments tend to be the most poorly calibrated, i.e., most likely to be wrong in forecasting case outcomes. For cases that are settled rather than tried to verdict, the studies also demonstrate that attorneys have widely divergent views among themselves of what a case is worth and what is the appropriate amount of initial settlement demands and offers. These discordant case evaluations often reflect unrealistic settlement positions and ultimately break the strategic link between skillful bargaining and probable case outcomes. When negotiations collapse because settlement positions have no relation to likely outcomes, clients bear the cost of testing their attorneys’ case assessments at trial. Hence the adage, “Attorneys learn by trial and error – the client’s trial, the attorney’s error.”
2.2.5
Attorney-Litigant Negotiation Positions, Assessments and Outcomes
Two of the earliest studies of pre-trial negotiations and case evaluations were completed in the 1960s. In the first study, entitled “Predicting Verdicts in Personal Injury Cases,” Philip Hermann analyzed cases where the parties exchanged settlement offers and demands, failed to settle the cases, and proceeded to trial. Comparing the plaintiff’s last settlement demand and the defendant’s last offer with the actual trial verdict in 443 personal injury cases, they discovered that the attorney’s settlement posture bore little relation to the actual trial value of the cases. Only onesixth of the demands and offers were within 25% of the verdict. The attorneys and the insurance companies, Hermann observed, were “equally wild” in guessing the value of their cases.35 34
Vidmar and Hans supra note 25 at 151. Galanter supra note 33 at 83.
35
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21
In the second experiment, conducted by Douglas Rosenthal, the settlement amount negotiated by attorneys in pre-trial settlements was compared with the settlement valuation prepared by an independent panel of experts. The panel was comprised of two lawyers who usually represented plaintiffs, two claims agents for insurance companies, and one lawyer who was experienced in representing plaintiffs and insurance companies. Rosenthal thought that “a comparison of the actual recoveries with the mean panel evaluation would provide one relatively ‘objective’ empirical measure of the competence of professional service received by personal injury claimants.”36 He found that 40% of the cases were settled for less than twothirds of the case’s settlement value, as determined by the expert panel, and overall the settlement amounts varied from one-sixth of the panel’s valuation to twice their valuation.37 Rosenthal concludes, “In 77% of the cases (44 of 57) clients did worse than they should have according to the arithmetic means of the values assigned to their claims by each of the five panelists.”
2.2.6
Disparities In “Same Case” Evaluations and Outcomes
Following Hermann and Rosenthal’s studies in the 1960s, empirical research continued to demonstrate high variability among attorneys in evaluating cases and negotiating settlements. Professor Gerald Williams’ experiment with practicing attorneys, published in 1983, is regarded as one of the early and noteworthy attempts to use the “same case” method to simulate actual settlement negotiations among attorneys. In that experiment, designed to replicate pre-trial negotiations between practicing attorneys in a personal injury case, Williams assigned 40 practicing lawyers to 20 teams and randomly designated the attorneys on each team as the attorney for the plaintiff or the defendant. All attorneys read the same case facts, were informed that the case would be tried to a jury in Des Moines, Iowa, and were notified that the results of their negotiations, along with their names, would be published. Each attorney, moreover, received copies of jury awards in comparable cases tried to verdict in the Des Moines area. Despite the fact that all attorneys received identical case information and could have learned the outcomes in similar cases, their negotiation positions and settlements were astonishingly dissimilar. Attorneys assigned the plaintiff’s attorney role initiated settlement negotiations with demands ranging from $32,000 to $675,000, and attorneys in the defense role made opening offers ranging from $3,000 to $50,000. The amount of the ultimate settlement negotiated for their hypothetical clients varied from a low of $15,000 to a high of $95,000 – all for the same injuries in the same case in the same jurisdiction.38 36
Rosenthal, Douglas E. (1974). Lawyer and client: Who’s in charge (p. 59). New York: Russell Sage Foundation. 37 Galanter supra note 33 at 83. 38 Galanter supra note 33 at 81–83.
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2.2.7
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Comparisons of Predictions and Outcomes
Five years after the publication of Williams’ results, psychology professors Elizabeth Loftus and Willem Wagenaar studied actual predictions attorneys made regarding civil cases they expected to proceed to trial. They asked attorneys to record what they thought would be a good result for their client and the probability of obtaining the desired result. After the cases were resolved – and in many cases after considerable prodding – the attorneys reported the actual results to Loftus and Wagenaar. Comparing the attorneys’ goals and levels of confidence with the actual outcomes, Loftus and Wagenaar concluded that attorneys’ forecasts were poorly calibrated and “in general lawyers were overconfident in their chances of winning, especially so in cases in which they had been highly confident to begin with.”39 Loftus and Wagenaar observed that forecasting accuracy is particularly important for attorneys and clients because “we are concerned here with the possibility that erroneous predictions about an uncertain future might lead a lawyer to make the wrong decision about whether to proceed with further litigation or to settle.”40 They posit five possible explanations why attorneys are confident yet inaccurate forecasters: (1) few attorneys keep a record of their actual forecasting accuracy or their trial win rates; (2) the few attorneys who do keep track of their performance “might record how often they lose, but fail to fully analyze what went wrong;” (3) attorneys may systematically neglect important predictors, relevant law precedents and the personality of the judge; (4) lawyers may “need to feel and display overconfidence in order to attract clients, and, later, to keep those clients convinced that their interests are well served;” and (5) lawyers may tend to recall “a similar case in which a favorable verdict was achieved and ignore “similar cases in which unfavorable verdicts were achieved.”41 Overconfidence, Loftus and Wagenaar hypothesize, may help lawyers maximize their courtroom performance and persuasiveness but adversely affects their settlement evaluations and negotiations. A later study, also conducted by Loftus and her colleagues, tested the accuracy of lawyers’ predictions about whether their client would prevail at trial. She found that the lawyers’ judgments “showed no predictive validity” and were “hardly above chance.”42 The attorneys generally exhibited a marked “overextremity bias (underprediction of success for low probabilities and overprediction of success for
39
Loftus, Elizabeth F., and Wagenaar, Willem A. (1988, Summer). Lawyers’ predictions of success. Jurimetrics, 28, 437. 40 Id. at 441. 41 Id. at 450. 42 Goodman-Delahunty, J., Granhag, P.A. & Loftus, E.F. (1998). How well can lawyers predict their chances of success? Unpublished manuscript. University of Washington. Cited in Koehler, Derek J., Brenner, Lyle, & Griffin, Dale. (2002). The calibration of expert judgment: Heuristics and biases beyond the laboratory. In Gilovich, Thomas, Griffin, Dale, & Kahneman, Daniel (Eds.). (2002). Heuristics and biases: The psychology of intuitive judgment (pp. 705, 706). Cambridge: The Press Syndicate of the University of Cambridge.
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23
high probabilities).”43 When she specifically analyzed the predictions of lawyers retained on a contingency basis, she observed that their predictions of success were especially biased by over-optimism. Although the contingency fee lawyers exhibited the same level of confidence about case outcomes as other lawyers, the contingency fee attorneys in her study won only 42% of their cases compared with an overall 56% win rate.
2.2.8
Damages Award Predictions
When researchers focus on projected damages awards instead of win/lose predictions, they discover that jurors’ opinions about damages are a close match with judges’ opinions and, in some instances, jurors’ collective judgment is less variable than the opinions of individual judges and attorneys. In two experiments conducted by Neil Vidmar the same hypothetical case facts were presented to lawyers, judges and citizens who had reported for jury duty, and they were asked to estimate the appropriate amount of damages to award to the plaintiff. (Liability was admitted in the hypothetical case). In both experiments, the jurors’ average estimated award was less variable than the individual judges’ estimated awards. Overall, Vidmar reports, “the findings show variability among legal professionals and hint that juries may produce more stable estimates of the community’s evaluation of the injury than a single judge acting alone.”44 About four years after the publication of Vidmar’s research regarding damages awards, Roselle Wissler and her colleagues completed a large-scale study designed to determine the degree of variability among judges, jurors and lawyers in assessing liability and awarding damages. In Wissler’s study, 1,060 judges, jurors and lawyers in two different states were presented with 62 case summaries based on actual personal injury cases. After hearing the case summary, the survey respondents were asked to state the amount of money they would award to the plaintiff, the amount of the award they thought an average juror would award, and their rating of the plaintiff’s injury in five aspects, e.g., overall severity. Reviewing the data, Wissler states, the “dominant theme of these findings is one of considerable similarity across the various groups of decisionmakers in the structure of thinking about injury severity and awards. Most importantly, an impressive similarity exists in the injury attributes that drive their decisions, the weight given to those attributes, and the shared sense of vertical equity held by jurors, judges, plaintiffs’ lawyers, and defense lawyers alike.”45
43
Id. Vidmar and Hans supra note 25 at 301. 45 Wissler, Roselle L., Hart, Allen J., and Saks, Michael J. (1999). Decisionmaking about general damages: A comparison of jurors, judges and lawyers. Michigan Law Review, 98, 751, 812. 44
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Wissler’s study found that the most significant deviation in opinions about the severity of plaintiffs’ injuries was not between juries and judges but between defendants’ lawyers and the other respondents: Indeed, if any one group emerges as being out of step with all of the others, it is defense lawyers. This has somewhat paradoxical implications. When members of the defense bar evaluate the performance of jurors, and gauge them to be off the mark, these lawyers no doubt reach that assessment by comparing the jurors’ conclusions to their own. But their own impressions of injuries are the ones that depart most from the pattern shown by the other decisionmaking groups, at least in regards to judgments of injury severity.46
She notes that the severity of injury is consistently one of the strongest predictors of monetary awards, and defense lawyers’ opinions about the amount of awards may be “less responsive to case details” and “more mechanical.”47
2.2.9
Overview of Judge, Jury and Attorney Decision Making
The research regarding the decisions of judges, jurors and lawyers does not substantiate the strong criticisms frequently leveled at jurors – that, in Jerome Frank’s accusation, jurors are “uncertain, capricious, and unpredictable, ignorant and prejudiced, poor factfinders, gullible and incapable of following complex legal rules, thus making ‘the orderly administration of justice virtually impossible.’”48 To the extent that studies compare the decisions of jurors with judges and attorneys, the studies show “considerable similarity” in overall case assessments or, in some instances, higher variability among attorneys than judges and jurors. When studies compare attorneys’ case outcome predictions with actual trial results, attorneys appear to be over-confident, inaccurate forecasters; and when attorneys’ negotiation positions and settlement amounts are compared with those of other attorneys, the variances are broad in scope and deep in implications. “What,” asks law professor Marc Galanter, “are we to make of this persistent and sizable variability and error in lawyers’ readings of potential outcomes?”49
2.2.10 Attorney-Litigant Decision Making in Actual Cases Professor Galanter’s question is both answered and amplified by three studies comparing trial awards with rejected settlement proposals to determine whether litigants recovered more money at trial than they were offered in settlement 46
Id. at 805. Id. at 758, 794. 48 Id. at 753. 49 Galanter supra note 33 at 83. 47
2.2 Empirical Legal Research on Judge, Jury and Attorney Decision Making
25
negotiations. These studies assess whether, in deciding to try cases instead of settling them, attorneys and their clients are making financially advantageous decisions, and if not, what factors influence their decision to forego settlement. The three studies are reported in law professors Samuel Gross and Kent Syverud’s 1991 article, “Getting to No: A Study of Settlement Negotiations and the Selection of Cases for Trial,” their 1996 study, “Don’t Try: Civil Jury Verdicts in a System Geared to Settlement;” and law professor Jeffrey Rachlinski’s 1996 study, “Gains, Losses and the Psychology of Litigation.”50 In these three studies the authors analyzed settlement behavior in actual civil cases and concluded that the conventional model of rational decisions leading to optimal economic outcomes is inapplicable, misleading, or inaccurate. Noting that “the absence of data on pretrial negotiations has handicapped development of this topic,” law professors Gross and Syverud first studied a nonrandom sample of 529 cases between June 1985 and June 1986. Their data showed that “the main systemic determinants of success at trial and in pretrial bargaining are contextual and relational [e.g., litigants’ resources, reputations, insurance, fee arrangements, repeat litigants]” and that prior theoretical models of attorney/litigant settlement behavior were “quite alien to actual litigation.”51 Attorneys and clients, Gross and Syverud found, were not rational, utility-maximizing actors and “win-win” trials were rare. Only 15% of the trials they studied resulted in an award for a plaintiff that was greater than defendant’s settlement offer but less than plaintiff’s demand, “and in some of these cases the entire gain for one side, or both, will have been consumed by the trial costs.”52 Gross and Syverud’s study directly challenged a prior theoretical model of litigation posited by law professors George Priest and Benjamin Klein: “the fifty percent implication.”53 According to Priest and Klein’s theory, trials occur primarily in “close cases,” plaintiffs and defendants are equally adept in predicting trial outcomes, plaintiffs will win about 50% of the cases that proceed to trial, and “mistakes” about outcomes will be evenly distributed between plaintiffs and defendants. Priest and Klein’s hypothesis, however, turns out to be inconsistent with the data compiled by Gross and Seyverud: Economic theories of trial and pretrial bargaining call to mind the standard image of a competitive market: numerous individuals intelligently pursuing independent self-interests.
50
Gross, Samuel, & Syverud, Kent. (1991). Getting to no: A study of settlement negotiations and the selection of cases for trial. Michigan Law Review, 90, 319. Gross, Samuel, & Syverud, Kent. (1996). Don’t try: Civil jury verdicts in a system geared to settlement. UCLA Law Review, 44, 1, 51. Rachlinski, Jeffrey. (1996). Gains, losses and the psychology of litigation. Southern California Law Review, 70, 113. 51 Gross & Syverud (1991), supra note 50 at 330, 379. 52 Gross & Syverud (1991), supra note 50 at 379. 53 Priest, George L. & Klein, Benjamin. (1984). The selection of disputes for litigation. Journal of Legal Studies, Vol. 13:1. Priest, George L. (1985). Reexamining the Selection Hypothesis. Journal of Legal Studies, Vol. 14:215.
26
2 Prior Research on Attorney-Litigant Decision Making Social reality, as usual, is inconsiderate of global theories. In this case it provides a competing image that is less susceptible to statistical prediction: stragglers picking their way in the dark, trying to avoid an occasional land mine.54
Presaging a broader application of behavioral economics theories (discussed in Chapter 4) to attorney-litigant settlement behavior, Gross and Syverud observed that plaintiffs usually are more risk averse than defendants; plaintiffs and defendants attach “separate values to each possible outcome;” and “their stakes may be unequal (or equal) with respect to victories, or defeats or both.”55 In their second study, Gross and Syverud added a sample of 359 cases reported between 1990 and 1991. Their results again conflicted with the Priest-Klein litigation model. Instead of a 50/50 distribution of “mistakes,” Gross and Syverud found that plaintiffs were more likely than defendants to make a decision-making mistake, that is, rejecting a settlement proposal which turned out to be the same as or more favorable than the actual trial award. Plaintiffs were “clear losers” in 61% of the cases in their first sample (1985–1986) and 65% of the cases in their second sample (1990–1991). The defendants, in contrast, made mistakes in only 25% and 26%, respectively, of the cases in the two samples. In the third major empirical study of attorney-litigant decision making in adjudicated cases, Rachlinski compared final settlement offers with jury awards in 656 cases. His data showed decision error by plaintiffs in 56.1% of the cases, contrasted with defendants’ decision error rate of 23%. Although plaintiffs’ decision error rate was markedly higher than defendants’ decision error rate, the average cost of plaintiffs’ decision error ($27,687) was dramatically lower than defendants’ mean cost of error ($354,900). Observing that litigants’ decisions are “suboptimal” and “may not comport with rational theories of behavior,” Rachlinski found that the “consistently divergent risk preferences between plaintiff and defendant” could be explained by behavioral economics’ framing theories.56 Litigants’ “risk preferences depend upon characterizing a decision as a gain or loss” and “vary systematically depending upon whether they are in the role of plaintiff or defendant.”57 Plaintiffs are consistently risk averse, while defendants are risk taking. Consequently, plaintiffs generally benefited from litigation and “defendants as a class paid heavily for their decision” to litigate: “When settlement negotiations failed, the plaintiffs were unwittingly forced to undertake a risk that, on average, benefited them and cost the defendants dearly.”58
54
Gross & Syverud (1991) supra note 50 at 385. Gross & Syverud (1991) supra note 50 at 381. 56 Rachlinski supra note 50 at 114, 118, 120, 142. 57 Rachlinski supra note 50 at 119. 58 Rachlinski supra note 50 at 160. 55
2.3 Chapter Capsule
27
2.2.11 Kiser, Asher and McShane Study of Attorney-Litigant Decision Making The continuing viability of the Gross and Syverud and Rachlinski studies was tested in 2008 by a large-scale analysis of attorney-litigant decision making. The results of that analysis appear in an article entitled, “Let’s Not Make A Deal: An Empirical Study Of Decision Making In Unsuccessful Settlement Negotiations,” co-authored by Randall Kiser of the decision services company DecisionSet1 and Martin Asher and Blakeley McShane of The Wharton School. The article, which describes the results of the largest multivariate analysis of attorney-litigant decision making, was published on behalf of Cornell Law School and The Society for Empirical Legal Studies in the Journal of Empirical Legal Studies, Vol. 5, No. 3 (September 2008). Six key findings of this study of 4,532 actual cases are: (1) 61% of plaintiffs and 24% of defendants obtained a result at trial that was the same as or worse than the result that could have been obtained through a pre-trial settlement; (2) the average cost of these decision errors was $43,100 for plaintiffs and $1,140,000 for defendants during the 2002–2005 period; (3) the incidence of decision errors increased and the cost of these errors soared between 1964 and 2004; (4)“Context” variables (systemic factors like case type) are more predictive of adverse trial outcomes than “Actor” variables (personal factors like attorney experience and law school ranking); (5) statutory cost-shifting procedures, intended to encourage settlement by financially penalizing parties whose trial result is worse than the settlement offer made by an adversary, may provoke rather than deter risk-taking behavior; and (6) parties who are represented by attorneys with mediation training experienced a lower incidence of decision error. The results of the Kiser, Asher and McShane study are remarkably consistent with the earlier results reported by Gross and Syervud and Rachlinski, evidencing consistent patterns of high plaintiff decision error rates and high costs of defendant decision error.
2.3
Chapter Capsule
Although the legal services industry assumes a large role in the American economy, scant data exists regarding the economic benefits of legal services expenditures, the accuracy of attorneys’ advice and the effectiveness of their representation in lawsuits. The legal industry has lagged behind other businesses and professions in establishing metrics to measure costs and assess performance. Limited research regarding attorney-litigant decision making indicates that attorneys and clients are over-optimistic in evaluating their cases and predicting trial outcomes. Four studies by three independent research teams found that, when cases proceed to trial, most plaintiffs obtain an award that is less than the defendant’s settlement offer. Defendants, for their part, obtain a worse result at trial than could have been achieved by accepting a plaintiff’s settlement demand in
28
2 Prior Research on Attorney-Litigant Decision Making
23% – 26% of their cases. Although plaintiffs exhibit a higher incidence of adverse trial outcomes, the average cost of defendants’ adverse outcomes is dramatically higher than plaintiffs’ average cost. Adverse trial outcomes often are blamed on unpredictable and erratic jurors, but empirical research demonstrates that jurors generally discharge their duties faithfully, responsibly and intelligently. Although attorneys may hold widely divergent ideas about case settlement values and likely trial outcomes, judges and juries have similar opinions about how cases should be decided. The high degree of judge-jury agreement suggests that case evaluation may be clouded when clients and attorneys assume partisan roles.59
59
Some sentences in this chapter are excerpted with permission from the author’s article, “Let’s not make a deal: An empirical study of decision making in unsuccessful settlement negotiations” (co-authored with Martin Asher and Blakeley McShane), Journal of Empirical Legal Studies, 5(3), 551–591, published by Wiley Periodicals, Inc.
Chapter 3
A Current Assessment of Attorney-Litigant Decision Making In Adjudicated Cases
I often say that when you can measure what you are speaking about and express it in numbers you know something about it; but when you cannot express it in numbers your knowledge is a meager and unsatisfactory kind; it may be the beginning of knowledge but you have scarcely, in your thoughts, advanced to the stage of science, whatever the matter may be. Lord Kelvin (William Thomson 1824–1907), Lecture to the Institution of Civil Engineers (May 3, 1883)
This chapter tests the “crapshoot” theory of litigation, the popular belief that trial outcomes are inherently unpredictable and litigants proceed to trial at their own peril. In his article, “Forget Fair; It’s Litigation as Usual,” New York Times business columnist Joe Nocera epitomizes this widely held belief. Commenting on drug manufacturer Merck’s settlement of the mass tort litigation regarding the painkiller Vioxx, he writes, “And finally, when you get right down to it, litigation is a crapshoot, and it can be cruelly unfair.”1 The belief that trials are crapshoots is part of the American ethos. If judges and juries were perceived to be predictable, fair, and dutiful, novels like John Grisham’s The Runaway Jury would search desperately for a gullible reader instead of soaring to the top of the bestseller lists. Cynicism about jurors’ deliberative processes and the resultant suspicion that many verdicts are arbitrary, ill-considered, and tainted with prejudice is so engrained in the national belief system that even a selfdescribed victim of the jury system can wax philosophical about his murder conviction. Michael Quartararo, who claims he was wrongfully convicted of killing a 13-year-old boy in 1981 by shoving pebbles down his throat, wrote this review of The Runaway Jury from his jail cell: Most trial lawyers will tell you that juries are completely unpredictable, that selecting a jury is a roll of the dice, that you can’t predict what they’ll decide. And so, for completely irrational reasons, it is increasingly possible that a jury could run away with a verdict.
1
Nocera, Joe. (2007, November 17). Forget fair; It’s litigation as usual. The New York Times.
R. Kiser, Beyond Right and Wrong, DOI 10.1007/978-3-642-03814-3_3, # Springer-Verlag Berlin Heidelberg 2010
29
30
3 A Current Assessment of Attorney-Litigant Decision Making In Adjudicated Cases Perhaps this is why most civil cases are settled out of court, and most defendants plead guilty. They, like the characters in Grisham’s book, fear the Runaway Jury.2
Outside of his jail cell, Michael Quartararo would find an ideationally sympathetic audience with corporate counsel, 57% of whom gave negative responses to the question, “Overall, how would you describe the fairness and reasonableness of state court liability systems in America – excellent, pretty good, only fair or poor?”3 His concerns also seem to be shared by the American public, the majority of whom declared in an American Bar Association survey that “the justice system needs a complete overhaul.”4 If trials truly are crapshoots and it’s impossible to accurately predict case outcomes, as business columnists, convicted murderers, corporate counsel and the public seem to believe, trial outcomes would be randomly distributed. Chance would determine trials wins and losses – divided evenly between plaintiffs and defendants – and both plaintiffs and defendants would make a similar number of mistaken settlement decisions. If verdicts are inherently unpredictable, plaintiffs and defendants’ negotiation positions also would show equivalent deviations from the actual outcomes, and they would bear equally the financial losses resulting from mistaken settlement decisions. This follows from the fact that random adverse events, by definition, wreak havoc indiscriminately on their victims. If, for instance, aviation was inherently dangerous and plane crashes were wholly inevitable and unpredictable, crashes would occur randomly, unaffected by weather conditions, terrain, pilot experience, or air traffic controller training. Like litigants in a courtroom, airline passengers choosing to be seated in a dangerous and unpredictable environment would simply “pay their money and take their chances,” knowing they are powerless in the grip of fate. After decades of intensive investigations and statistical analysis, however, experts have learned that airplane crashes are not random and certain factors are predictive of the frequency of crashes and the extent of passenger injury and death. Because of this information and other advances in airline safety, the number of fatalities in aircraft accidents has declined from 16.7 deaths per billion miles flown in 1946–1950 to 0.14 in 1996–2000.5 Although judges and juries have been deciding cases for centuries longer than pilots have been flying airplanes, surprisingly little effort has been made to ascertain the determinants and reduce the
2
Quartararo, Michael. Review, The runaway jury. Bookreporter.com, retrieved at http://www. bookreporter.com/reviews/0440221471.asp. 3 Taylor, Humphrey. (2002, February 20). Survey of lawyers finds big differences in their perceptions of courts, judges and juries in 50 states. The Harris Poll1 #9. Available at http://www. harrisinteractive.com/harris_poll/index.asp?PID¼286. 4 Greenhouse, Linda. (1999, February 24). 47% in poll view legal system as unfair to poor and minorities. The New York Times, p. A12. 5 Federal Reserve Bank of Dallas. Exhibit 10. In 2001 Annual Report: Taking Stock in America. Between 1997 and 2007, accident rates dropped by 65%, from one fatal accident in about 2 million departures in 1997 to one fatal accident in about 4.5 million departures in 2007. Wald, Matthew. (2007, October 1). Fatal airplane crashes drop 65%. The New York Times, p. C1.
3.1 The Fifty Percent Implication
31
incidence of adverse litigation events. The belief persists that, while pilot and mechanical error may be susceptible of rigorous investigation and precise analysis, the decisions of judges, jurors, attorneys and clients are essentially idiosyncratic and impenetrable by scientific methods and quantitative analysis. Unlike other soft disciplines, law has never experienced physics envy.
3.1
The Fifty Percent Implication
The belief that trial outcomes are random and hence adverse verdicts and settlement mistakes are evenly balanced among plaintiffs and defendants is so consistent with intuition and conviction that it was embodied in an academic theory in 1984 and named the “fifty percent implication.”6 The “fifty percent implication,” posited by law professors George Priest and Benjamin Klein, is a logical outgrowth of the assumption that the cases that proceed to trial are “wildcards.” According to Priest and Klein’s theory, trials occur primarily in “close cases,” and plaintiffs and defendants are “equally successful at predicting the outcomes of the cases.”7 Therefore, plaintiffs will win and defendants will lose about 50% of the cases litigated to verdict, and “mistakes” about outcomes will be evenly distributed between them. Specific characteristics of the case, the parties and the attorneys, under the 50% implication, should not affect the random distribution of settlement decision errors and win rates. Priest and Klein note that “the most important assumption of the model is that potential litigants form rational estimates of the likely decision, whether it is based on applicable legal precedent or judicial or jury bias.”8 This assumption implies that litigants will consider not only how the case should be decided legally, as a matter of legal precedent, but also how it will be decided practically, as a result of any human biases. Their fifty percent implication further assumes that litigation costs are relatively high compared to settlement costs, the application of legal standards is predictable, both parties can evaluate outcomes with “equal precision,” and the stakes are “symmetrical” to the parties, i.e., gains and losses from litigation “are equal to both parties.”9 Possessing equivalent knowledge of likely outcomes and burdened with equal costs and risks, plaintiffs and defendants, Priest and Klein concluded, would experience the same number of trial wins and losses and make erroneous settlement decisions with the same frequency and equivalent costs.
6
Priest, George L. & Klein, Benjamin. (1984). The selection of disputes for litigation. Journal of Legal Studies, 13, 1. Priest, George L. (1985). Reexamining the selection hypothesis. Journal of Legal Studies, 14, 215. 7 Gross, Samuel, & Syverud, Kent. (1991). Getting to no: A study of settlement negotiations and the selection of cases for trial. Michigan Law Review, 90, 319, 325. 8 Priest & Klein supra note 6 at 4. 9 Priest & Klein supra note 6 at 5, 12, 14, 19, 20, 24.
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3 A Current Assessment of Attorney-Litigant Decision Making In Adjudicated Cases
This chapter tests the validity of the fifty percent implication and attempts to answer four questions: l l l l
Do plaintiffs win 50% and do defendants lose 50% of the cases that proceed to trial? Are plaintiffs and defendants equally adept at predicting case outcomes? Do plaintiffs and defendants bear equally the costs of adverse settlement decisions? Do the settlement positions taken by plaintiffs and defendants reflect rational assessments of case risks and strategic bargaining framed by mutually acknowledged outcome ranges?
In answering these questions, this chapter explains whether certain characteristics of a case, the parties, and their attorneys are correlated with low win rates, suboptimal settlement decisions, disproportionate costs resulting from erroneous decisions, and settlement positions grossly disproportionate to the ultimate trial outcome. As will be shown below, the assumptions and predictive capacity of the Priest and Klein model are challenged by the study data showing that win rates, decision error rates and settlement negotiation positions vary widely with different types of cases, clients, and attorneys.
3.2
New Data
To answer the key questions regarding settlement decisions and case outcomes, this chapter analyzes 5,653 actual civil litigation cases in which approximately 14,250 attorneys represented the disputants. Since both a plaintiff and a defendant had to make a decision to accept or reject an adversary’s settlement proposal in each of the 5,653 cases, the total number of decisions dissected is 11,306. This chapter’s reliance on 11,306 actual case decisions distinguishes it from most other studies in nature and scope. Although scholars have produced hundreds of excellent research articles regarding negotiation theory and simulated settlement negotiations and trials, relatively few studies examine the characteristics and decisions of litigants and their attorneys in actual settlement negotiations, and none, to date, analyze as many decision-making variables and how those variables relate to case outcomes. Unlike most negotiation theories and studies, this study is empirical, not experimental, and it endeavors to advance prior decision-making research by examining settlement decisions made by individuals, governmental entities, and businesses facing real financial consequences. The study compares settlement offers and demands with the actual verdicts rendered in the litigants’ cases, revealing the frequency, correlates and costs of ineffective settlement decisions.
3.2.1
The Four Datasets
The 5,653 cases analyzed in this chapter are divided among four different datasets. The primary dataset consists of 2,754 civil cases adjudicated in California state
3.2 New Data
33
courts or decided by California arbitrators. These cases, reported in VerdictSearch California during the 58-month period between November 2002 and August 2007, include about 23% of all civil cases tried by juries during that period.10 The second dataset serves as a shadow study for the primary dataset; it contains 524 civil litigation cases filed in New York and reported in VerdictSearch New York during the 12-month period between January 1, 2004, and December 31, 2004. This second dataset allows the California litigants’ settlement positions and trial results to be compared with the positions taken and results experienced by their counterparts in New York during a shorter but comparable timeframe. The third dataset is a 40-year survey of settlement decisions and trial results in California cases adjudicated between 1964 and 2004. The 40-year survey provides an historical context to evaluate whether attorney-litigant decision error rates are constant and whether the frequency and costs of adverse outcomes in the 58-month California study and the 12-month New York study are typical. The historical survey also seeks to answer the question, “Are attorneys and their clients getting better or worse at predicting trial outcomes in cases that do not settle?” The fourth dataset differs from the other datasets by focusing on particular types of attorneys instead of time periods or states. It consists of California cases where attorneys who also serve as court-appointed mediators in other cases represented the parties in the dataset cases. In most cases, these “attorney-mediators” are parttime mediators and continue to represent clients in their regular litigation practices; in a small number of cases, the mediators now serve as full-time mediators but represented clients in litigated cases before they became full-time mediators. The attorney-mediators in this dataset met state-mandated mediator training requirements, including 30 minimum hours of classroom and experiential training in conflict resolution, and served on their local court’s panel of mediators. Because these attorney-mediators presumably are more objective in case evaluation and more skilled in conflict resolution than the average attorney, they may be expected to exhibit lower decision-making error rates. Alternatively, if the attorney-mediator decision error rates are similar to other practitioners, one may tentatively conclude that mediation training and experience do not appear to affect attorneys’ case evaluation skills or risk-taking propensities – or that clients, not their attorneys, call the shots and the attorneys themselves may be fungible.
3.2.2
VerdictSearch Publications
The cases in all four datasets were initially reported in the weekly trade publication VerdictSearch California, previously titled California Jury Verdicts Weekly, and 10
The total number of civil cases tried by juries in California state courts between Fiscal Year 2002– 03 and Fiscal Year 2006–07 is 11,208. Source: Administrative Office of the Courts’ 2008 court statistics report – statewide caseload trends. See Levey, Dhyana. (2009, February 13). For the vanishing civil trial, report shows another down year. Daily Journal Verdicts and Settlements, p. 1.
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3 A Current Assessment of Attorney-Litigant Decision Making In Adjudicated Cases
VerdictSearch New York. VerdictSearch California and VerdictSearch New York are published by New York Law Publishing Company, which is owned by American Lawyer Media (ALM). Similar jury verdict reports are published by ALM for cases filed in Texas, Florida, Illinois, New Jersey and Pennsylvania. (ALM also publishes major trade magazines and newspapers like The American Lawyer, Corporate Counsel, The National Law Journal, New York Law Journal, and Legal Times.) These reports are available by subscription (hard copy and electronic), and older paper volumes are bound and shelved in law libraries throughout the country. VerdictSearch California is the primary reporting source for judgments and settlements in California, and the reliability of its reports has been confirmed in law review articles and by research studies.11 Gross and Syverud, for instance, “concluded that the information contained in the journal is reliable and found no systematic bias among the errors by either plaintiff or defendant to misreport the winning party, the size of the award, or the settlement offers.”12 The RAND Corporation also utilized the data reported in VerdictSearch California to prepare its periodic reports on jury trials and verdicts in major metropolitan areas, including its 1996 report, “Trends in Civil Jury Verdicts Since 1985.”13 As recently as November 2007, Seth Seabury, an economist at RAND, was reporting on trends in civil litigation awards, relying on data from the RAND Jury Verdicts Database (JVDB). The data in RAND’s JVDB is derived from the jury verdict reports.14
3.2.3
Case Database Selection Criteria
VerdictSearch California does not report every verdict rendered in California but relies on voluntary submissions from attorneys and solicits reports based on court dockets and trade publications.15 The information VerdictSearch California obtains
11
Gross & Syverud supra note 7 at 319. Rachlinski, Jeffrey. (1996). Gains, losses and the psychology of litigation. Southern California Law Review, 70, 113. Peterson, M.A., & Priest, G.L. (1982). The civil jury: Trends in trial and verdicts, Cook County, Illinois, 1960–1979 (Publication No. R-2881). Santa Monica, California: RAND Institute for Civil Justice. Shanley, M.G., & Peterson, M.A. (1983). Comparative justice: Civil jury verdicts in San Francisco and Cook Counties, 1959–1980 (Publication No. R-3006). Santa Monica, California: RAND Institute for Civil Justice. 12 Rachlinski supra note 11 at 149, fn. 133. 13 Moller, Erik. (1996). Trends in civil jury verdicts since 1985. Santa Monica, California: RAND Institute for Civil Justice. 14 Seabury, Seth. (2007, July 5). Inferring beliefs from selected samples: Evidence from civil litigation. Papers presented at the Second Annual Conference on Empirical Legal Studies, November 9–10, 2007, New York University. 15 Contract cases appear to be under-reported, low monetary value cases presumably are underreported, and settlement demands and offers subject to confidentiality provisions or statutes are, of course, not reported.
3.2 New Data
35
from attorneys, including the factual contentions, damages, results and settlement offers, is compiled in a draft case report. To confirm the contents of the draft case report, VerdictSearch California then attempts to contact counsel for all parties by facsimile and telephone. All information received from the parties’ attorneys, VerdictSearch California affirms, is incorporated in the case report. Cases reported in VerdictSearch California during the 58-month core study period were included in the study database if they met five basic requirements: (1) a jury’s verdict, judge’s decision, or arbitrator’s award was entered in a specific monetary amount; (2) the plaintiff submitted a settlement demand in a specific monetary amount; (3) the defendant made a settlement offer in a specific monetary amount or its settlement offer was described as “none;” (4) there was no reported disagreement among the parties regarding the amount of the ultimate result and the parties’ prior settlement positions; and (5) the parties were represented by counsel. The core study database thus is limited to documented cases in which the parties conducted unsuccessful settlement negotiations and the parties’ liability, if any, was ultimately decided by a judge, jury or arbitrator. The database excludes a few cases that otherwise might satisfy the five requirements above. Cases terminated on technical or procedural grounds, e.g., motions for nonsuit, directed verdict, summary judgment, and judgment notwithstanding the verdict, were excluded.16 The outcome in those cases is a matter of law, as opposed to an attorney-client decision about mixed and disputed issues of both fact and law. Class actions also are excluded from the database because the relationship between attorneys and clients in those cases is too attenuated to assess attorney-client decision making. Cases in which typographical or reporting mistakes appeared on the face of the report or the parties’ settlement positions were not adequately allocated among multiple parties were eliminated.
3.2.4
Attorneys in Dataset
What percentage of all California litigation attorneys is represented in the primary dataset? The primary dataset includes 2,754 cases and 6,945 attorneys. The attorneys are evenly divided between those representing plaintiffs (3,492) and those representing defendants (3,453). These attorneys represent an estimated 22% – 27.5% of all California litigation attorneys, although a precise count is elusive because the exact number of litigation attorneys in California has never been ascertained. This task is complicated by intra-profession disagreements as to whether attorneys who dabble 16
About 9% of all cases reported in VerdictSearch California during the subject period included a reference to “summary judgment,” “directed verdict,” “judgment n.o.v.,” “judgment notwithstanding the verdict,” or “nonsuit,” although the actual ruling in the case, if any, is undetermined. In a different study of federal cases, Eisenberg found that “summary judgment, judgment on pleadings, motion before trial” comprised 12.14% of all dispositions. Eisenberg, Theodore, & Lanvers, Charlotte. (2008, November 21). What Is the Settlement Rate and Why Should We Care? Cornell Legal Studies Research Paper No. 08–30. Available at SSRN: http://ssrn.com/abstract¼1276383.
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3 A Current Assessment of Attorney-Litigant Decision Making In Adjudicated Cases
in litigation should be considered real “litigators” and whether real litigators are something different from trial lawyers. Although the State Bar of California does not maintain records regarding the precise number of civil litigation attorneys in California, 16% of the attorneys responding to its February 2006 survey identified civil litigation as their primary area or field of practice.17 Forty-five percent of all surveyed attorneys indicated they had a “secondary area of legal practice,” and among that group 14% designated “civil litigation” as the secondary area. When asked what State Bar section the members belonged to, however, only 7% of all surveyed members designated “litigation.”18 Because the State Bar information is ambiguous, the data reported by MartindaleHubbell, the largest directory of attorneys, is helpful. In the Martindale-Hubbell database, about 23% of all California attorneys designate “litigation” as their practice area, but this figure overrepresents the number of attorneys who actually represent clients at trials or practice civil litigation exclusively. Attorneys in the Martindale-Hubbell directory are permitted to list more than one practice area, and Martindale-Hubbell loosely defines “practice area” as an area to which an attorney “devotes a significant portion of professional time.” Since “practice area” is an expansive concept intended more for marketing purposes than demographic research, it is not surprising that attorneys who list “litigation” as a practice area also list an average of 2.78 practice areas in addition to litigation. (Similarly, 20% of New York attorneys list “litigation” as a practice area, along with an average of 2.42 other practice areas). Hence, the “litigation” attorneys listed in Martindale-Hubbell include attorneys who practice litigation exclusively and attorneys for whom litigation may be a secondary or tertiary practice area. For the purposes of this study, acknowledging the limited data available and the possibility that attorneys for whom litigation is a peripheral practice area do not often try cases to verdict, the estimated percentage of California litigation attorneys is 16%–20% of the total 159,807 active members as of March 13, 2008. Thus, the total estimated number of California litigation attorneys is 25,569–31,961. Because the total number of attorneys included in the primary database is 6,945, the study attorneys represent an estimated 22%–27% of all California civil litigation attorneys.
3.3
Concepts and Definitions
Although civil litigation may be expensive, protracted and seemingly imponderable, only three basic problems occur when trying to resolve a case. These three problems direct the data analysis in the balance of this chapter and hence must be described and understood before proceeding to the data analysis. 17
Hertz Research. (2006). Final report of results, member services survey, The State Bar of California – February 2006. 18 Id. at 17.
3.3 Concepts and Definitions
37
First, a litigant can sabotage settlement negotiations by demanding too much money or offering too little money relative to the actual value of the case. In this study, the actual value of a case is the amount of the judgment or award made by the judge, jury, or arbitrator in that case. All of the cases in this study have a benchmark award or judgment – against which the parties’ settlement positions can be measured – because the parties declined their adversaries’ pre-trial settlement proposals and proceeded to trial or arbitration. In litigation cases, however, neither the plaintiff nor the defendant knows what the actual monetary value of the case is unless their settlement negotiations fail and a judgment or award is entered. Consequently, their settlement positions reflect, at least in theory, an estimate of the case’s value, with some allowances being made for attorney’s fees, court costs, the possibility of an appeal, the difficulty of enforcing a judgment, and other negotiation concessions. The gap between the parties’ settlement positions and the actual value of the case is called “negotiation disparity,” and the parties’ settlement positions are either “underpriced” or “overpriced” relative to the actual case value. Like a seller’s determination of the listing price for a house or a prospective buyer’s offer to purchase the house, underpricing or overpricing of a case may reflect strategic bargaining – or they may reflect overconfidence and unfamiliarity with market values. Asking too much may turn away viable buyers ready to pay fair market value, while asking too little may result in a sale below fair market value. For rational negotiators, the objective is not to sell the house or settle the case at any price but to negotiate a price close to fair market value and avoid the mistake of rejecting a proposal that turns out to be better than the price ultimately paid or received. The second basic problem a litigant can encounter is simply losing the case in pretrial motions or at trial or arbitration. For plaintiffs, this means they recover nothing and fail to obtain any relief sought from the judge, jury or arbitrator – the proverbial goose egg – and may be required to pay the defendant’s court costs or attorneys fees. For defendants, losing at trial or arbitration means being ordered to pay some amount of money to the plaintiff or performing some act previously deemed unacceptable or unwarranted. In this study, the term “win rate” describes the frequency of verdicts and awards in favor of plaintiffs and against defendants and serves as one indicator of the likelihood that a plaintiff or defendant will prevail in a particular type of case. The third source of consternation for litigants is that they can simultaneously win and lose at trial or arbitration. A litigant can prevail at trial but actually sustain a net financial loss because the award at trial is the same as or less than the settlement proposal made by an adversary. Many trial “victories” actually are financial defeats because the nominal winner could have obtained the same result or a better result by accepting an adversary’s settlement proposal. As law professors Gross and Syverud state, “Any plaintiff who was offered as much as the verdict or more, and any defendant who could have settled for as much as the verdict or less, has lost.”19
19
Gross, Samuel, & Syverud, Kent. (1996). Don’t try: Civil jury verdicts in a system geared to settlement. UCLA Law Review, 44, 41–42.
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3 A Current Assessment of Attorney-Litigant Decision Making In Adjudicated Cases
These Pyrrhic victories are called “decision errors” in this study. A decision error occurs whenever a party rejects a settlement proposal and the ultimate result at trial or arbitration is the same as or worse than the demand or offer it declined. In absolute terms, the attorney and/or client made a decision error and the client sustained an unequivocal, quantifiable financial loss.20 Decision error is strictly a mathematical calculation and does not mean that an attorney was negligent or improperly advised a client. Many decision errors, moreover, occur because clients do not follow their attorneys’ advice. Although negotiation disparity, underpricing, overpricing, win rates, and decision errors are distinct concepts, they are often confused and at an intuitive level become intermingled. Because an understanding of these distinct concepts is a threshold requirement for analyzing the data in the rest of this chapter, these concepts are further explained and illustrated below.
3.3.1
Negotiation Disparities and Decision Error
Negotiation disparities represent the mathematical differences between litigants’ settlement positions and the ultimate judgment or award in the case. Negotiation disparities occur when a party’s settlement proposal is either (a) less than the ultimate award at trial or arbitration; or (b) greater than the ultimate award at trial or arbitration. In casual conversation, one would say a plaintiff’s settlement demand was “too high” (overpriced) or a defendant’s settlement offer was “too low” (underpriced). Decision errors and negotiation disparities are conceptually and mathematically different. Decision error is determined by comparing the adverse party’s settlement offer with the actual trial result to test whether an opportunity to obtain a better financial result was lost by proceeding to trial, while negotiation disparity is calculated by comparing a party’s own settlement offer with the actual trial result. Decision error thus represents an economic loss caused by declining an adversary’s settlement offer, while negotiation disparity represents the mathematical difference between a party’s own settlement position and the award at trial. Although negotiation disparities often reflect mistaken assessments of trial outcomes, they do not necessarily cause financial harm to the mistaken client. For that reason, they are regarded simply as negotiation disparities and not decision errors. Because a party obviously cannot decline or accept its own settlement proposal, whether overpriced or underpriced, negotiation disparities alone do not cause financial harm. For a financial loss to be sustained a party has to commit a decision error, i.e., declining a settlement proposal that is equal to or better than the result at trial. 20
Parties, of course, may be motivated to litigate for reasons other than obtaining an optimal economic outcome. Gross and Syverud (1996), however, interviewed 735 attorneys in their dataset and reported that “only three attorneys mentioned a desire for vindication as an explanation for why their case went to trial,” and a “non-economic motive” was highly infrequent.” Id. at 57.
3.3 Concepts and Definitions
3.3.2
39
Underpricing
When a party’s pretrial settlement offer turns out to be less than the amount ultimately awarded at trial, it has underpriced its case. Underpricing by the plaintiff may be a strategic or inadvertent discounting of its gain at trial; for the defendant underpricing may be a crafty negotiating tactic or a careless discounting of its liability at trial. For both the plaintiff and the defendant, though, underpricing simply means that the amount of the demand or offer is less than the ultimate award. If, for example, the plaintiff demanded $8 to settle the case, the defendant offered $6, and the trial verdict was $10, both parties underpriced their cases – the plaintiff’s demand underpriced its gain by $2, and the defendant’s offer underpriced its loss by $4. Although both parties underpriced their demands and offers, only the defendant committed a decision error by declining the plaintiff’s demand to settle for the lesser sum of $8 and later being held liable for a $10 award. The plaintiff did not commit decision error because it was in a financially superior position as a result of rejecting the defendant’s offer. The following case reflects this model of mutual underpricing and a defendant’s decision error. In 2004, a consultant sued her former employer, alleging sexual harassment, sex discrimination, fraud, breach of contract and retaliatory termination. She made a settlement demand of $2,900,000, and the defendant employer offered to settle by paying her $58,000. Both parties rejected the other party’s settlement proposal and took their chances at trial. The jury awarded the plaintiff employee $4,200,000. Although the parties’ settlement proposals displayed wide negotiation disparities and both parties underpriced their settlement positions, only the defendant committed a decision error by declining what turned out to be an economically advantageous settlement demand.21
3.3.3
Overpricing
Conversely, when a party proposes a settlement sum more than the ultimate award, it is considered to have overpriced its case. If the plaintiff submitted a settlement demand of $14, the defendant offered to pay $12, and the award again is $10, both parties overpriced their settlement demands and offers. The plaintiff overpriced its demand by $4 and the defendant overpriced its loss by $2. Although both parties made overpriced demands and offers, only the plaintiff committed a decision error by rejecting an offer of $12 and recovering only $10 at trial. An actual case illustrates this model of overvaluation and plaintiff’s decision error. In 1998, Dennis Berkla sued Corel Corporation for breach of a non-disclosure 21
Adapted from facts in Mayer v. CSC Consulting, Inc., as reported in VerdictSearch California, December 13, 2004. The outcome of subsequent appeals, motions, and settlement negotiations, if any, and the existence and importance of non-economic factors are unknown.
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3 A Current Assessment of Attorney-Litigant Decision Making In Adjudicated Cases
agreement regarding an alleged misappropriation of an image file database.22 Both parties were represented by attorneys from highly regarded law firms with extensive intellectual property experience. Berkla initially demanded $1.6 million to settle, and Corel offered $200,000. After a court-facilitated settlement conference, Corel raised its offer to $400,000. Berkla declined Corel’s settlement offer and later countered at $900,000. Corel rejected Berkla’s counter-offer and the case proceeded to trial. Berkla prevailed at trial, convincing a jury that Corel indeed had breached the non-disclosure agreement. The jury’s verdict was in favor of Berkla and against Corel in the amount of $23,502. Although Berkla prevailed at trial, he overpriced his case by $876,498, about 37 times the ultimate award, and made a decision error by forgoing a $400,000 settlement offer. Corel, for its part, overpriced its liability by $376,498, a comparatively conservative figure only 16 times the ultimate award. Despite its generous, overpriced settlement offer, Corel did not commit a decision error. It was far better off declining Berkla’s overpriced demand and benefited from Berkla’s consequent decision to reject Corel’s $400,000 offer. The verdict of $23,502 demonstrates that both parties had vastly overpriced their settlement positions, but only Berkla committed a decision error.
3.3.4
Negotiation Disparities Without Decision Error
As previously explained, decision error is defined and measured differently from negotiation disparity. Consequently, a negotiation disparity can exist in the absence of a decision error. Another example illustrates this point. If the verdict was $10, the plaintiff submitted a pre-trial demand of $12, and the defendant’s pre-trial offer was $8, both parties’ positions displayed negotiation disparities – plaintiff overpricing and defendant underpricing – but neither party committed a decision error. Plaintiff overpriced its demand by $2, defendant underpriced its offer by $2, and both parties achieved a better financial result at trial than could have been obtained by accepting the adversary’s settlement proposal. Thus, despite their respective overpricing and underpricing, neither the plaintiff nor the defendant committed a decision error. This paradigm of mutual negotiation disparities without decision error is shown in the following negligence case.23 The plaintiffs, a father, mother, and their children, were standing near an entrance/exit door at a Costco Wholesale store when two gunmen started shooting AK-47 assault rifles at an armored truck messenger exiting the Costco store from the same door. A stray bullet hit the plaintiff husband in his abdomen and hip; his spleen and part of his pancreas had 22 Berkla v. Corel Corp., 302 F. 3d 909 (9th Cir. 2002). The outcome of subsequent appeals, motions, and settlement negotiations, if any, and the existence and importance of non-economic factors are unknown. 23 Adapted from facts in Chau v. Sectran Security, Inc., as reported in VerdictSearch California, June 7, 2004. The outcome of subsequent appeals, motions, and settlement negotiations, if any, and the existence and importance of non-economic factors are unknown.
3.3 Concepts and Definitions
41
to be surgically removed. His wife was shot in the abdomen, leg and hip, requiring partial removal of her stomach and intestines. Alleging that the armored truck messenger used an improper entrance/exit and violated his employer’s security procedures, the plaintiffs sued the messenger’s employer for negligence and made a settlement demand of $19 million. The defendant security company offered $3 million – $16 million less than the plaintiffs’ demand. The plaintiffs declined the offer and proceeded to trial; the jury then awarded $3,372,887 to the plaintiffs. In this case, the plaintiffs’ settlement demand was overpriced, while the defendant’s offer was underpriced. Despite these mutual negotiation disparities, neither party committed a decision error, as they were both in financially superior positions after rejecting the other’s settlement proposal.24
3.3.5
Effect of Negotiation Disparity on Decision Error
Under two conditions, it is important to note, one party’s underpricing or overpricing always results in the other party’s decision error. First, whenever a plaintiff underprices its demand a defendant commits a decision error, as the plaintiff’s underpriced demand, by definition, is less than the award the plaintiff obtains at trial. A defendant invariably would have been in a financially superior position had it accepted an underpriced plaintiff demand. Second, a defendant’s overpricing always results in decision error by the plaintiff, as the defendant’s overpriced offer, by definition, is more than the award plaintiff obtains at trial. A plaintiff invariably commits decision error by declining a defendant’s overpriced settlement offer. These concepts of decision error, negotiation disparity, overpricing and underpricing are used throughout this chapter to explain negotiation behavior and trial outcomes in the actual cases described below. All possible sets of decision errors and negotiation disparities are presented in Table 3.1. By identifying decision errors, measuring the range of negotiation disparities, and discovering the case factors associated with those errors and disparities, the study results, described Table 3.1 Examples of decision errors and negotiation disparities Case Plaintiff Defendant Award Decision Plaintiff Negotiation Demand Offer Error Disparity 1 $8 $6 $10 Defendant Underpriced 2 $10 $8 $10 Defendant None 3 $10 $10 $10 Both None 4 $12 $8 $10 Neither Overpriced 5 $12 $10 $10 Plaintiff Overpriced 6 $14 $12 $10 Plaintiff Ovepriced
24
Defendant Negotiation Disparity Underpriced Underpriced None Underpriced None Overpriced
The parties’ legal costs, the results of appeals and post-judgment discounts of awards generally are unknown and hence usually are not included in the calculation of decision error. See Appendix.
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3 A Current Assessment of Attorney-Litigant Decision Making In Adjudicated Cases
below, may serve as statistical guideposts to assist litigants and attorneys making tough choices under uncertainty.
3.4
Overall California Results
Two cardinal findings emerge from the primary dataset: plaintiffs make decision errors more often than defendants, but the cost of defendants’ decision errors is dramatically higher than the losses plaintiffs sustain. As shown in Table 3.2, the decision error rate for plaintiffs is 60%, compared to defendants’ decision error rate of 25%. In other words, plaintiffs would have achieved better financial results if they had flipped a coin to decide whether to settle or try a case, and defendants made a decision error in one out of every four cases. In only 15% of the cases did both parties obtain a superior economic result by rejecting each other’s settlement proposal and proceeding to trial; out of every 100 trials in the dataset, only 15 trials resulted in a nominal “win-win” award after the parties walked away from the negotiating table. This distribution of decision error persists in cases where the amount at issue is relatively high and the parties and their attorneys may be expected to exhibit a superior level of experience and sophistication. When the dataset is limited to cases in which a plaintiff’s demand is between $1,000,000 and $50,000,000, the incidence of plaintiff error is 58%, compared with 28% for defendants. The “no error” cases constitute 14% of all cases in the high-end dataset.
3.4.1
Costs of Decision Error
For the plaintiffs, the average cost of decision error – the difference between what they received at trial and the amount they could have received through settlement – is $73,400. The defendants’ average cost of error, in comparison, is $1,403,654, about 19 times the loss sustained by plaintiffs. When the dataset is narrowed to relatively large cases in which plaintiff’s demand is between $1,000,000 and $50,000,000, this pattern persists; the average cost of plaintiff error in the high-end cases is $327,158, compared with defendants’ average cost of error of $5,325,785. Table 3.2 Overall results for primary dataset (2,754 cases)
Total Attorneys Decision Error Rate Mean Decision Error Cost Mean Decision Error Cost/Mean Award Mean Demands/Offers as % of Mean Award Overpriced Demands/Offers Underpriced Demands/Offers
Plaintiffs 3,492 60% $73,400 11.93%
Defendants 3,453 25% $1,403,654 228.07%
121% 75% 25%
21% 42% 40%
3.4 Overall California Results
43
The total financial loss sustained by all plaintiffs making a decision error is $120,890,536, compared to an aggregate loss of $981,154,097, nearly one billion dollars, for all defendants committing a decision error. Because the attorneys fees and court costs are unknown in most of these cases, those costs would have to be added to these aggregate financial losses to calculate the actual total loss.25 If the total cost of attorneys fees and costs were ascertainable, the percentage of “no decision error” cases would decline, and both the incidence and magnitude of decision error would increase. (In the extreme circumstance where the parties incur attorneys fees and costs for both a trial and an appeal, one prominent mediator says he has never seen a case where either party realized a net gain after factoring in the attorneys fees). For every party that commits a decision error, an adverse party necessarily benefits from that error. When an erring plaintiff foregoes a $10,000 settlement and recovers only $6,000 at trial, a defendant “saves” the additional $4,000 he was willing to pay to settle the case; conversely, when an erring defendant declines a plaintiff’s settlement demand of $13,000 and is hit with a $20,000 judgment at trial, the plaintiff “gains” an additional $7,000. In a sense, some attorneys argue, there is no net financial loss from decision error in litigation cases because the money that might have gone into one party’s pocket simply ends up in the other party’s pocket. From some advocates’ perspective, a foregone financial benefit is not a decision error but simply an episodic, unintended distribution of assets among morally neutral parties with competing claims. Because the permanent players in the litigation system earn the same fees regardless of the clients’ results and attorneys cannot be expected to foresee trial outcomes that are inherently unpredictable, some attorneys and academicians assert, the whole idea of decision error is wrong and irrelevant. Steve Brill, the founder of Court TV and the American Lawyer magazine, noted this attitude while covering trials earlier in his career; he calls it the “I’m getting $500 an hour no matter what these goober jurors say and we’ll win on appeal anyway smugness.”26 The “who cares what happens to the gamblers as long as the card shufflers get paid” attitude overlooks three basic problems. First, for most litigants the objective is to make a financially sound decision, assisted by the advice of counsel. Although parties also may attempt to vindicate a principle in litigation, they invariably desire to vindicate the principle in addition to making a financially sound decision. When that party commits a decision error, its litigation objectives are defeated; and it takes no more solace in the fact its adversary has profited from its decision error than it would when informed that its stockbroker is enjoying the upscale house purchased with the commissions obtained from churning its account. Second, the 25
Other tangible factors that would affect the incidence and cost of decision error are costs of postjudgment collection, bankruptcy of the judgment debtor, inability to collect the entire amount of the judgment from an evasive or impecunious defendant, and the time value of money. Intangible factors that nevertheless hit the bottom line include the diversion of an organization’s key resources and damage to reputation and business relationships. 26 Brill, Steven. (2008, March 30). Uncivil action. The New York Times.
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3 A Current Assessment of Attorney-Litigant Decision Making In Adjudicated Cases
argument ignores the attorneys fees, court costs, public resources, and intangible assets like time and attention diverted from the litigant’s core business and personal relationships and unnecessarily expended by all parties for months, sometimes years, after a settlement would have yielded a superior economic result. The party “saving” $100,000 when an adversary declines a $200,000 pre-trial offer and recovers only $100,000 at trial, may well have spent the $100,000 “savings” on its attorneys fees between the dates of the offer and the rendition of a verdict. Third, the argument perpetuates the “luck of the draw” philosophy of litigation, absolving attorneys of any responsibility for realistically determining a trial’s likely outcome and learning how to use the decision making tools employed by other professionals and managers with equivalent private and public responsibilities.
3.4.2
Negotiation Disparities
The settlement negotiation positions that preceded the decision errors in the primary dataset are archetypal, evidencing strong patterns of risk aversion by plaintiffs and risk taking by defendants. The average plaintiff’s demand is 121% of the ultimate award, while the mean defendant’s offer is 21% of the ultimate award. Plaintiffs’ mean demand rests on a narrow margin above the actual adjudicated outcomes, arguably reflecting strategic bargaining and a relatively modest degree of overconfidence. Defendants’ mean offer, in contrast, falls far below the mean award and appears to be more consistent with behavioral economics theories of risk taking in the losses frame than strategic negotiation behavior. Offering 21 cents on the dollar seems, on its face, to be more aggressive than deliberative. Comparing the mean cost of error with the mean award also reveals the degree of defendants’ risk taking. For defendants, the mean cost of error ($1,403,654) is more than twice the amount of the mean award ($615,436); for plaintiffs, meanwhile, the mean cost of error is only 11.9% of the mean award amount. The parties’ patterns of underpricing and overpricing settlement demands and offers also are consistent with behavioral economics theories. Plaintiffs overprice their demands (relative to the ultimate award) in 75% of the cases, and the mean overpriced demand is $649,069 above the actual award. Plaintiffs underprice their demands in the other 25% of the cases, but the magnitude of their underpricing is more severe than the magnitude of their overpricing. When plaintiffs underprice, i.e., discount their own cases by demanding an amount less than the ultimate award, the average underpriced demand is $1,447,130 below the actual award. The magnitude of plaintiffs’ underpricing thus is more than double the magnitude of their overpricing. For defendants, the pattern of overpricing and underpricing is reversed. Although defendants’ offers are roughly split between underpriced and overpriced offers (40% and 42%, respectively), the mean amount of underpricing is $1,326,684 below the mean award, while the mean amount of overpricing is a relatively meager $103,858 above the mean award. Thus, the apparent balance between defendants’
3.5 New York Results
45
underpricing and overpricing of offers masks the enormity of defendants’ discounting and the relatively small amount of defendants’ overpricing. Ironically, when plaintiffs underprice their own demands, the magnitude of their underpricing roughly matches the discounting by defendants. Underpricing plaintiffs discount their demands $1,447,130 below the mean award, while their underpricing counterparts on the defense side discount their offers $1,326,684 below the mean award. The risk averse, underpricing plaintiffs give their own cases the same haircut offered by their adversaries.
3.5
New York Results
The New York dataset replicates the overall results observed in the primary California dataset. As shown in Table 3.3, the plaintiff win rate in New York is 48%, compared to 49% in the California dataset. Plaintiffs’ decision error rate in New York is slightly lower than in California (56% vs. 60%), but the New York defendants’ error rate is slightly higher than the California defendants’ error rate (29% vs. 25%). Due to these offsetting decreases and increases in error rates, the incidence of “no decision error” is 15%, exactly the same percentage in both the New York and California databases. The disparities between the cost of plaintiff decision error and the cost of defendant decision error are similar in New York and California. The New York database shows that plaintiffs’ mean cost of error is $52,183, compared to defendants’ mean cost of error of $920,874, roughly 18 times the cost of plaintiffs’ error. In California, defendants’ mean cost of error is 19 times the mean amount of plaintiffs’ decision error. The New York parties’ settlement negotiations reflect the same patterns of plaintiff risk aversion and defendant risk taking as the California dataset. Plaintiffs’ mean demand, as a percent of the mean award, is 118% (New York) and 121%
Table 3.3 Comparison of New York and California Data Total Cases Mean Award Plaintiff Win Rate Plaintiff Decision Error Rate (%) Defendant Decision Error Rate (%) No Decision Error Rate (%) Plaintifff Mean Cost of Error Defendant Mean Cost of Error Plaintiff Mean Cost of Error As % of Mean Award Defendant Mean Cost of Error as % of Mean Award Plaintiff Demand as % of Mean Award Defendant Offer as % of Mean Award
New York 525 $596,282 48% 56% 29% 15% $52,183 $920,874 8.75% 154.44% 118% 23%
California 2,754 $615,436 49% 60% 25% 15% $73,400 $1,403,654 11.93% 228.07% 121% 21%
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3 A Current Assessment of Attorney-Litigant Decision Making In Adjudicated Cases
(California), while defendants’ mean offer, as a percentage of the mean award, is 23% (New York) and 21% (California). These patterns of relatively modest demands by plaintiffs and de minimis offers by defendants result in major financial losses for the defendants in both states. Plaintiffs’ mean cost of error, as a percentage of the mean award, is 8.75% in New York and 11.93% in California. In contrast, defendants’ mean cost of error, relative to the mean award is 154.44% in New York and 228.07% in California. Overall, plaintiffs in both states are risk averse in their settlement negotiations and sustain relatively minor financial hits when they make a decision error, while defendants in both states display aggressive, risk-taking positions in settlement negotiations and sustain major losses as a result of decision errors in roughly onequarter of their cases. Defendants’ settlement positions appear to be more autonomic than economic, and the costs of their decision errors, when compared to mean awards, more closely reflect framing biases (risk aversion in the “gains” mode and risk taking in the “losses” mode) than strategic bargaining in the shadow of the law.
3.6
40-Year Historical Study
To provide an historical context for the California and New York results, a third dataset was compiled, representing cases negotiated and adjudicated during the 40–year period between 1964 and 2004. The results of this 40-year study are remarkably similar to the results derived from the primary California dataset and the New York dataset in all categories – win rates, negotiation disparities, and decision error rates. The plaintiff win rate in the historical dataset is 50%, compared with 49% in the primary California dataset and 48% in the New York dataset. Plaintiffs’ settlement demands exceed the actual award in 78% of the historical dataset cases, compared with overpricing rates of 75% and 71% for the primary California and New York datasets, respectively. Defendants, on the other hand, made underpriced settlement offers in 39% of the historical dataset cases, contrasted with defendant underpricing rates of 40% and 39% in the primary California dataset and the New York dataset, respectively.
3.6.1
Historical Decision Error
The decision error rates for plaintiffs during that 40-year period ranged from a low of 49.7% in 1969 to a high of 67.9% in 1994, with an overall decision error rate of 61%. The historical plaintiff decision error of 61%, as shown in Table 3.4 is similar to the plaintiff decision error rate in the primary California dataset (60%) and the New York dataset (56%). For defendants, the historical dataset shows decision error rates ranging from a low of 19.0% in 1964 to a high of 26.2% in 1984; and the overall defendant error rate for the entire 40-year period is 22%. This overall
3.6 40-Year Historical Study
47
Table 3.4 Decision error and cost of error – historical samples Year Error Type % of Cases 1964 1964 1964 1969 1969 1969 1974 1974 1974 1979 1979 1979 1984 1984 1984 1989 1989 1989 1994 1994 1994 1999 1999 1999 2004 2004 2004
No Error Plaintiff Error Defendant Error No Error Plaintiff Error Defendant Error No Error Plaintiff Error Defendant Error No Error Plaintiff Error Defendant Error No Error Plaintiff Error Defendant Error No Error Plaintiff Error Defendant Error No Error Plaintiff Error Defendant Error No Error Plaintiff Error Defendant Error No Error Plaintiff Error Defendant Error
27.20 53.80 19.00 25.20 49.70 25.20 14.70 65.40 19.90 19.30 57.90 22.80 11.30 62.40 26.20 15.00 63.00 22.00 10.20 67.90 21.90 17.50 60.10 22.40 14.00 65.70 20.20
Mean Cost of Error ($1,000’s) NA 1.2 5.9 NA 1.8 27.3 NA 5.7 42.6 NA 6.6 67.7 NA 18.4 628.4 NA 38.4 546.5 NA 22.4 1,120.60 NA 45.7 2,259.80 NA 40.8 649.1
decision error rate of 22% is lower than the error rate in the primary California dataset (25%) and the New York dataset (29%), showing an increased incidence of defendant decision error over time. Interestingly, the incidence of plaintiff decision error over the 40-year period is never less than the incidence of defendant decision error, varying from two to three times the incidence of defendant decision error. Despite some volatility over time, the frequency of decision error is greater at the end of the 40-year period than at the beginning. The number of cases in which no decision error occurs drops from 27.2% and 25.2% in 1964 and 1969, respectively, to 17.5% and 14.0% for the years 1999 and 2004, respectively, revealing a rise in aggregate plaintiff and defendant decision error. If lawyers and their clients were physicians and patients, one would conclude that diagnostic error fluctuated but ultimately increased during the last 40 years.
3.6.2
Historical Cost of Decision Error
The financial consequences of decision error in the historical dataset are shown in Table 3.5. As that table indicates, the cost of decision error for both plaintiffs and
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3 A Current Assessment of Attorney-Litigant Decision Making In Adjudicated Cases
Table 3.5 Mean cost of error in constant 1964 dollars
Period
1964, 1969, 1974 1979, 1984, 1989 1994, 1999, 2004
Plaintiff Mean Cost of Error ($1,000’s) 2.6 5.9 7
Defendant Mean Cost of Error ($1,000’s) 20.5 122.5 300.6
defendants is substantially greater at the end of the 40-year historical period. When the cost of error for this period is adjusted for inflation (the nominal values in Table 3.4 are converted to real values (in 1964 dollars)), one observes a dramatic rise in the magnitude of the parties’ decision errors. From the earliest period (1964–1974) to the latest period (1994–2004), plaintiffs experienced nearly a threefold real (inflation-adjusted) increase in mean cost of error. During that same period, defendants experienced in excess of a 14-fold real increase in mean cost of error. The mean cost of plaintiff decision error rose from $2,600 to $7,000 (in constant 1964 dollars), while the cost of defendant decision error soared from $20,500 to $300,600 (in constant 1964 dollars). In the medical context, similar outcome data would be interpreted as showing an increase in diagnostic error accompanied by startling increases in morbidity and mortality rates of 3–14 times previous levels, depending on the type of patient undergoing elective surgery. In hospitals, however, a mere twofold increase in mortality rates could lead to suspending a program, closing a department or terminating staff privileges. This surge in the cost of error defies legislative and judicial efforts to expand pretrial discovery, broaden the scope of information exchanged by litigants, and compel pre-trial disclosure of documents and contentions regarding damages. Civil discovery in California changed significantly during this period due to liberal interpretations of the Civil Discovery Act of 1957 and the enactment of the Civil Discovery Act of 1986. These changes were intended to encourage settlements, reveal the strengths and weaknesses of an adversary’s case, eliminate surprise, and generally end the “trial by ambush” era.27 Although the California cases that settle may well have achieved those objectives, the historical sample indicates that, for non-settling parties, the surprises are neither less frequent nor less costly.
3.7
Attorney-Mediator Results
Although the primary dataset includes 6,945 attorneys – roughly a quarter of all California litigation attorneys – and the decision error rates in that dataset, the New York dataset, and the historical dataset are remarkably consistent, one may question 27
See Fairmont Insurance Co. v. Superior Court, 22 Cal. 4th 253 n. 2, 92 Cal. Rptr. 2d 70 (2000). Greyhound Corp. v. Superior Court, 56 Cal. 2d 355, 15 Cal. Rptr. 90 (1961).
3.7 Attorney-Mediator Results
49
whether the attorneys in the dataset are trial junkies, determined to take cases to trial regardless of the odds. Skeptics may ask whether the attorneys in these datasets had singular risk-taking propensities that impeded a negotiated settlement and ultimately resulted in significant decision errors. The issues of selection bias or dispositional bias, unfortunately, can never be resolved conclusively because researchers cannot compare the decision error rates in the study datasets with decision error rates in negotiated settlements. Settlements effectively eliminate any financial markers by which one can compare the negotiated settlement sum with the amount that would have been obtained at trial. Like responsible campers, settling parties leave no traces when they move on. But researchers can very roughly probe for selection bias by learning whether the arguably over-confident attorneys in the datasets exhibit higher decision error rates than attorneys who possess strong conflict resolution skills and are trained to be objective, settlement-seeking professionals. To identify attorneys with strong dispute resolution skills and substantial experience in negotiating pre-trial settlements, lists of California attorneys serving on Superior Court mediator panels, affiliated with private dispute resolution companies, or designated as members of the Southern California Mediation Association were reviewed. From these sources a total of 939 “attorney-mediators” were identified. Each attorney-mediator’s name then was entered in the VerdictSearch electronic database, limiting the search to California cases reported between 1985 and 2006. The search was further limited to cases in which the attorney-mediator had represented a plaintiff or defendant in a case tried through verdict or arbitration award. (Not all of the 939 mediators were necessarily litigation attorneys at any time during that period, since the courts’ lists include some non-attorneys, former judges, and non-litigation attorneys). The search initially yielded 672 cases reported during the 1985–2006 period, of which 369 met the case selection criteria used for the primary study dataset. Of the remaining 303 cases, 150 were settled and 153 did not meet the selection criteria for other reasons.28
3.7.1
Attorney-Mediator Decision Error
As indicated in Table 3.6, the presence of an attorney-mediator generally is associated with a reduced decision error rate.29 Table 3.6, Panel 3.6a summarizes 28
The attorney-mediator dataset spans a 21-year period (1985–2006), while the primary study dataset covers a 58-month period (November 2002-August 2007). Whether a party is represented by an attorney who also serves as a mediator is not a fact separately reported in VerdictSearch California and hence was not a variable coded in the primary study dataset. 29 Rachlinski suggested that framing effects might be mitigated by the intervention of attorneys familiar with framing biases: “The framing theory suggests another positive influence attorneys may have in reducing the costs of litigation. An attorney may have some power to reframe a settlement offer, sparing the client the most costly aspects of framing . . .. Thus, the framing model of litigation poses a powerful role for the attorney. The attorney can control the client’s frame,
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Table 3.6 Decision error and cost of error (attorney-mediator sample) Error Type % of Cases Mean Cost of Error ($1,000’s) Panel 3.6a - All Cases No Error 21.1 NA Plaintiff Error 52.6 48.4 Defendant Error 26.3 900 Panel 3.6b - Attorney-Mediator Represents Plaintiff No Error 19.5 Plaintiff Error 48.5 Defendant Error 32.0
NA 68.4 908.6
Panel 3.6c - Attorney-Mediator Represents Defendant No Error 22.5 Plaintiff Error 56.0 Defendant Error 21.5
NA 33.8 889.2
the experience for 369 cases in which one of the parties was represented by an attorney-mediator. Total decision error in this sample is less relative to the primary dataset presented in Table 3.2; “no error” in attorney-mediator cases is 21% compared to 15% in the primary dataset. Ironically, the percentage of “no error” cases in the attorney-mediator dataset is similar to the percentage of “no error” cases for all litigation attorneys in the 1960s, a period when litigation attorneys’ judgment may have been sharpened by spending more time in actual trials than laboring over pre-trial motions.30 In cases where attorney-mediators represented plaintiffs, plaintiffs’ win rate is higher (62% vs. 49%) and plaintiffs’ decision error rate is lower (48% vs. 60%) than the win rates and decision error rates in the primary dataset. The overall incidence of decision error is lower for the plaintiff attorney-mediator set than the primary dataset; “no error” cases comprise 19.5% of the plaintiff attorney-mediator set relative to 15% of the cases in the primary dataset. In cases where defendants were represented by an attorney-mediator, summarized in Panel 3.6c, the incidence of defendants’ decision error is similarly reduced. The decision error rate for the defendant attorney-mediator cases is 21.5%, compared to 25% in the primary dataset. The percentage of cases with “no decision error” is again higher in the attorney-mediator set (22.5%) than the primary dataset (15%). Specific case types were examined to assess the incidence of decision error in the attorney-mediator cases. Because the sample of attorney-mediator cases, when classified by case type and whether the mediator represented a plaintiff or a
thereby influencing settlement decisions in either direction.” Rachlinski supra note 11 at 171–2. See Korobkin, Russell, and Guthrie, Chris. (1997). Psychology, economics and settlement: A new look at the role of the lawyer. Texas Law Review, 76(1), 77. 30 See Galanter, Marc. (2004). The vanishing trial: An examination of trials and related matters in federal and state courts. Journal of Empirical Legal Studies, 1(3), 459–570.
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defendant, was small compared to the primary dataset, this study focused on personal injury cases, the most common type of cases in the primary sample. Consistent with the overall findings of reduced decision error in attorney-mediator cases, the study found that personal injury cases in which the parties were represented by attorney-mediators showed a lower decision error rate than those in the primary sample. Plaintiffs’ decision error rate in personal injury cases was 45.2% in the attorney-mediator sample and 53% in the primary sample. Defendants’ decision error rate in personal injury cases showed a similar pattern – 16.8% in the attorneymediator sample and 26% in the primary sample.
3.7.2
Attorney-Mediator Negotiation Disparities and Settlement Rates
Although representation by an attorney-mediator is associated with lower decision error rates, their clients’ negotiation patterns are not markedly different from the patterns evident in the primary dataset. In the plaintiff attorney-mediator sample, plaintiffs’ mean demand is 122% of the mean award; in the primary dataset, the mean demand is 121% of the mean award. (Plaintiffs represented by attorneymediators, however, are less likely to submit overpriced demands; 68% of the demands in the plaintiff attorney-mediator set are overpriced, compared to 75% of the demands in the primary dataset). The negotiation positions taken by defendants in the attorney-mediator set also reflect the same negotiating styles displayed in the primary dataset. The average offer made by defendants represented by attorney mediators is 22% of the average award, compared to 21% in the primary dataset. In addition to analyzing decision error rates and negotiation strategies, the study compared the settlement rates of attorney-mediators with those of other attorneys reporting cases during the primary dataset period. (VerdictSearch California reports settlements as well as trial and arbitration awards). The purpose of this comparison was to determine indirectly whether attorney-mediators were more likely to settle than litigate their cases and to test whether attorneys reporting cases during the primary dataset period exhibited an anti-settlement bias. This analysis revealed that a settlement was reported in 22% of all cases in which an attorney-mediator represented a party; for the primary dataset period, a settlement was reported in 29% of all cases. Thus, the attorney-mediators were not more likely to settle their cases than the ordinary attorneys reporting cases during the primary dataset period.
3.7.3
Tentative Conclusions About Attorney-Mediators
What tentative conclusions can be drawn about the decision-making qualities of attorney-mediators? First, because decision making about case settlement is a joint
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attorney-client effort, one cannot discern whether the reduction in decision error is caused by the attorney-mediators themselves or their clients. It is entirely possible that those clients who make financially better decisions choose to be represented by attorneys who have undertaken mediation training and endeavor to reach negotiated resolutions; representation by an attorney-mediator may be incidental to the client’s superior decision-making skills, not a cause of the lower decision error rates. Second, despite completing a minimum of 30 hours of mediation training and, in some instances, functioning as a neutral for many years, the attorney-mediators did not achieve a dramatic reduction in decision error rates; their superior performance is noteworthy but essentially incremental. For plaintiffs, representation by an attorney-mediator reduced decision error rates from a “worse than chance” incidence to a “same as chance” incidence. Third, the decision error rates evidenced by the ordinary attorneys in the primary, historical and New York datasets do not appear to be attributable to distinctly litigious dispositions, anti-settlement bias or aberrational risk-seeking behavior. Even attorney-mediators, committed to achieving pretrial settlements, find it difficult to settle cases and effectuate major reductions in decision error.
3.8
Predictor Variables
What case factors are predictive of decision errors or correlated with high win rates and extreme negotiation disparities? To answer this question, cases in the primary dataset were analyzed and coded to identify every publicly reported, verifiable factor that could affect decision making. These variables generally can be classified into two groups: “Actor” variables and “Context” variables. The Actor variables can be thought of as the personal characteristics of the attorneys and their clients, while the Context variables depict the external conditions that may affect or reflect the actors’ decisions. An attorney’s gender, for instance, is an Actor variable, while the type of case handled by the attorney is a Context variable. Some of the Actor variables describing attorneys include the number of years an attorney has practiced law after admission to the bar, the academic and diversity ranking of the law school from which the attorney graduated, the attorney’s gender, and the size of the law firm in which the attorney practices. Actor variables describing the parties themselves include the type of party, e.g., corporation, unincorporated business, insurance company, governmental entity, or individual, and, if a party is an individual, the individual’s gender. The Context variables include the type of case being litigated, the forum in which the case was adjudicated (jury trial, judge trial, or arbitration hearing), the types and amounts of settlement demands and offers exchanged between the parties, the degree of disparity between the plaintiff’s demand and the defendant’s offer, and the type of damages being sought (out-of-pocket damages already sustained, future damages expected to be sustained, and punitive damages). Context
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53
variables also include whether a defendant has insurance coverage and whether the alleged wrong was an act of commission or an omission. (A full description of all variables and coding methods is contained in the Appendix). After all of these variables are ascertained from a variety of sources and then coded and entered in the dataset, different models of multivariate analysis are utilized to assess correlations between these variables and the three measures critical to litigants: win rates, decision error rates, and negotiation disparities. Because this is not a technical book and some statistical models were described previously in the Journal of Empirical Legal Studies article,31 it is sufficient to explain that a multivariate analysis attempts to determine the independent effect of a variable. If, for instance, graduation from an “elite” law school is correlated with relatively low decision error rates, is the low decision rate really affected by the elite law school variable, or is another variable actually affecting this correlation? If most litigation lawyers who graduate from elite law schools also are employed by large law firms, are predominantly male, handle only the types of cases correlated with low decision error, and have practiced for 20 years, which variable is significant – school, firm size, gender, case type or experience? That kind of question is answered by multivariate analysis, which can include regression analysis generally and logistic regression specifically. In light of the traditional antipathy between attorneys and statistics, probably too much already has been said on this subject. Let’s turn, then, to results.
3.8.1
Context Variables Trump Actor Variables
Despite the popular emphasis on “star” trial attorneys, the multivariate analysis indicates that Context variables have a stronger effect on decision errors, negotiation disparities and case outcomes than Actor variables. In real life, Perry Mason’s success would depend more on the type of case he accepted than his experience or law school. (Not surprisingly, the author who crafted the Perry Mason stories, Erle Stanley Gardner, attended law school for less than a month; he was ejected from Valparaiso University for cuffing a law professor and passed the bar about four years later after studying law under various practicing attorneys). The British bar seems to have recognized the importance of Context variables long before empirical research confirmed that star power is more often a product of background lighting than personal luminosity.32 Taking a somewhat sardonic view, the British bar appraises an individual attorney’s contribution to the case outcome with
31
Kiser, Randall, Asher, Martin, and McShane, Blakeley. (2008). Let’s not make a deal: An empirical study of decision making in unsuccessful settlement negotiations. Journal of Empirical Legal Studies, 5(3), 551–591. 32 Groysberg, Boris, Nanda, Ashish & Nohria, Nitin. (2004, May). The risky business of hiring stars. Harvard Business Review, p. 93.
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mathematical precision: “of every hundred cases, ninety win themselves, three are won by advocacy, and seven are lost by advocacy.”33 The eminent American trial lawyer, Edward Bennett Williams – the “magic mouthpiece” with the “affidavit face”34 – expressed a somewhat similar opinion about whether lawyers make cases successful or cases make lawyers successful. After a lifetime of representing clients like Frank Sinatra, Jimmy Hoffa, and The Washington Post, Williams opined that an individual attorney made a difference in only 20% of the cases. Given 100 cases and assuming that 50 should be won and 50 should be lost, he mused, the country’s best attorney would win 60% of the cases. “Turn the same case over to the most incompetent trial man,” Williams continued, “and he will win forty and lose sixty.”35 When he reviewed every case he had lost and noted next to each case all possible reasons for the loss – bribed jurors, biased judges, unethical opposing counsel, racial prejudice – he could find only one common factor among the cases he lost: bad facts. Like the British bar, Williams concluded that facts trumped personalities.
3.8.2
The Five Major Context Variables
The five Context variables that appear to exert a relatively strong effect on decision errors, win rates, or negotiation disparities in the primary dataset are (1) the type of case; (2) the service of statutory settlement demands and offers which raise the monetary risks of not settling before trial; (3) the forum (whether the case is decided by a judge, jury, or arbitrator); (4) the type of damages claimed by the plaintiff; and (5) the degree of disparity between the plaintiff’s demand and the defendant’s offer. Playing a lesser, but nonetheless notable role are other Context variables like the existence of insurance coverage for the defendant and whether the alleged wrongful act is an act of omission (usually negligent behavior), commission (intentional or willful conduct), or both. The Actor variables generally exert a secondary effect on win rates, decision errors and negotiation disparities. On a spectrum of Actor variables, characteristics like the type of defendant (corporation, individual, or governmental entity), attorney experience and attorney gender usually would be ranked higher than the academic ranking of the law school from which a defense attorney graduated, the size of the defendant’s law firm, and the type of plaintiff.
33
Bradford, Glenn. (2002, July-August). Losing. Journal of the Missouri Bar, 58(4), quoting Mayer, Martin. (1968). The lawyers (p. 44). New York: Dell Publishing Company, Inc. and Shragger, David, & Frost, Elizabeth. (1986). The quotable lawyer, Chester, Connecticut: New England Publishing Associates. 34 Thomas, Evan. (1991). The man to see (p. 17). New York: Touchstone. 35 Bradford supra note 33 at 5.
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To some extent, establishing which variables are less important is as valuable as ascertaining which variables appear to be most important. Some clients, for instance, may believe that an attorney’s graduation from an elite law school or her employment in an elite law firm is the critical element in trial outcomes, but this conclusion is not substantiated by the limited information in the primary dataset. Among the many variables found to be of lesser consequence in predicting win rates, decision errors and negotiation disparities are the type of plaintiff, the size of the defendant’s law firm, the academic ranking of the law school from which the defendant’s attorney graduated, the diversity ranking of the law school from which the plaintiff’s attorney graduated, and whether the parties participated in non-binding arbitration or mediation before trial. Although some attorneys may be more effective forecasters and counselors than other attorneys, the key to their effectiveness may be found beyond the traditional icons of law school rank and law firm size. The most important variables and their correlation with win rates, decision error rates, and negotiation disparities are discussed below. Although every variable may appear to be important, the discussion below is limited to the variables that have relatively strong predictive value in a multivariate analysis. Stated differently, an individual variable may show intriguing and statistically significant differences if studied separately from the other variables in the dataset, but it is excluded from the discussion below if it has relatively little predictive value in the context of all other variables. Client representation by a defense attorney who graduated from a “Top 20” law school, for example, might be associated with a higher decision error rate than representation by a defense attorney who graduated from a non-Top 20 law school, but the defense counsel law school variable is omitted from further discussion because it shows relatively little predictive value in a multivariate analysis.
3.8.2.1
Case Type
Under the Priest and Klein “fifty percent implication,” one expects win rates and decision error rates to be balanced between the parties and unaffected by the case type. Plaintiffs theoretically would win 50% of their cases, regardless of case type, and with respect to decision error, plaintiffs and defendants would be “equally successful at predicting the outcomes of the cases.”36 The assumptions and predictive capacity of the Priest and Klein model, however, are challenged by the study data showing that both win rates and error rates vary widely with different types of cases, as shown in Table 3.7. In general, high plaintiff error rates are associated with cases in which contingency fee arrangements are common, e.g., medical malpractice (80% error rate) and products liability (70% error rate), while low error rates are associated with cases in which contingency fee arrangements are less common, e.g., contracts (31% error rate) and eminent domain (33% error rate). The higher error rates attendant to 36
Gross and Syverud supra note 7 at 325.
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Table 3.7 Win rates and decision error rates by case type Case Type Plaintiff Win Plaintiff Decision Rate (%) Error Rate (%) Contract 73 31 Contract/Tort 58 49 Eminent Domain 100 33 Employment 52 51 Fraud 52 48 Intentional Tort 31 72 Medical Malpractice 21 80 Negligence (Non-PI) 42 63 Personal Injury 52 53 Premises Liability 40 65 Products Liability 32 70
Defendant Decision Error Rate(%) 60 36 47 34 44 17 17 21 26 19 23
No Decision Error (%) 9 15 20 15 8 11 3 16 21 16 7
plaintiff contingency fee cases may reflect optimistic overconfidence, according to an earlier study. In that study, lawyers retained on a contingency basis showed the same level of confidence about case outcomes as other lawyers, although the contingency basis attorneys won only 42% of their cases compared with an overall 56% win rate. In general, that study found that lawyers’ predictions regarding whether they would win their case “showed no predictive validity” and were “hardly above chance.” The lawyers, the study concluded, exhibited a marked “overextremity bias (underprediction of success for low probabilities and overprediction of success for high probabilities).”37 For the clients themselves, the contingency fee agreement may present an economic incentive to forego settlement and litigate cases to a final verdict, as the client ultimately decides whether to settle the case and may incur little or no additional cost for trial.38 On the defense side, high decision error rates are noted in cases where insurance coverage is generally unavailable, e.g., contract cases (60%) and fraud cases (44%), while low error rates are associated with cases in which insurers are more likely to represent defendants, e.g., medical malpractice (17% error rate) and premises liability (19% error rate).
37
Goodman-Delahunty, J., Granhag, P.A. & Loftus, E.F. (1998). How well can lawyers predict their chances of success? Unpublished manuscript. University of Washington. Cited in Koehler, Derek J., Brenner, Lyle, & Griffin, Dale. (2002). The calibration of expert judgment: Heuristics and biases beyond the laboratory. In Gilovich, Thomas, Griffin, Dale, & Kahneman, Daniel (Eds.). (2002). Heuristics and biases: The psychology of intuitive judgment (pp. 705, 706). Cambridge: The Press Syndicate of the University of Cambridge. For other results regarding attorneys’ predictive capabilities, see Loftus, Elizabeth F., and Wagenaar, Willem A. (Summer 1988). Lawyers’ predictions of success. Jurimetrics, 28, 437. 38 Contingency fee agreements typically provide for an increase in the percentage of the net recovery paid to the attorney, as the case gets closer to a trial date. A typical agreement may increase the attorney’s payment from 33% to 40% of the recovery within 30–60 days before trial. If the parties’ settlement negotiations occur during the specified pre-trial period, the client’s share of any net recovery remains the same whether the case is tried or settled, although the client likely will incur some additional court costs (e.g., jury fees) for the trial.
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In general, an inverse relationship exists between plaintiff decision error rates and plaintiff win rates. Plaintiff decision error is lowest in cases with high plaintiff win rates and highest in cases with low win rates. Contract cases, for instance, have a 31% plaintiff decision error rate and a 73% win rate, while medical malpractice cases have an 80% plaintiff decision error rate and a 21% win rate. For defendants, the pattern generally is reversed; high defendant decision error rates are evident in high plaintiff win rate cases. Defendants commit decision errors in 60% of the contract cases, where the plaintiff win rate is 73%, but they make decision errors in only 19% of the premises liability cases, where the plaintiff win rate is only 40%. For defendants, calibration deteriorates as the risk of monetary loss increases. The decision error rates, when classified by identical case types, appear to be roughly consistent with Gross and Syverud’s data for 1985–1986 and 1990–1991 cases. In Gross and Syverud’s study, for instance, plaintiffs in medical malpractice cases were “clear losers” in 71% (1985–1986) and 78% (1990–1991) of the cases, compared with a 80% plaintiff decision error rate for medical malpractice actions in the primary dataset. Defendants’ decision error rate for medical malpractice cases in Gross and Syverud’s study was 17% (1985–1986) and 16% (1990–1991), compared with 17% in the primary dataset. The results in products liability cases are more disparate, but reflect similar qualitative differences between plaintiff and defendant decision error. Gross and Syverud’s data show plaintiffs in products liability cases either recovered nothing or less than the defendants’ offer in 64% (1985–1986) and 61% (1990–1991) of the cases, compared to plaintiffs’ decision error rate of 70% in the primary dataset. Defendants, on the other hand, committed decision error in 25% (1985–1986) and 32% (1990–1991) of the Gross and Syverud product liability cases, contrasted with 23% in this study. The type of case appears to affect not only decision error rates but negotiation disparities as well. The parties’ negotiation positions, when segregated by case type, elude rational, utility-based explanation. Plaintiffs’ mean demand, as a percentage of the mean award, is highest in intentional tort cases, where plaintiffs have a 31% chance of prevailing, and lowest in fraud cases, where plaintiffs have a significantly higher chance of prevailing (52%). Similarly, the incidence of plaintiff overpricing is highest in intentional tort and medical malpractice cases (83% of demands in both case types are overpriced), where plaintiffs have a relatively small chance of prevailing, and lower in contract cases (40% of demands are overpriced) and mixed contract/tort cases (53% of demands are overpriced) where plaintiffs have relatively high win rates. Plaintiffs, in short, are inclined to discount their strong claims and inflate their weak claims. Defendants’ negotiating strategies display similar patterns of risk aversion when facing gains and risk taking when facing losses. Defendants’ offers, as a percent of average awards, are low in many cases that defendants are likely to lose and high in many cases which defendants are likely to win. In both fraud and employment cases, for example, the plaintiff win rate is 52%, and the average defendant offer is about 6% of the average award. For the two types of cases with the lowest plaintiff win rates (medical malpractice – 21% and intentional tort – 31%), the mean defendant offers are 15% and 34% of the mean awards, respectively. Defendants’
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offers suggest that they are gracious winners and ignoble losers, offering outsized settlement offers to likely losers and serving their cheapest offers to likely victors. If “no good deed goes unpunished” in the larger world, no good claim appears to go undeterred in the litigation world, at least for the cases that proceed to trial.
3.8.2.2
Statutory Offers of Compromise
The multivariate analysis indicates that the presence or absence of a statutory settlement offer, called a “998 offer” by California practitioners, is correlated with wide variations in win rates, decision error rates, and negotiation disparities. A 998 offer, which refers to settlement demands and offers made under California Code of Civil Procedure Section 998, is a statutory cost-shifting mechanism designed to encourage settlement and penalize unreasonable settlement positions. Any party can serve a written 998 offer to the other party while a case is pending, up to 10 days before trial commences.39 A party who does not accept an adverse party’s 998 offer and obtains a worse result at trial may be liable for the adverse party’s court costs, expert witness fees and, in personal injury cases, interest from the date of the offer. Although a party prevailing at trial usually is entitled to recover its costs from the losing party, the service of a 998 offer prevents a prevailing party from recovering costs if the award in its favor is less than its adversary’s 998 offer. “The purpose of section 998,” the court held in Taing v. Johnson Scaffolding Co.,40 “is to encourage the settlement of lawsuits before trial by penalizing a party who fails to accept a reasonable offer from the other party.” Decision Error. The multivariate analysis indicates that 998 offers are salient predictors of decision error for both plaintiffs and defendants. The results of the four possible 998 conditions (plaintiff alone serves a 998 offer on defendant, defendant alone serves a 998 offer on plaintiff, both parties serve 998 offers on each other, and neither party serves a 998 offer) are shown in Table 3.8. In general, serving a 998 offer reduces both decision error and mean cost of error for the serving party, but increases decision errors and the cost of errors for the recipient party. Total decision error also increases in the presence of a 998 offer, i.e., “no error” is always a lower percent when 998 offers are served. This increase in total decision error occurs because the reduction in the serving party’s decision error is more than offset by the rise in the recipient party’s decision error. 39
The “offer of compromise” under Section 998 must expressly refer to the statute or otherwise notify the offeree that costs otherwise allowed to a prevailing party may be reduced or augmented if the offer is not accepted. See Stell v. Jay Hales Development Co., 11 Cal. App. 4th 1214, 1231, 1232, 15 Cal. Rptr. 2d 220 (1992). An oral offer purportedly made under Section 998, even if placed on the record during a deposition, does not satisfy the statutory requirements. Saba v. Crater, 62 Cal. App. 4th 150, 153, 72 Cal. Rptr. 2d 401 (1998). Cf. Berg v. Darden, 120 Cal. App. 4th 721, 727, 15 Cal. Rptr. 3d 829 (2004). 40 9 Cal. App. 4th 579, 583, 11 Cal. Rptr. 2d 820 (1992). Taing was distinguished in Bihun v. AT&T Information Systems, 13 Cal. App. 4th 976, 6 Cal. Rptr. 2d 787 (1993).
3.8 Predictor Variables Table 3.8 Win rates and decision error rates by 998 offer of compromise Party Serving Plaintiff Win Plaintiff Decision Defendant Decision Compromise Offer Rate (%) Error Rate (%) Error Rate (%) Plaintiff 65 39 50 Defendant 36 83 8 Plaintiff & 58 56 30 Defendant None 46 59 23
59
No Decision Error (%) 11 9 14 18
A plaintiff 998 offer reduces both decision error and cost of error for plaintiffs, but it raises decision error and the cost of error for defendants. Plaintiff’s service of a 998 offer appears to provoke or at least is correlated with more risk-taking behavior by defendants. Plaintiff decision error is reduced from 59% in the “no 998 offer” condition to 39% in the “plaintiff serves 998” condition; defendant decision error rises from 23% in the “no 998 offer” condition to 50% in the “plaintiff serves 998” condition. Plaintiffs’ service of a 998 offer thus is correlated with a 34% decrease in plaintiff decision error and roughly a twofold increase in defendant decision error. When a defendant serves a 998 offer on a plaintiff, a similar effect is observed. A defendant 998 offer is correlated with a reduction in defendant decision error from 23% in the “no 998” condition to 8% in the “defendant serves 998” condition, while plaintiff error rises from 59% in the “no 998” condition to 83% in the “defendant serves 998” condition. Defendants serving a 998 offer reduce their decision error rate by 65% while raising plaintiffs’ decision error rate by 40%. Service of a 998 offer also is correlated with higher overall decision error. Eighteen percent of the cases showed “no decision error” in the “no 998 offer” condition, but the percentage of “no decision error” cases declined to 11% in the “plaintiff serves 998” condition and 9% in the “defendant serves 998” condition. Omitting the cases in which a 998 offer was submitted would roughly double the instances in which neither party made a decision error. Ironically, eliminating the cases where a party utilized a statutory procedure intended to deter unreasonable settlement positions would result in a lower overall incidence of decision errors in this dataset of cases with adjudicated outcomes. Cost of Error. Parties serving a 998 offer also display a dramatically lower mean cost of error compared to the mean cost of error sustained when they receive a 998 offer. Plaintiffs serving a 998 offer incur a mean cost of error of $21,671, which doubles to $43,153 when they are on the receiving end of a 998 offer. For defendants, the mean cost of error is $857,454 when they serve a 998 offer and $1,574,129 when they receive a 998 offer. For both plaintiffs and defendants, the mean cost of decision error is substantially higher when they are a recipient of a 998 offer. Dual 998 Offers. In the dual 998 offer condition – when both parties serve 998 offers – the results are mixed. Plaintiffs in the dual 998 offer condition show a slight reduction in decision error compared with the “no 998 offer” condition (56% v. 59%)
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and a reduction in the mean cost of error ($56,525 v. $94,828). Defendants in the dual 998 offer condition exhibit an increase in decision error compared with the “no 998 offer” condition (30% v. 23%) and a more substantial decrease in the mean cost of error ($920,546 v. $1,528,599). Negotiation Disparities. Apart from its correlation with increased decision error and higher mean cost of error for parties receiving a 998 offer, the existence of a 998 offer is associated with extreme negotiation disparities. Service of a 998 offer is correlated with relatively conservative demands by plaintiffs and generous offers by defendants, while receipt of a 998 offer is associated with extremely high plaintiff demands and low defense offers. The mean amount of a 998 offer served by a plaintiff upon a defendant is 54% of the mean award, but the mean amount of a plaintiff’s demand soars to 331% of the mean award when a defendant serves a 998 offer upon a plaintiff. The average amount of a defendant’s offer is 47% of the average award when it serves a 998 offer upon a plaintiff, but when a defendant is on the receiving end of a 998 offer from a plaintiff, the average amount of a defendant’s offer is reduced to 19% of the average award. Plaintiffs overprice their demands in 50% of the cases where they serve a 998 offer, but plaintiffs receiving 998 offers from defendants overprice their demands in 92% of the cases. Defendants overprice their offers in 76% of the cases where they serve a 998 offer, but their incidence of overpricing falls to 17% when plaintiffs serve a 998 offer upon them. When defendants underprice their offer, moreover, the average amount of underpricing, relative to the average award, varies dramatically depending on who has served a 998 offer. The mean amount of underpricing by a defendant who receives a 998 offer from a plaintiff is $1,753,131, but the mean amount of defense underpricing drops to $505,675 when a defendant serves a 998 offer upon a plaintiff. Both plaintiffs and defendants, on average, are magnanimous when serving a 998 offer and penurious when receiving one. Limitations on 998 Data. The correlation between 998 offers and increased risk taking has at least two major limitations. First, this study is limited to adjudicated cases; 998 offers may be effective in promoting settlement and facilitating reasonable settlement positions in settled cases. As observed earlier, decision error and negotiation disparities cannot be tested in settled cases because they lack a benchmark award. Second, one may argue that a 998 offer does not cause the risk-taking behavior but rather is propounded to curb or penalize extreme settlement positions after an adverse party has manifested unreasonable settlement behavior. Under this argument, a 998 offer may be a reaction to, not a cause of, an adverse party’s risktaking behavior. The weakness in this second argument, though, is that it overlooks the underlying intent of the 998 statutory procedure: to promote reasonable settlement behavior by imposing a financial penalty on unreasonable settlement positions, whether the recipient party is a reckless or a rational decision maker. Although 998 offers may have a salutary effect on those cases that settle, in this study of adjudicated cases the service of a 998 offer is correlated with significantly higher risk taking and decision error by the recipient party. Four Corroborative Studies. The legislative intent underpinning the Section 998 offer of compromise procedure, as previously explained, is to encourage
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settlements by imposing financial penalties on parties who take unreasonable settlement positions. This study of 998 offers of compromise, however, indicates that this cost-shifting statutory scheme may actually induce risk taking by litigants. The possibility that punitive measures in general and cost-shifting statutory schemes in particular are ineffective or may actually provoke the gambling mentality they are intended to curb is demonstrated by four other studies, two of which are empirical and two of which are experimental. These corroborative studies, which raise questions regarding the effect of “tort reform” propositions, are briefly described below. First, law professor Jeffrey Rachlinski studied the effect of “loser pays” legislation, enacted to deter meritless lawsuits and increase settlements. He analyzed the research conducted by Snyder and Hughes on medical malpractice claims filed before and after Florida adopted “reform” legislation requiring the losing party at trial to pay the prevailing party’s litigation costs. (“Loser-pays” is also known as the “English Rule”). Comparing the “before” and “after” results, Snyder and Hughes found that “a case was less likely to be settled under a loser-pays system” and “defendants spent much more on litigation under a loser-pays system.”41 These findings, Rachlinski observes, are consistent with behavioral economics models showing that the propensity to take risks increases as the stakes are heightened. “Increasing the risks associated with litigation,” Rachlinski observes, “increases the attractiveness of wasteful litigation to risk-seeking defendants.”42 He further notes “by raising the stakes at trial, the loser-pays system makes litigation itself more valuable and can discourage settlement.”43 Second, the instant study separately analyzed the effect of a different statutory cost-shifting procedure under California Code of Civil Procedure Section 1141.21. That section applies when the parties participate in a non-binding arbitration hearing before a trial and, dissatisfied with the arbitrator’s decision, one party exercises its right to a trial after the arbitration. Under Section 1141.21, a party who requests a trial after non-binding arbitration but fails to obtain a better result at trial may be required to pay specified expert witness fees, court costs, and the arbitrator’s fees. Like the 998 procedure, this statutory scheme is intended to discourage trials by financially punishing over-confident plaintiffs and defendants.44
41
Rachlinski supra note 11 at 163. Rachlinski supra note 11 at 168. 43 Rachlinski supra note 11 at 161. 44 The court explained the background and purpose of Section 1141.21 in Phelps v. Stostad 16 Cal. 4th 23, 65 Cal. Rptr. 2d 360, 939 P.2d 760 (1997): “To encourage parties to accept reasonable arbitration awards, the Legislature enacted Code of Civil Procedure section 1141.21, which provides that if a party elects a trial de novo following judicial arbitration, and fails to obtain a judgment that is more favorable than the arbitration award, that party shall pay the costs incurred by the opposing party following the election of the trial de novo and shall not recover his or her own costs incurred following the election of the trial de novo. Section 1141.21(a)(ii) creates an 42
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Analysis of the Section 1141.21 variable, however, reveals no statistically significant difference in plaintiff or defendant error rates between cases where the parties requested a new trial after non-binding arbitration and those cases where the parties proceeded directly to trial without non-binding arbitration. Nor is there any statistically significant difference in error rates between parties who requested a new trial after arbitration, exposing themselves to a monetary sanction if they failed to obtain a superior award at trial, and parties who participated in pre-trial mediation and had no exposure to monetary sanctions if the trial award was inferior to what they could have obtained in mediation. Thus, as applied to the adjudicated cases in this study, Section 1141.21 and its cost-shifting sanctions do not appear to decrease risk taking or decision error by either plaintiffs or defendants. Third, an experimental study published in November 2007 by Kevin McCabe and Laura Inglis at George Mason University simulated litigation settlement negotiations and specifically evaluated the effects of 998 offers on negotiation outcomes. Overall, McCabe and Inglis found that “in 46% of the cases that went to court in our experiments, both parties had received settlement offers that would have made them better off than the expected court outcome.” Based on experiments controlling for 998 offers of compromise, they concluded that the Section 998 cost-shifting mechanism “provides no significant improvement in settlement rates.” They further note that the English Rule, requiring an unsuccessful litigant to pay both sides’ court costs, “is actually less effective at promoting settlement than the American Rule.”45 Fourth, writing in the journal Nature four months after publication of the McCabe-Inglis study, Harvard professor Martin Nowak and his colleagues noted that punitive measures do not promote cooperative behavior and are correlated with the least successful negotiation results. Their study, entitled “Winners Don’t Punish,” tested the premise that punitive measures can be successful in forcing parties to cooperate in one-time competitive interactions. Based on outcomes recorded in a modified version of “Prisoner’s Dilemma,” a game in which the players compete against anonymous opponents and choose among cooperation, betrayal or punishment, Nowak concluded that “winners are those who resist the temptation to escalate conflicts, while the losers punish and perish.” His co-author, Professor David Rand, specifically observes that the players who most frequently invoked the punishment option “earned the lowest playoffs in the game.” As Rand explains, “Punishment can lead to a downward spiral of retaliation, with destructive outcomes for everybody involved. The people with the highest total payoffs do not use costly punishment.”46
exception to the usual rule that the prevailing party in an action ‘is entitled . . . to recover costs.’” The purpose of this statute, the Phelps court stated bluntly, “is to discourage trials de novo.” 45 McCabe, Kevin, and Inglis, Laura. (2007, November 30). Using neuroeconomics experiments to study tort reform. Arlington, Virginia: Mercatus Center at George Mason University. 46 Dreber, Anna, et al. (2008, 20 March). Winners don’t punish. Nature, 452(7185), 348–351.
3.8 Predictor Variables
3.8.2.3
63
Forum
The three forum variables are jury trials, bench (judge only) trials, and arbitration hearings. Each of the forum variables is correlated with distinct decision error rates, negotiation disparities and win rates. Decision error rates and win rates for each type of forum are presented in Table 3.9. Defendants committed substantially fewer decision errors in jury trials relative to bench trials (23% v. 39%). By contrast, plaintiff decision error was considerably higher in jury trials relative to bench trials (62% v. 45%). In arbitration cases, decision error rates for both plaintiffs and defendants differed substantially from their rates in jury cases. Defendants’ decision error rate in arbitration cases (48%) was higher than their error rate in bench trials (39%) and roughly double their decision error rate in jury trials (23%). Plaintiffs’ decision error in arbitration cases (27%) was notably lower than in either bench trials (45%) or jury trials (62%). The total amount of decision error, moreover, is much lower in arbitration cases than in either bench or jury trials, with “no error” cases comprising 25% of all arbitration cases relative to 16% of bench trials and 15% of jury trials. The cost of error for both plaintiffs and defendants shows a similar progression from arbitration to bench and jury trials. Plaintiffs and defendants sustain the lowest mean cost of error in arbitration cases ($17,264 and $692,614, respectively), the next lowest mean cost of error in bench trials ($25,140 and $972,313, respectively) and the highest mean cost of error in jury trials ($61,875 and $1,495,184, respectively). Regardless of the forum, however, defendants’ mean cost of error is always higher than plaintiffs’ mean cost of error, ranging from a high of 40 times plaintiffs’ cost of error in arbitration cases to a low of 24 times plaintiffs’ cost of error in jury trials. Defendants also exhibit extreme negotiation disparities in arbitration cases. Defendant’s mean offer in the arbitration cases, as a percentage of the mean award, is 6%, compared with 21% in jury and bench trials. Defendants also are more likely to underprice their settlement offers in arbitration cases; 73% of defendants’ offers are underpriced in arbitration cases; but the incidence of defendant underpricing is reduced to 55% and 38% in bench and jury trials, respectively. The relatively low amount of defendants’ offers in arbitration cases suggests that defendants have a diminished incentive to avoid adjudicated outcomes in arbitration cases. Plaintiffs, in contradistinction, do not exhibit the same degree of negotiation disparity in the three different forums. Plaintiffs’ mean demand, as
Table 3.9 Win rates and decision error rates by forum Forum Plaintiff Win Plaintiff Decision Rate (%) Error Rate (%) Arbitration 74 27 Bench (Judge) 58 45 Jury 47 62
Defendant Decision Error Rate (%) 48 39 23
No Decision Error (%) 25 16 15
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a percentage of the mean award, is 110% in arbitration cases, 96% in bench trials, and 113% in jury trials. Consistent with behavioral economics theories of loss aversion in the “gains” frame and risk taking in the “losses” frame, plaintiffs’ decision error rate decreases as the probability of a trial victory increases. Plaintiffs exhibit the highest decision error rates in jury trials (62%), where the win rate is lowest (47%), and the lowest decision error rates (27%) in arbitration cases, where the win rate is highest (74%). Defendants display a similar pattern, evidencing a high decision error rate (48%) in arbitration cases, where they win only 26% of the cases, and a low decision error rate (23%) in jury trials, where they win 53% of the cases. For both plaintiffs and defendants, the incidence of decision error increases as the likelihood of prevailing decreases; they are most likely to reject a settlement demand or offer that is proven to be superior to the ultimate award when they have a relatively lower chance of prevailing at trial. Like losing bettors at a racetrack, litigants are more likely to bet on long shots as their financial prospects dim. The pattern of risk taking in the losses mode and risk aversion in the gains mode is again reflected in the parties’ settlement posturing. As noted above, the average defendants’ offer is a miserly 6% of the average award in arbitration cases and a relatively generous 21% of the mean award in jury trials, indicating that defendants offer less money, relative to their actual liability, in cases they are likely to lose, and more money in cases they probably will win. Defendants underprice their offers in 73% of the arbitration cases and 38% of the jury cases, again reflecting the pattern of miserliness toward plaintiffs in cases defendants are likely to lose and relative profligacy toward plaintiffs in cases defendants are likely to win. Plaintiffs are similarly aggressive and risk taking in cases they are likely to lose and more conservative and risk averse in cases they are likely to win; plaintiffs underprice their demands in 23% of the jury trials (47% win rate) and 39% of the arbitration cases (74% win rate). The higher win rates for plaintiffs in arbitration cases are consistent with other studies documenting win rates ranging from 63% to 80%.47 This research suggests
47
See Maltby, Lewis. (1999, Fall). Employment arbitration: Is it really second class justice? Dispute Resolution Magazine. Maltby, Lewis L. (1998). Private justice: Employment arbitration and civil rights. Columbia Human Rights Law Review, 30, 29, 46–48. Bingham, Lisa B. (1995). Is there a bias in arbitration of nonunion employment disputes: An analysis of active cases and outcomes. International Journal of Conflict Management, 6, 369, 378. Howard, William. (1995, October-December). Arbitrating claims of employment discrimination. Dispute Resolution Journal, 40–43. Ernst and Young. (2004, December 2004). Outcomes of arbitration: An empirical study of consumer lending cases. National Arbitration Forum. (2000, January 7). Millennial issues regarding arbitration fairness: An administrator’s view. Baxter, George. (1993–94). Arbitration in litigation for employment civil rights? 2 Vol. of Individual Employee Rights 19. Delikat, Michael, and Kleiner, Morris. (2003, Winter). Comparing litigation and arbitration of employment disputes: Do plaintiffs better vindicate their rights in litigation? Conflict Management, 6(3). United States General Accounting Office. (1992, May 11). Securities arbitration: How investors fare (Rep. No. GAO/ GGD-92–74). American Arbitration Association. Analysis of the American Arbitration Association’s consumer arbitration caseload: Based on consumer cases awarded between January and
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that plaintiffs may benefit from reconsidering the conventional wisdom that jury trials favor them (although many scholars argue that the probability of a plaintiff award is vastly outweighed by the relatively small amount of arbitration awards). The high win rate in bench trials (58%) vs. jury trials (47%) also augurs for a reconsideration of the conventional plaintiff preference for jury trials. (In the criminal law context, recent research also raises questions about the advantages of jury trials for defendants. This research shows that judges in 2006 convicted defendants in only 64% of the cases, compared to a jury conviction rate of 89%. As legal affairs writer Jason Krause notes, “The figures contradicted one of the oldest pieces of conventional wisdom in the legal profession: that defendants get more sympathy from a jury than a judge”).48
3.8.2.4
Damages Claim
Damages are coded in the datasets as (a) “Past” damages, representing injuries and damages already sustained; (b) “Future” damages, representing prospective, anticipated losses not yet paid or sustained, and (c) punitive or exemplary damages. A plaintiff in a personal injury suit against an intoxicated driver, for example, may seek compensation for medical expenses already incurred and pain and suffering previously suffered (Past damages); the cost of future surgery anticipated by her physician and prospective pain and suffering (Future damages); and punitive damages based on the defendant’s reckless behavior while driving intoxicated. The coding in the datasets is based on plaintiffs’ damages allegations, not the type of damages ultimately recovered by plaintiffs. Awards generally are not sufficiently allocated by VerdictSearch California and the adjudicator to consistently determine the type of damages ultimately awarded. Distinctions Among Damages Claims. Behavioral economics theory posits that a party is more likely to recover losses already incurred (“Past” damages) than presently unrealized future profits or other relatively remote, prospective damages (“Future” damages), even when a party is entitled to recover both types of damages.49 In a breach of contract action against a contractor who abandons a house construction project, for example, the plaintiff is more likely to recover its advance payment to the contractor than the rental income that would have been realized between the original contract completion date and the actual completion date.50 Although a non-breaching party is entitled to “the amount which will August 2007. Consumer Arbitration Task Force - Searle Civil Justice Institute. (2009, March). Consumer arbitration before the American Arbitration Association preliminary report. 48 Krause, Jason. (2007, June). Judge v. jury. ABA Journal, p. 46. 49 See Baron, Jonathan. (2000). Thinking and deciding (pp. 409–431). Cambridge: Cambridge University Press. 50 Facts based on Henderson v. Oakes-Waterman Builder, 44 Cal. App. 2d 615, 12 P. 2d 662 (1941), reversing trial court’s determination of damages and holding owner was entitled to recover advance payment, cost of demolition and reconstruction, and loss of rental value.
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Table 3.10 Win rates and decision error rates by damages claim Damages Claim Plaintiff Win Plaintiff Decision Defendant Decision Rate (%) Error Rate (%) Error Rate (%) Past Losses Only 46 64 21 Future Losses Only 35 65 26 Past/Future Losses 51 57 28 Past/Punitive 56 49 37 Past/Future/Punitive 75 32 49
No Decision Error (%) 15 9 15 14 19
compensate the party aggrieved for all the detriment proximately caused thereby,” i.e., the equivalent of the benefits of contract performance,51 studies show that jurors and judges are reluctant to award both damages actually incurred and damages yet to be sustained.52 This bias purportedly manifests because previously incurred damages are perceived as tangible and proximate, while future losses may be perceived as speculative and remote.53 Effects of Damages Claims. The primary dataset presents mixed messages about the existence of a cognitive distinction between “Past” damages awards and “Future” damages awards. As indicated in Table 3.10, plaintiffs seeking only Future damages fared poorly, recovering a net award in only 35% of the cases. Plaintiffs alleging only Past damages, by contrast, prevailed in 46% of their cases. Plaintiffs seeking both Past and Future damages, however, recovered a net reward in 51% of the cases, a win rate slightly higher than the cases alleging only Past damages. Table 3.10 demonstrates the relation between the damages claim and the parties’ decision errors. Cases alleging only Past damages are correlated with a low defendant decision error rate (21%), but defendants’ error rate increases markedly as the damages claim becomes more complex. Faced with a claim alleging Past, Future, and punitive damages, defendants’ decision error rate more than doubles to 49%. Plaintiffs’ decision error rate, however, moves in the opposite direction, from a high of 64% in cases alleging Past damages only to a low of 32% in cases asserting Past, Future, and punitive damages. Litigants’ mean cost of error also is skewed differently for defendants and plaintiffs. Defendant’s mean cost of error is highest in cases alleging Past, Future, and punitive damages ($6,995,791) and lowest in cases alleging only Past damages ($333,938). Plaintiffs’ mean cost of
51
California Civil Code Section 3300. Cohen, David, & Knetsch, Jack L. (1992). Judicial choice and disparities between measures of economic value. In Kahneman, Daniel, & Tversky, Amos (Eds.). (2000). Choices, values, and frames (pp. 436–439). Cambridge: The Press Syndicate of the University of Cambridge. 53 An employer’s wage cuts, to cite another example, are more likely to be considered unacceptable than the employer’s failure to increase wages. Cohen, David, & Knetsch, Jack L. (1991). Loss aversion in riskless choice. In Kahneman, Daniel, & Tversky, Amos (Eds.). (2000). Choices, values, and frames (p. 157). Cambridge: The Press Syndicate of the University of Cambridge. 52
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error, by comparison, is $78,404 in Past, Future, and punitive damages cases and $30,021 in Past damages cases; plaintiffs’ highest mean cost of error is sustained in cases alleging Past and Future damages ($121,700). But when mean cost of error is replaced with median cost of error, both plaintiffs and defendants exhibit their lowest median costs of error in Past damages only cases and their highest median cost of error in Past, Future, and punitive damages cases. Punitive Damages Claims. The presence of a punitive damages claim is correlated with high defendant decision error rates. Defendant decision error rose from 21% in Past damages only claims to 37% in Past and punitive damages claims, and from 28% in Past and Future damages claims to 49% in Past, Future, and punitive damages claims. By contrast, plaintiffs’ decision error was consistently lower in cases alleging punitive damages. When a punitive damages claim was joined with a Past damages claim, plaintiff decision error decreased from 64% (Past damages only) to 49% (Past and punitive damages). In cases where a punitive damages claim was joined with a Past and Future damages claim, plaintiff decision error decreased from 57% (Past and Future damages only) to 32% (Past, Future and punitive damages). The substantially higher defendant decision error rates in punitive damage claims may be attributable to the difficulty of predicting the amount of punitive damage awards and defendants’ inadequate evaluative adjustments for non-paradigmatic claims. Experimental studies show that individual differences in punitive damage awards “produce severe unpredictability and highly erratic outcomes;” study participants show strong agreement in finding punitive intent, but “there is no consensus about how much in the way of dollars is necessary to produce appropriate suffering in a defendant.”54 The proposition that punitive damages awards are unpredictable, however, is challenged by Theodore Eisenberg’s empirical study published in 2006. His study found, inter alia, “minimal, though observable, variation in the dispersion of the punitive and compensatory damage ratio over the years [1992–2001] and between trial modes.”55 Negative Problem-Solving Transfer in Punitive Damages Claims. Whether the amount of punitive damages is predictable or unpredictable, the defendants in the primary dataset displayed seriously diminished predictive capacity in punitive damages claims. The defendants’ relatively poor outcomes suggest that they either ignore the non-paradigmatic variable (punitive damages claim) or erroneously draw problem-solving analogies between the unexceptional cases (no punitive damages claim) and the exceptional cases (punitive damages claims). The risk of this type of decision-making error (“negative problem-solving transfer”) is high when cases 54
Sunstein, Cass, et al. Assessing punitive damages (with notes on cognition and valuation in law). In Sunstein, Cass (Ed.). Behavioral law & economics (pp. 232, 240). Cambridge: Cambridge University Press. 55 Eisenberg, Theodore, et al. (2006). Juries, judges, and punitive damages: Empirical analysis using the civil justice survey of state courts 1992, 1996, and 2001 data. Journal of Empirical Legal Studies, 3(2), 276. Cf. Hersch, Joni, and Viscusi, W. Kip, (2004). Punitive damages: How judges and juries perform. Journal of Legal Studies, 33(1), 1–36.
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appear superficially similar: surface similarity in story line, causes, context, and phrasing, explains Professor Miriam Bassok, frequently leads decision makers to “retrieve and apply a solution to a nonanalogous problem (negative transfer) and thereby waste their cognitive resources or arrive at an erroneous solution.”56 This inability to meet decision-making challenges by changing mental templates is well documented and explained in the 2008 Harvard Business Review article, “The Experience Trap:” We conclude that managers find it difficult to move beyond the mental models that they have developed from their experiences in relatively simple environments or that have been passed on to them by others. When complications are introduced, they either ignore them or try to apply simple rules of thumb that work only in noncomplex situations. What they don’t do is materially improve the quality of their mental models to take into account the realities of complex projects.57
Like the recalcitrant managers described in “The Experience Trap,” many defendants seem to impose tried and true mental models on new and uncertain conditions, often leading to disastrous results. The cognitive template that is so successful in defendants’ assessment of simple claims appears to be ill-suited for defendants’ evaluation of complex claims. As Peter Drucker observed in his classic essay, “The Effective Decision,” one of the most common decision-making errors “is the mistake of treating a new event as if it were just another example of the old problem to which, therefore, the old rules should be applied.”58 Although defendants may not lump all cases onto the “routine” pile, the danger is that they misclassify cases when sorting the routine from the exceptional cases or treat cases in both categories with the same evaluative models. When decision makers have “seen it all before,” their time-tested evaluative tools may superimpose comparisons and analogies over incongruent facts and encourage decision makers to minimize nuances later proven to be determinative. Effect of Aggregated Claims on Win Rates and Negotiation Disparities. Apart from its impact on decision error, a plaintiff’s damages claim may affect win rates and the parties’ negotiation strategies. As plaintiffs aggregate different types of damages in their claims, their win rates increase. Cases alleging both Past and Future damages, for example, have a higher win rate (51%) than cases alleging Past damages alone (46%). When punitive damage claims are added to cases alleging Past and/or Future damages, the win rate soars to 75%. Plaintiffs overprice their demands in 79% of the cases alleging Past damages only, but plaintiffs’ incidence of overpricing decreases to 51% in cases alleging Past, Future, and punitive
56
Bassok, M. (2003). Analogical transfer in problem solving. In Davidson, J.E. and Sternberg, R. J. (Eds.) The psychology of problem solving (p. 343). Cambridge: Cambridge University Press. 57 Sengupta, Kishore, Abdel-Hamid, Tarek K. and Van Wassenhove, Luk N. (2008, February). The experience trap. Harvard Business Review, p. 94. 58 Drucker, Peter. (1967). The effective decision. In Harvard Business Review on Decision Making (p. 6). Boston, Massachusetts: Harvard Business School Press.
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damages. Conversely, defendants underprice their offers in 36% of the cases alleging Past damages only and 68% of the cases alleging Past, Future and punitive damages. In alleging multiple types of damages, plaintiffs may increase their win rates by providing story and remedy alternatives to a jury and affording an opportunity for the jury to compromise the parties’ competing narratives, motivations, and expectations. Cognitive psychology studies demonstrate that choices are affected significantly by the number of alternatives,59 “different frames, reference points, contexts and elicitation procedures,”60 the addition of options, and the ability to compromise between two extremes.61 People avoid making any choices when faced with two unattractive or unpersuasive alternatives, but the addition of a third, less attractive or less persuasive alternative sometimes increases the desirability of an option about which one was previously ambivalent.62 Faced with a stark choice between awarding speculative, uncertain Future damages to a plaintiff or rendering a defense verdict, the jury is more likely to render a defense verdict. But given a choice between a defense verdict and a plaintiff’s aggregated claim for Future damages, Past damages, and punitive damages, two cognitive changes appear to occur: (1) the bias against Future damages ebbs when Future damages are combined with other types of damages clams; and (2) Past damages claims are more appealing and hence successful when combined with other damages claims. The bundling of damages claims may functionally obscure the blemishes evident when a lone damages claim is asserted. The opportunity to choose among different damages claims and to select among the alternative narratives that underpin those claims also enables the jury to negotiate mentally with the plaintiff and defendant and compromise their competing claims. A plaintiff alleging both contract damages and punitive damages (e.g., “the defendant breached the contract by failing to perform and defrauded my client because he never intended to perform”) permits the jury to choose a credible, middle ground story (“the defendant breached the contract but did not defraud the plaintiff”) and avoid the dissonance and unease generated by making stark, zero sum decisions. Although arbitrators often are accused of avoiding tough decisions by “splitting it down the middle,” jurors also may prefer to effect a compromise among competing claims. Asking for more damages instead of different types of damages also can result in higher verdicts. In mock trials, jurors presented with the same evidence awarded 59
Thaler, Richard H. (1999). Mental accounting matters. In Kahneman, Daniel, & Tversky, Amos (Eds.). (2000). Choices, values, and frames (p. 265). Cambridge: The Press Syndicate of the University of Cambridge. 60 Shafir, Eldar, Simonson, Itmar, & Tversky, Amos. (1993). Reason-based choice. In Kahneman, Daniel, & Tversky, Amos (Eds.). (2000). Choices, values, and frames (p. 618). Cambridge: The Press Syndicate of the University of Cambridge. 61 Baron supra note 49 at 288. 62 Hastie, Reid, & Dawes, Robyn M. (2001). Rational choice in an uncertain world (pp. 237–244). Thousand Oaks, California: Sage Publications, Inc.
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higher amounts to the plaintiff when the only variable was a higher amount requested by the plaintiff’s attorney.63 As law professor Chris Guthrie observes, the lesson from the studies seems to be “Ask and ye shall receive.”64
3.8.2.5
Offer/Demand Ratio
Negotiation theorists contend that a negotiated resolution is less likely to occur when the parties’ demands and offers are far apart. All things being equal, they assert, parties whose negotiation positions are extremely disparate are less likely to settle than parties whose negotiation positions are relatively close. This section does not challenge this theory (its dataset would be useless in testing the theory because it includes only non-settled cases) but rather examines the relationship between decision error and the magnitude of the difference in the parties’ settlement positions. It specifically tests the conventional wisdom that, if the parties are far apart in their settlement positions, the “truth” lies somewhere in between, i.e., plaintiff’s demand is too high relative to the probable outcome, and defendant’s offer is too low. Applied to the concept of decision error, the conventional wisdom dictates that neither party is likely to make a decision error when their settlement positions are far apart. If, for example, plaintiff demands $1,000,000 and defendant offers $100,000, the conventional wisdom holds that the likely verdict is somewhere in between and neither party will commit a decision error by rejecting the other party’s “extreme” settlement proposal. As shown in Fig. 3.1, all cases in the dataset can be broken down into categories based on the range of quotients derived from dividing the amount of a defendant’s offer by the amount of a plaintiff’s demand. When defendant’s offer is $10 and plaintiff’s demand is $100, for example, the quotient is .10; when defendant’s offer is $90 and plaintiff’s demand is $100, the quotient is .90. If the conventional wisdom is correct, a lower quotient will be correlated with lower overall decision error, as the margin of error is broad, and a higher quotient will be correlated with higher overall decision error, as the margin of error is narrowed for both parties. The data, as shown in Fig. 3.1, do not support the conventional wisdom. The “truth” in settlement negotiations does not lie somewhere between two extreme positions but is nestled closer to defendants’ settlement positions when the parties’ demands and offers are far apart. Plaintiffs are more likely to commit decision errors when the offer/demand quotient is low, and their incidence of decision error generally decreases as the parties’ settlement positions move closer to each other. Defendants’ decision error rate, however, generally increases as the parties’ settlement positions converge. (Caveat to defendants: although the incidence of 63
Chapman, Gretchen B., & Bornstein, Brian H. (1996). The more you ask for the more you get: Anchoring in personal injury verdicts. Applied Cognitive Psychology, 10, 519, 525. 64 Guthrie, Chris, Rachlinski , Jeffrey J. and Wistrich, Andrew J. (May 2001). Inside the judicial mind. Cornell Law Review, 86(4), 789–790.
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80% 70% 60% 50% Plaintiff Defendant
40% 30% 20% 10%
9%
9% %
–7 80
%
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%
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Fig. 3.1 Offer/demand ratio and decision error
defendant decision error is lowest when the parties’ settlement positions are far apart, defendants’ mean cost of error is highest ($2,011,963) in this condition; defendants’ errors are infrequent but colossal in extreme negotiations). In extremely disparate settlement negotiations, where the defendant’s offer is less than 10% of the plaintiff’s demand, the dataset indicates that only 12% of the cases will result in “no error” for both parties.
3.8.3
Two Secondary Context Variables
As discussed above, the major Context variables are the type of case, the existence of a Section 998 offer of compromise, the forum in which the case is tried, the type of damages claimed, and the extent of the offer/demand disparity. Two other Context variables – whether the alleged wrongful act was an act of omission or commission and whether a defendant has insurance coverage – merit consideration, although they have less predictive capacity than the five major Context variables.
3.8.3.1
The Nature of the Alleged Wrongful Act
If the plaintiff alleges that defendant’s wrongful act was intentional instead of negligent does this volitional difference appear to affect win rates, decision error rates, or negotiation disparities? When the defendant’s alleged acts are characterized as either acts of commission or acts of omission, does the trier of fact manifest
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Table 3.11 Win rates and decision error rates by nature of alleged act Alleged Act Plaintiff Win Plaintiff Decision Defendant Decision Rate (%) Error Rate (%) Error Rate (%) Commission 43 59 30 Omission 47 62 22 Omission/Commission 51 55 31
No Decision Error (%) 11 16 14
what psychologists and behavioral economists call an “omission/commission bias”? Studies of the omission/commission bias demonstrate that acts of commission are more likely to earn moral opprobrium than acts of omission, even when both acts cause equal harm or are done with equal intentionality. “Active deception for example, was considered morally worse than withholding the truth,” explain professors Ilana Ritov and Jonathan Baron, “even when the actor’s intention to deceive was judged to be the same in the two cases.”65 For similar reasons, most states in the United States permit “passive euthanasia” (not sustaining the lives of terminally ill patients) but prohibit active euthanasia (injection of a lethal drug) even for persons requesting death.66 Cognitive justifications for attaching less blame or weight to omissions include (1) the belief that people should not be responsible for inattentive, ignorant or inadvertent behavior; (2) the sense that omissions, unlike commissions, rarely involve malevolent intentions; and (3) the perception, however inaccurate, that omissions are not really “causes.”67 The primary dataset does not show a higher win rate for cases alleging an act of commission and hence does not support the existence of a juror, judge, or arbitrator bias treating alleged acts of commission more harshly than acts of omission. As shown in Table 3.11, plaintiffs won 43% of the cases alleging an act of commission, 47% of the cases alleging acts of omission, and 51% of the cases alleging both an omission and a commission. The triers of fact in this study, therefore, were slightly more likely to impose financial penalties (awards favoring plaintiffs) on defendants who allegedly committed an act of omission, evidencing a minor reversal of the omission/commission bias. This type of reversal, though, was observed under some circumstances in another study by Ritov “when the decision maker is in a position of responsibility.”68 (The relatively high win rate for the cases alleging both omissions and commissions also lends support to the behavioral economics theory of “enhanced loss aversion,” positing “losses that are compounded by outrage are
65
Ritov, Ilana, and Baron, Jonathan. (1990). Reluctance to vaccinate: Omission bias and ambiguity. In Sunstein, Cass, (Ed.). Behavioral law & economics (p. 170). Cambridge: Cambridge University Press. 66 Baron supra note 49 at 401. 67 Ritov and Baron supra note 65 at 168–171. See Kleindorfer, Paul, et al. (1993) Decision sciences (p. 366). Cambridge: Cambridge University Press. 68 Ritov and Baron supra note 65 at 170.
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much less acceptable than losses that are caused by misfortune or by legitimate actions of others.”69) Although win rates did not reflect an omission/commission bias, the nature of the alleged act may affect decision error rates. Defendant decision error was lowest in cases alleging only an act of omission (22%) and highest in cases alleging acts of both commission and omission (31%). Decision error among plaintiffs, however, was lowest in cases alleging acts of both commission and omission (55%) and highest in cases where the alleged wrong was only an act of omission (62%). Defendants’ mean cost of error was greatest in cases alleging combined acts of omission and commission ($3,240,824) and lowest in cases alleging only acts of omission ($1,108,480). Plaintiffs’ mean cost of error also was lowest in cases alleging only an act of omission ($56,253). As observed in the damages section, the least frequently occurring variable (punitive damages in the damages context and acts of commission in the omission/commission context) is associated with high defendant decision error. In evaluating probable case outcomes and plaintiffs’ settlement demands, defendants are masters of the mundane, exhibiting low decision error rates in simple, conventional cases and high decision error rates in complex, atypical cases. Complexity generally enhances the economic utility of plaintiff decision making and undermines the efficacy of defendants’ decision making. This reflects defendants’ reduced predictive capacity when a case does not fit into a conventional paradigm and may be another example of “negative transfer” of expert evaluative skills from a conventional paradigm into an exceptional paradigm.70
3.8.3.2
Insurance Coverage
The existence of insurance coverage is correlated with salient differences in decision error rates, win rates, and negotiation disparities. Table 3.12 demonstrates Table 3.12 Win rates and decision error rates by reported insurer Insurance Plaintiff Win Plaintiff Decision Defendant Decision Rate (%) Error Rate (%) Error Rate (%) Insurer Reported 51 62 22 No Insurer Reported 46 58 30
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No Decision Error (%) 16 12
Kahneman, Daniel & Tversky, Amos. (1995). Conflict resolution: A cognitive perspective. In Kahneman, Daniel, & Tversky, Amos (Eds.). (2000). Choices, values, and frames (p. 486). Cambridge: The Press Syndicate of the University of Cambridge. 70 As explained in Chapter Two, Roselle Wissler and her colleagues found that defense lawyers’ case assessments were “less responsive to case details” and “more mechanical.” Wissler, Roselle L., Hart, Allen J., & Saks, Michael J. (1999). Decision making about general damages: A comparison of jurors, judges, and lawyers. Michigan Law Review, 98, 751, 805.
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the difference in decision error rates between defendants with insurance coverage and defendants without insurance coverage. Decision error was eight percentage points lower among insured defendants relative to uninsured defendants (22% and 30%, respectively). By contrast, plaintiffs’ decision error was higher in cases where the defendants listed an insurance carrier or reported insurance coverage than in cases where neither a carrier nor coverage was reported (62% v. 58%). The incidence of “no decision error” increased from 12% in the “no insurance” cases to 16% in the “insurer reported” cases. Defendants with insurance coverage manifested a mean cost of error of $1,076,082, an amount substantially lower than the mean cost of error of $1,683,437 sustained by defendants without insurance coverage. When plaintiffs made a decision error in cases with an insured defendant, plaintiffs’ mean cost of error was $83,665, considerably higher than plaintiffs’ mean cost of error of $60,644 in cases without insurance coverage. The win rate for plaintiffs suing insured defendants was higher than the win rate for plaintiffs suing uninsured defendants (51% v. 46%). Prior to trial, however, insured defendants made relatively strong efforts to settle. The average insured defendant’s offer was 27% of the average award, contrasted with uninsured defendants’ mean offer of only 17% of the average award. Plaintiffs, for their part, took more aggressive settlement positions with insured defendants, demanding 131% of the mean award when negotiating with insured defendants and 115% of the mean award in negotiations with uninsured defendants. Consistent with insured defendants’ relatively generous offers is the fact that they overpriced their offers in 45% of the cases, compared to an overpricing incidence of 39% for uninsured defendants. Plaintiffs were more likely to make an overpriced demand against an insured defendant than an uninsured defendant; 78% of plaintiff offers to insured defendants were overpriced, but only 70% of plaintiffs’ offers to uninsured defendants were overpriced. The general relationship between insurance coverage and settlement negotiation positions is simple: insured defendants offer more money and plaintiffs demand more money from them. The relatively low error rates for insured defendants may be attributed to multiple procedural and psychological factors associated with sound judgment calibration and decision making: experienced claims management, extensive data regarding similar cases, comprehensive case evaluation at inception, regular reporting of case status and explanation of settlement positions, ongoing evaluation of liability and reserve amounts, widening circles of communication and opinions as estimated liability and reserve amounts increase, individual and group accountability for case assessments and systems for comparing those assessments with outcomes, and consistent risk policies. These resources and practices promote the following habits and procedures identified with superior decision-making skills: continuous updating and evaluation of claims data to enhance subject matter expertise, avoidance of sunk cost biases, close attention to base rates derived from other cases, preferences for explicit and transparent evaluative processes, periodic re-calibration of liability and damages probabilities, graduated input from multiple sources with different experience levels, timely feedback and
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objective performance measures, and oversight to reduce excessive risk aversion by subordinates.71 Additional factors favoring insurers, many of which were first identified by law professor Marc Galanter, may include insurers’ more extensive experience representing defendants in jury trials (“process pros” with “advance intelligence”); insurers’ strategic deployment of financial resources in pre-trial discovery (wealth advantage); insurers’ proficiency in identifying and retaining reliable expert witnesses with a track record in similar cases (replicable evidence); and the confidence that judges may place in career insurance defense counsel, who have established a reputation in repeated court appearances, relative to single-appearance plaintiff attorneys (insider or familiarity deference).72 Chris Guthrie and Jeffrey Rachlinski’s study of insurance company adjusters, managers, executives and lawyers provides an additional reason for the lower decision error rates demonstrated by defendants with insurance coverage: insurance company employees are less likely to be affected by decision-making heuristics and biases that afflict the general population.73 These heuristics and biases, explained in the next chapter, include “framing” (the propensity to avoid risks when facing gains and take risks when facing losses), “anchoring” (the tendency to make estimates or take positions based on irrelevant reference points) and self-serving biases (the preference for egocentric judgments that enhance one’s self-esteem or financial position). After testing 189 insurance professionals attending three different industry conferences, Guthrie and Rachlinski found that the “insurance professionals demonstrated an impressive ability to resist the problems that heuristics can cause.”74 The results of six separate tests administered to these insurance professionals indicated that their “expertise, their repeat-player status and their emotional distance from the underlying dispute” seem to render them less susceptible to the biases proven to distort the judgments of both laypersons and attorneys.75 Guthrie and Rachlinski conclude that insurance professionals’ decision- making behavior “is much more consistent with rational choice theory than the assessments of laypersons. The ability to adopt a risk-neutral perspective and see litigation as a cost of doing business is fundamental to the insurance industry, and the participants in our study seem to have mastered it.”76 71
For a discussion of the inefficiencies and costs of excessive risk aversion see Kahneman, Daniel, & Lovallo, Dan. (1993). Timid choices and bold forecasts: A cognitive perspective on risk taking. In Kahneman, Daniel, & Tversky, Amos (Eds.). (2000). Choices, values, and frames (pp. 400– 404). Cambridge: The Press Syndicate of the University of Cambridge. Practices correlated with expert performance are presented in Part Four of this book. 72 Kritzer, Herbert M., and Silbey, Susan (Eds.). (2003). In litigation do the “haves” still come out ahead? (pp. 13–81). Stanford, California: Stanford University Press. 73 Guthrie, Chris and Rachlinski, Jeffrey J. Insurers, illusions of judgment & litigation. Vanderbilt Law Review, Forthcoming; Vanderbilt Law and Economics Research Paper No. 06–28. Available at SSRN: http://ssrn.com/abstract¼952493 74 Id. at 2005. 75 Id. at 2019 fn. 9, 2047. 76 Id. at 2042.
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Insurers, in Marc Galanter’s dichotomy of litigants, appear to be “process pros.” Despite plaintiffs’ vilification of insurance companies and insurers’ reciprocal berating of plaintiff contingency lawyers and their “frivolous lawsuits,” insurance coverage is correlated with lower defendant decision error rates, lower defendant mean costs of error, and higher settlement offers relative to the ultimate award. For plaintiffs, the existence of insurance coverage is correlated with higher plaintiff decision error rates, more aggressive demands, and more costly decision errors. Plaintiffs incur losses more frequently and in greater amounts when they disregard the systemic advantages accumulated and exercised by insurers.
3.8.4
The Major Actor Variables
Actor variables generally have less predictive value than Context variables. Nevertheless, four Actor variables merit analysis: the type of defendant, the gender of the parties’ attorneys, the experience levels of the parties’ attorneys, and the academic ranking of the law school from which the plaintiff’s attorney graduated.
3.8.4.1
Defendant Types
The datasets indicate that insurance companies, corporations, and unincorporated businesses, when placed in the role of defendants, are more likely to engage in irrational, risk-taking behavior than individual and public entity defendants. This contrasts with the risk-neutral or risk-averse conduct of corporations and unincorporated businesses when operating in the plaintiff role. It also contrasts sharply with the low defendant decision error rates associated with insurance coverage where the insurance company is representing an insured defendant but is not itself a defendant. In the defendant posture, corporations, unincorporated businesses, and insurance companies are high risk takers and more likely than individual defendants to undervalue their risks at trial and reject plaintiff demands which turn out to be more financially favorable than the trial award. The failure of corporate defendants “to make larger offers and avoid some of these losses,” law professor Jeffrey Rachlinski found in his earlier study of settlement decision making, “can only be described as risk-seeking.”77 The relatively high decision error rates displayed by defendant corporations, unincorporated businesses, and insurance companies are recorded in Table 3.13. Defendant insurance companies show the highest decision error rate (37%), followed by corporations (33%), corporations sued jointly with unincorporated businesses and individuals (30%), and corporations and unincorporated businesses sued jointly (29%). The lowest decision error rates are evidenced by public entities sued jointly with individuals (18%). The highest mean cost of error is sustained in cases 77
Rachlinski supra note 11 at 113, 159.
3.8 Predictor Variables Table 3.13 Win rates and decision error rates by defendant type Type of Defendant Plaintiff Win Plaintiff Decision Defendant Decision Rate (%) Error Rate (%) Error Rate(%) Business 43 64 23 Bus./Individual 47 60 27 Corporation 51 52 33 Corp./Individual 51 56 30 Corp./Bus. 54 50 29 Corp./Bus./Individual 51 56 30 Female Individual 60 56 23 Government 40 64 23 Govt./Individual 23 80 18 Insurer 56 46 37 Male Individual 47 63 21 Male/Female Individual 54 61 24
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No Decision Error (%) 13 13 15 14 21 14 21 13 2 17 16 15
where corporations, unincorporated businesses and individuals are sued jointly ($4,749,442), while the lowest mean cost of error is sustained by individual men and women sued jointly ($314,286). Although corporations presumably are more likely than individuals to be named as defendants in large damage claims, their high mean cost of error reflects not only the magnitude of claims asserted against them but also their aggressive negotiating styles. The average offer made by corporations and unincorporated businesses sued jointly is only 9% of the average award. This impecunious negotiating posture contrasts sharply with that of public entities, whose average offer is 49% of the mean award. Insurance companies, businesses, and corporations also are more likely to submit underpriced offers (54%, 50%, and 48%, respectively) than public entities, individual women and individual men (36%, 44%, and 37%, respectively). The magnitude of corporate underpricing, moreover, leaves more than a little negotiating room; the mean amount of corporations’ underpriced offers is $2,194,815 less than the mean award. The high decision error and underpricing rates of defendant corporations and businesses contradict the conventional perception, among attorneys and judges alike, that corporations and businesses are risk neutral, more often controlled by a cost-benefit analysis and less affected by emotional factors that plague individual decision making. The conventional viewpoint was expressed in Wrona v. Wrona, the court chastising spouses in a family law case for their wasteful expenditures on litigation costs: If the attorneys involved in this case had represented a litigation-sophisticated business, they would have been required to analyze the issues at the beginning of the dispute and develop a cost-effective method to resolve those issues and end the dispute. The business would have demanded an estimation of the fees and costs and asked for a method to minimize those nonproductive expenses. Florida’s families are entitled to legal advice that is as sensible and cost-effective as that given to Florida’s corporations.78
78
Wrona v. Wrona, 592 So. 2d 694, 697 (Fla. 2d DCA 1991).
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The primary dataset, however, does not support a presumption of corporate sensibility and individual profligacy among defendants. A different view was voiced by U.S. District Court Judge Jeremy Fogel, who spent a few years earlier in his career assigned to family law court and thus could compare the behavior of “emotional” family law litigants with “sensible and costeffective” corporations. When he assumed his new responsibilities for general civil litigation cases, he initially anticipated that his assignment would be “less driven by emotion than family law disputes.” But he quickly abandoned that assumption: “While I can say in hindsight that no judicial assignment quite equals that of a family court judge for emotional intensity, many of the same psychological dynamics I observed in family court are alive and well in civil litigation.” Judge Fogel notes that the irrational motivations and conduct of corporations and businesses in litigation can be insidious: “Moreover, because their presence is rarely acknowledged or more than superficially explored by civil litigators, these dynamics can have particularly profound effects in civil cases.”79
3.8.4.2
Attorney Experience
The number of years an attorney has practiced is correlated with a counter-intuitive pattern of decision error rates. Generally, parties’ representation by attorneys practicing more than 30 years after bar admission is associated with an increase in decision error rates. This trend begins after 30 years of experience and persists for a 10-year period; thereafter, the relatively small fraction of attorneys who continue representing parties after accumulating 40 years of experience display ordinary decision error rates. These results generally are consistent with research analyzing the relation between experience and the performance of clinical psychologists, auditors, surgeons, stockbrokers, parole officers, college admissions officials and business managers.80 In cases where the plaintiff’s attorney has practiced 31–35 years or 36–40 years, the plaintiff decision error rate is 63% and 69%, contrasted with a decision error rate of 57% for attorneys with 21–30 years of experience. On the defense side of the bar, this study finds a similar pattern of decision errors. Defense counsel in the 31– 35 and 36–40 years of experience categories are associated with decision error rates of 29% and 41%, respectively, compared with decision error rates of 24% and 26% for defense counsel with 21–25 and 26–30 years of experience, respectively. Although plaintiffs and defendants have different overall decision error rates (60% for plaintiffs and 25% for defendants), the effect of attorney experience on decision error rates shows a uniform trend: a plateau in mid-career, a climb upward in late-career, and a return to normalcy for the relatively few attorneys who try cases after 40 years in the profession. The relationship between decision error and 79
Anderson, Craig. (2004, June 9). Making himself clear. San Francisco Daily Journal. See Colvin, Geoff. (2008). Talent is overrated (pp. 3–4). New York: Penguin.
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80% 70% 60% 50% 40% 30% 20% 10% 0% ar s
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Fig. 3.2 Attorney experience and decision error rates
attorney experience, for both plaintiff attorneys and defendant attorneys, is shown in Fig. 3.2. Although decision error rates decline for attorneys still practicing after 40þ years, the 40þ sample represents only 14% of all cases where an attorney with more than 30 years of experience represented a party; only a small percentage of attorneys continue practicing for 40 years or more. The increased error rate for seasoned plaintiff and defense attorneys mirrors attorney malpractice claims data. Most attorneys sued for legal malpractice have been practicing for more than 10 years, and “virtually all percentages for types of error are lower for the younger lawyers.”81 An American Bar Foundation study showed that, although the youngest group of attorneys in the study comprised 13% of the lawyers, that group of relatively inexperienced attorneys accounted for only 4% of the claims.82 (A study of the medical profession discovered a similar, inverse relationship “between the number of years that a physician has been in practice and the quality of care that the physician provides,” the researchers concluding that “this subgroup of physicians may need quality improvement interventions.”)83 The co-author of the leading treatise on legal malpractice, Ronald Mallen, concludes there is no empirical basis for the “popular belief that older lawyers should account for less claims than younger attorneys, who lack the skills and
81
Mallen, Ronald, & Smith, Jeffrey M. (2000). Legal malpractice (Vol. I, p. 38). St. Paul, Minnesota: West Group. 82 Curran and Carson. (1994). The lawyer statistical report: The legal profession in the 1990s. Chicago, Illinois: American Bar Foundation. Cited in Mallen, Ronald, & Smith, Jeffrey M. (2000). Legal malpractice (Vol. I, p. 38). St. Paul, Minnesota: West Group. 83 Choudhry, Niteesh K., Fletcher, Robert H., Soumerai, Stephen B. (2005, February 15). Systematic review: The relationship between clinical experience and quality of health care. Annals of Internal Medicine, 142(4), 260–273.
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knowledge that experience brings.” He also proffers an explanation for the “greater frequency exposure” of more experienced attorneys: “One reason is that the older lawyer may be too busy to pay adequate attention to the time limitations and details that concern newer lawyers. Another consideration is that the newer lawyers are not likely to be retained on the more complicated and difficult legal representations.”84 Professor Herbert Kritzer’s extensive study of contingency fee practitioners yields another explanation: attorneys who have practiced more than 20 years are less discriminating in deciding whether to accept or decline cases.85 He found that in some practices, attorneys with 21 or more years of experience accepted 56% of the cases presented to them, compared with an acceptance rate of 47% for attorneys with 11–20 years of experience. Thus, some plaintiffs who otherwise would have to abandon their claims obtain legal representation by more senior counsel. During a personal conversation in 2007, Professor Kritzer opined that the more experienced attorneys may be in a better financial position to take risks on tough cases and are not financially constrained, as are younger attorneys, to turn away the more difficult, financially problematic cases. If Professor Kritzer’s hypothesis is correct, higher decision error rates for more experienced plaintiff attorneys simply reflect a deliberate decision to take on problematic cases that other attorneys have declined. A competing explanation is that, at some point along the experience curve, a sense of complacency and overconfidence invites risk and error. Karl Weick, a professor of psychology at the University of Michigan Business School and author of Managing the Unexpected, explains: Consider wildland firefighters: did you know they are most likely to get killed or injured in their tenth year on the job? They’ve adapted extremely well to past challenges but have become less open to new information that would allow them to adapt to new challenges. That’s why firefighters, like people in other organizations, should constantly be encouraged to imagine different possibilities.86
Executives and professionals, Weick believes, frequently fall into a complacency trap. They “are under the illusion that they know more or less what’s going to happen next or how other people are likely to act. That’s both arrogant and dangerous.”87
84
Mallen & Smith supra note 81 at 38–39. Kritzer, Herbert M. (2004). Risks, reputations, and rewards (p. 93). Stanford, California: Stanford University Press. 86 Coutu, Diane L. (2003, April). Sense and reliability. Harvard Business Review, p. 90. 87 Id. at 86. See Shanteau, James, et al. How can you tell if someone is an expert? Performancebased assessment of expertise. In Schneider, Sandra, and Shanteau, James. (2003). Emerging perspectives on judgment and decision research (pp. 620–639). Cambridge: Cambridge University Press. 85
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Table 3.14 Win rates and decision error rates by plaintiff attorney gender Plaintiff Attorney Plaintiff Win Plaintiff Decision Defendant Decision Gender Rate (%) Error Rate (%) Error Rate (%) Female 43 65 19 Female/Male 59 46 39 Male 47 63 22 Male/Male 52 52 33
No Decision Error (%) 16 15 15 15
Table 3.15 Win rates and decision error rates by defendant attorney gender Defendant Plaintiff Win Plaintiff Decision Defendant Decision Attorney Gender Rate (%) Error Rate (%) Error Rate (%) Female 52 58 24 Female/Male 38 67 20 Male 50 60 26 Male/Male 45 58 29
No Decision Error (%) 18 13 14 13
3.8.4.3
Attorney Gender
Turning from attorney experience to attorney gender, the datasets indicate that differences in decision error rates, win rates, and settlement positions are correlated with the gender of both plaintiff and defense counsel. In general, higher decision error rates and lower win rates for plaintiffs are correlated with female solo attorneys, while higher decision error rates for defendants are correlated with male attorneys practicing by themselves or with another male attorney. Low defendant settlement offers, relative to the ultimate award, and serial underpricing of defendant settlement offers also are correlated with male defense attorneys. Table 3.14 shows that plaintiff win rates are lowest (43%) when plaintiffs are represented by a solo female attorney, as contrasted with a win rate of 47% for solo male attorneys. Plaintiff decision error is slightly higher (65%) when plaintiffs are represented by solo female attorneys than when they are represented by solo male attorneys (63%). Plaintiff trial teams consisting of a female attorney and a male attorney, however, are correlated with superior win rates and lower decision error rates than teams comprised of two male attorneys (59% and 52% win rates, respectively, and 46% and 52% decision error rates, respectively). For defendants, as shown in Table 3.15, the highest decision error rate (29%) is correlated with a trial team consisting of two or more male attorneys, while the lowest decision error rate (20%) is displayed by defense trial teams comprised of both a female and a male attorney. Male solo defense attorneys also were correlated with a slightly higher defendant decision error rate (26%) than that evidenced by female solo defense attorneys (24%). Female/male defense teams prevailed in 62% of their cases, while male/male defense teams won 55% of their cases. In settlement negotiations, the average offer submitted by male/male teams was 18% of the average award, compared to the average female/male team offer of 31% of the average award. Male/male defense teams underpriced their offers in 42% of
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the cases, compared to an underpricing incidence of 33% for female/male defense teams; the mean amount of underpricing by male/male defense teams was $4,250,520, compared to a mean amount of $1,691,249 for female/male defense teams. The slightly higher decision error rates and lower win rates correlated with solo female attorneys representing plaintiffs and the relatively low decision error rates correlated with female attorneys representing defendants roughly parallel some results of another recent study. In an article entitled, “Who Wins At Settlement?” law professor Russell Korobkin and statistician Joseph Doherty compared the effect of gender in simulated negotiations between study participants assigned the roles of “plaintiff’s lawyer” and “defendant’s lawyer.” For plaintiffs’ lawyers, Korobkin and Doherty concluded that “there was a highly significant correlation between the gender of the plaintiff subject and the amount of surplus [bargaining advantage] captured by plaintiffs. Being female was negatively correlated with surplus.”88 They note that “the current scholarly consensus, supported by a metaanalysis of bargaining experiments that study gender as a variable, is that, on average across studies, men achieve slightly better outcomes than women in distributive negotiations.”89 For defendants’ lawyers, however, Korobkin and Doherty found that “plaintiff’s surplus was not significantly correlated with the gender of the opposing negotiator” and thus their study did not support the hypothesis that plaintiff’s surplus would be larger when the defense lawyer is female. The higher decision error rates correlated with male defense attorneys mirrors 150 other studies showing that men are more risk seeking and “more overconfident than women.”90 In a study entitled “Boys Will Be Boys: Gender, Overconfidence, and Common Stock Investments,” for instance, the authors found that men trade in their brokerage accounts 45% more often than women and underperform the market by 54% more than women.91 The increased decision error rate of male defense attorneys working with other male defense attorneys, and the attendant risk taking
88
Korobkin, Russell, and Doherty, Joseph. (2007, September 1). Who wins in settlement negotiations? (p. 30). Papers presented at the Second Annual Conference on Empirical Legal Studies, November 9–10, 2007, New York University. Electronic copy available at http://papers.ssrn.com/ sol3/papers.cfm?abstract_id¼998095. Korobkin and Doherty at p. 21 cite Alice F. Stuhlmacher & Amy E. Walters, (1999), Gender differences in negotiation outcome: A meta analysis. Personnel Psychology, 52(3), 653. 89 Id. at p. 21. 90 Myers, David G. (2002). Intuition: Its powers and perils (pp. 159, 206). New Haven: Yale University Press. Baron supra note 49 at 515. See Dorner, Dietrich. (1996). The logic of failure (p. 6). Cambridge, Massachusetts: Basic Books. 91 Barber, B.M., & Odean, T. (2001). Boys will be boys: Gender, overconfidence, and common stock investment. Quarterly Journal of Economics 116(1), 261–262, cited in Myers , David G. (2002). Intuition: Its powers and perils (pp. 159). New Haven: Yale University Press.
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reflected in undervalued settlement offers, also are consistent with numerous studies documenting a higher incidence of risk taking by males acting together than acting alone.92 Settlement negotiations may be affected not only by the gender of a party’s attorney but also by the gender of the opposing counsel. When the defense counsel is a female attorney, the plaintiff’s mean demand is higher, relative to the mean award, than the mean demand a plaintiff submits to a male defense attorney. The defendants’ mean offer displays a similar bias, being lower, relative to the mean award, when plaintiffs are represented by female attorneys and higher when a male attorney represents a plaintiff. Defendants, on average, are more likely to submit lowball offers when the plaintiff’s counsel is female; their offers to parties represented by female plaintiff attorneys are roughly one-half of the amount they offer to parties represented by male plaintiff attorneys. The average defense offer to a female solo attorney representing a plaintiff is 14% of the average award, while the average amount offered by defendants to a party represented by a male solo attorney is 24% of the average award – close to twice the amount offered to the female attorneys. When a female plaintiff attorney teams with a male plaintiff attorney, the average offer they receive is 11% of the mean award, as contrasted with an average offer of 23% of the mean award made by defendants to male/male plaintiff attorney teams. When the gender tables are turned, and plaintiffs submit demands to female defense attorneys, this disparate negotiating pattern is repeated. Plaintiff demands submitted to female defense attorneys are roughly twice the amount of the demands submitted to male defense attorneys. When a single female attorney represents a defendant, the plaintiff’s mean demand is 209% of the mean award, compared with a mean plaintiff’s demand of 109% of the mean award when a single male defense attorney represents a defendant. When a female/male team represents a defendant, the average plaintiff demand is 207% of the mean award, compared with an average plaintiff demand of 101% of the mean award when a male/male team represents a defendant. All of these results may represent a classic confounding problem – a spurious causal relationship between attorney gender and parties’ settlement positions. When the data are categorized by case types, for instance, the gender distinctions evident in the overall dataset are unstable. The negotiation disparities also appear to be affected by the gender of the attorney submitting the demand or offer; in some case types, female defense attorneys are less likely than male defense attorneys to submit low settlement offers to female plaintiff attorneys. Considering the magnitude of the negotiation disparities displayed in the overall dataset, further research on this subject should have a high priority.
92
See Plous, Scott. (1993). The psychology of judgment and decision making (pp. 205–214). New York: McGraw-Hill, Inc.
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3.8.4.4
Academic Rank of Law School
In addition to showing that different decision error rates, win rates, and negotiation strategies are correlated with an attorney’s gender, the study data indicate that the incidence of decision error is correlated with the academic ranking of the law school from which the plaintiff’s attorney graduated. Slightly higher decision error rates and lower win rates are correlated with plaintiff attorneys who graduated from one of the 20 highest academically ranked law schools, as listed by U.S. News and World Report.93 These results are more pronounced when more than one attorney represents the plaintiff. Cases in which a plaintiff’s attorney graduated from a “Top 20” law school show marginally higher decision error rates (65% vs. 63% decision error rate for “Top 20” and non-Top 20 solo attorneys, respectively, and 51% v. 48% decision error rates for Top 20 and non-Top 20 attorney teams, respectively), as shown in Table 3.16. Attorney teams consisting of two “Top 20” graduates also are correlated with lower win rates when compared with the performance of two non-Top 20 graduates (46% vs. 57% win rates, respectively). Plaintiffs’ mean and median cost of error also is higher in cases where a Top 20 graduate represents the plaintiff. Attorneys argue, however, that this result occurs because high stakes, “bet the company” cases are more likely to be handled by a law firm employing Top 20 graduates. High financial impact cases, the argument goes, usually are handled by top tier law firms employing Top 20 law school graduates. The mean award in cases where the plaintiff is represented by two Top 20 graduates, though, is $1,266,656, compared with a higher mean award of $1,542,615 in cases handled by two non-top 20 graduates, suggesting that the amount in issue alone would not explain differential costs of error. Comparatively aggressive negotiating styles also are correlated with Top 20 law school graduates, especially when two Top 20 graduates work together as a trial Table 3.16 Win rates and decision error rates by plaintiff attorney school rank Plaintiff Attorney Plaintiff Win Plaintiff Decision Defendant Decision School Rank Rate (%) Error Rate (%) Error Rate (%) “A” School 46 65 20 “A/A” School Team 46 51 29 “A/B” School Team 51 54 30 “B” School 47 63 22 “B/B” School Team 57 48 38
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No Decision Error (%) 15 20 16 15 14
U.S. News & World Report’s academic ranking of schools is, of course, dynamic. A law school ranked among the upper 20 in 2004 may not have been in that echelon when an attorney in the study database graduated. Nevertheless, the ranking has been remarkably stable. Among the 25 law schools with the largest number of graduates admitted to the California State Bar, only one school was listed in the Top 20 ranking in 1994 but omitted from that ranking in 2004. See Schmalbeck, Richard. (1998, December). The durability of law school reputation. Journal of Legal Education, 48(4).
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team. A plaintiff attorney team of Top 20 graduates overprices its demands in 71% of the cases, compared with an overpricing rate of 62% for a non-Top 20 graduate team. When the effect of teams is disregarded and all plaintiff attorneys who graduated from a Top 20 school are placed in one set and compared with all plaintiff attorneys who graduated from a non-Top 20 school, the negotiation disparities remain. Graduates of Top 20 law schools, when representing plaintiffs, overprice 79% of their cases and non-Top 20 graduates overprice 74% of their cases.
3.8.4.5
Diversity Ranking of Law School
In addition to law firm academic rankings, the study examined the effect of law school diversity, as ranked by U.S. News and World Report. The multivariate analysis indicated that, for defendants, the law school diversity ranking had predictive capacity, although it was one of the least important predictor variables. Generally, graduation from a law school with a high diversity ranking was correlated with slightly reduced decision error rates, both for solo defense attorneys and defense teams. Unfortunately, this variable is not sufficiently reliable absent more extensive studies and a solid history of diversity rankings by U.S. News and World Report. The diversity ranking was not part of the U.S. News and World Report ranking until 2004, and, unlike academic rankings, the annual list of highly diverse law schools has been unstable. Hence, researchers can determine whether an attorney graduated from a law school ranked high in diversity but cannot ascertain readily whether a law school had a highly diverse student population when the lawyer actually attended the law school. The variable is discussed here because it is noteworthy in the multivariate analysis, but any findings are highly tentative absent better data and a longer history of diversity rankings.
3.9
Chapter Capsule
This study of 5,653 civil litigation cases shows that many parties would have achieved better financial results by accepting their adversary’s pre-trial settlement offers than proceeding to trial. Comparing the actual trial results with the pre-trial settlement offers the litigants previously rejected, the study finds that 60% of plaintiffs and 25% of defendants failed to obtain a better financial outcome at trials held between 2002 and 2007. Although plaintiffs experienced adverse trial outcomes more frequently than defendants, the financial costs incurred by defendants when they lost their litigation wagers were significantly higher than plaintiffs’ costs. The average cost of decision error was $73,400 for plaintiffs and $1,403,654 for defendants during the 2002–2007 period. The study also finds that the incidence of decision errors increased and the cost of these errors soared between 1964 and 2004. Plaintiffs obtained trial results that were the same as or worse than the pre-trial settlement offers made by their adversaries in
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54% of the cases in 1964, and this decision error rate rose to 66% in 2004. During that period, the incidence of defendants’ adverse outcomes ranged from a low of 19% in 1964 to a high of 26% in 1984, declining to 20% in 2004. The proportion of cases in which neither party committed a decision error decreased from 27% in 1964 to 14% in 2004. Adjusted for inflation, the cost of plaintiffs’ decision errors increased threefold, a relatively moderate amount compared to defendants’ 14-fold increase. The incidence and magnitude of decision-making errors in the California dataset are replicated in the smaller dataset for New York civil cases. Plaintiffs’ decision error rate in the New York dataset is 56%, compared to 60% in the primary California dataset; and the New York defendants’ decision error rate is 29%, compared to 25% in the expanded California dataset. The percentage of cases in which neither party makes a decision error is identical in both the New York and California datasets (15%). The distribution of decision error costs again displays significant disparities between plaintiffs and defendants, the New York plaintiffs incurring an average loss of $52,183 when they commit a decision error and the New York defendants sustaining an average loss of $920,874. After analyzing 20 classes of case variables, including the type of case, forum, insurance coverage, and the gender of the parties and their attorneys, this study further finds that “Context” variables are more predictive of adverse trial outcomes than “Actor” variables. The Context variables include systemic factors like the type of case, damages, forum, and statutory settlement procedures, while the Actor variables include personal factors like the experience level of the attorneys, the size of firm in which the attorneys work, and the parties’ and attorneys’ gender. The five variables with the strongest predictive capacity are the type of case, whether a statutory offer to compromise was served, the forum in which the case was adjudicated, the type of damages claimed, and the degree of disparity between the parties’ negotiation positions. Variables of lesser impact are whether the alleged wrong is an act of omission or commission, whether the defendant is insured, the type of defendant, the gender and experience level of the parties’ attorneys, and the law school from which the plaintiff’s attorney graduated. To assess whether an attorney’s experience and training in conflict resolution may affect decision error, the study examined trial outcomes for attorneys who served as mediators on their local court panels. The study found that parties who are represented by attorneys with mediation training experienced a lower incidence of decision error and that the presence of these attorney-mediators decreased total decision error for both parties. Plaintiffs represented by attorney-mediators showed a 21% decrease in decision errors, and defendants represented by attorney-mediators exhibited a 16% reduction in decision errors. The attorney-mediators, however, were not more likely to settle their cases than other attorneys who reported case outcomes during the primary dataset period.94 94
Some sentences in this chapter are excerpted with permission from the author’s article, “Let’s not make a deal: An empirical study of decision making in unsuccessful settlement negotiations” (co-authored with Martin Asher and Blakeley McShane), Journal of Empirical Legal Studies, 5(3), 551–591, published by Wiley Periodicals, Inc.
Part II Causes
Chapter 4
Psychological Attributes of Decision Errors
The human understanding resembles not a dry light, but admits a tincture of the will and passions, which generate their own system accordingly: for man always believes more readily that which he prefers. . . . In short, his feelings imbue and corrupt his understanding in innumerable and sometimes imperceptible ways. Francis Bacon, Novum Organum (1620)
Decades of research by cognitive psychologists and behavioral economists demonstrate that decision makers acting under uncertainty, like attorneys and litigants in settlement negotiations, are more intuitive than inductive, more reflexive than reflective, and more insular than incorporative. They rely on impressions, impulses and patterns, innate and inchoate, and employ decision-making shortcuts known variously as heuristics, low-information rationality, fast and frugal reasoning, and thin-slicing.1 These cognitive shortcuts coalesce facts, erase ambiguities, and embolden decision makers. Whether described as “going with my gut,” “flying by the seat of my pants,” or “shooting from the hip,” however, instinctive decision making is poorly suited to complex disputes circumscribed by intricate rules and multiple actors. This chapter examines the psychological biases, heuristics and illusions that corrupt sound decision making. Although it is impossible to precisely match every poor quality decision with a specific cognitive misstep, decision makers generally can improve their proficiency by identifying and mitigating a host of misperceptions and miscalculations correlated with decision-making errors. Until imaging
1
Kahneman, Daniel, & Tversky, Amos (Eds.). (2000). Choices, values, and frames. Cambridge: The Press Syndicate of the University of Cambridge. Gigerenzer, Gerd, & Goldstein, Daniel G. (1996). Reasoning the fast and frugal way: Models of bounded rationality. Psychological Review, 103(4), 650–669. Gigerenzer, Gerd, & Todd, Peter M. Simple heuristics that make us smart. (1999). New York: Oxford University Press, Inc. Popkin, Samuel. (1994). The reasoning voter: Communication and persuasion in presidential campaigns. Chicago: University of Chicago Press. Gladwell, Malcolm. (2005). Blink: The power of thinking without thinking. New York: Little, Brown and Company.
R. Kiser, Beyond Right and Wrong, DOI 10.1007/978-3-642-03814-3_4, # Springer-Verlag Berlin Heidelberg 2010
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technologies have demonstrated, to a reasonable degree of scientific certainty, how human brains react to decision-making stimuli and how cognitive functions shift among various areas of the brain when analytic competence deteriorates, attorneys and clients’ efforts to improve decision-making quality will remain inefficient, oftentimes misdirected, and of limited benefit. That is the social cost of making great medical advances in cardiology, pulmonary medicine and radiation oncology while allocating fewer resources to the behavioral and brain sciences. Pending advances in scientific research that could identify exactly the cause of decisionmaking errors, attorneys and clients will need to mount a broad defense against their own misconceptions. To make effective decisions they must anticipate, understand, monitor, mitigate and outmaneuver biases and illusions that preserve self-esteem and reduce cognitive effort in the short term but block insights and impair judgment in the long term. Cognitive psychologists and behavioral economists have identified and studied more than 100 decision-making biases, heuristics and illusions. Some of these psychological overrides like “status quo bias,” “sunk costs,” and “cognitive dissonance” are part of everyday conversation, indicating that they occupy a permanent yet pliable position in the public domain and may never recover the meaning originally ascribed to them by researchers. Other biases like “the endowment effect” remain relatively obscure, shunned reactively as an unwelcome solicitation from an alma mater’s development office or a salacious spammer. The biases studied in this chapter, both popular and obscure, have been selected to answer three critical questions in litigation decision making: l l l
How do decision makers perceive conflicts and adversaries? How do decision makers evaluate and respond to risk and uncertainty? How do decision makers react to impending changes in their current conditions?
These three questions roughly cover the conflict resolution phases of (a) recognizing and defining a conflict; (b) ascribing motivations and intended outcomes to the disputants; (c) determining the range of possible gains and losses; (d) reacting to threatened or desired changes in status, reputation, and financial positions; (e) choosing and discarding alternative resolutions; and (f) reconciling initial expectations with imminent outcomes. To answer the first question regarding perceptions of problems and adversaries, this chapter examines attribution error, selective perception and memory, selfserving biases, and reactive devaluation. The second question regarding evaluations of and responses to risk and uncertainty necessitates a description of behavioral economics concepts of “framing” and “anchoring.” The answer to the third question about reactions to impending changes in current positions moves the analysis to the status quo bias, the endowment effect, sunk cost bias, discounting of future costs, overconfidence, and the availability, representativeness and hindsight biases. The discussion of these biases below is intended to be informative, not exhaustive, alerting decision makers to cognitive traps rather than convincing them they have learned enough to overcome them. This chapter, accordingly, would respond
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“Nowhere” to Thomas Huxley’s inquiry, “If a little knowledge is dangerous, where is the man who has so much as to be out of danger?”2
4.1
Perceptions of Adversaries and Conflicts
A host of cognitive biases afflicts clients in the early stages of a dispute. These biases affect how clients perceive the character and motivations of their adversaries, the causes of the dispute, and the evidence that will affect settlement negotiations and may eventually determine a judge or jury’s adjudication of the case. These perceptions, in turn, limit the formulation and evaluation of possible solutions. If clients and attorneys can understand how their perceptions, definitions, beliefs and attitudes are distorted by cognitive biases, it may be possible to improve settlement decision making in general and expand settlement alternatives in particular. To the extent decision makers misunderstand their adversaries and the circumstances underpinning disputes, they misunderstand their own options. Biases serve as cognitive shields against the affronts and indignities invariably hurled in lawsuits. Whether named as a plaintiff or a defendant and whether sued as an individual or corporation, any party is confronted by demeaning, unpleasant images depicted by an adversary. Plaintiffs sense that they may be perceived as greedy, naı¨ve, foolhardy, careless, stupid, or gullible regarding the events and conditions that led to their claim as well as the filing of the lawsuit itself. Defendants recognize that they are depicted as uncaring, predatory, unethical, arrogant and exploitative. To the extent the images are false, they are embarrassing and insulting; to the extent the images are accurate, they are painful and infuriating. To retain their individual self-esteem and corporate identity throughout this potentially degrading process, parties inevitably rely on self-protective biases. Over time, these self-protective biases form a self-sealing narrative, telling parties why they are in a dispute, undermining the motives of adversaries, and sheltering parties from unfavorable and disconfirming information. These biases would be benign, perhaps therapeutic, if they did not distort the information maligned parties critically need to determine how their representatives, their adversaries, and their conduct will be perceived by the judge, jury or arbitrator. In litigation, as in war, truth is the first casualty, but its replacements are legion.3 What exactly are these self-protective biases that affect perceptions of adversaries and their contentions? The top candidates for most popular biases and most likely to succeed biases are the same: fundamental attribution error, selective perception, selective memory, self-serving biases, and reactive devaluation, each of which is explained briefly below. The danger of identifying and discussing 2
Thomas Huxley. (1877). On elemental instruction in physiology. The aphorism, “In war truth is the first casualty,” is attributed to the Greek dramatist Aeschylus (525 BC - 456 BC). It is also attributed to U.S. Senator Hiram Johnson and Arthur Ponsonby.
3
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specific biases is that decision makers look at that specific bias and conclude that it does not apply to them, overlooking the fact that cognitive biases act in concert and a slight vulnerability to each bias can build a perniciously large misconception. Attorneys who are confident that they always maintain an open mind in evaluating facts and a rigid objectivity in assessing outcomes may need to recall that one of the foremost attorneys in the early 1900’s was Newton Baker, who served as the City of Cleveland’s solicitor for eight years and its mayor for five years. If his name sounds familiar, it may be because he was a founding partner of Baker & Hostetler, to this day one of the largest and most prestigious firms in the world. Mr. Baker took a leave of absence from that firm when President Woodrow Wilson asked him to serve as Secretary of War during World War I. His service as Secretary of War is notable for, among other things, his response to an aviator’s then novel proposal that airplanes be used to attack enemy ships: “That idea is so damned nonsensical and impossible that I’m willing to stand on the bridge of a battleship while that nitwit tries to hit it from the air.”4
4.1.1
Fundamental Attribution Error
Fundamental attribution error is a first responder in litigation, manifesting almost immediately to answer two bothersome questions, “How did this happen and why did they (plaintiff or defendant) do this?” The attribution bias facilitates a rapid response to these two questions by mushing them together and diverting attention from the actual acts, events and conditions which preceded the litigation to the perceived motives, dispositions and character flaws which are driving the litigation. Attribution error enables clients to view their own conduct as a responsible reaction to circumstances while attributing an adversary’s behavior to ulterior motives, character deficiencies, and unseemly money-grubbing. Clients, in short, have reasons, while adversaries have motivations. When the attribution bias is activated, determinative case facts are subsumed by the imputed motivations underpinning the litigation. In explaining why a plaintiff would file a lawsuit for breach of contract, for instance, a defendant may be more likely to select “greed,” “looking for a deep pocket,” or “trying to find someone to blame for their own business problems” than the possibility that the plaintiff was responding to a legitimate business or legal condition, e.g., not being paid money arguably due under the contract terms. A plaintiff, for her part, may be more likely to believe that an insurance company has not settled a property damage claim because “insurers screw around with people” than the fact that the insurer has photographs and a witness statement showing no compensable damage to the plaintiff’s car. The attribution bias explains why, in litigation, former employees 4
Russo, J. Edward, and Schoemaker, Paul J.H. (2002). Winning decisions (p. 77). New York: Doubleday.
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are invariably “disgruntled,” corporate defendants are routinely “irresponsible,” plaintiffs are consistently “greedy,” and insurance companies “have no conscience.” It is as though these individuals and entities had no existence independent of the dispositions attributed to them. The tendency to attribute motives and character deficiencies to actors is so strong that psychologists and sociologists employ the phrase “motive mongering” to describe the indiscriminate attribution of motives to other people.5 Professors Austin Sarat and William Felstiner have studied attorney-client interactions in actual law office settings and observed the important role of “motive mongering” in shaping stories about the past and establishing the objectives of the attorney’s representation. They explain that “the construction of vocabularies of motives in lawyers’ offices connects ideas, beliefs, experiences and interests. As lawyers and clients together define how people behave and explain why they behave as they do, as they try to make sense of life events, they give shape and content to such behavior and events.”6 The imputation of motives, therefore, may be sequentially and logically inverted; instead of deducing motivations from actual conduct and events, motivations first are imputed and overlaid to describe, comprehend and link conduct and events. The imputed motives form a comprehensive, internally consistent narrative to explain otherwise disparate and ambiguous facts, but the resulting morality play may bear little relation to reality. Most negotiators, business administration professors Deepak Malhotra and Max Bazerman observe, “wrongly assume they understand the other side’s motivations and, therefore, don’t explore them further.”7 In civil litigation cases, Felstiner and his colleagues find that the cause to which an injury or loss is attributed often determines whether a lawsuit will be filed. A claim shifts from being a grievance to a lawsuit when the claimant becomes convinced that an injury or loss was caused by the “fault” of another individual or organization. The claimant, in Felstiner’s terminology, follows a sequence of “naming, blaming, and claiming.” Attribution theory, he believes, explains why people are more likely to file a lawsuit “if blame can be placed upon another, particularly when the responsible agent can be seen as intentionally causing or aggravating the problem.”8 He observes that attorneys, sometimes unknowingly, contribute to the client’s attribution bias: “A disputant discusses his problem with a lawyer and consequently reappraises the behavior of the opposing party. The disputant now believes that his opponent was not just mistaken but acted in bad faith.”9 Attorney-client interactions may change the client’s perception of a 5
Mills, C. Wright. (1940, December). Situated actions and vocabularies of motive. American Sociological Review, 5(6), 904–913. 6 Sarat, Austin, and Felstiner, William L.F. (1988). Law and social relations: vocabularies of motive in lawyer/client interaction. Law and Society Review, 22(4), 740. 7 Malhotra, Deepak, and Bazerman, Max. (2007, September). Investigative negotiation. Harvard Business Review, p. 74. 8 Felstiner, William L.F., Abel, Richard L., and Sarat, Abel. (1980–1981). The emergence and transformation of disputes: Naming, blaming, claiming. Law and Society Review, 15(3–4), 631, 641. 9 Id. at 637.
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dispute from being an unintended mistake to a blameworthy display of bad faith warranting recompense if not retribution – “although neither the lawyer nor the opposing party necessarily knows about the shift.”10 Ironically, the tendency to attribute human actions to dispositional factors rather than situational factors is reversed when parties justify their own behavior.11 Professors Austin and Sarat explain this phenomenon in the context of family law cases: In interpreting their own actions clients shift from explanations based on personal dispositions and character traits to circumstances and situations. They emphasize their innocence, vulnerability, and injury. They suggest that any undesirable conduct on their part was the product of provocation or duress. The meanings they attach to their own behavior are consistent with their attempt to blame their spouses and to present their own actions as reasonable and justifiable responses to circumstances not of their making.12
“Lawyers,” add Austin and Sarat, “do not generally challenge their client’s attempts at exculpation, nor do they validate them.”13 Although they could exercise a corrective role, many attorneys are concerned about threatening the attorney-client relationship with a dissonant viewpoint and generally seek to avoid confrontation with clients. In choosing not to counter the client’s attributions of fault and blame, however, attorneys jeopardize their own ability to secure a negotiated outcome. Attorneys cannot persuasively encourage a client to consider or accept an adversary’s settlement proposal when they have implicitly joined in the client’s characterization of that adversary as reprehensible or implacable.14 The anomalous operation of the attribution bias – litigants ascribe adversary’s behavior to disposition and their own behavior to situations – and its practical effect on negotiating outcomes are described by law professor Russell Korobkin in his article, “Psychological Impediments to Mediation Success: Theory and Practice.” He explains how imputed motivations alter perceptions, increase anger and sometimes fuel a desire for retaliation: These attribution biases mean that when acts of others harm us, we are more likely to conclude that “they” are bad people who have acted with malice or indifference. This analysis, in turn, leaves us angrier than we would be if our assumptions were more accurate. In contrast, when we are the harmdoer we are more likely to believe, on average, that our actions are responses to unalterable situational constraints; that is, the harm we cause is due to the situation rather than to our dispositional characteristics.15
10
Id. at 637. See Ross, Lee. (1977). The intuitive psychologist and his shortcomings: Distortions in the attribution process. Advances in Experimental Social Psychology, 10, 173. 12 Sarat and Felstiner supra note 6 at 747. 13 Id. 14 Sarat, Austin, and Felstiner, William L.F. (1988). Law and social relations: Vocabularies of motive in lawyer/client interaction. Law and Society Review, 22(4), 765-766. 15 Korobkin, Russell. (2006). Psychological impediments to mediation success: Theory and practice. Ohio State Journal of Dispute Resolution, 21, 281, 302. 11
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These conflicting beliefs may quickly raise emotional barriers to resolution. Victims of wrongful conduct become enraged when alleged wrongdoers attempt to justify their conduct by reference to situations, because the victims “know” the conduct was caused by dispositional characteristics; and alleged wrongdoers, for their part, become irate when victims “personalize” conflicts and cast aspersions upon their character, because the wrongdoers “know” their conduct was justified by situational characteristics. Each imputation and each disavowal of bad motives reinforce the recipient party’s conviction that an adversary is unbalanced, unreasonable, and far too emotional to engage in good faith negotiations. The attribution biases are fundamentally self-serving and reflect “the desire to look good and the need to protect self-esteem.”16 College students, for instance, are more likely to attribute their own choice of a major to situational factors and other students’ choices to dispositional factors. In choosing a major, students believe they rely on situational factors like “good employment prospects” while other students rely on dispositional factors like “wanting to make a lot of money.”17 Attribution errors also are demonstrated when people describe the cause of their successes and failures. Their successes usually are attributed to personal factors (skill, intelligence, experience), while failures are attributed to external factors like market conditions or “an unfortunate situation in which they found themselves.”18 Attorneys themselves are affected by attribution biases when they ascribe causes to their case victories and defeats. Good outcomes frequently are attributed to skill while bad outcomes are blamed on situational constraints. Yet to be found is an attorney who regards her wins as largely fortuitous and her losses as self-inflicted. Consider how two opposing attorneys describe the defense verdict in favor of Mammoth Mountain Ski Area and against plaintiff Ray Willing, a 36-year old former snowboarder rendered a paraplegic after an accident. In that case, Willing alleged that Mammoth failed to maintain the ski area in a safe condition; the tip of his snowboard hit a piece of metal, part of a soil erosion mesh, protruding out of the snow. The lead defense lawyer, John Fagan, believes that his cross-examination of the plaintiff’s accident reconstruction expert witness, Olaf Jacobsen, was the turning point in the case. A reporter for the San Francisco Daily Journal describes the critical moment: Fagan questioned whether the damage to the top of the [snow] board could have been caused only by impact with a narrow piece of metal or if it also could have been caused by the sharp volcanic rocks native to Mammoth. As Jacobsen [plaintiff’s expert witness] measured the rocks on the stand with a protractor to determine their sharpness, “the jury could be heard to be laughing,” Fagan said. “It’s unusual to feel like a trial is turning in your favor during cross-examination of the plaintiff’s best witness,” he said, “but I could sense that the jury felt his testimony was not based in science.”19
16
Plous, Scott. (1993). The psychology of judgment and decision making (p. 185). New York: McGraw-Hill, Inc. 17 Id. at 182. 18 Bazerman, Max H. (2002). Judgment in managerial decision making (p. 67). New York: John Wiley & Sons. 19 (2007, February 8). 2006 Top Defense Verdicts. San Francisco Daily Journal, p. 8.
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An entirely different perspective is presented by plaintiff’s counsel, Matthew Clarke, of Cappello & Noel in Santa Barbara, California. Clarke believes “the court’s proximity to Mammoth Mountain played a major role in the verdict.” “The thing about trying a case in Mammoth Lakes is that 95% of the people make their living off the mountain,” he said. “We got hometowned.”20 Weighing these conflicting assessments, one cannot objectively discern whether Mammoth Mountain won because of personal skill factors – its attorney’s “turning point” cross-examination of plaintiff’s star expert witness – or whether Ray Willing lost because of external factors – being “hometowned” by a biased jury. But one may conclude that each attorney’s perception of the cause provides more information about attribution biases than it does about the reasons for the jury’s verdict. An unfortunate result of the attribution bias is that disputes about how problems arose and how they should be solved merge into demeaning and distorted characterizations of the disputants themselves. Parties who perceive the world differently are “seen as motivationally distorted by self-interest, mentally crippled by stupidity, or both.”21 For some people, the fact that others disagree with them does not indicate that reasonable minds can differ but rather is itself evidence of bad faith, as Professor Korbokin explains: We believe that our understanding of the world is authentic; that is, we assume that we see the world and the facts of the world as they truly are. It follows from this belief that if others do not agree with our view of the world or our view of facts, then they must be misinformed, biased, insensitive or self-interested. Once we explain the situational constraints that determined our actions, others can no longer claim to be misinformed. At that point, their claim to perceive the world differently than we do constitutes evidence of their bad character.22
When Judge Richard Kramer of the Superior Court of California ruled that prohibitions against same-sex marriage were unconstitutional, for instance, his decision was attacked as “a crazy ruling by an arrogant San Francisco judge who apparently hates marriage and hates the voters.”23 In reality, Judge Kramer is Catholic, Republican, and married, and he “has gained a reputation for being compassionate, respectful and unbiased.”24 His decision, though decried as “crazy,” was later upheld by the Supreme Court of California. Although one can disagree with his decision, it does not follow that he has the personal characteristics attributed to him by his detractors. Attributing personal and dispositional characteristics to actions is a disruptive and delusive impulse. Invariably, the only facts people know with any degree of certainty are external facts – an event occurred, a circumstance changed, a decision
20
Id. Epley, Nicholas, and Caruso, Eugene M. (2004, June). Egocentric ethics. Social Justice Research, 17(2). 22 Korobkin supra note 15 at 302–303. 23 Finz, Stacy, and Van Derbeken, Jaxon. (2005, March 15). Judge is Catholic and Republican. San Francisco Chronicle, p. A12. 24 Id. 21
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was made, and behavior was altered. Presuming reasons and motivations for the event, circumstance, decision or behavior invariably distracts parties from problem solving; it encourages surmise, suspicion, and speculation without a gain commensurate with the risks it entails. The attribution of personal, dispositional characteristics to adversaries not only distorts an evaluation of their positions but also eliminates consideration of creative or cooperative settlement alternatives that are only practicable with people who have the integrity and trustworthiness conclusively presumed missing in the adversary. As Jeffrey Zaslow, a senior writer for The Wall Street Journal, warns, “we blame because we lack the skills to problemsolve.” The instinct for self-protection encourages people to blame others, he writes, but ultimately blame “ruins everything, creating hostilities, scapegoats, and an avoidance of hard decisions that could actually solve problems.”25
4.1.2
Selective Perception and Memory
Once the attribution bias has guided parties in determining what type of people are behind the litigation, the selective perception and memory biases foster a selfserving understanding of the facts that preceded the litigation. Selective perception and memory serve two powerful purposes: they enable people to preserve a selfimage of competence and fairness, and they bridge interstices in their recollection. The downside is that selective perception and memory prevent parties from understanding how a jury could favor an adversary’s version of the facts and reject their own contentions. Because the adversarial system is designed to reveal discrepancies between an adversary’s perceptions and facts and uncover differences between an adversary’s memories and the contemporaneous records, litigants need to be acutely sensitive to the damage wreaked by selective perception and memory.
4.1.2.1
Selective Perception
“Seeing is believing,” the aphorism holds. But psychologists have learned that a more accurate adage would be “believing is seeing.”26 Psychological experiments consistently demonstrate that humans see what they have been pre-conditioned to believe they will see, and they discard events inconsistent with their pre-conceptions. They see things as they have been or should be and not necessarily as they are. Dartmouth College students, for instance, see twice as many infractions committed by the Princeton University team when they watch a movie of a football game 25
Zaslow, Jeffrey. (2005, September 15). “It’s all your fault:” Why Americans can’t stop playing the blame game. The Wall Street Journal, p. D1. 26 See Coutu, Diane L. (2003, April). Sense And Reliability: A Conversation With Celebrated Psychologist Karl E. Weick. Harvard Business Review. pp. 84–90.
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between their teams; card players shown a black three of hearts are sure they saw a normal three of hearts; voters watching the same media coverage of an election are convinced that the media is biased against the particular candidate they support; and pro-Arab and pro-Israeli college students viewing the same news broadcast segments reach completely divergent conclusions about whether the references to Israel would cause neutral viewers to view Israel negatively.27 Students in different classrooms, variously informed that the same visitor in each classroom was another student, a demonstrator, a lecturer, a senior lecturer, and a professor, estimated his height to be an additional ½ inch with each incremental upgrade in his status. Hence, the visiting “professor” was 2½ inches taller than the same individual introduced as a visiting “student.”28 Perception is not only biased but can be totally inaccurate. These visual lapses result from that fact that “far more information lands on your eyes than you can possibly analyze and still end up with a reasonable sized brain,” explains Jeremy Wolfe of Harvard Medical School.29 Shown slides of a building, viewers do not notice entire stories removed from sequential slides; and shown a cartoon of dancing hens, they do not notice that one chicken had exploded.30 Subjects viewing a one-minute videotape of a basketball game do not notice a woman carrying a large white umbrella as she walks across the court, although she is filmed for four seconds.31 Nor do 50% of subjects see a person in a gorilla suit when watching six people play with three basketballs, although all of the subjects had previously predicted that they would notice such an unusual event if it occurred.32 “People’s intuition about vision and attention tells them that they would notice changes right before their eyes,” notes law professor Jeffrey Rachlinski, “but studies show that people discount how cognitively difficult it is to recognize many changes.”33 The tendency to observe events as one expects them to be or as they should be is not limited to visual perception. One may recall the tragedy in early 2006 of the 13 miners trapped in a West Virginia coal mine 260 feet below the surface. When the rescuers finally reached the miners, they found one survivor and phoned the command center. Their communication appears to have been hampered by fullface oxygen masks and radio communications in code, although 30 people in the
27
Plous supra note 16 at 18–21. Cialdini, Robert B. (1993). Influence: The psychology of persuasion (pp. 222–223). New York: William Morrow. 29 Angier, Natalie. (2008, April 1). Blind to change, even as it stares us in the face. The New York Times, p. F2. 30 Id. 31 Goleman, Daniel. (1996). Vital lies, simple truths (pp. 80–81). New York: Simon & Schuster. See Bazerman, Max H., and Chugh, Dolly. (2006, January). Decisions without blinders. Harvard Business Review, p. 90. (“When we use this tape in the executive classroom, even fewer than 21% of executives spot the woman.”) 32 Rachlinski, Jeffrey J. (2003). Misunderstanding ability, misallocating responsibility. Brooklyn Law Review, 68(4), 1071–1072. 33 Id. at 1072. 28
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command center heard the transmission. In any event, word quickly spread that there were twelve survivors. Upon learning the news, family members who had gathered together at a church across from the mine “hugged each other and shed tears of joy.” The church bells began ringing, and “people were rushing out, yelling ‘There’s 12 alive!’”34 The state’s governor, Joe Manchin III, repeatedly confirmed the earlier news of the miners’ survival with the command center, and “they were ecstatic too.” The rescuers then made a second call to the command center. The people in the command center had “misunderstood” the rescuers’ report. “Apparently the rescuers meant to convey that they had found 12 individuals and were trying to check their vitals signs, to determine if any were alive,” said Bennett Hatfield, the Chief Executive Officer of International Coal Group, the mine’s owner.35 All twelve miners, in fact, were dead. “There was clearly some misinterpretation, some miscommunication,” Governor Manchin said after learning that the report of a rescue was false.
4.1.2.2
Selective Memory
The handmaiden of selective perception is selective memory. Selective memory is an undiscriminating bias and afflicts nearly all decision makers regardless of their intelligence and educational levels. In one study, two psychologists surreptitiously recorded a meeting of the prestigious Cambridge Psychological Society and, two weeks after the meeting, asked their colleagues to summarize their recollection of the meeting. Comparing their fellow psychologists’ recollections with the secret recording, the psychologists found that more than 90% of the issues discussed at the meeting were omitted from the recollections. To the extent issues were remembered, “nearly half were incorrect.” Overall, colleagues “remembered comments that were never made, they transformed casual remarks into lengthy orations, and they converted implicit meanings into explicit comments.”36 For the eminent psychologists, this experiment was benign; for litigants, discrepancies of this magnitude could seriously prejudice case evaluations for settlement purposes and at trial could be sufficient evidence of a witness’ untruthfulness to support an adverse judgment. The commonality of selective memory does not lessen its deleterious impact on pre-trial settlement negotiations or its devastating effect on juror perceptions of credibility; mistakes in recollection deemed innocuous in ordinary life can assume a malignant quality and deliver a decisive blow in a trial. To understand the bias of selective memory, consider the detailed testimony of former presidential advisor John Dean, a graduate of Georgetown University Law 34
Daq, James, and O’Neill, John. (2006, January 4). After reports to the contrary, only one miner survives. The New York Times. CNN. (2006, January 5). ‘Sound of moans’ led rescuers to surviving miner. Available at http://www.cnn.com/2006/US/01/04/mine.explosion.wed/index.html 35 Id. 36 Plous supra note 16 at 37.
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Center, and an attorney trained to analyze facts and to be aware of the criminal consequences of misrepresenting them: The President asked me to sit down. Both men appeared to be in very good spirits and my reception was very warm and cordial. The President then told me that Bob – referring to Haldeman – had kept him posted on my handling of the Watergate case. The President told me I had done a good job and he appreciated how difficult a task it had been and the President was pleased that the case had stopped with Liddy. I responded that I could not take credit because others had done much more difficult things than I had done. . . I told him that all I had been able to do was to contain the case and assist in keeping it out of the White House. I also told him there was a long way to go before this matter would end and that I certainly could make no assurances that the day would not come when the matter would start to unravel.37
The richness of detail, the naturalness of the narrative, and the portrayal of informality, appreciation, and modesty blend to convey Dean’s sincere, vivid picture of this interaction. Ulric Neisser, a psychologist and professor at Cornell, rattles this picture by comparing Dean’s testimony with the actual transcript of those conversations: Comparison with the transcript shows that hardly a word of Dean’s account is true. Nixon did not say any of the things attributed to him here: he didn’t ask Dean to sit down, he didn’t say Haldeman had kept him posted, he didn’t say Dean had done a good job (at least not in that part of the conversation); he didn’t say anything about Liddy or the indictments. Nor had Dean himself said the things he later describes himself as saying: that he couldn’t take credit, that the matter might unravel some day, etc. (Indeed, he said just the opposite later on: “Nothing is going to come crashing down.”) His account is plausible but entirely incorrect.38
Professor Neisser notes that Dean’s ambition “reorganized his recollections” and that his testimony reflects not the meeting itself but his “fantasy of it; the meeting as it should have been.” (Although some may regard Dean’s discrepancies as being motivated by a desire to avoid liability for the Watergate scandal, the facts which he “reorganized” were contextual, personal, or tertiary, not exculpatory.) More recently, Secretary of State Hilary Clinton vividly and emphatically recalled running across an airport tarmac after landing in Bosnia: I certainly do remember that trip to Bosnia. I remember landing under sniper fire. There was supposed to be some kind of a greeting ceremony at the airport, but instead we just ran with our heads down to get into the vehicles to get to our base.39
The video of the visit, however, shows Secretary Clinton calmly walking from her plane and meeting the U.S. Ambassador, John Menzies, the acting president of 37
Hearings Before the Select Committee on Presidential Campaign Activities of the United States Senate, Ninety-third Congress, First Session, 1973, 957, quoted in Goleman, Daniel. (1985). Vital lies, simple truths (pp. 93–94). New York: Simon & Shuster. 38 Ulric Neisser. (1981). John dean’s memory: A case study. Cognition, 9(1). Quoted in Goleman, Daniel. (1985). Vital lies, simple truths (p. 94). New York: Simon & Shuster. 39 Healy, Patrick, and Seelye, Katharine Q. (2008, March 25). Clinton says she ‘misspoke’ about dodging sniper fire. The New York Times.
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Bosnia, Ejup Ganic, two American military officials, an 8-year old girl, and a seventh grade class.40 The commander of the American forces in Bosnia, who was at the airport, says, “She never had her head down. There was no sniper threat that I know of.” A similar misrecollection is displayed in former Federal Reserve Chairman Alan Greenspan’s autobiography, The Age of Turbulence: Adventures in a New World. He writes that he presciently urged his colleagues in early 1998 “to raise interest rates as a ‘preemptive’ move against a stock market bubble. The transcripts of the Federal Reserve meetings, however, “do not support his version of events: They show Mr. Greenspan argued for a rate increase principally because of inflation.”41 In light of the subsequent stock market implosion, it would have been prophetic for Greenspan to have advocated the preemptive action that he now recalls, but the meeting transcript suggests his outlook was more pedestrian than foresightful. Greenspan, like Dean, apparently conveyed his fantasy of the meeting as it should have been. Although the selective memory bias is more easily documented in the case of public officials whose statements and appearances are recorded, filmed or transcribed, this bias affects nearly everyone. To test the accuracy of memory, psychologist Kathy Pezdek of Claremont Graduate University asked residents of New York, California and Hawaii about their recollection of the World Trade Center attack on September 11, 2001. She found that “73% of the participants incorrectly reported that they saw a videotape of the first plane striking the first tower as it happened. In reality, videotapes capturing that part of the day’s events did not surface until much after the attacks had concluded.”42 (Video of the attack was not aired until the next day). Although many respondents expressed a high degree of confidence in the accuracy of their memories, Professor Pezdek found no correlation between confidence and accuracy. Professor Pezdek’s findings regarding recollections of the World Trade Center attack are substantiated by similar research at nine other universities. Psychologist William Hirst of New School University, for instance, notes that people do not accurately recall the airlines and number of planes. “In terms of content,” he says, “people are surprisingly inaccurate.”43 Reviewing these studies, science writer Sharon Begley concludes: “They confirm that even for an event woven into our synapses forever, memories are human constructs. They are amalgams of what we experienced, read and pieced together afterward, and what we would like to be true – not documentary records.”44 40
See also Allen, Joanne. (2008, March 25). U.S. News video contradicts Clinton on Bosnia visit. Reuters. Available at http://www.reuters.com/article/politicsNews/idUSN2527872020080325 41 (2007, September 15–16). Former fed chief’s book criticizes Bush and Republicans. The Wall Street Journal, p. A2. 42 (Summer 2006). Focus: Memories of September 11. The Flame, p. 6. Claremont Graduate University. 43 Begley, Sharon. (2002, September 13). Are all your memories of September 11 really true? The Wall Street Journal, p. B1. 44 Id.
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Sufficiently plastic to meld what actually occurred and what should have occurred, the human brain forms memories that are more cognitively acceptable than factually accurate. In its own fashion, the brain strives to be loyal to the values, preconceptions, and prejudices of its host, maintaining a cognitive equilibrium between self-perception and the world as it exists. As the Talmud states, “We don’t see things as they are, we see things as we are.”45 Consequently, the mind’s capacity to tuck incongruous perceptions into congruent memories is extraordinary, its task perpetual. Noting that the design of the mind facilitates self-deception, Daniel Goleman, a psychologist and author of the bestseller Emotional Intelligence, writes: “the ease with which we deny and dissemble – and deny and dissemble to ourselves that we have denied or dissembled – is remarkable.”46
4.1.3
Self-Serving Bias
The biases of selective perception and selective memory, attended by fundamental attribution error, support yet another cognitive bias that distorts perceptions of adversaries’ cases and their motivations: the self-serving bias. This bias enables people to overestimate their prospects and to achieve feats previously deemed to be mathematically impossible. Surveys report that 90% of drivers rate themselves “above average;” 94% of college professors think their work is above average; attorneys place themselves in “at least the top 80th percentile on such qualities as ability to predict the outcome of a case, honesty, negotiation skills, and cooperativeness;” nearly all newly married couples predict they will not be divorced; 90% of judges think that “at least half of their peers had higher reversal rates on appeal;” and a large majority of people claim to be above average in health and productivity.47 Eighty percent of surveyed hypertension patients state that it is impossible for patients to tell when their blood pressure is high, but 88% of the surveyed patients believe they can intuit their own blood pressure.48 When spouses quantify what share of housekeeping responsibilities each performs, their respective contributions to domestic tidiness invariably exceed 100%; when co-authors assess their percentage of effort in writing their book, the aggregate contributions are above 100%; and when two conversationalists estimate how much time each spent talking, both jabberers think they talked more than half the time.49 The self-serving bias thus
45
Myers, David G. (2002). Intuition: Its powers and perils (p. 73). New Haven, Connecticut: Yale University Press. 46 Goleman supra note 31 at 95. 47 Birke, Richard. (2000). Settlement psychology: When decision-making processes fail. Alternatives to High Cost Litigation, 18, 203. Guthrie, Chris, Rachlinski, Jeffrey J., and Wistrich, Andrew J. (2001). Inside the judicial mind. Cornell Law Review, 86(4), 811–813. 48 Myers supra note 45 at 78. 49 Bazerman supra note 18 at 71. (2002). Guthrie, Rachlinski, and Wistrich supra note 47 at 812.
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produces an extreme Lake Wobegon effect. Everyone is above average, and their combined efforts always exceed 100%. Aside from presenting mathematical impossibilities, the self-serving bias generates conceptual anomalies that consistently advance the proponent’s interests. When asked whether, “If someone sues you and you win the case, should he pay your legal costs?” 85% of respondents said “Yes.” But when asked, “If you sue someone and you lose the case, should you pay his costs?” only 44% answered “Yes.”50 Provided with identical research, both death penalty proponents and opponents concluded that the research “reinforced their prior beliefs.”51 Likewise, given the same evidence but divided into “plaintiff attorney” and “defense attorney” roles, law students interpreted the facts as being more favorable to the side they were appointed to represent.52 In one experiment where all participants received the same case information, law students assigned the plaintiff role predicted that the likely award at trial was $14,527 more than the amount predicted by students assigned the defendant role; likewise, students in the plaintiff role thought the “fair settlement value” of the case was $17,709 more than the valuation determined by the students in the defense role.53 When participants in a different experiment were informed they had performed better than non-participants, the study participants thought their compensation should be based on results; when informed that the non-participants performed better, the study participants thought their compensation should be divided equally.54 These thoroughly inconsistent responses to surveys indicate that self-serving biases shape disputants’ concepts of justice, equity, and fairness as subtly as chain saw sculptors carve tree trunks in the rough-out phase. Perceptions of fairness are not dictated by detached, impartial concepts of equity but rather reflect disputants’ roles, status, power, resources, alliances and anticipated outcomes. As business professor Max Bazerman explains, disputants first select a preferred outcome on the basis of self-interest and then justify this preference on the basis of justice: While people frequently have the goal of reaching a fair solution, their assessments of what is fair are often biased by self-interest. For example, it is common for all parties in a conflict to suggest viable, but self-serving, solutions, which they justify based on abstract fairness criteria. Egocentrism allows people to believe that it is honestly fair for them to have more
50
Bazerman supra note 18 at 70. Korobkin, Russell B., and Ulen, Thomas S. (2000). Law and behavioral science: Removing the rationality assumption from law and economics. California Law Review, 88(4), 1093. 52 Id. 53 Guthrie, Rachlinski, and Wistrich supra note 47 at 813. 54 Birke, Richard, and Fox, Craig R. (1999). Psychological Principles in Negotiating Civil Settlements. Harvard Negotiation Law Review, 4, 35. 51
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of a given resource than an independent advisor would judge. The problem lies not in a desire to be unfair but in our failure to interpret information in an unbiased manner.55,56
If the effect of self-serving biases seems to be exaggerated by social scientists, consider how often a person or organization advocates a fairness or performance standard that would result in a singularly negative financial impact on the party propounding the standard. The practical effect of the self-serving bias on parties in litigation, according to law professors Russell Korobkin and Thomas Ulen, is that “plaintiffs (and defendants) will systematically anticipate their trial prospects as being better than defendants (and plaintiffs) believe. The consequence of this is more trials than would be predicted by the rational choice model, unless steps are taken to mitigate the parties’ evaluative biases.”57 This concern is echoed by law professor Chris Guthrie and his colleagues in their article, “Inside the Judicial Mind:” “Due to egocentric biases, litigants and their lawyers might overestimate their own abilities, the quality of their advocacy, and the relative merits of their cases. These views, in turn, are likely to undermine settlement efforts.”58
4.1.4
Reactive Devaluation
The biases that affect how parties view adversaries inevitably influence how settlement proposals from adversaries are viewed. Research indicates that evaluations of proposals are affected as much by the source of the proposal as its content, otherwise acceptable proposals being devalued when submitted by an adversary and otherwise unacceptable proposals being seen more favorably when made by aligned parties. The possibility of an adversary proposing a fair and appropriate settlement triggers cognitive dissonance, and that dissonance is resolved by diminishing the attributes of the proposal. The process of discounting adversaries’ ideas is called reactive devaluation. The upshot of reactive devaluation, Professor Korobkin explains, is that “a concession or compromise that is offered appears less desirable
55
Bazerman supra note 18 at 70–71. When a traveler takes advantage of a computer glitch and purchases an airline ticket on-line for $0, for example, she is not obtaining an unfair advantage but rather righting a previously inflicted wrong. Asked whether she felt “guilty” about purchasing a “fat finger” fare for herself, her mother, and two friends for airfare from Minneapolis to Acapulco, a traveler responded, “Absolutely not. It’s fair to assume that American Airlines has taken advantage of me on more than one occasion. What goes around comes around.” (2007, September). National Geographic Traveler (p. 20). 57 Korobkin and Ulen supra note 51 at 1094. 58 Guthrie, Chris, Rachlinski, Jeffrey J., and Wistrich, Andrew J. (2001, May). Inside the judicial mind. Cornell Law Review, 86(4), 812–813. 56
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than it appeared before it was offered. That is, grass growing on our side of the fence looks less green than it did when it was growing on the other side of the fence.”59 Reactive devaluation prevents people from taking an offer at face value and explains why some litigants cannot take “Yes” for an answer. Instead of evaluating the content of an offer on its own merits, recipients ask, l l l
Why is this particular compromise being offered? Why is this particular exchange of concessions being proposed? Why is the offer or proposal coming now?60
Convinced that adversaries would not be making good faith efforts to resolve a dispute, parties often resolve these questions by concluding “they must not value what they are proposing to concede” or “they must know something about the current situation that we don’t.”61 The overall effect of reactive devaluation is to heighten distrust, change evaluations of alternatives previously deemed acceptable, discourage parties from making further compromises or concessions, and generally impede a negotiated resolution. In a 1986 experiment, reactive devaluation was demonstrated by asking American respondents to evaluate a broad nuclear disarmament proposal. For one group, the proposal was attributed to President Ronald Reagan; the second group learned that the proposal was advanced by a group of neutral strategy analysts; and for a third group, the proponent was identified as Soviet leader Mikail Gorbachev. Not surprisingly, the respondents’ reaction to the proposal varied significantly with the proponent, although the content itself remained the same. Ninety percent of respondents approved the proposal when it was attributed to President Reagan, 80% backed the proposal when neutral analysts advanced it, and only 44% liked it when they knew Gorbachev was the backer.62 Reactive devaluation apparently reflects two presumptions: adversaries do not offer terms unless those terms advance their own interests and harm the other party’s interests; and adversaries do not offer terms that would improve the other party’s position or provide any relative advantage to the other party. Reactive devaluation is not limited to adversaries’ proposals but extends to other contexts in which proponents are perceived to act in their own self-interest. When Stanford University was considering alternative plans for divesting its investments in South Africa, for instance, students’ ratings of the degree of compromise shown by Stanford depended on whether Stanford had proposed the plan. When students were informed that Stanford proposed an immediate divestment, only 40% of the students thought the immediate divestment plan was a greater concession than a delayed divestment plan. But when the experimenters informed students that
59
Korobkin supra note 15 at 316. Ross, Lee. Reactive devaluation in negotiation and conflict resolution. In Arrow, Kenneth, et al., Eds. (1995). Barriers to conflict resolution (p. 40). New York: W.W. Norton & Company, Inc. 61 Id. 62 Id. at 29. 60
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Stanford proposed a delayed divestment plan, 85% of the students thought the immediate divestment plan was a greater concession than the delayed plan. When students were told that the university had not decided which divestment plan to implement, 69% of the students thought the immediate divestment plan represented a larger concession than the delayed plan. In variations of the experiments, students continued to devalue a divestment plan whenever they were informed that the University intended to implement it.63 Similar results appeared when students in an experiment were asked to imagine that a professor was unfairly appropriating their research and, after being informed of the student’s objections, offered to resolve the problem by either paying $750 to the student or adding the student’s name as a co-author. When the professor offered the $750 payment, most students preferred co-authorship; when offered co-authorship, most students wanted money. Even when the experiment was varied to depict the professor’s reputation both positively and negatively based on prior dealings with other research assistants, students preferred the alternative that was withheld. Although a negative perception of the professor increased the magnitude of the reactive devaluation, a negative perception was not essential in evoking reactive devaluation.64 This finding suggests that antagonistic adversaries will experience a higher level of reactive devaluation while cooperative adversaries will still find their settlement overtures are affected by a milder but nevertheless serious degree of reactive devaluation. The chronic devaluation of proposals and concessions made by adversaries has been documented in numerous other studies and appears to result, in part, from loss aversion and an alteration of aspiration levels.65 Psychologist Lee Ross summarizes the research results: . . . any relevant object of judgment (including, presumably, a concession offer or a negotiation proposal) will be evaluated more negatively as a consequence of its linkage to a negative source (including, presumably, an enemy or adversary). In other words, no reinterpretation, in fact no consideration of content at all, need take place for devaluation to occur. One might simply reason that if “they” are offering a proposal it must be good for them; and if it is good for them (especially if “they” are adversaries who wish us harm) it must be bad for “us.”66
For clients and their attorneys, the practical effect of reactive devaluation is that concessions intended to generate goodwill often are construed as strategic undermining and evidence of bad faith. Compromise proposals, Lee Ross explains, frequently “fail in their objectives” because they are “dismissed as trivial and token, or received with coolness and expressions of distrust that serve to thwart the goal of negotiated agreement and to weaken rather than strengthen the hand of
63
Id. at 33. Id. at 35–36. 65 Id. at 34. See Korobkin supra note 15 at 316–321. 66 Ross supra note 60 at 34. 64
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those who urge conciliation.”67 For negotiators, reactive devaluation goes a long way toward insuring that no good deed goes unpunished. Given the strong effect of reactive devaluation, can concessions and compromises ever be evaluated on their merits, avoiding the skepticism and discounting that seems to accompany even good faith settlement gestures? Lee Ross answers this question affirmatively and suggests two practical strategies. First, before making concessions or compromises, parties should explicitly ask adversaries to state and rank their values, preferences, and objectives. This prevents adversaries from viewing another party’s settlement proposals as reflecting preferences of or advantages to be obtained by the other party. Reactive devaluation is less likely to occur when a proposal is perceived to be directly responsive to a request. Second, parties can offer a “menu” of concessions in exchange for reciprocal concessions and ask the other party to designate a preferred concession, as Ross explains: “Tell your adversaries that you are willing to take the first small step; stipulate or at least outline some possibilities that clarify the magnitude of that step; and ask your adversaries what they want.” When you “give them what they ask for,” Ross contends, the effects of reactive devaluation are muted.68
4.1.5
A Practical Example Of Overcoming Self-Protective Biases
A practical example of the expansive mindset conducive to sound decision making and the clear reception of different viewpoints and alternatives is presented in the JDS Uniphase class action case. In that case, a group of JDS shareholders alleged that JDS withheld materially adverse financial information to inflate its stock value while executives sold their holdings. Threatened with a claim that could have bankrupted the company, the CEO and chief legal officer of JDS Uniphase continually evaluated the case, candidly assessed the range of outcomes, offered to settle for $100 million (according to press reports), obtained “reality checks” by presenting the case to various focus groups, paid a former federal court judge for his evaluation, and, after settlement negotiations failed, eventually proceeded to trial. Following a four-week trial, the jury deliberated for one and one-half days and returned a verdict in favor of JDS Uniphase, which the plaintiff did not appeal.69 Placed in the context of all securities fraud class action litigation during the preceding 12 years, the JDS Uniphase decision was exceptional. Among 2,105
67
Id. at 38. Id. at 39–40. 69 (2008, February 6). JDS Uniphase wins at rare securities class action trial. San Francisco Daily Journal, p. 4. Jones, Ashby. (2008, June 2). JDS wins investor lawsuit, bucking a trend. The Wall Street Journal, p. B4. 68
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shareholder securities fraud cases, it was one of only four cases tried to verdict and only one of two defense verdicts.70 Looking back on the entire five-year period of litigation and intense decision making, Kevin Kennedy, the CEO of JDS Uniphase, identifies the key decisionmaking guidelines for managing litigation: Actively seek independent views; don’t be a prisoner of your own mind. Check your emotions and manage by facts; the facts will always matter. Look beyond conventional wisdom; circumstances matter. Establish a process to make decisions, and stick to the process. There is rarely one path. Consider alternatives and back-up plans.71
l l l l l
Underlying each of these guidelines is a lesson in avoiding attribution errors, selective perceptions and memories, self-serving biases and reactive devaluation. Following these guidelines requires a thorough, ongoing check for cognitive biases and a conscientious effort to balance one’s viewpoints with the case facts and independent opinions. Properly employed, these guidelines mitigate biases and may enable attorneys and clients to achieve the same level of calibration demonstrated by JDS Uniphase and its legal team.
4.2
Evaluations of Risk and Reactions to Perceived Risk
Behavioral economists and cognitive psychologists studying decision making under uncertainty have determined that perceptions of risk and propensities to decrease or heighten risk are affected by “framing” and “anchoring” biases. “Framing” refers to the perception or characterization of an impending event or decision as a loss or a gain. Broadly stated, people are risk averse when contemplating a gain and risk taking when facing a loss. “Anchoring" describes the tendency to psychologically latch onto a number, like the plaintiff’s initial demand or the defendant’s first offer, and evaluate subsequent conditions and alternatives relative to the anchor. The concepts of anchoring and framing are part of the extensive research on human judgment and decision making that began in the 1920s. Some of the early researchers in the field were Ronald Coase, Herbert Simon, Paul Meehl, Amos Tversky, Paul Slovic and Daniel Kahneman. The progression of their work, and its later applications to decision making by attorneys and clients, is depicted in Table 4.1. The Nobel Prize in Economics was awarded to Herbert Simon in 1978 for “his pioneering research into the decision-making process within economic organizations”; to Ronald Coase, who taught at the University of Chicago Law School, in 1991 "for his discovery and clarification of the significance of transaction
70
Jones supra note 69. Id.
71
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Table 4.1 A conceptual history of judgment and decision making advances Period Concepts
Game Theory 1920– Expected Utility Theory 1940 Pareto Efficient Strategy Bayesian Equilibrium
1950s
1960s
Illustrative Contributions Von Neumann and Morgenstern, Theory of Games and Economic Behavior Coase, The Nature of the Firm Knight, Risk, Uncertainty and Profit Ramsey, Truth and Probability Shaw, A Comparison of Individuals and Small Groups in the Rational Solution of Complex Problems Maier, Reasoning in Humans: II. The Solution of a Problem and Its Appearance in Consciousness
Bounded Rationality Satisfycing Nash Equilibria Impossibility Theorem Lens Model Allais Paradox Shapley Value
Meehl, Clinical Versus Statistical Prediction Nash, The Bargaining Problem Edward, The Theory of Decision Making Hammond, Probabilistic Functionalism and the Clinical Method Simon, A Behavioral Model of Rational Choice Arrow, Social Choice and Individual Values Luce and Raiffa, Games and Decisions
Ambiguity Aversion Coase Theorem Discounted Utility Markowitz-Sharpe Theory Decision Trees Subjective Probability
Peterson and Beach, Man as an Intuitive Statistician Raiffa, Decision Analysis Sharpe, A Simplified Model for Portfolio Analysis Ellsberg, Risk, Ambiguity and the Savage Axioms Coase, The Problem of Social Cost Cyert and March, A Behavioral Theory of the Firm Pratt, et al., The Foundations of Decisions Under Uncertainty: An Elementary Exposition
Prospect Theory Groupthink Framing
1970s
Kahneman, Slovic, Tversky, Judgment Under Uncertainty: Heuristics and Biases Janis and Mann, A Psychological Analysis of Conflict, Choice and Commitment Heuristics and Biases Newell and Simon, Human Problem Solving Anchoring Kahneman and Tversky, Prospect Theory: An Analysis of Decision Under Risk Decision Support Systems Slovic and Lichtenstein, Comparison of Bayesian and Regression Approaches to the Study of Information Processing in Judgment Garbage Can Decision Process Cohen, et al., A Garbage Can Model of Organizational Choice Elimination By Aspects Business Intelligence Win-Win Solutions
1980s
Boot-strapping Subjective Utility Asymmetric Information Models BATNAs
Nisbitt and Ross, Human Inference: Strategies and Shortcomings of Social Judgements von Winterfeldt and Edwards, Decision Analysis and Behavioral Research Hogarth, Judgment and Choice Kahneman and Tversky, The Psychology of Preferences Priest and Klein, The Selection of Disputes for Litigation Fournier and Zuehlke, Litigation and Settlement: An Empirical Approach
(continued)
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Table 4.1 (continued) Period Concepts Conjunction Fallacy
1990s
Naturalistic Decision Making Fast and Frugal Reasoning Self-Serving Biases Cognitive Illusions Alternative Task Construals Reactive Devaluation
Analytics Foxes & Hedgehogs 2000– Thin-Slicing 2007 Lawyers as Debiasers Deliberate Practice
Illustrative Contributions Wittman, Is the Selection of Cases for Trial Biased? Gigerenzer, et al., Simple Heuristics That Make Us Smart Bazerman and Neale, Negotiating Rationally Kleindorfer, et al. Decision Sciences Klein, Sources of Power Shanteau, Expert Judgment and Financial Decision Making Kessler, et al., Explaining Deviations from the Fifty-Percent Rule: A Multi-Modal Approach to the Selection of Cases for Litigation Clermont and Eisenberg, Trial by Judge or Jury: Transcending Empiricism Korobkin and Guthrie, Psychology, Economics and Settlement: A New Look at the Role of the Lawyer Rachlinski, Gains, Losses and the Psychology of Litigation Gross and Syverud, Getting to No: A Study of Settlement Negotiations and the Selection of Cases for Trial Birke and Fox, Psychological Principles in Negotiating Civil Settlements Tetlock, Expert Political Judgment Armstrong, Principles of Forecasting Davenport and Harris, Competing on Analytics Ericsson, et al., The Cambridge Handbook of Expertise and Expert Performance Sieg, Estimating a Bargaining Model with Asymmetric Information: Evidence from Medical Malpractice Disputes Bibas, Plea Bargaining Outside the Shadow of Trial Sunstein, Behavioral Law and Economics Kritzer, Risks, Reputations and Rewards Jolls and Sunstein, Debiasing Through Law Korobkin and Ulen, Law and Behavioral Science: Removing the Rationality Assumption from Law and Economics
Note: Concepts and works are representative, not exhaustive. Periods reflect dispersion, not inception, of concepts. Italicized works are specifically related to the legal field.
costs and property rights for the institutional structure and functioning of the economy;” and to Daniel Kahneman (and Vernon Smith) in 2002 “for having integrated insights from psychological research into economic science, especially concerning human judgment and decision-making under uncertainty.”72 Their intensive study of human judgment – reasoning strategies, inductive inferences, statistical prediction, subjective probability and causal attribution – has revealed how intuitive decision making often overrides deliberative processes and produces results that may be counter-productive, inconsistent or suboptimal. Noting that research exposes a persistent gap between a person’s objective performance in 72
The Royal Swedish Academy of Sciences. (2002, October 9). The Bank of Sweden Prize in Economic Sciences In Memory of Alfred Nobel 2002 [Press Release].
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prediction and his self-assessment of prediction competence, Daniel Kahneman and his colleagues found that “people’s impressions of how they reason, and of how well they reason, could not be taken at face value.”73 Framing and anchoring illuminate some of the gaps between how people think they reason and how they actually reason; they also show gaps between conventional economic theories and actual human behavior. The terms “behavioral economics” and “behavioral finance” are used to distinguish research regarding actual human behavior in making economic choices from traditional economic theories about purely rational evaluation and choice. Because the data described in this book and the earlier studies by Gross and Syverud, Rachlinski, and Kiser, Asher and McShane conform to behavioral economists’ models of decision making in the “gains” mode and “losses” mode and do not conform to conventional economic theories of rational actors seeking to maximize utility, a basic knowledge of behavioral economics theory is required to understand and synthesize attorneylitigant decision making. Behavioral economics theory furnishes the framework for comprehending how attorneys and litigants evaluate and react to risk and specifically how their perceptions of anticipated gains or losses affect their risk tolerances and ultimately their decisions to settle or try cases. By becoming aware of the enduring power and insidious effect of framing and anchoring, decision makers may learn how to “debias” themselves and recalibrate their judgment to more closely match actual conditions and probabilities.
4.2.1
Framing
Under normative or expected utility theories, parties are efficient decision makers rationally seeking to optimize their economic interests. These rational actors, when choosing among options, select the option with the highest expected utility, that is, the optimal economic result. Behavioral economics theory (prospect theory and behavioral decision theory), however, posits that actual human decision making defies expected utility theory and normative models of decision making. In behavioral economics theory, explains psychology professor David Myers, “economic intuition sometimes defies economic logic,” and in following our intuition “we make decisions mostly swiftly, often smartly, but sometimes stupidly.”74 The most important finding in the behavioral economics field, for purposes of this chapter, is that people are risk averse when anticipating financial gains and risk taking when facing financial losses. Professor Myers describes this behavioral model as being “conservative when given a chance to lock in a win, but daring when given a chance to avoid loss.”75 73
Kahneman, Daniel, Slovic, Paul, & Tversky, Amos (Eds.). (1982). Judgment under uncertainty: Heuristics and biases (p. xi). Cambridge: The Press Syndicate of the University of Cambridge. 74 Myers supra note 45 at 153. 75 Myers supra note 45 at 155.
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Two early experiments conducted by Kahneman and his late colleague, Amos Tversky, illustrate risk aversion in the gains frame and risk taking in the losses frame. In the first experiment, subjects were asked to choose between two alternatives: Alternative A: A sure gain of $240. Alternative B: A 25% chance to gain $1000 and a 75% chance to gain nothing. Kahneman and Tversky found that 84% of the subjects chose Alternative A, the risk averse option, over Alternative B. In the second experiment, subjects had to choose between these two alternatives: Alternative C: A sure loss of $750. Alternative D: A 75% chance to lose $1,000, and a 25% chance to lose nothing. In this second experiment, 87% of the subjects chose Alternative D, the riskseeking alternative. Overall, 73% of the subjects chose Alternatives A and D (risk averse when facing gains and risk taking when facing losses), and only 3% chose alternatives B and C (risk taking when facing gains and risk averse when facing losses) – although Alternatives B and C are jointly superior in expected value to Alternatives A and D whether you lose or gain.76 Kahneman and Tversky have shown that decision makers are consistently “risk averse in the domain of gains” and “risk seeking in the domain of losses.”77 They underweight a high probability of gain, preferring a “sure thing,” and underweight a high probability of loss, preferring a gamble to a certain, smaller loss. The perceptual illusions fostered by framing outcomes, moreover, are “as common among sophisticated respondents as among naı¨ve ones.”78 These patterns of risk aversion and risk taking are exhibited in many aspects of human behavior. Investors, for instance, “lock in” their gains by selling their winning stocks and avoid recognizing their losses by keeping their losing stocks. In Peter Lynch’s phrase, investors “pull up the flowers and water the weeds.”79 Another example of this behavioral economics model can be found at the racetrack every afternoon. As their losses mount throughout the day, bettors are more likely to overbet long shots and underbet favorites in a gamble “to recover their losses.” This risk-taking gamble, when facing losses, occurs despite the obstinate fact that longshot horses win only 1% of the time although 2% of the total money is bet on them.80
76
Kahneman and Amos supra note 1 at 6. Kahneman and Amos supra note 1 at 4. 78 Kahneman and Amos supra note 1 at 5. 79 Myers supra note 45 at 154. 80 Camerer, Colin F. (2000). Prospect theory in the wild: Evidence from the field. In Kahneman, Daniel, & Tversky, Amos (Eds.). (2000). In Choices, values, and frames (pp. 295, 296). Cambridge: The Press Syndicate of the University of Cambridge. 77
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The real-world consequence of risk-averse and risk-seeking behaviors is that people making economic decisions often fail to maximize expected value. Since a loss of a fixed value is regarded as more painful than a gain in the equivalent amount, people make inferior choices that ultimately undermine their rational economic objectives. When behavioral economics theories more accurately predict human behavior than expected utility theories, impulse has eclipsed deliberation, intuition has blocked analysis, and fear of loss has overridden objective probability assessments. As John Locke observed centuries before the advent of behavioral economics, “All men are liable to error; and most men are, in many points, by passion or interest, under temptation to it.”81 Nearly 20 years after the advent of behavioral economics, Gross and Syverud and Rachlinski applied the models of risk aversion in the gains frame and risk taking in the losses frame to attorney-litigant decision making. In Gross and Syverud’s 1991 article, “Getting to No: A Study of Settlement Negotiations and the Selection of Cases for Trial,” they noted that traditional economic models depicting decision makers as “intelligently pursuing independent self-interests” were unrealistic, and attorneys, clients, and insurers in actual negotiations and trials were more like “stragglers picking their way in the dark.”82 They found that parties did not attach equal values to trial outcomes and that the “best example” of inequality is “greater risk aversion on the part of plaintiffs. In this context, risk aversion means that a loss will harm the affected party more than the monetary value of an equivalent gain.”83 Gross and Syverud’s data also supported the conclusion that defendants were risk seeking in the losses mode, and defendants’ propensity to take risky settlement positions increased as their risk of loss increased. In other words, defendants made lower offers when they were more likely to lose a case, and they made higher offers in cases they were more likely to win. The defendants offered nothing in 43%–44% of the contract cases; zero offers in the contract cases were made “almost twice as often as in the personal injury cases.” But defendants lost 72%–83% of the contract cases, compared with losses in only 45% of the personal injury cases. Plaintiffs, for their part, were risk averse as their prospects of a favorable trial verdict increased. In contract cases, which plaintiffs were likely to win, the mean plaintiffs’ settlement demand was less than the mean award; but in personal injury cases, which plaintiffs were likely to lose, the mean plaintiffs’ demand was “considerably greater than the mean award.”84 “Commercial transaction trials,” Gross and Syverud summarized, “fall into a distinctive pattern of a high rate of plaintiff success, a stable trial rate, many measly demands by the plaintiffs and many zero offers by the defendants.”85
81
Locke, John. (1690). Essay concerning human understanding, bk. IV, ch. 20, sec. 17. Gross, Samuel, & Syverud, Kent. (1991). Getting to no: A study of settlement negotiations and the selection of cases for trial. Michigan Law Review, 90, 319, 385. 83 Id. at 381. 84 Id. at 369. 85 Id. at 369. 82
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In their second study, published in 1996, Gross and Syverud again found that defendants were more likely to lose commercial trials, and plaintiffs were more likely to lose personal injury cases. Nevertheless, “most defendants in our commercial trials made puny settlement offers and then got hammered in court,” and “the plaintiffs in these [commercial] cases played along with the defense and made puny demands.”86 For cases sampled in the 1990–1991 period, the mean defense offer in commercial cases was $1,710,000 less than the mean verdict in commercial cases. Reflecting their risk aversion in commercial cases, plaintiffs submitted demands that, on average, were $710,000 less than the verdict. In personal injury cases, by way of contrast, plaintiffs’ mean demand was $187,000 more than the mean verdict. The degree of defendants’ risk taking also is illustrated by the fact that they made zero offers in more than one-quarter of the cases, although, as Gross and Syverud point out, “a zero offer is never a reasonable assessment of the expected cost of a case to a defendant. The trial itself is never free and usually expensive, and there is always a chance, however low, that a jury will side with the plaintiff.”87 Behavioral economics theories of risk aversion in the gains frame and risk taking in the losses frame were squarely applied in Rachlinski’s 1996 study, “Gains, Losses and the Psychology of Litigation.” Noting that plaintiffs’ decisions generally presented a “gains” frame or a mixed “loss/gain” prospect and defendants’ choices were made in a “losses frame,” Rachlinski’s study showed that the cost of making a decision error in settlement negotiations was significantly higher for defendants than plaintiffs. When plaintiffs recovered a lower amount at trial than they could have obtained by accepting defendant’s offer, the mean cost of the plaintiffs’ error was $27,687 per case. For defendants, however the mean cost of a defense decision error was $354,949 per case. Rachlinski explains how the disproportionate costs of decision error by plaintiffs and defendants fit into behavioral economics theories of risk aversion in the gains frame and risk taking in the losses frame: The defendant’s failure to make larger offers and avoid some of these losses can only be described as risk seeking. Conversely, the plaintiffs’ behavior was, on balance, risk averse. While over half of the plaintiffs in general litigation were worse off at trial than they would have been had they settled (by an average of $27,687), the 23% who gained from going to trial reaped huge rewards – $354,949 per case (minus litigation expenses). On average, these plaintiffs who litigated achieved a $66,106 (minus litigation expenses) reward for having done so.88
Rachlinski concluded that the asymmetric costs of decision error were consistent with framing theory. Plaintiffs were risk averse and, when settlement negotiations failed, they “generally benefited from litigation.” Defendants were risk seeking and
86
Gross, Samuel, & Syverud, Kent. (1996). Don’t try: Civil jury verdicts in a system geared to settlement. UCLA Law Review, 44(1), 52. 87 Id. at 56. 88 Rachlinski, Jeffrey. (1996). Gains, losses and the psychology of litigation. Southern California Law Review, 70, 114, 159.
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overall “paid heavily” when they decided to try cases to a verdict instead of settling. Although it is impossible to determine whether these patterns persist in settled cases, Rachlinski suggests that could be the case: “Assuming that a similar pattern of offers occurs in cases that do settle, the data suggest that plaintiffs who accept settlement offers forgo the potential for large rewards and pay a considerable price for their risk aversion.”89 The framing effects found in Rachlinski’s studies are largely replicated in the Kiser, Asher and McShane study. Plaintiffs’ decision error rate in the Kiser study is 61%, compared with a decision error rate of 56% in the Rachlinski study, and defendants’ decision error rate in the Kiser and Rachlinski studies is 24% and 23%, respectively. The mean cost of decision error for plaintiffs in the Kiser study is $43,100, compared with defendant’s mean cost of decision error of $1,140,000. This disparity in the cost of decision error is qualitatively similar to Rachlinski’s sample, where the plaintiffs’ mean cost of decision error was $27,687 and defendants’ mean cost of decision error was $354,949. “Most of the time, one of the parties has made some kind of miscalculation or mistake,” Rachlinski stated in an interview. “The interesting thing about it is the errors the defendants make are much more costly.”90 The Kiser, Asher and McShane study also showed that the incidence and magnitude of plaintiff and defendant decision error stayed relatively constant during a 40-year period. Between 1964 and 2004, the incidence of plaintiff decision error was consistently higher than the incidence of defendant decision error, and defendants’ cost of decision error always exceeded plaintiffs’ cost of decision error. As a percentage of defendants’ mean cost of error, plaintiffs’ mean cost of error ranged from 2% to 20% during the entire 40-year period, reflecting an extreme pattern of risk aversion on the plaintiffs’ part and risk taking by defendants when a decision error occurred. Defendants’ risk-taking propensities, moreover, appear to have increased during the 40-year period. Adjusted for inflation, the cost of decision error for plaintiffs increased three-fold during the 40-year period, while the cost of decision error for defendants increased 14-fold.
4.2.2
Anchoring
“Anchoring” refers to the impact of a number, methodically derived or arbitrarily selected, on assessments and decision making. An anchor may be the listing price of a home for sale, last year’s maximum temperature in July, a stock’s 52-week high, the current price of gasoline, or an adversary’s initial settlement offer. An anchor also may be as arbitrary as a number spun on a wheel of fortune or a number written on a piece of paper in a bottle. Regardless of the source, anchors unconsciously 89
Id. Glater, Jonathan. (2008, August 8). The cost of not settling a lawsuit. The New York Times, p. C1.
90
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affect assessments and drive decisions. Although decision makers uniformly believe they exercise independent judgment and deny that anchors influence them, nearly every study proves otherwise. Most anchors are derived from an “objective” source and then used to control problem-solving outcomes. In determining the fair market rental value of office space during a lease option period, for example, the parties often rely on lease rates negotiated for similar spaces. When selling a car, both the buyer and seller may consider Edmunds’ used car values or the Kelly Blue Book values. But anchors determine assessments and outcomes even when they have no factual basis. Amos Tversky and Daniel Kahneman conducted an experiment in which they randomly divided study participants into two groups; one group was shown a spinning “wheel of fortune,” depicting 100 numbers, which landed on the number 65, while the second group saw a wheel which landed on 10. Both groups were asked the question, “What is the percentage of African countries in the United Nations?” The median estimate of participants shown the number 65 was 45%; the median estimate of participants shown the number 10 was 25%.91 Anchors may be as subtle as the suggestion of a number or the sequencing of numbers. In an experiment with accountants, one group was asked whether management fraud occurred “in more than 10 companies out of each 1,000 audited,” while the other group was asked the same question with the modification “in more than 200 of every 1,000 companies.”92 The accountants exposed to the “10 in 1,000” anchor estimated the instances of fraud to be “just over 16”, but those presented with the “200 in 1,000” anchor “estimated, on average, that fraud occurred in more than 43 companies per 1,000.” Similar results occur when arbitrary anchors are selected and people are asked whether the price of a textbook is “higher or lower than $7,128.53,” whether the average annual temperature in San Francisco is more than 558 degrees, or whether the sales of certain Beatles records were “above or below 100,025 albums.”93 In another experiment, people were divided into two groups, one being asked to estimate the product of 1 2 3 4 5 6 7 8 and the other asked to estimate the product of the same numbers reversed to show the higher numbers first (8 7 6 5 4 3 2 1). The first group made a median judgment of 512; the median estimate of the second group shown the “high numbers first” sequence was 2,250.94 Research shows that these effects of anchors persist despite “outrageously extreme anchors” and “monetary incentives for accuracy” and regardless of fields; “anchoring has been documented in estimates as diverse as the percentage of working mothers with children under
91
Plous supra note 16 at 146. Korobkin and Ulen supra note 51 at 1100. 93 Hastie, Reid, and Dawes, Robyn M. (2001). Rational choice in an uncertain world (p. 102). Thousand Oaks, California: Sage Publications. Plous, Scott. (1993). The psychology of judgment and decision making (p. 146). New York: McGraw-Hill, Inc. 94 Hastie and Dawes supra note 93 at 102–103. 92
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age 5, the proportion of Iranians who are Islamic, the percentage of chemistry professors who are women, and the share of soap operas carried by NBC.”95 Anchors have a critical impact on settlement negotiations and trial outcomes, determining not only the cost of a settlement or the amount of a verdict but the likelihood of settlement as well. In their article entitled, “Opening Offers and Outof-Court Settlements: A Little Moderation May Not Go A Long Way,” law professors Russell Korobkin and Chris Guthrie note that “people evaluating hypothetical settlement offers were more likely to accept a $12,000 final settlement offer when it followed a $2,000 opening offer than when it followed a $10,000 opening offer.” They theorize that “those who received the $2,000 opening offer expected to settle for a relatively small amount, so the $12,000 final offer seemed generous by comparison, while those who received the $10,000 opening offer expected to settle for relatively more, so the $12,000 final offer seemed relatively stingy.”96 Professor Guthrie and his colleagues note that at least five different studies demonstrate that the initial amount demanded by a plaintiff’s lawyer not only affects settlement negotiations but strongly influences jurors’ deliberations as well. In one study, mock jurors given the same factual information awarded $90,000 when the plaintiff’s lawyer asked for $100,000, but they awarded $300,000 when the plaintiff’s lawyer demanded $500,000. As Guthrie notes, “even silly and outrageous damages requests can influence juror decision making,” citing, for example, a substantial uptick in mock jurors’ award when the plaintiff’s attorney sought $1 billion instead of a lower amount. The bottom line from these anchoring studies appears to be, “‘Ask and ye shall receive.’ In each study, ‘when more money was requested for damages by the plaintiff’s attorney, the jurors awarded more.’”97 Reviewing the results of numerous anchoring studies, psychology professor Scott Plous finds that anchoring effects are not diminished by financial incentives for accuracy, the extremeness of the anchor, or the respondents’ familiarity with or degree of concern about the subject matter. Overall, the research findings on anchoring, he states, “suggest that negotiators, advertisers, politicians and other persuasion specialists will generally be most successful by staking out extreme initial positions.”98 Plous warns that when decision makers focus on “best-case” and “worst-case” scenarios they may unintentionally form extreme anchors that blind them to more realistic predictions; these scenarios can be especially harmful because anchoring effects increase as the gap between the anchor and the “preanchor” estimates widen, greater disparities producing greater effects. He recommends that decision makers counter anchoring effects by considering a variety of possible anchors before settling on any particular assessment. For attorneys, clients, and mediators this could require the generation and consideration of multiple outcomes instead of focusing on the chasm between plaintiff’s demand and
95
Plous supra note 16 at 145–146. Guthrie, Rachlinski, and Wistrich supra note 47 at 789. 97 Guthrie, Rachlinski, and Wistrich supra note 47 at 789–790. 98 Plous supra note 16 at 146. 96
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defendant’s offer. Absent corrective measures, compromising a dispute by “splitting it down the middle” may be little more than succumbing to extreme anchoring effects. Professor Chris Guthrie and Dan Orr, an attorney with Morgan, Lewis & Bockius, completed a meta-analysis of 18 studies of anchoring effects; the total number of subjects in these studies is 2,523, nearly all of whom participated in simulated negotiations. The results of their meta-analysis showed that “anchoring has a powerful influence on negotiation outcomes.”99 Specifically, they found a correlation of 0.497 between the initial anchor and the ultimate negotiation result. “In lay terms,” they explain, “the 0.497 correlation means that every one dollar increase in an opening offer is associated with an approximate fifty-cent increase in the final sale price.”100 Elaborating on their study results, they state that “nearly 25% of the difference in outcomes among negotiations can be accounted for as a function of an opening offer or other initial anchor,” a result operatively consistent with other research attributing 57.6% of negotiation outcome variance to opening offers and initial counteroffers.101 Attorneys and clients who remain convinced that they are too experienced and intelligent to be affected by anchoring bias may benefit from learning that anchoring effects are indiscriminate. Experienced negotiators are only slightly less likely to be affected by anchors than novice negotiators. Insurance adjusters’ settlement decisions are affected by policy limit anchors; civil law judges’ rulings and damage awards are affected by settlement demand and jurisdictional amount anchors; criminal law judges’ orders are affected by prosecutors’ bail amount recommendations and prison term demands; real estate agents’ opinions of appraised value, selling price, and lowest acceptable offer are biased by listing prices; and MBA students negotiating the purchase price of a vehicle are influenced by the amount the seller can obtain from another purchaser.102 Not surprisingly, people who exhibit susceptibility to anchoring effects frequently deny that anchoring had any effect on their opinions. Most of the real estate agents in one study, for instance, said that “they would definitely notice any deviation in a listing price greater than 5% from the true value of a property; but manipulations of 12% went unnoticed and had an impact on their appraisals.”103 Anchors pose serious dangers to litigants and their attorneys. Law professor and former Assistant United States Attorney Stephanos Bibas cites three major dangers: (1) the selection of anchors frequently is biased and self-serving; (2) “even 99
Orr, Dan, and Guthrie, Chris. (2006). Anchoring, information, expertise, and negotiation: New insights from meta-analysis. Ohio State Journal of Dispute Resolution, 21(3), 621. 100 Id. 101 Id. at 622. 102 See Plous supra note 16 at 145–152. Orr and Guthrie supra note 99 at 600–601, 607–611. Hastie and Dawes supra note 93 at 106–107. Guthrie, Chris, Rachlinski, Jeffrey, & Wistrich, Andrew J. (2007). Blinking on the bench: How judges decide cases. Cornell Law Review, 93(1), 19–21. 103 Hastie and Dawes supra note 93 at 107.
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arbitrary, random or irrelevant numbers can serve as anchors and distort calculations;” and (3) people do not make sufficient adjustments to anchors, overweighting similarities to the anchor and underweighting differences, and thus may not realize “their initial choice of anchors has an inordinate effect on their final estimates.”104 Psychologists Reid Hastie and Robyn Dawes also believe that people are “prone to underadjustments” and that, due to primacy effects, “information considered early in the judgment process tends to be overweighted in the final judgment.”105 Because people anchor on the initial information, they warn, the anchor “not only serves as a salient starting point for the judgment, but it biases the nature of the additional information that is sought and retrieved downstream in the later stages.”106 One highly detrimental effect of anchors, suggested by the high incidence of attorney-litigant decision error and the magnitude of those errors, is that litigants may use settlement demands and offers to anchor the range of possible trial outcomes. A plaintiff’s settlement demand may anchor a defendant’s assessment of the worse possible trial outcome, and a defendant’s offer may anchor the plaintiff’s assessment of the lowest possible verdict. These anchors may be bolstered by attribution biases and reactive devaluation when a plaintiff believes that a defendant would not offer more than its minimum liability, and a defendant concludes that a plaintiff would not demand less than its highest possible recovery. Litigants then reject each other’s settlement proposals and proceed to trial anticipating that the adjudicated outcome must fall somewhere between the parties’ settlement negotiation positions. In reality, the jurors will not see the anchors underpinning the litigants’ decision to go to trial, and the trial outcome often has little or no relation to the assessments represented by settlement positions. In commercial cases, where the plaintiffs chronically underprice their claims relative to the ultimate awards, defendants who anchor on the plaintiff’s settlement demand and conclude “it can’t get any worse than that” could be shocked by an award two or three times the amount of the plaintiff’s demand. In Gross and Syverud’s 1996 study, for example, the average plaintiff’s demand in commercial cases was $710,000 less than the mean award. Conversely, in cases where defendants routinely overprice their offers relative to the ultimate award, plaintiffs who anchor on a defendant’s last offer could be severely distressed by an award substantially less than the defendant’s offer. In a sample of products liability cases, for instance, 61% of defendants make offers in excess of the ultimate award, and the average overpriced defense offer is $92,001 more than the average award.107 Although plaintiffs may have perceived
104
Bibas, Stephanos. (2004, June). Plea bargaining outside the shadow of trial. Harvard Law Review, 117(8), 2516. 105 Hastie and Dawes supra note 93 at 100. 106 Hastie and Dawes supra note 93 at 102. 107 Data regarding the products liability cases is from the California dataset for the 2002–2007 period, described in Chapter 3.
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the defense offers in these products liability cases as a floor on their recovery, these defense offers most often were the ceiling.
4.3
Reactions to Threatened Changes in Position and Status
This section responds to the third inquiry posed at the beginning of this chapter, “How do decision makers react to impending changes in their current conditions?” This question is critical because decisions to settle or try cases inevitably present a desired or threatened change in wealth, reputation, employment, residence, health, status, credibility or income. As explained below, at least nine biases affect decision makers’ reactions to these potential changes. These biases are known as the endowment effect, the status quo bias, optimistic overconfidence, the confirmation bias, the representativeness and availability heuristics, hindsight bias, discounting, and the sunk cost bias. The overall effect of these biases is to cause decision makers to resist, ignore, minimize or discount changes, demand higher amounts to relinquish an existing right than they would have paid to obtain it, feel overly confident about their capacity to control and predict change, and convince themselves that, to the extent change occurs, they “knew all along” it would occur.
4.3.1
The Endowment Effect
The endowment effect, a term coined by University of Chicago economist Richard Thaler in 1980, is a simple concept that defies conventional economic theory and strongly affects conflict resolution. In its simplest form, the endowment effect postulates that parties’ valuations of a right or an asset are not constant but are context dependent in general and ownership dependent in particular. An individual, accordingly, will demand more to relinquish a tangible asset or a right than the same individual would pay to acquire that asset or right. In his autobiographical notes, Daniel Kahneman describes the endowment effect: “Our central observation was that in many contexts the existing situation (e.g., price, rent, or wage) defines a ‘reference transaction,’ to which the transactor (consumer, tenant, and employee) has an entitlement – the violation of such entitlement is considered unfair and may evoke retaliation. For example, cutting the wages of an employee merely because he could be replaced by someone who would accept a lower wage is unfair, although paying a lower wage to the replacement of an employee who quit is entirely acceptable.”108
108
Frangsmyr, Tore, Ed. (2003). Les Prix Nobel. The Nobel Prizes 2002. Stockholm: Nobel Foundation.
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The endowment effect contradicts standard microeconomic theory holding that goods have a constant value, whether being sold or purchased, and injects pricing anomalies into settlement negotiations and outcomes. In litigation, the practical effect of the endowment bias is that a party may demand more to abate a nuisance than it would pay for the right to inflict the nuisance, a real property owner in an eminent domain action may insist on compensation far greater than the fair market value of the property, the amount of an injunction bond will be disputed because the enjoined party places a higher value on the deprivation of a previously exercised right than the enjoining party places on the power to restrain the exercise of that right, and a retail tenant in a shopping center will demand more money to vacate the premises early than it would pay to remain there. Although parties would agree, in the abstract, that goods are fungible, their actions reflect a belief that another person’s goods are significantly more fungible than their own. As psychologists Reid Hastie and Robyn Dawes state, “Once people have possessed an object for even a minute, they act as if ‘losing it matters more than gaining it would have mattered if they didn’t have it.’”109 An experiment illustrates the endowment effect. In a classic “coffee mugs and candy” study, students at the University of Victoria were divided into three groups. One group was given a choice between a coffee mug and a 400-gram Swiss chocolate bar. Their choices were about evenly divided, 56% selecting the mug and 44% the candy bar. The second and third groups were not given choices; subjects in the second group were simply given a mug, while those in the third group received the candy bar. Students in the second and third groups then were asked whether they wanted to exchange the items. Based on the roughly equal preferences in the first group that was given a choice and the absence of any transaction costs, one would predict that roughly half of the students in the second group would exchange their mugs for a candy bar and half of the students in the third group would trade their candy bars for a mug. In reality, however, only 11% of the students initially given the mug were willing to trade for a candy bar, and only 10% of the students given candy were willing to exchange for a mug. The students’ preferences, in short, were determined by their relation to the commodity rather than any characteristic, quality, or valuation of the commodity itself.110 Since the owner’s valuation of an item is inconstant and context dependent, it follows that in related experiments where the actual market price of a coffee mug is between $4.25 and $4.75, students owning coffee mugs demand $5.25 to sell them while non-owners refuse to pay more than $2.25 – $2.75.111 When the experiment is 109
Hastie and Dawes supra note 93 at 308. Knetsch, Jack L. (1989). The endowment effect and evidence of nonreversible indifference curves. In Kahneman, Daniel, & Tversky, Amos (Eds.). (2000). Choices, values, and frames (pp. 172–173). Cambridge: The Press Syndicate of the University of Cambridge. 111 Kahneman, Daniel, Knetsch, Jack L., and Thaler, Richard H. Anomalies: Endowment effect, loss aversion and status quo bias. In Kahneman, Daniel, & Tversky, Amos (Eds.). (2000). Choices, values, and frames (p. 161). Cambridge: The Press Syndicate of the University of Cambridge. See Kahneman, Daniel, Knetsch, Jack, and Thaler, Richard. Experimental tests of the endowment 110
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repeated, sometimes with a different commodity, “median selling prices are about twice median buying prices and volume is less than half of that expected.”112 The pricing disparities induced by the endowment effect are even stronger when the owner perceives that she has acquired the item as a result of personal attributes. Students told that they had received a coffee mug as a result of outstanding performance exhibit valuation differentials “twice as high” as students informed the mugs were distributed randomly.113 The endowment effect is often illustrated by the economics professor who purchased fine Bordeaux wines for less than $10 per bottle many years ago. The wine has appreciated in value, the economist imbibes occasionally, and defying the pricing invariability principle he teaches, refuses to sell it for the market price of $200 per bottle or buy another bottle for $100. Reflecting on the irrational economist and the endowment effect, Kahneman recalls: One key observation was the endowment effect, which Dick [Richard Thaler] illustrated with the example of the owner of a bottle of old wine, who would refuse to sell it for $200 but would not pay as much as $100 to replace it if it broke. . . . Dick realized that the endowment effect, which is a genuine puzzle in the context of standard economic theory, is readily explained by two assumptions derived from prospect theory. First, the carriers of utility are not states (owning or not owning the wine), but changes – getting the wine or giving it up. And giving up is weighted more than getting, by loss aversion.114
In Kahneman’s view, the endowment effect is a manifestation of framing biases and loss aversion. Since prospect theory posits that losses are weighted more heavily than gains, owners inevitably demand more to sell (“lose”) than to buy (“gain”).
4.3.2
Status Quo Bias
The endowment effect often is considered a form of the status quo bias, both conditions reflecting an aversion to losses resulting from a change in position. The status quo bias presumes that, all other things being equal, people prefer the status quo to alternative states. This bias presents a major impediment to conflict resolution, as Kahneman and Tversky explain: “A particularly important case of loss aversion arises when the reference point is the status quo, and when the retention of the status quo is an option. Because the disadvantages of any alternative effect and the Coase theorem. In Sunstein, Cass, Ed. (2000). Behavioral law and economics (pp. 211–231). Cambridge: Cambridge University Press. See also Sunstein, Cass, and Jolls, Christine. (2004, September). Debiasing Through Law (Discussion Paper No. 495, pp. 50–53). Harvard: John M. Olin Center For Law, Economics, And Business. 112 Kahneman, Knetsch, Jack L., and Thaler, Richard H. Anomalies: Endowment effect, loss aversion and status quo bias. In Kahneman, Daniel, & Tversky, Amos (Eds.). (2000). Choices, values, and frames (p. 161). Cambridge: The Press Syndicate of the University of Cambridge. 113 Korobkin, Russell. (2003). The Endowment Effect and Legal Analysis. Northwestern University Law Review, 97, 1236. 114 Frangsmyr supra note 108.
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to the status quo are weighted more heavily than its advantages, a strong bias in favor of the status quo is observed.”115 An individual inheriting property, for example, is likely to maintain the assets in the form inherited, e.g., stocks and bonds, although she would not purchase the same or equivalent stocks and bonds if the inheritance consisted of cash. Similarly, new employees are more apt to choose a new health care plan, while older employees maintain the same policy regardless of its comparative disadvantages. To the extent people do change positions relative to the status quo, they strongly prefer small changes to larger changes.116 The status quo bias also explains why people are more likely to regret a loss resulting from a deliberate change in the status quo than an equivalent loss incurred while maintaining the status quo. The preference for the status quo does not reflect an objective assessment of relative advantages of the status quo; the preference exists independent of the quality or price of the status quo. In a survey of California electric power consumers, for instance, respondents were divided into two groups, one group consisting of consumers whose electric service was provided by a highly reliable company and another group serviced by a relatively low reliability company. Both groups then were asked to state a preference among six different plans of varying reliability and price, including the two plans servicing the two groups. In the group of consumers receiving highly reliable service, 60.2% preferred to maintain their present plan and only 5.7% selected the low reliability service provided to the other group, although its cost was 30% less; 58.3% of the consumers in the low reliability plan also preferred their present company, only 5.8% preferring the highly reliable service with a 30% cost increase.117 The perception of loss resulting from a change in the status quo, of course, is from the viewpoint of the loss averse party seeking to maintain the status quo. In law, however, one finds a status quo bias that extends far beyond individual loss aversion and preserves the status quo even when the current state of affairs is neither financially beneficial nor morally justifiable. The legal system’s preference for preserving the status quo is demonstrated by numerous procedural and evidentiary rules that legitimate the status quo and retard change. Examples of rules that 115
Kahneman, Daniel, and Tversky, Amos. Conflict resolution: A cognitive perspective. In Kahneman, Daniel, & Tversky, Amos (Eds.). (2000). Choices, values, and frames (p. 481). Cambridge: The Press Syndicate of the University of Cambridge. 116 Tversky, Amos, and Kahneman, Daniel. (1991). Loss aversion in riskless choice: A referencedependent model. In Kahneman, Daniel, & Tversky, Amos (Eds.). (2000). Choices, values, and frames (pp. 146–147). Cambridge: The Press Syndicate of the University of Cambridge. Kahneman, Daniel, Knetsch, Jack L., and Thaler, Richard H. Anomalies: Endowment effect, loss aversion and status quo bias. In Kahneman, Daniel, & Tversky, Amos (Eds.). (2000). Choices, values, and frames (p. 163). Cambridge: The Press Syndicate of the University of Cambridge. Camerer, Colin. Prospect theory in the wild: Evidence from the field. In Kahneman, Daniel, & Tversky, Amos (Eds.). (2000). Choices, values, and frames (p. 294). Cambridge: The Press Syndicate of the University of Cambridge. See Korobkin supra note 113 at 1227–1293. 117 Thaler, Richard. (1992). The winner’s curse (p. 69). Princeton, New Jersey: Princeton University Press.
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require more effort to change the status quo than to preserve it include evidentiary rules establishing the burden of proof and effectively maintaining the status quo unless the plaintiff, the party advocating change, meets its burden of proof; judicial policies favoring injunctions for the purpose of preserving the status quo and disfavoring injunctions that disrupt the status quo; majority and supermajority voting requirements to amend or repeal statutes but none required to keep them in the codes; rebuttable presumptions that sustain the status quo absent contrary, preponderating evidence; and standards of review that require stronger evidence or a higher level of proof to reverse rulings than to affirm them. In these instances, the status quo bias is sufficiently durable to maintain an existing state even if that results in the preservation of inequities. Absent a new and stronger force, inferences are drawn and presumptions are made in favor of the status quo regardless of its relative benefits or fairness. In law the status quo bias exists independently of ethics, lawfulness or utility. A thief is entitled to retain the fruits of his crime unless the prosecutor proves, beyond a reasonable doubt, his guilt; a defrauded securities investor remains uncompensated unless she initiates a claim and proves, by a preponderance of the evidence, a wrongful act; a corrupt official continues in office unless admissible evidence of culpability is discovered; and discriminating employers persist unless employees unable to afford independent counsel have convinced the Equal Employment Opportunity Commission to file a complaint on their behalf. The default condition in each of these instances is unlawful, but in its practical operation, the law both embodies and enforces a status quo bias. In popular usage, this status quo bias is reflected in the adage, “Possession is nine-tenths of the law.”
4.3.3
Overconfidence
Many psychologists and law professors regard overconfidence as the most significant contributor to decision-making failures.118 “Successful decision makers are inclined to attribute their own past successes to their own past actions and thereby tend to exaggerate their own capabilities for avoiding risk and producing successful outcomes in the future,” explains Stanford University management professor James March. Such optimism about one’s ability to control future events, March continues, can “lead to foolish adventures.”119
118
See Korobkin supra note 15 at 290 (“In my judgment, optimistic overconfidence is the most significant psychological impediment to settlement in the mediation context”). Yates, J. Frank, et al. Probability judgment across cultures. In Gilovich, Thomas, Griffin, Dale, and Kahneman, Daniel. (2002). Heuristics and biases (p. 271). New York: Cambridge University Press. (“Overconfidence is the most common and frequently discussed finding in general-knowledge studies.”) See Birke and Fox supra note 54 at 15. Bibas supra note 104 at 2498. 119 March, James. (1994). A primer on decision making (p. 242). New York: The Free Press.
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These foolish adventures are both cognitive and tangible. Cognitive misadventures related to optimistic overconfidence include the illusion of control, base rate neglect, underadjustment, confirmation bias, and violations of probability theory. Optimistic overconfidence drives an attorney’s risk-taking conviction that, despite a low likelihood of prevailing at trial, somehow his case will be more appealing and meritorious than similar cases and he can present it more persuasively than another attorney. Tangible examples of overconfidence include the plaintiffs’ general overpricing rate of 75% in the California dataset and 71% in the New York dataset, as explained in Chapter Three. Acute overconfidence is evidenced in medical malpractice cases where, despite a win rate of only 21%, plaintiffs submit overpriced demands in 83% of the cases, and the average overpriced demand is $547,732 above the average award. The defendants’ underpricing rate of 77% in the contract cases, where plaintiffs win 78% of the cases, is another acute case of overconfidence. Physicist Richard Feynman’s caution is apposite: “The first principle is that you must not fool yourself – and you are the easiest person to fool.”120 Overconfidence not only leads litigants into territory where they do not belong but also maintains their cognitive equilibrium when it should be upset. Studies of multiple professions – psychologists, physicians, lawyers, and engineers – show no relationship between decision-making accuracy and degree of confidence.121 Psychologists, trainees and secretaries, for example, were asked to determine whether a Bender-Gestalt test showed organic brain damage. Each group performed as well as the other; the secretaries’ diagnoses were as accurate as clinicians with four to ten years of experience. Most importantly, each group was “as confident on cases they misdiagnosed as on cases they diagnosed correctly.”122 The less information decision makers have about a decision, the more confident they feel about their decisions. Confidence assessments from a variety of people, cognitive psychologists report, show “considerable insensitivity to the extent of their knowledge.”123 Some studies actually replicate attorney-litigant decision making and show high levels of decision-making confidence even when the study participants know they have inadequate information. In one study conducted by Kahneman and Tversky, for example, information was divided into three sets (background data, plaintiff’s argument, and defendant’s argument), and different groups received different sets of information. Although the group that received all the information achieved higher predictive capability in most cases, that is, were more accurate in predicting the jury result, the group with the partial information set 120
Myers supra note 45 at 179. Sternlight, Jean R., and Robbennolt, Jennifer. (2008). Good lawyers should be good psychologists: Insights for interviewing and counseling clients. Ohio State Journal on Dispute Resolution, 23, 437, 485, fn. 188 (“Research has demonstrated a generally weak correlation between confidence and accuracy, although the relationship can be stronger under some circumstances.”) 122 Plous supra note 16 at 71. 123 Fischhoff, Baruch, (1982). Debiasing. In Kahneman, Daniel, Slovic, Paul, & Tversky, Amos (Eds.). (1982). Judgment under uncertainty: Heuristics and biases (p. 440). Cambridge: The Press Syndicate of the University of Cambridge. 121
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was more confident about its prediction even though it knew it had only one side of the information.124 Overconfidence functions like a cognitive virus, infiltrating many dimensions of litigant decision making. Litigants are overly optimistic in assessing their chances in court; they assume that their opponent has less initiative and less imagination; they overestimate the likelihood of imposing their preferences on an opponent; they are overly confident in predicting whether, in a final arbitration procedure, the arbitrator will select their final offer; and in mock trials they are “often surprised and dismayed by the strength of the position put forth by their mock opponent.”125 The deleterious effects of overconfidence may be aggravated in attorney-client relationships. As Kahneman and Tversky explain, “optimistic overconfidence is not a desirable trait for generals recommending a war or for attorneys urging a lawsuit, even if their expressions of confidence and optimism are pleasantly reassuring to their followers or clients at the time.”126 Attorneys and clients may take solace (or feel unease) in the knowledge that judges, too, are susceptible to overconfidence and egocentric biases. In the judicial mind, these biases manifest in different forms; 88% of judges, for example, believe they are less likely to be overturned than the average judge, and most believe that “the lawyers who appear in front of them feel much more fairly treated than is actually the case.”127 The persistence of judicial decision-making biases also is shown in a study where 67% of the judges believed that the parties should decline a settlement offer which, from both the plaintiffs’ and defendants’ perspectives, exceeded the expected value of trial. This elevated judicial decision error rate is more consistent with that of risk-seeking parties and demonstrates that decisionmaking biases can afflict individuals with the highest level of objectivity and detachment attempting to guide parties to settle a case on economically advantageous terms. Even for career jurists, whom society has selected for their superior decision-making skills, overconfidence and egocentrism are difficult biases to overcome.128
4.3.4
Confirmation Bias
The confirmation bias blocks the perception of new and disconfirming information and reinforces one’s belief that the facts and reasons initially leading to a decision 124
Kahneman, Daniel & Tversky, Amos. (1995). Conflict resolution: A cognitive perspective. In Kahneman, Daniel & Tversky, Amos (Eds.). (2000). Choices, values, and frames (p. 474). Cambridge: The Press Syndicate of the University of Cambridge. 125 Id. at 474–475. 126 Id. at 476. 127 Guthrie, Rachlinski, and Wistrich supra note 47 at 814–818. 128 Guthrie, Rachlinski, and Wistrich supra note 47 at 821. See Guthrie, Rachlinski, & Wistrich supra note 102.
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were valid and have not changed. This bias smoothes information processing by choosing evidence which confirms a belief closely held or a decision previously made and dismissing contrary data as being unreliable, biased, inaccurate, or incomplete. In ordinary life, the confirmation bias is helpful and reflects adaptive behavior, as it reduces the cognitive workload required to evaluate and execute complex decisions. It is one of the “fast and frugal” psychological mechanisms that expedite the assembly of facts and the assimilation of new information to form a coherent system of values, beliefs and actions. When exercised in the assessment of litigation risks, however, the confirmation bias produces an illusion of decision-making competence and fairness, distorts crucial information, and fosters an “out of mind, out of sight” conviction that information discarded by the decision maker is imperceptible to the adjudicator. Like the children in developmental psychologist Jean Piaget’s experiments, decision makers affected by the confirmation bias seem to believe that by placing their hands over their eyes, they can block other’s perceptions as well as their own. The confirmation bias is particularly risky in an adversarial system where the opposing party’s lawyer is paid to discover and persuasively present evidence that contradicts a decision maker’s narrative and was cognitively tossed by the decision maker in his effort to justify actions previously taken and sustain an internally consistent version of his case. The tendency to underestimate or discard unfavorable facts and to overweight favorable data is caused by the confirmation bias. When this bias is doing its job, reasoning is “chronically distorted by motivational biases,” and “people reason in ways that support a preexisting decision rather than analyze it logically or rationally. People reason in ways consistent with what they want or expect to see.”129 In Karl Weick’s notable phrase, “believing is seeing.” Eric Hoffer, the philosopher awarded the Presidential Medal of Freedom, described this psychology in The True Believer, noting that the strength of the true believer does not lie in moving mountains but rather in not seeing mountains to move.130 Litigants likewise “evaluate and assimilate information they receive in a way that is biased in favor of their own position,” state law professor Richard Birke and management professor Craig Fox. Additional information does not diminish the confirmation bias any more than a higher range of mountains would discourage Eric Hoffer’s true believer. Mixed evidence tends to polarize rather than reconcile beliefs, and more information actually causes parties “to become more entrenched, disparities between valuations to grow, and costs of disputing to rise.”131 The confirmation bias is so strong that beliefs persist even after the information that formed the beliefs has been discredited or withdrawn. The psychological investment in establishing and maintaining beliefs is too high to abandon them just because the underlying information is later proven to be false or inapposite. In a
129
Epley and Caruso supra note 21 at 179. Hoffer, Eric. (1963). The true believer. New York: Harper Perennial Modern Classics. 131 Birke and Fox supra note 54 at 27–28. 130
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recent study, 860 people in Australia, Germany and the United States received a list of events (some reported, others invented) and were then asked to state whether they had heard of the events and to rate the likelihood of each event being true. As to each event of which they had heard, they noted whether the report had been retracted. For the Americans in the study, “the simple act of remembering that they had once heard something was enough to make them regard it as true,” regardless of a subsequent retraction. “Even many of those who remembered a retraction still rated the original claim as true.” This result did not surprise Stephan Lewandowsky, the psychology professor who led the study: “By the time they receive a retraction, the original misinformation has already become an integral part of that mental model, or world view, and disregarding it would leave the world view a shambles.” Because people do “whatever it takes” to preserve their mental models, he concludes, “people continue to rely on misinformation even if they demonstrably remember and understand a subsequent retraction.”132 As a result of the confirmation bias, many litigants evaluating information obtained through pre-trial discovery procedures place disproportionate weight on favorable evidence and either ignore or underweight disconfirming evidence. Noting that intuition seems to direct reasoning and that reactions to information are largely automatic, psychology professors Nicholas Epley and Eugene Caruso explain how adverse parties can look at the same information and reach entirely different conclusions: Given this causal sequence, it is now clear why ideological opponents find it so easy to derive what they perceive to be compelling evidence in support of their particular position from the exact same evidence. Automatic evaluations produce moral reasoners who are not empiricists reasoning dispassionately about a particular issue, but motivated partisans seeking justification for a preexisting intuition. The inherent ambiguity in almost any partisan issue is likely to ensure that people seeking supporting evidence for one position over another are likely to find some, producing opposing positions that partisans each erroneously believe are a direct product of compelling rational arguments.133
As parties scan, filter, weight, and select information obtained through discovery procedures, finding favorable evidence is as predictable as the United States Supreme Court’s summer recess. Unless biases are mitigated in this evidenceseeking phase, discovery becomes a predictable ritual in which the parties anticipate the evidence to be discovered, invariably find the sought-after evidence, and then use that evidence to bolster assessments, opinions, and strategic decisions already formed and implemented. Not surprisingly, given the confirmation bias, some studies show a negative correlation between the extent of discovery and the likelihood of settlement.134 More evidence, it appears, does not promote re-evaluation but rather solidifies an initial evaluation. 132
Begley, Sharon. (2005, February 4). People believe a ‘fact’ that fits their views even if it’s clearly false. The Wall Street Journal, p. B1. 133 Epley and Caruso supra note 21 at 181. 134 McKenna, Judith A., and Wiggins, Elizabeth. (1997–1998). Empirical research on civil discovery. Boston College Law Review, 39, 785, 796.
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The confirmation bias is amplified when attorneys report to clients on a periodic basis – as is routine with defense counsel writing monthly or quarterly status reports to large business and insurance companies – instead of an episodic basis. Periodic reports tend to shape events into a coherent, confirmatory theme of the case while episodic reports are more likely to concurrently inform clients of disparate and inconsistent facts elicited at a deposition or obtained through interrogatories or document inspection demands. Discovery inevitably produces conflicting, disconfirmatory and ambiguous evidence, and decision maker’s case evaluations are aided by seeing the evidence in the same form the jury or judge will see it. The synthesis of raw evidence through an attorney’s framework of legal theories and arguments and prior advice and predictions may distort the actual impact of the evidence and hinder the client’s independent determination of its probative value. In many cases the client would benefit from seeing the raw evidence and making its own evaluations assisted by the attorney’s legal advice – unencumbered by the attorney’s narratives and personal opinions of the witnesses’ credibility. Like physicians who withhold reports believing that patients will “overreact,” attorneys often keep depositions, motions and written discovery responses in their own files to protect their clients from being alarmed before the attorney can “explain” the arguments and evidence for the client’s edification. In both circumstances, the professionals underestimate the ability of their charges to comprehend information and make their own evaluations and decisions. Because both attorneys and clients may be affected by the confirmation bias, the risk of misperceptions is intensified by filtering data through an attorney and sending to the client the attorney’s summary of the evidence instead of the evidence itself.
4.3.5
Representative and Availability Heuristics
Confirmation bias is augmented by the representativeness heuristic and the availability heuristic. These heuristics cause people to emphasize recent, spectacular and visual information and ignore base rates and other non-affective, non-visual data. Acting under the influence of these heuristics, people assess the likelihood of an occurrence by its most recent manifestation, not its historical incidence, and overweight easily visualized dangers while ignoring insensible yet major risks. Homeowners buy flood insurance after a catastrophe, airline passengers purchase flight insurance after a major aviation accident, and investors move assets into stocks after a lengthy bull market. Although automobile accidents kill 3,500 people every month and 42,000 people die from cancer each month, those unspectacular facts “don’t seem to scare or interest us nearly as much as things like plane crashes, mountain lion attacks, deadly roller coaster mishaps or avian flu.”135 Death by 135
Daum, Meghan. (2007, August 18). Death by numbers. Los Angeles Times. Available at http://www.meghandaum.com/latimes_column/2007/081807_death_numbers.htm
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falling asteroid, writes Meghan Daum, a Los Angeles Times columnist and National Public Radio contributor, “seems infinitely more real than death by cholesterol.”136 Evolutionary adaptation places a high premium on detecting and responding to sensory stimuli in general and vividness in particular, frequently overriding the analytical processes of the dorsal lateral prefrontal cortex. Until the Age of Reason and The Enlightenment in the 18th century, nature strongly favored those who saw stripes and scaled the nearest tree rather than those quickly devoured souls who considered the odds of the stripes covering a zebra’s flanks instead of a tiger’s empty stomach. Similarly, people who fled villages in the 1300’s when they saw blackened, necrotic limbs infected by the Bubonic plague are more likely to be your ancestors than those thoughtful individuals who hung around contemplating the statistical likelihood of dying from a rare bacterium. Acting first and deliberating later has been the operative rule for survival and hence procreation; its adherents dominate the genetic pool. The availability and representativeness heuristics reflect the evolutionary advantages of assuming that recent events are more important and more likely to recur than historical frequency data indicate and that visually stimulating images have greater predictive value than arid statistics. “The vividness of the image or the ease with which it can be recalled distorts its representativeness,” explains law professor Richard Birke. “This is why people tend to believe, incorrectly, that there is more annual rainfall in Seattle than in northern Georgia, that shark attacks lead to more deaths than falling airplane parts, or that murder is more common than suicide.”137 The availability and representativeness heuristics similarly lead most people to “believe that homicides and car accidents kill more Americans than diabetes and stomach cancer – presumably because of the greater media coverage provided to the former – although the two diseases kill far more people.”138 A picture may be worth a thousand words, as the saying goes, but more often a picture overcomes a thousand words. Sophisticated, highly experienced decision makers are vulnerable to the cognitive distractions caused by the availability and representativeness heuristics. Matthew Broderick, the director of the Homeland Security Operations Center (HSOC) in New Orleans and a retired Marine brigadier general with 30 years of experience, prided himself on fact-based decision making. During the Hurricane Katrina disaster in New Orleans he was responsible for informing Homeland Security Secretary Michael Chertoff and the White House of all ground intelligence. As he saw it, one of his jobs was “to not overreact, not get hysterical and get the facts.” Although breaches of the levees were reported as early as 7:30 a.m. on August 29, 2005, and a half hour later the Transportation Security Administration reported a breach of the Industrial Canal levee directly to HSOC, Mr. Broderick stated throughout the day that “the city’s flood control structures were intact.”139 136
Id. Birke supra note 47 at 203. 138 Korobkin and Ulen supra note 51 at 1088. 139 Cooper, Christopher and Block, Robert. (2006, July 7). Behind the Katrina imbroglio. The Wall Street Journal, p. B1. 137
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When later asked by U.S. Senate investigators why he thought the levees had not been breached despite numerous reports to the contrary, Mr. Broderick said he had watched CNN’s video segment showing carousers on Bourbon Street, a relatively high point in New Orleans: “The one data point that I really had, personally, visually, was the celebration in the streets of New Orleans, of people drinking beer and partying because – and they used, they came up with the word – ‘we dodged the bullet.’ So that’s a pretty good indicator right there.” After watching the CNN video, Mr. Broderick issued a final report for that day stating “preliminary reports indicate the levees have not been breached,” although the agency he directed “had received nearly a dozen definitive reports that the city’s flood-control system had been breached and eight other reports suggesting as much.”140 Attorneys may not be fixated on CNN video segments, but they are attached to strong images in the form of charismatic clients, visually searing narratives, deposition sound bites, trial graphics and slides, riveting “day in the life” videotapes of accident victims, and “star” quality expert witnesses. They relish a dramatic, devastating cross-examination of an adversary’s witness and may overlook the fact that a dry, composed, and thorough direct examination of their own witness may be more important to the jury. They also draw analogies between well-publicized cases and their own cases, plaintiffs’ attorneys finding parallels between their cases and record verdicts and defense attorneys seeing similarities between their cases and major defense verdicts. Clients, in turn, may find the availability heuristic distorts their expectations by over-emphasizing recent trials covered by the media or outsized settlements or verdicts obtained by competitors, business colleagues, neighbors, relatives and friends. Paul Brest, president of the Hewlett Foundation and former dean of Stanford Law School, is an expert on behavioral law and economics in general and decision making in particular. In reviewing the contributions of Amos Tversky and Daniel Kahneman to heuristics and biases research, he reiterates researchers’ findings that “judgments of probability are based on how readily salient examples come to mind.” He also explains the aggregate impact of the availability bias and confirmation bias: “Because of the ways that people process information, having accurate information does not necessarily improve decision making, and sometimes may detract from it. Moreover, rather than accumulate the optimal amount of information, individuals often uncritically accept information that confirms their beliefs while over-critically rejecting disconfirming data; they are overconfident in their judgments; and are prone to base judgments on information that is vivid and available to memory rather than more accurate but pallid and unmemorable.”141 Although these biases may not unseat rational judgment and behavior, Mr. Brest writes, they undermine the premise of “homo economicus” objectively accumulating
140
Id. Brest, Paul. (2006, November). Amos Tversky’s contributions to legal scholarship: Remarks at the BDRM Session in honor of Amos Tversky, June 16, 2006. Judgment and Decision Making, 1 (2), 175.
141
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and evaluating all data necessary to make rational, utility-maximizing decisions. The more realistic view may be that of a decision maker consistently reacting to recent and visually arresting stimuli and occasionally exercising the deliberative powers of the prefrontal cortex to mitigate the availability and representativeness heuristics. Human reasoning, in short, is invariably imagistic.142
4.3.6
Hindsight Bias
To the extent new information might challenge old beliefs, the hindsight bias diminishes its impact. When a fact or event emerges outside the zone of expected data, it briefly generates dissonance and causes cognitive distress. This sense of dissonance and distress is ameliorated by rationalizations like, “I knew this would happen,” “This is exactly what I said would happen,” or “I knew it all along.” This mental attempt to quash dissonant information by reshaping it and recreating recollections is known as the “hindsight bias,” and its existence has been documented in endeavors as diverse as medical diagnoses, elections, and pregnancy tests.143 Under the influence of this bias, “information about what actually occurred apparently influences our judgments concerning what we thought would occur before we knew the outcome. Events that have actually occurred seem, through the lens of hindsight, to have been almost inevitable.”144 The hindsight bias thus squeezes new data into old cognitive portals, just as the confirmation bias shapes new stories to conform to old memories and pressures new data to support old results. When necessary to reduce dissonance between new information and old beliefs, psychology professor Robyn Dawes explains, people change their recollection “in ways that make sense of the present.” Under severe stress to reconcile facts and events, he states, people will “quite literally make up stories about our lives, the world, and reality in general.”145 Three experiments demonstrate the operation of the hindsight bias. In the first experiment, students were asked to review 15 possible outcomes for President Richard Nixon’s anticipated trip to China in 1972 and to predict the most likely outcome from among those possibilities. Two weeks after they submitted their predictions, the students learned the actual outcome of the trip and were asked to recall their original predictions; 67% of the students “thought their original estimates were closer to the truth than they really were.”146 In another experiment, participants were asked to predict the outcome of the U.S. presidential election in 142
Dennett, Daniel C. (1995, August 25). [Review of the book] Damasio, Descartes’ error. Times Literary Supplement, p. 3–4. 143 Plous supra note 16 at 35. 144 Korobkin and Ulen supra note 51 at 1096. 145 Hastie and Dawes supra note 93 at 147. 146 Russo & Schoemaker supra note 4 at 211.
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2000. A few weeks after the election results were announced, the participants were asked to recall their predictions. The participants reported that they had predicted Gore leading Bush by 0.58% in the popular vote. Their recalled predictions were remarkably close to the actual election results, as Gore led Bush by a 0.32% difference. Their original prediction, however, was that Gore would win the popular vote by a lead of 4.45%.147 In a third experiment, participants received a description of the British – Gurkha War. One group was not given any outcome information, while the other four groups were told, alternatively, that the British had won, the Gurkhas had won, a military stalemate occurred with a peace agreement, and a military stalemate occurred without a peace agreement. The groups that received outcome information were then asked how they would have assessed the probability of each outcome if they had not received outcome information. The subjects informed that the British had won assigned a mean probability of .57 to that outcome, but the subjects not given any outcome information assessed the probability of a British victory as .34. “Participants tended to believe that they would have judged the outcome that they were told happened as being most likely, even if they had not been told the outcome,” reports Professor Bazerman. “It becomes clear,” he notes, “that knowledge of an outcome increases an individuals’ belief about the degree to which he or she would have predicted that outcome without the benefit of the knowledge.”148 The danger of the hindsight bias, Professor Bazerman believes, is that it “reduces our ability to learn from the past and to evaluate decisions objectively.”149 Stated differently, we are “insufficiently surprised” by experience, and “one result is that we do not learn effectively from it.”150 The hindsight bias prevents people from recognizing gaps between their predictions and actual outcomes, delaying and often halting the recalibration essential to expert judgment. It raises confidence in predictive capacity when the actual evidence dictates caution, and it fosters an illusion of decision-making competence when the facts compel cognitive corrections. In a world where everyone “knew it all along,” there is no incentive to learn and very little left to learn.
4.3.7
Discounting Of Future Payments and Costs
Litigants often face choices between a lump sum payment and installment payments, between a lower, upfront payment and a higher, delayed payment, and 147
Schwarz, Norbert, and Vaughn, Leigh Ann. The availability heuristics revisited. In Gilovich, Thomas, Griffin, Dale, and Kahneman, Daniel. (2002). Heuristics and biases (p. 113). New York: Cambridge University Press. 148 Id. at 112. Bazerman supra note 18 at 36. Baron, Jonathan. (2000). Thinking and deciding (p. 145). New York: Cambridge University Press. 149 Bazerman supra note 18 at 37. 150 Hastie and Dawes supra note 93 at 147.
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between unconditional and contingent payments. Although most litigants are familiar with the time value of money concept ($1 received today is worth more than $1 received later) and the need to discount a future sum by a presumed rate of return when determining its present value, most minds do not perform discounting functions with mathematical precision or logical consistency. Consequently, litigants and their attorneys are not particularly adept at making what economist Richard Thaler calls “intertemporal choices, decisions in which costs and benefits are spread out over time.”151 Immediate payments are overweighted relative to delayed payments, short term risks of non-payment are overweighted relative to long term risks of non-payment or other material defaults, and mental “discounting” rates are high relative to actual inflation costs or presumed investment returns. This general inability to understand and calculate financial equivalencies is another example of how decision makers routinely misunderstand the nature and cost of change and consistently underreact or overreact to temporal manipulations of value. People are an impatient lot, and negotiated outcomes often reflect their willingness to forgo greater long-term benefits in exchange for smaller, immediate benefits. The entire viatical settlement business is based on the assumption that an insurance policy holder will take significantly less than the face amount of the insurance policy to obtain an immediate payment, and payday loan businesses typically realize an effective annual interest rate of 391% on a two-week loan until payday.152 The general preference for immediate payment also is demonstrated by the fact that about 72% of all Social Security recipients choose to take a reduced monthly benefit at 62 years of age instead of waiting for a larger monthly amount payable at age 65. About 75% of women elect the early Social Security payment, although their longer life expectancy statistically will result in lower overall benefits.153 And at the heart of the American residential loan debacle, which began to unfold in 2005, is a chronic inability to make rational intertemporal choices. Given a choice between an initially lower monthly mortgage payment with the risk of a higher interest rate and higher monthly payments in the future and an initially higher monthly payment with a fixed interest rate loan and no risk of higher monthly payments in the future, or a choice between a cash-out refinance loan with a higher interest rate and a no-cash refinance loan with a lower interest rate, many people were incapable of making a selection consistent with their long-term financial capabilities and goals. Short-term financial gains eclipsed long-term financial stability, and the prospect of immediate cash trumped equity preservation.
151
Thaler supra note 117 at 92. Federal Deposit Insurance Corporation. (2007, Summer). When you need money fast: Sources of affordable cash. FDIC Consumer News. Federal Trade Commission. (2008, March). Payday loans very costly cash: Consumers urged to consider the alternatives. FTC Consumer Alert. 153 See Dalton, Thomas M. (2006, June). Retirement at 62: Is receiving social security early worth it? The CPA Journal. Social Security Administration. (2005, May). OASI Monthly Statistics, April 2005 (Benefits in Current-Payment Status: Table 3. OASI Retired-Worker Beneficiaries, By Sex and Election of Early Retirement, March 2004-March 2005). Social Security Administration. 152
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In the process of making intertemporal choices, different parts of the brain are activated, each part yielding a result dictated by its evolutionary function. When asked, “Would you rather have $15 in two weeks or $20 in four weeks?” most people correctly choose to wait an extra two weeks for the larger $20 payment. MRI images of the brain, taken after that question is posed, show activation of the prefrontal cortex, a region responsible for analytic thinking. When a different question is posed, however, both the responses and MRI images are qualitatively different. Asked, “Would you rather have $15 now or $20 in two weeks?,” about half of the respondents want $15 now, although the time delay of two weeks for an additional $5 is the same as the first question. The MRI image also shows that the “now” signal in the second question shifts the brain activity from the prefrontal cortex to the limbic system, triggering a relatively primitive deliberative process. Harvard economic professor David Laibson explains the difference in the responses to the two questions: “The rat brain isn’t capable of valuing the future. When rewards have immediate consequences, our decisions are more likely to show impatience.”154 The irrationality of mental discounting is commonly seen in consumer purchases of household items. Consumers will not purchase energy saving appliances unless they obtain implicit discount rates of 17% to 300%.155 For example, they will not pay $100 more for an energy efficient appliance that will save them $150 in the first year of operation alone (a 50% discount rate for one year). But they will choose an appliance that costs $50 less than the energy efficient appliance even if the lower priced item will cost $50 more in electricity charges in the first year of ownership. Discount rates, moreover, vary widely among consumers, and research indicates that high discount rates are correlated with impulsiveness, low intelligence, brain damage, and depressants like alcohol.156 These research findings suggest that demographic segments with the highest objective need for lower costs or immediate payments may also display the highest subjective vulnerability to discounting. This compounded susceptibility to discounting is presumably evident to parties possessing superior economic resources and negotiating expertise. Sophisticated defendants strategically exploit the cognitive weakness for shortterm gratification by offering an apparently reasonable amount to be paid over time or at a future date or, at the plaintiffs’ election, a relatively modest amount payable 154
Heimer, Matthew. (2005, January). Outsmarting your brain. Smart Money, pp. 77, 79. See (2005, January 13). Economics focus/mind games. The Economist, p. 71. McClure, Samuel M. (2004, October 15). Separate neural systems value immediate and delayed monetary rewards. Science, 306(5695), 503. 155 Hausman, Jerry A. (1979, Spring). Individual discount rates and the purchase and utilization of energy-using durables. The Bell Journal of Economics, 10(1), 33–54. Houston, Douglas A. (1983, September). Implicit discount rates and the purchase of untried, energy-saving durable goods. The Journal of Consumer Research, 10(2), 236–246. Thaler supra note 117 at 94. Lowenstein, George, and Prelec, Drazen. (1992). Anomalies in intertemporal choice. In Kahneman, Daniel & Tversky, Amos (Eds.). (2000). Choices, values, and frames (p. 592–593). Cambridge: The Press Syndicate of the University of Cambridge. 156 Bibas supra note 104 at 2506.
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right away. In another iteration, defendants may offer an uncertain, potentially large amount depending on the outcome of a future event or, at the plaintiff’s election, a de minimis payment now. These savvy litigants display an ostensible reasonableness about the amount of a future payment and create the impression that the plaintiff, not the defendant, is choosing to forgo payment of a reasonable sum in exchange for immediate compensation. In these negotiations, where intertemporal valuations are manipulated to enhance short-term gratification and minimize longterm benefits, the logic of present value calculations is no match for the lure of immediate payment.
4.3.8
Sunk Cost Bias
“Don’t throw good money after bad.” Everybody knows better than that, and nearly everyone is convinced they would not make such a mistake. So why study the sunk cost bias? The simple answer is that money does not come with labels “good money” and “bad money,” ill-advised incremental expenditures initially are seen as prudent investments or steps necessary to protect investments, and nearly everyone evidences a sunk cost bias to bolster prior decisions and protect an illusion of competence. Very few decision makers can determine when more “seed money” will land on the compost pile or giving someone “just another chance” will generate additional losses.157 Sunk cost effects have been demonstrated in numerous experimental and “real world” studies. In a study conducted by Hal Arkes and Catherine Blumer, 85% of the subjects decided to “invest” additional research funds in a project that was 90% completed and had already consumed $10 million of the company’s cash – although they were informed a competitor was already selling a product that was superior in all respects to the product under development in the research project. But when information regarding the previous $10 million expenditure on the research project was deleted and all other information remained the same, only 17% of the subjects elected to continue the project. Similarly, people who have paid full price for tickets are significantly more likely to attend an event than people who receive discounted tickets, and loan officers who previously approved loans are more likely to approve additional loans after the borrowers default.158 Unfortunately, the psychological investment in previous decisions and the need to reduce dissonance resulting from bad decisions may render people more likely to spend money on projects with poor track records than good track records. The need to prevent or forestall the recognition of failure appears to motivate additional expenditures on projects already exhibiting detrimental outcomes. When informed 157
See Royer, Isabelle. (2003, February). Why bad projects are so hard to kill. Harvard Business Review, pp. 48–56. 158 Baron supra note 148 at 298. Plous supra note 16 at 244.
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that a decision they had made was unsuccessful, study participants are more likely to allocate additional money to the project affected by their unsuccessful decision than a different, successful project. When study participants are informed that someone else in the organization made the unsuccessful decision, they are significantly less likely to approve additional funding for the failing project than persons who made the initial, unsuccessful decision about the failing project.159 The sunk cost effect also motivates people to orchestrate data and evaluate performances to justify prior decisions. A study by organizational behavior experts Barry Staw and Ha Hoang, for instance, concluded that basketball players’ playing time and probability of being traded were significantly affected by their teams’ prior draft choices and the sunk costs incurred to sign players – independent of the players’ actual performance.160 Likewise, managers who favored hiring an employee write positively biased performance appraisals of that employee, while those opposed to the hiring decision negatively slant their performance appraisals.161 An extreme version of the sunk cost bias is played out every time Professor Max Bazerman conducts his negotiating class for executives at Harvard’s John F. Kennedy School of Government. Seasoned executives, making six and seven figure incomes and handling decisions that affect large organizations, are invited to participate in an auction for a $100 bill. They are told that the auction is slightly different from most auctions in that the second highest bidder must pay the amount of his bid but will, of course, not win the $100 bill. The bidding starts and within seconds the bids are near $100. Fearing that he will lose his entire bid, the second highest bidder inevitably escalates his psychological commitment and bid, responding to Bazerman’s baiting, “Come on, Brian! Don’t you want at least $100 for all your work?” The result is excruciatingly predictable: “I’ve played this game perhaps 600 times,” Bazerman says, “and I’ve never seen the bidding stop below $100.”162 Lawyers and clients who routinely negotiate and litigate disputes may believe they are too experienced to fall for Professor Bazerman’s games. But how does one explain “real life” cases where clients spend $420,000 on attorneys fees in an unsuccessful attempt to recover less than $25,000, or $1,000,000 in attorneys fees to recover $121,000, or $1,400,000 in attorneys fees to obtain an amount less than the settlement offer made before the case was filed? Each of those cases seems to reflect an extreme sunk cost bias similar to that shown by the Fortune 500 executives in Bazerman’s auction. Consistent with the self-deception that often attends decision-making biases like the sunk cost bias, attorneys and clients do not take responsibility for adverse outcomes but rather blame the other side for being unreasonable in settlement negotiations and forcing the case to trial. As professors
159
Bazerman supra note 18 at 78. Staw, B. M., & Hoang, H. (1995). Sunk costs in the NBA: Why draft order affects playing time and survival in professional basketball. Administrative Science Quarterly, 40, 474–493. 161 Bazerman supra note 18 at 78. 162 Heimer supra note 154 at 77. 160
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Gross and Syverud concluded from their interviews with attorneys, 81% of plaintiffs and 72% of defendants blamed the other side or an extrinsic factor when asked, “Why did this case go to trial rather than settle.” “Each side says the other did it,” Gross and Syverud report, and almost nobody says, “We gambled and lost.”163 As a result of the enormous costs incurred prior to serious settlement negotiations or trials, clients and attorneys are highly vulnerable to sunk cost biases. These biases are reflected in comments like, “We’ve come too far to walk away from this now,” “We might as well take our best shot with the jury,” or “If you had offered that at the beginning of the case, we might have accepted it.” Like the bidders in Professor Bazerman’s game, litigants start off intending to make financially rewarding decisions but eventually “become concerned with winning the competition, saving face, minimizing losses, and punishing their opponent for getting them into such a mess.”164 When both parties have reached the point of diminishing returns, they nevertheless continue a mutually destructive pattern, believing they are being “forced by the other bidder to continue” and claiming the other bidder is “crazy to continue.”165 The sunk cost effect in litigation often is heightened by the fact that the key decision makers in the settlement negotiations also were the key players in the actions and decisions that preceded the filing of the case, making it all the more imperative for those prior actions and decisions to be justified and vindicated.166 To overcome the strong pressures applied by the sunk cost bias when they attempt to assess probable outcomes and evaluate settlement alternatives, both attorneys and clients must detach themselves from their prior financial and cognitive “investments.” Effective decisions can only be forward-looking, as past expenditures neither mitigate the effects of a bad decision nor diminish the benefits of a sound decision. Expending additional money on a counter-productive cycle of self-justification never enhances an otherwise imprudent course of action but rather inflicts further harm and embarrassment. When litigants find themselves “knee deep in the big muddy,” they need to recognize and resist the inclination to wade farther in the expectation of finding firmer sediment. The decision to abandon a strategy that has reached the point of diminishing marginal returns is one of the most imperative yet most difficult challenges presented to clients. Because effective decision making requires a stern willingness to abandon prior positions and shift resources to more productive ventures, litigants
163
Gross & Syverud supra note 86 at 49. Plous supra note 16 at 249. 165 Id. 166 See Staw, B. (1976). Knee-deep in the Big Muddy: A study of escalating commitment to a chosen course of action. Organizational Behavior and Human Performance, 16, 27–44. Staw, B.M. and J. Ross. (1987). Knowing when to pull the plug. Harvard Business Review, 65(2), 68–74. Statman, Meir, and Caldwell, David. (1987, Winter). Applying behavioral finance to capital budgeting: Project terminations. Financial Management, 16(4), 7–15. Staw, Barry M., and Ross, Jerry. (1989, October 13). Understanding behavior in escalation situations. Science, 246(4927), 216–220. 164
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must continually ask themselves, “If we did not do this already, would we, knowing what we now know, go into it?”167 If the answer is “no,” clients, aided by counsel, must extricate themselves before the fallout consumes core resources. Although he was not referring to the sunk cost bias specifically, Peter Drucker’s advice about abandoning projects is apposite: The first policy – and the foundation for all the others – is to abandon yesterday. The first need is to free resources from being committed to maintaining what no longer contributes to performance, and no longer produces results. In fact, it is not possible to create tomorrow unless one first sloughs off yesterday. To maintain yesterday is always difficult and extremely time-consuming. To maintain yesterday therefore always commits the institution’s scarcest and most valuable resources – and above all, its ablest people – to nonresults. . . . And if these people are committed to maintaining yesterday, they are simply not available to create tomorrow.168
To facilitate the acknowledgment and abandonment of a strategy producing a negative marginal return, attorneys and litigants need to shift their focus from the immutable past to the pliant future. Studies indicate that emphasizing changed external circumstances rather than personal decision-making shortcomings can diminish sunk cost biases. The focus on changed circumstances and future consequences diminishes the egocentric drive to escalate prior commitments, shifts the decision maker’s attention away from prior positions and commitments, directs analysis to the current conditions and furnishes a self-protective reason for making new and better decisions.169
4.4
Chapter Capsule
Psychological biases, heuristics and illusions corrupt sound attorney-litigant decision making. To make effective decisions, attorneys and clients must understand how psychological factors affect their perception of conflicts and adversaries, their evaluation of and response to risk and uncertainty, and their reactions to impending changes in the status quo. Perceptions of adversaries’ actions, character and motivations are distorted by attribution errors, selective perception and memory, self-serving biases and reactive devaluation. These distorted perceptions, in turn, unduly restrict the alternatives considered in pre-trial settlement negotiations and foster erroneous, self-sealing views of how judges and juries will decide cases. In assessing risk and uncertainty, attorneys and clients are affected by “anchoring” and “framing” biases. Anchoring biases cause litigants to place undue weight on amounts derived from appraisals, Drucker, Peter. (1999). Management challenges for the 21stcentury (p. 74). New York: Harper Collins Publishers. 168 Id. 169 Baron supra note 148 at 299. Bazerman supra note 18 at 78. 167
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estimates, sales, offers, demands and other sources that may be biased, self-serving, irrelevant, unreliable, arbitrary or inaccurate. Framing biases cause litigants to be risk seeking when facing losses and risk averse when anticipating gains, resulting in suboptimal results for both plaintiffs and defendants. In responding to threatened or impending changes resulting from settlements or verdicts, attorneys and clients are influenced by the endowment effect, the status quo bias, optimistic overconfidence, the confirmation bias, representativeness and availability heuristics, hindsight bias, discounting, and the sunk cost bias. These biases cause decision makers to resist, ignore, minimize or discount changes, demand unreasonably high amounts to relinquish perceived entitlements, feel overly confident about their capacity to control and predict changes, and believe that whatever occurred in hindsight was merely a reflection of their foresight.
Chapter 5
Institutional Impediments to Effective Legal Decision Making
My mind seems to have become a kind of machine for grinding general laws out of large collections of facts, but why this should have caused the atrophy of that part of the brain alone, on which the higher tastes depend, I cannot conceive. . . . The loss of these tastes is a loss of happiness, and may possibly be injurious to the intellect, and more probably to the moral character, by enfeebling the emotional part of our nature Charles Darwin, The Autobiography of Charles Darwin (1881)
When conflicts escalate above their dispute resolution capabilities, individuals and organizations retain attorneys to recover their losses, protect their assets and preserve their reputations. Clients expect an attorney to objectively evaluate facts, advise them of the applicable law, persuasively represent their interests through adept advocacy and negotiating skills, accurately assess the likelihood of prevailing in the event of a trial, and discern the utility of a pre-trial settlement. These expectations, however, often exceed the scope of an attorney’s education and training. Although attorneys know the law, can make persuasive distinctions between conflicting legal authorities and often are trained in advocacy and negotiating skills, they are not educated or prepared to be prognosticators.1 Probabilistic reasoning skills are not part of the traditional law school curriculum, and attorneys consequently substitute knowledge of statutes and case law for formal decisionmaking models. When an attorney is regarded as an “expert” in a particular field, it signifies that he is thoroughly conversant with every statute, case and regulation that could apply but may not accurately foresee how and whether they will be applied. Attorneys hold strong and confident opinions about what should happen in a case and what they expect to happen, but their subject matter expertise, standing alone, is not equivalent to forecasting expertise.
1
Similarly, in the health care field physicians may possess excellent diagnostic skills but usually are not regarded as experts on life expectancy. See Strauss, David, and Shavelle, Robert. (1998, Summer). Doctors are not experts on life expectancy. Expert Witness, 3(2).
R. Kiser, Beyond Right and Wrong, DOI 10.1007/978-3-642-03814-3_5, # Springer-Verlag Berlin Heidelberg 2010
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Accurate forecasting of trial outcomes is the touchstone of financially beneficial negotiations. Because the goal of negotiation “is to produce something better than the results you can obtain without negotiating,” as declared in the negotiation skills bestseller Getting To Yes, one first must know what the results would be without negotiating.2 The threshold requirement for evaluating an adverse party’s settlement proposal and negotiating any pre-trial resolution of a case thus is an accurate picture of what the trial outcome would be. The 11,000 attorney-litigant decisions analyzed in Chapter Three of this book, combined with the prior empirical decisionmaking research summarized in Chapter Two, demonstrate, however, that many litigants and their attorneys do not know and cannot predict accurately what the probable trial result will be. They embark on settlement negotiations without an intended destination or a GPS, showing up at mediation sessions or settlement conferences before investigating results in similar cases and assessing the settlement value and likely trial result in the client’s case.3 Lacking sound data and models, their negotiating style is instinctive. As business professors Russo and Schoemaker explain in Winning Decisions, professionals’ “honed intuitive skills are crucial for framing questions, collecting evidence, and identifying the pertinent factors in a decision;” but they lack formal decision rules and systematic models for decision making. Consequently, they shoot from the hip “when many data points are involved.”4 Attorneys and litigants seem to know how to negotiate but not the basis from which to negotiate. Absent information about what occurs in similar cases or what is likely to occur in their own case, they may negotiate reactively but not effectively. Although proficient negotiators do not have to be good trial lawyers, they do need to know what would happen to a case in the hands of a good trial lawyer. As professors Austin Sarat and William Felstiner explain, “despite its relative rarity, formal adjudication is quite significant. It is the prospect and anticipation of what judges or juries would do were cases tried that provide the impetus for settlement activity both before and after cases have been formally filed in court.”5 Given the paucity of actual trial experience among litigation attorneys, the difficulty of obtaining reliable data regarding adjudicated outcomes, and the lack of decisionmaking training and models, however, it is not clear that attorneys and litigants are
2
Fisher, Roger, Ury, William, & Patton, Bruce. (1991). Getting to yes (p. 100). New York: Penguin Books. 3 John Flaherty, a former California Superior Court Judge and presently a neutral with Judicial Arbitration and Mediation Services (JAMS), states, “It’s disappointing the lawyers haven’t given enough thought to where the mediation should be going. It doesn’t appear to leave any room to negotiate.” Anderson, Craig. (2008, June 20). Settling well into retirement keeps jurist busy. San Francisco Daily Journal, p. 2. 4 Russo, J. Edward & Schoemaker, Paul, J.H. (2002). Winning decisions (p. 158). New York: Doubleday. 5 Sarat, Austin, and Felstiner, William L.F. (1995). Divorce lawyers and their clients: Power and meaning in the legal process (p. 109). New York: Oxford University Press.
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knowingly and effectively guiding themselves through the settlement versus trial analysis. To understand why attorneys and litigants’ decision-making behavior may be suboptimal and can undermine their own economic objectives, this chapter examines three institutions that may contribute to decision-making errors and low quality problem-solving skills: law schools, law firms, and courts. Five possible causes of ineffective decision making are discussed: (1) law schools’ lack of emphasis on problem-solving skills and probabilistic and methodological reasoning; (2) law firms’ disproportionate attention to billable hour production and legal processes; (3) law firm’s competition for clients and attorneys’ attendant deference to clients’ expectations and affect; (4) the reportedly high rate of depression, obsessive compulsive disorder and substance abuse among law students and lawyers and its effect on creative, comprehensive problem solving; and (5) the sharply decreasing number of civil trials and the consequent decline in attorney trial experience and knowledge of trial outcomes.
5.1
Law School Education
Most law schools do not teach aspiring lawyers how to serve their future clients as effective, efficient problem solvers. That is not their objective, and they should not be held accountable for neglecting skills they neither agreed to teach nor sought to inculcate. The fundamental direction of law school education was set in the late 1800s when law schools started to adopt the “case method” of teaching advanced by Harvard Law School professor Christopher Columbus Langdell. The case method emphasized the reading and analysis of court cases and presumed that law, like geometry, could be reduced to a “system of axioms and corollaries.”6 It differed from pedagogical methods employed by other law schools until 1890 in that it de-emphasized the experience of practitioners and posited that academics could deduce a rational, consistent set of legal principles from the scientific study of court decisions. In the opinion of former Yale Law School dean Anthony Kronman, the Langdellian approach ultimately changed the definition of professional excellence: “The early-nineteenth-century ideal of the lawyer-statesman made prudence a central value, as did the common-law tradition on which that ideal drew. The late-nineteenth-century ideal of scientific law reform demoted the virtue of practical wisdom to a position of marginal importance and put a more abstract form of theoretical understanding in its place instead.”7 The case method, also referred to as the “Harvard method” or “case dialog method” and later melded with the “Socratic method,” formalized the type of 6
Kronman, Anthony. (1993). The lost lawyer: Failing ideals of the legal profession (p. 184). Cambridge, Massachusetts: Harvard University Press. 7 Id. at 22–23.
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courses taught in the first year of law school. The prior emphasis on practitionerdirected, apprenticeship-like training was displaced by an academic curriculum initially requiring the study of Real Property, Torts, Contracts, Civil Procedure, and Criminal Law.8 These courses still form the core curriculum of the first year of law school, and the tenets of some courses remain largely intact. As the renowned medieval historian Norman Cantor notes, “A barrister of 1350 deep frozen and thawed out today would need only a six-month refresher course at a first-rate American law school to practice property or real estate law.”9
5.1.1
Separation of Legal Education from Legal Practice
Although Langdell intended to teach law as a “science” and raise the academic stature of law schools, the case method effectively separated law students from the practice of law. In Langdell’s view, “the worldly wisdom of practicing lawyers plays no role,” and “there is nothing left for a practitioner to teach.”10 Unlike medical students who quickly shift from classroom instruction to clinical practice, law students typically spend the entire three-year course of instruction in a classroom, unperturbed by the sight of a client. Law schools’ counterpart to the “see one, do one, teach one” axiom of medical schools would be “read about one, read about one, read about one.”11 Law students’ classroom instruction may be punctuated by moot court competition or participation in law school clinics, but these practical experiences are neither required nor treated as intellectually equivalent to classroom teaching. Law school faculty members, reports the Carnegie Foundation for the Advancement of Teaching, “voice deep skepticism about the intellectual value of practice-oriented courses,” and one law professor characterized the school’s clinical program as “a side show in which the central faculty and students are not interested.”12 Law professors are fond of saying that they teach students to “think like lawyers,” but it would be more accurate to say they are taught to think like the highly intelligent people whose analyses and opinions they study for three years: appellate court judges and law professors. It would be strange indeed if law students 8
See Sullivan, William M., et al. (2007). Educating lawyers: Preparation for the profession of law (pp. 5–7). San Francisco, California: Jossey-Bass. 9 Cantor. Norman. (2001). In the wake of the plague: The black death and the world it made. New York: Perennial. Quoted in Acocella, Joan. (2005, March 21). The end of the world. The New Yorker, p. 84. 10 Kronman supra note 6 at 188. 11 See Coughlin, Christine Nero, McElroy, Lisa, and Patrick, Sandy. (2009, April 14). See one, do one, teach one: Dissecting the use of medical education’s signature pedagogy in the law school curriculum. Georgia State University Law Review, Forthcoming; Wake Forest Univ. Legal Studies Paper No. 1380079. Available at SSRN: http://ssrn.com/abstract=1380079. 12 Sullivan supra note 8 at 100–101.
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thought like lawyers since students have little or no direct, experiential exposure to lawyers until after graduation. As one student commented in the Carnegie Foundation’s 2007 report, “law schools create people who are smart without a purpose.”13 A similar pedagogical approach to medical school education would result in an outstanding class of anatomists and researchers but none capable of palpating a patient. The benefit of the case law teaching method is that students learn legal principles in the context of a judicial opinion, which typically summarizes the case’s factual background, identifies the issues to be decided, explains the applicable law and judicial precedents, and applies overarching principles and policies to specific facts. This method is primarily syllogistic and analogical and presumes that a framework for practical law practice may be imparted through issue identification, general legal concepts, parallelism and differentiation. The disadvantage of the case method is that students do not learn problem solving skills in general and probabilistic reasoning skills in particular. They lack the ability to promptly resolve actual legal problems and moral dilemmas and may not make timely, economical and sound decisions when presented with a muddied factual record.
5.1.2
Testing Law Students’ Reasoning Skills and Moral Judgment
Although the efficacy of law school education has not been studied extensively, some research projects indicate that law students are not developing strong problem-solving and moral reasoning skills during their three-year enrollment. Testing shows that the methodological reasoning skills of first-year medical, chemistry, psychology, and law students are initially similar, but after two years of graduate education the psychology students show a 70% increase in test scores and medical students show a 25% increase. The law and chemistry students, however, show no improvement at all.14 The investigators in these studies explain why the law and chemistry students fail to develop problem solving skills: “It appears that the probabilistic sciences of psychology and medicine teach their students to apply statistical and methodological rules to both scientific and everyday-life problems, whereas the nonprobabilistic science of chemistry and the nonscientific discipline of the law do not affect their students in these respects.”15 Law school education, 13
Id. at 142. Gilovich, Thomas. (1991). How we know what isn’t so (pp. 191–192). New York: The Free Press. 15 Lehman, D.R., Lempert, R.O. & Nisbett, R.E. (1988). The effects of graduate training on reasoning: Formal discipline and thinking about everyday life events. American Psychologist, 43, 431–42, quoted in Gilovich supra note 14 at 192. (The Lehman study, however, did report “that psychology, medical, and law training produced effects on ability to reason about problems in the logic of the conditional”). See Woll, Stanley. (2001). Everyday thinking: Memory, reasoning, and 14
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they observe, affords students “the luxury of not being confronted with messy problems that contain substantial uncertainty and a tangled web of causes.”16 Despite the purported benefits of the Socratic method, which forces students to describe, analyze, criticize, and distinguish cases through a vigorous verbal exchange with their law professors, law students apparently do not develop strong verbal reasoning skills in law school. Although practicing lawyers’ careers depend on the exercise of sound reasoning and communication skills with clients, adversaries and judges, law schools, according to one study, “did not produce any reliable differences in improvement on the verbal reasoning sub-test of the GRE (gains ranged from 4% to 17%).”17 The lack of a statistically significant improvement in verbal reasoning suggests that law students’ problem-solving skills are not being honed to meet the challenges of client service after graduation. Law students may not be learning methodological and statistical reasoning skills because neither the case method nor the Socratic method has proven to be a superior method of promoting scientific, practical, or discursive analysis. Describing a recent study of law students’ legal reasoning skills, law professor Stefan Krieger makes some general observations and compares the performance of third year law students to second year law students and medical school students: l
“But unlike medical students, there was little change between their [third year law students’] recall of relevant facts and that of second-year students. In other words, in contrast to final-year medical students, third-year law students apparently had not yet refined the skill of distinguishing adequately between relevant and irrelevant facts.”18
judgment in the real world (p. 465). Mahwah, New Jersey: Lawrence Erlbaum. (“The apparent explanation for these findings is that psychology graduate students have a good deal of training in both statistics and experimental design, whereas law and chemistry students do not. Medical students, it turns out, at least at Michigan [where the original study was performed] are trained on the topic of judgment under uncertainty, as well as having experience with statistical concepts, both of which may account for their performance on the statistical problems.”) 16 Lehman, D.R., Lempert, R.O. & Nisbett, R.E. (1988). The effects of graduate training on reasoning: Formal discipline and thinking about everyday life events, American Psychologist, 43, 441, quoted in Gilovich supra note 14 at 192. 17 Lehman, D.R., Lempert, R.O. & Nisbett, R.E. (1988). The effects of graduate training on reasoning: Formal discipline and thinking about everyday life events. American Psychologist, 43, 431–42, quoted in Gilovich supra note 14 at 192. (This result occurred in testing of the graduate students in medicine, psychology and chemistry as well). 18 Krieger, Stefan. (2006). The development of legal reasoning skills in law students: An empirical study. Journal of Legal Education, 56(3), 352. Professor Krieger notes that the “sample size was small; the subjects were from a single law school; and no attempt was made to control for the differences in background or academic achievement of the different subject groups. As limited as this study may be, however, it demonstrates that empirical methods can help assess law student learning.”
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l
l
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Third year law students “seem prone to generate indiscriminately a large number of rules, many of which are irrelevant. . . . Here, third-year students appear to be processing too much garbage.”19 The “failure of most upper-level students – many of whom had completed Evidence – to consider evidentiary and burden allocation issues seems puzzling.”20 The “large number of third-year subjects who identified the lack of a statute as a problem suggests that we may be teaching students to look for the quick fix of an applicable statute or regulation.”21
The study’s findings regarding third-year law students’ recall of relevant propositions, Professor Krieger writes, “appear to raise some questions about the effectiveness of the final year-and-a-half of law school on students’ ability to focus on the relevant facts in a legal problem.”22 Shortcomings in law students’ methodological and probabilistic reasoning skills are not limited to strictly legal issues but extend to moral dilemmas as well. As explained in the Carnegie Foundation’s most recent report on law schools, “a number of studies have shown that students’ moral reasoning does not appear to develop to any significant degree during law school.”23 Nor do law students exhibit improved ethical decision-making skills once they graduate and have an opportunity to apply whatever ethical skill set they acquired in law school to a practical setting. Reviewing the pertinent research, the Carnegie Foundation finds: “This picture of a lack of growth in moral thinking during law school is borne out by studies of practicing lawyers, which reveal scores for attorneys that are comparable to those of entering law students.”24 The reported absence of growth in moral judgment and ethical decision making is a critical defect in law school education, as the sound evaluation of moral and ethical issues is a core skill for practicing attorneys; the American Bar Association’s MacCrate Report identifies “recognizing and resolving ethical dilemmas” as one of the ten core professional skills and ranks the promotion of “justice, fairness, and morality in one’s own daily practice” as one of the four central professional values.25 Researchers focus on the law school curriculum in trying to understand why law students do not develop practical and ethical problem solving skills, sometimes overlooking the crucial role played by the law school admissions process.
19
Id. at 349. Id. at 350. 21 Id. at 353. 22 Id. at 345. 23 Sullivan supra note 8 at 133. 24 Id. 25 American Bar Association, Section of Legal Education and Admissions to the Bar. (1992, July). Legal education and professional development – an educational continuum. Report of the task force on law schools and the profession: Narrowing the gap. Chicago: American Bar Association. 20
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This admissions process relies heavily on the results of the Law School Admission Test (LSAT), which attempts to measure three cognitive skills (reading, analysis, and logic). Although performance on the LSAT is predictive of law school performance, it is not predictive of performance as an attorney. Specifically, the LSAT does not test for practical judgment and 25 other factors identified by lawyers and judges as important to attorney effectiveness, such as the ability to see the world through the eyes of others, problem solving, creativity/innovation, and strategic planning.26 Marjorie Schultz, a co-principal investigator of a long-term project to re-design the LSAT, explains the shortcomings of the current law school admissions process: Most make no organized effort to assess likely professional competence; their admission decisions are dominated by narrow criteria intended mainly to predict academic performance. This lack of congruity between function and means arguably undermines professional quality and certainly raises questions about justification. Although other professions also rely on academic predictors, they pay attention to assessing professional potential as well. Medical schools explicitly consider whether an applicant will make a good doctor, placing substantial weight on noncognitive abilities such as motivation and human interaction skills. Business schools seek students with work experience in business, evaluating multiple essays to determine clarity of career goals and placement potential. But law schools, particularly elite law schools, assess applicants mainly on the basis of who will make a good law student rather than who will make a good lawyer. 27
Admitted to law school by a process that deemphasizes situational judgment and practical problem solving, and educated by a method largely divorced from actual legal practice, law students cannot be expected to learn and develop strong client representation and ethical reasoning skills during three years of legal education.
5.1.3
An Example of Law Student Decision Making
Weak methodological reasoning and decision-making skills may lead law students and attorneys to focus on satisfying their clients’ subjective expectations and financial goals formed prior to the attorney’s retention, rather than detachedly shaping those expectations and goals to reflect the applicable law, probable outcomes and the risks posed by disputed evidence. This tension between meeting clients’ goals and providing objective advice arises from an attorney’s dual roles of advocate and counselor and can become acute when the client’s expectations conflict with the direction dictated by sound, thorough methodological reasoning. Absent a firm grounding in ethical decision making, law students and attorneys may resolve this tension by promoting the client’s short-term objectives and neglecting their own duty to provide independent, professional counseling.
26
Hall, Linley Erin. (2005, Summer). What makes for good lawyering? The Transcript, pp. 22, 24. Schultz, Marjorie. (2005, Summer). Expanding the definition of merit. The Transcript, p. 25.
27
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The attorney’s dual roles – zealous advocate and mature counselor – are episodically irreconcilable for many law students and practitioners, as illustrated by the litigation strategies selected by Cornell Law School students in an experiment based on an actual case.28 The students were advised that they were representing a pharmaceuticals manufacturer sued by the parents of a child who suffered severe side effects from a drug manufactured by the client. The parents recently had offered to settle for $3 million. The client, however, had failed to produce several incriminating documents. The law students were specifically informed that the parents would eventually receive the documents; the case could be reopened after disclosure of the documents; litigation after re-opening the case probably would be more expensive; the court might impose financial penalties on the client and the attorney for non-disclosure of the documents; and the parents probably would demand $5 million after the document disclosure. One group of students was informed that the client thought the case had been “going badly” and had originally planned to pay $1 million. In this group, faced with making a “risky and somewhat deceitful choice,” 45% of the students made the expedient decision to accept the $3 million offer before disclosing the documents. To meet the client’s expectations, this group chose to undertake significant financial and ethical risks not only for the client but for the attorney as well. Superficially perceiving the decision-making alternatives as losses and gains relative to the client’s expectations, the law students demonstrated poor judgment and high susceptibility to framing biases and their attendant risk-taking strategies. The second group of students in the experiment, however, was informed that the client thought the case was “going well” and had initially expected to settle for $5 million. Those two facts were the only information changed in the five-page description presented to the law students. Based merely on a difference in the client’s attitude and its prior financial expectations, only 12% of the students in the second group chose to settle before document disclosure. Thus, simply switching the attorney’s client relationship from a “losses” mode to a “gains” mode altered the law students’ legal and ethical decisions. Law students in both groups functioned as opportunists, molding their decisions to comport with the client’s expectations, and overlooked their responsibilities to provide independent advice consistent with fiduciary and ethical standards. The students’ difficulty in making high-quality, ethical decisions that comprehend the complexity of the client’s dilemma and promote the client’s long-term interests – as shown in the students’ preference for expedient solutions and disregard of impending ethical and financial consequences – reflects fundamental problems in legal decision making. Educational deficiencies in the development of decision-making skills may be particularly troublesome when one considers the
28
Rachlinski, Jeffrey. (1996). Gains, losses and the psychology of litigation. Southern California Law Review, 70, 113, 140–144.
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dominant personal characteristics of students applying for law school admission. Law schools, and hence the legal profession itself, have recruited individuals whose modal Myers Briggs Type indicator preference is either I(E)STJ or I(E)NTJ – decision makers and problem solvers who “do not see the wider ramifications of current, expedient decisions,” “quibble over abstract issues and terms that have little meaning or relevance to others,” and “rush into premature judgments and actions without considering new information.”29 Although they are serial decision makers, they may “take in only that information that fits their insights,” “overlook details or facts that do not fit into their Intuitive patterns,” and “decide too quickly before taking in enough information” or “considering alternatives or exploring possibilities.”30 Considering the specific decision-making weaknesses of the dominant law student personality types, the case for teaching decision-making skills in law schools is compelling.
5.1.4
Deficiencies in the Case Method of Teaching
Law schools’ uneven development of the problem-solving skills necessary to handle client cases and ethical quandaries suggests that their reliance on “casebook” teaching – reading, discussing and questioning students about cases in which the judges have already simplified, synthesized and occasionally omitted facts to support their conclusions – may not promote evaluative reasoning skills in real-life conflicts rich with factual ambiguities.31 The case method appears to have four principal shortcomings in teaching effective problem solving and decision making: (1) the judicial distillation of facts in an opinion does not promote factual analysis in a practice setting; (2) the presentation of facts in a judicial opinion may be biased to support the stated result and often excludes the personal and practical predicaments encountered by litigants and their attorneys; (3) the case method does not teach probabilistic decision making and displays a bias against statistical evidence; and (4) the study of appellate court opinions necessarily excludes models of sound decision making and focuses almost exclusively on exemplars of decision-making failure. These four shortcomings are discussed below.
29
Byers, Mark. (1996). Anatomy of lawyer personality and long term satisfaction. In Full disclosure: Do you really want to be a lawyer? Princeton, NY: Peterson’s Guides. Myers, Isabel Briggs. (1997). Introduction to type (5th Ed). Palo Alto, California: Consulting Psychologists Press, Inc. See Richard, Larry. (1993, July). How your personality affects your practice: The lawyer types. ABA Journal, p. 74. 30 Myers supra note 29. 31 See Rubin, Edward. (2007, March). What’s wrong with Langdell’s method, and what to do about it? Vanderbilt Law Review, 60(2), p. 609.
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The Distillation of Facts in Judicial Opinions
To the extent case facts are presented in judicial opinions, they are “reduced,” highly selective, “ready-made,” and, at times, erroneous.32 The “skeletonizing of cases,” legal scholar Lon Fuller wrote in 1933, “is a delicate business, and necessarily anticipates the analysis which will be applied to the simplified situation.”33 Consequently, as a case is “skeletonized,” facts and legal arguments incongruent with the court’s decision may be overlooked, omitted, phrased in a manner to invite derision, or rejected as irrelevant, disingenuous, inapposite or novel.34 The appellate court’s purpose in describing the case’s factual background is to demonstrate the basis for its decision, not to highlight all of the evidentiary contradictions that may have required a trial in the first place. Absent a de novo review, an appellate court opinion rarely serves as a model of factual analysis because the lower court’s factual findings are either adopted by the appellate court or cursorily examined to meet the relatively light standard of “any substantial evidence” to support the verdict. Like movie viewers, law students see only the final version of a story and are spared hundreds of excised vignettes that could otherwise affect their opinion of the characters’ motivations, values and actions. When finally condensed into an appellate court opinion, facts are presented as supporting evidence, not the cauldron of disputed perceptions, conflicting documentation and distorted memories presented by clients to law students immediately after graduation. Not surprisingly, some law students participating in their first mediation clinic inform their clinical instructor that a case cannot be resolved because “the parties disagree on what happened” or “one of the parties is lying.” Lacking experience in handling factual ambiguities and contradictions, the students stop problem solving once the dispute requires skills more expansive than opining about the appropriate outcome when legislative rules and legal principles are applied to a predetermined, coherent set of facts. Reviewing judicial opinions from which factual ambiguities and legal uncertainties have been stripped does little to prepare law students for their responsibilities to clients upon graduation. United States District Court Judge Thomas Griesa explains the difference between the broad evaluation skills required by effective trial attorneys and the narrow analysis undertaken by the appellate courts: A trial attorney in a large case starts with an amorphous mass of information that may or may not turn out to be useful evidence. As to the law, a lawyer may find little or no definition of what is to be used for legal argument out of the great body of potentially applicable constitutional provisions, statutes, regulations and judicial decisions. A trial 32
Noonan, John T. (2002). Persons and masks of the law (p. 141). Berkeley: University of California Press. 33 Id. 34 Consistent with the doctrine of stare decisis and the underlying predilection to regulate the future by imposing the past, a court’s characterization of an argument as novel invariably precedes a spirited thrashing.
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attorney, through a process of rigorous analysis that a lay person may find hard to understand, must bring order out of chaos to be able to go before a court with the client’s case. . . . But by the time a case gets to an appellate court, there is a definite, finite record of evidence (having been presented to the trial court), not the unrefined mess that the trial attorney often starts with. The issues on appeal are not waiting to be developed but are precisely specified. The relevant legal rules and judicial precedents have been culled from the great body of potential authorities.35
Although Judge Griesa notes that appellate judges have “unique and taxing intellectual demands,” he believes that the trial lawyer’s accomplishment of “making the case comprehensible” requires a distinct blend of tenacity and inventiveness. “I have frequently thought,” he states, “how truly creative, yet still how disciplined, a lawyer before me needs to be.”36 Judge Griesa’s description brings to mind a sieve onto which a host of facts and legal sources are poured; and through a creative, discerning and incredibly difficult process the successful attorney eventually produces a factually compelling and legally cognizable case. If the appellate courts end up looking at the distillate and not the raw constituents, as Judge Griesa’s comments suggest, reading their opinions alone would not assist law students in understanding how a party’s attorney compared and assembled the messy facts and obscure legal principles dumped on her desk years before an appellate court opinion was rendered. That, however, is the task that will confront law students shortly after graduation. 5.1.4.2
Factual Biases and De-Personalization in Judicial Opinions
The judicial opinions in casebooks, according to United States Ninth Circuit Court of Appeals Judge John Noonan, “have been composed to shed light on the life of a rule, not upon the parts of the participants in the process.”37 In his incisive book, Persons and Masks of the Law, Judge Noonan removes the “masks, formed by rules and concealing the persons,” and reveals the facts and motivations behind leading judicial opinions.38 Investigating the famous tort case, Palsgraf v. Long Island Railroad Company, for instance, Judge Noonan discovers that Judge Benjamin Cardozo’s written opinion is factually misleading and incomplete. Although first year law students study Palsgraf to learn the tort principle that “the risk reasonably to be perceived defines the duty to be obeyed,” they cannot know from Judge Cardozo’s eloquent opinion that the subject railroad accident, as he described it in the opinion, “could not possibly have happened.”39 The Palsgraf case,
35
Griesa, Thomas P. (2005, October 25). A good trial lawyer could sit on any court. The Wall Street Journal, p. A21. 36 Id. 37 Noonan supra note 32 at 6. 38 Noonan supra note 32 at 19. 39 Noonan supra note 32 at 119.
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the landmark decision in defining the extent of legal duty in tort law, is itself a legal fiction. In addition to misstating the events which preceded Mrs. Palsgraf’s accident, Judge Cardozo’s opinion omits four facts critical to law students learning how to make intelligent decisions to protect clients: (1) Mrs. Palsgraf, the plaintiff injured by the defendant railroad’s alleged negligence, was a “very poor” 43-year old janitress earning $416 a year, “all alone” with three children, and suffering from a neurological disorder; (2) she was awarded $6,000 by the jury in the trial court; (3) her attorney “made a serious misjudgment in not compromising after the jury verdict;” and (4) after waiting four years for the trial and appeal to be resolved, she owed her doctors $195 and, contrary to the court rules, was ordered by Judge Cardozo to pay $350 in court costs to the defendant railroad company, nearly her entire annual income. The Palsgraf case thus is a decision-making failure of tragic proportion, “masked” by the court’s scholarly opinion. As Judge Noonan concludes, “Only a judge who did not see who was before him could have decreed such a result.”40 And only law students studying the Palsgraf opinion could see it as an iconic tort law decision instead of a lesson in the perils of impractical legal representation. As shown by the judicious selection and omission of facts in the Palsgraf opinion, it may be a misnomer to characterize the law school curriculum as a “casebook” method of education. In fact, the case method of teaching in law school is the study of judicial opinions, not the cases themselves. Because the entire trial record is not included in case books and no one is privy to the records and communications of the attorneys and their clients, very little information about the case itself is available for study. This contrasts sharply with the “case” method in graduate business schools, where writing about and studying a case – a comprehensive presentation of all aspects of a difficult business problem fraught with conflicting requirements from the marketing, accounting, human resources, manufacturing and compliance departments and compounded by incomplete and disparate data from sources of varying degrees of reliability – is a major undertaking. The case presented to the graduate business student is a knotty problem; the opinion read by the law student is a resolved dispute. Comparing the performance of law school students and business school students in simulated negotiations, law professor Carrie Menkel-Meadow observes, “the business students were far more creative in solutions to problems, including creating joint ventures, buy-outs, contingency planning, and shared financial risk solutions to complex problems. Business students seem better prepared to deal with dynamic, constantly changing situations, perhaps because their case method is so much more contextual than that of law schools.”41
40
Noonan supra note 32 at 144. Menkel-Meadow, Carrie J. (2000). When winning isn’t everything: The lawyer as problem solver. Hofstra Law Review, 28, 905, 915.
41
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Probabilistic Decision Making and Statistical Analysis
The casebook method introduces students to legal philosophy, opinion writing and some substantive law principles, but it neglects the methodological reasoning, probabilistic decision making, and quantitative evaluation skills essential to accurate assessment of clients’ positions and likely case outcomes. Because judicial opinions reflect judges’ general preference for the narrative rather than the calculative, the case method also transfers to another legal generation a preference for analogical argument over statistical evidence.42 This result is particularly harmful because the majority of students admitted to law school lack quantitative skills as undergraduates, and that deficiency is neither identified nor corrected in law school. Although probability judgments in actual client cases require at least a rudimentary understanding of math and statistics, “wherever possible, law avoids mathematical tasks,” states University of Chicago law professor Saul Levmore. Professor Levmore denotes a “math-law divide” and discerns a general disinclination on the part of lawyers, law professors, and judges to engage in probabilistic assessment of legal requirements such as causation and negligence. He depicts law as a field functioning in the pre-science, pre-modern era: “legal practice seems at odds with scientific logic, or at least with probabilistic reasoning.”43 In a similar vein, Cameron Stracher, publisher of the New York Law School Law Review, comments: “By giving students the false idea that being a lawyer is all about intellectual debate, we also drive the wrong students to law school in the first place. The hordes of English majors who fill our classes might think twice if they knew that economics and mathematics – with their emphasis on problem-solving – are the best preparation for a career in law.”44 Despite this need for students and lawyers with demonstrated abilities in systematic problem solving and quantitative analysis, law school admissions offices open a sluice gate for liberal arts students unfamiliar with scientific or other formal methods of inquiry, hypothesis generation, argument, testing and proof. Fifty-eight percent of all law students majored in political science, social science, education, arts and letters, or history, while only 7.1% of law students majored in science, mathematics or engineering.45 The question posed by David Cheifetz, a Canadian
42
See Fienberg, Stephen E. (Ed.). (1989). The evolving role of statistical assessments as evidence in the courts. New York: Springer-Verlag. (Report of the National Research Council Panel on Statistical Assessments as Evidence in the Courts). Gatowski, Sophia, Sophia, et al. (2001). Asking the gatekeepers: Results of a national survey of judges on judging expert evidence in a post-daubert world. Law & Human Behavior, 25, 433. Cited in Vidmar, Neil, and Hans, Valerie P. (2007). American juries (pp. 187–188). Amherst, New York: Prometheus Books. 43 Levmore, Saul. (2000). Conjunction and aggregation (Olin Working Paper No. 110). University of Chicago, Law & Economics. 44 Stracher, Cameron. (2007, January 27). Meet the clients. The Wall Street Journal, p. W11. 45 Craft, Kim R., and Baker, Joe G. (2003, Summer). Do economists make better lawyers? Undergraduate degree field and lawyer earnings. Journal of Economic Education, 34(3), 263, 271.
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barrister and solicitor and the author of Apportionment of Fault in Tort, remains a challenge to the law school admissions process and the legal profession: “what does it tell us about law as a discipline that so many people who claim they’re no good at math, sciences, philosophy, logic etc. (and whose transcripts show it), manage to get into law school and then do reasonably well?”46
5.1.4.4
Teaching and Modeling Decision-Making Failures
“Casebook” teaching not only overlooks salient facts but also focuses on decisionmaking failures. Casebook teaching is, by its very nature, the study of problemsolving failures. Nearly every civil tort, property, or contract case resolved by an appellate court opinion is a statistical aberration resulting from an attorney or client’s weak predictive capacity, risk-taking propensity, poor negotiating skills, or irrational belief persistence. For the case to have been adjudicated in a trial court in the first instance, law professor Samuel Gross explains, “it usually means a whole lot of efforts by a whole lot of people have failed.” 47 Since an estimated 97% of civil cases are resolved before trial, only 12% – 15% of trial verdicts are appealed, and 43% of those appeals are dismissed or withdrawn before a decision on the merits,48 one may question why law students spend three years concentrating on appellate court cases that epitomize conflict resolution failures and will comprise a tiny fraction of their future litigation workload. How can law students learn and employ “best practices” in the legal profession after studying many of the worst practices for three years? If a business school limited its MBA curriculum to Chapter 11 bankruptcy cases, would CEOs not question its pedagogy and steer clear of its graduates? The study of failure certainly can be beneficial if accompanied by insights into the causes of failure and recommendations for avoiding similar problems. A judicial opinion, however, does not provide remedial instruction regarding the underlying negotiation failure but rather transforms the failure into a platform for confirming precedents, enunciating new legal principles or reconciling conflicting authorities.49 Appellate courts grasp an unsightly cognitive scoreboard, flip it over, 46
Cheifetz, David. (2007, March 14). Comment posted on slaw.ca. Available at http://www.slaw. ca/2007/03/13/carnegie-foundation-report/. 47 Liptak, Adam. (2003, December 14). U.S. suits multiply but fewer ever get to trial, study says. The New York Times, Section 1, p. 1. 48 See Eisenberg, Theodore and Heise, Michael. (2007, September). Plaintiphobia in state courts? An empirical study of state court trials on appeal. Cornell Legal Studies Research Paper No. 07–006. Available at SSRN: http://ssrn.com/abstract=988199. See also Cohen, Thomas. (2006). Appeals from general civil trials in 46 large counties, 2001–2005 (NCJ-212979). Available at http://www.ojp.usdoj.gov/bjs/abstract/agctlc05.htm. 49 The ongoing, incremental cycle of precedent-making, which is based on enthymemes and analogous reasoning, as opposed to scientific or empirical research, was described by Tacitus in the first century: “What is today supported by precedents will hereafter become a precedent” Annals, bk. XI, 24.
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and start writing fresh narratives and erudite holdings on the apparently unblemished side of the same card. In reading the court’s opinion, the fundamental question law students should ask is not what holding does the case state, but rather what are the parties doing there in the first place? “The penchant of our casebook warriors to litigate requires some explanation,”50 writes Columbia Law School professor Samuel Issacharoff, and that explanation “cannot be found in the shortsightedness of the disputants.”51 To the extent judicial opinions elucidate legal reasoning and principles, that epistemic benefit is not confined to settlement failures but can be acquired more effectively in the context of successful conflict resolutions, just as a business student learns management practices and finance principles from studying solvent companies. The overwhelming majority of civil disputes are resolved without a written judicial opinion, and the parties and attorneys in those cases presumably divined the applicable law and resolved legal uncertainties without the delay and costs attendant to obtaining appellate court review.52 Examining ordinary cases in which the parties have voluntarily resolved their differences may teach more about legal problem solving than reading an appellate court case in which at least one party’s problem solving skills are exceptionally maladroit. As management theorist Peter Drucker asserts, effective executives and organizations concentrate on strengths and successes, for “one cannot build on weaknesses.”53 Yet 150,000 law students are building their careers today on weaknesses as they study cases where, as Professor Issacharoff states, the parties have proven themselves to be “losers from the moment they enter the process of adjudication.”54
5.1.5
Attempts to Change Law School Curriculum
The Carnegie Foundation, American Bar Association (ABA), practitioners, judges, and educators have long acknowledged a disconnect between law school education and client needs. As Professor Stracher states, “There appears to be a growing consensus that although law schools may teach students how to ‘think like a lawyer,’ they don’t really teach them how to be a lawyer.” As a result of reading about the law for three years but not engaging in it, Professor Stracher elaborates, “young lawyers rarely know how to interview clients, advocate for their positions, negotiate a settlement or perform any number of other tasks that lawyers do every 50
Issacharoff, Samuel. (2002). The content of our casebooks: Why do cases get litigated (Working Paper No. 196, pp. 2–3). New York, NY: Columbia Law School, The Center for Law and Economics Studies. 51 Id. at 3. 52 See Eisenberg, Theodore, and Lanvers, Charlotte. (2009, March). What is the settlement rate and why should we care? Journal of Empirical Legal Studies, 6(1). 53 Drucker, Peter. (1996). The effective executive (p. 71). New York: Harper & Row Publishers, Inc. 54 Issacharoff supra note 50 at p 4.
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day. In short, they are woefully unprepared to be lawyers, despite the outrageous hourly fees charged for their services.”55 The central criticism of law schools is that they do not prepare law students for the practice of law. In other fields like medicine and structural engineering, the potential lapses between training and practice are bridged decisively and promptly (albeit imperfectly) because the consequences are visible, costly, measurable and socially unacceptable. In legal matters, however, the indicia of malfeasance are rarely as visible as wrong site surgeries or collapsed buildings, and society consequently has not developed reliable metrics for monitoring and evaluating attorney performance. Despite the lack of consensus on what constitutes effective, responsible lawyering and what law schools should do to meet those professional objectives, law schools have been subjected to persistent, intense criticism. This criticism has been largely ignored, but in recent years advocates of reform have been expressing guarded optimism. Law professor Roy Stuckey states, “For the first time in 130 years, there seems to be some momentum building toward significantly changing legal education.”56 An overview of this criticism and proposed reforms, including reports and comments by The Carnegie Foundation, the American Bar Association, The International Institute for Conflict Prevention & Resolution, judges, law professors and practitioners, is presented below.
5.1.5.1
The Carnegie Foundation
The Carnegie Foundation For The Advancement Of Teaching has evaluated law school education for nearly a century, beginning with the Redlich Report in 1914. That report, based on site visits to ten law schools, questioned the effectiveness of the case method of teaching (described variously as “the Socratic method,” the “case dialog” method, or the “Langdellian case method”). Seven years later, the Carnegie Foundation released the Reed Report I in 1922, followed by the Reed Report II in 1928. These reports, reflecting observations of more than 130 law schools, again questioned the near-exclusive emphasis on the case method of teaching. The Foundation’s ongoing concern about the pedagogical limitations and weaknesses of the case method was voiced a fourth time in the Packer & Erhlich Report, published in 1972. Although the Packer & Erhlich Report cautioned against undue emphasis on clinical education, it strongly advocated for “more diverse curricula that would provide a more sensitive and penetrating interrelation between theory and practice.”57 All four of these Carnegie Foundation reports were
55
Stracher supra note 44 at W11. Stuckey, Roy. (2007). Momentum is building for legal education reform. The Complete Lawyer, 2(5). 57 Sullivan supra note 8 at 93. 56
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resoundingly ineffective in promoting substantive changes in law school curricula. The Redlich and Reed reports, observes Carnegie Foundation president Lee Shulman, were “ignored with enthusiasm,” and the Packer & Erhlich Report was “even more ignored.”58 The Foundation’s most recent report, “Educating Lawyers: Preparation for the Profession of Law,” published in 2007, compares the practical, “problem-based” training provided by medical, business and engineering schools with the theoretical education imparted by law schools. It finds that the case method has at least two unintended consequences. First, legal education “typically pays little attention to direct training in professional practice” and consequently conveys “the impression that lawyers are more like competitive scholars than attorneys engaged with the problems of clients.” Second, law schools fail “to complement the focus on skill in legal analysis with effective support for developing the ethical and social dimensions of the profession,” and as a result, law students “have no way of learning when and how their moral concerns may be relevant to their work as lawyers.” According to this report, both of these unintended consequences – “lack of attention to practice and the weakness of concern with professional responsibility” – result directly from law schools’ reliance on a predominantly formal, academic and theoretical teaching method and a reluctance to engage students in the experience of practice.59 To remedy these deficiencies, the Carnegie Foundation proposes an “integrative” strategy for teaching law – linking the cognitive, practical and ethical aspects of lawyer training and ending the domination of “the Socratic classroom.”60
5.1.5.2
American Bar Association’s MacCrate Report
Fifteen years before the publication of The Carnegie Foundation’s most recent report, “Educating Lawyers,” the American Bar Association Task Force on Law Schools and the Profession issued a report broadly criticizing the theoretical emphasis of law schools and recommending a practice-centered curriculum including mandatory clinical programs. The report, usually referred to as the MacCrate Report, called for legal educators and practicing lawyers to “stop viewing themselves as separated by a ‘gap’ and recognize that they are engaged in a common enterprise – the education and professional development of the members of a great profession.”61 The MacCrate Report initially noted that no consensus existed
58
Henderson, Bill. (2007, December 7). Why I worry about the Carnegie report (2007): Four data points. Empirical Legal Studies Blog. Available at http://www.elsblog.org/the_empirical_legal_studi/2007/12/why-i-worry-abo.html. 59 Sullivan supra note 8 at 12, 187, 188. 60 Sullivan supra note 8 at 191. 61 American Bar Association supra note 25.
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between the practicing bar and the legal education community about the skills necessary to be an effective lawyer: “Surprisingly, throughout the course of extensive decades-long debates about what law schools should do to educate students for the practice of law, there has been no in-depth study of the full range of skills and values that are necessary in order for a lawyer to assume the professional responsibility of handling a legal matter.” The identification of these skills and values, the MacCrate Report stated, was “a necessary predicate” for determining which skills can effectively be taught in law school. To compile an inventory of professional skills, the Task Force solicited ideas from judges, law professors, practitioners, bar examiners, and bar association representatives. This effort culminated in the identification of “Fundamental Lawyering Skills,” including problem solving, legal analysis, legal research, factual investigation, communication, counseling, negotiation, advising a client about the option of litigation and alternative dispute resolution, administrative skills and the ability to recognize and resolve ethical dilemmas. The Task Force also identified four fundamental professional values that accompany these skills: competent representation; striving to promote justice, fairness, and morality; striving to improve the profession; and professional self-development. Although “a systematic way of assessing these values has yet to emerge,” law schools, after publication of the MacCrate Report, have expanded the range of courses offered in the second and third years, and the law school accreditation process has “placed increased emphasis on instruction in practice skills.”62 Paul Brest, a dean emeritus of the Stanford University Law School, notes that the MacCrate Report “places the skill of ‘problem solving’ at the very top of the list – even before legal analysis.” He is concerned about the disparity between the broad problem-solving skills sought by clients and the narrow band of skills ordinarily taught in law school. Arguing that clients do not present purely legal problems but rather seek a comprehensive problem-solving approach that integrates multiple disciplines, he emphasizes the primacy of problem-solving skills above technical legal knowledge: Most real world problems do not conform to the neat boundaries that define and divide different disciplines, however, and a good lawyer will be able to go beyond the confines of mere technical legal expertise. Indeed, most clients do not want lawyers to confine themselves to “the law,” but rather expect them to integrate legal considerations with the other components of the matter. . . . The solutions may be constrained, facilitated, or even driven by the law, but they often call for judgment, common sense, and even expertise not of a particularly legal nature.63
Because lawyers are society’s general problem solvers, he observes, “they help their clients approach and solve problems flexibly and economically, not restricting
62
Sullivan supra note 8 at 177. Brest, Paul, and Krieger, Linda. (1994, July). On teaching professional judgment. Washington Law Review Symposium: The 21st century lawyer: Is there a gap to be narrowed?
63
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themselves to the cramped decision frames that ‘legal thinking’ tends to impose on a client’s predicament.”64 After the release of the MacCrate Report in 1992, the ABA continued to express misgivings about law school curriculum and the neglect of practical lawyering skills and professional ethics. In 1996, the Professionalism Committee of the ABA’s Section of Legal Education and Admission to the Bar concluded that “lawyer professionalism has declined in recent years and increasing the level of professionalism will require significant changes in the way professionalism ideals are taught.”65 Two years later, in 1998, the ABA established The Task Force on Business Lawyers as Problem Solvers because of the continued concern that law students and lawyers’ skills in legal analysis, negotiation and drafting do not meet clients’ need for problem solving. James Freund, one of the creators of the task force and a retired partner at Skadden, Arps, Slate Meagher & Flom, explains that “there’s very little pure ‘law’ involved in much of what we do. Rather, what’s at issue are such matters as deciding between alternative courses of action (each of which is legal but carries differing risks and rewards), or negotiating matters of agreement (where, in effect, the parties are creating their own law), or delving into financial strategies or techniques – all far removed from a legal text.” “Let’s face it,” Freund says, “problem solving is the name of the game.”66 Donald Langevoort, one of the professors involved with Freund in forming the task force, emphasizes the importance of developing “creativity and problem-solving skills.” He notes that the “most innovative law schools are coming to see the need to reform a portion of their curriculum to more closely resemble that found in MBA programs, with an emphasis on rich detailed case studies, strategic decision-making and teamwork solutions.”67
5.1.5.3
CPR Institute Advisory Council
In 1999 the International Institute for Conflict Prevention & Resolution (CPR Institute), working with the Soros Foundation, formed the Advisory Council on Problem Solving and Legal Education. The CPR Institute is a non-profit 64
Brest, Paul, & Krieger, Linda. (1999, Winter). Lawyers as problem solvers. Temple Law Review, 72(4), 811–832. 65 American Bar Association, Section of Legal Education and Admissions to the Bar. (1996). Teaching and learning professionalism: Report of the Professionalism Committee. Chicago: American Bar Association. 66 Freund, James C. (1999, July/August). A lawyer’s perspective: New business lawyers need to know how to find the deal. Business Law Today. American Bar Association Section of Business Law. 67 Langevoort, Donald C. (1999, July/August). An academic’s perspective: New business lawyers need to know how to find the deal. Business Law Today. American Bar Association Section of Business Law.
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educational corporation whose 500 members include corporations, law firms, and law professors, and the Advisory Council consisted of law professors and law school deans.68 Finding that contemporary law school does not adequately teach problem solving skill and that a lawyer’s effectiveness is “built on the strength of his or her problem solving acumen and sophistication,” the Advisory Council submitted numerous recommendations to expand the scope and breath of problem-solving education, including: l
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Afford every student “the opportunity to take a course where the lawyer’s core roles of problem solver, counselor, negotiator, consensus builder, process and transactional architect are examined.” Prepare an inventory of problem-solving skills to be taught in law school courses, including “the assessment of legal risks, ability to make judgments, application of creativity and resiliency, reframing problems and negotiation skills.” Increase the number of faculty members “who will pursue problem solving research in related disciplines, such as economics, psychology, and sociology, and who may possess advanced degrees in these disciplines.” Create educational materials in the problem-solving field that “draw on law, economics, statistics, decision analysis, cognitive and social psychology, organizational behavior and other needs.” Create a Web-based problem-solving “clearinghouse” for “information and communication dissemination, as well as faculty networking regarding scholarship and curriculum design.” Promote cross-teaching and joint research in problem solving studies between law schools and the disciplines of business, economics, psychology, social work, education, and anthropology. Assist law school faculty to “create problem solving case studies by convening working groups between practitioners and law faculty.”69
CPR also initiated an annual “Problem Solving in the Law School Curriculum Award” to recognize superior, innovative methods of teaching problem solving in law schools. Past recipients of these awards have structured classes to integrate legal theory with exercises in practical counseling, negotiating, and drafting, often requiring law students to work collaboratively and to resolve both legal and ethical problems.
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CPR Institute Advisory Council on Problem Solving and Legal Education. (2001). Problem solving and the law school curriculum statement and recommendations for further integration. New York: CPR Institute for Dispute Resolution. 69 Id.
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5 Institutional Impediments to Effective Legal Decision Making
Judge Harry T. Edwards and the Gap Between Legal Education and Law Practice
In his seminal and controversial article, “The Growing Disjunction Between Legal Education and the Legal Profession,” Judge Harry T. Edwards, Judge of the United States Court of Appeals, District of Columbia Circuit, decried the law school/law practice dichotomy, asserting that laws schools “are moving toward pure theory” while the law firms “are moving toward pure commerce.” The middle ground of ethical practice, he declared, “has been deserted by both.”70 The functional divorce between legal education and law practice, he states, is not entirely accidental, as it serves mutual interests: . . . what we are now seeing is a sham of professionalism. Some law schools grant “J.D.s” but allow professors to ignore or disparage legal doctrine, on the assumption that bar review courses will prepare students to pass the bar and that students will then learn whatever they need to know from their employers. Many law firms and other employers of young legal talent accept or even encourage this ruse, because the unformed novices can be shaped to the employer’s needs. New associates will “learn” to misconstrue cases and statutes, to write obfuscatory briefs, to overpaper a case, and this “education” will be all the smoother if they studied only pure theory in law school.71
Contending that law schools have abandoned their principal mission of professional scholarship and training, he finds that contemporary legal scholarship is impractical and falls into two categories of uselessness: “The first kind is not directly prescriptive: it does not address a problem that some practitioner or governmental decision maker must resolve. The second kind of ‘impractical’ scholarship is directly prescriptive, but wholly theoretical: it prescribes a decision, but ignores the applicable sources of law.”72 In a similar vein and with equivalent bluntness, Chief Judge Dennis Jacobs of the federal appeals court in New York derides contemporary legal scholarship: “I haven’t opened up a law review in years. No one speaks of them. No one relies on them.”73 Judge Edwards’ assessments of law schools’ shortcomings is buttressed by his survey of law clerks. These law clerks, he notes, were among the most successful 70
Edwards, Harry T. (1992). The growing disjunction between legal education and the legal profession. Michigan Law Review, 91, p, 34. 71 Id. at 39. 72 Id. at 46. 73 Liptak, Adam. (2007, March 19). When rendering decisions, judges are finding law reviews irrelevant. The New York Times. See Nance, Jason P. and Steinberg, Dylan J. The law review article selection process: Results from a national study. (July 18, 2007). Available at SSRN: http:// ssrn.com/abstract=988847. (“We found, for example, that Articles Editors seek to publish articles from well-known and widely-respected authors. It appears, however, that editors do not assume that prestigious authors produce the best scholarship, but instead they pursue the work of wellknown authors because it can increase their journals’ prestige within the legal academic community”). Separately, Ian Ayres analyzed law journal citations and found that “articles that included an equation or an appendix were cited a lot less.” Ayres, Ian. (2007). Super crunchers (p. 153). New York: Bantam Books.
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students in law schools, and if they perceive deficiencies in their legal education, ordinary students would have suffered an even greater loss of practical, doctrinal training. Reflecting on their law school experiences, Judge Edwards’ law clerks reported: l
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“most faculty members (and certainly most of the youngest and most ambitious) were generally disdainful of the practice of law;”74 “Many of the professors appeared to work at setting themselves apart from the world by their attempt to convey an air of superiority, both intellectual and moral. . . . What was actually conveyed was the fact that so many of the professors were out of touch with the effects of the legal system on the majority of the people.”75 “The greatest problem is that most of the academic literature does not address the problems that arise in my practice. I am not sure that most law professors have much of a sense of (or care) what those legal issues are.”76 “law school focused much more on the intellectual . . . to the exclusion, indeed the disdain, of the practical. . . . The teaching was that if a problem admitted of an answer, it was almost not worth thinking about!”77 “It sometimes seems that the issues most fiercely debated in the academic community are the ones least relevant and accessible to the rest of the legal community.”78
Despite his law clerks’ disparaging evaluation of their legal education, Judge Edwards insists that law firms share responsibility with law schools for this evident disjunction between practice and education and the resultant decline in ethical behavior. Although practitioners may criticize law schools for their lack of practical training and scholarship, many law firms fail to balance a “bill or be banned” attitude with a broad sense of professional ethics and public service. Law firms, Judge Edwards declares, must ensure that young graduates “do not become materialistic, unprofessional practitioners. Law firms have no right to complain that law graduates are ‘unskilled,’ where those skills are simply used to maximize profit.”79 On this legal seesaw, where law schools remain woefully theoretical and law firms remain slavishly profitable, the clients are forced to serve as the fulcrum, bearing the entire weight of impracticality and cupidity. Clients, not law firms, ultimately pay the cost of training law school graduates to be functional attorneys, and clients bear the risk of deficient moral reasoning, whether attributable to law schools or law firms. These burdens are transferred to clients because attorneys,
74
Edwards supra note at 70 at 35. Id. at 52, fn. 54. 76 Id. at 54. 77 Id. at 61. 78 Id. at 75. 79 Id. at 73. 75
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unlike other professionals, do not undergo extensive practical training between school enrollment and law firm employment, and associates at elite law firms do not experience a compensation interregnum where entry-level salaries are commensurate with entry-level skills. The disjunction between law school and law practice would not be a problem if graduates were subsequently trained in the legal counterpart of a medical residency program; the problem arises because no clinical experience bridges the theoretical nature of law schools and the materialistic nature of law firms. Whether law schools should be less theoretical or law firms should be less materialistic ultimately is a question about what the legal profession owes to clients, not what law schools owe to law firms.
5.2
Law Firms
Shifting the focus from law school curricula to law firm practices, one senses that an institutional bias against efficient and effective problem solving is carried forward, like a professional orthodoxy, after law students graduate and enter the practice. The sources and underlying incentives for this bias are different for law schools and law firms, but the gap between convention and function remains. Law firms and their lawyers adhere to procedures and measure quality and success in ways that may vary significantly from the client’s goals. Writing in American Lawyer, attorney Paul Lippe describes the disparity between law firms’ concept of quality and clients’ objectives: Most large law firms see quality as the ability to deal with rare and complex situations, such as big transactions or large-scale litigation. They still measure quality in their own terms – the absence of typos, proper Shepardizing, conformance to filing deadlines, the raising of esoteric issues. Most clients regard these as only marginally important.80
Based on his more than 20 years of practice, including employment as general counsel of Synopsys, Inc. for seven years, Lippe believes that billing in “six minute increments can’t help but lead to six-minute thinking. Improving quality requires more of a strategic and systems orientation.”81 While clients seek predictability, efficiency, strategic thinking, lower costs, problem-solving abilities, and quantitative information, law firms promote complexity, resist efforts to manage costs, and perform legal work that often provides only an incremental, inestimable benefit. “When I talk to law firms,” says William B. Solomon, Jr., general counsel of General Motors Acceptance Corporation, “I have one hand on my wallet. With the pressure on firms to increase revenues, they don’t care very much about cost effectiveness.”82 The perverse incentives of law practice are conceded by Evan Chesler, the presiding partner of Cravath, 80
Lippe, Paul. (2005, October). The quality quandary. American Lawyer. Id. 82 Swanton, Mary. (2007, July). Making the grade. Inside Counsel. 81
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Swaine and Moore: “If you are successful and win a case early on you put yourself out of work. If you get bogged down in a land war in Asia, you make more money. That is frankly nuts.”83 Law professor Donald Langevoort uses the term “dysfunctional lawyering” to describe attorney behavior at odds with client objectives – “lawyer’s insistence on belaboring the unimportant, or taking hard-line positions out of habit, fear of being second-guessed or a desired posture for their clients, even though there is little economic sense to what they are pushing.”84 Some objectives of a law firm – maximizing gross revenue and minimizing malpractice exposure by researching both likely and conceivable issues – may pose direct financial and ethical conflicts with a client’s goal of obtaining prompt and economical guidance for likely, not improbable, eventualities. Other objectives – attracting new clients and cases and retaining existing clients – present less direct but nevertheless serious impediments to realistic problem solving, as the professional distance between attorney and client becomes blurred and clients may be led to misapprehend the probable outcomes of their cases. Emblematic of the conflicting objectives and perceptions between law firms and clients is the 18th Annual Survey of General Counsel, published in July 2007 by Inside Counsel.85 That survey shows that the vast majority of attorneys believe they are providing excellent legal services, but relatively few of their clients are satisfied with the quality and cost of legal services. Sixty-two percent of law firms give themselves an “A” rating for overall performance, but only 19% of their clients think they deserve an “A.” Consistent with these ratings, 60% of law firms expect their clients to bring more general corporate work to them, but only 24% of the corporations’ inside counsel intend to do so. Evaluating their long-term quality improvement measures, more than two-thirds of law firms believe their level of service has improved over the last five years, but only 29% of the clients see an improvement. Fifty-six percent of law firms believe they “are actively seeking out ways to reduce the costs of legal services,” but only 11% of their clients agree with them. On a fundamental issue of legal ethics and business integrity – bill padding – only 10% of law firms agree with the statement, “Most law firms pad their bills.” But 39% of in-house counsel, who review the bills, are convinced that most law firms are cheating. The conflicting objectives of attorneys and clients and the attendant tensions, frustrations and distrust in attorney-client relationships are rooted in four systemic impediments to effective problem solving: (1) the billable hour system and minimum billable hour requirements deter efficient client representation; (2) attorneys’ narrow professional focus frequently prevents them from foreseeing how judges and juries will perceive and decide their clients’ cases; (3) attorneys define client service in terms of “due process,” i.e., undertaking and completing procedural
83
Chesler, Evan. (2009, January 12). Kill the billable hour. Forbes. Langevoort supra note 67. 85 Swanton supra note 82. 84
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protocols, while clients evaluate service in terms of outcomes; and (4) the competition for clients often results in unrealistic client expectations, inappropriate deference to client directions, and undue personal involvement with the client.
5.2.1
Conflicts Between Efficient Problem Solving and Billable Hour Requirements
Attorney productivity and compensation are determined primarily by billable hours, and the utility or quality of those hours is a secondary concern. While attorneys are urged to produce a high-quality work product and advance the client’s objectives, those values are adjunctive and not acceptable substitutes for meeting billable hour requirements. In the modern law firm, law professor Mary Ann Glendon states, the rules are simple: “Keep your head down, don’t ask questions, and bill as much as you can.”86 The fundamental problem with hourly billing and billable hour requirements, however, is that they reward inefficiency, intellectual tizzies, staffing redundancies, and “rounding up” billable time while penalizing precision, focus, skill, and practicality.87 Expressing serious concerns about the insidious effect of timebased billing, the report of the American Bar Association’s Commission on Billable Hours states: “With no gauge for intangibles such as productivity, creativity, knowledge or technological advancements, the billable-hours model is a counterintuitive measure of value. Alternatives that encourage efficiency and improve processes not only increase profits and provide early resolution of legal matters, but are less likely to garner ethical concerns.”88 Attorney Jay Shepherd, whose law firm has completely abandoned the billable hour system, believes hourly billing fundamentally conflicts with clients’ objectives: “Hourly billing is wrong and it’s anti-client. There’s a disincentive to be efficient since you get paid more
86
Segal, David. (1998, March 22). In the business of billing? Lawyers say a rush for money is shaking profession’s standards. Washington Post, p. H1, cited in Galanter, Marc, and Henderson William D. (2008). The elastic tournament: The second transformation of the big law firm. Stanford Law Review, 60, 1867. 87 Billable hour systems also appear to be counter-productive in the criminal law context. In Radha Iyengar’s comparison of salaried public defenders and court-appointed private attorneys, she found that the salaried public defenders performed significantly better than the court-appointed private attorneys paid on an hourly basis. Criminal defendants represented by the court-appointed attorneys were more likely to be found guilty and received longer average sentences (eight months longer). Iyengar, Radha. (2007). An analysis of the performance of federal indigent defense counsel (Working Paper 13187). National Bureau of Economic Research. Court-appointed attorneys also were “slightly more likely to take cases to trial and slightly more likely to lose.” They also “took longer to resolve cases through plea bargains.” Liptak, Adam. (2007, July 17). Not all defenders are alike. San Francisco Daily Journal, p. 2. 88 Carter, Terry. (2005, August). Thrifty litigation. ABA Journal, p. 39.
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if you take longer to finish a matter – even though the client wants it finished as fast and efficient as possible.”89 Scott Turow, the noted author of best-seller novels like Presumed Innocent and a practicing attorney at the Chicago office of Sonnenschein Nath & Rosenthal, recently weighed in on the inherent conflict between an attorney’s profit motive under the billable hour system and the client’s need for competent yet expeditious representation. If attorneys treated this inherent conflict like any other “concurrent conflict of interest” under the rules of professional conduct, Turow believes, the requisite disclosure would include: “I want you to understand that I’m going to bill you on a basis in which the frank economic incentives favor prolonging rather than shortening the litigation for which you’ve hired me;” and my billing system “rewards me at your expense for slow problem-solving, duplication of effort, featherbedding the workforce and compulsiveness – not to mention fuzzy math.” After 30 years of practice, Turow writes, “I have been unable to figure out how our accepted concepts of conflict of interest can possibly accommodate a system in which the lawyer’s economic interests and the client’s are so diametrically opposed.”90 These concerns about the disincentive to practice efficiently and the incentive to bill expansively, inherent in the billable hours system, are well-founded.91 Billable hour requirements, according to John McGuckin, general counsel for Union Bank, “undercut the professionalism in the attorney-client relationship” and impose “a measurement that can only be met to our detriment by associates billing hours they shouldn’t.” 92 In law professor William Ross’s recent survey of billing practices, two-thirds of the attorneys reported that they had “specific knowledge” of bill padding, a practice which Professor Ross describes as “invoicing a client for work never performed or exaggerating the amount of time spent on a matter.” When asked whether they personally had “performed unnecessary tasks to bump up their billable output,” 54.6% of the surveyed attorneys responded affirmatively. Eleven years earlier, in a similar study conducted by Professor Ross in 1995, 40.3% of the lawyers admitted to performing unnecessary work.93 In a different survey of attorneys conducted by law professor Susan Fortney in 1999–2000, 64%
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Pfeiffer, Sacha. (2007, October 10). Law firm backs away from the billable hour in favor of upfront fees. San Francisco Daily Journal, p. 5. 90 Turow, Scott. (2007 August). The billable hour must die. ABA Journal, p. 35. 91 See Fortney, Susan Saab. (2005). The billable hours derby: Empirical data on the problems and pressure points. Fordham Urban Law Journal, 33, 171. Fortney, Susan Saab. (2000). Soul for sale: An empirical study of associate satisfaction, law firm culture, and the effects of billable hour requirements. University of Missouri Kansas City Las Review, 69, 241. Rhode, Deborah. (2005). Profits and professionalism. Fordham Urban Law Journal, 33, 49. 92 Iafolla, Robert. (2006, September 7). ABA asks how to making billing better for all. San Francisco Daily Journal, p. 5. 93 Lattman, Peter. (2007, May 2). Bloated billings. The Wall Street Journal, p. B2. See Ross, William. (2006). The honest hour: The ethics of time-based billing by attorneys. Durham, North Carolina: Carolina Academic Press.
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of respondents agreed that “attorneys tend to rationalize and justify questionable billing practices,” and 46% agreed “billing pressure causes ethical and competent attorneys to leave law practice.”94 Lamenting that the billable hour system “encourages lying,” one attorney respondent wrote, “If you don’t lie you are perceived to be a slacker, even though, in reality you may work far more than others.”95 Lawyers’ preoccupation with the gross volume of billable hours interferes with constructive, creative client problem solving. It rewards the sheer expenditure of time and discourages the evaluation, measurement and recognition of work product quality and client service. Although long hours may be perceived as emblems of professional commitment, studies uniformly report that long hours are correlated with major performance errors and inefficient problem solving.96 The performance of professionals working extreme hours is worse than their performance while intoxicated, indicating that fulfilling a firm’s notion of dedication may be harmful to the client’s interests.97 In the mythology of law firms, long hours foster an illusion of client dedication and obscure the fact that the firm, not the client, is the primary beneficiary of the attorney’s exhaustion. Psychologists who study fatigued professionals would join former Yale Law School Dean Anthony Kronman in questioning the values, priorities, and character of “the new professional ideal: the lawyer who cares about nothing but work and is prepared to sacrifice all of his or her personal energies to it, regardless of how narrow and dull the work becomes.”98
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Fortney, Susan Saab. (2003). I don’t have time to be ethical: Addressing the effects of billable hour pressure. Idaho Law Review, 39, 305, 310, 315. 95 Id. Writing about the “Billable Hour Derby,” an attorney and syndicated columnist states: “Whoever said, ‘It’s quality, not quantity, that counts,’ never worked at a law firm. . . . Taking the lead in your firm’s Billable Hour Derby definitely has its rewards. If you achieve this status, you will notice partners treating you differently. Several partners, including one who had never previously acknowledged my existence, congratulated me and told me to ‘keep up the good work.’ None of them had any idea what I was doing. If I had spent all month committing malpractice, it seemed the important thing was to spend a lot of billable time doing it.” The Rodent. (2002, February 12). Success means winning billable hour derby. San Francisco Daily Journal. 96 See Pirtle, Jennifer. (2006, September). Stressing yourself sick. ABA Journal, p. 35. Hallowell, Edward M. (2005, January). Why smart people underperform. Harvard Business Review, pp. 55–62. See also Entine, Oliver A., and Small, Dylan S. The role of rest in the NBA homecourt advantage. (2008). Journal of Quantitative Analysis in Sports, 4(2), Article 6. 97 Czeisler, Charles A. (2006, October). Sleep deficit: The performance killer. Harvard Business Review, pp. 53, 54, 56. See Hewlett, Sylvia Ann, and Luce, Carolyn Buck. (2006, December). Extreme jobs: The dangerous allure of the 70-hour workweek. Harvard Business Review, p. 49. 98 Kronman supra note 6 at 307.
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The Consequences of Avoiding “The Big Picture”
In the classification of entrepreneurial strategies devised by management theorist Peter Drucker, the practice of law would be categorized as a “specialty skill niche.” One of the major limitations of a specialty skill niche, Drucker writes, is that it “inflicts tunnel-vision on its occupants.”99 In order to maintain themselves in their controlling position, the occupants of a specialty skill niche “have to learn to look neither right nor left, but directly ahead at their narrow area, their specialized field.”100 Consistent with the tunnel vision demanded by practitioners of a specialty skill niche, lawyers bring a narrow perspective to problem solving and learn to avoid the “big picture.” Benjamin Sells, a Chicago psychologist who specializes in counseling attorneys, explains how the practice of law deters lawyers from thinking about issues beyond their narrow client assignment: The Law simply doesn’t know what to do with Big Ideas that escape analytic definition. It knows that justice, truth, and fairness are supposed to be the end results of the legal process but because such terms can’t be defined in a way the Law is comfortable with, it begins to shy away from direct contact with them.101
Although lawyers may enter law school with a strong sense of justice and idealism, they find that law school and the business of law discourage consideration of largescale social and policy issues. Lawyers who initially were committed to social justice issues find that “there is no real ethic that encourages lawyers to undertake such work,” and many then decide to forgo their broad-minded ambitions and just “go make money and obtain job security.”102 As a result of high billable hour requirements and “institutional pressures to behave in a materialistic fashion,” notes Judge Harry T. Edwards, lawyers who remain interested in social responsibilities “find it difficult or impossible to realize their ethical ideals in private practice.”103 The narrowing of attorneys’ perspective promotes high profitability in law firms and poor decision making in client cases. Lawyers simply do not see cases the way judges and jurors will see them. Although lawyers may shun the Big Ideas, judges and jurors approach their tasks with a wide vision and broad moral objectives. As trial judge Michael Anello observed shortly after appointment to the bench, a judge’s emphasis on fairness and “doing the right thing” presents a sharply different perspective from his prior role as a civil defense lawyer representing insureds:
99 Drucker, Peter. (1985). Innovation and entrepreneurship (pp. 239–240). New York: Harper & Row, Publishers. 100 Id. at 240. 101 Sells, Benjamin. (1994). The soul of the law: Understanding lawyers and the law (p. 37). Rockport, Massachusetts: Element Books, Inc. 102 Edwards supra note 70 at 68, 70. 103 Id. at 71.
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“I enjoy the new perspective now that my primary objective is to do the right thing, to be balanced and be fair, rather than being an advocate for one side or the other.”104 Judge Cynthia Ming-Mei Lee echoes this broad view of the judge’s role: “As a judge your perspective is not that narrow. It forces you to look at all things and constantly try to find the balance of doing the right thing and taking into account everything that everyone has said.”105 Jurors, too, focus on the “big picture,” as Reid Hastie’s extensive studies of juror behavior demonstrate. “The central cognitive process in juror decision making,” Hastie finds, “is story construction – the creation of a narrative summary of the events under dispute.”106 Gary Klein, a decision scientist familiar with Reid Hastie’s research, studied the Mike Tyson rape trial and asked an attorney whether law schools teach attorneys about story building. The attorney replied, “there is virtually no such training. Law school concentrates on legal arguments, precedents, rules of evidence, and other matters, not on training on what makes people accept or reject stories.”107 Attorneys’ reductive approach to the practice of law and their ambivalence about Big Ideas overlook the cognitive motivations and processes of their audience – judges and jurors. Attorneys deliver discrete arguments but their audience listens for credible themes and narratives. Noting that “in real life you get no extra points for listing every possible legal theory,” Jim McElhaney, a law professor who teaches trial practice, criticizes attorneys’ typical legal argument as being “meticulously over-thorough, boring, tediously repetitive, argumentative and totally unpersuasive.”108 Attorneys often overlook the fact that meticulously dismantling an opponent’s case is not a substitute for persuasively building their own case. Taught to be detailed and thorough, attorneys may not relate to the grand themes that intersect at every trial – “right versus right, wrong versus wrong, and good old right versus wrong” – and the strategic interplay of “character and candor, power and weakness, deception and vulnerability.”109 Because jurors focus on broad themes while lawyers delve into arguments, they inevitably develop discrepant views of a case. Attorneys’ ability to accurately forecast case outcomes will continue to be impaired if they disregard the necessity of a compelling, grand scale narrative and instead focus narrowly on each discrepancy in a witness’ testimony, judicial precedents tenuously linked with the case being tried, and ponderous, redundant proof of each element of a cause of action.
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Daily Journal Corporation. Southern California Judicial Profiles, San Diego County Superior Court, 2002–2. 105 (2006, March 27). Studying ‘Red scare’ stirred interest in law. San Francisco Daily Journal, p. 2. 106 Hastie, Reid & Dawes, Robyn M. (2001). Rational choice in an uncertain world (p. 136. Thousand Oaks, California: Sage Publications, Inc. 107 Klein, Gary. (1999). Sources of power (p. 185). Cambridge: The MIT Press. 108 McElhaney, Jim. (2008, March). Stuck in the rut. ABA Journal, p. 24. 109 Id. at 25.
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The omission of themes and narratives necessarily follows from an education that confuses argument with persuasion. Professor McElhaney finds that law schools usually “are not interested in teaching their students to communicate with laypeople, so they leave the job half-done.”110 One of the consequences, he states, is that litigators “don’t have any idea how to put a coherent story together.”111 In his column for the American Bar Association’s Litigation magazine, his fictional Judge Standwell wonders whether law schools teach young lawyers to “contest everything” but omit any instruction in developing and relating cogent themes and narratives: “I’ve seen a number of young lawyers who seem to think that if you just put everything in a bag, shake it up and then pour it out in front of the judge and jury, they’ll put it together for you.”112 Modern litigators, Professor McElhaney writes, “don’t tell the story of the case any more.”113 Although Professor McElhaney complains that attorneys have not learned how to tell a story, the fundamental problem may be that they do not see a story to be told. A story necessarily embraces the broad themes and values that guide trial judges and jurors’ decisions, yet attorneys learn early in their careers that their primary objective is to advance the client’s interests, not promote any esoteric concept of justice. The first phase of legal education, the famous legal scholar Karl Llewellyn noted, is to drive fairness, ethics, and common sense out of law students’ thoughts: The hardest job of the first year is to lop off your common sense, to knock your ethics into temporary anesthesia. Your review of social policy, your sense of justice – to knock these out of you along with woozy thinking, along with ideas all fuzzed along their edges. You are to acquire [the] ability to think precisely, to analyze coldly, to work within a body of materials that is given, to see, and see only, and manipulate the machinery of the law.114
This process, Llewellyn continues, lays the foundation for law practice and invariably sacrifices some judgment, insight and humanity. When this education is successful, attorneys enter practice untethered by ethics and a sense of justice, ostensibly trained to “think like lawyers” but unable to see like jurors. Educated to avoid issues of social policy and justice and rewarded with entry level annual compensation approaching $200,000 in 2008, newly admitted attorneys are unlikely to notice or correct their professional astigmatism. “The business pressures on private practitioners, and the competition for business,” a young attorney explains, “are so great that there is little concern for anything – public service, social justice, training associates – that does not directly enhance the lawyer’s marketplace advantage or financial bottom line.”115 110
Id. McElhaney, Jim. (2008, April). Rejiggering jury selection. ABA Journal, p. 30. 112 Id. 113 Id. at 31. 114 Llewellyn, Karl. (1996). The bramble bush (p. 116). New York: Oceana Publications. Sullivan supra note 8 at 78. 115 Edwards supra note 70 at 68, fn. 93. 111
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“Due Process” and the Elevation of Process Above Results
Consistent with attorneys’ narrow focus, new lawyers quickly learn to emphasize procedures over outcomes. Because it is easier to follow protocols than be accountable for results, law firms assure clients they “will do everything possible” but may not discern what, among all possible processes, is necessary or efficacious. The messiness of client problems and the perceived vagaries of the legal system are obviated by emphasizing procedural compliance and exhaustion of remedies rather than substantive outcomes. Clients learn that they can rely on attorneys to “do it right” but cannot expect them to “get it right.” Benjamin Sells notes that lawyers inevitably fall back on “due process,” assuring themselves that clients’ untidy problems are “at least amenable to order” if not susceptible to control: “one of the most striking things to the non-lawyer who becomes involved in a lawsuit is the degree to which lawyers emphasize means more than ends, procedure more than outcome.”116 Attorneys’ unwavering faith in due process, Sells states, presumes “that order can be established in even the most chaotic situations if only enough procedural safeguards can be ensured, and that if surprise and uncertainty can be minimized then over time things will balance themselves out in predictable ways.”117 Due process, however, is not a probabilistic or methodological reasoning skill used for practical, substantive problem solving. It is, instead, a legal framework of rights and procedures imposed over unruly people grappling with intractable problems. Due process does not resolve problems but is merely a protocol for handling them. By creating a fictitious division between the means to be employed and the results to be achieved, attorneys insure that they are accountable only for undertaking the means over which they have direct control. They agree to guide clients through a labyrinth of legal procedures but will not identify precisely the destination. Lawyers’ elevation of process over outcome is antithetical to sound decision making and efficient conflict resolution. Accountability for results and continuous feedback about results is essential to developing expertise in decision making and problem solving, yet attorneys make it abundantly clear from the inception of the attorney-client relationship that they are not accountable for results. In this system, few incentives exist to become an efficient, strategic problem solver, evaluating which activities are truly effective and limiting legal services to those most likely to further the client’s objectives. Absent a direct connection between the client’s goals and the attorney’s engagement, Scott Darling, general counsel of Danger, Inc. states, “lawyers do nothing more than spend their time arguing about silly legal points, simply because that is what they are taught to do and that is academically
116
Sells supra note 101 at 37. Sells supra note 101 at 38–39.
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what good lawyering is.”118 This disconnect between process and results has contributed, in large measure, to “the dominant view that lawyers magnify the inherent divisiveness of dispute resolution” and “rarely cooperate to resolve disputes efficiently,” write law professors Ronald J. Gilson and Robert Mnookin.119 “Shielded by a professional ideology that is said to require zealous advocacy,” they state, lawyers “endlessly and wastefully fight in ways that enrich the lawyers but rarely advance the clients.”120 Although attorneys are fulfilling the dictates of “zealous advocacy,” clients’ conception of effective legal representation has little to do with zealous advocacy and the methodical exhaustion of all avenues of legal redress but rather envisions a fast and safe route to resolution or advising the client that the journey should not be undertaken in the first place. In the commercial world, where products, services, and financial results are tangible, litigation seems to be the only enterprise without deliverables. If the nature of litigation itself prevents attorneys from producing tangible results, or at least accurate estimates of case outcomes and likely costs, then that implicit premise should be made explicit to clients. Clients then can determine whether, in a legal system that purportedly is risky, uncontrollable and unpredictable, their attorney has any comparative advantage or instead is a fungible vehicle puttering through an expensive, lengthy, quarrelsome and possibly optional process. Pressed to justify how their legal representation can be beneficial in a legal system they portray as being riddled with uncertainties, hazards and surprises, attorneys may need to upgrade their client counseling skills by undertaking some training in formal decision making and economic modeling and forecasting.121 Vague evaluations like “strong case,” “good case,” and “defensible position,” which leave plenty of room to maneuver whatever the case result, will need to yield to statistics and probabilities. As law professor Gary Munneke states in his article, “Legal Skills for a Transforming Profession,” building efficiencies into the delivery of legal services requires well-honed problem-solving skills and an understanding of decision tree analysis. Effective client representation, he contends, also may require training in economics and statistics: “Arguably, economic modeling and forecasting represent a professional skill that lawyers should possess in order to serve their clients’ interests competently.”122
118
Chanen, Jill Schachner. (2005, July). The strategic lawyer. ABA Journal, p. 44. Gilson, Ronald & Mnookin, Robert. Cooperation and competition in litigation: Can lawyers dampen conflict? In Arrow, Kenneth, Mnookin, Robert H. & Ross, Lee (Eds.). (1995). Barriers to conflict resolution (p. 185). New York: W.W. Norton & Company, Inc. 120 Id. at 185–186. 121 See Sarat, Austin, and Felstiner, William L.F. (1986). Law and strategy in the divorce lawyer’s office. Law & Society Review, 20(1), 93, 127. See also Kleinmuntz, Benjamin. Why we still use our heads instead of formulas: toward an integrative approach. In Connolly, Terry, et al. (Eds.). (2002). Judgment and decision making (p. 687). Cambridge: Cambridge University Press. 122 Munneke, Gary A. (2001). Legal skills for a transforming profession. Pace Law Review, 22, 105, 132–137, 147, 149. 119
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5 Institutional Impediments to Effective Legal Decision Making
Competitive Market Pressures, Undue Deference to Client Expectations and Inappropriate Client Involvement
The path from initial case intake to trial is marked by classic agent-principal conflicts. These conflicts assume two detrimental forms: (1) different objectives, risk preferences and incentives for the client and the attorney; and (2) asymmetric information conditions under which it is difficult and expensive for the client to determine whether the attorney’s conduct is serving the clients’ interests.123 These conflicts often lead to attorneys overselling their capabilities, presenting unrealistic evaluations of the client’s prospects at trial, spending excessive amounts of time on activities with diminishing marginal returns, and attempting to enhance or protect professional reputations by exhibiting extreme risk aversion or risk taking in pre-trial settlement negotiations. In some cases, attorneys and litigants survive and frequently thrive in a litigation vortex for years before reality is administered, the cost of decision-making error is liquidated, and agent-principal conflicts become evident.124 The underlying reason for this denouement, according to Whitney North Seymour, the former United States Attorney for the Southern District of New York and president of the New York Bar Association, is attorneys’ conflicting economic interests: “Cases aren’t settled sooner because lawyers, who benefit most from litigation, are in control—not the clients who pay the bill.”125 Although agent-principal conflicts exist at all phases of litigation, the pre-trial phase is critical because it anchors the range of anticipated losses and gains, delineates the parameters of case resolution as gains or losses, and provides abundant opportunities for subsequent misunderstandings and conflicts in the attorney-client relationship. As explained below, decision-making competency is undermined in this early stage by three strong forces: (1) attorneys’ economic competition for clients; (2) attorneys’ concomitant deference to clients’ perceptions, expectations, and objectives; and (3) attorneys’ humanitarian desire to alleviate client anxiety, a legal tradition sometimes called “sympathetic detachment.”
123 See Eisenhardt, M.K. (1989). Agency theory: An assessment and review. Academy of Management Review, 14(1), 57–74. McKee, Michael, Santore, Rudy, and Shelton, Joel. (2007, June). Contingent fees, moral hazard, and attorney rents: A laboratory experiment. Journal of Legal Studies, 36, 253–273. 124 See Polinsky, A. Mitchell & Rubinfeld, Daniel L. (2003). Aligning the interests of lawyers and clients. American Law and Economics Review, 5(1), 165, 188 (noting the potential conflict of interest between attorney and client and proposing a different form of contingent fee agreement). 125 Gilson & Mnookin supra note 119 at 184. Attorneys, however, see themselves as faithful and fervent fiduciaries, implementing litigation strategies chosen by their clients.
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Competition for Clients and Deference to Client Perceptions, Expectations and Objectives
In the legal beauty contest, attorneys inevitably vie for clients’ respect, retention and recompense. Although most attorneys are reluctant to provide a substantive evaluation early in a case engagement, they are aware that clients have multiple choices in the marketplace for legal representation and, in selecting counsel, will search for distinguishing attributes among attorney candidates. Attorneys adamantly deny that they foster unrealistic client expectations, but studies consistently show that clients have a dissenting opinion: “lawyers who say they just provide technical input and lay out the options while leaving the decisions and methods of implementing them up to their clients are kidding themselves.”126 At both an explicit and implicit level, attorneys convey evaluations that are firmly etched in the client’s memory and later anchor and often prejudice the client’s case outcome assessment. “Even where they think of themselves as merely providing information for clients to integrate into their own decisions,” asserts Professor William Simon, “lawyers influence clients by myriad judgments, conscious or not, about what information to present, how to order it, what to emphasize, and what style and phrasing to adopt.”127 In attempting to demonstrate personal competence and establish credibility, for instance, an attorney may unintentionally convey confidence in the client’s position when she simply intends to instill confidence in her ability to discharge the representation competently and strategically. Due to confirmation bias, the client may imbue the attorney’s opinions with a degree of certitude neither expressed not intended. Clients hear not only what they want to hear but also what is not directly contradicted; the potential for self-serving misunderstandings is vast because attorney-client communications often are ambiguous, indirect, non-confrontational and circular, and attorneys do not “directly tell their clients that they are being unreasonable.”128 In the etiquette of attorney-client communications, the foremost rule may be, “If you can’t say something nice, don’t say anything at all.” In a study of clients interviewed and counseled by attorneys, law professors Felsteiner and Sarat describe a sequence of attorney-client interactions (“law talk”) designed to convey the attorney’s competence while simultaneously lowering the client’s expectations and putting “some distance between themselves and responsibility for any eventual disappointment.”129 The clients’ perception is that lawyers start with formalism and an explanation of the procedures mandated by
126
Gordon, Robert. (1988). The independence of lawyers. Boston University Law Review, 68, 1, 30. Simon, William. (1991). Lawyer advice and client autonomy: Mrs. Jones’s case. Maryland Law Review, 50, 213, 214–216. 128 Felstiner, William, and Sarat, Austin. (1992). Enactments of power: Negotiating reality and responsibility in lawyer-client interactions. Cornell Law Review, 77, 1447, 1464. Sarat and Felstiner supra note 5 at 144. 129 Sarat and Felstiner supra note 5 at 146. 127
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statutes – “law talk full of explicit references to rules.”130 Later in the representation, attorneys emphasize “people over rules” and the judge’s “immense discretionary power.”131 They characterize legal rules as “unnecessarily technical” and stress the limits of law “in guiding or determining behavior outside of the courtroom.”132 Later still in the representation, they emphasize differences in judges as determinative of outcomes: “Judges are portrayed in ways that suggest that they are capable of making decisions on grounds that have nothing to do with facts or rules.”133 At the end-stage counseling, attorneys criticize the skill, motives, dedication and abilities of both judges and opposing counsel and highlight the importance of the attorney’s “local knowledge, insider access, connections and reputation.”134 Ultimately describing the legal system as “idiosyncratic and personalistic,” they attempt to “shift responsibility for bad results from lawyers to powerful and unapproachable legal authorities. The critique of judges thus works to empower lawyers at the expense of their clients.”135 For clients, Felsteiner and Sarat find, “this is a difficult and disappointing message.” Clients start with a belief “in the efficacy of rights in the legal system, only to encounter a process that not only is ‘inconsistent,’ but cannot be counted on to protect fundamental rights or deal in a principled way with the important matters that come before it.”136 This scenario of attorney-client counseling gives the attorney wide latitude to retreat from earlier case assessments without being technically contradictory. The law remains as initially explained, the attorney counsels, but the vagaries of the legal system and the costs of litigation may prevent the client from realizing the result due from a strictly legal standpoint and initially contemplated by the attorney. It is “the system” that has disappointed the client, not the attorney. The extensive use of mediation and non-binding arbitration facilitates this slippery client management, as explained by Deborah Hensler, a Stanford Law School professor and RAND Institute Senior Fellow: Lawyers increasingly compete for clients, and one way to land a client is to encourage her to believe she has a strong case, or at least, that the lawyer can overcome obstacles to an attractive outcome. The lawyer who over-promises faces the unpleasant task of informing the client that her options are not as attractive as she thought. Mediation offers an opportunity for the lawyer to enlist a third party in this task. By bringing a third-party into the negotiation process, non-binding arbitration also offers the lawyer a scapegoat for a less-than-fully-satisfactory outcome.137
130
Sarat, Austin, and Felstiner, William L.F. (1989). Lawyers and legal consciousness: Law talk in the divorce lawyer’s office. Yale Law Journal, 98, 1663, 1671. 131 Id. at 1674. 132 Id. at 1674. 133 Id. at 1676. 134 Id. at 1676, 1685. 135 Id. at 1679. 136 Sarat and Felstiner supra note 5 at 93. 137 Hensler, Deborah. (2000). A research agenda: What we need to know about court-connected ADR (RP-871, p. 17). Santa Monica: RAND Institute for Civil Justice.
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Deborah Rhode, another Stanford Law School professor and author of In the Interests of Justice: Reforming the Legal Profession, voices a similar concern about the not-so-subtle consequences of lawyers’ competition for clients: “Price consciousness among corporate clients, together with the relaxation of bar restrictions on competition within and across professions, also have intensified economic pressures in private practice and have led to increased instability in lawyer-client relationships.” In this highly competitive market for clients, she states, “attorneys face intense pressure to serve clients’ short-term interests.”138 This obeisance to clients’ short-term interests represents a profound change in the legal profession, transforming attorneys from “the conscience of Wall Street” in the 1960s to the ushers of Wall Street at the turn of the century.139 A recent study of law firms reinforces the concern, if not the conviction, that economic pressures have changed the nature of the attorney-client relationship from an advisory role to a supportive capacity. Relying on their own research and other studies completed by Kimberley Kirkland, Robert Nelson, Robert Gordon, Mark Suchman, Mary Ann Glendon, and Laura Beth Nielsen, law professors Marc Galanter and William Henderson write: l
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“Partners have strong incentives ‘not to act as autonomous counselors who serve as a check on their clients’ desires, but as agents for their clients.’” Corporate legal departments now favor “entrepreneurial lawyers who privilege the company’s commercial interests above strict standards of professionalism.” In-house counsel, in some instances, hire outside lawyers to reinforce “the position staked out by the general counsel, and if he or she wants to be hired again, ‘it behooves him [or her] not to offer a contrary opinion.’” Corporate counsel may not seek an independent legal opinion but instead “hire outside counsel to obtain a specific, cost-effective result;” their objective is to increase short-term profits “with the minimal amount of legal drag on company transactions.” CEOs increasingly “want their general counsel to have the same exclusive loyalty to the company that they expect from employees who do not have professional responsibilities.”140
Although law firms historically provided “expert and autonomous advice,” Galanter and Henderson write, the dispensation of independent advice is no longer the business model sought or compensated by most corporate clients. The competitive pressure on lawyers and the consequent focus on short-term interests directly harm attorneys as well as clients. Ronald Mallen, a national expert 138
Rhode, Deborah. (2002). Expanding the role of ethics in legal education and the legal profession. Santa Clara, California: Markkula Center for Applied Ethics. Available at http:// www.scu.edu/ethics/publications/submitted/rhode/legaled.html. 139 See Larissa MacFarquhar. (2008, February 25). Life and letters, “East Side Story.” The New Yorker, p. 54 (describing Louis Auchincloss’ view of attorneys’ roles in the 1960s). 140 Galanter, Marc and Henderson, William. (2008). The elastic tournament: The second transformation of the big law firm. Stanford Law Review, 60, 102, 147–148.
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on attorney malpractice and partner of Hinshaw & Culbertson, points to competition as a major cause of poor judgment in client origination and representation: “These economic pressures result in efforts to originate business. One consequence is that even large, sophisticated law firms have represented some clients who should not have been represented on these matters.” The ultimate issue, Mallen notes, is “how the pressure to originate business will affect the judgment of individual lawyers and collectively the firm’s judgment.” Poor judgment and inadequate internal controls, Mallen believes, are responsible for significant malpractice claim losses and “caused many of the multi-million dollar losses during the last 20 years.”141 5.2.4.2
Undue Emotional Involvement with Clients
A sense of uncertainty pervades civil litigation. The perceived inability to control costs, outcomes, procedures and timing deprives people and organizations of their ordinary sense of authority, direction and stability. People who otherwise carefully plan their actions sense that an uncomfortably large portion of their future now rests in the hands of four people to whom they might not have extended a lunch invitation, let alone an incursion into their personal affairs and businesses: their own attorney, their adversary, their adversary’s attorney, and the trier of fact (judge, jury or arbitrator). Keenly aware of the client’s sense of uncertainty and loss of control, attorneys naturally seek to restore the client’s equilibrium, spawning a host of unintended consequences. In the competitive marketplace for clients, the attorney’s intention is to solidify the attorney-client relationship and reduce the client’s sense of uncertainty, yet any balanced view of a client’s position is as likely to heighten uncertainty as it is to reduce it. In attempting to reduce uncertainty and instill confidence, an attorney embarks on a path often leading to unrealistic case assessments and inaccurate perceptions of the opposing party’s motives, options, resources and objectives. In the extreme case, writes attorney William Domnarski in an article entitled “The Curse of Compassion For Clients – When Advocacy Sacrifices Objectivity,” the “lawyers become their client, their cause. It is that identification that is so terrifying, because it involves the loss of self; not just professional self, but self generally.”142 In befriending the client and internalizing the client’s cause, the attorney forfeits the objectivity central to professional representation. The client is convinced that he has a strong ally but does not comprehend that a candid counselor may better serve him.143 141
Mallen, Ronald & Smith, Jeffrey M. (2000). Legal malpractice (Vol. I, p. 54). St. Paul, Minnesota: West Group. 142 Domnarski, William. (2007, October 15). The curse of compassion for clients – when advocacy sacrifices objectivity. San Francisco Daily Journal, p. 6. 143 See Chemerinsky, Erwin. (2009, May 8). Help wanted. San Francisco Daily Journal, p. 6 (“My sense, after over 30 years as a lawyer, is that a very large percentage of serious ethical violations come when lawyers go too far in their effort to please the client or get the results the client wants.”)
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To varying degrees, attorneys attend to clients’ subjective needs by authenticating, translating, confirming, and reiterating clients’ beliefs. In communications ranging from implicit endorsement to outright support, attorneys reify clients’ belief that their conduct is justified, their cause worthwhile.144 At a practical, business development level, attorneys recognize and financially benefit from the fact that many clients are not seeking candid advice about whether they should have taken the actions and made the decisions that precipitated the litigation in the first place but rather are expecting counsel to re-cast those actions and decisions in a flattering legal light. The point at which an attorney’s conduct shifts from legitimate advocacy to client pandering is difficult to discern, especially when financial incentives, ethical obligations and a sincere desire to help a client are intermingled. Deferring to the client’s subjective preferences, attorneys often prolong a litigation denouement with powerful, inspired and exceptionally remunerative advocacy instead of urging a prompt resolution that would require the client to consciously accept some degree of responsibility for fostering or mishandling a legal dispute. Janet Malcolm, an author and once herself a party to protracted litigation, describes the insidious yet wonderfully gratifying effect of the “rhetoric of advocacy:” [W]hat the lawyer says and writes on his client’s behalf is gratifying beyond the latter’s wildest expectation. The rhetoric of advocacy law is the rhetoric of the late-night vengeful brooding which in life barely survives the skeptical light of morning but in a lawsuit becomes inscribed, as if in stone, in the bellicose documents that accrue while the lawsuit takes its course, and proclaims with every sentence, “I am right. I am right. I am right.”145
The “law cure,” she writes, is unfailingly satisfying: “Of pleasurable reading experiences, there may be none greater than that afforded by a legal document written on one’s behalf.”146 The immediately pleasing “law cure,” however, may not be therapeutic in the long term, as it tends to reinforce clients’ perceptions when candid legal advice might present alternative viewpoints and to strengthen clients’ resolve when sound judgment may dictate compromise. A client’s self-satisfaction neither portends nor facilitates a satisfactory outcome. Imbued with the conviction that “zealous advocacy” is not only a virtue but also an ethical requirement, some attorneys are receptive to enacting the client’s objectives and strategies, regardless of the attorney’s independent belief that those objectives may be unrealistic and the strategies counterproductive. If the client is willing to pay the bill and the task is not manifestly unethical, the attorney reaps a superior financial return by deferring to the client’s demands. “Scorched earth” litigation strategies, attorney Fred Silberberg believes, usually happen for one
144
See Slocum, Robin Wellford. (2009). The dilemma of the vengeful client: A prescriptive framework for cooling the flames of anger. Marquette Law Review, 93(3). Available at SSRN: http://ssrn.com/abstract=1088855. 145 Domnarski supra note 142 at 6. 146 Clendinnen, Inga. (2004, November 17). Making stories, telling tales: Life, literature, law. 18th Lionel Murphy Memorial Lecture.
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reason: “The lawyer allows the client to drive the case. This is akin to allowing someone who is intoxicated to be at the wheel.”147 He adds: “Some lawyers believe that their job is to do what the client wants, regardless of the potential outcome. Some like to feed on the emotional duress of the client and let the client take control.”148 The client’s duress, when combined with a law firm’s stress on billable hour production, is a heady concoction; when billable hours are the main factor in partnership decisions, Judge Edwards observes, attorneys may find it difficult to “keep an ethical distance from their clients.”149 The attorney’s internalization of the client’s hopes and desires is simultaneously empowering and misleading. The attorney’s focus on short-term affect rather than long-term effect presages cardinal decision-making errors. As James Reason, the eminent psychology professor and author of Human Error, explains, “Accuracy of reasoning performance is critically dependent upon whether the problem solver’s attention is directed to the logically important rather than the psychologically salient aspects of the problem configuration.”150 When the attorney’s financial and reputational interests become intertwined with the client’s subjective demands and expectations, both attorney and client lose the capacity to abstract, analyze and decide effectively. They cognitively tag team each other, transferring and reinforcing each other’s beliefs and biases, and in extreme cases like the Rite Aid accounting scandal, the corporate client’s CEO and general counsel emerge from a close personal warp and are sentenced to a federal prison term.151 Although attorneys will argue that the psychologically salient needs must be addressed, most practitioners are neither trained nor competent to provide affective relief.152 Nor is the legal system, essentially a distributive justice system, designed or committed to deliver affective equilibrium. Despite the legal system’s limitations and some attorneys’ chronic inability to distinguish between an appropriate level of “emotional intelligence” in client representation and undue personal involvement in a client’s legal affairs, the overall trend in law practice is shifting from neutral advice to supportive counseling. The competition for clients encourages attorneys to function simultaneously as rainmakers, advocates, fiduciaries and friends, displaying not only legal proficiency but client allegiance as well. Fostering emotional engagement with clients and supporting their subjective expectations has a deep tradition in law. The legal tradition of emotional 147
Silberberg, Fred. (2008, February 19). Divorce lawyers must bring their clients back to reality. San Francisco Daily Journal, p. 6. 148 Id. 149 Edwards supra note 70 at 77. 150 Reason, James. (1990). Human error (pp. 87–88). Cambridge: Cambridge University Press. 151 Collins, Jeffrey G., and Toomey, Erin L. (2007, December). Lawyers don’t look good in stripes. Michigan Bar Journal, p. 34. 152 See Sarat, Austin, and Felstiner, William L.F. (1988). Law and social relations: Vocabularies of motive in lawyer/client interaction. Law and Society Review, 22(4), 765 (“Lawyers can have little insight into the dispositions or character of people with whom they have had little contact; legal training provides no readily recognizable psychological expertise”).
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involvement is sometimes described as “sympathetic detachment.” In an address to the American Association of Law Schools, law professor Jack Sammons states that “traditionalists use the awkward combination of opposites, ‘sympathetic detachment,’ to describe a relationship with clients essential to its exercise because they know of no simpler way of saying that the rationality of our particular practical wisdom as lawyers depends on an underlying emotional involvement.”153 Consistent with the model of an attorney as advisor, confidant and cheerleader, ethical guidelines drafted by the Litigation Section of the American Bar Association refer to a “lawyer’s desire to convince the client of the lawyer’s support for the client’s position” and cite Model Rule 2.1, Comment 1 (“a lawyer endeavors to sustain the client’s morale and may put advice in as acceptable a form as honesty permits”).154 Attorneys’ attention to the client’s emotional state also is encouraged in a national trial practice treatise: “While it is important to be realistic with the client, at the same time counsel must never hesitate expressing optimism if the facts justify it. Sincere expressions of optimism are very helpful in establishing a healthy attorneyclient relationship.”155 The requisite “underlying emotional involvement” is again emphasized in law professor Thane Rosenbaum’s book, The Myth of Moral Justice: Why Our Legal System Fails To Do What’s Right. He calls for lawyers to practice the “art of empathy,” see themselves as members of a “healing profession,” “treat the emotional injuries that accompany the legal ones,” and perceive the “client with a grievance as not that much different from a patient in pain.”156 In 2006, a year after publication of Professor Rosenbaum’s book, a consonant sentiment was voiced by law professor and former law school dean David Hall in The Spiritual Revitalization of the Legal Profession. Professor Hall also sees the law as a healing profession, leading individuals out of “darkness and loneliness” and into “the sunlight of peace and justice.” Practicing the “sacred craft” of the legal profession, lawyers guide clients “with our compassion and tears . . . and with unconditional love for those who have been rejected and despised.”157 The philosophy urged by professors Rosenbaum and Hall, however, might be difficult to balance with the detached objectivity required for prudent client counseling. In studies of complex decision making under uncertainty, the existence of strong personal and emotional relationships between the decision makers has
153
Sammons, Jack L. (2002). Traditionalists, technicians, and legal education, Gonzaga Law Review, 38, 237, 240. See Sammons, Jack L. (1995). Rank strangers to me: Shaffer and Cochran’s friendship model of moral counseling in the law office. University of Arkansas at Little Rock Law Review, 18, 1. 154 Section of Litigation, American Bar Association. (2002, August). Ethical guidelines for settlement negotiations (p. 8). Chicago, Illinois: American Bar Association. 155 Lane, Fred, and Lane, Scott. (2004). Lane’s Goldstein trial technique (3rd, Chapter 7A, p. 6). Eagan, Minnesota: Thomson West. 156 Rosenbaum, Thane. (2004). The myth of moral justice: Why our legal system fails to do what’s right (pp. 38, 48, 57, 309). New York: Harper Collins. 157 Keeva, Steven. (2006, March). Take off the straightjacket. ABA Journal, p. 76.
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proven to be conducive to ineffective decisions.158 Maintaining a client’s emotional equilibrium, in fact, may be more closely associated with promoting optimistic overconfidence, selective perception, and confirmation bias than a “healthy attorney-client relationship.” Although the concepts of sympathetic detachment and sincere emotional support are well intentioned, the candid attorney will recognize that his helping hand may be extended far beyond the attorney’s abilities. As the court observed in Cincinnati Bar Association v. Alsfelder, “an attorney, unless a qualified therapist, may no more engage in that profession than a therapist may practice law without a license.”159 Untrained and unlicensed to practice the healing arts, attorneys should consider seriously the ethics and efficacy of insinuating themselves into a client’s sense of emotional well-being.160
5.3
Mental Impairment
Mental impairment impedes and at times completely obstructs creative problem solving and intelligent decision making. Although mental impairment usually is categorized as a psychological condition, it is treated in this chapter as an institutional contributor to poor judgment. Why is mental impairment placed in an institutional context? The reason is that lawyers and law students appear to be psychologically normal before entering law school, but shortly after entering law school and continuing throughout their legal careers they manifest high levels of mental impairment.161 Roy Stuckey, law professor and principal author of “Best Practices of Legal Education,” states, “It is well known that lawyers suffer higher
158
See Janis, Irving. (1989). Crucial decisions (p. 217). New York: The Free Press. Bruner, Robert F. (2005). Deals from hell. Hoboken, New Jersey: John Wiley & Sons. See also Miller, S.D., Hubble, M.A. and Duncan, B.L. (1996). The handbook of solution-focused brief therapy: Foundations, applications and research. San Francisco California: Jossey-Bass (therapists with superior treatment outcomes have lower initial patient alliance scores than therapists with inferior treatment outcomes). 159 103 Ohio St. 3d 375, 2004 Ohio 5216, 816 N. E. 2d 218 (2004). 160 See Gantt, Larry O. (2005). More than lawyers: The legal and ethical implications of counseling clients on nonlegal considerations. Georgetown Journal of Legal Ethics, 18, 365. 161 Benjamin, Andrew H., et al. (1986). The Role of Legal Education in Producing Psychological Distress Among Law Students. American Bar Foundation Research Journal, 11, 225, 247. Cited in Daicoff, Susan. (1997). Lawyer Know Thyself: A Review of Empirical Research on Attorney Attributes Bearing on Professionalism. American University Law Review, 46, 1337, 1378, 1379. Litowitz, Douglas. (2005). The destruction of young lawyers: Beyond one l (p. 19). Akron, Ohio: The University of Akron Press. Daicoff, Susan. (1998) Asking lawyers to change their spots: Should lawyers change? A critique of solutions to problems with professionalism by reference to empirically-derived attorney personality attributes. Georgetown Journal of Legal Ethics, 11, 547. See Schiltz, Patrick J. (1999). On being a happy, healthy, and ethical member of an unhappy, unhealthy, and unethical profession. Vanderbilt Law Review, 52, 871, 875.
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rates of depression, anxiety and other mental illness, suicide, divorce, alcoholism and drug abuse, and poor physical health than the general population or other occupations.” Less well known, he informs, are the facts that “these problems begin in law school. Although law students enter law school healthier and happier than other students, they leave law school in much worse shape.”162 Perhaps law schools, courts, and law firms have no effect at all on attorneys’ mental impairment, and perhaps attorneys are just late bloomers in the loam of emotional distress, but the absence of pre-existing behavioral or psychological deviations from the general population suggests that legal institutions play some role in the profession’s high incidence of mental impairment.163 As psychologist Amiram Elwork, an expert in the psychological problems of attorneys, explains, “The fact that lawyers experience higher rates of depression than the average suggests that there is something about their work that contributes to the problem.”164 Absent predictors or evidence of mental impairment in pre-law students, lawyers’ mental impairment may not exist as a disease independent from the institutions that inculcate the legal culture.165 The chairman of the American Bar Association’s Law Student Division, Daniel Suvor, calls depression and anxiety “the elephant in the classroom” – it’s something that “no one talks about.”166 Although Suvor believes that “an institutional denial problem is alive and well,” the existence among law students and attorneys of high
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Stuckey, Roy, et al. (2007). Best practices for legal education (p. 22). New York: Clinical Legal Education Association. 163 See Iijima, Ann L. (1998). Lessons learned: Legal education and law student dysfunction. Journal of Legal Education, (48), pp. 524, 526 (“It is clear that law students become candidates for emotional dysfunction immediately upon entry into law school and face continued risks throughout law school and subsequent practice”). 164 Keeva, Steven. (2006, January). Depression takes a toll. ABA Journal, p. 38. 165 If law students were emotionally “abnormal” prior to admission to law school and the bar and were in fact pre-disposed to mental distress and illness after admission, something would be curiously wrong with the law school admissions process and the law firms’ recruiting programs, for they would have inadvertently but successfully recruited a disproportionately large and highly labile group of students with a latent mental impairment. The problem with denying any institutional responsibility for fostering law students and lawyers’ mental impairment is that it suggests that an exceptionally large lot of damaged goods was selected initially rather than bruised in transit. 166 Weiss, Debra Cassens. (2008, March 13). Emphasis on money can be source of depression in law school. ABA Journal Law News Now. Available at http://abajournal.com/news/emphasis_on_money_can_be_source_of_depression_in_law_school. Jones, Leigh. (2008, March 12). ABA law student group tackles depression. National Law Journal Online. Available at http://www.law.com/ jsp/article.jsp?id=1205322359313. See Allan, Rick B. (1997). Alcoholism, drug abuse and lawyers: Are we ready to address the denial? Creighton Law Review, 31, 265. Curtis, Diane. (2008, May). Depression takes a heavy toll on lawyers. California Bar Journal, p. 1.
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levels of depression, anxiety, obsessive-compulsive disorder, suicide, divorce and alcoholism appears to be well documented. Representative research findings are: l
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About 19% of attorneys are depressed, compared with 6.7% of the general population, and attorneys are more likely to experience clinical depression than individuals in any other profession.167 Although only 10% of pre-law students suffer from depression, psychiatric distress increases significantly during law school, with 17%–40% of students reporting “significantly elevated levels of depression” and 20%–40% reporting “other significantly elevated symptoms, including obsessive-compulsive, interpersonal sensitivity, anxiety, hostility, paranoid ideation, and (psychoticism) social alienation and isolation.”168 About 20% of attorneys abuse alcohol, compared with 10%–12% of the general population.169 Practicing lawyers exhibit “clinical anxiety, hostility and depression at rates that range from eight to 15 times the general population.”170 11% of attorneys reported suicidal ideation at least once a month, and white male lawyers may be twice as likely to commit suicide as other white males.171 21% of male lawyers and 15% of female lawyers meet clinical criteria for obsessive-compulsive disorder, compared to 1.4% – 2% of the general population.172
Shellenbarger, Sue. (2007, December 13). Even lawyers get the blues: Opening up about depression. The Wall Street Journal, p. D1. See Bernard, Kristy N. and Gibson, Matthew L. (2004). Professional misconduct by mentally impaired attorneys: Is there a better way to treat an old problem? Georgetown Journal of Legal Ethics, 17, 619, 630 (“It is well established that attorneys as a group, suffer from mental illness and substance abuse at a rate higher than the general population,” citing Fleury, Jeffrey J., Kicking the habit: Diversion in Michigan – the sensible approach, University of Detroit Mercy Law Review, 73, 11). Schiltz, Patrick, (1999, Autumn). Those unhappy, unhealthy lawyers. Notre Dame Magazine. Eaton, William, et al. (1990). Occupations and the prevalence of major depressive disorder. Journal of Occupational Medicine, 32, 1079. 168 Daicoff, Susan. (1997). Lawyer know thyself: A review of empirical research on attorney attributes bearing on professionalism. American University Law Review, 46, 1337, 1378, 1379. Perlin, Michael L. (2008). Baby, look inside your mirror: The legal profession’s willful and sanist blindness to lawyers with mental disabilities (NYLS Legal Studies Research Paper No. 07/08). University of Pittsburgh Law Review. Forthcoming; available at SSRN: http://ssrn.com/ abstract=1111596. 169 Weiss, Debra Cassens. (2007, December 13). Lawyer depression comes out of the closet. ABA Journal, Law News Now. Available at http://abajournal.com/news/lawyer_depression_comes_ out_of_the_closet. See Sells supra note 100 at 17: (One third of all lawyers “suffer from either depression, alcohol or drug abuse.”) 170 Jones, supra note 166. 171 Keeva, Steven. (2006, January). Depression takes a toll. ABA Journal, p. 38. 172 Schiltz, Patrick J. (1999) On being a happy, healthy, and ethical member of an unhappy, unhealthy, and unethical profession. Vanderbilt Law Review, 52, 871, 876.
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12% of “graduating law students exhibit signs of chemical dependency.”173 30% of male lawyers and 20% of female lawyers score “above the clinical cutoff” on the measure of anxiety disorder, although only 4% of the general population meets clinical criteria for generalized anxiety disorder.174
The magnitude of these psychological disorders is amplified by the fact that lawyers resist seeking outside help and tend to isolate themselves when placed under stress.175 These problems, many attorneys believe, are a direct consequence of law students’ inadequate information about the legal profession and lawyers’ reactions to contemporary law firm practice.176 Law school is a default choice for many undergraduates uncertain about their career objectives; up to 50% of law students report “uncertain career goals” as one of their reasons for attending law school, rendering law school a “residual graduate school.”177 The pressure of billable hours and personally meaningless work compound this ambivalence about career goals after law school graduation. As one attorney comments: True, some students choose law school for the wrong reasons. Also true, law schools generally do not provide sufficient courses that are representative of law practice – day to day law practice. A huge factor in lawyer depression, in my opinion, is the pressure to bill for every minute you breathe, view every human being you meet or encounter on the street as a potential client, reject those with legal problems if they cannot afford $365 per hour no matter the seriousness and merit of their legal problem, and do not worry too much about ethics.178
One attorney describes his professional life as “morsels of bitter irony and farce,” while another laments, “I think a lot of the problems stem from the fact that so many of us envisioned something so different for our work lives than what really
173
McCann, Greg K., et al. The sound of no students clapping: What zen can offer legal education. University of San Francisco Law Review, 29, 313, 314 n. 6. Cited in Freshman, Clark, et al., (2002). The lawyer-negotiator as mood scientist: What we know and don’t know about how mood relates to successful negotiation. Journal of Dispute Resolution, 2002(1), 46, fn. 214. 174 Beck, Connie, et al. (1996). Lawyer distress: Alcohol-related problems and other psychological concerns among a sample of practicing lawyers. Journal of Law & Health, 10, 1, 50. Quoted in Schiltz, Patrick J. (1999) On being a happy, healthy, and ethical member of an unhappy, unhealthy, and unethical profession. Vanderbilt Law Review, 52(4), 871, 876. 175 Heins, Marilyn, et al. (1983). Law students and medical students: A comparison of perceived stress. Journal of Legal Education, 33, 511, 520–521. Cited in Daicoff, Susan. (1977). Lawyer know thyself: A review of empirical research on attorney attributes bearing on professionalism. American University Law Review, 46, 1337, 1381. 176 Cf. Monahan, John, and Swanson, Jeffrey. (2008). Lawyers at mid-career: A 20-year longitudinal study of job and life satisfaction (Working Paper 104, p. 3). University of Virginia Law School Public Law and Legal Theory Working Paper Series. (“There are two literatures on lawyer satisfaction, and their findings differ so starkly that one may wonder whether they are studying the same phenomenon.”) 177 Daicoff supra note 168 at 1357. 178 Weiss supra note 169.
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occurs.”179 She adds: “In the first 5–7 years of practice, most of us are little more than highly-skilled technicians with a lot of responsibilities but no authority who act at the direction of controlling clients and bosses.”180 Two-thirds of associate attorneys report “they are forced to sacrifice fulfillment outside of work in order to advance their careers,” nearly half “feel stressed and fatigued most of the time,” and 84% “would be willing to make less money in exchange for lower billable hour requirements.”181 Attorneys’ efforts to limit their billable hours and gain control over their lives often are discouraged, thwarted, or, if granted, can result in the attorney being thrown off the partnership track. “It should go without saying,” write two managing directors of a major legal placement firm, “that, with the rarest of exceptions, you should never complain to a partner about your hours.”182 An attorney who requested a reduction in her billable hours writes: I was simply dropped from all my work, with no questions or discussion. The partners avoided meeting my eyes in the elevator and the halls. It was as if I had fallen off the planet.183
Another attorney’s request to reduce her hours was granted reluctantly, and she encountered resentment among her colleagues who felt forced to pick up her hours to maintain the firm’s profit-per-partner goals – “all of the galley slaves,” she was told, “need to row at the same pace.”184 For some attorneys, even sleep does not allow a respite from the anxieties and pressures of law practice; attorney Anthony Laporte says he dreams of “witnesses who turn into snakes or juries made up of Attila the Hun clones.” Although he recognizes the dreams “have never been helpful,” he worries that if these anxiety dreams stopped “it would mean he had stopped caring about work.”185 From a more detached position, psychologist Martin Seligman attributes attorney unhappiness to three factors: “pessimism, low decision latitude, and being part of a giant win-loss enterprise.” The legal profession, according to his research on individuals and organizations including undergraduates, competitive swimmers, 179
Neil, Martha. (2008, January 22). Which lawyers love their jobs (comment 9). ABA Journal Law News Now. Lattman, Peter. (2007, December 13). Why are so many lawyers so depressed? The Wall Street Journal Law Blog. Available at http://blogs.wsj.com/law/2007/12/13/why-are-somany-lawyers-so-depressed/. 180 Lattman supra note 179. 181 Fivel, Michelle L., and Kamper, Krista, E. (2008, February 29). About to burn out? Try these tips to survive life as an associate. San Francisco Daily Journal, p. 6. Curtis, Diane. (2008, January). Move to a better work/life balance. California Bar Journal, p. 1. 182 Kamper, Krista E., and Fivel, Michelle L. (2008, February 28). For associates facing long workdays, preparation is key. San Francisco Daily Journal, p. 6. 183 Uelmen, Amelia J. (2005). The evils of ‘elasticity:’ Reflection on the rhetoric of professionalism and the part-time paradox in large firm practice. Fordham Urban Law Journal, 33, 81, 83. Quoted in Galanter and Henderson supra note 140 at 156. 184 Curtis, Diane. (2008, January). Move to a better work/life balance. California Bar Journal, p. 1. 185 Sandberg, Jared. (2008, January 15). Dreaming about work can be a nightmare, but it beats insomnia. The Wall Street Journal, p. B1.
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insurance agents, and NBA teams, is the only enterprise in which pessimism is rewarded “because seeing trouble as pervasive and permanent is a component of what the law profession deems prudence.”186 Unfortunately, he elaborates, this pessimistic trait makes an attorney valuable in her professional life and depressed in her personal life. The second factor – low decision latitude in high-stress situations and low choice matched with high pressure, especially for junior attorneys – is not only correlated with depression but coronary artery disease as well.187 But the most important psychological factor is the “win-loss” game of litigation, shifting law practice from providing “good counsel about justice and fairness” to “being a big business in which billable hours, take-no prisoners victories, and the bottom line are now the principal ends.”188 Since win-lose contests provoke the highest degree of aggression and emotional detachment, Seligman concludes, attorneys will be “depressed, anxious, and angry a lot of the time.”189 It is axiomatic that depression, anxiety, obsessive-compulsive disorder, suicidal ideation and alcohol abuse will impair if not destroy an attorney’s judgment and problem-solving capabilities.190 These psychological impairments prevent an attorney from adequately understanding and comprehensively defining client problems and foreclose cooperative, creative, and constructive methods to resolve those problems. Stress alone has a highly detrimental effect on cognition, as John Medina, a biologist specializing in mental health issues, explains: Stress hormones seem to have a particular liking for cells in the hippocampus, and that’s a problem because the hippocampus is deeply involved in many aspects of human learning. The result? Stressed people don’t do math very well. They don’t process language very efficiently, and they have poorer memories, both short- and long-term. These, of course, are the skills needed for individuals to excel in business.191
If some form of mental distress or substance abuse afflicts 20% – 30% of the attorney population, the most salient and immediate improvement in attorneys’ decision-making capabilities would result simply from psychiatric counseling, stress reduction programs and participation in confidential lawyer assistance programs. In the longer term, the emotional distress correlated with law school teaching and law firm practice merits careful research and analysis. At the “Law and the 186
Seligman, Martin. (2004). Authentic happiness: Using the new positive psychology to realize your potential for lasting fulfillment (p. 178). New York: Free Press 187 Id. at 179-180. 188 Id. at 180. 189 Id. at 181. 190 For a wonderfully broad exposition of the effects of emotional states on negotiating strategies and outcomes, see Freshman, Clark, et al. (2002). The lawyer-negotiator as mood scientist: What we know and don’t know about how mood relates to successful negotiation. Journal of Dispute Resolution, 2002(1). See also Levit, Nancy, and Linder, Douglas. (2008). Happy law students, happy lawyers. Syracuse Law Review, 58. Available at SSRN: http://ssrn.com/abstract=1095271 191 Coutu, Diane. (2008, May). The science of thinking smarter: A conversation with brain expert John J. Medina. Harvard Business Review, pp. 51, 52.
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Emotions” conference conducted in January 2007 at the University of California, Berkeley, the founding dean of the CUNY Law School, Charles Halpern, said that a major emotional issue legal educators need to consider is the emotional damage law school inflicts on its students. His comment was practically ignored, as panel members directed their attention to other law and psychology issues not directly impinging upon the academe. Charles Halpern’s question is piercing, pivotal, and primary; it warrants a thoughtful response from legal educators whose teaching methods may unwittingly damage students. Professors and lawyers would delve into any other institution that appears to engender systemic depression and anxiety in intelligent and psychologically normal men and women after immersion in the institution’s culture and pedagogy.
5.4
The Disappearing Civil Trial
Despite popular perceptions of a “litigation explosion,” the number of civil trials has decreased sharply during the last 40 years. The portion of civil cases resolved by trials (as opposed to settlement, prejudgment motions, and other pre-trial procedures) is “less than one-sixth of what it was in 1962.”192 Between 1992 and 2002, the number of jury trials in tort, contract, and real property cases declined by 44%.193 In the seventy-five most populous counties in the United States, tort trials decreased by 31.8% and contract trials decreased by 61% between 1992 and 2001. During the same period, federal court trials in tort actions decreased by 37.6%, and contract trials decreased by 47.7%.194 In 2004, the total number of federal civil trials was 5,500, a sharp decline from 14,300 in 1984.195 “Starting in the ‘90s,” states Stephen Dillard, the head of litigation at Fulbright & Jaworski LLP, “the concern became that we had a dress rehearsal for a play that never runs.”196 These perpetual rehearsals put the legal profession on a collision course with actuality – more actors, agents, scripts, and stages, a meager and dwindling number of performances before a live audience, and more reviewers than ticket holders. Although everyone has an opinion about the legal actors and their playbooks, few learn how a real audience would have received them. Trial attorneys have been replaced by “litigators,” reflecting the shift from jury trial experience to pretrial discovery and law and motion practice, and even the “King of Torts,” Dickie Scruggs, can recall only one tort case he ever tried to verdict as lead
192
Galanter, M. (2004). The vanishing trial: An examination of trials and related matters in federal and state courts. Journal of Empirical Legal Studies, 1(3), p. 461. 193 Id. at 508. 194 Id. at 510. 195 Koppel, Nathan (2005, December 1). Trial-less lawyers. The Wall Street Journal, p. B1. 196 Id.
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counsel. (He lost).197 Because litigators invariably settle cases instead of trying them, it is not surprising that they do not know and cannot accurately predict how judges and juries will act. Like the King of Torts (now deposed), they excel at recruiting good clients, obtaining favorable settlements, earning large fees, and staying away from juries. When the occasional case “blows up” at trial, it is an isolated event in an attorney’s career and can be quickly obscured by years of appellate court proceedings.
5.4.1
Settling Without Benchmarks
Accompanying this steep decline in civil trials is a steadily growing population of attorneys, a proliferation of new statutes, regulations, agencies, and rules, an increase in the number of case filings, and a rapid expansion of law journals.198 The juxtaposition of more law and fewer trials challenges attorneys’ forecasting capabilities and has changed the basis of settlement negotiations. These negotiations now are based on settlements, not verdicts, in purportedly similar cases, effectively substituting the untested opinions of equally confused litigants for actual outcomes in trials. If litigation attorneys and their clients were meteorologists, they would be studying other meteorologists’ predictions, not the actual weather. The paucity of civil trials – and attorneys’ resultant inability to periodically recalibrate trial outcome estimates – produces chaos in the settlement markets. Because few attorneys know what cases are worth if tried to verdict, the initial volley of settlement demands and offers at a mediation session or a settlement conference may convince clients that they, like Alice at the Mad Tea Party, have fallen down the rabbit hole: “Take some more tea”, the March Hare said to Alice, very earnestly. “I’ve had nothing yet”, Alice replied in an offended tone: “so I can’t take more.” “You mean you can’t take less,” said the Hatter: “it’s very easy to take more than nothing.” “Nobody asked your opinion,” said Alice. “Who’s making personal remarks now?” the Hatter asked triumphantly.199
Settlement negotiations often begin by poking holes in plaintiffs’ alleged damages, a relatively easy task, and then disintegrate over liability evaluations, a tough job requiring strong risk assessment skills. As U.S. Court of Appeals Judge Randall Rader explained in his keynote address to the 1999 Summit Conference on 197
Carter, Terry, (2008, April). Long live the king of torts? ABA Journal, p. 46. See Boyer, Peter J. (2008, May 19). The bribe. The New Yorker, pp. 45, 46 (“‘I can assure you he hasn’t tried ten cases to verdict in his life,’ Bill Reed, a Jackson attorney who is one of Scrugg’s closest friends, says.”) (Richard Scruggs pleaded guilty to conspiring to bribe a judge in March 2008 and was sentenced later that year). 198 See Galanter supra note 192 at 529. 199 Carroll, Lewis. Alice in wonderland. Chapter VII. (Emphasis in original).
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Intellectual Property, the parties “usually know how much is at stake or they calculate it within a close margin,” but the variable that prevents settlement is the “uncertainty in the outcome.” The parties “reach wildly different estimations of who is going to win the suit – the plaintiff figures he is going to win big, and the defendant thinks, ‘I’m not going to lose a penny here.’”200 Conducted without the benefit of reliable verdict data, litigation settlement negotiations often assume a never-never-land character. In a world where nearly all cases settle, the merits of the case are relegated to secondary importance, displaced by bald assertions of liability and equally baseless rejoinders. “It may not even be possible to base settlement on the merits,” states law professor Janet Cooper Alexander, “because lawyers may not be able to make reliable estimates of expected trial outcomes. There is nothing to cast a shadow in which the parties can bargain.”201 Settlement negotiations thus run around a syllogistic circuit: settlement is beneficial because a party cannot predict the probable result at trial; a party cannot predict the probable result at trial because nearly all cases are settled; each case, therefore, should be settled. In these closed loop settlement negotiations, conducted without dependable precedents, the parties’ bargaining tactics may trump legal merits, the caliber of legal arguments is rarely tested, and modesty is anything but a virtue. In interviews with journalist Tyler Cunningham of the San Francisco Daily Journal, several lawyers said that “fewer jury trials leaves less information about how juries will treat certain situations – information that might prove useful in negotiating settlements.” Lawyers acknowledge that they are “less certain about what amount a modern jury would return for any injury.”202 Julia Molander, the past president of the Association of Defense Counsel of Northern California, describes the drop in trials as “a tragedy.” She believes that the settlement process requires “as a fundamental” that the mediator base settlement values on trial verdicts. Absent information regarding verdicts in similar cases, she finds that “the mediators end up shooting in the dark.”203 The declining number of civil trials means that judges, too, must function without empirical parameters and rely on attorneys for case evaluation. Professor Mark Galanter observes, “judges preside over routine settlements that reflect not legal standards but the strategic positions of the repeat players.”204 In this legal hall of mirrors, judges and attorneys circumvolve “a spiral of attribution in which 200
Rader, Randall. (2000). The pace and expense of litigation in United States courts (p. 5). In Proceedings of the 1999 Summit Conference on Intellectual Property, CASRIP Symposium Publication Series No. 5. Seattle: University of Washington. 201 Alexander, Janet Cooper. (1991). Do the merits matter? A study of settlements in securities class actions. Stanford Law Review, 43, 497, 567. Cf. Baker, Tom and Griffith, Sean J. (2009). How the merits matter: D&O insurance and securities settlements. University of Pennsylvania Law Review, 157, 755. 202 Cuningham, Tyler. (2004, June 1). Disappearing act. The Daily Journal, p. 6. 203 Ben-Yehuda, Eron. (2004, December 6). In dispute. Daily Journal Extra, p. 9. 204 Galanter supra note 192 at 526.
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supposedly autonomous decision-makers take cues from other actors who purport to be mooring the decisions of the former.”205 In securities fraud class action suits, for example, settlement judges, like lawyers, have little relevant experience to draw on other than their knowledge of settlements in similar cases . . . their role becomes not to increase the accuracy of settlements, but to provide an impetus to reach some settlement. In the absence of information about how similar cases fared at trial, settlement judges could be an important force in maintaining a “going rate” approach to settlements.206
The absence of verdict data is particularly acute in these types of cases because more than 2,000 securities class actions have been filed during the last ten years but only seven of those cases proceeded to trial.207 The lack of reliable data about actual trial outcomes makes it nearly impossible for defendant corporations and their counsel to make intelligent risk assessments by comparing probable trial outcomes with the plaintiffs’ settlement demands. Evaluating the merits and formulating settlement positions well outside the shadow of law and precedent, corporations and their attorneys can do little more than “guesstimate” probable trial results and reasonable settlement amounts. Attorneys apparently have become inured to negotiating without empirical reference points. Even when historical data is available for jury verdicts in similar cases, attorneys rarely research verdict databases before asserting positions at settlement conferences or mediations. In one bar association survey, for instance, fewer than 25% of the respondent attorneys said they had consulted jury verdict reports to value their most recently resolved case.208 Lynne Bassis, a mediator for 14 years, observes, “I don’t think I’ve ever had anybody pull out a jury verdict and say, ‘Here’s why.’ It seems to be more of a visceral valuation.”209 Regarding each case as unique and nuanced, attorneys ignore and devalue case outcome data available in jury verdict reports and from judicial data centers, an oversight psychologists call “base rate neglect.” Listening to parties at mediation sessions, one would conclude that the likelihood of a successful trial outcome for both plaintiffs and defendants is always above average and the results reported in other cases are unrepresentative of the client’s charisma and the attorney’s skills in the instant case.210 Each case, it appears, is not only sui generis but permaximum as well. 205
Id. at 528. Alexander supra note 201 at 566. 207 Friedman, Gabe. (2008, February 6). JDS Uniphase wins at rare securities class-action trial. San Francisco Daily Journal, p. 4. Weinberg, Neil. (2008, February 11). They’re back. Forbes. 208 Galanter, Marc. The regulatory function of the civil jury, p. 75, fn. 42. In Litan, Robert E. (1993). Verdict: Assessing the civil jury system. Washington, D.C.: Brookings Institution Press. (Seventy percent of the respondents reported that they “relied heavily on consultations with other attorneys in their own firms.”) 209 Ben-Yehuda supra note 203 at 9. 210 In his article, “Inferring beliefs from selected samples: Evidence from civil litigation,” Seth Seabury of RAND reports that litigants and attorneys who use jury verdict reports “systematically 206
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Causes and Motivations for Pre-Trial Settlements
The increasing number of pre-trial settlements, the decline in the number of trials and attorneys’ resultant lack of trial experience raise a perplexing causation question: do parties settle because they obtain better results through settlement than could be achieved at trial, or do parties settle cases because they cannot evaluate the likely result at trial? Although attorneys and proponents of alternative dispute resolution (ADR) are convinced that negotiated resolutions provide superior results, there is no objective way of testing whether a settlement has yielded a better result than could have been obtained at trial. Hence, the mere fact of settlement and the avoidance of trial do not establish intelligent decision making and effective problem solving. Reflecting on the decline in trials and the rise in negotiated resolutions, Judge Patrick Higginbotham, who sits on the U.S. Court of Appeals for the Fifth Circuit, notes, “it is not clear how much the shift toward ADR reflects the merits of the process itself – in other words, a competitive success in the legal marketplace over trials.”211 When parties themselves are surveyed, “the findings are mixed with regard to whether mediation and neutral evaluation outperform or simply do as well as traditional litigation.” 212 In studies of general civil jurisdiction cases, a majority of studies find no differences between mediation cases and non-mediation cases in participants’ assessments, transaction costs, the amount of discovery and the number of motions filed. The findings are mixed with regard to whether mediation does or does not increase the rate of settlement or reduce the trial rate, reduce the time to disposition, and enhance compliance compared to the traditional litigation process. The few studies of neutral evaluation in general civil cases suggest it does not reduce the time to disposition or transaction costs, but might reduce the number of motions and trials.213
In some other earlier studies, parties expressed a higher level of satisfaction with arbitrations and trials than court settlements, raising more questions about the efficacy of settlements and parties and attorneys’ predictive capacity in urging settlement.214
underestimate the true variability of those awards” and “civil litigants consistently use misinformation to set their expectations and guide their settlement behavior.” See Seabury, Seth. (2007, July 5). Inferring beliefs from selected samples: Evidence from civil litigation. Papers presented at the Second Annual Conference on Empirical Legal Studies, November 9-10, 2007, New York University. Available at SSRN: http://ssrn.com/abstract=998687. 211 Higginbotham, Patrick E. (2004, Summer). The disappearing trial and why we should care. RAND Review. 212 Wissler, Roselle L. (2004, Fall-Winter). The effectiveness of court-connected dispute resolution in civil cases. Conflict Resolution Quarterly, 22(1-2), 55, 80. See Shestowsky, Donna, and Brett, Jeanne. (2008, November). Disputants’ perceptions of dispute resolution procedures: An ante and ex post longitudinal empirical study. Connecticut Law Review, 41(1), 63. 213 Wissler supra note 212 at 81. 214 Lind, E. Allan, et al. (1990). In the eye of the beholder: Tort litigants’ evaluations of their experiences in the civil justice system. Law and Society Review, 24, 953. Lind, E. Allan, et al.
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It remains unclear whether the number of civil trials is decreasing because litigants intelligently assess probable trial outcomes and then negotiate economically sound pre-trial settlements or whether litigants simply feel pressured to settle to avoid the standard parade of horribles – inestimable and rising attorneys fees, unpredictable verdicts and endless post-trial motions and appeals. “The existence of a general preference for settlement,” note professors Marc Galanter and Mia Cahill, “does not mean that the pursuit of settlement in any particular instance is an informed and uncoerced expression of such a preference.”215 No data exist to reliably and conclusively determine whether parties’ impetus to settle is coercive or prudential, whether ADR procedures have evolved primarily for attorneys’ convenience or clients’ welfare, and whether the major goal is to reduce court docket congestion or increase party satisfaction.216 Like cesarean deliveries, mediated settlements have increased markedly within the last decade – without published clinical data demonstrating whether these alternative procedures are performed for the subject’s safety rather than the practitioner’s benefit or whether, as found in the medical context, many participants expressing a preference for the procedure “were generally poorly informed of the risks of this procedure and/or overestimated the safety of the procedure.”217 Efforts to assess the quantitative and qualitative differences between mediation outcomes and adjudicated outcomes have been “boldly challenged by a steadily refined pro-mediation publicity machine, marked by superb rhetoric and inspiration,
(1989). The perception of justice: Tort litigants’ views of trial, court-annexed arbitration, and judicial settlement conference. Santa Monica, California: RAND Corp. Lind, E. Allan. (1990). Arbitrating high stakes cases: An evaluation of court-annexed arbitration in a United States district court. Santa Monica, California: RAND Corp. Hensler, Deborah. (1992). Court-ordered arbitration: An alternative view. Santa Monica, California: RAND Corp. See Testimony of Professor E. Allan Lind on the “Alternative Dispute Resolution and Settlement Encouragement Act,” (H.R. 2063, 105th Congress, 1st Session, Subcommittee on Crime, Committee on the Judiciary, U.S. House of Representatives Oversight Hearing on The Need For Additional Federal District Court Judges, October 9, 1997.) 215 Galanter, Marc, and Cahill, Mia. (1994). Most cases settle: Judicial promotion and regulation of settlements. Stanford Law Review, 46, 1339, 1352. 216 Patnoe, Lisa, (2002). The implications of recent procedural justice research on the evaluativefacilitative debate. Rutgers Conflict Resolution Law. Journal, 1, 1, fn. 41. Hensler, Deborah. (2000). A research agenda: What we need to know about court-connected ADR. Santa Monica, California: RAND Corp. See Hensler, Deborah R. (2001). ADR research at the cross roads, p. 75. Santa Monica, California: RAND Corp. (“Lawyers whose cases were referred to mediation or ENE [early neural evaluation] were highly satisfied with the procedures and felt they accorded fair treatment to their clients, but they were not significantly more satisfied than lawyers whose cases were not referred to ADR”). See Morris, Cecelia G. (2006, Winter). Judging the handbook for judges. Dispute Resolution Magazine, p. 28, 29 (“the first goal of ADR in bankruptcy mediation is to ‘save time and money,’ with party satisfaction included only as a secondary objective.”) 217 Gamble, J.A. and Creedy, D.K. (2001, June). Women’s preference for a cesarean section: Incidence and associated factors. Birth, 28(2), 101–10. See also Aron, D.C., et al. (2000, January). Variations in risk-adjusted cesarean delivery rates according to race and health insurance. Medical Care, 38(1), 35–44.
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but a paucity of empirical evidence that continues to this day.”218 Professor Hensler notes that ADR administrators and practitioners “have turned away from empirical investigation and critical analysis of ADR consequences,” and researchers have encountered “indifference or hostility to empirical research on ADR.”219 To the extent research demonstrates participants’ subjective satisfaction with ADR processes, it is unclear whether that subjective satisfaction is attributable to high standards of procedural justice achieved through ADR or the participants’ unusually low or uninformed expectations of fair and respectful treatment in any dispute resolution forum.220 In the absence of empirical evidence establishing the superior utility of settlement, the legal profession has been dogged for decades by the suggestion that inexperience and poor forecasting skills, not calculated strategy, motivate some attorneys to settle cases. This suspicion certainly increases as the number of trials decreases, but questions about attorneys’ settlement motivations were voiced years before “the vanishing civil trial.” Alexander Woollcott expressed these doubts in 1939, writing for the New Yorker Magazine: The practice of settling out of court has so gained ground of late that many a noted lawyer can hardly remember when last he underwent the disconcerting experience of trying a case before a jury. Furthermore, it may be guessed that among the many excellent reasons which dictate a settlement in any case is the unconfessed one that, for personal reasons, the counsel involved would a little rather not submit to ordeal by combat. Once down in that dusty and unpredictable arena, the most disturbing things might happen to them.221
As the number of trials diminishes and pre-trial settlements increase, doubts about the motivations of attorneys and the efficacy of settlement will persist. These doubts may be quelled when attorneys avail themselves of data regarding verdicts and settlements and acquire the skills to analyze that data and present it to clients in a methodical and instructive manner. Clients’ concerns that they are settling for too little or paying too much are best addressed with data, not attorneys and mediators’ folkloric anecdotes about other parties who “persisted in similar courses of action, pursued understandable but unrealistic objectives and suffered disastrous results.”222 When patients consult with their physicians about an affliction, they decide on a course of treatment by discussing actual outcomes in carefully documented clinical studies; they do not base decisions on the physicians’ most successful or most easily recalled patient. In 218
Coben, James, and Harley, Penelope. (2004, Spring). Intentional conversations about restorative justice, mediation and the practice of law. Hamline Journal of Public Law & Policy, 25(2), 253. 219 Hensler, Deborah R. (2001). ADR research at the cross roads (pp. 74, 76). Santa Monica, California: RAND Corp. 220 See Patnoe, Lisa, (2002). The Implications of Recent Procedural Justice Research on the Evaluative-Facilitative Debate. Rutgers Conflict Resolution Law Journal, 1. 221 Stryker, Lloyd Paul. (1954). The art of advocacy (p. 291). New York: Simon & Shuster. Quoted in Bradford, Glenn. (2002, July-August). Losing. Journal of the Missouri Bar, 58(4). 222 Felstiner and Sarat supra note 128 at 1464.
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modern medical practices, this emphasis on data is referred to as “evidence-based medicine.” As keen evaluators of evidence, lawyers are uniquely qualified and indeed ethically charged to undertake a similarly broad search for evidence-based, statistically valid data about verdicts and settlements to protect their clients.
5.5
Chapter Capsule
The goal of negotiation is “to produce something better than the results you can obtain without negotiating,” as declared in the negotiation skills bestseller Getting To Yes. Attorneys and clients thus must know what the likely result at trial would be if settlement negotiations are unsuccessful. Although attorneys are knowledgeable about the law and well trained in legal argument, they are not necessarily experts in predicting trial outcomes and solving problems. Shortcomings in forecasting and problem-solving skills can lead to suboptimal negotiations. Five institutional factors may contribute to difficulties in accurately forecasting case outcomes and efficiently resolving client problems: (1) law schools’ lack of emphasis on practical problem-solving skills and probabilistic and methodological reasoning; (2) law firms’ disproportionate attention to billable hour production and legal processes; (3) law firms’ competition for clients and the attendant deference to clients’ subjective expectations and needs; (4) the reportedly high rate of depression, obsessive compulsive disorder and substance abuse among law students and lawyers and its effect on creative, comprehensive problem solving; and (5) the sharply decreasing number of civil trials and the consequent decline in attorney trial experience and knowledge of trial outcomes.
Part III Consequences
Chapter 6
Legal Malpractice Liability For Settlement Counseling and Decision Errors
Prophecy is the most gratuitous form of error. George Eliot, Middlemarch, Ch. 10, 1871–1872
Second-guessing, Monday morning quarterbacking, living through the rear-view mirror, 20/20 hindsight – these colloquial terms convey skepticism about retrospective criticisms of decisions necessarily made before essential information became available to a decision maker. But does this skepticism about hindsight judgments extend to attorneys’ settlement advice later shown to be improvident? Or are attorneys culpable when trial outcomes turn out to be worse than pre-trial settlement offers declined based on the advice of counsel? If cases are gambles, who is supposed to know when to fold them and when to hold them – the attorney or the client? Attorneys today often face the Hobson’s choice of either (1) advising a client to accept a settlement offer, risking malpractice liability if the client later claims it could have obtained a superior financial result at trial; or (2) advising a client to reject a settlement offer, risking liability if the result at trial is worse than the rejected settlement offer. This dilemma intensified during the last two decades as judicial decisions continued to shift away from the relatively lenient “judgmental immunity” rule to the more exacting “standard of care” test.1 To an ever-increasing extent, the practitioner negotiating a settlement proceeds at her peril. Because the courts themselves have not consistently delineated the scope of attorneys’ liability for case assessments, recommendations and settlements, this chapter cannot offer traffic light clarity for directing attorneys’ legal advice and clients’ settlement decisions. Instead, this chapter presents a range of judicial opinions in an attempt to alert practitioners to potential liabilities, indicate how some courts allocate the respective responsibilities of attorneys and clients, illuminate some trends in imposing liability for settlement decisions and explain common
1
See Copeland Lumber Yards v. Kincaid, 69 Or. App. 35, 38, 684 P.2d 13, review denied 298 Or. 37 (1984).
R. Kiser, Beyond Right and Wrong, DOI 10.1007/978-3-642-03814-3_6, # Springer-Verlag Berlin Heidelberg 2010
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defenses to malpractice claims. This chapter is not a treatise; malpractice treatises tend to be read by attorneys who think they may have committed malpractice and are looking for a way out, while this chapter is intended for attorneys and clients who are trying to avoid a claim in the first place. To accomplish these objectives, this chapter preliminarily assesses whether malpractice claims regarding settlements constitute a significant portion of all malpractice claims and how often clients prevail in those claims. It then summarizes the fundamental policy issues courts confront when deciding whether to absolve attorneys of malpractice liability for advice and related actions taken in connection with settlement negotiations or impose liability for inaccurate advice or incomplete research, investigation and counseling regarding a settlement. This chapter next analyzes how courts have resolved these policy issues in attorney malpractice cases presenting two basic fact situations: (1) where dissatisfied clients resolved the underlying cases by entering into settlement agreements and later claimed the settlements were inadequate, coerced, unauthorized or otherwise egregious; and (2) where hapless clients proceeded to trial and later contended the case should have been settled. Both the “settled for too little” and “tried for too much” cases highlight gaps between clients’ expectations and attorneys’ performances that culminate in malpractice claims. The analysis of those two basic categories of claims is followed by an overview of the legal defenses asserted by attorneys in malpractice actions. The related issues of attorneys’ ethical duties in settlement negotiations and the circumstances in which a breach of those duties could result in disciplinary proceedings are treated in the next chapter.
6.1
Malpractice Claims Data
Malpractice claims data show a significant and persistent conflict between client expectations and attorney performances in case evaluation, risk assessment and settlement negotiations. According to the American Bar Association’s “Profile of Legal Malpractice Claims,” the specific activity “Settlement/Negotiation” constituted 7.67% of all malpractice claims in the 2004–2007 period, and 8.2% of all malpractice claims in the earlier 2000–2003 period (when claims are classified by “type of activity”). The errors “failure to follow client’s instructions,” “failure to know or properly apply the law,” “failure to obtain client’s consent or to inform client [of ‘various alternatives or the risks involved’],” “inadequate discovery of facts or inadequate investigation,” and “planning or strategy error” constituted 37.58% of all malpractice claims in the 2004–2007 period and 41.54% of all malpractice claims in the 2000–2003 period (when claims are classified by “type of alleged error”).2 Thus, nearly one-half of all malpractice claims allege errors 2
American Bar Association Standing Committee on Lawyers Professional Liability. (2008). Profile of Legal Malpractice Claims 2004–2007. Chicago, IL: American Bar Association.
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relating to professional skills required in pre-trial evaluations, negotiations and settlements. The most comprehensive data regarding attorney malpractice claims is maintained by an Ontario, Canada insurer, The Lawyers’ Professional Indemnity Company (LAWPRO). Its data is the most complete because, unlike their American counterparts, all attorneys in Ontario are required to carry malpractice insurance, and LAWPRO is the only carrier. The American Bar Association has compared its malpractice data with LAWPRO’s and concluded that the results “show relatively similar claims experiences between the two countries.”3 LAWPRO’s data indicate that the major cause of malpractice claims has shifted during the last thirty years from calendaring mistakes (usually failing to file an action before it was barred by the statute of limitations) to “attorney/client communication and relationship issues.” According to law professors Kara MacKillop and Neil Vidmar, communication and relationship problems were responsible for 46% of all claims and 51% of claims costs. The errors, they note, “fall into four categories: failure to follow client instructions (13.7% of claims, 13.6% of costs), inadequate discovery or investigation (12.9%, 15%), failure to inform or obtain consent (11.6%, 13.4%), and poor communication (8%, 9%).”4 Calendaring issues constituted only 14% of the total number of claims and 11% of claim costs, although they were the primary type of malpractice claim thirty years ago. Because contemporary attorneys are more likely to face a malpractice claim regarding their relationship skills than their calendaring systems, attorneys with a bad courtside manner are a swelling financial risk for law firms and malpractice insurers. How do attorneys fare at trial when they are sued for legal malpractice? An analysis of all attorney malpractice cases reported by VerdictSearch during the 20-year period between 1987 and 2007 reveals a high incidence of claims regarding settlement and a low incidence of defense verdicts. Nearly one-third of the reported cases involved some aspect of settlement, and the national win rate for the plaintiff clients ranged from 70% to 74%.5 The plaintiff win rates in legal malpractice actions are roughly double the national win rates of medical malpractice plaintiffs (33%) and are significantly higher than the win rates of plaintiffs in non-motor vehicle negligence cases (43%) reported during the same 20-year period. If law professors MacKillop and Vidmar are correct in claiming “it is fairly common for a customer of the legal profession to have an unpleasant experience in their work with
American Bar Association Standing Committee on Lawyers Professional Liability. (2005). Profile of Legal Malpractice Claims 2000–2003. Chicago:, IL: American Bar Association. 3 MacKillop, K. & Vidmar, N. (2006). Legal Malpractice: A Preliminary Inquiry. Available at SSRN: http://ssrn.com/abstract=912963. 4 Ibid., 19. 5 The win rates varied slightly based on whether the case type search was coded as “Legal Profession: Malpractice” or “Professional Negligence: Attorney.” Win rates, of course, pertain only to cases that proceed to trial or arbitration. Data compiled by the American Bar Association indicate that only 34% of all legal malpractice claims result in a payment by a malpractice insurance company.
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an attorney,” the VerdictSearch data suggests it is fairly common for their attorney to have an unpleasant experience in trying to defend it. The concept of being sued for malpractice arising from a negotiated settlement strikes many attorneys as oxymoronic. A negotiated settlement represents a mutually acceptable resolution of a case, they argue, and clients do not assent to settlements unless they are sincerely satisfied with the result. The empirical evidence, however, does not support this argument. In the only longitudinal study of disputants’ satisfaction with settlements, litigants who settled their cases did not appear to be any more satisfied with the result than litigants who proceeded to trial. The authors of that study, law professor Donna Shestowsky and management professor Jeanne Brett, report: “There were no differences in global satisfaction between those who experienced adjudicative procedures and those who experienced nonadjudicative procedures, or between those who experienced adjudicative procedures and those whose cases were dropped or dismissed.”6 Earlier studies also fail to substantiate the belief that disputants are uniformly satisfied with negotiated resolutions. In a study of personal injury cases, 54% of all claimants who settled their case thought the settlement was “inadequate,” and claimants with the most serious injuries were the least satisfied with the settlement, 66% stating that the settlement was inadequate. In a study of family law disputants, 37% of the respondents were “extremely dissatisfied” with their settlements, and only 28% reported satisfaction with the outcome. In another study of out of court settlements, only 53% of the settling defendants considered the settlement to be fair. Comparing mediated outcomes with adjudicated outcomes, yet another study found that 67% of the parties who participated in mediation thought their settlements were fair, compared with 59% of the parties who proceeded to an adjudicated outcome at trial.7 Relying on a client’s presumed satisfaction with settlements, therefore, appears to be a thin shield against a legal malpractice claim.
6.2
Competing Policy Considerations
The arguments supporting attorney liability for improvident settlement decisions are as persuasive as the arguments limiting attorney liability to extreme situations where the attorney’s settlement recommendations are tainted with fraud or unsupported by any research or investigation. The competing policy considerations and the courts’ disparate conclusions are illustrated by two cases, Muhammad v. Strassburger8 and Ziegelheim v. Apollo,9 decided by two state supreme courts 6
Shestowsky, D., & Brett, J. (2008). Disputants’ Perceptions of Dispute Resolution Procedures: An Ex Ante and Ex Post Longitudinal Empirical Study. Connecticut Law Review, 41(1), 39, 90–91. 7 These studies are discussed in Galanter, M., and Cahill, M. (1994). “Most Cases Settle:” Judicial Promotion and Regulation of Settlements. Stanford Law Review, 46, 1353–1356. 8 587 A.2d 1346, 1349 (Pa. 1991). 9 607 A.2d 1298, 1304 (N.J. 1992).
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(Pennsylvania and New Jersey) a year apart. Refusing to allow a dissatisfied client to sue her attorneys for legal malpractice following her execution of a settlement agreement, the Supreme Court of Pennsylvania in Muhammad v. Strassburger stated: The primary reason we decide today to disallow negligence or breach of contract suits against lawyers after a settlement has been negotiated by the attorneys and accepted by the clients is that to allow them will create chaos in our civil litigation system. Lawyers would be reluctant to settle a case for fear some enterprising attorney representing a disgruntled client will find a way to sue them for something that “could have been done, but was not.” We refuse to endorse a rule that will discourage settlements and increase substantially the number of legal malpractice cases. A long-standing principle of our courts has been to encourage settlements; we will not now act so as to discourage them.10
The court held that a client dissatisfied with a settlement to which he agreed cannot sue his former attorneys “unless that plaintiff can show he was fraudulently induced to settle the original action.”11 A year later the Supreme Court of New Jersey in Ziegelheim v. Apollo reached the opposite result. It held that a client’s agreement to a negotiated settlement does not bar a legal malpractice action against her former attorney. Expressly refusing to adopt the rule declared in Muhammad v. Strassburger, the Court stated: Although we encourage settlements, we recognize that litigants rely heavily on the professional advice of counsel when they decide whether to accept or reject offers of settlement, and we insist that the lawyers of our state advise clients with respect to settlements with the same skill, knowledge, and diligence with which they pursue all other legal tasks. Attorneys are supposed to know the likelihood of success for the types of cases they handle and they are supposed to know the range of possible awards in those cases.12
In allowing the client’s suit to proceed absent a showing of fraud, the court noted that “the negotiation of settlements is one of the most basic and most frequently undertaken tasks that lawyers perform;” and a lawyer is required to carefully investigate the facts of the matter, formulate a legal strategy, keep the client informed of the status and “advise the client on the various legal and strategic issues that arise.”13 The fact that the client understood and accepted the settlement and that the settlement was fair and equitable, the Ziegelheim court stated, “does not mean necessarily that the party’s attorney was competent or that the party would not have a received a more favorable settlement had the party’s incompetent attorney been competent.”14 The tension between the competing policies expressed in Muhammad and Ziegelheim – promotion of settlements and discouragement of speculative claims by disgruntled clients versus an attorney’s duty to meet the standard of care in
10
607 A.2d at 1349. Id. at 1348. 12 Id. at 1304. 13 Id. at 1303. 14 Id. at 1305. 11
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competently representing and advising clients in settlement negotiations – pervades hundreds of appellate court cases raising attorney malpractice issues. This tension remains unresolved, and many of the cardinal concepts that underpin these decisions escape consistent definition and application. The point at which a bad decision becomes actionable malpractice is both opaque and shifting. As Ronald Mallen, a co-author of the leading treatise Legal Malpractice, states, “despite centuries of applying the error of judgment rule in attorney malpractice actions, the courts have not analyzed or defined the judgmental process being protected.”15 The courts’ difficulty in forging sound legal malpractice principles from competing policies and interests closely mirrors the dilemmas posed by medical malpractice cases, as described by professors Samuel Gorovitz and Alasdair MacIntyre in their essay, “Toward a Theory of Medical Fallibility.”16 They note that “medical error not only occurs but seems unavoidable; that some medical error seems innocent even when severely damaging, whereas other medical error seems culpable; that the harm that results from medical error seems sometimes but not always to warrant compensation; that the error that causes harm seems sometimes but not always to warrant sanctions; and, finally, that the relationships among culpability, harm, compensation, and sanctions are obscure.” Like medical malpractice actions, legal malpractice actions confound principles of accountability, fairness, compensation and societally acceptable ranges of professional error. Conscientious attorneys overlooking critical legal issues, irresponsible attorneys mishandling cases that could not be won by the most diligent attorney, clients with unrealistic expectations who nevertheless should have obtained a better outcome, gross legal errors causing negligible damages and minor legal errors causing catastrophic damages – all complicate and challenge malpractice liability principles.
6.3
Malpractice Claims Arising from Settled Cases
The “settled for too little” malpractice claims, filed after clients sign settlement agreements and, in some cases, affirm them in open court, typically present eleven imbricated fact patterns: (1) the client was inadequately advised regarding the settlement and trial prospects; (2) the attorney coerced the client into settling the case; (3) the attorney’s mistakes prevented the plaintiff from obtaining a better settlement or prosecuting the case to trial; (4) the attorney’s delays caused the client to forego more favorable settlement terms; (5) the attorney failed to disclose a conflict of interest, colluded with an adverse party or otherwise defrauded the client; (6) the attorney did not transmit settlement proposals; (7) the attorney failed 15 Mallen, R., & Smith, J. (2007). Legal Malpractice }18:12, p. 1137 St. Paul, Minnesota: Thompson West. 16 Gorovitz, S. & MacIntyre, A. (1976). Toward A Theory of Medical Fallibility. Journal of Medicine and Philosophy 1, 51.
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to conduct adequate legal research, discovery or investigation before the settlement; (8) the attorney was not authorized to consent to the settlement agreement; (9) the settlement agreement was defectively drafted; (10) the client did not understand the settlement agreement; and (11) the attorney did not anticipate changes in the law or errors by the court. These eleven fact patterns, commonly asserted defenses to them, and the courts’ dispositions in illustrative cases are discussed below. Although the clients’ claims were dismissed in many of these cases, those cases should not be interpreted as barring similar claims; many of those cases portend emerging areas of liability and client-friendly opinions at a later time. The facts or proof deemed missing in the dismissed cases may be readily adduced in a subsequent case, or a later case may present a more compelling reason for imposing liability than appeared in the dismissed case. Attorneys should anticipate both an increased number of claims and an expanded scope of liability.17 Numerous published opinions attempt to delineate the boundaries of attorney liability for settlement advice and decisions. Due to the vast number of cases, this summary of malpractice liability is necessarily truncated, highlighting only about 200 opinions that declare general liability rules and apply those rules to nuanced claims. The purpose of this review is to heighten practitioners’ sensitivity to a wide range of legal duties and client expectations, not to catalog every opinion or discuss each case disapproving an opinion cited here. In considering the cases described below, prudent practitioners will recognize that the fact the claim was made at all may be more important than whether it survived a summary judgment motion; any claim is expensive and may jeopardize or increase the cost of continued malpractice insurance coverage, regardless of the claim outcome. Anticipating sources of client conflict, moreover, may lead to preventative counseling practices that are far less expensive and more effective in the long term than prevailing against dissatisfied clients who once contributed to a law firm’s income and prestige. For clients, this review of settlement malpractice law serves the additional purpose of preventing undue reliance on attorneys’ assessments and advice, illustrating how attorneys’ advice can be misinterpreted, reiterating the inherent risks in any decision to settle or litigate and pointing out the limits of attorneys’ responsibilities for adverse outcomes. Seemingly catastrophic case outcomes do not necessarily translate into attorney liability – even when a client indisputably could have
17
For law review articles regarding attorneys’ malpractice liability, see: Cooney, M. (2006). Benching the Monday-Morning Quarterback: The “Attorney Judgment” Defense to Legal Malpractice Claims. Wayne Law Review, 52(3), 1051; (1994). Lawyers’ Responsibilities and Lawyers’ Responses. Harvard Law Review, 107, 1547; Thomas, M. (1998). When Is an Attorney’s Breach of Fiduciary Duty in Missouri Not Legal Malpractice? Missouri Law Review, 63, 600–601; Leubsdorf, J. (1995). Legal Malpractice and Professional Responsibility. Rutgers Law Review, 48. 148–150; Lord, P. (1986). Loss of Chance in Legal Malpractice. Washington Law Review, 61, 1480–1485; Spiegel, M. (1979). Lawyering and Client Decisionmaking: Informed Consent and the Legal Profession. University of Pennsylvania Law Review, 128(1), 41–140; Munneke, G., & Davis, A. (1998). The Standard of Care in Legal Malpractice: Do The Model Rules of Professional Conduct Define It? Journal of the Legal Profession, 22, 33.
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obtained more money through better settlement negotiations or by proceeding to trial. Thus, understanding clients’ responsibilities for settlement decisions is at least as important as comprehending attorneys’ duties and may guide clients into a more constructive collaboration with their attorneys.
6.3.1
Inadequate Advice Regarding Settlement and Trial Prospects
An attorney “is obligated to give the client reasonable advice.” This obligation arises from the fact that clients “rely heavily on the professional advice of counsel when they decide whether to accept or reject offers of settlement.”18 Since the vast majority of cases are resolved without trials, “settlement is the most common end and is often the principal objective of litigation. There can be little doubt that clients routinely anticipate that their cases will be settled and that they rely heavily on their lawyer’s recommendation regarding settlement, expecting that the lawyer has a sufficient understanding of the relevant facts, law, and prospects to make an intelligent recommendation.”19 At a minimum, an attorney advising a client regarding settlement must know the relevant facts, the strengths and weaknesses of the case, the monetary and psychological costs of continued litigation, and “what the outcome is likely to be if the case proceeds further, based not only on the relevant law but also on what triers of fact in the community are doing in similar kinds of cases.”20 An attorney’s duty to competently advise clients regarding settlements encompasses both advice proffered and advice withheld. An attorney has an affirmative duty to advise a client and may be liable for a failure to advise as well as erroneous advice.21 An attorney should “furnish advice when requested ”and “should also volunteer opinions when necessary to further the client’s objectives.”22 Even when an attorney has expressly limited the engagement, “the attorney may still have a duty to alert the client to legal problems which are reasonably apparent, even though they fall outside the scope of the retention. The rationale is that, as between the lay client and the attorney, the latter is more qualified to recognize and analyze the client’s legal needs.”23
18
Ziegelheim v. Apollo, 607 A.2d 1298, 1303, 1304 (N.J. 1992). Thomas v. Bethea, 718 A.2d 1187, 1195 (Md. 1998). 20 Prande v. Bell, 660 A.2d 1055, 1065 (Md. Ct. Spec. App. 1995). 21 Ishmael v. Millington, 50 Cal. Rptr. 592. 598 (Cal. Ct. App. 1966). 22 Nichols v. Keller, 19 Cal. Rptr. 2d 601, 608 (Cal. Ct. App. 1993). 23 Nichols v. Keller, supra, at 608. See Janik v. Rudy, Exelrod & Zieff, 14 Cal. Rptr. 3d 751 (Cal. Ct. App. 2004) (class counsel’s representation extends beyond claims described in class certification order). 19
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The duty to advise extends beyond strictly legal considerations. An attorney is obligated to consider and appraise the “hazards” of legal actions, including “matters beyond whether liability exists as a matter of law.”24 Consequently, an attorney must not only convey realistically the strengths and weaknesses of the case but also “any other relevant information necessary for the client to make an informed settlement decision.”25 Noting the wide scope of litigation attorneys’ obligations, Robert Hesselbacher of Wright, Constable & Skeen, LLP opines: “If the plaintiff can present any evidence that his attorney failed to consider some factor in evaluating the value of his case, or even if he simply can find an expert to testify that the settlement amount was unreasonable, he is likely to have a viable claim of legal malpractice.”26 The courts’ broad definition of attorneys’ duties is accompanied by a similarly broad deference to attorneys’ judgments.27 Although the law requires attorneys to exercise adequate skill and care, “it does not demand that they be perfect or infallible, and it does not demand that they always secure optimum outcomes for their clients.”28 An attorney’s considered exercise of her informed judgment “even if subsequently proven to be erroneous is not negligence. . . . There is no presumption that an attorney has been guilty of a want of care, arising merely from a bad result.”29 Because an attorney does not act as an insurer of the outcome of a case, good faith tactical decisions “made on a fairly debatable point of law are generally not actionable under the rule of judgmental immunity.”30 An attorney, in short, “is not required to exercise perfect judgment in every instance.”31 A perennial joke among attorneys, law professor Mark Cooney writes, is that the “only thing that two trial attorneys can agree on is what a third trial attorney is doing wrong.”32 This joke reflects the reality that attorneys hold strong opinions and have good faith differences regarding the merits, settlement values and likely outcomes of cases. Because responsible attorneys may reach different conclusions about the same case, a “recommendation to settle or not to settle on particular terms is not
24
Meagher v. Kavli, 97 N.W.2d 370, 374 (Minn. 1959). G. Heileman Brewing Co, Inc. v. Joseph Oat Corp., 848 F.2d 1415, 1422 (7th Cir. 1988). 26 Hesselbacher, R. “Attorney Liability for Negligent Settlement Advice.” St. Paul, Minnesota: The Harmonie Group. 27 See Mason v. State, 712 S.W.2d 275 (Ark. 1986) (court must avoid hindsight bias and judge attorney’s performance based on facts and circumstances existing at the time). 28 Grayson v. Wofsey, Rosen, Kewskin & Kuriansky, 646 A.2d 195, 201 (Conn. 1994), quoting Ziegelheim v. Apollo, supra n. 18, at 1298. 29 Gans v. Mundy, 762 F.2d 338, 340 (3d Cir.), cert. denied, 474 U.S. 1010, 106 S. Ct. 537, 88 L. Ed. 2d 467 (1985), quoting Mazer v. Sec. Ins. Group, 368 F. Supp. 418, 422 (E.D. Pa.1973), aff’d mem., 507 F.2d 1338 (3d Cir. 1975). 30 Crosby v. Jones, 705 So. 2d 1356, 1358 (Fla. 1998). 31 Ramp v. St. Paul Fire & Marine Ins. Co., 269 So. 2d 239, 244 (La. 1972). 32 Cooney, M. (2006). Benching the Monday-Morning Quarterback: The “Attorney Judgment” Defense to Legal Malpractice Claims. Wayne Law Review, 52(3), 1051. 25
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malpractice simply because another lawyer, or even many other lawyers, would not have made the same recommendation under the alleged circumstances.”33 Courts, consequently, will not indulge in hindsight and second guess an attorney’s settlement advice if it was “within the range of possible verdicts” as established by expert testimony.34 This judicial deference to attorneys’ informed, good faith judgment is expressed in a multitude of jurisdictions.35 The defense of judgmental immunity (also referred to as the “error of judgment,” “attorney judgment,” “independent business judgment” and “professional judgment” rules) does not exculpate attorneys from all judgment calls but rather is limited to reasonable, informed decisions made in good faith. The defense ordinarily applies to professional judgments about strategies and tactics but does not shield neglect or incompetence. As the court brusquely declared in Pineda v. Craben: “There is nothing strategic or tactical about ignorance.”36 Judgmental immunity thus does not apply where an attorney limited his research to a single case, which he interpreted incorrectly, and overlooked an essential issue (federal
33
Prande v. Bell, supra n.20, at 1065. Royal Ins. Co. of Am. v. Miles & Stockbridge, P.C., 138 F. Supp. 2d695, 704 (D. Md. 2001), amended in part on other grounds, 142 F. Supp.2d 676 (D. Md. 2001). 35 Ziegelheim v. Apollo, supra n. 18, at 1306 (“attorneys who pursue reasonable strategies in handling their cases and who render reasonable advice to their clients cannot be held liable for the failure of their strategies or for any unprofitable outcomes that result because their clients took their advice”); Cook v. Connolly, 366 N.W.2d 287, 299-291 (Minn. 1985) (a proposed settlement “represents the best judgment of counsel on what is attainable for his or her client based on a wide variety of considerations, each of which some other attorney might weigh differently; and counsel’s good faith judgment, even if in error, is not deemed to be malpractice”); Meir v. Kirk, Pinkerton, McClelland, Savary & Carr, P.A., 561 So. 2d 399, 402 (Fla. Dist. Ct. App. 1990) (“good faith exercise of professional judgment is protected and no claim of negligence may be premised thereon”); Crosby v. Jones, supra n. 30, at 1358 (no liability for good faith tactical decisions); Oakes & Kanatz v. Schmidt, 391 N.W.2d 51, 53–54 (Minn. Ct. App. 1986) (distinguishing non-actionable client dissatisfaction with purportedly “inequitable” settlement from actionable negligence of attorney during pre-settlement representation); Woodruff v. Tomlin, 616 F.2d 924, 930 (6th Cir. 1980) (attorney not liable for litigation strategy decisions based on honest exercise of professional judgment); Kirsch v. Duryea, 578 P.2d 935, 939 (Cal. 1978) (“we have recently recognized a latitude granted the attorney engaged in litigation in choosing between alternative tactical strategies”); Glenna v. Sullivan, 245 N.W.2d 869, 872–873 (Minn. 1976) (attorney not liable for error or mistake in judgment provided he acts with honest belief his advice is well-founded and in client’s best interests); Rorrer v. Cooke, 329 S.E.2d 355, 367 (N.C. 1985) (“law is not an exact science” and attorney’s differences in opinion about appropriate action “are consistent with the exercise of due care”); Hudson v. Windholz, 416 S.E.2d 120, 124 (Ga. Ct. App. 1992) (no liability where attorney “assessed the relative strengths and weaknesses of the plaintiffs’ claims . . . and exercised his best, informed judgment prior to recommending that plaintiffs execute the release”); Bernstein v. Oppenheim & Co. 554 N.Y.S.2d 487, 489 (N.Y. App. Div. 1990) (attorney may select one among several reasonable courses of action and is not liable for “an honest mistake of judgment”); McKnight v. Dean, 270 F.3d 513 (7th Cir. 2001) (“not the office of malpractice litigation to second guess unless unreasonable”). 36 424 F.2d 369, 372 (9th Cir. 1970). 34
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preemption).37 Nor does the judgmental immunity doctrine protect an attorney who allegedly “failed to perform the minimal research that an ordinarily prudent attorney would do before rendering legal advice”38 or an attorney who recommended that plaintiffs settle a medical malpractice case for an amount below a damages cap ruled unconstitutional at the time of the settlement.39 The critical distinction for malpractice liability, therefore, is whether “the attorney’s recommendation of settlement is one that no reasonable attorney, having undertaken a reasonable investigation into the facts and law as would be appropriate under the circumstances, with knowledge of the same facts, would have recommended.”40
6.3.2
Client Coerced into Settlement by Attorney
Malpractice claims alleging that a client was forced into settling a case are infrequent, but they reveal serious deficiencies in how attorneys communicate with clients. Whether successful at trial or dismissed on summary judgment, the “forced to settle” cases inform attorneys that more responsive, considered and individualized advice is essential not only to guide the client but also to protect the attorney from malpractice liability. Consider the excerpt below from Luisa Prande’s testimony in Prande v. Bell, supra. Does her testimony indicate that the source of the perceived coercion was her attorney or the exigencies of the case? Q. A. Q. A. Q. A.
Are you saying that you were forced into that settlement? Yes. Tell me how you were forced into it. I was going by the advice of counsel that my case was not going all that well because of the testimony of the doctors. What specifically did your attorneys tell you that you say forced you into the settlement? My attorneys told me that I did not have any choice, that I will have to take that money in order for us to go on with the second case.41
Ms. Prande further testified that she “was told she had no choice but to settle her claim,” “was pressured to settle because the doctors would not testify that her injuries resulted from the accident” and “felt pressured into the Spillman settlement that she felt was unfair.” The Prande court reversed a summary judgment in favor of the defendant attorney and remanded the case, holding that Ms. Prande had 37
Aloy v. Mash, 38 Cal. 3d 413, 419 (1985). Togstad v. Vesely, Otto, Miller & Keefe, 291 N.W.2d 686, 693 (Minn. 1980). 39 Hipwell v. Sharp, 858 P.2d 987 (Utah 1993). See Glenna v. Sullivan, supra n. 35, 245 N.W.2d at 873 (Justice Todd concurring specially) (“defendant did little or nothing to accumulate all of the pertinent facts necessary to make an evaluation of plaintiff’s claim”); Goebel v. Lauderdale, 263 Cal. Rptr. 275 (Cal. Ct. App. 1989) (“total failure to perform even the most perfunctory research”). 40 Prande v. Bell, supra n.20, at 1065. 41 Id. at 1067. 38
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presented a triable issue of fact as to whether any reasonable attorney would have recommended the settlement.42 Claims of coercion, similar to those asserted in Prande v. Bell, assume many forms: the attorney refused to try the case, threatened to convert the billing from a contingency basis to an hourly fee basis, and “intimidated and coerced her into signing” the settlement agreement;43 the attorney negligently negotiated the settlement terms and “pressured” the client into accepting the amount of the settlement;44 the attorney’s threat to raise his fee compelled the client to accept the settlement;45 and the attorneys “recklessly handled their case” and “forced them into accepting the settlement offer.”46 Many of these cases implicate the attorney’s compensation in general and a contingency fee in particular, indicating that attorneys must vigilantly avoid the perception of coercion when they have a direct financial interest in effectuating a prompt settlement. One of the most colorful claims of coercion was made in McGann v. Wilson,47 where the client alleged the attorney “committed legal malpractice by coercing the Maryland resident [client] to accept a settlement of his claim prior to the return of the verdict by the jury that heard the case.” In this barrister version of “curiosity killed the cat,” the attorneys settled the case for $200,000 just minutes before the jury completed its deliberations. As part of the settlement, the attorneys stipulated that, despite the binding nature of the settlement, the jury would disclose its verdict. After the jury foreman announced that the amount of its verdict would have been $750,000, the clients sued the attorney and prevailed in a malpractice action alleging negligence, “including using undue pressure exhorting the [clients] to settle their case.” Noting that the defendant attorneys “became impaled on their own petards,” the court summarized the case background succinctly: “Counsel settled the case for $200,000; the jury verdict would have been $750,000. Once those disparate figures hit the proverbial fan, the battle began in earnest.”48 Some coercion claims are defeated by the absence of legally cognizable damages, the courts taking a somewhat jaundiced attitude toward clients who allege misconduct but cannot prove that a better result would have been obtained absent the misconduct. The court’s opinion in McKnight v. Dean49 is representative: We do not condone Dean’s action in "forcing" McKnight to settle. If McKnight was pigheaded and wanted to tilt at windmills, that was his right. Dean didn’t have to continue representing him in those circumstances, but he could not, whether to safeguard his fee or
42
Id. at 1065. Lowman v. Karp, 476 N.W.2d 428, 429 (Mich. Ct. App. 1991). 44 Norton v. Superior Court, 30 Cal. Rptr. 2d 217 (Cal. Ct. App. 1994). 45 Manatee Cablevision Corp. v. Pierson, 433 F. Supp. 571, 572 (D.D.C. 1977). 46 Broad v. Conway, 675 F. Supp. 768, 770 (N.D.N.Y. 1987). 47 701 A.2d 873, 877 (Md. Ct. Spec. App. 1997). 48 Id. at 874. 49 270 F.3d 513, 519 (7th Cir. 2001) 43
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for any other reason, use deception to induce his client to settle against the client’s will. The decision to settle is the client’s alone. [Citations]. But misconduct of this sort, though a form of malpractice (more precisely, a breach of the lawyer’s ethical duty to his client), will often be harmless.
Citing the absence of evidence that client McKnight would have done better by rejecting the settlement and going to trial, the court concluded, “Dean did McKnight a favor in ‘coercing’ a $765,000 settlement, if that is what really happened.”50 If there is no injury, the court added, “there is no tort.”51 Coercion claims serve to remind practitioners that, although the standard of care is measured objectively by the practices of reasonably prudent attorneys, clients’ perceptions of attorney pressure, urgency and intimidation are inherently subjective. Unless an attorney contours her communications for a client’s individual, subjective needs, the attorney’s adherence to an objective standard of care will not prevent malpractice claims alleging coercion, duress or undue influence in this fiduciary relationship. A client’s understanding and acceptance of a settlement agreement is dependent on the particular background and experience of the client, as attorney Jeffrey Geiger, a member of the Defense Research Institute’s Professional Liability Committee, explains: “An attorney should take into account the intelligence, education, experience, background and age of the client. While a court is less likely to give credence to post–settlement claims of a lack of understanding as to the terms of the settlement when the client is a sophisticated purchaser of legal services, an impaired client will require greater ‘handholding’ by the attorney in order for a settlement to be seen as the product of informed consent.”52
6.3.3
Attorney’s Mistakes Prevented Client from Obtaining a Better Settlement or Prosecuting Case to Trial
Factually related to the coercion claims are the malpractice actions in which the client alleges that he settled a case to mitigate damages caused by the attorney’s negligence or because the attorney had so hopelessly botched the case that the proper settlement or judgment was unattainable. This category of malpractice claim is described in Thomas v. Bethea:53
50
Id. at 517. Id. at 517. See King v. Bishop, 879 S.W.2d 222, 224 (Tex. App. 1994). 52 Geiger, J. (2005). Settlement and the Client: Considerations When You Are The Target of a Professional Malpractice Claim. Retrieved June 18, 2005 from http://www.sandsanderson.com/ PressRelease/settlement.htm. See Geiger, J. (2000). Client’s Unhappy Hindsights: When a Settlement Leads to a Malpractice Claim. For the Defense 60. 53 718 A.2d 1187, 1191 (Md. 1998). 51
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One category involves situations in which the client claims that he or she was given little choice but to settle on disadvantageous terms because the lawyer failed in some other respect to prepare or prosecute the case properly, thereby diminishing the prospect of success if the litigation continued. The gravamen of the action in those situations is not so much that the lawyer negligently recommended a settlement that was unreasonably low, but that what otherwise would be an unreasonably low settlement was essentially forced on the client because of other deficiencies by the lawyer. If the client was aware of those deficiencies prior to settling, the settlement itself, given the circumstances then faced by the client, may not have been unreasonable at all, and, indeed, may have been entirely prudent.
A related question, the court explained, is “whether, by agreeing to the settlement, the client should be barred from litigating its fairness in a suit against the lawyer, and the answer appears to be ‘no.’”54 The outcomes of the “had to settle” cases largely depend on whether the client’s damages appear to be speculative or demonstrable. Although relatively few of these types of cases proceed to trial, the courts are inclined to afford plaintiffs an opportunity to prove damages resulting from the attorney’s alleged malfeasance. In Wassall v. DeCaro55 the court reversed a summary judgment in favor of the defendant attorney where the clients claimed that they agreed to dismiss the underlying case because they “did not wish to suffer with defendants any longer and [wanted] to put a merciful end to two and a half years of malpractice.” The court declared that an attorney “who has neglected his role as steward, hopelessly delaying, and perhaps prohibiting, the system from properly resolving his client’s case, should not be able to seek safe haven in a dismissal that resulted because the client could not risk allowing the attorney further to neglect his role.” A similar result occurred in Kermati v. Schackow,56 where the court declined to permit the attorney to benefit from his own alleged mistakes. In Kermati, the client “had no choice” but to accept a “grossly unfair” settlement because the attorneys allowed the statute of limitations to run. Noting that other courts permit malpractice suits “where the paucity of the settlement was caused by a breach of duty on the part of the attorney,” the Kermati court stated that the “$200,000 settlement may indeed have been fair and the best obtainable, due to the malpractice of the attorneys involved. In such a case it may well be the client’s duty to accept the lesser amount, in order to mitigate their damages.”57
54
Id. at 1192. 91 F.3d 443, 445 (3d Cir. 1996). 56 553 So. 2d 741, 744 (Fla. Dist. Ct. App. 1989) 57 Id. at 745, 746. See California State Auto. Assn. Inter-Ins. Bureau v. Parichan, Renberg, Crossman & Harvey, 101 Cal. Rptr. 2d 72, 80 (Cal. Ct. App. 2000) (client reasonably mitigated damages by $850,000 settlement payment where attorney’s negligence caused client’s exposure to potential bad faith action); Supik v. Bodie, Nagle, Dolina, Smith & Hobbs, P.A., 834 A.2d 170, 181 (Md. Ct. Spec. App. 2003) (malpractice liability may be imposed “when a lawyer’s general deficiencies have compromised the opportunity to receive more at trial (or a favorable outcome for that matter), such that the client is essentially forced to settle”); Titsworth v. Mondo, 407 N.Y. S.2d 793, 796 (N.Y. Sup. Ct. 1978) (prior settlement does not bar malpractice action where client’s 55
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The client’s failure to dismiss the attorney or challenge his actions before the case had been materially damaged by the attorney’s negligence is rarely a defense. In Supik v. Bodie, Nagle, Dolina, Smith & Hobbs, P.A., supra, for instance, the defendant law firm raised the statute of limitations defense and asserted that the client should have known about the firm’s alleged negligence before the date when the clients claimed they knew they had been harmed. “In other words,” the court stated, “Bogie, Nagle argued that their representation was so careless that an objective person would have been put on notice about their negligent actions at a much earlier time.”58 Citing the fiduciary relationship between attorney and client, the attorney’s superior knowledge, and the client’s reasonable reliance on his attorney, the court reversed the summary judgment granted on the statute of limitations ground. In support of its decision, the Supik court cited Frederick Road Ltd. Partnership v. Brown & Sturm.59 In that case, the court emphasized the attorney’s fiduciary duties and stated, “A client is entitled to believe a lawyer who says, ‘I am your lawyer, why not trust me, I am a lawyer, I would not do anything that is wrong.’” The client’s ongoing reliance on her attorney’s advice is “founded upon public policy, because the confidential and fiduciary relationship enables an attorney to exercise a very strong influence over his client and often affords him opportunities to obtain undue advantage by availing himself of the client’s necessities, credulity, and liberality.”60 Consequently, malpractice defense lawyers’ arguments that an attorneys’ negligence was so manifest that it should have been detected earlier are often unavailing.
assent to the settlement “was compelled because prior misfeasance or nonfeasance by the attorneys left no other resource”); Prospect Rehabilitation Servs., Inc. v. Squitieri, 920 A.2d 135 (N.J. Super. Ct. App. Div. 2007) (issue of fact as to whether client took reasonable steps to mitigate effect of attorneys’ negligence by settling underlying action); Huntington v. Fishman, 441 S.E.2d 444, 446 (Ga. Ct. App. 1994) (client allegedly agreed to inadequate settlement because attorney failed to timely serve defendant); Schaefer v. Manfredi, 549 N.Y.S. 2d 59, 60 (N.Y. App. Div. 1989) (“a cause of action for malpractice is viable despite the plaintiff’s settlement of the underlying action where such settlement was compelled because of the mistakes of the defendant”); White v. Kreithen, 644 A.2d 1262, 1265 (Pa. Super. Ct. 1994), alloc. denied, 652 A.2d 1324 (Pa. 1994) (client forced to accept judge’s proposed settlement figure because she could not retain substitute counsel after discharging attorney who allegedly failed to conduct proper investigation and trial preparation); Lowman v. Karp. 476 N.W.2d 428, 431 (Mich. Ct. App. 1991) (“settlement remains the prudent option for both attorney and client where the chances of recovery at trial have been diminished because of the negligence of the attorney”); Edmonson v. Dressman, 469 So. 2d 571, 574 (Ala. 1985) (malpractice adequately pled where plaintiff claimed attorney’s negligent investigation and advice caused her to accept “substantially less than the amount to which she was entitled”). 58 Supik v. Bodie, Nagle, Dolina, Smith & Hobbs, P.A., supra n.57, 834 A.2d at 177. 59 756 A.2d 963, 977 (Md. 2000). 60 Id.
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Attorney’s Delays Caused Client to Forego More Favorable Settlement Terms
Related to the “had to settle” cases are the cases specifically alleging that the attorney’s delay in prosecuting the case caused the client to lose the opportunity to settle or forced a settlement on unfavorable terms. In the Wassall case, discussed above, the court found the attorney’s representation to be “shoddy at best,” noting that “DeCaro [attorney] did not negotiate and complete a settlement, frustrated efforts to have the case amicably resolved, wasted the resources of the courts by his ‘footdragging,’ and seriously impaired plaintiff’s case, necessitating the agreement to have the case dismissed.” Reflecting on a record of neglect and delay, the court stated, “With every minute the case continued with DeCaro, plaintiffs’ negotiation position arguably waned and it became less likely that the defamation defendants would be willing to settle the claims and counter-claims on favorable terms, if at all.” Concluding that the plaintiff clients “had little other choice” than to dismiss their case, the court reversed the summary judgment for defendants.61 Contrasting sharply with the court’s decision favoring the client in Wassal is the court’s rejection of the client’s claim in Schlomer v. Perina.62 In Schlomer, the client alleged that three years of neglect caused the client to accept a low settlement and lose the use of money that would have been obtained from an earlier settlement. Finding no evidence that the insurance carrier would have settled the client’s claim earlier and noting the speculative nature of the client’s damages claim, the court affirmed the reversal of the jury’s verdict against the attorney: “we conclude that recovery must be denied under public policy grounds because the injury in this case is simply ‘too remote from the negligence,’ and, furthermore, the injury is ‘too wholly out of proportion to the culpability of the negligent tortfeasor.’”63
61
91 F.3d at 447, 450. 485 N.W.2d 399, 402 (Wis. 1992). 63 Id. at 402. See Thompson v. Halvonik, 43 Cal. Rptr. 2d 142, 144 (Cal. Ct. App. 1995) (affirming summary judgment on ground “appellant’s evidence that he would have obtained a better settlement had respondents [attorneys] proceeded more diligently was too speculative to support his claim for damages”); DiPalma v. Seldman, 27 Cal. App. 4th 1499, 1506–1507 (1994) (trial court erred in granting nonsuit but client must prove that “careful management” of a claim “would have resulted in a favorable judgment and collection”); Campbell v. Magana 184 Cal. App. 2d 751, 758 (1960) (action not brought to trial within mandatory five-year period but plaintiff “had no good cause of action” and case had no settlement value because highest offer was $350 and plaintiff refused to settle for less than $100,000); Becker v. Julien, Blitz & Schlesinger, P.C., 406 N.Y.S.2d 412, 414-415 (N.Y. Sup. Ct. 1977) (no malpractice liability where value of client’s claim did not exceed settlement amount even if client could show attorney was lax or dilatory). 62
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6.3.5
215
Conflict of Interest, Fraud and Collusion with an Adverse Party
Conflict of interest claims present a unique confluence of ethical principles, causation issues and evidence law. They differ from other settlement malpractice claims in at least one critical respect: expert testimony is not always necessary to prove the standard of care and the defendant’s breach of duty. In conflict of interest cases, those elements of a malpractice action may be established by a court’s judicial notice of the ethical standards allegedly breached by the attorney. National and state ethics rules require attorneys to disclose potential conflicts and prohibit attorneys from simultaneously representing clients with actually conflicting interests in adversary proceedings.64 The purpose of these rules is described in Anderson v. Eaton: By virtue of this rule an attorney is precluded from assuming any relation which would prevent him from devoting his entire energies to his client’s interests. Nor does it matter that the intention and motives of the attorney are honest. The rule is designed not alone to prevent the dishonest practitioner from fraudulent conduct, but as well to preclude the honest practitioner from putting himself in a position where he may be required to choose between conflicting duties, or be led to an attempt to reconcile conflicting interests, rather than to enforce to their full extent the rights of the interest which he should alone represent.65
Under the ABA’s Model Rules of Professional Conduct, a conflict of interest exists and impairs the duty of loyalty owed by an attorney to his client “if there is a serious risk that a lawyer’s ability to consider, recommend or carry out an appropriate course of action for the client will be materially limited as a result of the lawyer’s other responsibilities or interests.”66 Because a negligent failure to act may constitute legal malpractice and an attorney is required “to protect his client in every possible way,” an attorney may be liable for a failure to disclose a conflict of interest.67 An attorney is negligent, therefore, when he assumes “a position adverse or antagonistic to his client without the latter’s free and intelligent consent given after full knowledge of all the facts and circumstances.”68 The facts and circumstances in the attorney’s disclosure should include all potential risks of dual representation, the possibility of representation by independent counsel and the limitations of the attorney’s representation.69 If the attorney fails to fully disclose all pertinent facts and circumstances and obtain the client’s informed consent, “he is civilly liable to the client who suffers loss
64
See A.B.A. Model Rules Prof’l Conduct R. 1.7, and Cal. Rules of Prof’l Conduct R. 3-310. 293 P. 788, 790 (Cal. 1931). 66 A.B.A. Model Rules of Prof’l Conduct R. 1.7 Comment 8. 67 Day v. Rosenthal, 217 Cal. Rptr. 89, 99 (Cal. Ct. App. 1985). 68 Id. at 100. 69 See Allstate Ins. Co. v. Keller, 149 N.E.2d 482, 486 (Ill. App. Ct. 1958). 65
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caused by lack of disclosure.”70 The attorney’s failure to disclose “need not be the sole cause of the client’s loss;” liability may be imposed on the attorney if another party’s wrongful action was a “realizable likelihood which made the attorney’s inaction negligent, thus forming a concurrent (and not superseding) cause of harm.”71 An attorney’s initial determination that an actual conflict of interest does not exist must be continually evaluated throughout the representation of multiple clients, especially during settlement negotiations. The ABA’s Ethical Guidelines for Settlement Negotiations describe this ongoing duty: “Even when the lawyer’s initial conclusion that multiple clients can be represented was well-founded, however, consideration later of possible settlement options can generate circumstances where interests emerge as potentially divergent, if not actually conflicting. Conflicts can arise from differences among clients in the strength of their positions or the level of their interests in settlement, or from proposals to treat clients in different ways or to treat differently positioned clients in the same way.”72 An “aggregate settlement” of multiple claims, for instance, in which the attorney fails to advise each client of the total amount of the settlement and the amount and nature of each client’s participation in the settlement, may constitute a breach of fiduciary duty.73 Because the attorney’s duty of loyalty is so closely enmeshed with and circumscribed by professional ethics, settlement malpractice claims alleging a conflict of interest necessarily meld ethical rules and professional negligence standards. Although ethical rules generally are not admissible as presumptive evidence of professional negligence, some courts have carved out an exception to that general rule for conflict of interest claims.74 In those cases, the ethical rules establish the 70
Lysick v. Walcom, 65 Cal. Rptr. 406, 414 (Cal. Ct. App. 1968). Ishmael v. Millington, 50 Cal. Rptr. 592, 598 (Cal. Ct. App. 1966). Cf. Blecher v. Collins, P.C. v. Northwestern Airlines, Inc. 858 F. Supp. 1442, 1457 (C.D. Cal. 1994) (if actual conflict exists, attorney must refund fees received after the conflict arose but is not liable for other damages unless client can prove the failure to disclose the conflict of interest caused it to lose the trial and/or obtain a “disappointing” settlement). 72 Section of Litigation, American Bar Association. (2002). Ethical Guidelines for Settlement Negotiations. Chicago, IL: American Bar Association. 73 See Karpman, D. (2007, August). Multiple Clients May Present Multiple Conflicts. California Bar Journal 16, citing ABA Formal Opinion 06-438. See also Arce v. Burrow, 958 S.W. 2d 239 (Tex. App. 1997), reh’g overruled, (Jan. 15, 1998) and writ granted (Aug. 25, 1998), and judgment aff’d in part, rev’d in part on other grounds, 997 S.W.2d 229 (Tex. 1999). 74 See Ishmael v. Millington, 50 Cal. Rptr. 592 (Cal. Ct. App. 1966) (summary judgment in favor of attorney reversed, the court citing Rules 6 and 7 of California Rules of Professional Conduct); Lysick v. Walcom, 65 Cal Rptr. 406 (Cal. Ct. App. 1968), (judgment for attorney reversed and case remanded, negligence established as matter of law by “the general standards of professional care”); Lieberman v. Employers Ins. of Wausau, 419 A.2d 417, 425 (N.J. 1980) (defendant breached a duty “inherent in their attorney-client relationship”); Mirabito v. Liccardo, 5 Cal. Rptr. 2d 571 (Cal. Ct. App. 1992) (ethics standards may be admitted as evidence of breach of fiduciary duty but standards do not create independent ground for malpractice action); Baxt v. Lilioa, 714 A.2d 271 (N.J. 1998) (violation of ethical rules does not give rise to a cause of action for legal malpractice); Wright v. Williams, 121 Cal. Rptr 194, 200 (Cal. Ct. App. 1975) (“in some 71
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standard of care, rendering expert testimony unnecessary. In Day v. Rosenthal,75 the court affirmed a $26,396,511 malpractice award against an attorney, adopting the trial court’s finding that “the case from beginning to end oozes with attorneyclient conflicts of interest, clouding and shading every transaction and depriving Doris Day and Martin Melcher of the independent legal advice to which they were entitled.”76 With respect to the standard of care, the court invoked the Rules of Professional Conduct and dismissed the need for expert testimony: It required no expert to tell the trial court that Rosenthal’s perverted sense of duty to his clients, the Melchers, is attorney negligence. . . . The standards governing an attorney’s ethical duties are conclusively established by the Rules of Professional Conduct. They cannot be changed by expert testimony. If an expert testifies contrary to the Rules of Professional Conduct, the standards established by the rules govern and the expert testimony is disregarded. . ..77
The defendant attorney’s “numerous blatant, and egregious violations of attorney responsibility,” the Court further stated, “were not breaches of legal technicalities for which expert testimony is required. They were violations of professional standards; standards which the trial court was compelled to notice.”78 In their article “Playing by the Rules: Violations of Ethics Rules as Evidence of Legal Malpractice,” attorneys Gena Sluga and Douglas Christian note that “[o]nly a few courts have found that the violation of an ethics standard is conclusive evidence that a lawyer breached the standard of care to her client.”79 They find, however, that the “overwhelming majority” of courts admit evidence of an ethics violation as some, but not presumptive, evidence of the standard of care. The court’s heavy reliance on rules of professional conduct in the Day case, therefore, was exceptional, as law professor Gary Munneke wrote in 1998: “Only one jurisdiction has gone as far as to say that violation of an ethical rule is negligence per se. Day v. Rosenthal argues that the applicable ethics code actually establishes a civil right giving rise to an automatic remedy.”80 Day and its progeny81 may well presage the substitution of ethical rules for expert testimony in cases other than conflict of interest claims. Although the prohibition against conflict of interest is deeply rooted in the rules of professional circumstances the failure of attorney performance may be so clear that a trier of fact may find professional negligence unaided by the testimony of experts”). 75 217 Cal. Rptr. 89 (Cal. Ct. App. 1985), cert. denied, 475 U.S. 1048 (1986). 76 Id. at 94. 77 Id. at 102. 78 Id. 79 Sluga, G. & Christian, D. (2001, Summer). Playing by the Rules: Violations of Ethics Rules as Evidence of Legal Malpractice. FICC Quarterly. 80 Munneke, G., & Davis, A. (1998). The Standard of Care in Legal Malpractice: Do The Model Rules of Professional Conduct Define It? Journal of the Legal Profession, 22, 59. 81 See Stanley v. Richmond, 41 Cal. Rptr. 2d 768 (Cal. Ct. App. 1995), Mirabito v. Liccardo, 5 Cal. Rptr. 2d 571, (Cal. Ct. App. 1992). See also Hatcher v. Roberts, 478 So. 2d 1083, 1087 (Fla. Dist. Ct. App. 1985), review denied, 488 So. 2d 68 (Fla. 1986).
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conduct, other types of malpractice claims are similarly grounded in those rules. The duty of competent representation, for instance, is expressly stated in Rule 1.1 of the Model Rules of Professional Conduct; likewise, the duty to provide competent and comprehensive advice is embodied in Rule 1.4. While neither of these model rules (or their state counterparts) appears to have been substituted for expert testimony or regarded as conclusive evidence in settlement malpractice cases, the policy considerations favoring their admission and presumptive effect are as persuasive as the considerations for invoking the conflict of interest standards in the Day case. For practitioners, the practical lesson here is that the line between the standard of care and professional ethics is blurred, and the consequences of unethical practice can extend not only to disciplinary proceedings but to malpractice claims as well. If ethical standards are presumptive evidence of a breach of duty, it is foreseeable that a directed verdict could be entered against an attorney defending a malpractice action, eliminating any waffle room afforded by expert testimony. As attorneys Sluga and Christian warn, “Lawyers who still believe that the violation of an ethics rule may only be used against them in a disciplinary proceeding are sadly mistaken.”82
6.3.6
Attorney Did Not Transmit Settlement Proposals to Client
Occasionally a client belatedly learns that his attorney did not transmit his settlement proposals to an adversary or did not inform him of the adversary’s settlement offer. In Moores v. Greenberg,83 for example, the court affirmed a judgment against an attorney who failed to inform the client of a $90,000 settlement offer before the client lost at trial – “instead of a fat settlement,” the court observed, “he received nothing but a rebuff from the jury.” Although the failure to inform a client of a settlement proposal violates the attorney’s ethical responsibilities and may deprive the client of a settlement opportunity, the attorney often escapes civil liability because the client cannot prove that the case outcome would have been better absent this omission. In Magnacoustics, Inc. v. Ostrolenk, Faber, Gerb & Soffen,84 the attorney did not transmit an adversary’s settlement offer, but the court dismissed the clients’ malpractice action because they could not prove that, absent the attorney’s alleged negligence, they would have accepted the offer. Similarly, the client’s claim
82
Sluga, G. & Christian, D. (2001, Summer). Playing by the Rules: Violations of Ethics Rules as Evidence of Legal Malpractice. FICC Quarterly. 83 834 F.2d 1105, 1107 (1st Cir. 1987), 84 755 N.Y.S. 2d 726 (N.Y. App. Div. 2003), leave to appeal denied, 798 N.E.2d 349 (N.Y. 2003).
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was dismissed in Rubenstein & Rubenstein v. Papadakos85 because the client “unequivocally conceded that the offer would have been rejected.”86
6.3.7
Failure to Conduct Adequate Legal Research, Discovery and Investigation Before Settlement
One of the most common malpractice claims is that an attorney failed to adequately investigate and conduct discovery and the client was damaged by entering into a settlement without essential information. As the court noted in Fishman v. Brooks,87 “The typical case of malpractice liability for an inadequate settlement involves an attorney who, having failed to prepare his case properly or lacking the ability to handle the case through trial (or both), causes his client to accept a settlement not reasonable in the circumstances.” This type of claim, the court elaborated in Wartnick v. Moss & Barnett,88 is based on the general principle that attorneys “must use reasonable care to obtain the information needed to exercise his or her professional judgment, and failure to use such reasonable care would be negligence, even if done in good faith.” “A common complaint in this category,” the court stated in Thomas v. Bethea,89 “is that the lawyer’s settlement recommendation was flawed because, as the result 85
295 N.Y.S.2d 876, 877 (N.Y. App. Div. 1968). See Miller v. Byrne, 916 P.2d 566, 574 (Colo. Ct. App. 1995) (attorney required to advise clients of settlement negotiations and their ramifications “regardless of whether they were bona fide”); Builders Square v. Saraco (868 F. Supp. 748, 749 (E.D. Pa. 1994) (attorney “has duty to explore and timely communicate to his client settlement offers”); Rizzo v. Haines, 555 A.2d 58, 64 (Pa. 1989) (attorney has duty to explore and elicit settlement offers, investigate settlement inquiries and offers and ascertain “how much more” defendant was willing to pay after defendant’s counsel commented “I can get you more than $550,000”); Keller v. Barry, 443 N.Y.S.2d 436, 437 (N.Y. App. Div. 1981) (summary judgment precluded by triable issues of fact “regarding the reasonableness and the adequacy of the advice” given regarding a settlement offer); Dorf v. Relles, 355 F.2d 488 (7th Cir. 1966) (directed verdict proper where attorney allegedly failed to disclose and discuss adversary’s settlement offer with client but client failed to present expert testimony to establish standard of care); Joos v. Auto-Owners Ins. Co., 288 N.W.2d 443 (Mich. Ct. App. 1979) (because attorney, as a matter of law, is required to disclose and discuss settlement offers, expert testimony not required to prove breach of duty where attorney failed to inform client of pre-trial settlement offers within policy limits); Mc Conwell v. FMG of Kansas City, Inc., 861 P.2d 830, 839 (Kan. Ct. App. 1993), rev. denied, 254 Kan. 1077 (1994) (absent evidence regarding “desire or ability to settle” no liability for alleged failure to transmit settlement offers and pursue settlement); Cannistra v. O’Connor, Mc Guinness, Conte, Doyle, Oleson & Collins, 286 A.D.2d 314 (N.Y. App. Div. 2001) (clients must prove they would have accepted settlement offer if attorney had transmitted it); Dykema v. Godfrey, 467 So. 2d 824, 825 (Fla. Dist. Ct. App. 1985) (fact that client had no defense to foreclosure action did not relieve attorney of duty to inform client of status of settlement negotiations). 87 487 N.E.2d 1377, 1380 (Mass. 1986). 88 490 N.W. 2d 108, 113 (Minn. 1992). 89 Thomas v. Bethea, supra n. 19, at 1192. 86
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of a deficient investigation, the lawyer significantly undervalued the client’s case and thus made a settlement recommendation that bore no reasonable relationship to what likely would have resulted had the litigation been pursued. In that setting, it is not that the client was knowingly forced to settle for less than the case was worth, as much as the client having been misinformed as to what the case was, in fact, worth.” The Thomas court observed that these cases frequently present a secondary issue – whether the attorney who failed to adequately prepare the case for trial is actually recommending a settlement to “cover up some other act of malpractice that prejudiced the case and that might have been revealed if the litigation proceeded.”90 The standard of care, with respect to the duty to investigate and conduct discovery, is broadly defined and imprecisely applied. The specific duty to obtain adequate information is often subsumed, and to some extent lost, under judicial declarations of attorneys’ general duties to competently advise clients. The court’s opinion in Prande v. Bell91 broadly defines attorneys’ duties regarding settlement recommendations while acknowledging that the legal principles defy uniform application: “Simply put, this kind of legal malpractice involves a judgment call; there exists no bright line by which to assess malpractice. Before recommending that a client settle, or not settle, a claim, either before or after suit is filed, the lawyers must have, at a minimum, an adequate appreciation of (1) the relevant facts, (2) the potential strengths and weaknesses of the client’s case as it then stands and as it might possibly be developed, (3) the likely costs, both monetary and psychological, of proceeding further with litigation, and (4) what the outcome is likely to be if the case proceeds further, based not only on the relevant law but also on what triers of fact in the community are doing in similar kinds of cases.” These elements, the court acknowledged, “are mostly subjective in nature, not easy to quantify.”92 Despite the somewhat subjective nature of adjudicating malpractice claims, the courts have not hesitated to impose upon attorneys a duty to undertake essential discovery and complete an adequate factual investigation.93 In Baldridge v. Lacks,94 90
Id. at 1192. 660 A.2d 1055, 1065 (Md. Ct. Spec. App. 1995). 92 Id. at 1065. 93 Collins v. Perrine, 778 P.2d 912, 915 (N.M. Ct. App. 1989) (defendant attorney “did not have sufficient information about the facts and law involved” when he recommended settlement and “settled the case without performing even the minimum level of discovery necessary in such a complex case”); Ziegelheim v. Apollo, supra n.18, 607 A.2d at 1305 (attorney’s failure to conduct discovery allegedly “led to improvident acceptance of the settlement”); Grayson v. Wofsey, Rosen, Kewskin and Kuriansky, supra, n. 28, 646 A.2d at 202 (information obtained by attorneys insufficient “to permit them to responsibly recommend settlement to the plaintiff”); Brizak v. Needle 571 A.2d 975, 983 (N.J. Super. Ct. App. Div. 1990) (attorney is required to conduct diligent investigation regarding material claims in client’s case). Cf. Sukoff v. Lemkin, 202 Cal. App. 3d 740, 745 (Cal. Ct. App. 1988) (malpractice award against attorney for failure to investigate reversed, the court stating that plaintiff client had the “burden to establish that additional discovery would have resulted in a higher award to her.”) 94 883 S.W.2d 947 (Mo. Ct. App. 1994) 91
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the court reversed a judgment in favor of the defendant attorney and remanded the case for a new trial where the attorney admitted he did not conduct discovery but claimed the plaintiff client “insisted on settling as quickly as possibly anyway” against the attorney’s advice.95 The attorney claimed that he specifically informed the client that “they were not ready to settle the case” because discovery and investigation had not been completed.96 Nevertheless, the court’s decision was based, in part, on evidence that the attorney “failed to engage in discovery,” “failed to trace assets,” “was not equipped with the necessary information to advise his client as to the advantages and disadvantages of a proposed settlement” and advised the client “without first having fully and adequately assessed the nature and extent” of the assets. Holding that “an attorney should be, and is, liable for any negligent advice which results in damage to the client,” the Baldridge court stated that the damages may be measured by the difference between what the client actually received and “what she would have received had the underlying action been tried.”97 Like the court in Prande v. Bell, the Baldridge court also declined to adopt a “bright line” rule regarding malpractice liability. A similar result occurred in Collins v. Perrine,98 where the court affirmed a jury’s $2,958,789 verdict against a defendant attorney. The attorney, like his defendant counterpart in Baldridge, admitted “he took no depositions, filed no requests for production or for admission, and submitted no interrogatories to defendants.”99 He proffered a simple justification that many attorneys find perfectly normal and acceptable: the client had “no resources” to pursue discovery or retain an expert witness. The defendant attorney also asserted that the decision to settle without conducting discovery was in fact strategic; it was necessary to settle this case, the attorney claimed, “to obtain seed money” for a stronger case against another defendant.100 Holding that the evidence of malpractice was sufficient, the court noted that the “jury could have readily found that Perrine settled the case without performing even the minimum level of discovery” and “did not have sufficient information about the facts and law involved in this case when he decided to recommend settlement.”101 With respect to damages, the court dismissed the defendant attorney’s argument that the client had to adduce evidence, from opposing counsel in the underlying case, that a higher settlement was possible. Instead, the court held, “the proper measure of damages is the amount of the judgment that could have been recovered, but for his negligence, in the underlying case.”102
95
Id. at 956. Id. at 956. 97 Id. at 954. 98 778 P.2d 912 (N.M. Ct. App. 1989). 99 Id. at 915. 100 Id. at 914. 101 Id. at 912. 102 Id. at 917. 96
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The failure to conduct discovery regarding assets is a recurrent and sufficient ground for imposing malpractice liability in marital dissolution cases. In Ziegelheim v. Apollo, supra, for example, the defendant lawyer allegedly failed to discover multiple assets held by the plaintiff’s husband. The New Jersey Supreme Court reversed the lower court’s order granting summary judgment for the defendant lawyer, stating that an attorney’s duties include “a careful investigation of the facts of the matter.”103 Because the attorney’s failure to conduct a thorough investigation “led to the improvident acceptance of the settlement,” the plaintiff wife was entitled to litigate the issue of whether she would not have accepted the settlement had she been competently advised.104 Similar liability principles were followed in Grayson v. Wofsey, Rosen, Kweskin and Kuriansk.105 In Grayson, the plaintiff alleged her counsel was negligent in failing to conduct adequate discovery about her husband’s assets. As a result of her attorney’s negligence, she claimed, she settled for less property and alimony than she should have received. The Connecticut Supreme Court upheld a jury award of $1,500,000 in favor of the plaintiff wife, representing $1,000,000 lost in connection with the property settlement and additional amounts she otherwise would have received as alimony payments.106 When an attorney has failed to undertake a reasonable investigation before advising a client, the defense of judgmental immunity is unavailing. Judgmental immunity contemplates a broad range of permissible tactical and strategic decisions but does not condone passivity or inactivity. The attorney may be inexpert but not inert. Hence, an attorney may make debatable tactical decisions about which investigative techniques and discovery procedures to employ and may execute those decisions imperfectly, but judgmental immunity will not excuse wholesale neglect, delay or inaction. Like judicial discretion and corporate directors’ business judgment, an attorney’s judgment is not unfettered but must be exercised without personal bias, in good faith and on an informed basis.107 Nor are the “practical” defenses regarding the client’s inability to pay for discovery and investigation likely to be persuasive. In Collins, for instance, the client’s inability to pay for discovery was cited as an additional element of the attorney’s negligence because
103
Ziegelheim v. Apollo, supra n. 18, at 1303. Id. at 1301, 1305. 105 646 A.2d 195 (Conn. 1994). 106 See Callahan v. Clark, 901 S.W.2d 842 (Ark. 1995) ($248,000 award affirmed where defendant attorney negligently advised client to sign property settlement agreement); Stanley v. Richmond, 41 Cal. Rptr. 2d 768 (Cal. Ct. App. 1995) (“testimony of a family law expert was not necessary to establish whether respondent was negligent by failing to perform a simple research task, and by responding to a client’s request for advice about the ‘pluses and minuses’ of a decision without the benefit of valuable, and readily available, information”). 107 See Findley v. Garrett, 240 P.2d 421, 427 (Cal. Ct. App. 1952) (business judgment rule); Gossman v. Gossman, 126 P.2d 178 (Cal. Ct. App. 1942) (judicial discretion) 104
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“the case should not have been handled without sufficient resources to conduct discovery.”108 Does the duty to investigate include an obligation to determine the existence and limits of insurance coverage? Courts that have addressed this issue answer the question affirmatively, absent a provision in the fee agreement expressly disclaiming responsibility for ascertaining the availability of insurance.109 In Fishman v. Brooks,110 for instance, the court affirmed a judgment against the defendant attorney who told his client “that only $250,000 was available when, in fact $1,000,000 was available.” At the time the attorney made a settlement demand and received settlement offers from the opposing party in the underlying action, the attorney “did not know what the available insurance coverage was.”111 Recognizing that his attorney “was not prepared to try the case,” the client settled for $160,000 and then sued the attorney for the difference between the settlement obtained and the fair settlement value of his case. Despite the attorney’s objections, the court held that evidence of the fair settlement value was admissible to prove not only the attorney’s negligence but also the client’s damages.112
6.3.8
Attorney Not Authorized to Consent to Settlement Agreement
Claims regarding an attorney’s authority to settle a case range from an inadvertent misunderstanding between an attorney and a client to an attorney’s fraudulent execution of the client’s name on a settlement agreement. Although attorneys uniformly acknowledge the principle that only the client can consent to a settlement, this principle is strained in actual practice. As the cases cited below demonstrate, clients unintentionally authorize attorneys to approve settlement terms that the clients neither understand nor want, attorneys assume they are authorized to approve settlements when the client steadfastly believes no such authority was granted and courts enforce settlement agreements despite a client’s disapproval of the terms.
108
Collins, n. 98 supra, 778 P.2d at 915. See Hirsch v. Weisman, 592 N.Y.S.2d 337 (N.Y. App. Div. 1993) (settlement based on allegedly mistaken belief that defendants had coverage in the amount of $100,000 instead of $500,000) and Shaya B. Pacific, LLC v. Wilson, Elser, Moskowitz, Edelman & Dicker, LLP, 38 A. D. 34 (N.Y. App. Div. 2006) (defense counsel may have duty to ascertain existence of excess coverage). Cf. Blackwell v. Eckman, 410 N.W.2d 390 (Minn. Ct. App. 1987) (summary judgment in action based on failure to discover defendant’s insurance coverage properly dismissed where evidence of coverage was hearsay). 110 487 N.E.2d 1377, 1379 (Mass. 1986). 111 Id. at 1379. 112 Id. at 1380. 109
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It is axiomatic that an attorney “may not compromise, settle, or consent to a final disposition of his client’s case without express authority.”113 Absent a specific authorization to compromise and settle a claim, “an attorney has no implied or ostensible authority to bind his client to a compromise settlement of pending litigation.”114 The client’s exclusive right to accept or reject a settlement proposal is embodied in Rule 1.2 of the Model Rules of Professional Conduct and reiterated in numerous opinions.115 An attorney who settles a case without the client’s authorization may incur malpractice liability, but the recoverable damages for a plaintiff are limited “by the amount that would have been recovered from the defendant” absent the unauthorized settlement.116 For a defendant whose attorney improperly stipulated to a settlement, the recoverable damages are limited to the difference between the stipulated amount and the amount actually owed by the client.117 The possibility that an attorney and his client, both acting in good faith, can harbor conflicting beliefs about their respective authority to approve a settlement is illustrated in Pohl v. United Airlines Inc.118 In Pohl, the client added a handwritten note to the attorney fee agreement – “with my authorization” – to qualify the attorney’s power of attorney to sign settlement agreements. His attorney eventually negotiated a settlement agreement with the adverse party, but the client, believing that he had the ultimate right to approve the settlement agreement, refused to sign it. In a hearing regarding enforcement of the agreement, the court found that the attorney had actual authority to settle the case. This finding was based on the attorney’s multiple telephone calls to the client, explaining the negotiations over a three-month period, and the client’s verbal approval of the settlement terms throughout that period. The court specifically ruled that the attorney’s authority did not have to be in writing and the client’s oral authorization of the settlement terms was sufficient, despite the client’s handwritten note on the fee agreement. A client, the court emphasized, may be bound by a settlement “if he implied an
113
Turner v. Burlington N. R.R. Co., 771 F.2d 341, 345 (8th Cir. 1985), quoting Thomas v. Colorado Trust Deed Funds, Inc., 366 F.2d 136, 139 (10th Cir. 1966). 114 Blanton v. Womancare, Inc., 696 P.2d 645, 650 (Cal. 1985), quoting Whittier Union High School Dist. v. Superior Court, 136 Cal. Rptr. 86 (Cal. Ct. App. 1977). 115 See Linsk v. Linsk, 70 Cal. 2d 272 (1969) (attorney not authorized to “impair the client’s substantial rights or the cause of action itself”); Cook v. Sur. Life Ins. Co., 903 P.2d 708, 714 (Haw. Ct. App. 1995) (attorney not authorized to settle without special authority in writing); Levy v Superior Court, 10 Cal. 4th 578, 583 (1995) (to be enforceable, settlement agreement requires client’s knowledge and express consent); Clark v. Burden, 917 S.W.2d 574, 576 (Ky. 1996) (settlement agreement not binding unless attorney has express or actual authority); Luethke v. Suhr, 650 N.W. 2d 220 (Neb. 2002) (“lawyer’s execution of a settlement agreement without a client’s knowledge or consent constitutes a breach of duty to the client; and it may constitute a fraud upon the court”). 116 Lewis v. Uselton, 480 S.E.2d 856, 860 (Ga. Ct. App. 1997). 117 Coon v. Ginsberg, 509 P.2d 1293, 1296 (Colo. Ct. App. 1973). 118 213 F.3d 336, 338 (7th Cir. 2000).
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intention to settle the claim to his attorney, regardless of whether he actually intended to settle the claim.”119 Similar misunderstandings occur when clients are defended by their insurance company. Insured clients often do not realize that their insurance polices contain provisions expressly authorizing the insurer to settle third-party claims without their consent. These provisions are valid and enforceable, as the court stated in Robertson v. Chen:120 The insured normally cannot either bind the insurer by the insured’s own consent nor prevent settlement by withholding consent. “[L]iability policies usually specifically prohibit the insured from settling or negotiating for a settlement or interfering in any manner with the defense except upon the request of the insurer unless the insurer is in breach of the contract. [Citation.] By accepting a liability insurance policy, the insured is bound by these terms.” [Citation.] For this reason, it is common practice for insurance counsel and an adjuster to handle the negotiation of insurance-funded settlements without the superfluous involvement of a fully protected insured.
Thus, when the insurance company provides a defense without reservation, the client’s authorization to settle is neither solicited nor required; the insurer “is entitled to take control of the settlement negotiations and the insured is precluded from interfering therewith.”121
6.3.9
Settlement Agreement Defectively Drafted
In another class of settlement malpractice claims, the clients acknowledge their understanding of and consent to the settlement agreement but claim that the settlement agreement itself does not reflect the intended terms. The client’s malpractice action in Arnav Retirement Trust v. Brown122 is representative, the client alleging that the attorney’s error in drafting the settlement stipulation caused damages of $4,000,000. In that case, the client signed a revised version of the settlement agreement but did not read the agreement in its entirety, relying on his attorney’s statement that the revisions affected only one typographical error and the rest of the agreement was identical to the prior version. In fact, the revised agreement included not only the revision mentioned by the attorney but another change erroneously lowering the amount of the stipulated judgment upon default 119
Id. at 339. 52 Cal. Rptr. 2d 264, 267 (Cal. Ct. App. 1996). Emphasis in original. 121 Commercial Union Ass. Cos. v. Safeway Stores, Inc., 26 Cal. 3d 912, 919 (1980). Accord New Plumbing Contractors v. Edwards, Sooy & Byron, 121 Cal. Rptr. 472 (Cal. Ct. App. 2002) (insured has no cause of action for business reputation damage and payment of deductible where policy grants insurer discretion to settle). Cf. Ivy v Pac. Auto. Ins. Co., 156 Cal. App. 2d 652, 660 (1958) (insurer, through its attorney, “clearly violated” its duties by stipulating to a judgment in excess of the policy limits without insured’s knowledge or consent). 122 727 N.Y.S.2d 688 (N.Y. Ct. App. 2001) 120
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from $6,023,702.95 to $2,080,000. The client did not read the entire revised version of the agreement. On appeal, the defendant attorneys argued that the client was bound by the settlement agreement despite his failure to read it. Addressing that argument and ultimately holding that the client had adequately alleged the law firm’s failure to exercise reasonable skill and diligence, the court stated: “the binding nature of that agreement between plaintiffs and a third party is not a complete defense to the professional malpractice of the law firm that generated the agreement to its client’s detriment.”123 In other cases, however, a client’s claim that a settlement agreement was defectively drafted has elicited mixed results.124
6.3.10 Client Misunderstood the Settlement Agreement After agreeing to a settlement, clients may discover that they did not understand all the terms or the specific ramifications of the agreement. Although the agreement usually is binding on the contracting parties, clients attempt to recover losses resulting from their misunderstanding by asserting that their attorneys were deficient in advising them. This type of malpractice claim, however, is often defeated by the client’s inability to prove damages. In Brooks v. Brennan,125 the client alleged that her attorney negligently represented her in a settlement that required her to resign from employment. Denying that she had agreed to resign and disputing her attorney’s contention that she knew resignation was one of the settlement terms, she hired a new attorney to negotiate a different settlement. The new attorney negotiated and recommended a nominally better settlement, increasing the settlement consideration by $1,000. The court dismissed the client’s malpractice claim on summary judgment, holding that she had failed to prove that she would have recovered a larger sum if the case had proceeded to trial or that she could have obtained a better settlement absent the attorney’s alleged negligence.
123
Id. at 691. See, e.g., Schneider, Smeltz, Ranney & LaFond, P.L.L. v. Kedia, 796 N.E.2d 553, 556 (Ohio Ct. App. 2003) (no malpractice liability where client signed settlement agreement with integration clause and later claimed settlement terms were “less advantageous” than settlement terms client had authorized); Hunzinger Constr. Corp. v. Quarles & Brady, 735 So. 2d 589, 597 (Fla. Dist. Ct. App. 1999) (damages recoverable where negligent drafting error resulted in judgment against client); Orrick Herrington & Sutcliffe v. Superior Court (Malcolm), 132 Cal. Rptr. 2d 658 (Cal. Ct. App. 2003) (attorneys fees spent on unsuccessful motion to set aside settlement not recoverable despite allegation that lawyers prepared “horribly defective” agreement); Ziegelheim v. Apollo, supra n. 18, at 1306 (summary judgment improper where client alleged attorney “negligently delayed in finalizing the settlement” and the written settlement agreement ultimately prepared differed from the settlement terms recited in court). 125 625 N.E.2d 1188 (Ill. App. Ct. 1994). 124
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The court reached a similar conclusion in Hoover v. Larkin.126 In that case, the client acknowledged her consent to the settlement in open court but later claimed that she did not hear all of the settlement terms. Her malpractice claim was dismissed on summary judgment because she could not prove that the attorney’s alleged inadequate advice and misrepresentations regarding the settlement terms caused her to lose a viable cause of action. The court stated, “When the plaintiff’s allegation is that some failure on the attorney’s part caused an adverse result in prior litigation, the plaintiff must produce evidence from which a jury may reasonably infer that the attorney’s conduct caused the damages alleged.” Proving damages may be especially difficult when the client is sophisticated, highly educated and clearly capable of understanding the plain terms of the settlement agreement.127 A slightly different claim is presented when the client understands the language of the agreement but misunderstands its ramifications. In Viccinelli v. Causey,128 the client approved a community property settlement but was unaware that a judgment lien encumbered the residence she received as part of the settlement. Her attorney was aware of the judgment and claimed he told the client about the judgment, but he did not testify he affirmatively informed her that the recordation of the judgment operated as a judicial mortgage on the residence. The client denied knowledge of the judgment and alleged that she would not have entered into the settlement if she had been advised that the judgment was an enforceable lien against her property. Although the client did not present expert testimony regarding the standard of care, the court found that the attorney’s representation “fell below any reasonable standard of care, diligence and skill” and affirmed a judgment awarding damages in the amount the client paid to satisfy the lien.129
6.3.11 Failure to Advise of Uncertainty of Law and Anticipate Judicial Error This review of settlement malpractice liability would be remiss if it did not signal two additional grounds of liability. The first type of claim asserts that the attorney, although knowledgeable about the applicable law, failed to advise the client that the law is uncertain or unsettled. The second type of claim alleges that the attorney, although competently performing her own duties, failed to anticipate the court’s error. 126
196 S.W.3d 227 (Tex. App. 2006, pet. denied). See Berman v. Rubin, 227 S.E.2d 802 (Ga. Ct. App. 1976) (attorney not liable for negligent misrepresentation regarding meaning of settlement terms where agreement is clear, client is welleducated and client read and signed the agreement). Cf. Paul v. Smith, Gambrell & Russell, 642 S. E.2d 217 (Ga. Ct. App. 2007). 128 401 So. 2d 1243, 1245 (La. Ct. App. 1981). 129 Id. at 1245. 127
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The judgmental immunity rule generally protects attorneys’ strategic decisions regarding uncertain areas of law and, in many jurisdictions, does not mandate disclosure of the uncertain nature of the law. To properly advise clients regarding an unsettled area of the law, attorneys must “undertake reasonable research in an effort to ascertain relevant legal principles and to make an informed decision as to a course of conduct based upon an intelligent assessment of the problem.130 An attorney, though, is not liable for “an honest error in judgment concerning a doubtful or debatable point of law,” and at least in California is not obligated to disclose the uncertain nature of the law: “As a matter of policy, an attorney should not be required to compromise or attenuate an otherwise sound exercise of informed judgment with added advice concerning the unsettled nature of relevant legal principles. Under the venerable error-in-judgment rule, if an attorney acting in good faith exercises an honest and informed discretion in providing professional advice, the failure to anticipate correctly the resolution of an unsettled legal principle does not constitute culpable conduct.”131 Although an attorney’s exercise of professional judgment regarding an unsettled area of law may be protected from liability, it is unclear whether a non-California attorney must disclose to the client that she is making a judgment call regarding an uncertain area of law. This distinction is explained in law professor Mark Spiegel’s article, “Lawyers and Client Decisionmaking: Informed Consent and the Legal Profession:” This lack of attention to the issue of disclosure raises particularly significant problems with regard to cases involving the lawyer’s exercise of judgment. In these, courts generally do not impose an obligation on the attorney to tell a client of the uncertainty of results of a particular course of action. Rather, as long as the attorney has researched the issue and has found the law uncertain, he has the discretion to weigh the costs and benefits of alternative courses of action.132
“Where the law is unsettled,” Professor Spiegel further notes, “cases have held the client has no malpractice action for incorrect advice even when no evidence indicates that the lawyer explained the risks of uncertainty to the client.”133 After the publication of Spiegel’s article, at least one court has held that an attorney is obligated to disclose that an area of law is unsettled. In Wood v. McGrath,
130
Smith v. Lewis, 530 P.2d 589, 595 (Cal. 1975), overruled on other grounds by In re Marriage of Brown, 544 P.2d 561 (Cal. 1976). 131 Davis v. Damrell, 174 Cal. Rptr. 257, 260–261 (Cal. Ct. App. 1981). See Village Nurseries, L.P. v. Greenbaum, 123 Cal. Rptr. 555, 562 (Cal. Ct. App. 2002) (judgmental immunity defense requires proof law was unsettled and advice was based upon the exercise of informed judgment); Gimbel v. Waldman, 84 N.Y.S.2d 888, 891–892 (N.Y. Sup. Ct. 1948) (where court opinions are “in hopeless conflict,” attorney not liable for allegedly erroneous advice on which client relied in accepting settlement). 132 Spiegel, M. (1979). Lawyers and Client Decisionmaking: Informed Consent and the Legal Profession. University of Pennsylvania Law Review, 128, 70. 133 Spiegel, M. (1979). Lawyers and Client Decisionmaking: Informed Consent and the Legal Profession. University of Pennsylvania Law Review, 128, 70, fn. 107.
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North, Mullin & Kratz,134 the Nebraska Supreme Court court stated that, since the client bears the risk when deciding whether to settle a case, “it is the client who should assess whether the risk is acceptable, not the attorney.” The client’s assessment of that risk, in turn, requires the attorney to “inform a client of unsettled legal issues relevant to a settlement agreement” and, in particular, how the proposed settlement resolves those issues. The Wood court rejected the California courts’ position, as articulated in Davis v. Damrell135 (“an attorney should not be required to compromise his or her good faith and informed judgment by advising the client of the unsettled nature of relevant legal principles”). Adopting a position opposite to the California courts, the Wood court stated: “If we conclude that the judgmental immunity rule applies to an attorney’s failure to inform a client of unsettled legal issues relevant to a settlement, an attorney could forgo conducting research or providing a client with information on a relevant legal issue once he or she determined that the legal issue at hand was unsettled in this state. We fail to see how this result promotes the settlement of disputes in a client’s best interests.”136 The absence of a consistent, clear disclosure requirement has serious practical implications for clients, many of whom would regard disclosure of the law’s uncertainty as more important than knowledge that their attorney made an informed judgment call regarding that uncertainty. If informed of the uncertainty, many clients presumably would direct their attorneys to refrain from choosing among alternative strategies, all founded on uncertain legal premises. The judgmental immunity rule thus is missing an essential disclosure requirement to inform clients when they are treading on uncertain legal ground; in its present form it protects the attorney experimenters more than the client subjects. Because the absence of disclosure is inconsistent with the fiduciary relationship between attorneys and clients and incompatible with ethical requirements to inform clients of “all relevant considerations,” prudent practitioners should anticipate that liability may be imposed on attorneys exercising professional judgment without full disclosure of legal uncertainties and their attendant risks. Another impending basis for malpractice liability is an attorney’s failure to anticipate and advise a client of the risks and costs of possible judicial error and take action to prevent damage resulting from an erroneous ruling. For malpractice liability purposes, the fact that an attorney properly discharges her specific duties may be immaterial if the attorney fails to anticipate the court’s mistaken discharge of the judicial function. In Lombardo v. Huysentruyt,137 the court reversed a summary judgment in favor of the defendant attorney who had represented a client attempting to amend a trust. The probate court, ruling on a petition for conservatorship of the client’s person and estate, had issued an order enjoining the client from amending or revoking the trust without prior court approval. (This order was
134
589 N.W.2d 103 (Neb. 1999). 174 Cal. Rptr. 257 (Cal. Ct. App. 1981). 136 Wood, supra n. 134, at 108. 137 110 Cal. Rptr. 2d 691(Cal. Ct. App. 2001). 135
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later characterized by expert witnesses as “unique,” “ambiguous,” “confusing,” and “astonishing.”) The client subsequently amended the trust without court approval, and upon his death, the probate court found the amendments to be invalid and void, having been executed without prior court approval. The malpractice plaintiffs in Lombardo, beneficiaries under the amended trust, then sued the attorney for an alleged failure to apply for court approval of the amendment immediately after it was executed. The trial court dismissed the malpractice action on the ground that the probate court’s orders were erroneous; “a reasonable court should have interpreted the order in such a way that it did not limit the testamentary capacity of Mr. Winters.”138 The court rejected as speculative the malpractice plaintiffs’ argument that the probate court’s erroneous ruling was foreseeable. In reversing the summary judgment in favor of the attorney defendant, the appellate court stated: As appellants point out, even if the probate court’s ruling was erroneous, it cannot be viewed as unforeseeable as a matter of law. As an abstract principle, it is always foreseeable that a trial court will err, as evidenced by the existence of appellate courts. . . . Even if the probate court was in fact wrong to insist on prior approval of the amendment, there was abundant evidence that respondent [attorney] could have foreseen from the language of the conservatorship order that it might do so, and might have been able to protect against this result by seeking the prior approval the order appeared to require, or attempting to clarify the interpretation of the order.139
(The court’s opinion cites Temple Hoyne Buell Foundation v. Holland & Hart,140 a case imposing malpractice liability for failing to prevent foreseeable, erroneous actions by a third party. In that case, the court held that an attorney could be liable for negligent drafting of a contract which, although legally valid, failed “to protect against the likelihood of litigation” concerning its legal validity).141 Finding that the probate court’s erroneous rulings were reasonably foreseeable, the Lombardo court stated that the defendant attorney “could have headed off any such error” by acting to “protect against the possibility” that the probate court would enforce a mistaken interpretation of the conservatorship order.142 The Lombardo decision, although couched in traditional tort concepts of foreseeability and causation, raises the duty of care to a level unanticipated by some practitioners. Because judicial error is foreseeable under Lombardo, the practitioner’s advice and strategy must contemplate the occurrence of judicial error and 138
Id. at 697. Id. at 700–701. 140 851 P.2d 192, 198 (Colo. Ct. App. 1992). 141 Temple Hoyne Buell Foundaton also was cited in First Interstate Bank of Denver v. Berenbaum, 872 P.2d 1297 (Colo. Ct. App. 1993), cert. granted, May 2, 1994, stip. for dismissal granted, Aug. 15, 1994 (contract language that leads to litigation, even if resolved in client’s favor, could be basis of malpractice action, as reasonably prudent attorney might foresee that language could cause litigation). 142 Lombardo, supra n. 137, at 667. 139
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incorporate legal procedures to prevent damage foreseeably resulting from the court’s error. Prudent legal representation apparently must encompass both the law as customarily applied and, anticipating judicial error, the law as erroneously applied. In advising clients about the comparative benefits and risks of settlements and trials, practitioners arguably must consider both a usual trial, at which the court properly applies the law, and an atypical trial, at which the court’s rulings may be erroneous. For many attorneys, the Lombardo decision simply reiterates what they have always done, advising clients on both the applicable law and the practical consequences of lawsuits; for other attorneys who thought knowledge of the applicable law was sufficient, it represents a greatly enlarged responsibility for anticipating and mitigating judicial error.
6.4
Malpractice Claims in Adjudicated Cases
Malpractice claims tendered after a verdict raise multiple issues about an attorney’s judgment calls throughout the case, ranging from the election of legal remedies to the selection of witnesses, from the adequacy of pretrial discovery to the perspicacity of jury selection. The malpractice issues that pertain strictly to attorneys’ settlement negotiations and advice are twofold: (1) was the attorney remiss in failing to solicit a pre-trial settlement offer or effectuate a pre-trial settlement? and (2) was the client adequately apprised of the risk of an adverse verdict? Unlike the “settled for too little” claims discussed in the previous section, the “tried for too much” claims assert that the case’s settlement value was greater than the actual trial award, and the case proceeded to trial when it should have been settled. In Floro v. Lawton,143 the court philosophically observed, “It would appear that the possibility of a malpractice action is an occupational hazard for a lawyer. Of necessity he cannot win every case and there is always the possibility of his having as a client an irascible person who tenaciously clings to the belief, in the face of all evidence to the contrary, that his claim is robust and that the claim of his opponent is weak, and that it would be next to impossible for any lawyer to do otherwise than to secure a judgment as and for all that is demanded.” Attorneys sued by disappointed clients after adverse verdicts may find the converse also is true: of necessity an attorney cannot settle every case and there is always the possibility of being sued by a remorseful client who, emboldened by hindsight, tenaciously clings to the belief that his claim was always weak, the claim of his opponent was always strong, and it was next to impossible for any lawyer to do otherwise than to negotiate a settlement superior to the result obtained at trial.
143
10 Cal. Rptr. 98, 108 (Cal. Ct. App. 1960).
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Attorney Remiss In Failing To Initiate Settlement Negotiations, Solicit A Pre-Trial Settlement Offer Or Otherwise Effectuate Settlement
Despite the evident popularity of hyper-aggressive litigation tactics – variously described as “Rambo,” “take no prisoners,” “hardball,” “scorched earth,” and “mano a mano” – attorneys have an affirmative duty to attempt to settle their clients’ cases. Aggressive, hostile and demeaning litigation tactics are generally decried as unprofessional but their major harm is not to the legal profession but to the attorneys’ own clients. By destroying the spirit of good faith and compromise essential to productive settlement negotiations, these tactics contravene attorneys’ duty to expedite litigation and attempt to settle a case. Clients may encourage these tactics in the belief they are obtaining some pugilistic advantage and often do not consider whether the tactics are consistent with their long-term intention to settle the case. Although an ever-increasing number of attorneys contend that attempting to settle a case is a mediator’s responsibility, that responsibility always has been an integral part of attorneys’ duties and remains so today. The court’s admonition in Cannon v. Cherry Hill Toyota, Inc. is instructive for attorneys serious about protecting their clients from unnecessarily protracted litigation and shielding themselves from malpractice liability for failure to attempt to effectuate a settlement: “Lawyers are not free, like loose cannons, to fire at will upon any target of opportunity which appears on the legal landscape. The practice of law is not and cannot be a free-fire zone.”144 The courts have consistently imposed upon attorneys a duty to attempt to settle a client’s case. To fulfill that duty, an attorney is required to “explore and timely communicate to his client settlement offers, as well as other information important to the objectives of the representation.”145 Absent contrary instructions from the client, “exploring, and, indeed, developing and encouraging settlement opportunities have always been regarded as within the scope of an attorney’s representation and they are especially so today, as the courts struggle to handle efficiently the increasing burdens placed upon them.”146 An attorney who fails to make any attempt to negotiate and effectuate a settlement may incur malpractice liability.147 144
190 F.R.D. 147, 161-62 (D.N.J. 1999) (quoting Thomason v. Norman E. Leher, P.C., 182 F.R.D. 121, 123 (D.N.J. 1998)). 145 Builders Square, Inc. v. Saraco, supra n. 86, 868 F. Supp. at 749. 146 Thomas v. Bethea, supra n. 19, at 1195. 147 Smiley v. Manchester Ins. & Indem. Co., 375 N.E.2d 118, 124 (Ill. 1978). See Lysick v. Walcom, 258 Cal. App. 2d 136, 151 (1968) (attorney’s duty to a client includes "the obligation to attempt to effectuate a reasonable settlement of the . . . action where the general standards of professional care exacted of him required that the most reasonable manner of disposing of the action was by settlement"); Bonha v. Hughes, Thorsness, Gantz, Powell & Brundin, 828 P.2d 745, 761 (Alaska 1992) (attorney liable for excess judgment when he fails to settle case within authorization); Scognamillo v. Olsen, 795 P.2d 1357, 1361 (Colo. Ct. App. 1990) (plaintiff clients entitled to recover damages, including punitive damages assessed against clients in underlying action, upon
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In his article, “Settlement Malpractice: The Duty To Give ADR Advice,” mediator John Blumberg explains the scope of an attorney’s duty to effectuate settlement: This is not to say that every case must be settled. It is to say, however, that an attorney’s duty to a client includes “the obligation to attempt to effectuate a reasonable settlement of the . . . action where the general standards of professional care [require] that the most reasonable manner of disposing of the action was by settlement.” [Citation] A client’s opposition to settlement does not excuse an attorney’s duty to consider and advise the client about settlement. After all, the lawyer’s superior skill and knowledge is what the client is paying for.148
“It is not uncommon for the client to have an unwarranted faith in the righteousness of his or her position,” Blumberg explains. For those fervent clients, the attorney’s role may be to act as a professional counterweight and “bring rationality, objectivity and experience to bear on the matter.”149 This mandate to attempt to effectuate a settlement is reiterated in Jackson v. Philadelphia Housing Authority,150 where the court stated that it would deny an award of attorneys fees unless the parties had attempted to informally resolve their dispute. Noting that the Code of Professional Responsibility does not expressly require attorneys to attempt to settle cases, the Jackson court held: “Nonetheless, as officers of the court, lawyers not only owe allegiance to their clients, but have a duty to spare the courts from unnecessary litigation.” Attorneys, according to the Jackson court, should not commence legal actions before affording an adverse party an opportunity to correct an error and following formal and informal dispute resolution procedures. Criticizing the practice of “filing first and asking questions later,” the court stated, “When possible, attorneys should serve as ‘gatekeepers’ to the legal process by diverting disputes ‘into mediative channels rather than translating them into adversary claims.’”151 Does the general duty to attempt to effectuate a settlement incorporate a specific duty to advise clients of alternative dispute resolution procedures like mediation
proof that clients would have settled their case absent defendant’s attorney’s negligence); Mutuelles Unies v. Kroll & Linstrom, 957 F.2d 707 (9th Cir. 1992) (because attorneys’ duties include an obligation to attempt to effectuate a settlement, a law firm may be liable for the difference between the amount paid to settle after verdict and the amount for which case could have settled before verdict); G. Heileman Brewing Co., Inc. v. Joseph Oat Corp., supra n. 25, at 1423 (trials are appropriate “only after possibility of settlement has been exhausted”); Gruenberg v. Aetna Ins. Co., 9 Cal. 3d 566, 573 (1973) (failure to settle action sounds in tort and contract). Cf. Whiteacker v. State, 382 N.W.2d 112, 116 (Iowa 1986) (in action for loss of settlement opportunity client must prove the parties would have reached a settlement in an ascertainable amount and adversary would have paid the settlement sum). 148 Blumberg, J. (1997, October 17). Settlement Malpractice: The Duty to Give ADR Advice. Los Angeles Daily Journal, Verdicts and Settlements. 149 Blumberg, J. (1997, October 17). Settlement Malpractice: The Duty to Give ADR Advice. Los Angeles Daily Journal, Verdicts and Settlements. 150 858 F. Supp. 464 (E.D. Pa. 1994). 151 Id. at 472.
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and arbitration? The answer varies markedly among jurisdictions, some courts implying the duty from the Model Rules of Professional Conduct and others imposing the duty only to the extent it comports with the pre-existing duties to act in the client’s interests, keep the client informed and provide sufficient information to enable the client to make informed decisions. In his article, “Should an Attorney be Required to Advise a Client of ADR Options?” Marshall Breger surveys the law and ethical rules regarding ADR disclosure and concludes that the “real risk for an attorney who fails to advise clients about ADR options is the possibility of a malpractice claim.” He observes that, although the Model Rules “do not provide explicit guidance” regarding ADR advice to clients, legal scholars have advanced “several reasons why courts may specifically impose liability on an attorney for failure to advise a client about ADR.”152 He also notes that ADR disclosure standards may range from a “weak” requirement to “simply inform his client that ADR is an option” to a “hard” requirement that the attorney “analyze the case at hand and recommend an [ADR] option to his client.”153 Until the law regarding ADR disclosure is fleshed out through malpractice case opinions and more specific ethical rules, the prudent practitioner will not only apprise clients of their ADR options but specifically discuss the costs, suitability, timing, evidentiary rules, probable outcome and finality of those options. In Nichols v. Keller,154 the court observed that the client “will fail to ask relevant questions regarding the existence of other remedies” and necessarily “relies upon the consulting attorney to describe the array of legal remedies available.”155 Although Nichols dealt with the attorney’s duty to advise regarding both workers’ compensation claims and third party claims, its reasoning regarding the client’s reliance upon counsel for advice about alternative remedies and forums is equally applicable to ADR procedures. Considering that mediators routinely report a settlement rate of 90% or higher, attorneys defending malpractice claims regarding inadequate ADR advice would encounter great difficulty rebutting clients’ evidence that their claims and defenses would have been settled by a mediator instead of being rejected by a jury. This vulnerability to malpractice claims is accentuated when the attorney’s failure to advise the client of ADR options is accompanied by either a contingency fee agreement raising the attorney’s percentage as the case nears trial or an hourly
152
Breger, M. (2000). Should An Attorney Be Required To Advise a Client of ADR Options? Georgetown Journal of Legal Ethics, 13, 427. See Fortin , K. (2008). The Servant Leader Where the Modern Lawyer Should Be and How the Modern Lawyer Can Get There: How the Professionalism Paradigm Fueled by a Lawyer’s Ethical Obligation to Inform Clients about Alternative Dispute Resolution Can Revive the Lawyer’s Sense of Self, Sense of Vocation, and Sense of Service. Georgetown Journal of Legal Ethics, 22. http://ssrn.com/abstract=1208642. 153 Breger, M. (2000). Should An Attorney Be Required To Advise a Client of ADR Options? Georgetown Journal of Legal Ethics, 13, 427. 154 19 Cal. Rptr. 2d 601 (Cal. Ct. App. 1993). 155 See In re Consupak, Inc. 87 B.R. 529 (Bankr. N.D. Ill. 1988) (attorney may need to proffer advice because client may be unaware of ramifications of intended procedure).
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fee agreement effectively reducing an attorney’s total fee income in the event of an early resolution.
6.4.2
Client Inadequately Apprised of Risk of an Adverse Verdict
Attorneys frequently underestimate the extent to which clients – especially clients for whom litigation may be a one-time experience – rely on their settlement advice and recommendations. Consequently, they may misinterpret the client’s failure to push for a settlement of the case as acquiescence in proceeding to trial when in fact the client is awaiting explicit direction from her attorney. The fact that the client must approve a settlement and ultimately must decide whether to settle or try the case – an ethical requirement known to the attorney but not always made clear to unsophisticated clients – may lead to major misunderstandings and unintended impasses. The attorney prepares for trial absent the client’s instruction to the contrary, while the client assumes that settlement is inadvisable absent the attorney’s advice to the contrary. Some litigation attorneys are hesitant to explore settlement, lest the client perceive them as reluctant advocates who have lost confidence in the case, while some clients assume that if the terms and timing of a settlement were propitious, their attorneys would have so informed them. When attorneys carefully express their settlement recommendations, clients are susceptible to self-serving biases and may hear promising opinions even when the attorney has assiduously attempted to present a balanced assessment. Rough ranges of recovery may be recalled as minimum amounts by plaintiffs and maximum amounts by defendants, attorney fee estimates may be remembered as caps, slight chances may be heard as likelihoods, strong cautions may be perceived as legal formalities, and singular evidentiary shortcomings may be regarded as ordinary case problems. Believing that “no case is perfect,” clients may overlook the fact that their case is not only imperfect but hopelessly flawed. To the extent attorneys confirm their admonitions in writing, clients may not accord the attorney’s prophylactic missive proper weight, believing it was written for the attorney’s protection, does not supercede what the attorney really told them, and, in any event, should not be billed because it was for the attorney’s protection, not the client’s benefit. In light of these enormous sources of misunderstanding, it is not surprising that adverse trial outcomes provoke malpractice claims, the clients contending that they were inadequately advised regarding the risks of an adjudicated outcome. A quintessential fact pattern is presented in Sauer v. Flanagan and Maniotis, P.A.156 The plaintiff, Susan Sauer, declined a $1,000,000 settlement offer in the underlying action and, following a jury trial which resulted in a defense verdict, was held liable for the defendant’s attorneys fees and costs. She claimed her attorneys told her she had “an open and shut case” and “there was no way I was going to lose this case.” She admitted 156
748 So. 2d 1079 (Fla. Dist. Ct. App. 2000).
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that the attorneys told her “there’s always that slight percentage that something screwy is going to go on so I can’t put it down in writing but I guarantee you this right now I’m ninety-nine percent sure that this case is going to be won.” Mrs. Sauer testified that she “was going to win more than a million dollars” and was never warned about the risk of paying the other side’s fees: Sauer also claims that Maniotis [her attorney] never spoke to her about the risks of going to trial or that she could get less than the million dollars. Their discussions regarding how much she could win were always in the millions. Sauer further testified that when she asked Maniotis whether she could be responsible for paying opposing counsel’s attorney’s fees if they lost, Maniotis told her “there was definitely no way that would ever happen.”
Her attorney denied that he had provided assurances of any trial outcome and produced a letter he wrote to Mrs. Sauer when she rejected the defendant’s $1,000,000 offer. The letter confirmed that they had “discussed the pros and cons of rejecting the offer” and stated, “You recognize that there are no guarantees.” Citing Ziegelheim v. Apollo, supra, for the proposition that “litigants rely heavily on the professional advice of counsel when they decide whether to accept or reject offers of settlement,” the Sauer court reversed the trial’s court summary judgment in favor of the attorney. The court specifically rejected the attorney’s judgmental immunity defense and held that Mrs. Sauer’s testimony presented issues of fact as to whether “the attorneys fell below the standard of reasonable care in representing their client” and, in particular, were negligent “in misleading her and failing to properly advise and furnish her with the information necessary for her to make an informed decision.” Assuming that Mrs. Sauer and her attorney had good faith differences regarding their communications, the overall result is a mutually catastrophic mistake, the client foregoing a $1 million settlement and the attorney being subjected to a legal malpractice action. The Sauer case is not unusual. Consider Charnay v. Cobert.157 In the underlying action, the Charnays were defendants in a limited civil action filed by a neighbor. The maximum recovery in limited civil actions, at that time, was $25,000.158 Allegedly acting upon their attorney’s advice, the Charnays filed a cross-complaint in the municipal court action against the neighbor. After extensive pre-trial discovery and motions and a 15-day trial, judgment was entered in favor of the neighbors on their complaint and against the Charnays on their cross-complaint. Because an attorneys fee clause was contained in the neighborhood’s Conditions, Covenants and Restrictions (CC&Rs), the court also ordered the Charnays to pay their adversary’s attorneys fees – $580,000. This attorneys fee award was in addition to the $360,000þ attorneys fee obligation the Charnays owed to their own attorney. To pay the judgment and their own attorneys fees, the Charnays allegedly sold their home, drained their personal savings accounts and depleted their retirement income. 157
51 Cal. Rptr. 3d 471 (Cal. Ct. App. 2006). As the court notes, attorneys fees “are not included in the $25,000 ceiling for limited civil actions.” 51 Cal. Rptr. 3d, at n.10.
158
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Mrs. Charnay then filed a legal malpractice complaint, asserting her attorney “breached his duty of care to her by failing to properly advise her of her obligation to contribute to the slope repair and to pay homeowner assessments required under the CC&Rs and, most particularly, to advise her of the potential exposure to the opposing parties’ attorneys fees if she did not prevail in the Aronoffs’ action or her cross-action.” She alleged that, had she been properly advised, “she would have settled the lawsuit for no more than the maximum $25,000 amount recoverable in a limited civil action, far less than the $600,000-plus judgment (exclusive of interest) entered against her at the end of her protracted litigation.” The lower court in Charnay sustained defendant’s demurrer to the Charnays’ complaint, ruling that their claim that they would have obtained a more favorable result absent defendant’s negligence was too speculative. The appellate court, however, reversed the order dismissing the case following the sustaining of defendant’s demurrer. Its opinion initially sets forth the four elements of legal malpractice action: “(1) the duty of the attorney to use such skill, prudence, and diligence as members of his or her profession commonly possess and exercise; (2) a breach of that duty; (3) a proximate causal connection between the breach and the resulting injury; and (4) actual loss or damage resulting from the attorney’s negligence.”159 Holding that Charnay had met these pleading requirements, the Court stated: Charnay need only allege that, but for Cobert’s malpractice, she would have obtained a "more favorable result" than the $600,000-plus judgment ultimately rendered against her. (Citation). Of course, whether Charnay will be able to prove the element of damages or any of the other elements of her legal malpractice cause of action remains to be determined. At this stage of the proceedings, however, Charnay has alleged facts sufficient to state a professional negligence claim.
The result in Charnay is consistent with other cases declaring attorneys responsible for inadequate advice regarding the potential for adverse trial outcomes.160
6.5
Defenses to Settlement Malpractice Claims
The commonly asserted legal defenses to settlement malpractice actions have been inferentially identified in the previous sections regarding malpractice claims. Because the analysis of defenses in that context is necessarily oblique and incomplete, this section focuses solely on the legal defenses and, in particular, the limitations of those defenses. Seven specific defense arguments are discussed briefly in this section: (1) the client’s consent to the settlement bars a claim that the settlement was inadequate; (2) the client ratified the settlement agreement by accepting its benefits; (3) the client did not rely on the attorney’s advice; (4) the 159
Id. at 478. See Hold v. Manzini, 736 So. 2d 138 (Fla. Dist. Ct. App. 1999); Scognamillo v. Olsen, supra, n. 147.
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attorney’s decision is protected by the judgmental immunity rule; (5) the client cannot prove damages proximately caused by the attorney’s alleged negligence; (6) the negligence of another attorney was an intervening or superceding cause of any damage; and (7) any malpractice award should be reduced by the amount of attorneys fees the client otherwise would have paid.161 Although clients may regard many of these defenses as “technical,” they are more accurately regarded as limitations on liability imposed to assure proportionate compensation to clients and to protect attorneys from malpractice judgments exceeding the amount of clients’ actual losses. These defenses, moreover, delineate the respective responsibilities of attorneys and clients in making settlement decisions, informing clients that perceived shortfalls in attorney performance are not always compensable.
6.5.1
The Client’s Consent Bars a Challenge to the Adequacy of the Settlement Agreement
The doctrine of judicial estoppel (also referred to as the “doctrine of preclusion of inconsistent positions” and often confused with collateral estoppel and direct estoppel) bars a party from taking inconsistent positions in legal proceedings. Successful invocation of the doctrine requires five elements of proof: (1) the same party has taken two or more positions; (2) the positions were taken in a judicial proceeding; (3) the prior position taken by the party was adopted or relied upon by the court; (4) the party’s present position is wholly inconsistent with the prior position; and (5) the prior position was not caused by fraud or mistake, ignorance or other circumstance equitably excusing enforcement of the first position.162 In the context of negligent settlement advice claims, the doctrine of judicial estoppel has been asserted to bar a party from acknowledging its understanding and acceptance of a settlement in the first action and then challenging the settlement as improvident or ill-advised in a second action. The majority of courts that have considered the estoppel argument have declined to bar settlement malpractice claims despite the client’s earlier consent to the settlement. The court’s statement in Ziegelheim v. Apollo, exemplifies the majority view: “The fact that a party received a settlement that was ‘fair and equitable’ does not mean necessarily that the party’s attorney was competent or that the party would not have received a more favorable settlement had the party’s incompetent attorney been competent.”163 Even the Pennsylvania Supreme Court’s decision in 161
Numerous other defenses, of course, have been invoked in legal malpractice actions. Other defenses include release, waiver, the absence of an attorney-client relationship, comparative negligence, lack of standing and the statute of limitations. 162 See Jackson v. Los Angeles, 70 Cal. Rptr. 2d 96 (Cal. Ct. App. 1997). 163 Ziegelheim, supra n. 18, at 1305. See Bruning v. Law Offices of Ronald J. Palagi, P.C., 551 N. W.2d 266 (Neb. 1996); Edmondson v. Dressman, 469 So. 2d 571 (Ala. 1985); McCarthy v. Pedersen & Houpt, 621 N.E.2d 97 (Ill. App. Ct. 1993); Thomas v. Bethea, supra, n. 19; Baldridge
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Muhammad v. Strassburger, McKenna, Messer, Shilobod & Gutnick, supra has been narrowed to permit claims regarding an attorney’s “failure to advise a client of well-established principles of law and the impact of a written agreement.”164 Some courts, however, emphatically apply the estoppel doctrine. In McKay v. Owens,165 for instance, the Idaho Supreme Court dismissed a client’s malpractice complaint on the basis of estoppel. The McKay court strongly criticized the plaintiff, who had appeared in open court and accepted the settlement in the underlying action: where “the client knows of the claim for legal malpractice before settlement occurs, but deceives the court by accepting the settlement, he or she will not be permitted to benefit from that deception.”166 A similar result occurred in Douglas v. Parks,167 where the court affirmed a directed verdict for the defendant attorney: “plaintiff had the election to either rescind or affirm the settlement. He chose to affirm it, and his election precludes a malpractice action against his attorney in the original action.”168 The doctrine of judicial estoppel also has been asserted as a defense where the settlement was approved not only by the client but also by the court. This defense is no more successful when both the court and the client approve the settlement than it is when only the client approves the settlement. In Grayson v. Wofsey, Rosen, Kweskin and Kurinsky, the court affirmed the jury’s verdict against the defendant attorney, although the judge in the underlying action had approved the disputed settlement. Acknowledging that the judge in the underlying action was obligated to “conduct a searching inquiry to make sure that the settlement agreement is substantively fair and has been knowingly negotiated,” the Grayson court decided that “the court’s inquiry does not serve as a substitute for the diligent investigation and preparation for which counsel is responsible.”169 Courts in other cases have held the estoppel defense to be inapplicable despite court approval of a minor’s settlement and a worker’s compensation claim settlement.170 v. Lacks, 883 S.W.2d 947 (Mo. Ct. App. 1994); Grayson v. Wofsey, Rosen, Kweskin & Kuriansky, supra n. 28, 646 A.2d at 199; Martin v. Burns, 429 P.2d 660 (Ariz. 1967); Davis v. Damrell, 174 Cal. Rptr. 257, (Cal. Ct. App. 1981); Berman v. Rubin, 227 S.E.2d 802 (Ga. Ct. App. 1976); Muse v. St. Paul Fire & Marine Ins. Co., 328 So. 2d 698 (La. Ct. App. 1976); Meagher v. Kavli, 97 N. W.2d 370 (Minn. 1959); Gimbel v. Waldman, supra n. 131; Hodges v. Carter, 80 S.E.2d 144 (N.C. 1954); Bill Ranch Chevrolet, Inc. v. Burnett, 555 So. 2d 455 (Fla. Dist. Ct. App. 1990); White v. Jungbauer, 128 P.3d 263 (Colo. Ct. App. 2005). 164 McMahon v. Shea, 688 A.2d 1179, 1181 (Pa. 1997). 165 937 P.2d 1222, 1226 (Idaho 1997). 166 Id. at 1230. 167 315 S.E.2d 84, 86 (N.C. Ct. App. 1984). 168 See also Irby v. Richardson, 298 S.E.2d 452, 454 (S.C. 1982) (where client “had a full and fair opportunity to litigate the question of an attorney’s negligence or effectiveness in a particular case, he should be collaterally estopped to adjudicate the same issue in a subsequent legal malpractice action.”). 169 Grayson, supra n. 28, 646 A.2d at 200. 170 Cook v. Connolly, 36 N.W.2d 287 (Minn. 1985); Bruning v. Law Offices of Palagi, P.C., 551 N. W.2d 266 (Neb. 1996).
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The Client’s Ratification of the Settlement Agreement
Clients contemplating a suit against their attorney for settlement malpractice may be unaware that their acceptance of the benefits of the settlement may bar their malpractice action. Under the principles of ratification, the client’s knowledge and acceptance of the settlement consideration may constitute ratification, a legally effective approval of the actions criticized in the malpractice action. The ratification defense, although superficially similar to the estoppel defense discussed in the previous section, is distinct; its gravamen is the client’s knowing receipt of tangible benefits flowing from the settlement agreement.171
6.5.3
The Client’s Failure to Prove Reliance on the Attorney’s Advice
The element of reliance undeservedly receives short shrift in attorney malpractice opinions. In some cases, the client’s reliance on the attorney’s advice is treated as a matter of law, not requiring independent proof, while in other cases proof of reliance is subsumed under the causation element of proof, requiring unspecified adjunctive evidence or argument. In Grayson v. Wofsey, Rosen, Kweskin and Kuriansky,172 the court independently found “that litigants rely heavily on the professional advice of counsel when they decide whether to accept or reject offers of settlement;” and in Thomas v. Bethea173 the court reiterated that premise, stating clients “rely heavily on their lawyers’ recommendations regarding settlement.” Rejecting the defendant’s claim that a client should have to prove reliance on the attorney’s advice, the court in Baldridge v. Lacks stated: We do not believe reliance should be an explicit element in plaintiff’s case, as it would be in an action for negligent misrepresentation. An explicit reliance element is unnecessary because it is implicitly included in the causation element of the traditional malpractice action. Whether and to what extent the client detrimentally relied on the attorney’s advice is a matter for argument.174 171
See L.F.S. Corp. v. Kennedy, 337 S.E.2d 209, 210 (S.C. 1985) (motion for non-suit properly granted in attorney malpractice action where client ratified disputed settlement by accepting financial benefits of settlement and seeking legal advice regarding enforcement of the court order confirming the settlement terms); Cook v. Sur. Life Ins., supra n. 115, 903 P.2d at 716 (client’s failure to object to attorney’s action in settlement negotiations “within a reasonable time after becoming aware of it will be construed as a ratification of it”); Brady v. Bryant, 894 S.W.2d 144 (Ark. 1995) (client’s continued acceptance of payments tendered in accordance with settlement agreement constitutes ratification). Cf. Crowley v. Harvey & Battey, P.A., 488 S.E.2d 334 (S.C. 1997) (client’s enforcement of settlement no bar to malpractice claim alleging negligence in advising client rather than attorney’s lack of authority to settle case). 172 Grayson, supra n. 28, 646 A.2d at 199. 173 Thomas v. Bethea, supra n. 19, at 1195. 174 Baldridge v. Lacks, supra n. 163, 883 S.W.2d at 954.
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Practitioners reading the Baldridge decision may not know whether reliance is to be proven as an “implicit” element of causation in the plaintiff’s case in chief or is relegated to closing argument. A similar state of evidentiary disorientation might be induced by the court’s discussion of reliance in Ishmael v. Millington.175 Rejecting the “McGregor-Modica” rule, which “implies that the attorney’s conduct does not as a matter of law cause the client’s harm where there is no reliance,” the Ishmael court stated: To pose lack of reliance as a fixed doctrinal demand invades the jury’s province as the trier of causation in fact; alternatively, such a demand rests upon the inacceptable proposition that all reasonable men will agree in rejecting the attorney’s conduct (including his inaction and silence) as a cause of damage where the client relies on other sources of information. The McGregor-Modica demand for reliance cannot be regarded as a fixed condition of recovery or as authority for a finding of noncausality as a matter of law.
After reading Ishmael it remains unclear whether a plaintiff has the burden of proving reliance, whether an absence or a diminished degree of reliance may affect the damages claim but not necessarily bar a finding of liability and whether a finding of causation is implicitly a finding of reliance as well. The uncertain treatment of the reliance element in malpractice cases invites further appellate court litigation and, pending judicial clarification, engenders confusion in advising clients and trying cases. As a practical matter, the extent of reliance varies significantly among clients, and many sophisticated clients alleging malpractice in settlement advice cases may have considered but not relied on their attorneys’ advice. Sophisticated clients often seek counsel from multiple attorneys, the least significant of whom may be the attorney of record. In some circumstances, moreover, the client may have greater experience in resolving a particular type of case and therefore independently assesses the case merits and settlement prospects in light of its own business objectives and risk-taking propensities; this may be particularly true when the client has its own general counsel. The attorney of record’s settlement recommendations may have no material effect on the client, but if the client’s independent business judgment and the attorney’s disregarded advice both turn out to be wrong, the client probably has a prima facie case of professional negligence and the attorney has an unpaid statement at the very least.
6.5.4
The Judgmental Immunity Rule and the California Model Limitations
The judgmental immunity rule is the most commonly cited defense in settlement malpractice cases. As indicated by the discussion above regarding malpractice claims in settled cases, this defense protects judgment calls about which reasonable attorneys could differ. Although the judgmental immunity rule is intended to shield 175
50 Cal. Rptr. 592, 598 (Cal. Ct. App. 1966).
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a broad range of decisions made by informed, conscientious attorneys, California courts have narrowed the defense to a small spectrum of cases in which the law is unsettled. Law professor Mark Cooney describes the California discrepancy in his article, “Benching the Monday-Morning Quarterback: The ‘Attorney Judgment’ Defense to Legal Malpractice Claims:” California adds a twist to this body of rules, in essence cutting the rule’s scope in half. California’s appellate courts adhere to a rigid “‘two-pronged inquiry: (1) whether the state of the law was unsettled at the time the professional advice was rendered; (2) and whether that advice was based upon the exercise of an informed judgment.’” This model is significant in that it fails to account for situations when the law is settled but lawyers are nevertheless forced to make true strategy choices.176
The limited version of the judgmental immunity rule was reiterated in Village Nurseries v. Greenbaum.177 In that case, the court confirmed the California rule that “the judgmental immunity doctrine does not apply unless an attorney establishes both (1) the unsettled state of the law that was the subject of professional advice and (2) the attorney’s efforts to perform ‘reasonable research in an effort to ascertain relevant legal principles and to make an informed decision as to a course of conduct based upon an intelligent assessment of the problem.’”178 Thus, in California, the judgmental immunity rule does not apply broadly to tactical litigation decisions but is limited to advice given with respect to an unsettled issue of law, according to Professor Cooney.179 California attorneys, as a practical matter, are not afforded the same protections under the judgmental immunity rule as attorneys in other jurisdictions. Strategic and tactical decisions regarding settled and unsettled areas of law are generally protected from malpractice liability in other states, but those decisions, if made by a California attorney regarding a settled area of law, may not be protected by the rule. Noting that the California model rejects the national rule that “protects lawyers from liability for purely tactical trial or litigation decisions,” Professor Cooney assesses the overall impact of this discrepancy: “Thus, the California model’s hallmark is the openly inconsistent treatment of legal-malpractice defendants whose alleged misconduct was identical: making a poor strategy choice. Some California attorneys accused of making poor strategy choices benefit from a formidable ‘judgmental immunity’ defense, while others facing the same allegations have no such defense.”180
176
Cooney, M. (2006). Benching the Monday-Morning Quarterback: The “Attorney Judgment” Defense to Legal Malpractice Claims. Wayne Law Review, 52(3), 1057. 177 123 Cal. Rptr. 2d 555 (Cal. Ct. App. 2002). 178 Id. at 562. 179 Cooney, M. (2006). Benching the Monday-Morning Quarterback: The “Attorney Judgment” Defense to Legal Malpractice Claims. Wayne Law Review, 52(3), 1058. 180 Ibid., 1100.
6.5 Defenses to Settlement Malpractice Claims
6.5.5
243
The Client Cannot Prove Damages Proximately Caused by the Attorney’s Negligence
Malpractice claims are often dismissed because clients cannot establish the element of damages proximately caused by the attorney’s negligence. Although reliable trial court outcome data are not available, the appellate court decisions suggest that malpractice plaintiffs may be more likely to lose cases for failure to prove damages than failure to prove liability. Successful defense arguments regarding damages center on two assertions: (1) the client did not sustain any legally cognizable damages because the client, if a plaintiff in the underlying action, would not have recovered any additional money or, if a defendant in the underlying action, would not have lost less money, absent the alleged negligence; and (2) any damages sustained as a result of the alleged negligence were not collectible. The courts have consistently dismissed malpractice claims, regardless of the attorney’s carelessness or recklessness, when the client cannot prove that she would have obtained a better result through a settlement or a trial absent the attorney’s alleged malpractice.
6.5.5.1
No Legally Cognizable Damages Cases
The necessity of proving damages proximately caused by the attorney’s negligence is consistently declared by the courts. As stated in Hinshaw, Winkler, Draa, Marsh & Still v. Superior Court: To prove damages in a legal malpractice action, plaintiff must show the probable value of the lawsuit which he or she has lost. Plaintiff must also prove that careful management of his claim would have resulted in a favorable judgment and collection of same. [Citation] There is no damage in the absence of these latter elements.181
A malpractice plaintiff must prove not only that a better result would have been obtained but she must also establish to a high degree of certainty that the result would have been materially superior. “The mere probability that a certain event would have happened will not furnish the foundation for malpractice damages,” the court held in Barnard v. Langer,182 affirming a judgment of nonsuit on the ground that plaintiff’s damages were too speculative. Damages, the court stated in Barnard, must be proven “as a legal certainty,” and “nominal damages or speculative or uncertain harm does not support a malpractice cause of action.”183 The legal principle that damages must be certain is reiterated in multiple decisions.184 181
58 Cal. Rptr. 2d 791, 795 (Cal. Ct. App. 1996). 1 Cal. Rptr. 3d 175, 182 (Cal. Ct. App. 2003). 183 Id. at 182. 184 Budd v. Nixen, 491 P. 2d 433, 436 (Cal. 1971) (client must suffer “appreciable harm as a consequence of his attorney’s negligence”); Sukoff v. Lemkin, 249 Cal. Rptr. 42, 45 (Cal. Ct. App. 1988) (“possibility” that client could have established a property interest is insufficient in attorney 182
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Although the decisions dismissing malpractice claims frequently declare that the plaintiff was not damaged by the attorney’s alleged negligence, it would be more accurate for the courts to state that the plaintiff failed to prove legally cognizable damages. In many cases in which the courts find no damages, the plaintiff in fact sustained some damage or at least alleges he sustained financial losses as a result of the attorney’s negligence. The courts indulge in a slight fiction when they fail to distinguish between cases in which the plaintiff did not sustain damages and those cases in which the plaintiff’s damages do not satisfy certain legal criteria, e.g., too speculative, not appreciable, too remote, nominal or otherwise barred by policy considerations. The courts are not so much dismissing cases filed by overreaching, disgruntled clients who had already recovered everything that competent counsel would have delivered as dismissing potentially meritorious cases alleging damages too speculative, intangible or inchoate to merit legal compensation. Clients in many malpractice cases have been financially damaged by an attorney’s negligence but the damages either were not proximately caused by the attorney’s negligence or the means of proving the damages were lost as a result of the attorney’s negligence. In either event, the extent and effects of attorney malpractice are obscured when that type of case is judicially demarcated as a “no damages” case, damages being disavowed when they are merely disfavored.
malpractice action); Smith v. Haden, 872 F. Supp. 1040, 1044 (D.D.C. 1994) (“plaintiff must show that she had a good cause of action against the party she wished to sue; otherwise the plaintiff ‘loses nothing by the conduct of [her] attorney even though the latter was guilty of gross negligence’”); Marshak v. Ballesteros, 86, Cal. Rptr. 2d 1, 4 (Cal. Ct. App. 1999) (proof of attorney negligence is insufficient, plaintiff “must also prove that his ex-wife would have settled for less than she did, or that, following trial, a judge would have entered judgment more favorable than that to which he stipulated”); Orrick Herrington & Sutcliffe v. Superior Court (Malcolm), supra n. 124, 132 Cal. Rptr. 2d 658, 661 (Cal. Ct. App. 2003) (to prevent speculation and conjecture plaintiff “must prove that, but for the negligence of the attorney, a better result could have been obtained in the underlying action”); Praxair, Inc. v. Hinshaw & Culbertson, 235 F.3d 1028, 1036 (7th Cir. 2000) (“better representation would not have saved [client] from a judgment”); Campbell v. Magana, 8 Cal. Rptr. 32, 36 (Cal. Ct. App. 1960) (alleged damage “fell in the category of speculation, conjecture, and contingency”); Anthony v. Kaplan, 918 S.W.2d 174 (Ark. 1996) (client did not prove appeal would have been successful if timely filed); Loube v. Loube, 74 Cal. Rptr. 2d 906, 909 (Cal. Ct. App. 1998) (issue is “not what might or even what would have happened absent the alleged malpractice, but what should have happened”); Carlton v. Quint, 91 Cal. Rptr. 2d 844, 849-850 (Cal. Ct. App. 2000) (“sheer speculation” that, absent attorney’s alleged negligence in failing to serve a defendant, action would have been brought to trial within five-year period mandated by statute); Jalali v. Root, 1 Cal. Rptr. 3d 689, 696 (Cal. Ct. App. 2003) (“not even possible for a court to value the loss of the intangible psychic satisfaction of public vindication”); Thompson v. Halvonik, 43 Cal. Rptr. 2d 142, 145 (Cal. Ct. App. 1995) (plaintiff must show “appreciable and actual harm,” “mere possibility or even probability that damage will result from wrongful conduct does not render it actionable”); Ross v. Adelman, 725 S.W.2d 896, 897 (Mo. Ct. App. 1987) (record “totally devoid”of proof that “result would have been any different had respondent adequately prepared their defenses”).
6.5 Defenses to Settlement Malpractice Claims
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Non-Collectibility Cases
Proof of damages in a malpractice action conventionally requires a “trial within a trial.” The plaintiff must prove what the recovery would have been absent the defendant attorney’s negligence, necessitating expert testimony regarding the merits of the underlying case and, in particular, the likely settlement or judgment in the underlying action. The “trial within a trial” format, taken to its logical conclusion, requires proof not only of the settlement or judgment that “would have been” but also the amount of the settlement or judgment that actually would have been collected. Otherwise, the plaintiff client would recover from the negligent attorney an amount totally unrelated to the client’s actual loss.185 The jurisdictions that have addressed the “collectibility” issue have concluded it is a requisite element of a malpractice case.186 The courts, however, have split on the issue of which party has the burden of proof, the majority concluding that the burden is on the plaintiff since it is an element of proximate cause.187 A minority of courts regard collectivity as an affirmative defense to be raised by the defendant attorney, since the difficulty of proving collectivity may be the result of the attorney’s own delay and dereliction. In Smith v. Haden,188 for instance, the court decided that the “fairer approach is to wait until after malpractice has been proven and then to impose on the negligent attorney the burden of going forward with evidence to show that the damages imposed could not in fact have been recovered from the wrongdoer in the original case.”189
6.5.6
Another Attorney’s Negligence as an Intervening or Superseding Cause
Legal malpractice defense counsel also argue that, notwithstanding the defendant attorney’s alleged negligence, the actions of a different attorney were the proximate cause of the client’s alleged damages. In Musser v. Provencher,190 for example, the client sued her attorney for malpractice, and her attorney, in turn, cross-complained for indemnification against another attorney retained by the client. Although other courts had barred such indemnification claims for policy reasons – to avoid conflicts 185
Garretson v. Miller, 121 Cal. Rptr. 2d 317 (Cal. Ct. App. 2002). See Kituskie v. Corbman, 714 A.2d 1027, 1029 (Pa. 1998) and cases cited therein (“collectibility of damages in the underlying action should also be part of the analysis in a legal malpractice action”). 187 See Sitton v Clements, 257 F. Supp. 63 (E.D. Tenn. 1966), aff’d 385 F.2d 689 (6th Cir. 1967); Campbell v. Magana, 8 Cal. Rptr. 32 (Cal. Ct. App. 1960). 188 872 F. Supp. 1040, 1054 (D.D.C. 1994). 189 See Kituskie v. Corbman, supra n. 186. 190 48 P.3d 408 (Cal. 2002). 186
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of interest between attorneys and clients and to protect the confidentiality of attorney-client communications – the California Supreme Court held that these public policy reasons “do not obtain in this concurrent counsel case.” The courts have reached similar conclusions in other jurisdictions.191 A related issue is whether an attorney’s reliance on another attorney’s investigation is justified and, if justified, whether it is a complete defense to a malpractice action. In the limited circumstance of associated counsel, the court in Jeansonne v. Bosworth192 answered those questions affirmatively, holding that “an attorney receiving a case from another attorney is entitled to place some reliance upon that attorney’s investigation.”
6.5.7
Reduction of Malpractice Awards by the Amount of Attorneys Fees the Client Otherwise Would Have Paid the Attorney
If the purpose of a “trial within a trial” is to ascertain what the judgment and the client’s recovery should have been absent the attorney’s negligence, is the defendant attorney entitled to reduce his liability by the attorneys fees that the client would have paid had the attorney properly discharged his duties? The majority of courts that have addressed this issue conclude that, for public policy reasons, the costs that would have been incurred had the attorney met the standard of care generally are not an offset.193 Allowing a deduction for attorneys fees from the malpractice award, the courts reason, would penalize the client by forcing him to pay for both the negligent attorney and the malpractice lawsuit attorney and would compensate the attorney for negligently performed services. In refusing to offset the fees the attorney would have earned had he performed completely, the court in Kane, Kane & Kirtzer v. Altagen stated, “crediting the defendant with a fee he failed
191 See Gursey, Schneider & Co. v. Wasser, Rosenson & Carter, 92 Cal. App. 4th 15 (2001) (“where the indemnity suit is between lawyers who concurrently represented the same client in the same matter, and neither party still represents the client at the time of the indemnity suit, an indemnity suit generally should be permitted to proceed”); Crouse v. Brobeck, Phleger & Harrison, 80 Cal. Rptr. 2d 94 (Cal. Ct. App. 1998) (indemnity action permissible by subsequent attorney against former attorney); and Parler & Wobber v. Miles & Stockbridge, P.C., 756 A.2d 526 (Md. 2000) (client’s former attorney allowed to sue client’s successor counsel). Cf. Olds v. Donnelly, 696 A.2d 633, 643 (N.J. 1997) (former attorney cannot sue successor attorney); Beck v. Wecht, 48 P.3d 417 (Cal. 2002) (no fiduciary duty owed by associated counsel to co-counsel). 192 601 So. 2d 739, 741 (La. Ct. App. 1992). 193 See McCafferty v. Musat, 817 P. 2d 1039, 1045 (Colo. Ct. App. 1990); Andrews v. Cain, 406 N.Y.S. 2d 168 (N.Y. App. Div. 1978); Kane, Kane & Kritzer v. Altagen, 165 Cal. Rptr. 534 (Cal. Ct. App. 1980); Togstad v. Vesely, Otto, Miller & Keefe, 291 N.W.2d 686 (Minn. 1980); Christy v. Saliterman, 179 N.W.2d 288 (Minn. 1970); Winter v. Brown, 365 A.2d 381 (D.C. 1976); Duncan v. Lord, 409 F. Supp. 687 (E.D. Pa. 1976).
6.6 Chapter Capsule
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to earn not only rewards his wrongdoing but places on plaintiff’s shoulders the necessity of paying twice for the same service.”194
6.6
Chapter Capsule
An increasing number of legal malpractice claims relate to settlement counseling and decisions about whether to settle or try a case. Nearly one-half of all malpractice claims allege errors relating to the professional skills required in pre-trial case evaluations, negotiations and settlements. Clients asserting settlement malpractice claims generally fall into two categories: dissatisfied clients who resolved their cases by entering into settlement agreements and later claimed the settlements were inadequate, coerced, unauthorized or otherwise egregious; and hapless clients who proceeded to trial and later contended the case should have been settled. In the first category, the client claims center on eleven different types of alleged attorney negligence: (1) the client was inadequately advised regarding the settlement and trial prospects; (2) the attorney coerced the client into settling the case; (3) the attorney’s mistakes prevented the plaintiff from obtaining a better settlement or prosecuting the case to trial; (4) the attorney’s delays caused the client to forego more favorable settlement terms; (5) the attorney failed to disclose a conflict of interest, colluded with an adverse party or otherwise defrauded the client; (6) the attorney did not transmit settlement proposals; (7) the attorney failed to conduct adequate legal research, discovery or investigation before the settlement; (8) the attorney was not authorized to consent to the settlement agreement; (9) the settlement agreement was defectively drafted; (10) the client did not understand the settlement agreement; and (11) the attorney did not anticipate changes in the law or errors by the court. With respect to the second category of claims, clients allege two basic deficiencies: the attorney was remiss in failing to solicit a pre-trial settlement offer or effectuate a pre-trial settlement; and the client was not adequately apprised of the risk of an adverse verdict. Commonly asserted defenses to settlement malpractice claims include: (1) the client’s consent to the settlement bars a claim that the settlement was inadequate; (2) the client ratified the settlement agreement by accepting its benefits; (3) the
194
165 Cal. Rptr. 534, 538 (Cal. Ct. App. 1980), quoting Andrews v. Cain, (1978) 406 N.Y.S.2d 168 (N.Y. App. Div. 1978). See Lewis v. Uselton, 480 S.E.2d 856 (Ga. Ct. App. 1997) (attorney who violates client’s settlement instructions not entitled to a set-off of 40% contingency fee); Campagnola v. Mulholland, Minion & Roe, 555 N.E.2d 611 (N.Y. 1990) (offset for contingent fee due under retainer agreement impermissible). Cf. Titsworth v. Mondo, supra n. 57, 407 N.Y.S.2d at 799; Moores v. Greenberg, 834 F.2d 1105 (1st Cir. 1987); Sitton v Clements, supra n. 188; McGlone v. Lacey, 288 F. Supp. 662, 665 (D.S.D. 1968).
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client did not rely on the attorney’s advice; (4) the attorney’s decision is protected by the judgmental immunity rule; (5) the client cannot prove damages proximately caused by the attorney’s alleged negligence; (6) the negligence of another attorney was an intervening or superceding cause of any damage; and (7) any malpractice award should be reduced by the amount of attorneys fees the client otherwise would have paid.
Chapter 7
Ethical Implications of Attorney-Client Counseling and Decision Making
Your representative owes you, not his industry only, but his judgment; and he betrays instead of serving you if he sacrifices it to your opinion. Edmund Burke, Speech to the Electors of Bristol (November 3, 1774)
Attorneys may avoid legal malpractice liability for adverse case outcomes but nevertheless find themselves ensnared in state bar disciplinary actions regarding the client interactions that preceded the adverse outcomes. State bar disciplinary agencies operate independently of the civil liability system, and although they share some common concepts regarding professionally acceptable conduct, they differ markedly in purposes, procedures and governing principles. Civil liability, consequently, does not delimit professional responsibility. Although disciplinary actions in some jurisdictions require a higher degree of attorney culpability or willfulness than legal malpractice actions, the principal difference between civil liability and ethics discipline is not the standard of proof but rather the basis of liability.1 Legal malpractice actions require a breach of the standard of care, while disciplinary actions require a violation of an ethical rule. Malpractice actions also require legally cognizable damages, while disciplinary sanctions may be imposed without a showing of client harm.2 Disciplinary actions, accordingly, do not require proof of the standard of care exercised by reasonably careful attorneys; a violation of an ethical rule can be established without expert testimony; and an attorney’s
1
See Disciplinary Bd. v. Dvorak, 580 N.W.2d 586 (N.D. 1998), citing Wolfram, C. (1986). Modern Legal Ethics } 3.4, 109: “the standards of proof in disciplinary proceedings vary, with some courts using the preponderance of the evidence standard, others using the clear and convincing evidence standard, and others using the evidence beyond a reasonable doubt standard.” See also Munneke, G., & Davis, A. (1998). The Standard of Care in Legal Malpractice: Do the Model Rules of Professional Conduct Define It? Journal of the Legal Profession, 22, 44 (“In contrast to malpractice, the disciplinary system is designed to protect the interests of the public and the integrity of the legal profession from the misconduct of lawyers. Because law is a self-regulating profession, the integrity and credibility of all lawyers is impugned by the unsanctioned conduct of any.”) 2 See, for instance, Toledo Bar Ass’n. v. Bridgeforth, 531 N.E.2d 317 (Ohio 1988) (client not harmed by attorney‘s delay).
R. Kiser, Beyond Right and Wrong, DOI 10.1007/978-3-642-03814-3_7, # Springer-Verlag Berlin Heidelberg 2010
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license may be suspended or revoked without a showing of monetary damages sustained by the client. Sometimes the issues in legal malpractice and disciplinary actions overlap and the evidence is duplicative; but attorneys who are confident that they meet the standard of care practiced by their peers and do not cause financial damages to clients should never assume their conduct also satisfies the pertinent ethical rules. Consistent with this book’s emphasis on attorney-client decision making, this chapter does not catalog all the rules of professional conduct that regulate attorneys’ lives but instead narrowly focuses on the rules most likely to affect settlement negotiations and decision making. These rules are treated conceptually rather than sequentially so that attorneys comprehend the underlying ethical principles in the American Bar Association’s Model Rules of Professional Conduct and the states’ versions of these rules. After distilling the 58 rules in the Model Rules of Professional Conduct into precepts governing attorney-client decision making, eight principal duties emerge: l l l
l l l l l
The duty to communicate all material facts and events to clients. The duty to exercise independent judgment and render candid advice. The duty to provide adequate advice to clients to enable them to make informed decisions. The duty to identify and protect clients with diminished capacity. The duty to competently, diligently and expeditiously represent clients. The duty to abide by client decisions. The duty to prevent conflicts of interests in aggregate settlements. The duty to be candid and truthful in communications with clients, opposing counsel and the courts.
Although these rules appear to be elementary, attorneys acting with the best of intentions may fail to appreciate their extensive scope and strict application to interactions with clients, judges and opposing counsel. One of the most commonly voiced reasons for violating these ethical rules is an attorney’s misdirected effort to protect a client from worry and anxiety. In explaining why she did not inform a client that a judge had dismissed the client’s case, for example, an attorney explained: “If I told the client, the client would get hysterical. I am reasonably confident that I will get it straightened out.”3 This attitude may protect the client from unwarranted concern and the attorney from unwelcome scrutiny, but it disregards the attorney’s ethical duty to inform the client of all material developments in her case.
7.1
A Profile of Disciplinary Actions
Before analyzing the eight cardinal principles of ethical decision making, it is instructive to dispel the belief that disciplinary actions are a remote consideration for civil litigation attorneys, affecting only the stereotypical solo practitioner 3
Lerman, L. (1990). Lying to Clients. University of Pennsylvania Law Review, 138, 728.
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afflicted with substance abuse problems and unable to keep his hands off client trust funds. In reality, disciplinary actions are a potential exposure for responsible, experienced and occasionally fallible litigators acting in good faith consistent with the attitudes and practices of their peers. An analysis of the type of behavior sanctioned by state bar disciplinary boards and the demographic characteristics of disciplined attorneys demonstrates that, in the words of one discipline defense attorney, “discipline is not just for solos and small firm practitioners anymore.”4 Contrary to popular perceptions, most violations of ethical rules occur as a result of unintentional, inadvertent or ignorant actions. In a study of 3,500 disciplinary cases from all fifty states, law professors Patricia Hatamyar and Kevin Simmons found that only 29% of disciplinary actions related to patently intentional misconduct (mismanagement or misappropriation of property — 12%; fraudulent activity — 9%; and criminal activity — 8%).5 Violations of rules often perceived by attorneys as being “advisory,” “ambiguous,” or “aspirational,” constituted most of the disciplinary actions. Ethical lapses related to the duties of competence and diligence, for example, comprised 17% of all violations, and the broad category of “communications with clients” comprised 14% of the total violations. Other non-intentional conduct included conflicts of interest (4%), improper litigation conduct (5%) and fee disputes (6%).6 In only 8% of all cases was “harm to client” cited as an aggravating factor, indicating that, unlike legal malpractice actions, disciplinary actions may result in sanctions without proof of a tangible loss to the client.7 The fact that ethical violations often entail the “soft” skills that underpin attorney-client decision making is further evidenced by a study of complaints against attorneys filed with the State Bar of California in 2007. The category “handling of client funds,” which includes misappropriation and commingling, represented only 12% of all complaints, while the categories “performance” and “duties to clients” comprised 50% of all complaints.8 This allocation of allegation types has remained relatively constant for five years, the percentage of “performance” allegations, for example, varying from 34% to 38% of all complaints filed between 2003 and 2007.9 The profile of client complaints filed with the State Bar of California mirrors attorneys’ inquiries to the State Bar Ethics Hotline, a toll-free confidential service that responded to 20,992 calls from attorneys in 2007. Attorney questions related to conflicts of interest, communications with clients and adverse parties, and client 4
Weinberg, D. (2008, Sept. 26). Discipline Is Not Just For Solos And Small Firm Practitioners Anymore. State Bar Talks: New and Novel Ways to Lose Your License. 81st Annual Meeting of the State Bar of California, Program #86. 5 Matamyar, P., & Simmons, K. (2004). Are Women More Ethical Lawyers? An Empirical Study. Florida State University Law Review, 31, 811–812. 6 Ibid. 7 Ibid., 815. 8 Cerro, J. (2008, Sept. 26). Top Problem Areas for Honest Lawyers. State Bar Talks: New and Novel Ways to Lose Your License. 81st Annual Meeting of the State Bar of California, Program #86. 9 State Bar of California. (2008). 2007 Report on the State Bar of California Discipline System, 3.
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confidential information comprised 31% of all inquiries, while questions regarding a broad category of intentional misconduct (“Misconduct/Moral Turpitude/Trial Conduct”) comprised only 8% of all inquiries.10 Like their clients, attorneys raise performance and communication issues far more often than they cite archetypal misconduct like misappropriation of client trust account funds. For litigation attorneys whose image of a disciplined attorney is the shattered, beaten-down, rummy lawyer, as played by Paul Newman in The Verdict, the data suggests this image should be updated to include successful, confident attorneys who occasionally exercise poor judgment in representing clients. Similarly unfounded is the perception that attorney inexperience – the absence of mature judgment honed by years of practical experience in attorney-client relationships – is the real culprit in disciplinary actions. An attorney’s length of experience actually is negatively correlated with disciplinary actions, professors Hatamyar and Simmons found. “A disproportionate number of disciplined attorneys have been in practice more than 25 years,” they state, and “disciplined attorneys on average are older than attorneys generally and male disciplined attorneys on average are older than female disciplined attorneys.”11 The median age of disciplined attorneys in 2000 was 50 for men and 46 for women. In cases where the disciplinary agency found “aggravating factors” in meting out punishment, moreover, the attorneys “had substantial experience as a lawyer.”12 Practice, it appears, does not always make the exercise of judgment perfect but may tend to make it perfunctory.
7.2
The Duty to Communicate all Material Facts and Events to Clients
Model Rule 1.4(a) lays the foundation of sound attorney-client decision making: (a) A lawyer shall: (1) promptly inform the client of any decision or circumstance with respect to which the client’s informed consent, as defined in Rule 1.0(e), is required by these Rules; (2) reasonably consult with the client about the means by which the client’s objectives are to be accomplished; (3) keep the client reasonably informed about the status of the matter; (4) promptly comply with reasonable requests for information; and (5) consult with the client about any relevant limitation on the lawyer’s conduct when the lawyer knows that the client expects assistance not permitted by the Rules of Professional Conduct or other law. 10
Ibid., 31. Matamyar, P., & Simmons, K. (2004). Are Women More Ethical Lawyers? An Empirical Study. Florida State University Law Review, 31, 833. 12 Ibid. 11
7.2 The Duty to Communicate all Material Facts and Events to Clients
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The underlying premise of Rule 1.4(a), as explained in Comment 1, is that “reasonable communication between the lawyer and the client is necessary for the client effectively to participate in the representation.” Under Rule 1.4(a), a lawyer must “promptly consult with and secure the client’s consent prior to taking action” regarding decisions to be made by the client; “keep the client reasonably informed about the status of the matter, such as significant developments affecting the timing or the substance of the representation;” and promptly comply with a client’s request for information concerning the representation.13 Specifically, attorneys must promptly return or acknowledge client telephone calls and inform the client of any offer of settlement, “unless the client has previously indicated that the proposal will be acceptable or unacceptable or has authorized the attorney to accept or reject the offer.”14 Although an attorney may withhold information temporarily “when the client would be likely to react imprudently to an immediate communication,” the attorney is prohibited from withholding information “to serve the lawyer’s own interests or convenience or the interests or convenience of another person.”15 The general principles in Rule 1.4(a) requiring thorough and ongoing attorneyclient communications are complemented by a precise proscription against false or misleading communications in Rule 7.1: “A lawyer shall not make a false or misleading communication about the lawyer or the lawyer’s services. A communication is false or misleading if it contains a material misrepresentation of fact or law, or omits a fact necessary to make the statement considered as a whole not materially misleading.” A truthful statement may be misleading “if there is a substantial likelihood that it will lead a reasonable person to formulate a specific conclusion about the lawyer or the lawyer’s services for which there is no reasonable factual foundation.”16 State disciplinary agencies interpret an attorney’s duty to communicate broadly and have imposed disciplinary sanctions in a wide range of cases. Conduct declared to be violative of attorneys’ ethical duties include failures to return client phone calls within periods ranging from five days to two years;17 retain an interpreter when necessary to “bridge a communication barrier” with a client;18 inform a party that an attorney does not represent him;19 advise an unrepresented spouse of a
13
A.B.A. Model Rules of Prof’l Conduct R. 1.4 cmts. 2-4. A.B.A. Model Rules of Prof’l Conduct R. 1.4 cmts. 2, 4. 15 A.B.A. Model Rules of Prof’l Conduct R. 1.4 cmt. 7. 16 A.B.A. Model Rules of Prof’l Conduct R. 7.1 cmt. 2. 17 In re Matson, 512 S.E.2d 15 (S.C. 1999); In the Matter of Bach, 1 Cal. State Bar Ct. Rptr. 631, 642 (Review Dep’t 1991); Matter of Blankenburg, 694 P.2d 195 (Ariz. 1984); In Re Hull, 767 A.2d 197 (Del. 2001); In Re Hiner, Board Case No. 54 (2002), aff’d, 813 A.2d 1140 (Del. 2002). 18 New York City Bar Op. 1995-12 (1995). See Gold v. State Bar, 782 P.2d 264 (Cal. 1989) (attorney may be required to employ interpreter or refer case to another attorney). 19 Butler v. State Bar, 721 P.2d 585 (Cal. 1986). 14
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possible tort claim;20 respond to client’s inquiries;21 provide advice or offer opinions even when not requested by the client;22 inform a client of statutory deadlines and the consequences of missing deadlines;23 notify a client that his attorney did not take action because the attorney deemed it futile or frivolous;24 inform clients of court hearings and orders;25 advise a client of a potential conflict of interest;26 disclose payments from non-clients;27 inform clients of a law firm dissolution or the departure or death of a paralegal or attorney;28 explain an attorney fee agreement and the basis for payment;29 disclose that temporary attorneys will handle certain motions and depositions;30 advise a client that his attorney’s negligence constitutes grounds for a malpractice claim against the attorney;31 and supervise administrative staff, paralegals and attorneys to insure that clients are adequately informed of the status of their cases.32 These examples are by no means exhaustive but rather illustrate the wide scope of the duty to communicate. Of particular concern to disciplinary agencies is an attorney’s failure to inform clients of settlement proposals. Because an attorney cannot accept a settlement proposal without the client’s consent, it is imperative that attorneys promptly inform clients of settlement proposals and explain the content, conditions and consequences of the proposal. Disciplinary agencies have not hesitated to revoke or suspend an attorney’s license to practice law when an attorney violates the duty
20
Meighan v. Shore, 40 Cal. Rptr. 2d 744, 754 (Cal. Ct. App. 1995). See Nichols v. Keller, 19 Cal. Rptr. 2d 601 (Cal. Ct. App. 1993). 21 In re Riccio, 517 N.Y.S.2d 791 (N.Y. App. Div. 1987); In re Sousa, 915 P.2d 408 (Or. 1996); Friedman v. State Bar, 786 P.2d 359 (Cal. 1990); Matter of Curtis, 908 P.2d 472 (Ariz. 1995). 22 Nichols v. Keller, supra n. 20. 23 Nassau County Bar Op. 94-1 (1994). In the Matter of Ward, 2 Cal. State Bar Ct. Rptr 47 (Review Dep’t 1992); Lister v. State Bar, 800 P.2d 1232 (Cal. 1990). 24 Cuyahoga Bar Ass’n v. Britt, 846 N.E.2d 39 (Ohio 2006). In the Matter of Respondent C, 1 Cal. State Bar Ct. Rptr. 439, 451 (Review Dep’t 1991); Board Cases Nos. 44 & 45, 197 (Office of Disciplinary Counsel, Del., Nov. 25, 1997). 25 In re Fulton, 463 S.E.2d 319 (S.C. 1995). Cuyahoga Bar Ass’n v. Belkin, 748 N.E.2d 21 (Ohio 2001); Matter of Brady, 923 P.2d 836 (Ariz. 1996); Matter of Mulhall, 822 P.2d 947 (Ariz. 1992). 26 Cincinnati Bar Ass’n v. Schwartz, 660 N.E.2d 422 (Ohio 1996). 27 Office of Disciplinary Counsel v. Linick, 705 N.E.2d 667 (Ohio 1999). 28 Vollgraf v. Block, 458 N.Y.S.2d 437 (N.Y. Sup. Ct. 1982); Arizona Ethics Op. No. 99-14 (1999); Florida Ethics Op. 86-5 (Aug. 1, 1986). 29 Matter of Chard, 881 P.2d 1150 (Ariz. 1994); Colorado Bar Ass’n (1997). Use of Conversion Clauses in Contingent Fee Agreements (Formal Op. 100). In re Marriage of Pitulla, 559 N.E.2d 819 (Ill. Ct. App. 1990). 30 Illinois State Bar Ass’n Advisory Op. No. E92-07 (Jan. 22, 1993). 31 See Illinois State Bar Ass’n. Op. 88-11 (1988); Rhode Island Supreme Court Op. 94-70 (September 28, 1994) and Restatement (Third) of the Law Governing Lawyers, }31, cmt. c. (2000). 32 Matter of Struthers, 877 P.2d 789 (Ariz. 1994); Matter of Galbasini, 786 P.2d 971 (Ariz. 1990); Columbus Bar Ass’n. v. Flanagan, 674 N.E.2d 681 (Ohio 1997); In the Matter of Ward, supra n. 23, 2 Cal. State Bar Ct. Rptr. at 204-205; Matter of Lenaburg, 864 P.2d 1052 (Ariz. 1993); Kaplan v. Kentucky Bar Ass’n., 76 S.W.3d 921 (Ky. 2002).
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to communicate settlement offers or usurps the client’s right to accept or decline an offer.33 Attorneys, accordingly, have been disciplined for failing to transmit offers deemed by the attorney to be ambiguous or invalid,34 failing to adequately explain a settlement offer,35 and settling a case without the client’s permission.36 Because every attorney has an independent professional duty to inform clients of settlement offers, an associate attorney who fails to transmit a settlement offer to a client, despite express direction from a senior attorney to decline the offer, is subject to disciplinary action.37 Although the Comments to Rule 1.4 state that an attorney is not required to transmit a settlement proposal when “the client has previously indicated that the proposal will be acceptable or unacceptable or has authorized the lawyer to accept or to reject the offer,” attorneys assume an extraordinary risk in relying on this exception to the general rule requiring transmission of the proposal.38 The better practice is to transmit and advise clients regarding all settlement proposals, avoiding any misunderstanding. Even if a client has delegated settlement authority to the lawyer, prudent practice dictates that the attorney expressly inform the client of the proposal.39 In at least one jurisdiction, an express delegation of the client’s right to accept or reject a settlement offer was found to be unethical, even “if the client disappears or the lawyer is otherwise unable to communicate with the client.”40 Violations of the general duty to communicate regularly and truthfully to clients occur in seemingly routine conversations between attorneys and clients, and attorneys often overlook their own misconduct in these familiar interactions. As law professor Lisa Lerman found in her study of attorney-client communications, “lawyers deceive their clients more than is generally acknowledged by the ethics codes or the bar. In some cases the deception may be appropriate (if, for example, it is used to protect a clients from injury); in other situations it is unethical and exploitative.”41 Professor Lerman asked attorneys to recall circumstances where
33 Matter of Tarletz, 789 P.2d 1049 (Ariz. 1990); Matter of Coburn, 832 P.2d 186 (Ariz. 1992); Florida Bar v. Glick, 693 So. 2d 550 (Fla. 1997); Toledo Bar Ass’n v. Slack, 725 N.E.2d 63 (Ohio 2000); In re Ring, 464 S.E.2d 328 (S.C. 1995); Levin v. State Bar, 767 P.2d 689 (Cal. 1989). See Burton v. Estrada, 501 N.E.2d 254 (Ill. App. Ct. 1986). 34 Miller v. Byrne, 916 P.2d 566 (Colo. Ct. App. 1995). 35 In Re Wolhar, Board Case No. 21 (1992), aff ’d, 670 A.2d 1341 (Del. 1995). 36 Levin v. State Bar, supra n. 33. 37 Philadelphia Bar Ass’n Prof’l Guidance Comm., Pennsylvania Ethics Op. 94–25, (1994). 38 See Matter of Wolfram, 174 Ariz. 49, 847 P.2d 94 (Ariz. 1993). 39 Colorado Rules of Prof’l Conduct 1.4, cmt. 1 (“in order to avoid misunderstandings and hence to maintain public confidence in law and lawyers, a lawyer shall fully and promptly inform the client of material developments in the matters being handled for the client”). 40 Arizona Ethics Op. No. 06-07 (2006). 41 Lerman, L. (1990). Lying to Clients. University of Pennsylvania Law Review, 138, 669, fn. 37. Lerman cites Burke, R. (1984). “Truth in Lawyering:” An Essay on Lying and Deceit in the Practice of the Law. Arkansas Law Review, 38, to support her controversial findings: “For years we have ‘winked, blinked and nodded’ at blatant, if not outrageous, lying and deception in pleading,
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they or other attorneys had deceived clients, and she concluded “some forms of deceptions may be widespread.” Common instances of deception included stories about fees, exaggerations about an attorney’s expertise or case results, mischaracterizations of mistakes made while representing clients and misstatements about case status in general and settlement negotiations in particular. Professor Lerman cites an attorney’s explanation of his usual approach to case evaluation as an example of a commonplace, deceptive communication: In evaluating the value of a case I always lowball. Clients have misconceptions from the newspapers. They think they won the lottery when they get hurt. . . . I understate what is likely. Sometimes they get a lawyer who gives a higher number . . . If I tell them [honestly] what I think the case is worth, then they think they got what was coming to them.42
Some attorneys in Professor Lerman’s study expressed a reluctance to share their assessment of the case with the client, and one attorney stated that he “almost never” confirms his estimate in writing. Another attorney explained that, in giving an estimate to a client, “one risked losing the client if the estimate was either too high or too low.”43 Although these practices might be regarded as somewhat paternalistic attempts to protect the client from unrealistic expectations, Professor Lerman argues the lawyer should disclose “what she knows about the value of the case and the uncertainty of the outcome. If the lawyer withholds any information, then the conduct is deceptive.”44 In addition to fibbing about the value of a case, some lawyers also misrepresent the substance or progress of settlement negotiations. In Douglas Rosenthal’s study of personal injury cases in 1974, one lawyer described how he modulated clients’ expectations: Theoretically, it’s unethical not to report accurately negotiations with an insurer to the client. But you can’t, and no lawyer does. You tell him about it in such a way that he is prepared to be satisfied. Say the other side offers $5,000. You tell the client that they offered $3,000. He’ll say, “That’s no good.” You agree and say, casually, that you will try to get $4,500 out of them which would be fine. He’s still not happy, but reluctantly agrees. Two days later you call him back with the “good news” that you got him more than he expected, $5,000. Now the client is prepared to be happy. You know what is a good settlement and what he should take. If it is necessary to lie and cheat him to get him to accept what’s good for him you do it.45
The attorney’s remarks in Rosenthal’s study were substantively replicated in Lerman’s interviews, conducted about 16 years later. An attorney she interviewed acknowledged “he might say to a client that in dealing with his adversary, ‘we’ve gone round and
negotiating, investigating, testifying and bargaining. In almost every aspect of our professional practice, we have come to accept, in fact to expect, a certain amount of lying and deception.” 42 Ibid., 734. 43 Ibid., 734–735. 44 Ibid., 735. 45 Rosenthal, D. (1974). Lawyer and Client: Who’s in Charge?, cited in Lerman, L. (1990). Lying to Clients. University of Pennsylvania Law Review, 138, 700–701.
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round on this’ when in fact they had not.”46 Another attorney conceded: “I am not sure I always accurately portray the negotiations [with opposing counsel] to the client. I always portray that I had to fight for it. I have never called a client and said, ‘My God, he just gave in – I didn’t have to do anything.’”47 Whether these attorneys’ comments reflect adroit management of client expectations in a competitive business or a sanctionable violation of professional ethics is partially answered in disciplinary proceedings like Matter of Varbel48 and In Re Reid.49 In Varbel, the attorney was suspended from the practice of law for two years for failing to promptly inform his client of a settlement offer and, following a specific client inquiry about settlement offers, misrepresenting the offer to be $10,000 when in fact it was $18,000. In Reid, an attorney was disciplined for telling a client that the amount of the settlement was $6,000 when it was actually $9,000. Ethical client relations, it appears, permit no margin for manipulating client expectations, spinning settlement offers and portraying the attorney as a masterful negotiator when the performance is prosaic.
7.3
The Duty to Exercise Independent Judgment and Render Candid Advice
Model Rule 2.1 imposes a comprehensive duty of professional independence, breadth and candor: “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 to other considerations such as moral, economic, social and political factors, that may be relevant to the client’s situation.” These duties are imposed despite their potential to offend, alienate or discourage clients, as explained in Comment 1: A client is entitled to straightforward advice expressing the lawyer’s honest assessment. Legal advice often involves unpleasant facts and alternatives that a client may be disinclined to confront. In presenting advice, a lawyer endeavors to sustain the client’s morale and may put advice in as acceptable a form as honesty permits. However, a lawyer should not be deterred from giving candid advice by the prospect that the advice will be unpalatable to the client.
Because clients are entitled to candid assessments, lawyers are required to disclose information which the client finds unpleasant or objectionable and are prohibited from “allowing avarice or a desire for professional recognition to affect the advice given to a client.”50 At a minimum, lawyers must inform clients of all relevant 46
Lerman, L. (1990). Lying to Clients. University of Pennsylvania Law Review, 138, 733. Ibid., 733. 48 897 P.2d 1337 (Ariz. 1995). 49 540 A.2d 754 (D.C. 1988). 50 Lerman, L. (1990). Lying to Clients. University of Pennsylvania Law Review, 138, 691. 47
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considerations and “the lawyer should initiate the decision making process if the client does not do so.”51 Consistent with the broad duties delineated in Rule 2.1, an attorney may be required to render advice regarding non-legal considerations when practical considerations are “predominant” and “purely technical legal advice” would be inadequate.52 An attorney also may have an affirmative duty to proffer advice “when a lawyer knows that a client proposes a course of action that is likely to result in substantial adverse legal consequences to the client.”53 Broad discretion is accorded to an attorney in initiating advice to a client “when doing so appears to be in the client’s interests,” although a lawyer “ordinarily has no duty to initiate investigation of a client’s affairs or to give advice that the client has indicated is unwanted.”54 When a competent attorney would recommend a consultation with a professional in another field, an attorney is obligated to make such a recommendation and then recommend “a course of action in the face of conflicting recommendations of experts.”55 Although the language of Rule 2.1 is permissive in allowing attorneys to refer to non-legal considerations, Comment 2 indicates that the omission of non-legal factors may result in inadequate advice because “moral and ethical considerations impinge upon most legal questions and may decisively influence how the law will be applied.” This Comment and the other Comments to Rule 2.1 “imply that a lawyer’s general duties to provide competent representation and to communicate with his client may require nonlegal counseling in certain instances.”56 Read in conjunction with Rule 1.4, discussed in the previous section, the Comments to Rule 2.1 indicate that “attorneys, in some cases, can properly communicate with their clients only if they explain both the legal and nonlegal considerations at issue.”57 The Restatement (Third) of the Law Governing Lawyers, in fact, states that counseling regarding nonlegal matters may be required: “A lawyer’s advice on significant nonlegal aspects of a matter may be particularly appropriate when the client reasonably appears to be unaware of such considerations or their importance or when it should be apparent that the client expects more than narrow legal
51
Office of Disciplinary Counsel v. Hardesty, 687 N.E.2d 417 (Ohio 1997). A.B.A. Model Rules of Prof’l Conduct R. 2.1 cmt. 2. 53 A.B.A. Model Rules of Prof’l Conduct R. 2.1 cmt. 5. 54 A.B.A. Model Rules of Prof’l Conduct R. 2.1 cmt. 5. 55 A.B.A. Model Rules of Prof’l Conduct R. 2.1 cmt. 4. 56 Gantt, L. (2005). More Than Lawyers: The Legal and Ethical Implications of Counseling Clients on Nonlegal Considerations. Georgetown Journal of Legal Ethics, 18, 372. Professor Gantt also notes that attorneys should be cautious in providing nonlegal advice, as it may violate the duty of competence under Rule 1.1. 57 Ibid., 375. 52
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counsel. A lawyer is required to provide such assistance when necessary in the exercise of care [to meet the standard of care and attorneys’ fiduciary duties].”58 The practices of withholding negative opinions and molding legal advice to satisfy clients’ business interests may violate an attorney’s duties of candor and professional independence. Both of these practices are described by the attorneys interviewed in professor Lerman’s study. She found that “many lawyers keep these [negative] opinions to themselves and flatter their clients.”59 As one attorney explained, “You don’t bite the hand that feeds you.”60 Because some attorneys will not risk offending their clients, they refrain from providing an independent, professional evaluation of a client’s case: Where a client has a really weak case . . . and I know it’s going to be an issue, instead of saying to the client, well I think you really fucked up here, I’ll say . . . I know this is going to be an issue. How would you respond if you are asked this . . . without . . . accusing them of misconduct. . . . It’s important for most clients that their lawyers believe that what they did was right.61
Another attorney said he would not tell a client that he disbelieved the client’s defense in an assault case. Yet another attorney acknowledged that “a lot of times” he had agreed with opposing counsel that his own client was a “jerk, overdemanding, and unreasonable,” but he would not disclose those conversations to the clients – “I’m a member of [the client’s] development team,” he demurs.62 Displaying a similar lack of candor and independence, some attorneys consciously provide inadequate or incorrect legal advice, according to an associate in a medium size firm: I think misstatements of the intent of the law is [sic] one of the most prevalent and odious forms of deception in the legal business. There are certain corporate practices perceived by certain industries to be necessary to survival, and many of them are clearly illegal. . . . Clients will shop around until they find a law firm that will sanction in an “opinion letter” the doing of an illegal act. The letters are usually written with a thousand escape hatches: “if the facts are as you have presented them, blah, blah,” but the bottom line message is, “yes you can do it even though the law is intended not to permit it.” The firm writes the letter to keep the faith of the large client and to keep the business coming.63
Both of these practices – withholding negative assessments and smoothing legal advice – may violate the duty to provide candid and independent advice.64 Restatement (Third) of the Law Governing Lawyers, }20 cmt. h (2000), cited in Gantt, L. (2005). More Than Lawyers: The Legal and Ethical Implications of Counseling Clients on Nonlegal Considerations. Georgetown Journal of Legal Ethics, 18, 372. 59 Lerman, L. (1990). Lying to Clients. University of Pennsylvania Law Review, 138, 735. 60 Ibid., 735. 61 Ibid., 736. 62 Ibid., 736. 63 Ibid., 733–734. 64 See Simon, W. (2007). The Market for Bad Legal Advice: Academic Professional Responsibility Consulting as an Example. Columbia Public Law Research Paper No. 07-158; Stanford Public Law Working Paper No. 1025984. Available at SSRN: http://ssrn.com/abstract=1025984. 58
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“The lawyer’s job,” explains former Yale Law School Dean Anthony Kronman, “is not merely to supply whatever means are needed to achieve the client’s goals but also to deliberate with the client and on his behalf about these goals.”65 This duty may not be compromised to meet the vicissitudes of a highly competitive market for law firm clients.66
7.4
The Duty to Provide Adequate Advice to Enable Clients to Make Informed Decisions
Model Rule 1.4, delineating the duty to communicate, includes both an obligation to transmit case information to a client and a responsibility to obtain and clearly explain information essential to client decision making. Under Rule 1.4(b), an attorney “shall explain a matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation.” The degree to which a client’s decision must be “informed” is guided, in some circumstances, by the definition of “informed consent” in Rule 1.0(e): “‘Informed consent’ denotes the agreement by a person to a proposed course of conduct after the lawyer has communicated adequate information and explanation about the material risks of and reasonably available alternatives to the proposed course of conduct.”67 The concept of an attorney acting as a passive, neutral conduit in settlement negotiations, relegating evaluation of a settlement proposal’s terms to the client after dutifully following the client’s direction to commence litigation, is antithetical to Rule 1.4. As a preliminary matter, an attorney representing a client in a case likely to involve litigation may be required “to inform the client of forms of dispute resolution that might constitute reasonable alternatives to litigation.”68 Once in litigation, an attorney “should explain the general strategy and prospects of success and ordinarily should consult the client on tactics that are likely to result in significant expense or to injure or coerce others.”69 When a settlement proposal has been received, the attorney “should review all important provisions with the client before proceeding to an agreement.”70 The determination of whether information is “important” or “material” for a client to make an informed decision often is resolved in favor of the client, as the attorney is in a superior position to discern Le Mire, S. & Parker, C. ‘The Client is King’: Ethics in the Relationship between Large Law Firm Lawyers and their Corporate Clients through the Eyes of In-House Counsel. U of Melbourne Legal Studies Research Paper No. 362. Available at SSRN: http://ssrn.com/abstract=1285323. 65 Quoted in Akron Bar Ass’n v. Miller, 684 N.E.2d 288, 291 (Ohio 1997). 66 See Office of Disciplinary Counsel v. Hardesty, supra n. 51. 67 See A.B.A. Model Rules of Prof’l Conduct R. 1.4 cmt. 5. 68 A.B.A. Model Rules of Prof’l Conduct R. 2.1 cmt. 5. 69 A.B.A. Model Rules of Prof’l Conduct R. 1.4 cmt. 5. 70 Id.
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and ameliorate any misunderstandings.71 Thus, an attorney may breach her ethical duties through a wide range of impermissible omissions and erroneous assumptions: failing to volunteer information,72 limiting advice to strictly legal issues,73 failing to explain the risks and benefits of alternative legal procedures,74 unilaterally deciding not to file an appeal because, in the attorney’s opinion, it would be fruitless,75 neglecting to update the client on the amount of attorneys fees as they are incurred76 and making unilateral decisions that usurp the client’s prerogatives.77 Although attorneys routinely obtain clients’ consent before undertaking major legal procedures and accepting or rejecting settlement proposals, it is uncertain whether the “informed” component of informed consent is fully realized. For many contemporary practitioners, consent is more likely to connote liability protection for the law firm than an explanation of alternatives and an assessment of risks for the client, frustrating the underlying purpose of informed consent requirements. Like the medical profession, the legal profession is assiduous in obtaining consent but ambivalent about what constitutes informed consent. This ambivalence arises because “courts have not focused on the question of what standard governs disclosure,” and to the extent standards have been enunciated, they are far from clear.78 One opinion, for instance, vaguely defines the scope of disclosure as embracing material facts “which, if known to the client, might well have caused him, acting as a reasonable man, to alter his proposed course of conduct.”79 Absent the prescient ability to discern what “might well” have caused a client to elect a different course of action, practitioners must err on the side of presenting comprehensive explanations and expansive options. Cognizant of the imprecision and inconsistency in defining “informed consent,” law professors have attempted to specify the governing principles. Law professor Mark Spiegel emphasizes two fundamental duties: (1) the obligation “to identify for his client the alternative courses of action,” the attorney’s professional expertise determining the range of options and the client’s needs determining whether a particular option should be communicated; and (2) the duty “to evaluate the likely
71
Matter of Curtis, supra n. 21. Nichols v. Keller, supra n. 20. 73 Office of Disciplinary Counsel v. Hardesty, supra n. 51. 74 Metrick v. Chatz, 639 N.E.2d 198, 201 (Ill. App. Ct. 1994); Columbus Bar Ass’n v. Flanagan, supra n.33. See Kentucky Bar Ass’n E-404 (June 1998) (“obtaining the full and informed consent of ‘other clients’ could prove problematic given the absence of benefit to such clients and the potential effects of misuse or abuse of such information”). 75 See Delaware Board Case Nos. 44 & 45 (Nov. 25, 1997). 76 Florida Bar v. Vining, 761 So. 2d 1044 (Fla. 2000). 77 See Matter of Shannon, 876 P.2d 548 (Ariz. 1994). 78 Spiegel, M. (1999). Lawyering and Client Decisionmaking: Informed Consent and the Legal Profession. University of Pennsylvania Law Review, 128, 69. 79 Spector v. Mermelstein, 361 F. Supp. 30, 40 (S.D.N.Y. 1972), modified on other grounds, 485 F.2d 662 (1970), cited in Spiegel, M. (1979). Lawyering and Client Decisionmaking: Informed Consent and the Legal Profession. University of Pennsylvania Law Review, 128, 68. 72
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consequences of each alternative, disclosing as clearly as possible the certainty or uncertainty of his judgments.”80 Another model of informed consent is proposed by law professor Susan Martyn, who asserts that liability should be imposed when “the lawyer failed to disclose reasonably foreseeable choices of action in a manner permitting the client to make a knowledgeable evaluation of the legal consequences of the choices.”81 Under her proposed standard, “when the law is unclear, or when the law is well-defined but different practical alternatives are available, the test of any attorney’s adequate performance does not depend upon the correctness of the choice made, but rather upon who made the choice.”82 Professor Martyn’s position is premised on the conviction that clients are entitled to be “fully informed of the nature and course” of the attorney’s representation and must consent to decisions that “may affect the outcome of the case.”83
7.5
The Duty to Identify and Protect Clients with Diminished Capacity
Often neglected is the duty to observe clients’ behavior and determine whether their capacity to make rational decisions is impaired. This duty and the attendant responsibility to take protective action are described in Rule 1.14: (a) When a client’s capacity to make adequately considered decisions in connection with a representation is diminished, whether because of minority, mental impairment or for some other reason, the lawyer shall, as far as reasonably possible, maintain a normal client-lawyer relationship with the client. (b) When the lawyer reasonably believes that the client has diminished capacity, is at risk of substantial physical, financial or other harm unless action is taken and cannot adequately act in the client’s own interest, the lawyer may take reasonably necessary protective action, including consulting with individuals or entities that have the ability to take action to protect the client and, in appropriate cases, seeking the appointment of a guardian ad litem, conservator or guardian. (c) Information relating to the representation of a client with diminished capacity is protected by Rule 1.6. When taking protective action pursuant to paragraph (b), the lawyer is impliedly authorized under Rule 1.6(a) to reveal information about the client, but only to the extent reasonably necessary to protect the client’s interests. 80
Spiegel, M. (1979). Lawyering and Client Decisionmaking: Informed Consent and the Legal Profession. University of Pennsylvania Law Review, 128, 134. 81 Martyn, S. (1980). Informed Consent in the Practice of Law. George Washington Law Review, 48, 346. 82 Ibid., 348. 83 Ibid., 332.
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Rule 1.14, therefore, imposes upon every attorney a duty to appraise a client’s ability “to understand, deliberate upon, and reach conclusions about matters affecting the client’s own well-being.”84 To assess a client’s mental condition, the attorney may be required to employ skills far beyond an ordinary attorney’s experience and training. Comment 6 to Rule 1.14 specifies the wide scope of the attorney’s inquiry: “In determining the extent of the client’s diminished capacity, the lawyer should consider and balance such factors as: the client’s ability to articulate reasoning leading to a decision, variability of state of mind and ability to appreciate consequences of a decision; the substantive fairness of a decision; and the consistency of a decision with the known long-term commitments and values of the client. In appropriate circumstances, the lawyer may seek guidance from an appropriate diagnostician.” A client’s “mental incapacity” may be evidenced by (1) “a pattern demonstrating an inability to recognize as relevant to decisions of significance, facts or considerations that one would expect reasonable and competent persons to recognize as relevant to such a decision;” (2) a pattern “demonstrating an inability to reason with respect to decisions that are relatively simple but personally important, in a way that is internally consistent;” or (3) a mental disease or condition that interferes with “perceptions or reasoning to such an extent as to raise a substantial likelihood that decisions relating to matters of importance” have been affected by the mental disease or condition.85 As a practical matter, these psychological factors would be difficult for most attorneys to evaluate while representing fully functional adults, let alone mentally impaired clients, in litigation cases. The prevalence of mental disease in the United States demonstrates that many attorneys would be required to assess their clients’ mental capacity to make legal decisions, even if the attorneys are uncertain about their own qualifications to make that assessment. Nearly one-quarter of adult Americans have a diagnosable mental disorder, and 5% of the population suffers from a major depressive disorder. Bipolar disorder and schizophrenia affect 1.1% and 1.2% of the population, respectively.86 Among adults over 65 years of age, 10% are afflicted with Alzheimer’s disease; for those over 85 years of age, nearly 50% suffer from the disease.87 That these types of mental disorders may cause a client to be mentally impaired has been recognized in multiple disciplinary actions and opinions involving depression,88
84
A.B.A. Model Rules of Prof’l Conduct R. 1.14 cmt. 1. See First Christian Church v. McReynolds, 241 P.2d 135 (Or. 1952). 85 In Re Gordy, 658 A.2d 613, 617 (Del. Ch. 1994), citing Del. Code Ann. tit. 12, }3901. 86 National Institute of Health. (2001). The Numbers Count: Mental Disorders in America (NIH Publication No. 01-4584). Washington, DC: U.S. Government Printing Office. See U.S. Public Health Service. (1999). Mental Health: A Report of the Surgeon General. Washington, DC: U.S. Government Printing Office. 87 Alzheimer’s Association. (2005). Basics of Alzheimer’s Disease, 8. 88 Hill v. Hill, C.A. No. S-85-9-17C, 1989 Del. Fam. Ct. LEXIS 19 (Jan. 24, 1989).
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threatened suicide,89 hostility,90 alcoholism,91 physical abuse,92 advanced age,93 substance abuse,94 unstable behavior,95 schizophrenia,96 Down’s Syndrome,97 senility,98 and dependent personality disorder.99 When an attorney determines that a client “is at risk of substantial physical, financial or other harm unless action is taken, and that a normal client-lawyer relationship cannot be maintained . . . because the client lacks sufficient capacity to communicate or to make adequately considered decisions,” a lawyer may take protective measures.100 These measures include “consulting with family members, using a reconsideration period to permit clarification or improvement of circumstances, using voluntary surrogate decision-making tools such as durable powers of attorney or consulting with support groups, professional services, adult protective agencies or other individuals or entities that have the ability to protect the client.”101 In weighing alternatives, an attorney should consider the client’s best interests, goals, values and wishes, intruding into the client’s decision-making autonomy “to the least extent feasible.”102 If necessary to protect the client’s interests, an attorney may consider appointment of a guardian, conservator or legal representative, but an attorney generally should advocate the least restrictive action.103 In the specific circumstance where a lawyer believes a client is acting irrationally in declining a settlement offer, an attorney may petition the court for a personal representative.104 In any event, the attorney may not represent a third party in a proceeding for appointment of a guardian for the client but must file the petition on her own authority.105 One of the most controversial issues in seeking appointment of a representative is whether the attorney may reveal the conditions constituting the grounds for the petition. Information regarding the client’s mental condition usually is acquired in the course of representing the client and, therefore, is protected from disclosure by
89
Arizona Ethics Op. No. 91-18 (1991). Connecticut Informal Op. 00-5 (2002). Connecticut Informal Op. 92-26 (1992). 91 Connecticut Informal Op. 98-17 (1998). 92 See Arizona Ethics Op. No. 2001–02. 93 In re Girard, 548 N.E.2d 1051 (Ill. 1989). ABA Formal Op. 95-393 (Apr. 24, 1995). 94 In re Ronell A., 52 Cal. Rptr. 2d 474. (Cal. Ct. App. 1996). 95 In re: Indira, C.A. No. 8901-NC, 1999 Del. Ch. LEXIS 117, at *1 (Del. Ch. June 4, 1999). 96 Office of Disciplinary Counsel v. Liviola, 763 N.E.2d 588 (Ohio 2002). 97 In re M.R., 638 A.2d 1274 (N.J. 1994). 98 Office of Disciplinary Counsel v. Slavens, 586 N.E.2d 92 (Ohio 1992). 99 In re R.S., 213 Cal. Rptr. 690 (Cal. Ct. App. 1985). 100 A.B.A. Model Rules of Prof’l Conduct R. 1.14 cmt. 5. 101 Id. 102 Id. 103 Id. 104 State Bar of Michigan Standing Comm. on Prof’l Ethics, RI-76. 105 ABA Formal Op. 96-404 (Aug. 2, 1996). 90
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the attorney-client privilege.106 Disclosure of that information could violate the attorney’s duty of confidentiality under Rule 1.6 and may result in the client’s involuntary commitment.107 Noting that the attorney’s dilemma in these circumstances “is an unavoidably difficult one,” Comment 8 to Rule 1.14 states, “When taking protective action [consulting with individuals or entities and seeking the appointment of a guardian ad litem, conservator or guardian], the lawyer is impliedly authorized to make the necessary disclosures, even when the client directs the lawyer to the contrary.” The ABA’s position, permitting limited disclosure of otherwise confidential communications, has been adopted by many states. In Arizona, for instance, a client’s statement threatening suicide may be revealed to a mental health professional to facilitate an assessment of the client’s ability to act in the client’s best interests.108 The disclosure, however, is limited “to the extent reasonably necessary to protect the client’s interests.”109 In Connecticut, a similar exception to the attorney-client privilege is afforded where the client communicates an intent to commit suicide.110 In less serious circumstances, where a client is intermittently cogent and manifests deep hostility toward her attorney, accusing the attorney of conspiring against her, the attorney should send a letter to the client stating his evaluation of the case, urging the client to obtain new counsel, and notifying the client of his intent to file a motion to withdraw as counsel.111 The least intrusive measure is preferable, as “the appointment of a guardian is a serious deprivation of the client’s rights and ought not be undertaken if other, less drastic solutions are available.”112 In California, which did not adopt Model Rule 1.14, an attorney is ethically constrained from petitioning a court for appointment of a conservator for the client and disclosing client confidences in connection with a proceeding for appointment of a conservator. Both actions, according to California ethics opinions, would violate an attorney’s duties of loyalty and confidentiality and could constitute a conflict of interest.113 San Diego County Bar Association Ethics Opinion No. 1978-1 is emphatic in this regard: “Since the attorney could not either initiate the conservatorship proceedings, nor cause them to be initiated by other individuals, without revealing the confidences of the client, the attorney could not initiate conservatorship 106
See Model Rule 1.6, prohibiting the disclosure of “information relating to the representation of a client” except under specified conditions. 107 A.B.A. Model Rules of Prof’l Conduct R. 1.14 cmt. 8. 108 Arizona Ethics Op. No. 91-18. See Arizona Ethics Op. No. 90-12 and No. 2001–02. 109 Arizona Ethical Rule 1.14(c). 110 Informal Op. 00-5 (2000). 111 Informal Op. 92-26 (1992). 112 ABA Formal Op. 96-404 (Aug. 2, 1996). 113 See C.O.P.R.A.C. [Committee on Professional Responsibility and Conduct, a standing committee of the State Bar of California Board of Governors] Op. 1989-112, L.A. [Los Angeles County Bar Association Professional Responsibility and Ethics Committee] Op. 450; S.D. [Legal Ethics Committee of the San Diego County Bar Association] Op. 1978-1.
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proceedings.” This opinion asserts that California attorneys’ responsibilities “vary according to the intelligence, experience, mental condition or age of a client,” and attorneys representing incompetent clients must faithfully protect their confidences. If the client’s disability forces the attorney to make decisions for the client, the attorney must “consider all the circumstances” and “act with care to safeguard in advance the interest of his client.”114
7.6
The Duty to Competently, Independently, Diligently and Expeditiously Represent Clients
Four rules, seemingly distinct, impose upon attorneys a comprehensive duty to represent clients’ interests competently, independently, diligently and expeditiously. Model Rule 1.1 embodies the duty of competence: “A lawyer shall provide competent representation to a client. Competent representation requires the legal knowledge, skill, thoroughness and preparation reasonably necessary for the representation.” The duty of competent representation is augmented by Rule 3.1, which prohibits an attorney from filing frivolous claims: “A lawyer shall not bring or defend a proceeding, or assert or controvert an issue therein, unless there is a basis in law and fact for doing so that is not frivolous, which includes a good faith argument for an extension, modification or reversal of existing law.” Additional duties of diligent and expeditious representation are declared in Rule 1.3, which requires an attorney to “act with reasonable diligence and promptness in representing a client,” and Rule 3.2, which requires a lawyer to “make reasonable efforts to expedite litigation consistent with the interests of the client.” In aggregate effect, these rules establish a high standard of client care with little deference to the time demands placed upon busy attorneys with heavy caseloads. Under these rules, the client’s right to attentive, efficient and proper legal representation is paramount, and an attorney’s personal convenience and difficulty in juggling multiple client commitments are inconsequential. Not surprisingly, these rules clash with the normal operations of many law firms and the daily practices of time-constrained attorneys. At a minimum, the duty of competence requires a reasonable “inquiry into and analysis of the factual and legal elements of the problem, and use of methods and procedures meeting the standards of competent practitioners. It also includes adequate preparation.”115 The duty of competence, moreover, requires supervising attorneys to monitor the performance of subordinate attorneys and may require a subordinate attorney to submit work product for a supervising attorney’s review and “make sure” that the supervising attorney actually reviews the work product.116 114
San Diego County Bar Ass’n, Ethics Op. 1978-1, citing EC 7-12. A.B.A. Model Rules of Prof’l Conduct R. 1.1 cmt. 5. 116 Beverly Hills Concepts, Inc. v. Schatz and Schatz, Ribicoff and Kotkin, 717 A.2d 724 (Conn. 1998). See A.B.A. Model Rules of Prof’l Conduct R. 5.1, 5.2. 115
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Because the duty of competence is broad, sanctionable incompetence may include the prosecution of a meritless claim for the purpose of eliciting a settlement offer,117 procrastination,118 “strategic” delay neither communicated to nor approved by the client,119 losing an insurance company check,120 filing a general denial when the client has no defense to an action,121 a two-month delay in transmitting a settlement check to a client,122 and the failure to inform a client of the option of obtaining substitute counsel when the attorney’s performance is hindered by personal problems like divorce and sickness.123 The duty of competence is enhanced and reinforced by Rule 3.1’s prohibition against the prosecution or defense of a meritless claim and the assertion or denial of an issue without a good faith basis in law and fact. Rule 3.1 confirms that attorneys must exercise independent professional judgment in representing clients, and an attorney’s advocacy of frivolous claims will not be protected under the guise of zealous advocacy. Adherence to client directions to pursue or defend a claim, which the attorney knows or should know are not legally justified or factually supported, may be grounds for disciplinary sanctions.124 Although plaintiffs’ counsel are required to objectively evaluate their clients’ claims and any supporting documentation, the proscription against meritless claims extends to defense counsel as well.125 Defense attorneys, therefore, may be disciplined for filing an answer before interviewing the client, disputing facts without corroborating evidence, and asserting defenses devoid of legal authority – tactics described by one former corporate defense attorney as deflecting allegations “by raising all sorts of misdirections, counterpoints, and counterclaims, which did not necessarily have any basis in fact.”126 117
Matter of Bloomfield, 916 P.2d 224 (N.M. 1996). Texas Disciplinary Rules of Prof’l Conduct R. 1.01 cmt. 7. 119 See Hartford v. State Bar, 791 P.2d 598 (Cal. 1990) and Calvert v. State Bar, 819 P.2d 424 (Cal. 1991). 120 In the Matter of Broderick, 3 Cal. State Bar Ct. Rptr. 138 (Review Dep’t 1994). 121 New York State Bar Ass’n Comm. on Prof’l Ethics, Op. No. 469, 1977 WL 15697 (June 7, 1977). See Malone v. Papesh, 627 N.E.2d 1211 (Ill. App. Ct. 1994). 122 Matter of Sorid, 597 N.Y.S.2d 125 (N.Y. App. Div. 1993). 123 See Matter of Sexton, 647 N.Y.S.2d 587 (N.Y. App. Div. 1996); Matter of Whitbread, 591 N.Y. S.2d 117 (N.Y. App. Div. 1992). 124 See Fontaine v. Ryan, 849 F. Supp. 242 (S.D.N.Y. 1994); Rindner v. Cannon Mills, Inc., 486 N. Y.S.2d 858 (N.Y. Sup. Ct. 1985); Bankers Trust Co. v. Hogan, 589 N.Y.S.2d 338 (N.Y. App. Div. 1992); Matter of Feeley, 859 P.2d 1329 (Ariz. 1993); Simmons v. City of Philadelphia, 471 A.2d 909 (Pa. Commw. Ct. 1984). 125 On plaintiff attorney’s duty to refrain from following client’s instructions and to withdraw from the representation, see Cosenza v. Kramer, 200 Cal. Rptr. 18 (Cal. Ct. App. 1984). 126 See Chicago Title and Trust Co. v. Anderson, 532 N.E.2d 595 (Ill. App. Ct. 1988); Malone v. Papesh, 627 N.E.2d 1211 (Ill. App. Ct. 1994); In re Caruso, 542 N.E.2d 375, 378 (Ill. App. Ct. 1989). Attorney quoted is James “Jamie” Perdigao, who pled guilty in 2008 to bank fraud, money laundering and tax evasion, as described in McCollam, Douglas, (2009, June 1), The Boy Wonder, American Lawyer, available at http://www.law.com/jsp/tal/PubArticleTAL.jsp?id=1202430856132&The_Boy_Wonder. 118
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The duties to competently represent clients and independently assess a claim’s legal merits and factual basis are complemented by the duty to act diligently and expeditiously under Rules 1.3 and 3.2. These rules are underscored by the ABA’s recognition that “dilatory practices bring the administration of justice into disrepute” and “perhaps no professional shortcoming is more widely resented than procrastination.”127 Acknowledging that a client’s legal position “may be destroyed” by delay and even financially inconsequential delays may “cause a client needless anxiety and undermine confidence in the lawyer’s trustworthiness,” the ABA Model Rules condemn multiple postponements for the convenience of attorneys and delays for the purpose of slowing or preventing a final resolution.128 The fact that the bench and bar may tolerate dilatory conduct and delaying tactics is not a justification for an attorney to engage in similar behavior.129 To fulfill the fundamental duty of competence, an attorney must manage his time, control his workload and supervise other attorneys “so that each matter can be handled competently.”130 Although a lawyer may exercise professional discretion “in determining the means by which a matter should be pursued,” he must act with “reasonable promptness” and take “whatever lawful and ethical measures are required to vindicate a client’s cause or endeavor,” despite personal inconvenience to the lawyer.131 If necessary to achieve a manageable workload, an attorney may be required to decline new cases and withdraw from existing cases.132 In the context of settlements, an attorney’s duty of diligence may be violated by delays in distributing settlement funds to clients or third parties,133 failing to inform a client of the attorney’s conclusion that a case was meritless,134 ceasing work on a case after settlement negotiations fail,135 neglecting to inform a client of settlement proposals,136 failing to provide documentation to an insurance company to effectuate settlement,137 neglecting to inform a client that the attorney’s assessment of the case had changed,138 and falsely stating to a client that a settlement offer had been
127
A.B.A. Model Rules of Prof’l Conduct R. 1.3 cmt. 3; R. 1.3 cmt. 1; R. 3.2. A.B.A. Model Rules of Prof’l Conduct R. 1.3 cmt. 3; R. 3.2 cmt. 1. 129 A.B.A. Model Rules of Prof’l Conduct R. 3.2 cmt. 1. 130 A.B.A. Model Rules of Prof’l Conduct R. 1.3 cmt. 2. 131 A.B.A. Model Rules of Prof’l Conduct R. 1.3 cmts. 1, 3. 132 Arizona Ethics Op. No. 90-10 (1990). See Lopez v. Larson, 153 Cal.Rptr. 912 (Cal. Ct. App. 1979). 133 See Matter of Sorid, supra n.122; People v. Genchi, 824 P.2d 815 (Colo. 1992); Statewide Grievance Comm. v. Wechsler, No. CV 960566673S, 1997 WL 321575 (Conn. Super. Ct. May 30, 1997). 134 Dayton Bar Ass’n v. Gerren, 853 N.E.2d 302 (Ohio 2006). 135 Laviano v. Statewide Grievance Comm., No. CV 990497413S, 2000 WL 1196427 (Conn. Super. Ct. July 28, 2000). 136 People v. Holmes, 921 P.2d 44 (Colo. 1996). 137 Toledo Bar Ass’n v. McGill, 717 N.E.2d 709 (Ohio 1999). 138 Baranowski v. State Bar, 593 P.2d 613 (Cal. 1979). 128
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received and then transmitting the attorney’s check purportedly representing the settlement offer.139 Although violations of the duty of diligence generally reflect neglect and delay, the duty also may be violated by taking counter-productive, baseless or purposeless action.140 Such actions violate the attorney’s duty to “use his best efforts and reasonable speed to accomplish the purposes for which he was employed.”141 Consequently, the failure to develop, implement and oversee any case strategy to effectuate the client’s objectives, resulting in redundant and inefficacious billings by the responsible attorney and subordinate attorneys, may violate the duties of diligent representation and conscientious supervision. The duty to supervise is implicated because Rule 5.1 not only requires a supervising attorney to “make reasonable efforts to ensure that the other lawyer conforms to the Rules of Professional Conduct” but also imposes personal responsibility for another lawyer’s violations if the supervising attorney “knows of the conduct at a time when its consequences can be avoided or mitigated but fails to take reasonable remedial action.”142 Misdirected legal representation often is more damaging to the client than neglect, as the substantive damage to the client’s interests is compounded by attorneys fees incurred for work of minor, inconsequential or negative value; mere neglect offers the peculiar advantage of delivering similar results with lower fees. Misdirected legal representation generally takes two forms, both of which may be unintentionally promoted in law firms as successful rainmaking or fee generation. In one form, the attorney does not have the subject matter expertise necessary for the assignment, and the client incurs substantial fees for work neither necessary nor appropriate to accomplish the client’s objectives. An associate attorney describes this type of problem at his firm in his response to Judge Harry Edward’s survey: [B]ig law firms pull the wool over clients’ eyes and often agree to take on something they know nothing about but which has come their way because of their panache. I have so often seen situations where practicing lawyers don’t know what they are doing. New associates will then be set a task with totally ignorant and uninformed supervision where a lot is at stake.143
139
In re Foley, 604 N.Y.S.2d 467 (N.Y. App. Div. 1993). See Cuyahoga County Bar Ass’n v. Kelley, 822 N.E.2d 302 (Ohio 2004) (defective bankruptcy schedule); Matter of Feeley, supra n. 124 (allegations in complaint that cannot be substantiated); Matter of Righter, 975 P.2d 343 (N.M. 1999) (calling witnesses with no evidentiary value to client); Matter of Coburn, supra n.33 (lis pendens filed but action did not concern title to real property); Matter of Hanratty, 796 P.2d 112 (N.M. 1990) (attorney disregarded client’s objectives in deciding to convert bankruptcy case to Chapter 11). 141 Hartford v. State Bar, supra n.119, citing Van Sloten v. State Bar, 771 P.2d 1323 (Cal. 1989) and Matthew v. State Bar, 781 P.2d 952 (Cal. 1989). 142 A.B.A. Model Rules of Prof’l Conduct R. 5.1(b), (c). 143 Edwards, H. (1992). The Growing Disjunction Between Legal Education and the Legal Profession. Michigan Law Review, 91, 69. 140
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In the second form, the responsible attorney has subject matter expertise but does not manage the case to achieve the client’s objectives. An attorney describes this type of problem in an engagement involving eight attorneys working full-time and producing multiple documents “that would have no impact on the clients who were paying for the work.”144 After several months, the attorney says, “disaster struck” when the clients came to the law firm: It was like a customer going to the kitchen of a restaurant. They saw eight people running around . . . [who] didn’t have carefully defined ends and means. . . . They just saw what was actually going on and they were utterly horrified. The shit hit the fan and there were lots of fights. Ultimately, we had a reconciliation, and we kept doing the work. But not too long after that . . . they said enough . . . no more . . . no more time billed to this matter.145
In both conditions – lack of subject matter expertise and lack of case management skills – the attorney’s duty to “use his best efforts and reasonable speed to accomplish the purposes for which he was employed” is severely compromised.146 Both circumstances display a near total disconnect between the client’s right to diligent representation and expeditious resolution and the law firm’s performance. This shortcoming also may constitute a violation of Rule 1.2, in that the client’s objectives in retaining the law firm bear little relation to the attorney’s choice of the means by which those objectives are to be achieved.
7.7
The Duty to Abide by Client Decisions
Rule 1.2 allocates legal decision-making authority between attorneys and clients, assigning to clients decision-making authority to settle a case: (a) Subject to paragraphs (c) and (d), a lawyer shall abide by a client’s decisions concerning the objectives of representation and, as required by Rule 1.4, shall consult with the client as to the means by which they are to be pursued. A lawyer may take such action on behalf of the client as is impliedly authorized to carry out the representation. A lawyer shall abide by a client’s decision whether to settle a matter. In a criminal case, the lawyer shall abide by the client’s decision, after consultation with the lawyer, as to a plea to be entered, whether to waive jury trial and whether the client will testify. (b) A lawyer’s representation of a client, including representation by appointment, does not constitute an endorsement of the client’s political, economic, social or moral views or activities. (c) A lawyer may limit the scope of the representation if the limitation is reasonable under the circumstances and the client gives informed consent. 144
Lerman, L. (1990). Lying to Clients. University of Pennsylvania Law Review, 138, 707. Ibid., 708. 146 Hartford v. State Bar, supra n.119. 145
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(d) A lawyer shall not counsel a client to engage, or assist a client, in conduct that the lawyer knows is criminal or fraudulent, but a lawyer may discuss the legal consequences of any proposed course of conduct with a client and may counsel or assist a client to make a good faith effort to determine the validity, scope, meaning or application of the law. At the beginning of a case, a client may effectively delegate its decision-making authority to an attorney by authorizing the attorney “to take specific action on the client’s behalf without further consultation.”147 Absent a material change in circumstances, and provided that the client is not mentally impaired and the attorney has fulfilled her ability to communicate with the client under Rule 1.4, discussed above, a lawyer may act in accordance with the client’s prior authorization.148 The client’s authorization, however, may be revoked at any time.149 Rule 1.2 neatly and somewhat impractically distinguishes client decisionmaking responsibilities from attorneys’ discretionary choices. Although the client’s sole authority to settle a case is emphatically clear, the attorney’s authority to take such action “as is impliedly authorized to carry out the representation” is manifestly ambiguous. The apparent impracticalities and ambiguities in Rule 1.2 are not erased by Comment 2: Clients normally defer to the special knowledge and skill of their lawyer with respect to the means to be used to accomplish their objectives, particularly with respect to technical, legal and tactical matters. Conversely, lawyers usually defer to the client regarding such questions as the expense to be incurred and concern for third persons who might be adversely affected. Because of the varied nature of the matters about which a lawyer and client might disagree and because the actions in question may implicate the interests of a tribunal or other persons, this Rule does not prescribe how such disagreements are to be resolved.
Although Comment 2 urges attorneys and clients to “seek a mutually acceptable resolution” of disagreements about legal representation, it ultimately adopts the “my way or the highway” approach to conflict resolution. If a “fundamental disagreement” between an attorney and a client cannot be resolved, Comment 2 states that the attorney may withdraw from the representation or the client may discharge the attorney.150 State court cases and disciplinary agency opinions help to clarify the respective responsibilities of clients and their attorneys. Attorneys generally are afforded wide discretion in making tactical decisions, which may include selection of evidence,151 presentation and order of witnesses,152 determination of issues to raise on appeal,153 147
A.B.A. Model Rules of Prof’l Conduct R. 1.2 cmt. 3. A.B.A. Model Rules of Prof’l Conduct R. 1.4 cmts. 3, 4. 149 A.B.A. Model Rules of Prof’l Conduct R. 1.4 cmt. 3. 150 A.B.A. Model Rules of Prof’l Conduct R. 1.2 cmt. 2. 151 See State v. Williams, 794 N.E.2d 27 (Ohio 2003); United States v. Morrison, 98 F.3d 619 (D.C. Cir. 1996), cert. denied, 117 S. Ct. 1279 (1997). 152 Nahhas v. Pac. Greyhound Lines, 13 Cal. Rptr. 299 (Cal. Ct. App. 1961). 153 See Jones v. Barnes, 463 U.S. 745 (1983). 148
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drafting of pleadings,154 and objections to the admission of evidence.155 Clients, for their part, have an exclusive right to accept or reject a settlement, even if the settlement affects the attorney’s payment.156 The client’s right to consent to a settlement cannot be delegated to an attorney in some jurisdictions, and an attorney cannot require a client to agree in advance on acceptable settlement terms.157 An attorney, moreover, cannot require a client to obtain his prior approval before accepting a settlement proposal.158 Other substantive or dispositive decisions, such as filing and dismissal of an appeal,159 incurring expenses,160 submitting a case to binding arbitration,161 splitting attorneys fees with or associating other counsel,162 waiving a statute of limitations,163 forgoing rent payments,164 and payment of third-party liens,165 are within the client’s purview.
7.8
The Duty to Prevent Conflicts of Interest in Aggregate Settlements
Model Rule 1.8(g), the “aggregate settlement” rule, specifies disclosure and consent requirements where an attorney represents multiple clients: “A lawyer who represents two or more clients shall not participate in making an aggregate settlement of the claims of or against the clients, or in a criminal case an aggregated agreement as to guilty or nolo contendere pleas, unless each client gives informed consent, in a writing signed by the client. The lawyer’s disclosure shall include the existence and nature of all the claims or pleas involved and of the participation of each person in the settlement.” Elementary on its face, this rule has proven problematic to 154
Buehman v. Smelker, 68 P.2d 96 (Ariz. 1937). United States v. Morrison, supra n.151. 156 Evans v. Jeff D., 475 U.S. 717 (1986); In re Nugent, 624 A.2d 291 (R.I. 1993); Garn v. Garn, 745 P.2d 604 (Ariz. Ct. App. 1987); In the Matter of A. Indeglia, 765 A.2d 444 (R.I. 2001); Trans World Airlines, Inc. v. Summa Corp., 394 A.2d 241 (Del. Ch. 1978); Chiapetti v. Knapp, 314 N. E.2d 489 (Ill. App. Ct. 1974); Sampson v. State Bar, 524 P.2d 139 (Cal. 1974). Cf. Collins v. Bisson Moving & Storage, Inc., 504 S.E.2d 347 (S.C. Ct. App. 1998). 157 In re Grievance Proceeding, 171 F. Supp. 2d 81 (D. Conn. 2001); District of Columbia Ethics Op. 289 (1999). 158 Charles Gruenspan Co., L.P.A. v. Thompson, 2003 Ohio 3641, 2003 Ohio App. LEXIS (Cuyahoga). 159 In re Sherburne, 492 N.Y.S.2d 349 (N.Y. Surr. Ct. 1985); Rhode Island Ethics Op. 90-3 (1990); Silver v. State Bar, 528 P.2d 1157 (Cal. 1974); Bradshaw v. State, 806 A.2d 131 (Del. 2002). 160 See Kentucky Rules of Prof’l Conduct 1.2 cmt. [2]. 161 Alvarado Community Hosp. v. Superior Court, 219 Cal. Rptr. 52 (Cal. Ct. App. 1985). 162 See Henshall v. Coburn, 169 P. 1014 (Cal. 1917); Ohio Rules of Prof’l Conduct R. 1.5(e)(2). 163 See In re Horton, 813 P.2d 1335, 1342 (Cal. 1991); Carroll v. Abbott Labs., Inc., 654 P.2d 775 (Cal. 1982); People v. Sifford, 617 N.E.2d 499 (Ill. App. Ct. 1993). 164 Gordon v. Town of Esopus, 486 N.Y.S.2d 420 (N.Y. App. Div. 1985). 165 Rhode Island Ethics Op. 96-33 (1996). 155
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implement and easy to violate. In attempting to accommodate the interests and protect the confidences of multiple clients, attorneys inadvertently run afoul of Rule 1.8 and often fail to comprehend its intricate disclosure requirements. As the ABA delicately and understatedly observes, “Unique and difficult conflicts between the clients and their lawyer, and between the clients themselves, are possible.”166 Under ABA Formal Opinion 06-438, the aggregate settlement rules apply when “two or more clients who are represented by the same lawyer together resolve their claims or defenses or pleas.” The rule applies even if the attorney’s clients are represented in separate cases or some of the attorney’s clients are not participating in the proposed settlement. (The rule, however, does not apply to derivative lawsuits and certified class actions). The scope of Rule 1.8 is illustrated by the example cited in Formal Opinion 06-438: “the rule would apply to claims for breach of warranties against a home builder brought by several home purchasers represented by the same lawyer, even though each claim is filed as a separate lawsuit and arises with respect to a different home, a different breach, and even a different subdivision.” The specific disclosure and consent requirements of Rule 1.8 are described below by Eileen Libby, associate ethics counsel for the ABA Center for Professional Responsibility. Practitioners will immediately recognize the potential client confidentiality issues that follow from compliance with Rule 1.8 and Formal Opinion 06-438. Ms. Libby explains that, under Rule 1.8 and Formal Opinion 06438, an attorney must disclose the following information “at a minimum:” l
l
l l
l
The total amount of the aggregate settlement or the result of the aggregated agreement. The existence and nature of all claims, defenses, or pleas involved in the settlement or aggregated agreement. The details of every other client’s participation in the settlement or agreement. The total fees and costs to be paid to the lawyer if they are to be paid from the proceeds of the settlement or by an opposing party. The method by which costs are to be apportioned.167
Because the disclosures required under Formal Opinion 06-438 often entail the disclosure of client information deemed confidential under Rules 1.6 and 1.8, a lawyer “must first obtain informed consent from all his clients to share confidential information among them. The best practice would be to obtain this consent at the outset of representation if possible, or at least to alert the clients that disclosure of confidential information might be necessary in order to effectuate an aggregate settlement or aggregate agreement.”168 Additional recommended disclosures under
166
A.B.A. Formal Op. 06-438 (2006). Libby, E. (2006, July). We’re in This Together: Lawyers Should Heed Client Consent Rules in Reaching Aggregate Settlements. ABA Journal Law News Now. 168 A.B.A. Formal Op. 06-438, supra n. 166. 167
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Formal Opinion 06-438 include the facts that one client’s refusal to consent to a proposed settlement could result in the termination or withdrawal of the proposal, and the attorney-client privilege may not protect communications between a single client and the attorney with respect to “issues of commonly given advice.” William Robinson, president of the structured settlement company, Strategic Settlements, offers some practical advice for complying with Rule 1.8. After a defendant makes a settlement offer, Mr. Robinson recommends sending a written communication to clients that describes the aggregate offer, explains how the settlement proceeds would be allocated for each client, and, if the settlement proceeds will not be shared equally, shows the rationale for and amounts of disparate allocations. In a large products liability case, this information could be presented in a spreadsheet summarizing the clients’ injuries and the intended monetary allocation for each client. Mr. Robinson also advises that a mediator, consultant or other neutral party, not motivated to complete the settlement to obtain a fee award, prepare the detailed disclosure. Absent written compliance with the disclosures mandated by Rule 1.8(g), he warns, “your previously well-controlled client could emerge from the next cocktail party with a new lawyer complaining about how inadequate that client’s share of the settlement was. Your attorney fee could become the source of money used by the court to restore to the client the perceived shortfall.”169 And fee forfeiture may be the least of a non-compliant attorney’s concerns; disciplinary sanctions have been imposed for violations of the aggregate settlement rule.170
7.9
The Duty to be Candid and Truthful in Communications with Clients, Opposing Counsel and the Courts
An attorney’s duty to communicate truthfully is not limited to attorney-client communications; under Model Rules 3.3, 3.4, 4.1, 5.2 and 8.4, the duty extends to judges, arbitrators in a binding arbitration, legislative bodies and administrative agencies acting in an adjudicative capacity, opposing counsel and other third parties. While preserving an attorney’s obligation to act as a forceful and persuasive advocate on behalf of her client, these rules circumscribe false representations and evidence. As explained in Comment 1 to Rule 3.3, “although an attorney in an adversary proceeding is not required to present an impartial exposition of the law or to vouch for the evidence submitted in a case, the lawyer must not allow the tribunal to be misled by false statements of law or fact or evidence that the lawyer knows to be false.” In the context of pre-trial settlement negotiations with opposing counsel, these rules foster a near-priggish image of attorneys and belie the concept of cagey
169
Robinson, W. (2005, April/May). Settlement Tools and Tips. GP/Solo Magazine. See Butler County Bar Ass’n v. Barr, 591 N.E.2d 1200 (Ohio 1992). Cf. In re an Anonymous Member of the South Carolina Bar, 377 S.E.2d 567 (S.C. 1989). 170
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negotiators outwitting their adversaries through strategic misstatements and skillful obfuscation. Rule 3.3 imposes upon attorneys a broad duty to communicate truthfully and prevent the introduction and consideration of false evidence before any tribunal: (a) A lawyer shall not knowingly: (1) make a false statement of fact or law to a tribunal or fail to correct a false statement of material fact or law previously made to the tribunal by the lawyer; (2) fail to disclose to the tribunal legal authority in the controlling jurisdiction known to the lawyer to be directly adverse to the position of the client and not disclosed by opposing counsel; or (3) offer evidence that the lawyer knows to be false. If a lawyer, the lawyer’s client, or a witness called by the lawyer, has offered material evidence and the lawyer comes to know of its falsity, the lawyer shall take reasonable remedial measures, including, if necessary, disclosure to the tribunal. A lawyer may refuse to offer evidence, other than the testimony of a defendant in a criminal matter, that the lawyer reasonably believes is false. (b) A lawyer who represents a client in an adjudicative proceeding and who knows that a person intends to engage, is engaging or has engaged in criminal or fraudulent conduct related to the proceeding shall take reasonable remedial measures, including, if necessary, disclosure to the tribunal. (c) The duties stated in paragraphs (a) and (b) continue to the conclusion of the proceeding, and apply even if compliance requires disclosure of information otherwise protected by Rule 1.6. (d) In an ex parte proceeding, a lawyer shall inform the tribunal of all material facts known to the lawyer that will enable the tribunal to make an informed decision, whether or not the facts are adverse. The term “tribunal” includes “a court, an arbitrator in a binding arbitration proceeding, or a legislative body, administrative agency, or other body acting in an adjudicative capacity.”171 “Tribunal” also includes “an ancillary proceeding conducted pursuant to the tribunal’s adjudicative authority, such as a deposition.”172 Court-supervised settlement negotiations are considered as ancillary proceedings to which Rule 3.3 applies.173 The issue of whether Rule 3.3 and its state counterparts would apply to court-ordered mediation has not been resolved in all jurisdictions.174 171
Rule 1.0(m) states: “A legislative body, administrative agency, or other body acts in an adjudicative capacity when a neutral official, after the presentation of evidence or legal argument by a party or parties, will render a binding legal judgment directly affecting a party’s interests in a particular matter.” 172 A.B.A. Model Rules of Prof’l Conduct R. 3 cmt. 1. Cf. Flynn v. Edmonds, 602 N.E.2d 880, 889 (Ill. App. Ct. 1992). 173 ABA Formal Op. 06-439 (2006) and ABA Formal Op. 93-370 (1993). 174 See Romano Brothers Beverage Co. v. D’Agostino-Yerow Assoc., Inc., 1996 U.S. Dist. LEXIS 10730, at *57 (N.D. Ill. 1996) (term “tribunal” encompasses “entire judicial process”).
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The duty of truthfulness extends not only to affirmative misrepresentations but also encompasses failures to disclose material facts and adverse legal authorities in connection with court-supervised settlements and motions to approve settlements. An attorney’s license to practice law, for instance, was suspended following his denial that a judge ordered his client to personally appear at mediation and his claim that he did not receive a minute order also requiring the client to appear at the mediation.175 Attorneys also have been disciplined for failing to disclose important facts such as the death of a party,176 a collateral agreement with the client under which the attorney would receive a higher fee award than the amount stipulated in the settlement agreement,177 the existence of a statute which limits an attorney’s fee recovery,178 and an agreement to try a case without objection to evidence.179 The duty of truthfulness to a tribunal is paramount and has been considered to supersede the attorney’s duty to preserve client confidences.180 The duty of truthfulness to a tribunal, under Rule 3.3, is complemented by a duty of truthfulness toward third parties under Rule 4.1. On its face Rule 4.1 prohibits both misrepresentations and failures to disclose material facts in connection with settlement negotiations: In the course of representing a client a lawyer shall not knowingly: (a) make a false statement of material fact or law to a third person; or (b) fail to disclose a material fact to a third person when disclosure is necessary to avoid assisting a criminal or fraudulent act by a client, unless disclosure is prohibited by Rule 1.6. A “misrepresentation” for purposes of Rule 4.1 “can occur if the lawyer incorporates or affirms a statement of another person that the lawyers knows is false. Misrepresentations can also occur by partially true but misleading statements or omissions that are the equivalent of affirmative false statements.”181 And “third person,” as used in Rule 4.1, includes opposing counsel.182
175
Bach v. State Bar, 740 P.2d 414 (Cal. 1987). In the Matter of Jeffers, 3 Cal. State Bar Ct. Rptr. 211 (Review Dep’t 1994). See Rhode Island Ethics Op. 97-01 (1997). 177 In Matter of Fee, 898 P.2d 975 (Ariz. 1995). 178 In the Matter of Harney, 3 Cal. State Bar Ct. Rptr. 266 (Review Dep’t 1995). Cf. Shaeffer v. State Bar, 160 P.2d 825 (Cal. 1945) (no intent to mislead). 179 In Re Alcorn, 41 P.3d 600 (Ariz. 2002); Hmielewski v. Maricopa County, 960 P.2d 47 (Ariz. Ct. App. 1997). 180 See Arizona Ethical Rule 3.3 cmt. 2 (duty to maintain client confidences limited by duty of candor). 181 A.B.A. Model Rules of Prof’l Conduct R. 4.1 cmt. 1. 182 In re Zeiger, 692 A.2d 1351 (D.C. 1997); Dime Savings Bank v. Aziz, No. CV95-0248107, 1995 WL 681535, at *1 (Conn. Super. Ct. Nov. 7, 1995). 176
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To distinguish between customary “puffery” in negotiations and unethical conduct, Comment 2 to Rule 4.1 describes two circumstances which do not constitute “statements of fact” under Rule 4.1: “Under generally accepted conventions in negotiations, certain types of statements ordinarily are not taken as statements of material fact. Estimates of price or value placed on the subject of a transaction and a party’s intentions as to an acceptable settlement of a claim are ordinarily in this category . . .” ABA Opinion 06-439 amplifies these exceptions: “A party in a negotiation also might exaggerate or emphasize the strengths, and minimize or deemphasize the weaknesses, of its factual or legal position.” The exceptions to the duty of truthfulness under Rule 4.1 are relatively narrow, and both civil liability and ethical sanctions have been imposed for conduct which many attorneys regard as routine bluffing or blustering in a battle where guile is vital and candor is baneful. In Trudeau v. Gold, for instance, defense counsel’s representation in settlement negotiations that he would forego legal action to recover personal property from the plaintiff, when in fact he subsequently filed an action, was held to violate Rule 4.1 and constitute grounds to impose tort liability.183 Similarly, in Slotkin v. Citizens Casualty Co.,184 counsel’s representation that defendant’s insurance coverage was limited to the primary coverage was found to be actionable fraud when, in fact, he had custody of client files containing letters received from excess carriers. Cases and opinions illustrating the broad application of Rule 4.1 and its state counterparts include Dyke v. Zaiser185 (failure to correct prior misrepresentations); Dime Savings Bank v. Aziz186 (misrepresentation regarding payment toward indebtedness); In re Pierson187 (false statement regarding status of settlement funds); In re Reid188 (misrepresentation of amount of settlement proceeds); Illinois State Bar Association Opinion 95-10189 (failure to disclose unilateral revision in document submitted for signature); Rhode Island Ethics Opinion 93-81190 (duty to disclose overpayment of judgment); and In re Glickman191 (failure to disclose known liens). See also Cicone v. URS Corp.192 (attorney has duty “not to defraud another, even if that other is an attorney negotiating at arms’ length”) and Shafer v. Berger, Kahn, Shafton, Moss, Figler, Simon & Gladstone193 (attorney may be liable for misrepresentations regarding extent of insurance coverage
183
No. 320519, 1996 WL 176386, at *1 (Conn. Super. Ct. Feb. 29, 1996). 614 F.2d 301 (2d Cir. 1979), cert. denied, 449 U.S. 981 (1980). 185 182 P.2d 344 (Cal. Ct. App. 1947). 186 Dime Savings Bank v. Aziz, supra n. 182., at *1. 187 690 A.2d 941 (D.C. 1997). 188 540 A.2d 754 (D.C. 1988). 189 Illinois State Bar Ass’n Op. 95-10 (Jan. 1996). 190 Rhode Island Ethics Op. 93-81 (1993). 191 246 S.E.2d 174 (S.C. 1978). 192 227 Cal. Rptr. 887 (Cal. Ct. App. 1986). 193 131 Cal. Rptr. 777 (Cal. Ct. App. 2003). 184
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if opposing counsel relied on misrepresentation in agreeing to accept less than face amount of judgment). Violations of Rule 4.1 often implicate Rule 8.4 as well. That rule states, in part, that it is professional misconduct to “engage in conduct involving dishonesty, fraud, deceit or misrepresentation.” Although the negotiation exceptions under Rule 4.1 are recognized as valid exceptions under Rule 8.4,194 the conduct prohibited under Rule 8.4 has been broadly construed to include “a lack of fairness and straightforwardness.”195 Conduct that might not meet the narrow legal definition of “fraud, deceit or misrepresentation” may nevertheless be subject to disciplinary sanctions if it is “dishonest.”196 Nor is Rule 8.4 limited to actions taken by a member of the bar in her capacity as an attorney.197 A lawyer’s abuse of public office or “abuse of positions of private trust such as trustee, executor, administrator, guardian, agent and officer, director or manager of a corporation or other organization” may evince an inability to fulfill professional responsibilities.198 Hence, an attorney may be disciplined for conduct unrelated to the practice of law, including flight from the scene of a car accident,199 misrepresentations in connection with a personal insurance claim,200 false statements in a loan application,201 and alteration of a law school transcript.202 In the practice of law, violations of Rule 8.4 entail the receipt of undisclosed attorneys fees in settlements,203 borrowing monies from clients,204 settling a case without client consent,205 settling cases for unreasonably low amounts,206 misrepresenting the settlement status of a case,207 and inaccurate billing.208
194
A.B.A. Formal Op. 06-439 (2006); In re Carmick, 48 P.3d 311 (Wash. 2002). In re Shorter, 570 A.2d 760, 768 (D.C. 1990). 196 See Attorney Grievance Comm’n v. Glenn, 341 Md. 448 (1996), quoting In re Shorter, supra n. 195. 197 See Rhode Island Ethics Op. 93-94 (1993); District of Columbia Ethics Op. 336 (2006); Comm. on Prof’l Conduct v. Jones, 509 S.W.2d 294 (Ark. 1974). 198 A.B.A. Model Rules of Prof’l Conduct R. 8.4 cmt. 5. 199 In re Souls, 669 A.2d 532 (R.I. 1996); In re Tidwell, 831 A.2d 953 (D.C. 2003). 200 In re Scanio, 919 A.2d 1137 (D.C. 2007). 201 Statewide Grievance Comm. v. Egbarin, 767 A.2d 732 (Conn. App. Ct. 2001). 202 In re Hawn, 917 A.2d 693 (D.C. 2007). 203 In re Bernstein, 774 A.2d 309 (D.C. 2001); In re Hager, 812 A.2d 904 (D.C. 2002). 204 In re Austin, 858 A.2d 959 (D.C. 2004). 205 In re Nugent, 624 A.2d 291 (R.I. 1993); In the Matter of A. Indeglia, 765 A.2d 444 (R.I. 2001). 206 See In re Segall, 509 N.E.2d 988, 990 (Ill. 1987). 207 See In re Mason, 522 N.E.2d 1233, 1237 (Ill. 1988). 208 See Brown v. Hammond, 810 F. Supp. 644 (E.D. Pa. 1993); Matter of Ort, 631 A.2d 937 (N.J. 1993). 195
7.10 Chapter Capsule
7.10
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Chapter Capsule
The American Bar Association’s Model Rules of Professional Conduct and the states’ versions of these rules impose eight principal duties on attorneys representing litigation clients and counseling them regarding settlement alternatives: (1) the duty to communicate all material facts and events to clients; (2) the duty to exercise independent judgment and render candid advice; (3) the duty to provide adequate advice to clients to enable them to make informed decisions; (4) the duty to identify and protect clients with diminished capacity; (5) the duty to competently, diligently and expeditiously represent clients; (6) the duty to abide by client decisions; (7) the duty to prevent conflicts of interest in aggregate settlements; and (8) the duty to be candid and truthful in communications with clients, opposing counsel and the courts. Conscientious practitioners acting consistent with ordinary settlement negotiation tactics and conventional client development and retention practices may inadvertently overlook the scope and specificity of these ethical duties.
Part IV Solutions
Chapter 8
Obstacles to Becoming an Expert Decision Maker
What is the first business of one who practices philosophy? To get rid of self-conceit. For it is impossible for anyone to begin to learn that which he thinks he already knows. Epictetus, Discourses, bk. 1, ch. 17
Michelangelo visually sculpted a block of marble before touching his chisel: “In every block of marble I see a statue as plain as though it stood before me, shaped and perfect in attitude and action. I have only to hew away the rough walls that imprison the lovely apparition to reveal it to the other eyes as mine see it.” Perfection in attitude and action, for effective decision makers, requires a similarly keen vision and the skill to remove all the material that mars the contours of a fine decision and leave only the form and durability of a sound decision. This simultaneous discipline of excising biases, illusions and defenses, while retaining solid objectivity, discernment, and deliberateness, distinguishes the novice from the expert decision maker. To advance decision makers from the novice level to the expert stage, this part of the book addresses six questions: l
l
l l
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What are the personal defenses and barriers to learning how to improve decision making? What are the stages of decision making in litigation cases and what practical steps can be taken to improve personal decision making in each of those stages? Are group decisions better than individual decisions? Which groups show the best performance in decision making and how can attorneys and clients replicate their successes? What are the dangers of group decisions and how can attorneys and clients counter them? How can peer review procedures, client surveys and law firm audits improve the quality of decision making in law firms?
As explained in these four chapters on developing decision-making expertise, solid research delineates the detrimental beliefs to cut and highlights the constructive practices to burnish. This chapter, accordingly, illuminates the defenses, delusions
R. Kiser, Beyond Right and Wrong, DOI 10.1007/978-3-642-03814-3_8, # Springer-Verlag Berlin Heidelberg 2010
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and myths that stand in the way of acquiring decision-making skills. The next chapter shows the specific actions individuals can take to start improving their decision making in all phases of litigation. The following chapter demonstrates how group decisions tend to reinforce extreme positions and quash dissent and explains how dynamic organizations counter the dangers and enhance the benefits of group decision making. The final chapter in this section describes specific programs – peer review, client evaluations and law firm audits – successfully employed by attorneys and law firms committed to improving their decision-making acumen.
8.1
Defenses and Barriers to Sound Decision Making
Deliberate decision-making improvements start with a candid acknowledgment of two major shortcomings in human decision making. First, as Daniel Kahneman and numerous other psychologists discovered, “people’s impressions of how they reason and of how well they reason could not be taken at face value.” They simply misunderstand and misrepresent their own decision making. Second, studies of clinical judgment consistently show “a substantial discrepancy between the objective record of people’s success in prediction tasks and the sincere belief of these people about the quality of their performance.”1 In addition to misunderstanding and misrepresenting their decision-making processes, people misjudge the outcomes of their cognitive processes. The task for attorneys and clients, thus, is no less than changing their evaluation of their decision-making skills and bridging the persistent gap between self-assessment and objective performance. As Professor K. Anders Ericsson, the nation’s expert on expertise, states, “The journey to truly superior performance is neither for the faint of heart nor for the impatient. The development of genuine expertise requires struggle, sacrifice, and honest, often painful self-assessment.”2 Attorneys and clients, like other decision makers facing a new problem- solving challenge, need to realistically assess the difficulty of upgrading their decisionmaking skills and the distinct possibility of defeat in this learning challenge. They need to recognize the complexity of the task and to avoid simplifying the assignment – respecting, in short, H.L. Mencken’s admonition that “for every complex problem, there is an answer that is clear, simple–and wrong.” This assignment requires an objective evaluation of the obstacles to learning, awareness of the personal defenses that prevent smart people from accurately evaluating their performance and learning from their mistakes and failures, and knowledge of the illusions and biases that distort information, mischaracterize people and warp 1
Kahneman, Daniel, Slovic, Paul, & Tversky, Amos, Eds. (1982). Judgment under uncertainty: Heuristics and biases (p. xi). Cambridge: The Press Syndicate of the University of Cambridge. 2 Ericsson, K. Anders, Prietula, Michael J., and Cokely, Edward T. (2007, July–August). The making of an expert. Harvard Business Review, pp. 114–121.
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decision-making frames. In undertaking that task, attorneys and clients may be surprised to learn that they are more resistant to learning than less intelligent people, and only a few methods have proven to be successful in overcoming cognitive biases and illusions.
8.1.1
Defenses to Learning
The major impediment to improving decision-making skills is the inability of highly successful people, like attorneys and their clients, to turn a critical focus onto themselves, recognize their contribution to poor quality outcomes and learn how to change their behavior. Intelligent, confident and successful executives, as Kate Ludeman and Eddie Erlandson explain in their article, “Coaching The Alpha Male,” are “typically stubborn and resistant to feedback. After all, they haven’t gotten where they are by being self-reflective.”3 Alphas, both male and female, often are quick thinkers, impatient, opinionated, analytical, unemotional and confident about their opinions, insights and instincts. Consequently, they deflect criticism, rarely change their opinions, resist feedback and fixate on the faults of other people. Intimidating, blaming, criticizing and interrupting, many highly successful people lack self-awareness and resist behavioral changes required to improve their problem-solving skills. In his classic article, “Teaching Smart People How to Learn,” business professor Chris Argyris describes the unique difficulties successful people experience when faced with a learning opportunity: “Those members of the organization that many people assume to be the best at learning – highly educated, strongly committed, results-oriented professionals – are, in fact, not very good at it.” 4 The learning function in these dominant yet frequently impermeable professionals is eclipsed by four entrenched defenses: (1) trying to remain in “unilateral control” by refusing to test old and tightly held assumptions, behaviors and theories; (2) maximizing “winning” and minimizing “losing” so that one never learns how to recognize, accept, deal with and learn from failure; (3) suppressing negative feelings of inadequacy, vulnerability, incompetence, embarrassment and failure by adopting a psychological framework that is “profoundly defensive;” and (4) appearing to be consistently “rational” and “successful” by distorting self-assessments to match goals and objectives which themselves may be retroactively re-defined to create the appearance of perpetual achievement. Many of the most successful professionals 3
Ludeman, Kate, and Erlandson, Eddie. (2004, May). Coaching the alpha male. Harvard Business Review, p. 60. 4 Argyris, Chris. (1991). Teaching smart people how to learn. Harvard Business Review, 69(3), 99, 103. See Coutu, Diane L. (2002, March). The HBR interview: The anxiety of learning. Harvard Business Review, p. 105 (“In organizations, individual learners lie, cheat, go underground – they do whatever they have to do to remain invisible. And in large organizations, going underground isn’t that difficult”).
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are “self-sealing,” shutting out any introspection and learning that could challenge their self-perceptions and bring about new insights and adaptive behaviors. Successful, highly paid professionals in an organization frequently are the most adept at deflecting responsibility for bad results away from themselves and blaming others for problems. Because they focus on solving external problems and feel uneasy when the excitement of an external challenge subsides without a replacement stimulus, they tend to avoid introspection, dislike feedback and counseling and ignore their own contribution to problems. “As much as they love talking about accountability,” Ludeman and Erlandson state, “they often fail to see that their own communication style, rather than someone else’s shortcomings, is what’s creating the roadblock.”5 Thus, when confronted with evidence of failure, they blame “stupid” clients, ambiguous goals and incompetent leaders, refusing to acknowledge how their own behavior affected a problem. By blaming, bad-mouthing and denying, Professor Argyris explains, professionals “bring learning to a grinding halt.”6 In their extensive study of executives fired from major companies like General Electric, Home Depot, Morgan Stanley, Apple, Staples and Hewlett-Packard, business professors Jeffrey Sonnenfeld and Andrew Ward found that an individual’s ability to learn and recover from major career setbacks is often impeded by high self-esteem.7 This high self-esteem is accompanied by a persistent manipulation of facts and messages to enhance the executive’s image for external audiences to such an extent that the executive himself cannot distinguish the enhanced, projected self from his actual self. When the facts and the spin become seriously disjoined, the executives often are surprised and bewildered to learn that their attempts to disguise their failures were themselves failures: Ironically, lower self-esteem individuals are sometimes better prepared for failure because they are more likely to have expected adverse events and even to have prepared by perhaps devaluing the opportunity. Higher self-esteem people, however, are more focused on augmenting the perceptions others have of their strengths and will use more self-enhancing language that often attempts to deny failure. When the language explanations used by fallen high-self-esteem individuals is not credible or convincing, they are surprised and frustrated.8
Sonnenfeld and Ward note that many high self-esteem executives lack resiliency because they cannot acknowledge and learn from their performance mistakes and failures, electing to deny reality, failing to re-calibrate their self-perceptions and refusing to adapt to new conditions and challenges. These “victims of failure,” as Sonnelfeld and Ward describe them, “cling to the pathetic hope that if they hide under the covers, perhaps the monsters will go away.”9
5
Ludeman and Erlandson supra note 3 at 60. Argyris supra note 4 at 99–109. 7 Sonnenfeld, Jeffrey, and Ward, Andrew. (2007). Firing back: How great leaders rebound after career disasters. Boston, Massachusetts: Harvard Business School Press. 8 Id. at 68. 9 Id. 6
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Do attorneys avoid the cognitive traps of suppressing, deflecting, blaming, resisting and distorting? Extensive interviews of attorneys conducted by law professors Samuel Gross and Kent Syverud suggest not. They interviewed 735 attorneys who represented clients in cases litigated to verdict in 1990–1991, many of which resulted in losses to their clients caused by ineffective, financially detrimental settlement negotiations. In these interviews, Gross and Syverud attempted to understand why the plaintiffs “were clear losers in most of these cases,” since most could have settled for more than the verdict, and why the defendants “made puny settlement offers and then got hammered in court.” They interviewed the parties’ attorneys by telephone, asking them, “Why did this case go to trial rather than settle?” The attorneys’ answers were divided into three categories: “Did the attorney say that their side (the party or its attorneys) was responsible for the trial, or did she say that the other side was responsible, or did she mention some other cause?” Gross and Syverud’s finding: “A clear pattern emerged immediately. Each side says the other did it.”10 The incidence of attorneys blaming the other side, Gross and Syverud discovered, was not influenced by the results of the case. Winners and losers were equally strident faultfinders. Among the plaintiffs’ lawyers whose clients recovered nothing, 54% blamed the defense for refusing to settle; among the plaintiffs’ lawyers whose clients recovered more than $500,000, 64% blamed the defense for forcing the case to trial. Self-reflection was noticeably absent: “Attorneys who won hundreds of thousands of dollars said they were forced to court by the defendant’s stupidity and others, who successfully defended big claims, said trial was caused by the plaintiff’s greed or craziness. Almost nobody said ‘We gambled and lost,’ or ‘We decided to fight, and we won.’ ”11 Similar results are shown in law professor Ward Farnsworth’s interviews of attorneys handling injunction cases. In explaining why the parties could not negotiate, or in some cases even attempt to negotiate, a monetary settlement of their claims, the attorneys invariably blamed the adverse party. Knowing that Farnsworth was interviewing both sides’ attorneys, the attorneys nevertheless uniformly depicted the adverse party as the cause of the bargaining impasse. The defendants, according to the plaintiffs’ attorneys, “were unreasonable, discourteous, and unneighborly,” “truculent, obdurate,” “the most unreasonable people in the community,” “too stubborn to accept a deal.” The plaintiffs, according to the defense attorneys, were intent on pursuing “a vendetta,” “would not have agreed to do anything for the benefit of the defendant for any amount of money,” were “exceptionally hard-headed” and “would not have accepted anything.”12
10
Gross, Samuel, & Syverud, Kent. (1996). Don’t try: civil jury verdicts in a system geared to settlement. UCLA Law Review, 44(1), 49. 11 Id. 12 Farnsworth, Ward. Do parties to nuisance cases bargain after judgment? A glimpse inside the cathedral. In Sunstein, Cass, Ed. (2000). Behavioral law & economics (pp. 302–321). Cambridge: Cambridge University Press.
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On a smaller scale, but nevertheless instructive, is the experience of Orange County Superior Court Judge Charles Margines, who has presided over civil and criminal trials for more than 15 years. During the trials, he keeps copious notes of the attorneys’ objections, questions and arguments. At the end of the trial, he invites the attorneys into his chambers to evaluate their performance, telling them what questions they asked but should not have asked and, as one attorney said, “coaching me on some of the objections I did right and did wrong.” Judge Margines recalls asking for similar feedback from judges when he was a trial lawyer: “I used to ask judges to take off the gloves. I think it’s very instructive.”13 Given this singular opportunity to learn from an experienced and attentive judge who frequently has spent days watching their courtroom performance, many attorneys nevertheless decline Judge Margines’ invitation to meet in his chambers and discuss their performance. “Very interestingly,” Judge Margines muses, “I notice that a lot of the lawyers who really could use that don’t take advantage of it.”
8.1.2
Distortions of Reality
This near-universal tendency to avoid self-evaluation and criticism, even when faced with objective evidence of fallibility, is demonstrated in psychology professor Philip Tetlock’s study of 284 highly successful, internationally acclaimed political experts.14 The majority of these experts – political scientists, journalists, economists, and diplomats employed in academia, government, think tanks and the private sector – had doctoral degrees, and 96% had postgraduate training. Their average age was 43, and the average number of years of direct experience in the field was 12.2. Journalists routinely sought their opinions; 61% of the experts had been interviewed by a major media company, and 21% had been interviewed on more than ten occasions. Over a 20-year period, ending in 2003, these experts made 82,361 forecasts about numerous political events with objectively verifiable outcomes, e.g., Will Quebec secede from Canada? Will Gorbachev be removed by a coup? Will the European Monetary Union collapse?15 Tetlock’s study compares the experts’ predictions about these major political events with the actual outcomes. He concludes that the experts “claim to know more about the future than they actually know.” When confronted with objective evidence of their predictive shortfalls, Tetlock found that the experts rarely acknowledge their mistakes but rather “balk at changing their minds” and “dogmatically defend their deterministic explanations
13
(2007, January 31). San Francisco Daily Journal, p. 5. Tetlock, Philip. (2005). Expert political judgment. Princeton, New Jersey: Princeton University Press. 15 Id. at 132–137, 165. 14
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of the past.”16 Ironically, the lowest scoring experts expressed the highest level of confidence in their forecasts; confidence was inversely related to accuracy. To preserve the illusion of competence, the study participants displayed a remarkable capacity to deflect and rationalize, and they rarely changed their evaluations in the light of disconfirming evidence. Some erring, recalcitrant study participants actually revised their assessments in the opposite direction of the empirical evidence and “nudged up their confidence in their prior point of view.”17 Tetlock attributes these painful attempts at cognitive self-preservation to two psychological factors: cognitive conservatism (the disconnect between new information and the ability to update positions and acknowledge mistakes); and self-serving attribution biases (the tendency to attribute success to personal attributes and blame failures on the external environment). The study participants’ excuses for poor predictive accuracy were ingenious and displayed an impressive range of cognitive defenses. To understand how “forecasters who got it wrong managed to preserve so much confidence they were right,” Tetlock identifies and describes some of the rationalizations – he calls them “belief system defenses” – most commonly employed. Some of the self-serving rationalizations evoked by these extraordinarily intelligent yet self-deceiving experts are discussed below, illustrating that even among experts pontification frequently trumps edification. They bear an uncanny resemblance to the rationalizations proffered by attorneys and clients when their expectations clash with reality and reveal how attorneys and clients indulge in the same cognitive defenses that occlude experts’ self-evaluation and learning.
8.1.2.1
The “I Was Almost Right” Defense and the “Close-Call” Defense
In this self-serving exercise, the expert labels his forecasting mistake as a close call and conjures up a close-call counterfactual. He argues that he would have been right absent some relatively minor, impossible-to-anticipate event. The decision maker, the argument goes, was fundamentally right on the big picture event but was ambushed by a very small picture event. An example from one of Tetlock’s study participants: I predicted Gore would defeat Bush in the presidential election; I was basically right because he would have won if he “had not been such an abysmal debater.” For attorneys a similar “almost right” rationalization is, “I expected us to win, and I would have been right if the alternate juror had not replaced the sick juror.” Or, “I thought the other side would lose,” and “with just one more juror on our side we would have at least deadlocked.” In a bench trial, the rationalization may be that “we would have won if the judge knew anything about commercial disputes. How
16
Id. at 189. Id. at 128.
17
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could anyone have expected to get a former district attorney who practiced only criminal law before his appointment to the bench?” The allure of this rationalization is that it is superficially persuasive, cannot be tested and masks the fundamental fallacy of the initial assessment. It suggests a near victory when the reality is defeat. Because it protects attorneys from the anxious dissonance resulting from a clash between expectations and reality, this rationalization thwarts the learning process required for judgment recalibration.
8.1.2.2
The “Just-Off-On-Timing” Defense
This “timing” defense also gives the errant decision maker a pass card at the recalibration gate. The errant decision maker asserts she was basically correct, and the appearance of error is due to an arbitrary, temporary disjunction of facts and predictions. Tetlock observed that, when presented with facts disconfirming their forecasts, the low scorers “express considerable confidence that they are already pretty proficient forecasters, at least in the long term.”18 One participant in Tetlock’s study rationalized his inaccurate prediction that Quebec would separate from Canada with this qualification: “Quebec eventually will secede from Canada; the fact that it did not occur within the period I predicted is irrelevant.” Even highly successful attorneys may succumb to this defense rather than acknowledge a problem with the initial case assessment. Ted Wells, the attorney who represented Vice President Dick Cheney’s chief of staff, Scooter Libby, in his 2007 perjury trial, is regarded as one of the best trial lawyers in the country. He is a partner in the highly esteemed, 500þ attorney law firm Paul, Weiss, Rifkind, Wharton & Garrison. In 2001, he represented Mitsubishi in a criminal antitrust case in which Mitsubishi, a Japanese conglomerate, was charged with price-fixing. At trial, Mitsubishi was convicted. Wells attributed the verdict, in part, to bad timing: “One reason he lost the case, he has said, is because a week before jury deliberations began, the movie ‘Pearl Harbor’ came out.”19 Wells may be right about the biasing effect of “Pearl Harbor” on the jury; alternatively, his rationalization may illustrate how even the best attorneys occasionally indulge in defensive misconception.
8.1.2.3
The “Inherently Indeterminate” or “Hopelessly Cloudlike” Defense
This is another ex-post defense in which the difficulties and risks of prediction are re-characterized to explain an adverse outcome. Initially the decision maker confidently predicts an outcome but subsequently learns that the prediction is erroneous. 18
Id. at 7. Weeks, Linton. (2007, February 21). Ted Wells, Center of the defense. The Washington Post, p. C01.
19
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He then obliquely acknowledges the forecasting error but explains that the outcome was inherently unpredictable and not susceptible of accurate assessment by even the most skilled expert. When faced with evidence that other professionals accurately assessed the outcome, the decision maker asserts that the accurate predictors were “just lucky,” as the forecasting task was impossible. Tetlock describes this attitudinal reversal: “Some forecasters who thought they could say quite a bit about the future at the onset of our exercise, who certainly thought they had more to offer than a dart-throwing chimpanzee, sounded like radical skeptics by the end of our exercise – a transformation that raises the suspicion that some of the radical skeptics . . . were bold forecasters who had yet to recover from recent muggings by reality.”20 Some attorneys follow a similar pattern of projecting confidence in their initial predictions and later portraying outcomes in legal cases as unpredictable and dependent on the idiosyncrasies of individual judges and jurors. In their study of law firm clients, law professors Felsteiner and Sarat found a disturbing sequence of attorney-client interaction, shifting from an initial explanation of rules and procedures to a subsequent depiction of knavish attorneys and erratic judges. The clients claim that lawyers “start out with formalism – explaining the law as a set of rules.” Attorneys subsequently “emphasize people over rules” and the “judge’s discretionary power.” Attorneys then describe legal rules as “unnecessarily technical” and having limited effect “in controlling behavior outside the courtroom.” Later still in the representation, they “emphasize differences in judges as crucial to outcomes.” Near the end of the case, attorneys criticize judges and opposing counsel and underscore the importance of the attorneys’ contacts and reputation, “conveying an overall message of a system that is arbitrary and unjust.”21 Like some of the experts in Tetlock’s study, the attorneys in Felsteiner and Sarat’s study begin as bold forecasters, relying on solid rules, and end as skeptics, decrying the arbitrary nature of the entire process.
8.1.2.4
The “I Made the Right Mistake Defense”
In this argument, decision-making error is transformed into a virtue, the ostensible error being explained as a deliberate strategy to advance a larger objective. One professor in Tetlock’s study explained that inaccurately estimating the power of the Soviet Union and overlooking the possibility of its dissolution was the “right mistake” because it’s “better to be safe than sorry.” As one study participant explained, “Crying wolf is the price of vigilance.”22 20
Tetlock supra note 14 at 134–135. Sarat, Austin, and Felstiner, William L.F. (1989). Lawyers and legal consciousness: Law talk in the divorce lawyer’s office. Yale Law Journal, 98, pp. 1663, 1674, 1676, 1679, 1685. See also Felsteiner, William. Abel, Richard L. & Sarat, Austin. (1980–81). The emergence and transformation of disputes: Naming, blaming, claiming. Law & Society Review, 15(3–4), pp. 631–654. 22 Tetlock supra note 14 at 135. 21
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In the financial sector, analysts have their own version of “I made the right mistake.” Albert Edwards, an asset allocator at Dresdner Kleinwort and a volunteer magistrate, predicted in 1996 that stock valuations would be pushed into the “Ice Age” and “would return to the levels of the 1950s and 1960s.”23 In fact, the S&P 500 produced record returns after this prediction, increasing more than twofold after three years. Acknowledging the inaccuracy of some past predictions while making a new prediction in early 2007 that equities will drop 10%, Mr. Edwards explained his strategy: “We know we are a lone voice. It may yet prove to be wrong, but at least it is clear.” Kleinwort attributes his skill in giving clear but occasionally inaccurate guidance to his 13 years as a justice of the peace: “You learn to see all the evidence and come with a verdict no matter how hard.” Outside the financial sector, an emphasis on clarity over accuracy has been called the “strong but wrong” and “often wrong but never in doubt” approach. Edwards is not alone in attributing the “strong but wrong” decision-making philosophy to a judge’s responsibilities. Justice Brandeis endorsed this philosophy in a 1932 opinion, stating “Stare decisis is usually the wise policy, because in most matters it is more important that the applicable rule be settled than that it be settled right.”24 Jonathan Swift, writing Gulliver’s Travels, also noted the rigidity of judicial decisions, seeing them in a less benevolent light than Justice Brandeis: “It is a maxim among . . . lawyers that whatever hath been done before may legally be done again: and therefore they take special care to record all the decisions formerly made against common justice and the general reason of mankind. These, under the name of precedents, they produce as authorities to justify the most iniquitous opinions, and the judges never fail of directing accordingly.”25 For attorneys and their clients, making the “right mistake” often means pummeling an adversary whose claim or defense never posed a serious financial threat or filing a plethora of motions of dubious merit and nominal benefit on the off chance they may be granted – the “better to be safe than sorry” strategy. Although this overkill approach may be justified in some cases, it often is an invitation to indiscriminate billing and a poor substitute for sound judgment. The urge to take forceful, redundant and potentially counter-productive action is most acute when the risks of an adverse outcome are high, the magnitude of the action itself appearing to reduce the probability of a large-scale loss. Anxious clients seem relieved to know that, consistent with their public pronouncements, “the action is being defended vigorously,” although they may benefit most from it being evaluated thoroughly. Consequently, cases with a high potential for loss generate a considerable amount of churn, temporarily shifting attention to the resultant foam while the underlying claim solidifies. 23
Xydias, Alexis. Dresdner strategist Edwards is often wrong, always opinionated. (2007, March 9). Available at http://www.bloomberg.com/apps/news?pid¼20601109&sid¼agIbqcUWrV48&refer= news 24 Bodenheimer, Edgar. (1962). Jurisprudence (p. 372). Cambridge, Massachusetts: Harvard University Press. 25 Id. at 369.
8.1 Defenses and Barriers to Sound Decision Making
8.1.2.5
293
The “Low Probability Outcome Just Happened to Happen” Defense
With this defense, the mistaken decision maker insists that his initial probability assessment was correct, and the actual outcome, to which the decision maker initially assigned a very low probability of risk, was just a fluke. This provides a complete defense to inaccurate assessments, as adverse outcomes always have some statistical possibility of occurring and most clients will not litigate the same type of case often enough to learn whether their “perfect storm” was actually a common squall with a highly predictable downdraft. The increasing frequency of events labeled “the perfect storm,” implying a terribly unpredictable alignment of chance and loss, suggests that the underlying probability assessments may require recalibration. Although each of the five cognitive defenses discussed above presents a different rationale for dismissing predictive error, they are a united force in opposing any recalibration of the decision makers’ initial positions. They suffocate dissonance – the discomfort antecedent to self-improvement – before it becomes sufficiently aggravating to provoke introspection and learning from failure. As professor Argyris notes, “their ability to learn shuts down precisely at the moment they need it the most.”26 Instead of learning from errors, many experts and other professionals simply become more adamant about their original positions and their justifications for taking those positions. As expert predictive performance decreases, their reliance on belief system defenses increases. Professor Tetlock’s statistical analysis demonstrated that belief system defenses were most frequently endorsed by the experts “who had just lost reputational bets.” The “experts who had won their bets never showed more enthusiasm for defensive cognitions than experts who had just lost them.”27 In the group of mistaken experts, those who were most adamant about preserving their original positions and refusing to adjust them to incorporate real world events endorsed “roughly twice as many defenses” as did their less recalcitrant colleagues.28 As the objective need for judgment re-calibration increased, resistance intensified and the number of defenses deployed by the mistaken experts doubled.
8.1.3
Attorney Belief System Defenses
For attorneys, the most common defense against an adverse, unanticipated trial outcome is the “stupid juror” defense. It is popular because it resonates with urban myths about jurors’ caprice and provides a persuasive cover for erroneous 26
Argyris supra note 4 at 99–100. Tetlock supra note 14 at 136. 28 Tetlock supra note 14 at 137. 27
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perceptions and probability assessments, absolving attorneys and clients of any responsibility for an unanticipated trial outcome. It endures because the “stupid juror” defense usually cannot be refuted in a specific case, jurors’ deliberations generally being private and inadmissible to impeach a verdict. But if attorneys and clients sincerely believed that jurors are as blameworthy and irrational as they are portrayed after an adverse outcome, would not any pre-trial settlement have been preferable to adjudication by twelve jurors retrospectively characterized as dense, ignorant, biased, wayward and inattentive? When the quality of the fact-finder is deemed adequate before trial but deficient after trial, clients may well question whether self-protective defenses are preventing serious self-assessment. The allure – and fallacy – of the stupid juror defense is described by DecisionQuest, a leading trial consulting and research firm, in its article, “Beware the Stupid Jury Theory:” It is nice, almost pleasurable in an odd sort of way, to have a convenient scapegoat for our disappointments at trial. But what is the cost of this psychological gratification? If it leads to improper case evaluation, poor voir dire and ineffective trial strategy and tactics, is it worth it? How would case preparation and implementation be affected by assuming what the research has shown for years: jurors are motivated to do a good job, are very good at sorting out fair from unfair and can get the gist of a case even if they never master the micro-details like experts. The answers may be beyond our comprehension.29
The stupid juror defense, DecisionQuest cautions, may become a self-fulfilling prophecy: “to the extent trial attorneys actually begin to believe jurors are not competent to decide their cases, they run the risk of introducing a subtle but dangerous bias into their case evaluation and preparation. An attorney’s perception that the jurors are ignorant and incompetent inevitably is conveyed to the jurors and may affect the jurors’ perception of that attorney and her client. Attorneys who think they can mask an underlying contempt for the jury should not be surprised if the jurors find their evidence and arguments to be unpersuasive and reach seemingly ‘irrational’ verdicts.” When attorneys attribute adverse trial outcomes to “dumb” or “biased” judges, a “runaway” jury, the “1 in a 1,000 chance,” the witness who “screwed up and changed his testimony at the last minute,” the opposing counsel who “just got lucky,” the expert witness who “fooled the jury,” the client who “told a different story on the stand,” or the unanticipated case that “just came down from the appellate court,” clients may question whether the brilliant professional describing this apparently aberrational event is providing objective professional advice or, like Tetlock’s errant experts, is dispensing palliative defenses from a highly stressed belief system. The attorney may well be exhibiting the pernicious habits of respected experts and accomplished professionals: deflecting responsibility, blaming others and ultimately not learning from experiences that less intelligent people recognize as failures.
29
(1993, October). Beware the stupid jury theory. Decision Points Litigation Library. Available at http://www.decisionquest.com/litigation_library.php?NewsID=153
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Warning signs of these deflections and rationalizations, after an adverse trial outcome, include “this case was never about winning anyway,” “there’s a lot more at issue here than money,” “the company had no choice but to take this to trial,” “you had to send a strong message to anyone else thinking of suing that it’s going to cost them,” “no one could have predicted this result” and “we always knew we were rolling the dice.” When clients are initially informed that they have a good claim or defense on the merits and later are counseled that they lost to vindicate a principle, for instance, the client’s objectives probably are being defensively manipulated to reify a latent idealism and camouflage a patent loss. If the same strategies and objectives were not endorsed at the outset of the case, or if the same justifications would not be given following a favorable outcome, the response likely is crafted especially for the exigency of losing and displays the hallmarks of self-serving, hindsight and confirmation biases. Following an adverse outcome, one often hears that “this case was always about a principle.” This declaration elevates the trial outcome above the mundane issue of who won or lost and implies that strategic considerations overrode conventional measures by which the decisions of the attorneys and their clients could be evaluated. Losing a case or declining a favorable settlement offer, however, rarely advances a client’s interests, regardless of how much “principle” is involved or “strategic” rationalization is adduced. Despite rationalizations about principle, setting a precedent and the deterrent effect of taking every adversary to the mat, few parties benefit, tangibly or intangibly, from losing at trial. Although imaginative attorneys and creative communications departments have presented every conceivable argument to justify a poor trial outcome, the reality is that a financial loss at trial usually is a comprehensive loss outside the courthouse as well. Trials are undertaken for the purpose of winning, and a litigation outcome worse than the settlement offered by the other side usually represents a decision-making failure. Plaintiffs taking unreasonable settlement positions and then losing at trial do not vindicate their positions or enhance the prospects of similar plaintiffs. Defendants refusing reasonable settlement demands and then losing at trial do not deter similar cases but rather convey the message that they are obdurate and other plaintiffs contemplating a legal action should retain a law firm with staying power on a pure contingency basis. Poor decision-making results in individual cases, whether made by plaintiffs or defendants, rarely reflect sound decision-making policies, and even the most persuasive conversions of trial losses into policy victories should be scanned closely for self-serving misconceptions.
8.2
Myths and Misconceptions About Decision-Making Expertise
The cognitive defenses of blaming, deflecting and rationalizing, as discussed above, are endemic among experts and professionals and inevitably block learning and judgment recalibration. Equally harmful are the myths and misconceptions about
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how professionals acquire decision-making expertise and what type of people are experts in decision making. The main misconceptions about decision-making expertise are threefold: (1) intelligent people are usually good decision makers; (2) sound decision-making skills are acquired through higher education and extensive experience; and (3) effective decision makers follow their intuition. Because many attorneys and clients are intelligent, well-educated, experienced and intuitive, they believe they are excellent decision makers and will become even more proficient by continuing their present practices. The belief that decision-making expertise is both an intuitive enterprise and a natural offshoot of intelligence, education and experience is ill-founded, as professors J. Edward Russo and Paul Schoemaker explain: Yet those same people who would not hesitate to schedule a series of private lessons with the local golf pro are largely self-trained in decision making. In this arena, and perhaps this arena alone, they assume that intuition, repeated experience, and their general intelligence will see them through. Unfortunately, intuition and repetition are unreliable teachers at best.30
Although attorneys and clients do not intentionally denigrate the importance of decision making or consciously avoid improving decision-making skill, the short shrift given to developing it suggests that they seriously misunderstand and undervalue this skill. Attorneys and their clients regard sound judgment and effective decision making as essential components of an attorney’s professional skill set, yet judgment and decision making are the only fundamental lawyering skills omitted from explicit study, practice and testing in nearly all law school curricula. Not surprisingly, then, law students show “no improvement whatsoever” in statistical and methodological reasoning when tested in their first and third years of law school.31
8.2.1
Intelligence
High intelligence does not imbue a professional with a commensurate skill in decision making. The presumed association between high intelligence and accurate judgment is misleading and discourages the acquisition of discrete decision-making skills. Professionals’ resistance to introspection and their consequent reluctance to accurately evaluate their decision-making skills and adopt new decision-making practices stem from a strong, and usually well-placed, sense of confidence in their own intelligence. Their intellectual acumen having been confirmed by a solid
30 Russo, J. Edward and Schoemaker, Paul J.H. (2002). Winning decisions: getting it right the first time (p. xiii). New York: Doubleday. 31 Gilovich, Thomas. (1991). How we know what isn’t so (pp. 191–192). New York: The Free Press. See discussion of law student testing in Chapter 5 of this book.
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record of academic, financial and career success, professionals have learned to trust and rely on their own intellectual strength and instincts. In the context of decision making, however, this confidence is dangerous; the empirical evidence does not link high intelligence with superior decision-making skills, and thus bright people have no proven advantage in the decision-making arena. Decision making is a distinct skill and is neither an extension nor a by-product of high intelligence. As Sharon Begley, the former editor of “Science Journal,” writes, “A tendency to employ critical thinking, according to studies going back a decade, goes along with certain personality traits, not necessarily with intelligence.”32 In fields as diverse as chess, music, sports and medicine, “there is no correlation between IQ and expert performance.”33 The absence of an empirical link between intelligence and problem-solving skills is counter-intuitive, as psychologists Jens Beckmann and Jurgen Gutke explain: “It is very common, even for psychologists, to assume that a person’s intelligence is closely related to the person’s ability to solve complex problems. The higher a person’s intelligence, so the assumption, the better the person’s problem solving skills.”34 In reality, studies show that the level of problem-solving and decision-making expertise is “unrelated to what in our society is the conventional measure of intelligence.”35 In tests of practical intelligence – knowledge about how to accomplish tasks to help people achieve specific goals – “performance is unrelated to IQ scores.”36 Although bright people often score high in tests of declarative knowledge (knowledge of facts), they do not necessarily demonstrate superior scores in procedural knowledge (knowledge about how to do things). In the context of legal practice, a litigation attorney may possess an encyclopedic knowledge of applicable statutes and decisions but lack the practical skills to achieve the client’s objectives. Sheppard Mullin, a 500-attorney firm with 11 offices in the United States and China, exploits this distinction in marketing its legal services. Its advertisement depicts a pair of running shoes placed among pairs of identical, indistinct shoes. Below a photograph of the shoes, the advertisement declares: Many people believe that law firms are pretty much the same. We don’t. We believe that what separates us from the pack is not what we do, but how we do it – aggressive not
32
Begley, Sharon. (2006, October 20). Critical thinking: Part skill, part mindset and totally up to you. Science Journal, The Wall Street Journal, p. B1. See Weiss, Debra Cassens. (2008, October 16). School rank and GPA aren’t the best predictors of BigLaw success. ABA Journal Law News Now. Available at http://abajournal.com/news/school_rank_and_gpa_arent_the_best_ predictors_of_biglaw_success/. 33 Ericsson, Prietula, and Cokely supra note 2 at 116. 34 Wenke, Dorit, and Frensch, Peter A. Is success or failure at solving complex problems related to intellectual ability? In Davidson, Janet E., and Sternberg, Robert J., Eds. (2003). The psychology of problem solving (p. 94). Cambridge: The Cambridge University Press. 35 Hogarth, Robin M. (2001). Educating intution (p. 164). Chicago, Illinois: The University of Chicago Press. 36 Id. at 246.
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conservative, team players not one-man-bands, problem solvers not just legal practitioners. Out clients clearly understand and value this difference. How can we help you?37
In a similar vein, HinckleyAllenSnyder advertises a skill that people unfamiliar with the legal industry would regard as generic, “An experienced lawyer will not only help you win battles – but will help you decide which ones to fight.”38 The implicit message is that other law firms are populated by intelligent, knowledgeable and ultimately ineffectual attorneys but Sheppard Mullin and HinckleyAllenSnyder attorneys are purposeful, pragmatic and effective. Turning other firms’ lemons into their prospective clients’ lemonade, these firms make the most of the declarative knowledge vs. procedural knowledge disparity by asking prospective clients, in effect, “Do you want book smarts or street smarts, abstract knowledge or practical advice?”
8.2.2
Education and Experience
Although research indicates that intelligence alone does not produce superior decision-making and problem-solving skills, one may presume that a professional education cures any deficiencies in these skills. The studies, however, establish that professional education itself does not enhance decision-making skills unless it is coupled with calibration training. The danger of excluding calibration training from professional education is that graduates’ confidence levels increase without a commensurate increase in performance. Many graduates of professional programs – clinical psychologists, managers, executives, civil engineers, for example – thus demonstrate high levels of overconfidence unburdened by their actual performance.39 If intelligence and education are not correlated directly with decision-making acumen, can one rely on experience to produce superior levels of decision-making competence? Again, the empirical evidence counters an intuitive understanding of decision making, as research consistently shows little or no correlation between experience and decision-making expertise. As psychologists David Faust and Jay Ziskin relate, “Virtually every available study shows that amount of clinical training and experience are unrelated to judgmental accuracy.”40
37
(2008, October 21). The Palo Alto Daily News, p. 28. (2008, November 3). The Wall Street Journal, p. A6. 39 Fischoff, Baruch. Debiasing. In Kahneman, Daniel, Slovic, Paul, and Tversky, Amos., Eds. (1982). Judgment under uncertainty: Heuristics and biases (p. 439). Cambridge: Cambridge University Press. 40 Faust, David, and Ziskin, Jay. The expert witness in psychology and psychiatry. In Connolly, Terry, Arkes, Hal R., Hammond, Kenneth R., Eds. (2000). Judgment and decision making (p. 340). Cambridge: Cambridge University Press. 38
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In an article whose title succinctly conveys its findings, “The Process-Performance Paradox in Expert Judgment: How Can Experts Know So Much and Predict So Badly,” business professors Colin Camerer and Eric Johnson review extensive research on the presumed correlation between experience and decision-making expertise. Their surprising conclusion: “Training has some effects on accuracy, but experience has almost none.”41 In the medical field, for instance, the correlations between clinical experience and accuracy are “roughly zero.” This conclusion is buttressed by multiple studies of decision makers – including auditors, medical residents, surgeons, radiologists, psychologists, secretaries, and blackjack players – demonstrating that experience unaccompanied by calibration training does not increase decision-making expertise.42 Increased experience, in fact, may be detrimental to sound decision making, as it fosters overconfidence. In one study of clinical psychologists’ diagnostic skills, for instance, psychologist Lewis Goldberg “found no relation between years of experience and accuracy” but observed that the psychologists’ confidence in their diagnoses “did increase with experience.”43 Confidence independent of outcomes is a potentially dangerous product of performance without systematic feedback and experience without calibration. In the leading compendium on expertise, The Cambridge Handbook of Expertise and Expert Performance, psychology professor K. Anders Ericsson reviews a massive body of empirical research establishing that “experience-based indicators of expertise do not guarantee superior performance.”44 He notes that “most professionals reach a stable, average level of performance, and then they maintain this pedestrian level for the rest of their careers.”45 They abandon a commitment to superior performance at an early stage in their careers and resort to automation, prematurely terminating cognitive development and the feedback mechanisms essential to deliberate practice and recalibration. Research showing either a weak or non-existent correlation between experience and competence is consistent over a wide range of fields and professions, from software designers to wine experts, from financial advisors to auditors. Worse yet, in some professions, professor Ericsson writes, “performance decreases systematically
41
Camerer, Colin, and Johnson, Eric J. The process performance paradox in expert judgment: How can experts know so much and predict so badly? In Goldstein, William M. and Hogarth, Robin M., Eds. (1997). Research on judgment and decision making (p. 347). Cambridge: Cambridge University Press. 42 See Wenke, Dorit, Frensch supra note 34 at 105–106. Ericsson, K. Anders. The influence of experience and deliberate practice on the development of superior expert performance. In Ericsson, K. Anders, et al., Eds. (2006). The Cambridge handbook of expertise and expert performance (p. 683–703). Cambridge: Cambridge University Press. 43 Shanteau, James, et al. How can you tell if someone is an expert? Performance-based assessment of expertise. In Schneider, Sandra LL. And Shanteau, James Eds. (2003). Emerging perspectives on judgment and decision research (p. 622). Cambridge: Cambridge University Press. 44 Ericsson supra note 42 at 686. 45 Ericsson supra note 42 at 683.
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in accuracy and consistency with the length of professional experience after the end of formal training.”46 Empirical studies of the legal and medical fields substantiate Ericsson’s finding that experience and performance may be inversely related, as explained in Chapter 3 and below. The California dataset suggests that attorneys representing plaintiffs reach the apex of their predictive capacity about 10–15 years after graduation from law school, while defense attorneys exhibit relatively low decision error rates early in their career and then start an upward trend in decision error rates after 10–15 years in practice. This association may be confounded, and any association between attorney characteristics and decision error is tempered by the fact that the client, not the attorney, ultimately decides whether to accept or decline a settlement proposal. The correlation between experience and decision error, though, is consistent with malpractice claim data showing that inexperienced attorneys actually are less likely to be sued for malpractice. In their recent study of malpractice claims, professors Kara MacKillop and Neil Vidmar state, “Most claims activity occurs between the 7th and 25th years of practice. New lawyers, those in practice less than three years, tend to have a better claims experience than those in practice longer.”47 The correlation between judgment error and experience has been noted in the medical field as well. In a special article for the The New England Journal of Medicine, Dr. Maxine Papadakis and her colleagues write, “Evidence indicates that physicians who have been in practice for more than 20 years are at increased risk for disciplinary action.”48 In Papadakis’ study of physicians disciplined for unprofessional behavior and incompetence – ranging from billing fraud to failure to meet minimum standards of acceptable medical practice and from sexual misconduct to inappropriate prescribing – the mean age at discipline was 44.1, and the more experienced physicians represented a disproportionate percentage of disciplined physicians. Looking at disciplined physicians who graduated from three different medical schools between 1970 and 1999 and were disciplined by medical boards between 1990 and 2003, Papadakis’ study finds that a higher level of clinical experience is associated with a higher incidence of unprofessional behavior: Graduation Year 1970–1979 1980–1989 1990–1999
Disciplined Physicians (%) 55.3 33.2 11.9
Practice does not make perfect, at least in the case of disciplined physicians, and it may instill a false and heightened sense of confidence.
46
Ericsson supra note 42 at 686. MacKillop, Kara and Vidmar, Neil. (2006, June 29). Legal malpractice: A preliminary inquiry, p. 18. Available at SSRN: http://ssrn.com/abstract=912963 48 Papadakis, Maxine A., et al. (2005, December 22). Disciplinary action by medical boards and prior behavior in medical schools. The New England Journal of Medicine, 353(25), 2673–2682. 47
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Papadakis’ findings are consistent with the demographic characteristics of attorneys subject to disciplinary proceedings by some state disciplinary and professional ethics organizations. The Attorney Registration and Disciplinary Commission in Illinois, for instance, reported in 2006 that attorneys practicing 10 years or more constituted 71% of all practicing attorneys but account for 84% of all disciplinary complaints and 80% of all disciplinary investigations.49 A report of the attorney discipline system in New Jersey in 2004 shows that attorneys licensed to practice for eight years or less comprise 26% of the attorney registration database but account for only 2.6% of the disciplinary actions. Attorneys who have practiced law for more than eight years, but fewer than 19 years, constitute 40% of the attorney registration database and 37.5% of the disciplinary actions; and attorneys who have practiced at least nineteen years comprise 34% of the attorney registration database and 59.8% of the disciplinary proceedings.50 And because substance abuse is closely correlated with attorney disciplinary actions, it is noteworthy that the average age of barristers, solicitors, and legal executives reporting alcohol dependency in one study is 48 years, compared with an average age of 41 years for all solicitors with practicing certificates.51 Papadakis’ findings also are consistent with medical malpractice data. In one of the most extensive studies of physicians and malpractice claims, first presented at the RAND Institute for Civil Justice in March 2006, business and law professor John Rolph and his co-authors analyzed 8,000 physicians and 9,300 claims. Their study analyzed only “negligence claims,” defined as a paid claim or a non-paid claim with a medical peer review opinion of negligence. Attempting to construct predictors of a physician’s likelihood of being a party in a malpractice claim, Rolph analyzed numerous explanatory factors including physician demographics, specialty, number of patients, practice setting, procedures and hospital characteristics. Rolph concluded that physician characteristics have high predictive power and specifically, “as expected, doctors who are male and who are older have higher claims rates.”52 As measured by predictive information, Rolph states, “physician characteristics are superior to 10 years of claims history.”53 Because physician characteristics like age and gender are readily obtained, and both male gender and older age up to 50 years were predictive of negligence claims, Rolph believes
49
2005 Annual Report of the Attorney Registration and Disciplinary Commission, pp. 3, 5, 9, filed with the Supreme Court on April 28, 2006. Available at https://www.iardc.org/2005AnnualReport. pdf. 50 Office of Attorney Ethics of the Supreme Court of New Jersey. (2004, August 6). 2003 State of the Attorney Discipline System Report, pp. 58–64, 149. Available at http://www.judiciary.state.nj. us/oae/annual_report03.pdf. 51 Goodliffe, Jonathan, and Brooke, Deborah. (1996, January). Alcoholism in the legal profession. New Law Journal. 52 Rolph, John E., Adams, John L., and McGuigan, Kimberly A. (2007, March). Identifying malpractice-prone physicians. Journal of Empirical Legal Studies, 4(1), p. 142. 53 Id. at 125.
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demographic variables “can be helpful in designing targeted quality of care improvement policies.”54
8.2.3
Peer Ranking
If intelligence, education and experience are not guarantors of superior decisionmaking competence, as indicated above, can one at least rely on the judgment of professional peers to select the most competent decision makers? Are peer recognition and prestige within a profession – represented by surveys like “The Best Lawyers in America,” “Top 100 Super Lawyers,” and “The 100 Most Influential Lawyers” – reliable symbols of decision-making expertise? The short answer is “probably not.” Although professional reputation is a popular tool for identifying exceptional professionals, research suggests it may not be a reliable indicator of superior problem-solving capabilities. Numerous studies have challenged the conventional view that social reputation and experience are reliable emblems of expertise. “Being revered as an expert practitioner,” state Camerer and Johnson, “is not enough. Care should be given to assessing actual performance.”55 Psychology professor K. Anders Ericsson concurs: “When individuals, based on their extensive experience and reputation, are nominated by their peers as experts, their actual performance is occasionally found to be unexceptional.”56 Ericsson notes that the performance of experienced, respected computer programmers is not consistently better than computer science students and that professors in the Physics Department at U.C. Berkeley – rated as one of the five best physics departments nationally by The National Research Council and U.S. News and World Report – were not necessarily superior to students in solving introductory physics problems. Similarly, the University of California-San Francisco Medical Center, though ranked highly by U.S. News and World Report in its “Best Hospitals” edition, was rated “worse than average” in a government study of actual mortality rates in heart bypass surgeries, statistically adjusted to give credit to doctors and hospitals that treat sicker patients.57 Peer ratings may exaggerate the performance of some long-time performers and neglect the advances made by future leaders in a field. In the relatively infrequent circumstance where peer recognition does accurately identify decision-making geniuses and could be considered a proxy for expertise, it tends to be a lagging indicator. For that reason, peer ratings may not accurately gauge current performance. Peer esteem also suffers from “the popularity effect,” as better-known or 54
Id. Camerer and Johnson supra note 41 at 359. 56 Ericsson supra note 42 at 686. 57 Russell, Sabin, Colliver, Victoria, and Allday, Erin. (2007, July 13). Top heart centers, docs stung by bypass study. San Francisco Chronicle, p. B2. 55
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more popular colleagues are frequently cited as experts. People outside a peer group “may be on the cutting edge of new insights” and “are frequently out of step with their peers at the time of their breakthroughs,” notes psychology professor James Shanteau. “Thus, peer identification is more likely to identify yesterday’s expertise than tomorrow’s expertise.”58 The California dataset shows no statistically significant relation between decision-making performance and the existence of a peer rating. Attorneys ranked by Martindale-Hubbell as “AV” (Very High to Preeminent) and “BV” (High to Very High) were not correlated with a lower incidence of decision error when compared with attorneys who had no peer rating by Martindale-Hubbell, based on a small sample of cases in the primary California dataset. Although AV-rated attorneys were correlated with lower decision error rates than BV-rated attorneys, the decision error rates correlated with the AV-rated attorneys were not significantly different from the non-rated attorneys. The preliminary results from the sample indicate that clients were no more likely to avoid an adverse outcome at trial when represented by an attorney with a superior peer rating than when represented by an attorney with no rating at all.
8.2.4
Intuition
A final misconception regarding decision-making acumen, after recognizing that intelligence, experience, education and peer ratings may be poor proxies, is that one can rely on intuition to make good decisions – “going with the gut.” Although intuition and other visceral reactions may be reliable in resolving routine or sensory problems, they are notoriously unreliable in resolving analytical problems requiring probabilistic reasoning skills. As Eric Bonabeau, the Chief Scientist at Icosystem, explains, “anyone who thinks that intuition is a substitute for reason is indulging in a risky delusion. Detached from rigorous analysis, intuition is a fickle and undependable guide–it is as likely to lead to disaster as to success.59 Intuition represents an experiential and hereditary response to graphic rewards and threats and is best confined to the elemental decisions for which it evolved – avoiding vicious animals, rotten food and diseased people and finding vulnerable prey, clean water and healthy mates. Few of those cognitive challenges are presented in litigation. Research demonstrating the shortcomings of intuitive decision making took a huge step forward with the publication of Paul Meehl’s 1954 book, Clinical Versus Statistical Prediction: A Theoretical Analysis and a Review of the Evidence.60 58
Shanteau et al supra note 43 at 624. Bonabeau, Eric. (2003, May). Don’t trust your gut, Harvard Business Review, p. 117. Cf. Gigerenzer, Gerd, et al. (1999). Simple heuristics that make us smart. New York: Oxford University Press. 60 Meehl, P.E. (1954). Clinical versus statistical prediction. Minneapolis, Minnesota: University of Minnesota Press. 59
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In this book, Meehl made the controversial assertion that statistical or actuarial methods consistently produced more accurate results than unaided human judgment. Since its publication, more than 150 studies have proven that almost any formal, statistical model of decision making is superior to “clinical reasoning,” the ad hoc, largely intuitive practice of decision making.61 A recent article, for example, studied 136 comparisons of clinical and mechanical prediction and “found the mechanical procedure to be equal or superior in all but eight.”62 Decades after the publication of his groundbreaking book in 1954, Paul Meehl surveyed the research and declared, “There is no controversy in social science which shows such a large body of qualitatively diverse studies coming out so uniformly in the same direction as this one. When you are pushing over 100 investigations predicting everything from the outcome of football games to the diagnosis of liver disease, and when you can hardly come up with a half dozen studies showing even a weak tendency in favor of the clinician, it is time to draw a practical conclusion.”63 Employment interviews, college admissions, loan applications, and portfolio investments all have better outcomes when simple statistical models, rather than clinical judgments, are utilized to make decisions.64 Even in fields where experts’ predictions are more accurate than novices’ predictions, “they are rarely better than simple statistical models.”65 Despite the overwhelming evidence that statistical methods beat unaided judgment, the legal profession generally has ignored the effectiveness of mechanical models for decision making and resists using decision support software.66 As Russo and Schoemaker note, “in situations truly central to people’s lives, like medical, legal and personal financial decisions, people have been far less quick to recognize the increased quality of decision-making they could achieve by using more formal 61
See Dawes, Robyn M., Faust, David, and Meehl, Paul E. (1989). Clinical versus actuarial judgment. Science, 243(4899), pp. 1668–1674. 62 Dawes, Robyn M., Faust, David, and Meehl, Paul E. Clinical versus actuarial judgment. In Gilovich, Thomas, et al., Eds. (2002). Heuristics and biases: The psychology of intuitive judgment (p. 729). Cambridge: Cambridge University Press. 63 Ayres, Ian. (2007). Super crunchers (p. 127). New York: Bantam Dell. 64 The relatively crude mechanical models of decision making were initially “thought to provide a floor to which the judgment of the experienced clinician could be compared. The floor turned out to be a ceiling.” Dawes, Robin M., and Corrigan, Bernard. (1974). Linear models in decision making. Psychological Bulletin, 81, pp. 97–106. See Faust, David, and Ziskin supra note 40 at 336–347. See also Tetlock supra note 14 at 54. 65 Camerer, Colin, and Johnson supra note 41 at 357. See Dawes, Robyn M. Proper and improper linear models. In Connolly, Terry, Arkes, Hal R., Hammond, Kenneth R. (2000). Judgment and decision making (p. 382). Cambridge: Cambridge University Press. 66 Litigants and parties increasingly use decision trees, which are effective decision- making tools when they know the probability that various events will occur, e.g. prevailing on a summary judgment motion. These probabilities, however, may not be known with any degree of precision and usually are derived from attorneys’ experience. As attorney Henry Welch points out, “The inherent difficulty in building and then trusting a decision tree is knowing if the correct payouts, costs and probabilities are selected.” Welch, Henry. (2009, March 2). Branching out. San Francisco Daily Journal, p. 7.
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decisions rules and systematic models.”67 Reflecting this bias against quantitative decision-making tools, many lawyers perpetuate the mystique of professional judgment as being too rich, nuanced and complex for algorithms. In reality, assessments and decisions in the legal field are too consequential to be refined in the cognitive distillery of intuition, anecdote, selective memory and unfounded optimism. Legal decisions need to be guided by reliable data and methods, not the conventional admixture of public advocacy tempered by private caveats and recommendations obscured by disclaimers. Although most sophisticated businesses use statistical models for every critical aspect of their operations, from assessing product demand to scoring borrower creditworthiness and from measuring productivity to projecting revenues, attorneys and their clients generally rely on a personal counseling model to make decisions, indulging in “the myth that experts are accurate predictors or the hope that an expert will never err.”68 When I discuss with attorneys and mediators the advantages of systematic decision making and the disadvantages of intuitive decision making, they frequently mention how much they liked Malcolm Gladwell’s book, Blink: The Power of Thinking Without Thinking.69 The book, they relate, confirms everything they always thought about relying on intuition – how initial impressions turn out to be right and how “going with your gut” produces the best results. The allure of “thinking without thinking” is especially attractive in complex cases, as factually opaque cases without clear legal precedents resist an inductive assessment and invite an intuitional evaluation. All too often, however, “going with your gut” is little more than relying on stereotypes and avoiding the cognitive strain required for complex decision making. In employing mental shortcuts, decision makers avoid the cognitive burden of analyzing and weighing all pertinent information and instead focus on “attributes that are accessible, plausible, and easy to verbalize.”70 As Ap Dijksterhuis explains in his article, “On Making the Right Choice: The Deliberation-Without-Attention Effect,” “people tend to resort to stereotypes more when engaged in conscious thought, and when faced with a task that requires the consideration and processing of large amounts of information (such as when serving as a juror) tend to quickly form a sense as to the appropriate result and then interpret subsequent information in light of that expectancy.”71 The instantaneous “thin-slicing” of information,
67
Russo and Schoemaker supra note 30 at 158. Camerer, Colin, and Johnson supra note 41 at 356. 69 Gladwell, Malcolm. (2005). Blink: The power of thinking without thinking. New York: Little, Brown & Co. 70 Dijksterhuis Ap, et al. (2006). On making the right choice: The deliberation-without-attention effect. Science, 311(5763), p. 1005, quoted in Oldfather, Chad M., (2008), Writing, cognition and the nature of the judicial function, Georgetown Law Journal, 96(4), pp. 1283, 1313. 71 Id. 68
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which drives intuitive thinking, necessarily disregards the realities of most complex disputes; if those disputes could have been resolved by “thinking without thinking,” the parties themselves would have done it before retaining counsel. I doubt that Malcolm Gladwell, in writing Blink, intended to inspire an entire generation of attorneys to bypass the dorsal lateral prefrontal cortex and shoot directly from the amygdala, making rapid judgments, strategic decisions and settlement recommendations sparked by split-second reactions to briefs, memoranda, statutes, witnesses, adversaries and judges. Attorneys and clients do not expect accountants, engineers, physicians and psychologists to rely on intuitive judgments to calculate their tax liability, design bridges, diagnose illnesses and evaluate mental competence; and they should not exempt themselves from clients’ justified expectation of objective judgment untainted by hunch, suspicion, intimation, instinct, premonition and impulse. Since attorneys and clients would be alarmed if judges based their decisions entirely on intuition, they should be no less alarmed when they find themselves indulging in the same intellectual shortcut.72 When decision makers feel the impulse to “go with your gut,” they should question whether they are relying on intuition because it is accurate or because it is easy. A close reading of Gladwell’s remarkable and captivating book suggests that “thin-slicing” – detecting patterns and making judgments from a quick, limited observation – is best suited for perceptual problems like detecting the fake statue he describes in the first chapter. For complex, analytical problems, “thin-slicing” is an inferior tool and a major contributor to poor quality decision making. One of the most frequently observed decision-making mistakes is a premature evaluation based on perceived patterns and similarities that, in fact, do not apply to the problem at hand. “When it comes to intuition,” explains scientist Eric Bonabeau, the most dangerous cognitive flaw “is our deep-seated need to see patterns.”73 Dependent on pattern matching, thin-slicing is a rapid and efficient system of processing encrypted patterns and making instantaneous judgments based on those patterns. It assists in the limited task of matching a new carpet with an existing carpet but fails in the more important, non-perceptual task of learning whether one can afford the carpet, whether the carpet will be as durable as the old carpet, whether another retailer sells the identical carpet at a lower price and whether the new carpet contains higher levels of toxins like toluene, benzene, or formaldehyde. As Nicholas Taleb notes, “Our minds are not quite designed to understand how the world works, but, rather, to get out of trouble rapidly and have progeny.”74 Thus, if the only decision-making challenge in litigation is whether to run away from the courtroom bailiff or flirt with opposing counsel, 72
See Polsner, Richard. (2008). How judges think. Cambridge, Massachusetts: Harvard University Press. Guthrie, Chris, Rachlinski , Jeffrey J. and Wistrich, Andrew J. (2007). Blinking on the bench: How judges decide cases. Cornell Law Review, 93(1). 73 Bonabeau supra note 59 at 118. See Whitson, Jennifer, and Galinsky, Adam. (2008, October 3). Lacking control increases illusory pattern perception. Science, 322(5898), 115–117. 74 Taleb, Nassim Nicholas. (2004). Fooled by randomness (p. 56). New York: Random House.
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intuitive judgment works well; otherwise, systematic, data-driven decision-making models are superior for the less exciting but complex tasks of forecasting case outcomes and solving client problems. If intuition were reliable – or at least reliable in solving problems that are largely sensory – the outcomes would be demonstrably better. Consider the level of accuracy humans demonstrate in detecting liars, an intuitive judgment honed by centuries of evolution. In trying to determine whether someone is lying, humans have the benefit of nearly all the senses. Their eyes detect nervous shifting, muscle tension, eye twitching, and exaggerated gestures. Their noses smell perspiration, clothing odors that waft outside the normal range and excessive anti-perspirants, perfumes or colognes applied to mask nervous perspiration. Their handshakes signal the strength, sincerity, gender, age, manners and even social class of the person behind the telltale grasp. They hear the slightest change in the speaker’s intonation, words per minute, inflection and volume. Engaging their full panoply of senses, people are sure they can spot a grifter a mile away. Nearly 90% of people, in fact, are certain they can tell when someone is lying to them. A meta-analysis of 200 deception studies, however, demonstrates that people detect liars only fifty-four percent of the time – no better than chance. They are so confident in their ability to detect liars and so notoriously inaccurate that liars themselves experience a type of euphoria described by deception researchers as “duping delight.”75
8.3
Chapter Capsule
Personal defensiveness and misconceptions about decision-making expertise impede professional development. A major obstacle to improving decision making skills is the inability of highly successful people to accurately evaluate their own performance, turn a critical focus onto themselves, recognize their contribution to poor quality outcomes and learn how to change their behavior. Highly intelligent, confident and successful people often deflect criticism, resist changing their opinions, avoid feedback and fixate on the faults of other people. Intimidating, blaming, criticizing and interrupting, many highly successful people lack selfawareness and resist behavioral changes required to improve their problem-solving skills. In predicting outcomes, professionals may be overly confident. When confronted with objective evidence of their predictive shortfalls, many professionals do not take advantage of the opportunity to reassess and improve their skills but instead refuse to change their minds and insistently defend their initial positions. 75 Talbot, Margaret. (2007, July 2). Duped. The New Yorker, p. 52. Paul Ekman, an expert in lie detection, states: “We’ve tested about 15,000 people in every profession you can think of – CIA, judges, lawyers. Less than 1 percent are any good at it. Most people are only at about the level of flipping a coin.” Tucker, Neely. (2009, February 15). The truth is, spotting a lie isn’t as easy as it looks. The Washington Post, p. M01.
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To preserve the illusion of competence after encountering disconfirming evidence, even recognized experts in a field deflect criticism and generate a series of rationalizations to justify their prior opinions. The main misconceptions about decision making expertise are threefold: highly intelligent people are good decision makers; superior decision making skills are acquired through higher education and extensive experience; and effective decision makers follow their intuition. Research in the decision-making field, however, indicates that decision making is a distinct skill, and intelligence, education and experience do not automatically produce decision-making acumen. Intuition, moreover, may be poorly suited for complex tasks like negotiating settlements and predicting jury verdicts.
Chapter 9
Personal Expertise in Legal Decision Making
Good sense is of all things in the world the most equally distributed, for everybody thinks he is so well supplied with it, that even those most difficult to please in all other matters never desire more of it than they already possess. Rene Descartes, Le Discours de la Methode (1637)
Like other individuals making decisions under uncertainty, attorneys and their clients want succinct answers and practical, easily implemented solutions. To meet this need, and at the risk of oversimplifying research results, the opinions of many experts in the fields of law, psychology and economics are presented in this chapter to rapidly enhance decision-making skills and reduce adverse case outcomes. If, as Pearl Buck wrote, “every great mistake has a halfway moment, a split second when it can be recalled and perhaps remedied,” any one of the 45 corrective steps discussed below could prevent a very great mistake.1 The corrective steps are grouped to track the following six phases of litigation decision making: Finding, Binding, Solving, Testing, Choosing and Checking. This litigation decision-making model can be viewed as a linear, yet iterative, process of problem solving similar to other decision-making models but tailored to the unique challenges of litigation. The phases, a summary description of the phases and comparable phases in other decision-making models are shown in Table 9.1. The specific decision-making requirements of these six stages and some decisionmaking tools to meet those demands are presented below.2
1
Finkelstein, Sydney. (2003). Why smart executives fail (p. 47). New York: The Penguin Group. For comparable phases see Kleindorfer, Paul R., Kunreuther, Howard C., and Schoemaker, Paul J.H. (1993). Decision sciences (pp. 9, 25, 68). Cambridge, United Kingdom: Cambridge University Press. Russo, J. Edward and Schoemaker, Paul J.H. (2002). Winning decisions (p. 268). New York: Doubleday.
2
R. Kiser, Beyond Right and Wrong, DOI 10.1007/978-3-642-03814-3_9, # Springer-Verlag Berlin Heidelberg 2010
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Table 9.1 Phases of litigation decision making Phase Process/purpose Finding Discovering, identifying, and tentatively defining a problem Binding Investigating and evaluating the parties and their claims to categorize the type and specify the scope of the problem Solving Generating and reviewing alternatives and settlement ranges Testing Proposing, responding to, negotiating and evaluating possible solutions Choosing Selecting settlement alternatives or third-party resolutions (trial or arbitration) Checking Monitoring compliance, evaluating the cost of non-compliance, considering alternatives to compliance and measuring the quality of decision making
9.1
Comparable phases Framing Problem finding Gathering intelligence
Coming to conclusions Problem solving Searching and evaluating
Coming to conclusions Legitimizing Learning from experience
Phase One: Finding
In the finding phase, attorneys and clients are alerted to a problem that initiates and necessitates serial decision making. At this stage, attorneys and parties form preliminary opinions of the claims, motivations, and credibility of the players and begin to assess the range of outcomes. For a plaintiff in this phase, the problem has evolved from a perceived injury to a grievance, from a grievance to blaming and faultfinding, and then to a specific claim against the perceived cause of the injury. Professor William Felstiner and his colleagues call this cycle “naming, blaming, and claiming.”3 For a defendant, the finding phase signals that a potential threat or claim is now material; it has evolved from a perceived injury of indeterminate cause to a grievance directed against a specific party or parties, then from a grievance to a claim either ignored or denied, in whole or in part, and ultimately from a claim to a legal action. Five questions dominate this phase: (1) What is this problem? (2) Who caused it? (3) Can it be ignored? (4) Does it require a routine or an exceptional response? (5) What will it take to solve it? The cognitive dangers in the Finding phase are premature framing of the cause, magnitude and resolution of the problem; reliance
3
Felstiner, William L.F., Abel, Richard L. and Sarat, Austin. (1980 – 1981). The emergence and transformation of disputes: naming, blaming, claiming. Law & Society Review, 15(3–4), 631, 636.
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on misleading comparisons with prior, ostensibly similar claims; the tendency to search for confirming facts and disregard disconfirming evidence; the impulse to attribute motives to parties’ actions; ineffective or inefficient legal representation resulting from attorneys’ dual roles of counselor and advocate; and the defense mechanism of denial, the “state of rational apprehension that does not result in appropriate action.”4 To counter these decision-making pitfalls, attorneys and clients may find the ten corrective steps discussed below helpful.
9.1.1
Still the Messenger
In businesses, public entities and other organizations, the first and primary source of information regarding a conflict frequently is a person who caused it or could not resolve it. Due to the “primacy effect,” information received first from problem instigators and facilitators “not only serves as a salient starting point for the judgment, but it biases the nature of the additional information that is sought and retrieved downstream in the later stages.”5 Because self-serving biases and attribution errors can cloud the perceptions and memories of these conflict inciters and abettors, they may be the least reliable sources of information for describing the background facts, defining the problem or forming constructive solutions. Kindly still these messengers by promptly including in the initial evaluation phase other key players and the future decision makers. As Albert Einstein observed, the “significant problems we face today cannot be solved at the same level of thinking we were at when we created them.”
9.1.2
Bottom-Up Decisions Beat Top-Down Decisions
Expert decision makers are bottom-up thinkers: they start with facts and build up to positions.6 Ordinary decision makers, however, are top-down decision makers, looking first at values, needs, opinions, prior experiences and objectives and then selecting positions. With a top-down decision-making process, one imposes a panoply of aspirations, desires, demands and expectations on the facts, and the facts have to conform or else they’re disregarded. As Peter Drucker, the preeminent management 4
Tedlow, Richard. Leaders in denial. (2006, July – August). Harvard Business Review, p. 18. See Felstiner, Abel, and Sarat supra note 3 at 632. 5 Hastie, Reid, & Dawes, Robyn M. (2001). Rational choice in an uncertain world (p. 102). Thousand Oaks, California: Sage Publications, Inc. 6 See Jorgensen, Magne. (2004). Top-down and bottom-up expert estimation of software development effort. Journal of Information and Software Technology, 46(1), 3–16. See also Lindsay, Daryl. (1989). Financial statement users’ perceptions of factors affecting the ability of auditors to resist client pressure in a conflict situation. Accounting & Finance, 29(2), 1–18.
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theorist, comments, people “look for the facts that fit the conclusion they have already reached. And no one has ever failed to find the facts he is looking for.”7 Sociologist Maureen Cain’s study of attorney-client interactions illustrates the top-down decision-making process. Analyzing attorney-client interactions, she found that attorneys did not act as independent, objective counselors. On the contrary, the clients controlled and directed the attorneys. Most of the attorneys in her study simply translated the client’s expectations into legal terminology and a legally cognizable claim. She writes: “[I] n sixty-seven of the eight-two cases which I observed and recorded the client announced his needs and set the objective for the solicitor.” The lawyers then “translated” client objectives into legal frames and “when successful, delivered the objective the client sought.”8 Clients who would scoff at a relative who diagnoses his own illness and selects a drug from the Physicians’ Desk Reference at the public library evidently do not hesitate to tell their attorneys the cause and expected resolutions of their legal problems. Instead of seeking and considering their attorneys’ independent advice, the clients in Cain’s study essentially dictated the terms of the assignment; and instead of rendering an objective, professional evaluation, the attorneys routinely served as willing accomplices, accepting and implementing the client’s directives. The attorneys’ task of “building a case” is a benevolent description of a topdown, deficient process – the client and the attorney focus on the client’s intentions and desired outcomes and then amass evidence and implement a strategy to animate those intentions and achieve the desired outcomes. In transforming a client’s specific, individualized grievance into a judicially cognizable ground for relief, participants in the judicial system prefer “not to know why anything has happened, but rather what occurred, or even more narrowly, what can be shown to have occurred.”9 To facilitate this endeavor, facts are subsumed under objectives; the objectives determine the facts to be sought, selected, and presented. This process is directive, not educative, and manipulates the attorney as well as the client: She is selling herself on the case, so that she can effectively sell it to judge and jury. This involves a certain amount of deletion and distortion. That is, the lawyer ignores or downplays the importance of facts which do not fit the story and “spins” other facts so that they do fit. The lawyer is also selling the client on the case as the story gets worked out and as the client’s role as hero becomes clear.10 7
Drucker, Peter. (2001). The essential Drucker (p. 252). New York: HarperCollins Publishers. Cain, Maureen. (1979). The general practice lawyer and the client: Towards a radical conception. International Journal of the Sociology of Law, 7, 331. 9 Moore, Sally. (1977). Individual interests and organizational structures: Dispute settlements as “events of articulation.” In L. Hamnett (Ed.), Social anthropology and law (pp. 182–183). New York: Academic Press, cited in William L.F. Felstiner, Richard L. Abel and Austin Sarat. The emergence and transformation of disputes: naming, blaming, claiming. (1980 – 1981). Law & Society Review, 15(3–4), 631, 647. Cf. Macaulay, Stewart. (1979). Lawyers and consumer protection laws. Law and Society Review, 14, 115 (finding that in minor consumer problems, attorneys discourage clients from pursuing claims). 10 Coyne, William F. (1999). The case for settlement counsel. Ohio State Journal on Dispute Resolution, 14, 367, 385. 8
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Although these mental deceptions may be an integral part of the attorney’s preparation for trial advocacy, William Coyne, an attorney and mediator, believes “they are precisely contrary to the steps which must be taken in a problem-solving approach to negotiation.”11 In implementing the “top-down” problem-solving process, attorneys may confuse the ethical duty to zealously represent a client, which is rooted in the fiduciary duty to protect a client’s interests, with zealous advocacy of a client’s position, which is rooted in the attorney’s desire to placate the client. Zealous advocacy, explains Illinois Circuit Judge Richard Curry, “is the doctrine which excuses, without apology, outrageous and unconscionable conduct so long as it is done ostensibly for a client, and, of course, for a price. Zealous advocacy is the modern day plague which infects and weakens the truth-finding process and which makes a mockery of the lawyers’ claim to officer-of-the-court status.”12 Invoking the “zealous advocacy” principle, attorneys overlook the fact that their primary fiduciary duty is to protect the client’s interests, not the client’s position; the client’s position, if ill-founded, may be injurious to the client’s interests.13
9.1.3
Challenge Your Perceptions
Perceptions are distorted by cognitive and motivational factors that tend to confirm initial opinions. As Karl Weick notes, seeing is not believing. “It’s the other way around. Believing is seeing. You see what you expect to see. You see what you have the labels to see.”14 Before making important decisions, answer four key questions posed by psychology professor Scott Plous: “Am I motivated to see things a certain way? What expectations did I bring into the situation? Would I see things differently without these expectations and motives? Have I consulted with others who don’t share my expectations and motives?”15 These questions offset detrimental decision-making biases and encourage objective insights from individuals unaffected by those biases. 11
Id. Kathleen P. Browe. (1994). Comment, a critique of the civility movement: Why rambo will not go away. Marquette Law Review, 77, 751, 767. 13 See Center for Professional Responsibility. (2007). Model Rules of Professional Conduct (p. 13) (“lawyer’s obligation zealously to protect and pursue a client’s legitimate interests”) and Model Rule 1.3 (p. 15) (“A lawyer must also act with commitment and dedication to the interests of the client and with zeal in advocacy upon the client’s behalf”). Chicago, Illinois: American Bar Association. 14 Weick, Karl E. and Sutcliffe, Kathleen. (2001). Managing the unexpected (p. 46). San Francisco, California: Jossey-Bass. See Coutu, Diane. (2003, April). Sense and reliability. Harvard Business Review, p. 87. 15 Plous, Scott. (1993). The psychology of judgment and decision making (p. 21). New York: McGraw-Hill, Inc. 12
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Give Vivid Pictures Time to Fade
“Most people reason dramatically,” observed U.S. Supreme Court Justice Oliver Wendell Holmes, “not quantitatively.”16 This cognitive bias – often called the “availability” or “representativeness” heuristic – causes people to remember the horrendous crime committed two blocks away, not the actual crime rate in their community. They also are certain that chainsaws, scissors and hammers cause more injuries than beds, mattresses, and pillows. But they are wrong.17 For similar reasons, Americans remember that nearly 2,800 people died at the World Trade Center on September 11, 2001, but they are not aware that just as many people are killed every ten days as a result of medical errors.18 Vividness activates the “rat brain,” the more primitive, instinctual area of the brain, and hijacks objective decision making. Decision makers, consequently, underestimate the overwhelming power of vividness and fail to counter it, believing they are rationally responding to facts when they are reacting to stimuli. Epictetus, writing in the first century, cautioned against the distortion of vividness: “Be not swept off your feet by the vividness of the impression, but say, ‘Impression, wait for me a little. Let me see what you are and what you represent. Let me try you.’”19 Recognizing the mind’s high susceptibility to vividness, science writer Clive Thompson warns decision makers in terms more terse than Epictetus’: “there’s a sucker born in every medial prefrontal cortex.”20 As a result of the vividness illusion, the sucker in every prefrontal cortex will pay more for a policy insuring against death from terrorism than death from any cause, death caused by cancer than death from any cause, or loss of a home caused by flooding than all causes. As Nicholas Taleb, a former derivatives trader and the author of The Black Swan and Fooled by Randomness comments, “I noticed that people do not like to insure against something abstract; the risk that merits their attention is always something vivid.”21 Because decision makers reason dramatically and focus on recent, vivid events, they do not accurately evaluate the source, magnitude, frequency, cause and cost of problems and solutions. They fixate on salient case facts that seem significant and memorable to them but may have little impact on a jury. The fact that a driver was belligerent, intoxicated, or unlicensed strikes a personal injury plaintiff as
16 Myers, David G. (2002). Intuition: Its powers and perils (p. 203). New Haven: Yale University Press. 17 Id. 18 Wachter, Robert M. and Shojania, Kaveh G. (2004). Internal bleeding (p. 20). New York: Rugged Land. 19 Epictetus, Discourses, Bk. I, ch.18. 20 Thompson, Clive. (2003, October 26). There’s a sucker born in every medial prefrontal cortex. The New York Times. Available at http://www.nytimes.com/2003/10/26/magazine/26BRAINS. html 21 Taleb, Nicholas. (2005). Fooled by randomness (p. 37). New York: Random House.
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important, the antagonistic remarks of a competitor seem damning to an antitrust plaintiff, and an employee’s fraudulent employment application may appear dispositive to a defendant employer in a wrongful termination case – but none of these facts may be admissible or, if admissible, as persuasive to the jury as they are to a litigant. Attorneys who have stared at twelve impassive jurors, expecting some reaction after thoroughly impeaching a witness with his own deposition testimony, are surprised to see that the jury’s sense of significance does not always comport with their own. Both litigants and attorneys, therefore, must persistently question their own perceptions and evaluations to test whether the sound bites and exhibits they find to be devastating actually are more vivid than probative.
9.1.5
Credit Randomness its Due
In attempting to affix motives to a party or causes to an effect, attorneys and clients underestimate the role of chance. Like other people, they develop an illusion of control, imagining that they have more control over events than they do and imputing motivations and intentions to make sense of otherwise disconnected events. “We believe we can influence affairs more than the objective evidence justifies,” explains Paul Kleindorfer, a professor of decision sciences and economics. This illusion, he adds, “seems rooted in a deep-seated need to have mastery over our destiny and environment, and indeed to most of us the perception of no control would be highly debilitating.”22 In reality, chance plays a major role in both successes and failures, and the links between opportunity and execution, motivation and realization and capabilities and results are tenuous at best. Decision makers, consequently, confuse correlation with causation and perceive causal relationships where none exist. Although cases appear more appealing when spun as compelling narratives of avarice and opportunism, the benefits from permitting surmise to trump facts are chimerical and short-lived. In the context of lawsuits, the attribution and hindsight biases link predilections to actions, ill motives to harm, and causes to effects – despite the absence of empirical proof. Given any adverse event – especially a tragic accident or astronomical damages – an ordinary person is inclined to find a tangible cause rather than attribute the event to happenstance. Worn tread is more likely to be seen as the cause of an accident than the freak hailstorm preceding the skid, just as fraudulent financial statements are more likely to be seen as the cause of a publicly traded company’s demise than an industry-wide revenue decline. The search for explanations is inexorable and misleading. Nicholas Taleb describes this natural desire to see causation: “we often have the mistaken impression that a strategy is an excellent strategy, or an entrepreneur a person endowed 22
Kleindorfer, Paul R., Kunreuther, Howard C., and Schoemaker, Paul J.H. (1993). Decision sciences (p. 113). Cambridge, United Kingdom: Cambridge University Press.
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with ‘vision,’ or a trader a talented trader, only to realize that 99.9% of their past performance is attributable to chance, and chance alone.”23 As a result of this mistaken attribution and the general reluctance to accept the inherent randomness of life, Taleb explains, people confuse luck with skills, probability with certainty, theories with reality, anecdotes with facts, randomness with determinism and coincidence with causality.24 In litigation, the cognitive need to denigrate randomness and to present a tidy package of cause and effect means that litigants may develop psychologically compelling ideas without judicially admissible evidence. Cases often rest on premises abundantly clear to a client but indiscernible to a trier of fact lacking the client’s history of experiences and interactions with its opponent. After an adverse judgment, attorneys and clients conclude that “the jury just didn’t get it” or “didn’t buy it,” when in reality the jury did “get it” and just saw a very different picture.
9.1.6
Deal with Attribution Errors Early
As explained in Chapter 4 (Psychological Factors), parties quickly imbue an adversary’s actions with malevolent motivations. Once the attribution bias is activated, parties cannot see the evidentiary forest for the dispositional trees. Recognizing the powerfully negative effect of attribution biases, proactive attorneys direct disputes into early mediation or early neutral evaluations. Mark LeHocky, general counsel for Ross Stores, Inc., enforces a policy of early stage mediation because the interaction at mediation may reduce distrust and misapprehension and promote objective case evaluation: But, even if they aren’t able to settle the case at the early stage, a tremendous thing happens, which is the parties get rid of a lot of the fog in the room – misunderstandings, sometimes misunderstandings about people’s objectives. And so even if it doesn’t settle early on, you’ve gotten rid of a lot of subsidiary issues. If the dispute remains past that point, it’s a confined dispute that’s clearly stated, and the parties can evaluate much more efficiently later on.25
LeHocky adeptly averts the initial attribution error that may occur when a party proposes early mediation – the adversary thinks “they must be scared” otherwise they would not propose mediation – by informing counsel that the company takes every case to early mediation as a regular business practice. Early neutral evaluation (ENE) is an alternative to early mediation and can be equally effective in countering “motive mongering” and blocking the cycle of rumination and blame that reinforces parties’ self-serving views. In ENE, the 23
Taleb supra note 21 at xliii. Id. 25 A thriving retail company in the middle of an economic storm. (2009, February 17). San Francisco Daily Journal, p. 2. 24
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parties’ attorneys typically submit evaluation statements to the evaluator(s) prior to the ENE session, and the parties’ attorneys make informal presentations of their case during the session. Although cross-examination does not occur, the parties are permitted to make responsive presentations after hearing the other party’s side. The evaluator usually asks questions to clarify the issues and evidence; she then identifies the issues and prepares a written or verbal evaluation. At various phases of the session, both before and after the evaluation is submitted, the evaluator may ask whether the parties wish to discuss settlement. If a settlement does not occur, the evaluator may schedule another session or assist the parties in preparing a case development plan for discovery and pre-trial motions.26 A major advantage of ENE over mediation, explains Magistrate Judge Wayne Brazil, is that “the bases for the evaluative component of the process are systematically developed, fully visible to all parties, and as comprehensive as the parties’ knowledge permits” – each party knows “every piece of evidence and every argument” that the evaluator is considering.27 The ENE process differs from many mediations, where private caucuses may retard interactive exchanges of information, and has strong potential for accelerating case evaluations and resolutions. ENE introduces contrary evidence and an independent evaluation before parties have “invested” tens of thousands of dollars in litigation expenses and have become unyieldingly fixated on the merits of their claims or defenses.
9.1.7
Diversify the Team
Decision makers feel comfortable working with people similar to them in background, race, experience, values, age, status, income and education. This compatibility bias, however, hinders creative problem solving and undermines negotiating outcomes. In simulated negotiations, teams comprised of nonfriends perform better than teams of friends, and heterogeneous groups “achieve higher joint outcomes in team negotiations than homogeneous groups.”28 Because diverse team members have a broader range of experiences and contacts, they incorporate more new information into decisions and demonstrate higher levels of creativity. Dissimilar 26
This overview of the early neutral evaluation process is based on Magistrate Judge Wayne D. Brazil’s description in “Early neutral evaluation or mediation? When might ENE deliver more value?” Dispute Resolution Magazine, Fall 2007, pp. 10–15. 27 Brazil, Wayne D. (2007, Fall). Early neutral evaluation or mediation? When might ENE deliver more value? Dispute Resolution Magazine, pp. 11, 12. 28 Zhong, Chenbo James. (2001, Fall). Group heterogeneity and team negotiation. Kellogg Journal of Organization Behavior, p. 6. See Hong, Lu, and Page, Scott E. (2001, March). Problem solving by heterogeneous agents. Journal of Economic Theory, 97(1), 123–163. Cf. Bar, Michaela, Niessen, Alexandra, and Ruenzi, Stefan. (September 2007). The impact of work group diversity on performance: Large sample evidence from the mutual fund industry; and Niessen, Alexandra and Ruenzi, Stefan. (February 2007). Sex matters: Gender differences in a professional setting. Available at http://ssrn.com/abstract¼966243.
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teams also make fewer assumptions, and, when they do make assumptions, are more likely to make those assumptions explicit, avoiding critical misunderstandings.29 Although heterogeneous groups “can drive bosses and coworkers crazy,” explains Stanford business professor Robert Sutton, “they increase the range of what is thought, noticed, said, and done in a company.”30 The bottom line when assembling a problem-solving team: mix it up.
9.1.8
Time Does Not Take Sides
Parties often remark, “Time is on our side.” For plaintiffs this can mean that the pressure on defendants to settle mounts as a trial date draws near. For defendants it often means that they are receiving a return on money that otherwise would have been paid to settle the case or that plaintiffs’ expectations diminish the longer they are forced to wait for a resolution. In reality, the passage of time rarely favors any party. Over time animosities are heightened, expectations are reinforced, perceptions are hardened, the number of observers and stakeholders increases, litigation expenses mount and damage claims increase. Regardless of the relative economic strengths of the parties, few parties obtain superior bargaining positions simply because they delay resolution. Decision makers who think they benefit from the passage of time – often lauded as “iron butt” negotiators – overlook two problems. First, they incorrectly assume that at least one factor will work to their advantage over time while all other factors remain static or shift in their favor. A defendant, for example, may assume it is earning interest by delaying payment of a settlement sum while the plaintiff’s damages and minimum settlement requirements are fixed. In fact, all settlement factors and stakeholders are constantly changing, and myopically focusing on one anticipated advantage gained by the passage of time may obscure unanticipated risks posed by other factors. While an executive receives accolades for “hanging tough” in settlement negotiations, a wrongfully discharged employee’s damages may be increasing due to widening unemployment in his field; a plaintiff’s personal injuries may be exacerbated by unanticipated medication side-effects; key company witnesses may resign or otherwise lose their enthusiasm for testifying; international currency fluctuations may increase the damages sustained by an antitrust plaintiff; or a co-defendant may settle and provide incriminating information to the plaintiff. All case variables – favorable and unfavorable – change over time. Second, iron butt negotiators assume that the framework for evaluating the quality of a decision remains static. When they continue to believe that “time is on our side,” they are overlooking material changes in the parties’ objectives and 29 See Page, Scott. (2008). The difference: How the power of diversity creates better groups, firms, schools, and societies. Princeton, New Jersey: Princeton University Press. 30 Sutton, Robert. (2001, September). The weird rules of creativity. Harvard Business Review, p. 98.
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their criteria for an acceptable outcome. This oversight can foster the illusion that a single decrement in an adversary’s position is an improvement in their position. While a party may enjoy a single and temporary advantage derived from delay, other risks not contemplated by their original decision-making framework – adverse publicity, governmental investigations, and incipient class actions – may be fostering multiple and persistent disadvantages. Because decisions are invariably based on the facts, policies and objectives pertaining at the time the decision is made, and those facts, policies and objectives inevitably change over time, it is imprudent for decision makers to avoid settlement negotiations with the justification that time is on their side. The Romans recognized this fallacy early in their maxim, “Omnia mutantur, nos et mutamur in illis” (all things are changing, and we are changing with them).
9.1.9
Align Client Objectives and Attorney Incentives
Considering the billions of passenger miles flown every year, air traffic fatalities are remarkably low. This low fatality rate is due, in part, to the close alignment between the pilot’s incentives and the passengers’ interests. Because pilots share the consequences of adverse outcomes in equal measure with passengers, pilots lack any motivation to take imprudent risks. In law firms operating under traditional hourly fee arrangements, however, the clients and attorneys fly in separate capsules; the risk of loss is borne almost entirely by the client, and the law firm often emerges financially unscathed regardless of whether the adverse outcome was avoidable or unavoidable with prudent case management and strategic decision making. Sensitive to the disincentives inherent in the traditional hourly billing system, both clients and law firms have attempted to shift some cases from hourly billing arrangements to flat fees or some form of premium billing camouflaged as discounted billing. In this endeavor, clients may overlook the dangers of miscalculated flat fees, and law firms may minimize the conflict of interest inherent in simultaneously advising clients about likely case outcomes and devising fees structures intended to increase profit margins for results achieved above a threshold determined, in part, by the law firm. For law firms, these alternatives to hourly billing rates are not designed to ease partners into lower tax brackets but rather to prevent client defections while enhancing profit and loss statements. “Firms are approaching the limit of how hard they can ask lawyers to work,” states Scott Turow, noted author and Sonnenschein partner. “Without alternative billing schemes,” he says, “lawyers will not be able to maintain the rapid escalation in incomes that big firms have seen.”31 The critical issue thus becomes whether the alternative billing structure, like the alternative minimum tax, is truly alternative or merely additional. 31
Glater, Jonathan. (2009, January 30). Economy pinches the billable hour at law firms. The New York Times, p. A1.
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The flat fee vs. hourly rate debate presents two extreme positions and a false choice. Both arrangements have great potential to harm the client because nearly all large law firms impose minimum billable hour requirements on their attorneys regardless of the firm’s fee arrangement with the client. Recognizing that a firm’s minimum billable hour requirement may be the ethics culprit under both flat fee and hourly rate compensation arrangements, the Los Angeles County Bar Association issued this candid ethics opinion in 1994: The use of an attorney productivity standard based upon a minimum number of hours billed carries the possibility that the attorney, in order to meet the standard, will either perform unnecessary work, thus “padding” the client’s fees; will bill the client for work not actually performed, thus defrauding the client; or will fail to act competently in performing legal services due to the pressure or fatigue of working an excessive number of hours, or to the lack of personal capacity of the attorney to work a sufficient number of hours in order to meet the productivity standard. Alternatively, an attorney productivity standard which limits the amount of time an attorney may spend on a matter may have the effect of preventing an attorney from allocating sufficient time to handle a matter competently.32
“Any of these consequences,” the opinion concludes, “would violate ethical standards, and could preclude the recovery of any fees for services.” Under a flat rate, the client’s interests may be prejudiced and the firm may have serious conflicts when the case budget for two years of litigation, on which the flat fee is based, is busted in the first six months of discovery and law and motion practice. With overhead costs varying from 55% – 80% of gross law firm income, few law firms can afford to underwrite litigation after the projections underpinning the flat fee are proven to be erroneous. And no savvy client really wants to be represented by a firm that regards its case as a financial albatross and reduces its attorney staffing to the lowest possible level commensurate with minimum professional liability standards. Flat fees only work effectively when the law firm is at least maintaining its historic profit margins and the client believes that the flat rate is less painful than the tyranny of the billable hour. Similar maladies afflict the fixed fee/premium billing arrangements under which clients, for example, pay a fixed fee and a “bonus” if the case settles for less than the client’s “worst case” scenario or more than the client’s “best case” scenario. In one of these hybrid fee arrangements, the client achieved a negotiated resolution in an amount far less than its worst-case scenario. The effective hourly rate achieved by the firm, according to its former chairman, “was something like 150% of our hourly rates. We made money, the client was happy.”33 A potential problem with these hybrid fee arrangements is that the client’s assessment of the worst or best outcomes may be affected, at least in part, by the attorneys who concurrently assess the likely outcomes and their ability to obtain premium compensation by delivering a better result than the likely outcome anticipated by the client. Unless the client
32
Los Angeles County Bar Association Professional Responsibility And Ethics Committee. (1994, November 21). Opinion No. 479. 33 Glater supra note 31.
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incurs the additional expense of retaining two law firms, one to evaluate the risk and negotiate the fee arrangement and another to represent the client in the subject action, the potential conflict of interest is enormous. Instead of choosing between hourly billing and flat fee arrangements, both law firms and clients may be better served by matching clients’ interests with attorney incentives. The business realities are that clients prefer early, practical and financially reasonable resolutions, and law firms may reduce substantially their efforts on a flat fee case that no longer covers the rent, insurance, salaries and other fixed costs required to prosecute or defend a case. A suitable alternative for clients and law firms is simply to recognize that a law firm’s standard hourly rates represent the value obtained when the firm provides its highest level of client service, and if the firm does not perform at the high level of competence and efficiency reflected in its standard hourly rates, the hourly rate should be reduced. For cases satisfactorily resolved within 90 days, for instance, the standard hourly rate may be entirely appropriate. When a case drags on for 48 months, however, the standard hourly rate no longer reflects the value obtained by the client, and the hourly rate should be adjusted downward to cover the law firm’s overhead, including associate salaries, and reduce or eliminate the partners’ or shareholders’ incentives to prolong the litigation. An illustrative billing tier would be the full hourly rate within the first 60–90 days of representation, 90% of the regular hourly rate for the next 90 days, 80% for the following 180 days, and 70% for the remaining representation. This assures that the law firm is not operating at a loss as a result of the client’s representation while eliminating any financial incentives for delay. Clients may notice that the gratuitous attorney antagonism that often attends the first 90 days of litigation and retards settlement discussions throughout the litigation does not exist when the attorney’s financial incentives are identical to the client’s financial objectives. Although attorneys will argue that this arrangement is fundamentally unfair because they have no control over an adversary’s behavior, it does little more than place law firms in the ordinary business world where companies are paid for results and the difficulties of competition and the stubbornness of counterparties are simply part of the business landscape.
9.1.10 Consider Appointing Separate Settlement Counsel Although they work under a united command, the negotiating team usually is separate from the SWAT team. Both the negotiating team and the SWAT team know it’s difficult to negotiate, snipe and rescue at the same time. It is equally difficult, and sometimes counterproductive, for litigation attorneys to function as both the negotiating team and the trial team. Roger Fisher, a co-author of Getting To Yes and professor at Harvard Law School, wrote a hypothetical letter from a CEO to the company’s litigation attorney,
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expressing his concern that litigation counsel are “doing battle in court” when they should be negotiating speedy settlements. He thinks this conflict in roles and objectives may be inevitable for litigation counsel and can be overcome only by appointing separate settlement counsel: I propose that for every major case we have one lawyer pursue litigation and another develop, at the earliest possible date, the best settlement option obtaining. This “advocate for settlement” would be expected to press on us the reasons for accepting a settlement and would provide a counterweight to the litigator’s partisan bias by pointing out weaknesses in our litigation position. This two-track approach should benefit both the litigator and the settler. The litigator would be under no pressure to pull his punches for fear that an unduly adversarial approach might damage the chances of settlement. And the harder the litigator pursued that option, the more it would strengthen the hand of the lawyer working toward settlement.34
Because Fisher thinks it is “probably impossible” for litigators to abandon the fight to vindicate the client’s cause, he urges clients to keep their brave “Sir Galahads” – but add wise “Merlins” to negotiate settlements. Mediator William Coyne reiterates the value of independent settlement counsel. He contends that “the mind-set needed to do effective problem-solving is incompatible with the mind-set needed to pursue litigation whole-heartedly. Put simply, it is difficult to do creative problem-solving while beating on your chest and throwing clumps of grass in the air.”35 He describes the counter-productive cycle of a litigator trying to force a settlement by “pummeling” the other side and then realizing that the aggressive and expensive tactics intended to produce a settlement have actually made the adversary more resistant to settlement and convinced that its antagonist is determined to proceed to trial. Absent the appointment of settlement counsel, the litigation attorney finds herself in a paradoxical situation: “The Litigator really wants to settle, but use of litigation as a negotiation tool amplifies all of the communication and psychological barriers to settlement.”36 When the litigation strategy collapses, and it becomes evident that continued aggressiveness simply escalates the conflict and prevents settlement, the client is forced to execute an about-face before trial and often settles on terms inferior to those that could have been obtained earlier by settlement counsel.
9.2
Phase Two: Binding
In the binding phase, attorneys and clients literally try to wrap the problem within a legal construct, binding it between an assessment of legal liability at one end and an evaluation of the recoverable damages at the other end. Five key questions require 34
Fisher, Robert. (2002, April). Dear lawyer. What goes around. Harvard Business Review, p. 128. Coyne supra note 10 at 393. 36 Coyne supra note 10 at 378. 35
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attention in the binding phase: (1) What type of problem is this? (2) How did this problem arise? (3) Do our policies and practices deal with this issue and did the key players follow those policies and practices? (4) Who is responsible for fixing the problem? (5) What can I expect to happen? In this phase, both plaintiffs and defendants essentially strive to define the problem and its causes and ramifications. Plaintiffs attempt to identify the most favorable legal theories for prevailing on their claims and then maximizing the range and amount of damages recoverable under those legal theories. Defendants, meanwhile, attempt to categorize the legal theory of relief in a manner most likely to bar or limit the claim, and failing that, to minimize the damages recoverable under a plaintiff’s claim. In the binding phase, the primary impediments to sound decision making are over-simplification of the problem; selective search for facts and legal authorities; excessive reliance on legal precedents and recent trials or settlements in other cases that are tenuously related to the subject case; the failure to solicit and incorporate a broad range of opinions; and premature elimination of possible resolution alternatives. Six methods of avoiding these impediments and improving the quality of decision making in the binding phase are described below
9.2.1
Start with Ideals
People pride themselves on being “pragmatic,” “realistic,” “practical” and “downto-earth.” In formulating possible solutions, however, effective decision makers must start with ideal solutions and then make adjustments and compromises working from a well-defined concept of the ideal solution. As Peter Drucker explains in The Effective Executive, the problem with asking “What is acceptable?” instead of “What is right?” is that the “decision maker usually loses any chance to come up with an effective, let alone with the right, answer.”37 It is inevitable that the ultimate decision will represent a solution short of the ideal, but if decision making does not begin with ideals, the evaluative framework is flawed and further compromises are wrested from narrow, expedient positions that already embody compromised policies and objectives. “One has to start with what is right rather than what is acceptable,” asserts Drucker, “because one always has to compromise in the end.”38 He recalls his emphatic instructions from Alfred Sloan, then chief executive officer of General Motors, for his first major consulting project: “And don’t you, above all, concern yourself with the compromises that might be needed to make your recommendations acceptable. There is not one executive in this company who does not know
37
Drucker, Peter. (1996). The effective executive (p. 136). New York: Harper Business. Drucker supra note 7 at 247.
38
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how to make every single conceivable compromise without any help from you. But he can’t make the right compromise unless you first tell him what ‘right’ is.”39 In a similar vein, economist Barry Nalebuff and law professor Ian Ayres encourage creative problem solving by asking, “What would Croesus Do (WWCD)?”40 (Croesus was the king of Lydia, famous for great wealth and the first minting of pure silver and gold coins). Instead of asking what is the most practical solution, they suggest that decision makers imagine the ideal solution, regardless of costs, and ask the overriding question, “Are there any solutions at all?”41 By putting themselves in King Croesus’ position, decision makers generate alternatives spinning off from the base of the ideal solution. “Adopting, modifying, standardizing, and automating a WWCD answer,” Nalebuff and Ayres explain, “is often easier than coming up with the solution from scratch.”42
9.2.2
Switch Sides to Debias Judgment
Debiasing techniques force one to “mentally switch sides in the game”43 and “consider reasons why your judgment might be wrong.”44 Keith Evans, an English barrister and legal educator, presses this idea on litigation attorneys: “As soon as you have an approximate idea of what a new case is about sit down and write your closing argument.” And immediately afterward, he instructs, “sit down and write your opponent’s closing argument.”45 Creative attorneys may consider reversing this sequence. Peter Drucker earned a law degree from the University of Frankfurt about two decades before he started teaching management at New York University. He considered it imperative that attorneys promptly draft the strongest argument in support of their opponent’s position: It trains him not to start out with, “I know why my case is right,” but with thinking through what it is that the other side must know, see, or take as probable to believe that it has a case at all. It tells him to see the two cases as alternatives. And only then is he likely to understand what his own case is all about.46 39
Drucker supra note 7 at 248. Nalebuff, Barry, and Ayres, Ian. (2003). Why not? (p. 16). Boston, Massachusetts: Harvard Business School Press. 41 Id. at 17. 42 Id. at 48. 43 Kahneman, Daniel & Tversky, Amos. (1995). Conflict resolution: A cognitive perspective. In Kahneman, Daniel, & Tversky, Amos (Eds.). (2000). Choices, values, and frames (p. 475). Cambridge: The Press Syndicate of the University of Cambridge. 44 Plous supra note 15 at 228. 45 Evans, Keith. (2004). Common sense rules of advocacy for lawyers (pp. 85–86). Alexandria, Virgina: The Capitol.Net . 46 Drucker supra note 37 at 154. 40
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Both attorneys and executives, Drucker argued, must assume that an adversary is as intelligent and fair-minded as they are and perceives a different reality or at least a different problem. Therefore, they must always ask, “What does this fellow have to see if his position were, after all, tenable, rational, intelligent?”47
9.2.3
Think Divergently
“How you define a problem usually carries with it an explanation of what caused it,” explains psychology professor Mihaly Csikszentmihalyi. Although our “first impulse is to label problems by relying on tried-and-true prejudices,” he notes, creative minds avoid rushing to define problems. Instead, they employ divergent thinking: produce a multitude of options, generate different and opposite ideas and formulate unlikely and original answers.48 “Divergent perspectives,” write Karl Weick and Kathleen Sutcliffe, “provide you with a broader set of assumptions and sensitivity to a greater variety of inputs. This discourages simplification and also increases the chances of seeing a greater number of problems in the making.”49 The benefits of divergent thinking are reflected in some of the litigation decisionmaking guidelines developed by Kevin Kennedy, the Chief Executive Officer of JDS Uniphase: “actively seek independent views;” “don’t be a prisoner of your own mind;” “look beyond conventional wisdom;” “there is rarely one path;” and “consider alternatives and back-up plans.”50 These guidelines foster divergent thinking about the parties’ positions and possible settlement options and ensure that clients and their attorneys get beyond mutually reinforcing opinions. In successfully defending itself against a securities fraud action, for instance, JDS Uniphase sought input from four independent sources: it engaged an outside law firm to conduct a three-month investigation; it retained a former federal judge to evaluate the case; it obtained demographic information about the likely jury pool from a consulting firm; and it presented the case to multiple focus groups. Its board of directors, moreover, explicitly considered the full range of outcomes, instructing Kennedy, “If you’re willing to go to trial you have to be willing to see this company in and out of bankruptcy if the verdict goes against you.”51 Divergent thinking promotes sound case evaluation and creative settlement solutions without signaling weakness to opponents. Maintaining a strong and confident front in dealing with adversaries does not require a myopic perspective, 47
Id. Csikszentmihalyi, Mihaly. (1996). Creativity (pp. 365, 368–369). New York: Harper Collins Publishers. 49 Weick and Sutcliffe supra note 14 at 162. 50 Jones, Ashby. (2008 June 2). JDS wins investor lawsuit, bucking a trend. The Wall Street Journal, p. B4. 51 Id. 48
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rigid attitudes and dogged tactics but rather is bolstered by intellectual receptiveness, creative ideas and flexible strategies. Toughness, in fact, can be a serious impediment to resolving cases through divergent thinking: “The ‘tough’ lawyers can provide assurance to the client that everything is under control. But this very assurance can lead to yet another barrier to settlement, because it affects the way the client perceives his situation.”52 When both client and attorney become tough and obdurate, divergent thinking halts and settlement becomes nearly impossible because the tools necessary to defuse a conflict – understanding, empathy, foresight, imagination and tact – are blocked.
9.2.4
Stop Pattern Matching
Pattern recognition is an evolutionary overhang. Homo sapiens’ genetic pool was narrowed millions of years ago to those wary pithecanthropoids who scaled tree trunks whenever they saw stripes – whether they were on tigers or zebras. Irving Janis, author of Groupthink, recommends skepticism about solutions derived from vivid historic analogy and suggests asking two questions: “What are the likenesses and what are the differences between then and now?”53 He cautions against searching for historical analogies and “metaphorical thinking” and argues that these simple approaches to decision making “interfere with careful search, critical thinking and planning.”54 Successful decision makers are particularly vulnerable to pattern matching, as their success leads “to observations that are concentrated in the same or similar situations,” states management professor James March. Decision reliability consequently suffers because their perspective “limits evidence to phenomena in the neighborhood of current practice.”55 To counter this decision-making myopia, Karl Weick, a psychology professor at the University of Michigan, advises: “If you update and differentiate the labels you impose on the world, the unexpected will be spotted earlier and dealt with more fully, and sustained high performance will be more assured.”56 Because legal argumentation is based on precedent and analogy, attorneys are trained to be overachievers in pattern matching. Effective legal advocacy – the persuasive art of relating case facts to favorable precedents – rests on analogies, patterns, metaphors, and enthymemes. Malcolm Gladwell describes how an attorney carefully orders facts to fit patterns: “each detail is adduced, considered, and laid on the table – and then adjusted and readjusted so that the corners of the new 52
Coyne supra note 10 at 386. Janis, Irving, (1989). Crucial decisions (p. 240). New York: The Free Press. 54 Id. at 152. 55 March, James. (1994). A primer on decision making (p. 243). New York: The Free Press. 56 Weick and Sutcliffe supra note 14 at 172. 53
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fact are flush with the corners of the fact that preceded it.”57 The adversarial system encourages attorneys to find common patterns in remotely similar cases with favorable precedents and, conversely, to distinguish fact patterns in nearly identical cases with unfavorable precedents. Attorneys may strain to see patterns where none exist and to disregard patterns when they do exist. David Balabanian, a partner at Bingham McCutchen and one of the most respected commercial litigators in the country, credits part of his success to “treating each case as new” and cautions attorneys against pattern matching: You know some people say you shouldn’t be reinventing the wheel. I believe in reinventing the wheel; this time you may make a better wheel. Maybe there is a new way; maybe you can come at it from a different angle. And maybe the interests of this client are not the same as the interests of the last client, even if the case is very similar.58
This exceptional litigator likes to work with young lawyers on his cases because “there’s a lot to be said for having no baggage from the last case. For many young lawyers, it’s easy to think outside the box, because they don’t know where the box is.” The pitfalls of pattern matching are compounded by legal specialization. Because attorneys specialize in discrete practice areas, cases are quickly categorized by case type to facilitate the selection of counsel by their subject matter expertise. Clients or corporate counsel frequently determine the case type before consultation with outside counsel and then select outside counsel based on the attorney’s reputation for handling that type of case. The designated counsel, in turn, is likely to analyze the case through the prism of her discrete knowledge and experience in a specialized field. Many cases, however, do not fit tightly into legal compartments. An intellectual property attorney with an undergraduate degree in engineering may understand design defect issues better than a law firm’s products liability litigator, and a real estate transactional attorney may be more familiar with in-house brokerage practices than the employment law attorney defending the client against a broker’s wrongful discharge case. Clients need to make sure that, at least in the binding phase, the attorney’s expertise corresponds with the issues raised by the case, not the legal practice area designated on an intake form or a new matter memoranda before the case was thoroughly analyzed.
9.2.5
Work Well with Others
When stymied by limited information, decision makers may find it easier to expand the number of observers and observations than the available information.59 “Large 57
Gladwell, Malcolm. (2006, October 16). The formula. The New Yorker, p. 138. Oberthur, Anna. (2005, December 1). Work draws lawyer seven days a week. San Francisco Daily Journal, p. 4. 59 March supra note 55 at 243. 58
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groups of diverse individuals,” states James Surowiecki, author of The Wisdom of Crowds, “will come up with better and more robust forecasts and make more intelligent decisions than even the most skilled decision maker.”60 One of the simplest ways to increase the reliability of case assessments “is averaging the forecasts that were made independently by several individuals,” since group average forecasts generally are superior to those of the group’s individual members.61 For lawyers, spending 30 minutes discussing a case and then polling their colleagues regarding likely trial or arbitration outcomes probably will yield a more accurate assessment of the case than 30 billable hours spent on additional discovery. Attorneys also benefit from reaching beyond their own specialty areas and appropriating ideas from other attorneys and departments. David Balabanian uses an inter-disciplinary approach to develop novel and creative solutions for client problems: Practice doesn’t make perfect. Practice makes permanent. Doing the same thing too many times can be the real enemy of creative thought. I find it very valuable to be working in several different areas at once because ideas that have found favor in one area may not yet have penetrated to another. An approach that worked really well in one kind of case may work in another where it hasn’t been tried before.62
Ironically, Mr. Balabanian studied philosophy at Oxford University and was tutored by Isaiah Berlin, the historian and philosopher who explicated the two different thinking styles of “hedgehogs” (which fit observations into a central thesis) and “foxes” (which allow observations to foster polymathic intelligence). Isaiah Berlin presumably would have placed this student, Mr. Balabanian, among the foxes which “lead lives, perform acts, and entertain ideas that are centrifugal rather than centripetal, their thought is scattered or diffused, moving on many levels, seizing upon the essence of a vast variety of experiences and objects.”63 Capitalizing on broad sources of knowledge and information, foxes demonstrate superior decision-making skills and avoid the hedgehogs’ vulnerability in relying on a single source or rule.
9.2.6
Consider Whether a Litigation Attorney or a Trial Attorney is Required
“The difference between an office lawyer and a trial lawyer,” observed the celebrated trial lawyer Louis Nizer, “is as great as between an internist and a surgeon. 60
Surowiecki, James. (2004). The wisdom of crowds (p. 32). New York: Doubleday. Stewart, Thomas R. and Lusk, Cynthia. Seven components of judgmental forecasting skill: Implications for research and the improvement of forecasts. In Connolly, Terry, Arkes, Hal R., and Hammond, Kenneth R. (2000). Judgment and decision making (p. 411). Cambridge: Cambridge University Press. 62 Oberthur supra note 58 at 5. 63 Berlin, Sir Isaiah. (1953). The hedgehog and the fox. New York: Simon & Schuster. 61
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Both require high talents, but the specialized skills and tools are so different that they may as well be in different professions.” The same could be said of trial lawyers and litigators, a distinction frequently lost on clients. The failure to understand the critical distinction between good litigators and good trial lawyers “leads many corporate counsel to select the wrong person to try their cases.”64 Before the advent of pre-trial discovery and the extensive motion practice which characterizes modern litigation, very few attorneys described themselves as “litigators.” Attorneys who represented clients in lawsuits were trial attorneys, and attorneys with little or no trial experience were simply considered “inexperienced.” They carried the trial bags, wrote the briefs and learned trial practice through observation and an occasional examination of an unimportant witness. As the connection between representation in lawsuits and experience in courtrooms became more attenuated, attorneys increasingly referred to themselves as litigators, connoting a specialization in litigated matters with or without actual trial experience. The essential difference between litigators and trial attorneys is described by DecisionQuest, a national trial consulting firm, in its article “Wanted: A Good Trial Lawyer to Take My Case To Court – Litigators Need Not Necessarily Apply:” A good litigator will know all the facts and issues. He or she will be brilliant at motion practice, discovery and preparing briefs. A good litigator is an inductive thinker, and if you want to know the most minute point of evidence, the good litigator can tell you about it. In contrast, a good trial lawyer thinks deductively and understands that telling the jury more does not lead to increased comprehension. . . . The good trial lawyer teaches the jurors for the moment, hoping they will gain some momentary insight the impression of which they will carry to deliberations. . . Good trial lawyers can try any kind of case on any subject. They can do that because they know how to create a story. They build a team they can rely on for support and, more importantly, they can successfully connect with a jury.65
Effective trial lawyers are credible, organized, tenacious, and most importantly, persuasive storytellers. They generally do not emulate the inductive thought patterns of litigators, nor do they generally possess the subject matter expertise of litigators. DecisionQuest warns that clients mistakenly choose an attorney to try a case based on the attorney’s subject matter expertise. Its concern is substantiated by a survey of 635 corporate counsel, 88% of whom rated “expertise” as the most important factor in selecting counsel for “high stakes” matters.66 Instead of relying on subject matter expertise, a client may be better served at trial by an
64
DecisionQuest. (1993, October). Wanted: A good trial lawyer to take my case to court - litigators need not necessarily apply. DecisionQuest Litigation Library. Available at http://www.decisionquest.com/litigation_library.php?NewsID¼235 65 Id. 66 Martindale-Hubbell. (2005). How corporations identify, evaluate and select outside counsel, p. 4. Available at http://www.martindale.com/go/corpbuy05/Executive_Summary.pdf
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experienced and successful trial attorney. The client’s question should not be, “Who is a good patent lawyer?” or “Who is a good employment lawyer?,” according to DecisionQuest. Rather, it should be, “Who has tried a lot of cases and won them?”67 In cases that appear unlikely to settle, clients should begin to consider whether trial counsel will be required and whether their present attorney is effective as both a litigator and a trial attorney. Starting this inquiry in the binding phase provides ample time to evaluate this issue and, if necessary, select trial counsel when settlement negotiations are unavailing. To be fully prepared for both negotiated and adjudicated outcomes, clients often need to retain both litigators and trial attorneys and know when to utilize their complementary but distinct skills.
9.3
Phase Three: Solving
In the solving phase, the parties evaluate alternative methods of resolving a dispute. Six questions predominate: (1) Who needs to participate in resolving this problem? (2) What are the minimum requirements for a negotiated resolution? (3) What are the possible methods of resolving this problem? (4) What will it cost? (5) How long will it take? (6) How will the possible resolutions affect future interactions with these parties and other affected people and organizations? In this phase the threats to effective decision making are restricting the range of acceptable solutions, making unfounded assumptions about what is advantageous or acceptable to other parties, confusing aspirations with requirements, forming overoptimistic predictions of likely adjudicated outcomes and their total costs, and minimizing the subjective barriers to settlement. Six methods of mitigating these risks are presented below.
9.3.1
Don’t Follow Your Gut
Only gastroenterologists make money on guts. Despite the popular attention given to business and political leaders who rely on instincts and “go with their gut,” the dorsal lateral prefrontal cortex is far superior to the ileum when people are making complicated decisions. “To those who study decision-making,” declare Russo and Schoemaker, “the most striking feature of intuitive judgment is not its occasional brilliance but its rampant mediocrity.”68 Eric Bonabeau, the chief scientist at Icosystem, concurs in his article, “Don’t Follow Your Gut:” “The more options 67
DecisionQuest supra note 64. Russo and Schoemaker supra note 2 at 136.
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you have to evaluate, the more data you have to weigh, and the more unprecedented the challenges you face, the less you should rely on instinct and the more on reason and analysis.”69 To generate constructive solutions in litigated cases, attorneys and clients need to rely on signals more concrete than their intuitive, gut level sense of what will happen if the case does not settle. Intuitive decisions, plagued by self-serving biases, inevitably blur the line between what one wants to happen and what one predicts will happen. For litigants, the desired solution becomes the right result, and the right result becomes the inevitable outcome. The attorney’s dual, sometimes conflicting roles of advocate and counselor further cloud deliberative thinking. Effective resolutions in litigation cases, therefore, avoid intuitive evaluations and are based on realistic, statistically reliable assessments of the likely case outcomes. This assessment requires a basic understanding of statistics and probability, in addition to the exercise of sound legal judgment. In Kullar v. Foot Locker Retail, Inc.,70 the court confirmed that gestalt evaluations are insufficient evidence of the reasonableness, fairness and adequacy of a settlement. Describing those intuitional, experiential case evaluation methods, attorney Steve Katz, a partner at Reed Smith, states: “Most lawyers will tell you that determining the ‘settlement value’ of a case is a mysterious art. Throw in some legal knowledge, practical experience, familiarity with the judge and jury pool, intuition, common sense, eye of newt and stir – out comes a highly accurate estimate from the best practitioners, and a ‘guesstimate’ of dubious reliability from the rest.”71 Barrister surmise was criticized and deemed insufficient in Kullar when counsel submitted conclusionary pleadings (“the class representative has vigorously prosecuted this case,” “counsel thoroughly reviewed all available evidence,” “the parties have engaged in adequate discovery, investigation and research,” “settlement was in the best interests of the class”) and sought court approval for the settlement. Characterizing these recitations as “generalities that would apply in any case,” the court confirmed that the evidentiary standards required the production of data, not just attorneys’ opinions: l
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“Informed evaluation cannot be made without an understanding of the amount that is in controversy and the realistic range of outcomes of the litigation.” “[O]ther data must be provided that will enable the court to make an independent assessment of the adequacy of the settlement terms.” The court cannot approve a class action settlement “if is not provided with basic information about the nature and magnitude of the claims in question and the basis for concluding that the consideration being paid for the release of those claims represents a reasonable compromise.”
Bonabeau, Eric. (2003, May). Don’t trust your gut. Harvard Business Review, p. 117. 168 Cal. App. 4th 116 (2008). 71 Katz, Steven B. The giving tree. (2008, December 31). San Francisco Daily Journal, p. 7. 70
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Noting that the parties had not submitted a class-wide damage study, the court found insufficient the attorneys’ averments that the settlement was reached in an “arms-length” bargaining and settlement negotiations were “conducted with the assistance of a highly qualified and widely respected mediator.”
9.3.2
Search for Disconfirming, Discrepant Facts
After a series of accounting fiascos in 2005, Mike Zafirovski, the CEO of Nortel Networks Corporation, thought he had put all the bad news behind him. Then in March 2006 he learned that another accounting mess would require the company to restate financial results for a third time. To avoid yet another accounting irregularity and loss of credibility, he lies awake at night and asks himself: “Am I making the right decisions? Are people telling me what I need to hear? Am I being naively optimistic and ignoring warning signs?”72 Although the top of a mattress at 2:00 a.m. may not be the most conducive place to ask these questions, they are the right questions for decision makers seeking disconfirming evidence and discrepant facts. Accurate forecasting – the ability to anticipate clarion events from faint signals, discern trends from ambiguous data, and ascertain a range of probable outcomes – requires a relentless search for contrary evidence. A forecaster’s reputation for accuracy does not rest on a few strongly held, permanently correct observations but rather a series of observations continually changed, refined or withdrawn to match new evidence. One of the world’s foremost forecasters and a Fellow at the Institute for the Future, Paul Saffo, describes how expert forecasters work: “If you must forecast, then forecast often – and be the first one to prove yourself wrong. The way to do this is to form a forecast as quickly as possible and then set out to discredit it with new data.”73 Expert forecasters, he explains, have “strong opinions, weakly held.” Forecasters develop strong opinions by relying on a large quantity of weak, interlocking, and sometimes contradictory data, and they avoid the common trap of reaching major conclusions based on one or two salient facts.74 “Having strong opinions,” Saffo declares, “gives you the capacity to reach conclusions quickly, but holding them weakly allows you to discard them the moment you encounter conflicting evidence.”75 For attorneys, cognitive agility requires rapid abandonment of legal theories shown to be inapposite, replacement of witnesses proven to 72
(2007, January 2). How a rookie CEO is testing his limits. The Wall Street Journal, p. A1. Saffo, Paul. (2007, July-August). Six rules for effective forecasting. Harvard Business Review, pp. 122–131. 74 Saffo’s preference for multiple information sources highlights the ongoing debate about “foxes and hedgehogs.” The Greek poet Archilochus wrote, “The fox knows many things, but the hedgehog knows one big thing.” 75 Saffo supra note 73 at 129. 73
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be incautious, revision of cost estimates advanced without adequate study or superceded by an adversary’s tactics, and correction of recommendations premised on insufficient evidence.
9.3.3
Pay Attention to Base Rates
Relying on instincts, intuition, heuristics and other cognitive shortcuts, states Louis Menand, recipient of the Pulitzer Prize in History, “is not a faster way of doing the math; it’s a way of skipping the math altogether.”76 Don’t skip the math. Base rates are consistently better predictors of likely outcomes than unaided human judgment, or, in Robyn Dawes’ less charitable phrase, “our cognitive conceit.”77 More than 136 studies of judgment in widely diverse contexts prove that, whenever results can be quantified or otherwise objectively determined, statistical methods yield vastly more accurate predictions than human judgment.78 To learn base rates, and counter attorneys’ tendency to be cheerleaders as well as counselors, clients should ask the same type of questions suggested by Stephen Schenider, a Stanford biology professor and climate scientist. In his book, The Patient From Hell, Schneider explains, “ I learned from being a climate guy that it’s less threatening to use a hypothetical frequency.”79 The key hypothetical question to ask is: “If there are 100 patients like me and if we follow the standard protocol, how many will lose their remission and get their cancer?”80 Clients can circumvent their attorneys’ well-intentioned efforts to be supportive rather than statistical by asking similar hypothetical questions: l
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How many similar cases have been (won) (lost) and what damages are usually awarded? How similar are those cases to mine in the type of damages claimed? If you tried this case 100 times, what would be the results?
If attorneys cannot answer those questions, clients cannot make informed decisions any more than a medical patient could make an informed decision about alternative treatments without knowing the results of clinical trials. The shift from anecdotal advice to fact-based probability assessments has occurred in most other high risk, high consequence domains and greatly benefits 76
Menand, Louis. (2004, August 30). The unpolitical animal: How political science understands voters. The New Yorker, p. 95. 77 Myers, David G. (2002). Intuition:Its powers and perils (p. 199). New Haven: Yale University Press. 78 Hastie & Dawes supra note 5 at 55–58. 79 Schneider, Stephen, and Lane, Janica. (2006). Patient from hell. Cambridge, Massachusetts: Da Capo Press. 80 Id. quoted in Anderson, L.J. With doctors, question and persevere. Palo Alto Daily News, February 14, 2007, p. 34.
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attorneys and clients in trying to make effective decisions in litigated cases. Knowing the probable case outcome, instead of relying on intuition, recent experience and anecdotal evidence, is not only desirable but may be required to meet an attorney’s standard of care in some jurisdictions. As the court stated in Prande v. Bell,81 an attorney advising a client regarding settlement must know “what the outcome is likely to be if the case proceeds further, based not only on the relevant law but also on what triers of fact in the community are doing in similar kinds of cases.” Under Rule 1.4 of the Model Rules of Professional Conduct, moreover, a litigation attorney should explain not only the general strategy but “the prospects of success” as well.82 The Prande decision and Rule 1.4 indicate that attorneys must gauge the strength of a claim not only by its legal merits but its probable outcome as well.
9.3.4
Prepare to Justify Your Case
Reliability increases when decision makers have to justify their decisions and their forecasts of the likely outcomes. Research subjects who anticipate having to justify their positions show improved calibration and reduced confidence.83 Professor Philip Tetlock summarizes many studies that document changes in judgment and decision in response to new information when “people realized that they would be accountable to others for their choice.”84 In one study, academic judges were receptive to new information when advised their actions would affect applicants’ graduate school admission and they would be required to explain and defend their actions to a review committee. Absent this information regarding the consequences of their decisions and the need to justify them to a third-party, “the judges were found to display relatively little responsiveness to new factual information about the persons being judged.”85 The quality of decision making by attorneys and clients improves if they assume they will have to explain and justify their decisions to a third party. The efficacy of accountability may explain, in part, why insured defendants exhibit an overall decision error rate of 22%, compared with a decision error rate of 30% for uninsured defendants.86 The additional layer of accountability to the insurance 81
660 A. 2d 1055, 1065 (Md. App. 1995). Center for Professional Responsibility. (2007). Model Rules of Professional Conduct Comment 5, Rule 1.4 (p. 17). 83 Stewart and Lusk supra note 61 at 413. 84 Janis supra note 53 at 104. 85 Id.See Frink D.D. and Ferris G.R. (1999). The moderating effects of accountability on the conscientiousness-performance relationship. Journal of Business and Psychology, 13(4), 515–524. 86 See Table 3.12, Chapter 3. See also Guthrie, Chris and Rachlinski, Jeffrey J. Insurers, illusions of judgment & litigation. Vanderbilt Law Review, Forthcoming; Vanderbilt Law and Economics Research Paper No. 06–28. Available at SSRN: http://ssrn.com/abstract¼952493 82
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company and the necessity of providing a justification to the insurer to obtain settlement authority may enhance the quality of legal decision making. The beneficial effect of justifying a decision is “higher in low predictability than in high predictability conditions” write professors Roger Hagafors and Berndt Brehmer in a study entitled “Does Having to Justify One’s Judgments Change the Nature of the Judgment Process?”87 This means that requiring a decision maker to justify a decision is particularly beneficial in highly uncertain cases with few precedents and limited data regarding similar case outcomes. The tougher it is to predict a case outcome, the greater the benefit from methodically delineating the justification for a decision.
9.3.5
When in Doubt, Act it Out
Absent base rate data and systematic decision-making processes, most people are poor forecasters of outcomes in conflict situations. In simulated conflicts, moreover, research participants exercising unaided judgment perform “no better than chance when predicting decisions made in conflicts.”88 Forecasting accuracy, however, may be improved when people engage in role-playing exercises to simulate how people would react in actual conflicts. In these exercises, participants are assigned roles and given a description of the parties’ roles, background information regarding the dispute and a list of decision options. Playing the role of a disputant, each participant then meets with an antagonist and negotiates a resolution. Role-playing is expected to be useful in conflicts like legal actions “because it is so difficult to think through the many actions and reactions among the parties involved.”89 Consistent with this expectation, experiments show that role-playing appears to result in more accurate predictions about what will actually occur in a conflict than some other forecasting methods. Using six scenarios based on actual disputes (e.g., pay disputes between nurses and hospital management and a conflict between directors of a pharmaceutical company and consumers of its products) business professor and forecasting expert Kesten Green found that role-playing was significantly more effective in generating accurate predictions than game theory or unaided judgment. Averaged across all six scenarios, 64% of the forecasts made after role-playing were correct, compared with an accuracy rate of 37% for game theorists’ forecasts and 28% for unaided judgment forecasts.90 Green also found that role-playing exercises were under-utilized in organizations; among practitioner 87
Stewart and Lusk supra note 61 at 411. Green, K.C. (2002). Forecasting decisions in conflict situations: A comparison of game theory, role-playing and unaided judgment. International Journal of Forecasting 18, 321, 324. 89 Armstrong, J. Scott. (2006). Findings from evidence-based forecasting: Methods for reducing forecast error. International Journal of Forecasting, 22(3), 583–598. 90 Green supra note 88 at 321, 333. 88
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members of the International Institute of Forecasters, 85% relied on expert opinions, 8% employed game theory and only 7% used role-playing.91
9.3.6
Step Off the Information Treadmill
Seeking more information before making a decision is alluring and quickly achieves two goals: it simultaneously delays the decision while enhancing the decision maker’s image as a thoughtful, inquisitive and objective deliberator. Quite often, though, attorneys and clients have adequate information to make a decision and will not benefit from additional information. Additional information either exceeds their processing capabilities or is selectively interpreted and weighted, adding debilitating complexity and biases to the decision-making process. In their article, “The High Cost of Accurate Knowledge,” Kathleen Sutcliffe and Klaus Weber declare: “for senior managers at least, it’s less important to know a lot of facts about a situation than to have a clear and consistent framework for interpreting them.”92 Numerous studies show that people “use only a subset of available information” and increasing information does not affect the accuracy of predictions or the quality of judgments.93 “We reach the point of diminishing marginal predictive returns for knowledge disconcertingly quickly,” states Philip Tetlock.94 Economist Barry Nalebuff and law professor Ian Ayres voice a similar concern about the search for additional information, urging decision makers to emphasize what they do know, not what they don’t know. “It’s all too easy,” they explain, “to get caught up in what you don’t know instead of working from what you do know. Knowing 75 percent of the answer makes it easier to find the other 25 percent.”95 Convinced that waiting for additional information is counter-productive, Sheldon Bonovitz, Chairman Emeritus of 600-lawyer Duane Morris, relies on an “80 percent” theory of decision making: “I believe that when you’re 80 percent sure, make the decision. Don’t wait any longer for more certainty because you’ll just become paralyzed.”96 Although attorneys and clients often insist that a settlement is premature because discovery is not completed, an objective decision maker may question whether further discovery would be productive.97 No empirical evidence proves that 91
Green supra note 88 at 322. Sutcliffe, Kathleen, and Weber, Klaus. (2003, May). The high cost of accurate knowledge. Harvard Business Review, p. 76. 93 Stewart and Lusk supra note 61 at 411. 94 Menand, Louis. (2005, December 5). Everybody’s an expert. The New Yorker, pp. 98–101. 95 Nalebuff and Ayres supra note 40 at 137. 96 Carter, Terry. (2006, December). A heck of a good story. ABA Journal, p. 30. 97 See Korobkin, Russell B., and Ulen, Thomas S. (2000). Law and behavioral science: Removing the rationality assumption from law and economics. California Law Review, 88(4), 1094 (“More information – provided, perhaps in the form of expanded pretrial discovery – is unlikely to be 92
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extensive discovery facilitates settlements. The limited evidence, in fact, shows otherwise. “Most theories of legal discovery assume that sharing information among disputing parties will lead to convergence of expectations and will facilitate settlement,” explain professors George Loewenstein and Don Moore. “However, psychological research shows that shared information, if it is open to multiple interpretations, is likely to be interpreted egocentrically by the disputants, which can cause beliefs to diverge rather than converge.”98 Two researchers at the Federal Judicial Center, Judith McKenna and Elizabeth Wiggins, report that “the number of days spent in discovery was associated with both increases in the number of disagreements between the sides concerning factual and legal issues and lower proportions of cases settling before trial.”99 Citing William Glasser’s study published in Pretrial Discovery and the Adversary System, they note that 97% of the cases settled when neither party conducted discovery, compared with a 76% settlement rate when both sides conducted discovery. Mediator William Coyne dismisses the idea that cases cannot be settled until discovery is completed and major factual issues are resolved: “Any lawyer in a litigation practice knows that this is nonsense. Cases settle every day, some of them on the courthouse steps, without a resolution of factual disputes.”100
9.4
Phase Four: Testing
Problem solving in litigation cases differs from other types of problem solving in at least one major respect: a settlement decision cannot be made or implemented without the acquiescence of an adversary. Although nearly all business decisions require “buy-in” to approve and implement a decision, litigation cases are unique in granting veto power to an adversary at the inception of the settlement decisionmaking process. Absent an adversary’s consent, solutions to problems cannot even proceed to the presentation and consideration levels. Since attorneys and litigants cannot compel consideration of alternative resolutions, let alone unilaterally choose among settlement alternatives, the pre-settlement phase is called the “testing” phase. The parties in this phase can do little more than “test” possible resolutions to probe an adversary’s receptiveness, priorities and objectives. If an adversary
effective because, as we have seen in the experiments cited above concerning the death penalty controversy people seem to use additional evidence to solidify their views, rather than to alter them”). 98 Loewenstein, George, and Moore, Don A. When ignorance is bliss: Information, fairness, and bargaining efficiency, p. 2. Available at http://www.som.yale.edu/faculty/keith.chen/negot.% 20papers/LoewMoore_BiasAssimNegOut00.pdf 99 McKenna, Judith A., and Wiggins, Elizabeth. (1997–1998). Empirical research on civil discovery. Boston College Law Review, 39, 785, 796. 100 Coyne supra note 10 at 398.
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unilaterally cancels this test, decision making halts and the costly litigation twins, pre-trial discovery and law and motion practice, escort the case to trial. Because the testing phase determines whether alternatives to litigation will ever be considered, accepted and adopted, the key questions in this phase are: What are the parties’ needs and objectives? What are the parties’ vulnerabilities and sensitivities? What prior positions and commitments could hinder settlement? What is the range of potentially acceptable resolutions (the “reservation” zone)? What are the risks and costs of proposing alternatives which may be rejected by an adversary? If a proposal is acceptable, will it be performed? In many respects, this phase is the most delicate of all the decision-making phases and requires the deftest analytical and communication skills. Contradictions between covert messages and explicit statements, individual needs and organizational goals, current preferences and prior commitments, and private overtures and public statements require negotiators to act discretely and strategically. Nine methods of upgrading and enhancing these skills in the testing phase are outlined below.
9.4.1
Find Your Inner BATNA
Roger Fisher and William Ury, authors of Getting to Yes, state the most fundamental rule of negotiation: The reason you negotiate is to produce something better than the results you can obtain without negotiating. What are those results? What is that alternative? What is your BATNA – your Best Alternative To A Negotiated Agreement? That is the standard against which any proposed agreement should be measured. That is the only standard which can protect you both from accepting terms that are too unfavorable and from rejecting terms it would be in your interest to accept.101
Since a party’s BATNA is the standard for judging the quality of a settlement, it is imperative for parties to determine their BATNA before settlement negotiations begin and to recalibrate their BATNA in light of new information. Surprisingly, many parties enter negotiations without a BATNA, determined to stonewall negotiations even when they could be beneficial or resigned to “wait and see what the other side comes up with.” Former California Superior Court Judge John Flaherty, now a full time neutral, expresses his dissatisfaction with parties who fail to prepare for negotiations and draft their mediation briefs by cutting and pasting paragraphs from their complaint or a motion: “It’s disappointing the lawyers haven’t given enough thought to where the mediation should be going. It doesn’t appear to leave any room to negotiate.”102 101
Fisher, Roger & Ury, William. (1991). Getting to yes: Negotiating agreement without giving in (p. 100). New York: Penguin Books USA. 102 Anderson, Craig. (2008, June 20). Settling well into retirement keeps jurist busy. San Francisco Daily Journal Verdicts & Settlements, p. 1.
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High quality settlement decisions require a deliberate assessment of the alternatives to a negotiated settlement. Parties who proceed into settlement negotiations without a BATNA and then settle their case during a mediation session or a settlement conference invariably succumb to a coerced, disadvantageous settlement because they cannot discern when a negotiated outcome is inferior to an adjudicated resolution. As business crisis manager David James states, “A contingency plan is the guarantee of survival, and the day you cannot walk away from a negotiation is the day you will lose the company.”103 At a recent American Bar Association conference on alternative dispute resolution, one of the panelists remarked that “trials are not good BATNAs,” echoing some mediators’ sense that nearly all disputes should be settled and virtually any settlement is better than a trial. If this were true, negotiations with adversaries would invariably produce better outcomes than adjudicated resolutions – but neither history nor experimental research indicates parties in disputes are always better off relying on the fairmindedness of their foes than the judgments of jurists and jurors. If an opposing party’s settlement position is markedly inferior to a litigant’s BATNA, a rational negotiator will decline settlement and proceed to trial. But that decision can only be made when a litigant’s BATNA is well defined, amply supported by research regarding likely trial outcomes, and broad enough to include all factors, economic as well as emotional, relevant to the BATNA appraisal.
9.4.2
Separate Facts from Theories, Values and Beliefs
Facts invariably are melded into theories, values and beliefs. Because they underpin and transform strategies, commitments and alternatives, facts can be dangerously immutable – especially when they are not facts to begin with. Karl Weick warns of the dangers of building perceptions and positions upon unproven facts: Be careful when you label something a fact. Once you call something a fact you pay less attention to it. If you pay less attention, there will be less chance that you will see exceptions that call into question its facticity. There are two problems here. First, you are likely to attribute more stability to events than is warranted. Second, you may unwittingly treat your behavior of not monitoring as evidence of factualness. In either case, you overestimate the stability of an event and may miss its continuing contribution to the unexpected.104
Mediators sometimes ask parties whether an assertion is a fact or a value. Their point is to distinguish evidence from opinions and spark some objective thinking. This technique, however well intended, often backfires because it puts parties on the defensive and has the opposite effect of forcing them to claim that values are facts before they have thoroughly contemplated the question. Long before filing or 103
James, David. The trouble I’ve seen. (2002, March). Harvard Business Review, p. 48. Weick and Sutcliffe supra note 14 at 165.
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mediating a claim, parties benefit from bisecting convictions into those based on evidentiary facts and those based on personal beliefs. Each type of conviction may be equally important but only one type is admissible.
9.4.3
Enlarge the Pie Before Cutting
Negotiators talk about “win-win” solutions but they routinely negotiate as though they are in “zero-sum” scenarios. “Studies show that most negotiators make the default assumption that the ‘pie’ of resources is of fixed size,” state professors Richard Birke and Craig Fox, “that is, they perceive the other party’s interests to be diametrically opposed to their own.”105 When negotiators perceive interests to be antagonistic and resources to be finite and contested, they negotiate “lose-lose” resolutions. Their assumption that resources are fixed, options are restricted, and positions are mutually exclusive, however, is often inaccurate. In one study of simulated negotiations, for instance, the parties’ interests actually were similar on some issues and the negotiated outcomes could have been superior in at least half of the negotiated “lose-lose” solutions.106 To overcome zero-sum negotiating mentalities, business administration professors Deepak Malhotra and Max Bazerman advocate “investigative negotiation” – questioning assumptions and probing for information and insights into the other party’s negotiation positions.107 They have presented to hundreds of executives a real-life scenario where a vendor refuses to grant a buyer an exclusive right to purchase an ingredient essential to the buyer’s health care product. The buyer had been willing to pay $18 a pound for one million pounds of the ingredient every year but cannot risk the competitive disadvantage of purchases by its competitors. To overcome the seller’s reluctance to grant exclusivity, the buyer increases the price and offers guaranteed minimum orders. Although it is unlikely the seller could ever sell one million pounds to any other buyer, the seller steadfastly refuses to grant exclusivity. The deal then collapses, the buyer distrustful of the seller’s intentions and convinced the seller is coercing a higher price and planning to sell large quantities of the product to competitors. Presented with this scenario, 90% of business executives in Bazerman’s class recommend “practical” solutions like “increase your offer price,” “buy out the supplier,” “ask for a shorter exclusivity period” and “threaten to walk away.”108 In real life, however, the buyer surmounted the impasse by bringing in a new 105
Birke, Richard, and Fox, Craig. (1999, Spring). Psychological principles in negotiating civil settlements. Harvard Negotiation Law Review, 4, 1, 30. 106 Id. at 31. 107 Malhotra, Deepak, and Bazerman, Max. (2007, September). Investigative negotiation. Harvard Business Review, p. 74. 108 Id.
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negotiator within its company. With a fresh perspective, he asked open-ended questions about the seller’s reticence and quickly learned that the seller could not enter into an exclusive agreement without disrupting an established relationship with a relative who purchased 250 pounds of the ingredient every year. The new negotiator then quickly completed the deal by carving out an exception to the exclusivity clause for the relative’s small purchase. The company’s previous negotiators and the executives in Bazerman’s class simply made assumptions about the other side’s motivations and then proposed “solutions to a problem that has not been diagnosed.”109 They continued to tweak issues like price and quantity while failing to probe deeper into the needs and constraints of the other party. In attempting to “cut to the chase” by varying price and quantity, they missed it entirely.
9.4.4
Subjective Fairness Matters
Attorneys may recall the “ultimatum game,” a simulated negotiation in which Player #1 proposes to divide a fixed sum, $10 for example, with Player #2. If no agreement is reached, Player #2 gets nothing. Theoretically, Player #2 is in a better financial position if he accepts any amount offered by Player #1. In the studies, however, Player #2 frequently refuses proposals deemed to be “unfair,” leaving Player #2 worse off than she would have been had she accepted any amount offered by Player #1. The point in legal negotiations, as explained by business professors Max Bazerman and Margaret Neale, is that “people give weight to fairness norms even where there is no economic reason to do so. In addition, people realize that others will sacrifice gains rather than accept ‘unfair’ allocations.”110 To settle cases, litigants necessarily have to mollify an adverse party’s sense of fairness. The price of mollifying that subjective sense of fairness, however, may well exceed the cost of a litigated outcome. When an adverse party is financially self-destructive and willing to sacrifice a likely gain offered in a settlement negotiation, trial might be a necessary and superior economic alternative. Settlement always is an alternative, not an imperative, and negotiating parties simply cannot accommodate every litigant’s subjective sense of fairness or curb every adversary’s risk-taking propensities. A critical premise in every effective settlement negotiation is that settlement is not the only option. Parties who convince themselves that any negotiated settlement is better than a trial often pay a risk avoidance premium far beyond any range of likely trial outcomes.
109
Id. Bazerman, Max and Neale Margaret. The role of fairness considerations and relationships in a judgmental perspective of negotiation. In Arrow, Kenneth, et al. (Eds.). (1995). Barriers to conflict resolution (p. 91). New York: W.W. Norton & Company, Inc.
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Think and Communicate Affirmatively
Adding the “no” or the “but” word increases the amount of time required to understand communications and heightens the risk of being misunderstood.111 Effective negotiators who eliminate these words find their positions are more sharply defined and more clearly expressed. Consider how long it takes to understand this judicial opinion: “An attorney need not make a wasted effort and file suit against a non-viable defendant. Bordelon was not found liable to plaintiff, not because this was a weak products liability case, but because the rope was not discovered by the previous lawyer or the client during the whole year”112 To understand this relatively simple statement, the recipient has to spend seconds, if not minutes, to translate it into an affirmative statement. Or consider this slightly less opaque posting by the brilliant jurist, Judge Richard Posner: “Intelligence is not designed for coping with situations that are not complex, but rather are profoundly uncertain. Having great information-processing skills is not worth a lot if you have no reliable information.”113 Are these statements not sufficiently complex and uncertain to not be understood by most people who are not trained in reading compound negative sentences? In negotiations, attorneys and parties often talk about what they do not want because they have not ascertained specifically what they do want, or they are convinced they will gain a strategic advantage by withholding a clear statement of their objectives. So they make statements like, “we don’t want [insert past problem de jour] to happen again,” “I’m not interested in just [insert adversary’s recent proposal],” or “We tried [insert mediator’s alternative] before and it didn’t work.” This emphasis on what is not acceptable sabotages negotiations because it implies that the opposite of what a party dislikes may be acceptable and makes it difficult for the other parties to identify the objector’s requirements and attempt to accommodate them. At a psychological level, it is a dysfunctional form of loss aversion and regret avoidance, expressing what one is loathe to lose but not what one aspires to gain. Although it is much easier to state what a party dislikes or what it opposes, effective problem solving requires people to take the time to understand and articulate in affirmative terms what they actually want. In the extreme situation where a recalcitrant party refuses to affirmatively express its negotiation objectives, its adversary may conclude that the recalcitrant party is deriving a greater emotional or financial benefit from maintaining an unresolved circumstance than it would
111
See Mante, Nieuwland, and Kuperberg, Gina. (2008). When the truth is not too hard to handle: An event-related potential study on the pragmatics of negation. Psychological Science, 19(12), 1213–1218. Kellogg, Ronald Thomas. (2007). Fundamentals of cognitive psychology (p. 234). Thousand Oaks, California: Sage Publications, Inc. 112 Jeansonne v. Bosworth, 601 So. 2d 739, 741 (La.App. 1 Cir. 1992). 113 Posner, Richard. (2007, June 17). Intelligence and Leadership—Posner. The Becker-Posner Blog. Available at http://www.becker-posner-blog.com/archives/2007/06/intelligence_an_1.html.
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derive from resolving it and prefers to continue its investment in tumult. Thus, parties inclined to settle conflicts but unable to evaluate their cases and present a settlement option inadvertently default to trial. “I get very upset,” states Superior Court Judge Frank Johnson, “when we’re doing a jury trial and it’s very clear to me that one side or the other has not taken the time to evaluate their case. They don’t know the strengths and weaknesses of their own case and of their opponent’s case, and we’re essentially having this trial as a default mode because one or the other of the attorneys is not bright enough to figure out that they should have settled.”114
9.4.6
Depressed People Make Depressing Deals
Information processing under happy moods is faster and more thorough, efficient, flexible, associative, integrative, creative and insightful than processing under sad moods. Negative emotional states, moreover, are associated with a narrow focus of attention.115 Positive affect, psychology professor Alice Isen and management professor Aparna Labroo report, is correlated with numerous adaptive decisionmaking characteristics, including “creativity, openness to information, exploration, integration of ideas, effective problem solving, focus on important negative information when that is needed, ability to keep others’ perspectives as well as one’s own in mind seemingly simultaneously, and responsiveness to others’ behavior, including moves in a negotiation situation, just to name a few.”116 The role of positive affect in problem solving has important implications for the legal profession. Because attorneys consistently exhibit high rates of depression, clients may not be achieving optimal results in settlements negotiated by their depressed counselors. Although many hard working, sardonic, cynical, and depressed attorneys are pillars of their law firms and iconic trial lawyers, their performance as problem-solvers may be suboptimal. Clients cannot be expected to identify depressed attorneys, but the absence of creative ideas, receptiveness and curiosity, accompanied by an inability to understand an adversary’s perceptions and positions, may be warning signs that their attorney is too depressed to function as an effective problem solver.
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Park, Erin. (2006, April 4). Making tough calls look easy. San Francisco Daily Journal, p. 3. Schwartz, Norbert, and Skurnik, Ian. Feeling and thinking: Implications for problem solving. In Davidson, Janet and Sternberg, Robert, Ed. (2003). The psychology of problem solving (pp. 270 – 271, 279). Cambridge: Cambridge University Press. Isen, Alice M. and Labroo, Aparna A. Some ways in which positive affect facilitates decision making and judgment. In Schneider, Sandra L. and Shanteau, James. (2003). Emerging perspectives on judgment and decision research (pp. 377– 378. Cambridge: Cambridge University Press. 116 Isen and Labroo supra note 115 at 384. 115
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Fatigue Stifles Creative Problem Solving
The public is alarmed to learn of medical residents working 22 hours per day and sleeping fewer than seven hours over a three-day shift. Law firm clients give little thought, however, to overworked attorneys, some of whom are seen wearing yesterday’s clothes after an all-nighter spent working on a brief due the next day. When lawyers work incessantly for weeks, law firms rarely consider the effect on attorneys’ mental acumen and efficiency and the attendant cost to clients when attorneys lose their creative problem- solving abilities. Instead, over-worked attorneys are commended for their tenacity and dedication, rewarded by the firm’s compensation committee and often become icons of the firm’s professional culture, illuminated as an example for junior attorneys to emulate. Fatigue takes a tremendous toll on decision-making quality. Psychiatrist Edward Hallowell, who first identified Attention Deficit Trait (ADT), a disability caused by environmental factors inducing “brain overload,” explains: “There is ample documentation to suggest that sleep deprivation engenders a host of problems, from impaired decision making and reduced creativity to reckless behavior and paranoia.” He finds that a chronically excessive work overload accompanied by a triad of coping devices – sleep deprivation, increased alcohol consumption and “habitual inhalation” of carbohydrates – impair the brain’s “ability to solve problems flexibly and creatively and the number of mistakes increases.”117 “Extreme jobs,” those that require more than 60 hours per week, exact a high toll from professionals. In a recent survey, 69% of “extreme” jobholders conceded they would be healthier if they worked fewer hours, and more than two-thirds reported they did not get enough sleep. About half of the surveyed professionals said they do not get enough exercise, and 45% report that after working a 12-hour or longer workday, they are too fatigued to talk with their spouse or partner.118 “A significant number,” write Sylvia Ann Hewlett and Carolyn Buck Luce, “overeat, consume too much alcohol, or rely on medications to relieve insomnia or anxiety.”119 Despite the enormous personal sacrifices made by these professionals, very few have an exit strategy. Half of the extreme workers claim they do not want to work extreme hours for more than another year, but only 19% of the workers in the 45–60 age group expect to leave their jobs within two years. The situation is worse for attorneys, more than one-third of survey respondents saying they intend to leave their job within a year but only 3%-5% actually doing so.120
117
Hallowell, Edward M. (2005, January). Overloaded circuits: Why smart people underperform. Harvard Business Review, pp. 57–60. 118 Hewlett, Sylvia Ann and Luce, Carolyn Buck. (2006, December). Extreme jobs: The dangerous allure of the 70-hour workweek. Harvard Business Review, p. 54. 119 Id. 120 Neil, Martha. (2008, June 23). Why don’t unhappy lawyers leave? ABA Journal Law News Now. Fortney, Susan Saab. (2003). I don’t have time to be ethical: Addressing the effects of billable hour pressure. Idaho Law Review, 39, 309, fn. 20.
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Overworked attorneys find themselves in a professional miasma – fatigued and upset about an excessive workload but unable to discern how they can simultaneously lead a healthier life, earn a salary sufficient to meet financial obligations including student loans, continue to receive stimulating work assignments, advance their career to partnership, exhibit commitment to the firm and clients and satisfy billable hour requirements and expectations. Although many attorneys experience chronic exhaustion, there is “little or no prospect that the hours will improve, or the job satisfaction, or the ability to balance work and family commitments.”121 Their creative problem solving skills, consequently, are exhausted early in their career; 64% of associate attorneys agree with the statement, “Working long hours adversely affects my ability to think critically and creatively.”122
9.4.8
Use Email Carefully
Email, reports Richard Shell of the Wharton School, is “a risky medium for use in sensitive negotiations.”123 Electronic communications generate more clashes, longer decision processes and more extreme decisions.124 Email messages often appear more assertive than intended, and “people using it feel less empathy for others, less guilt about their own behavior, less concern with how their behavior compares with others, and less constrained by the usual social conventions surrounding interpersonal communication than do people communicating face to face.”125 Email, when accompanied by face time and explicit schmoozing, however, does not hinder optimal negotiation outcomes.126 Richard Shell’s research regarding the limitations of email is independently corroborated by professors Raymond Friedman and Steven Currall. They identify the following dangers of email communications in negotiations: l
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Negotiators using email are less likely to employ cooperative or informationsharing methods than face-to-face negotiators. Disputes are more likely to escalate in email communications than face-to-face or telephone communications.
Zaring, David T. and Henderson, William D. (2007). Young associates in trouble. Michigan Law Review, 105, 1087. Indiana Legal Studies Research Paper No. 67; Washington & Lee Legal Studies Paper No. 67/2007. Available at SSRN: http://ssrn.com/abstract¼958053 122 Fortney supra note 120 at 305, 311. 123 Shell, Richard. Electronic bargaining: The perils of e-mail and the promise of computer-assisted negotiations. In Hoch, Stephen J., and Kunreuther, Howard. (Eds.) (2001). Wharton on making decisions (p. 219). New York, John Wiley & Sons, Inc. 124 Id. at 204–205. 125 Id. at 206. 126 Id. at 208.
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Recipients of emails interpret the content as more aggressive than the sender intended, making “inadvertent” insults more likely. The absence of non-verbal and visual cues lowers awareness of social norms and conventions which, in turn, results in “enhanced aggression” and conflict escalation. The added time available for responding to emails leads to excessive rumination, making problems seem larger and lowering the chances of an implemented solution. Email promotes a sense of anonymity, separating the sender from the negative consequences of his email. Recipients of email focus on the most objectionable or anger-provoking issue in the email rather than the sequential or give-and-take interaction that occurs in personal communications. Email heightens a sense of anger, promotes stronger commitment to one’s arguments, and reduces parties’ inclination to compromise.127
When email has already damaged parties’ relationships, professors Friedman and Currall recommend that individuals generate interactive communications by limiting the number of arguments and issues raised in a single email. Email frequently conveys settlement positions without advancing settlement negotiations. It facilitates the misconception that cases can be resolved by barrister cross-fire if combustibly charged, pointedly directed, and forcefully propelled – a technical godsend for conflict-avoidant personalities and maladroit negotiators. Alternating e-mail salvos dictating positions and justifications, however, rarely foster the objective re-evaluation and risk assessment essential to compromise and settlement. Most importantly, they prevent genuine, real-time reactions to settlement positions and options and preclude the trust, understanding, candor, cooperation and empathy – however nascent and fragile – that underpin successful negotiations. To solve complex disputes, the ease of email negotiations must inevitably cede to the discomfort of personal, extemporaneous conflict and stressful, interactive compromise. Unfortunately, this essential personal interaction is often deferred until the parties are required to appear at mediation or a settlement conference. If mediation is usually successful regardless of the mediator’s techniques or personality, as some researchers claim, perhaps the key variable is the mandatory attendance and personal interaction of all essential decision makers.128 127
Friedman, Raymond A., Currall, Steven C. (2006). Conflict escalation: Dispute exacerbating elements of e-mail communication. Available at SSRN: http://ssrn.com/abstract¼459429 or DOI: 10.2139/ssrn.459429. 128 Bowling, Daniel, and Hoffman, David. Bringing peace into the room: The personal qualities of the mediator and their impact on the mediation, reprinted in Golann, Dwight, et al., Eds. (2005). Resolving disputes: Theory, practice, and law (p. 268–269). New York: Aspen. (“These results seem to occur regardless of mediation styles or the philosophical orientation of the individual mediator. . . . Indeed, the history of mediation, as well as our own experience, shows that mediation sometimes works even when the mediator is untrained.”)
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The potential for alienation, miscommunication and conflict escalation, as described by professors Shell, Friedman and Currall assumes, of course, that emails reach their intended audience. Hence, they are describing the best-case scenario for email communications and setting aside the larger scale destruction wreaked when emails take a populist bent and are inadvertently sent to a curious but unintended audience. Attorneys may recall summer associate Jonas Blank’s chagrin after he mistakenly sent a personal email to 40 attorneys at Skadden, Arps, Slate, Meagher & Flom: “I’m busy doing jack. Went to a nice 2hr sushi lunch today at Sushi Zen. Nice place. Spent the rest of the day typing emails and [gabbing] with people.”129
9.4.9
Get a Grip on Mongo
Nearly every litigator is familiar with Mongo, the inner beast described by law professor James McElhaney: “Mongo is the one who breaks your pencil or slams your book when the judge gives you a bad ruling. And when a witness gives you a hard time, your inner beast says, ‘Mongo, kill witness now!’”130 Obsessed with fighting and fleeing, Mongo “has no sense of humor and, when aroused, no sense of proportion.”131 Hostility, whether felt by the client or the attorney, invariably results in inferior negotiation outcomes. Worse yet, hostility distorts its host’s evaluative capabilities, fostering an illusion of victory when the objective reality is that the hostile negotiator failed to accomplish his own objectives.132 Mediator Max Factor describes three characteristics of angry negotiators: (1) anger distracts negotiators from concentrating on whether they could negotiate a better deal; (2) angry negotiators report relatively high levels of satisfaction with their negotiation outcomes; and (3) their negotiation results are worse than the results achieved by neutral negotiators whether the angry negotiator is in the buyer or seller role.133 The hostile negotiator, therefore, forfeits both his judgment and his money. Jennifer Lerner, a decision scientist at Carnegie Mellon, has studied extensively the effect of hostility on decision making. She finds that anger is correlated with a sense of injury and offense, confidence about the cause of the triggering event and a conviction that someone other than the angry person is responsible. Anger and its resultant assessments have a “positive feedback relationship,” she notes: “The more anger one feels, for example, the more one perceives others to be responsible for 129
Sandberg, Jared. (2006, February 21). Infamous email writers aren’t always killing their careers after all. The Wall Street Journal, p. B1. 130 McElhaney, James W. (2007, April). The power of the proper mindset. ABA Journal, p. 30. 131 McElhaney, James W. (2006, October). Cross exam surprises. ABA Journal, p. 23. 132 Factor, Max. (2007, August 17). Time out can save a client from rash, expensive negotiation outcomes. San Francisco Daily Journal. 133 Id.
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a negative event; the more one perceives others as responsible for the negative event, the more angry one feels.”134 Angry people distinguish themselves in multiple respects that may negatively affect decision making: they perceive themselves to be in control; they feel less trusting of colleagues; they rely on stereotypes; they keep their mind focused on angering events; they form optimistic risk assessments and predictions about their likelihood of success; they tend to make risk-seeking choices; and they do not employ systematic, deliberate, and careful methods of evaluating alternatives.135 Angry people also exhibit “defensive optimism,” enabling them to overlook the effect of anger on themselves. Consequently – and ironically – angry people are more likely to experience divorce, encounter problems at work and suffer from heart disease, but they believe they are significantly less likely than the average person to be afflicted by any of those traumas.136 Anger thus functions as a cognitive anesthetic, rendering the hostile negotiator unaware of what is being lost in negotiations and unable to discern why the loss is occurring.
9.5
Phase Five: Choosing
In the choosing phase, litigants and their attorneys attempt to resolve the question, “Are any of the possible negotiated resolutions superior to an adjudicated resolution?” In this phase, the major challenge is to maintain perspective and, when necessary, brake the momentum that inevitably builds and pushes all parties toward settlement. As negotiations move into the choosing phase, a litigant’s perspective can rapidly evolve from a studied, comprehensive comparison of various settlement options with anticipated trial outcomes to an incremental, time-pressured comparison of the most recent settlement proposal with the prior settlement proposal – a shift from the macro question, “could we do better at trial?” to the micro question, “we’re only x dollars apart, is it worth going through a trial for that?” Settlement decision making can be an insidious form of incremental decision making – leaving one “knee deep in the big muddy,” the term Professor Barry Staw uses to describe seemingly minor but escalating commitments that ultimately put decision makers in troubled waters with no way out.137 Settlement decisions that would have been considered poor outcomes at the inception of negotiations are 134
Litvak, P.M., Lerner, J.S., Tiedens, L.Z. & Shonk, K. (in press). Fuel in the fire: How anger impacts judgment and decision making, p. 8. Chapter to appear in M. Potegal, Stemmler, G., & Spielberger, C. D. (Ed.), International handbook of anger. New York: Springer. 135 Id. at 11, 13, 14, 20, 25. See Loewenstein, G., & Lerner J. S. (2003). The role of affect in decision making. In R. Davidson, H. Goldsmith, & K. Scherer (Eds.), Handbook of affective science (pp. 619–642). Oxford: Oxford University Press. 136 Litvak, Lerner, Tiedens, & Shonk supra note 134 at 17. 137 Staw B. M. (1976). Knee-deep in the Big Muddy: A study of escalating commitment to a chosen course of action. Organizational Behavior and Human Performance, 16, 27–44.
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more likely to be palatable when sequenced in a series of seemingly small, incremental concessions. Although paying $2,450,000 to settle a case may have been unacceptable at the onset of settlement negotiations, it can appear provident after weeks of incremental concessions, starting at $1,350,000 and moving in increments of $50,000 to an eventual $2,400,000, squeezed out by the deft hand of a likeable and persuasive mediator. Asking the question, “Would I have considered this settlement acceptable at the beginning of this negotiation?” is a simple but effective method for a decision maker to test whether she is still a “value” investor or has become a “momentum” investor. The dangers in the critical choosing phase stem from the gradual loss of perspective caused by incrementalism, as discussed above, and a lack of confidence in assessing likely trial outcomes. These dangers are compounded by excessively optimistic views of the settlement terms, an adversary’s long-term intentions and the risks that an adversary will breach a settlement agreement; unrealistic assessments of the probable trial outcomes; insufficient adjustments for new information; and the conventional belief that a party’s positions should be consistent and concessions should be orderly and measured throughout settlement negotiations. Eleven effective methods of detecting and countering these dangers are described below.
9.5.1
Perform a Premortem on Overconfidence
Daniel Kahneman warns that overconfidence leads people to “make decisions based on delusional optimism rather than on a rational weighting of gains, losses and probabilities.”138 Unfortunately for decision makers, overconfidence “is most extreme with tasks of greater difficulty.”139 Thus, when a decision regarding settlement alternatives requires the highest level of analytical competence and probabilistic reasoning skills, decision makers are most likely to be overly confident. Like a tire that blows out only at high speeds, overconfidence can seem harmless until the consequences are catastrophic. To counter overconfidence, Gary Klein asks his clients and co-workers to perform a premortem exercise: imagine that “it is months into the future and that their plan has been carried out. And it has failed. Then explain why it failed.”140 A similar approach is taken by Bruce Berkowitz and his colleagues at The Fairholme Fund, a mutual fund whose returns were 11% per year during a period the Standard & Poor’s 500-stock index lost 3% per year: “We spend a lot of time thinking about what could go wrong with a company – whether it’s a recession, stagflation, 138
Lovallo, Dan & Kahneman, Daniel. (2003, July). Delusions of success: How optimism undermines executives’ decisions. Harvard Business Review, p. 57. 139 Stewart and Lusk supra note 61 at 412. 140 Klein, Gary. (1998). Sources of power: How people make decisions (p. 70). Cambridge, Massachusetts: The MIT Press.
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zooming interest rates or a dirty bomb going off. We try every which way to kill our best ideas.”141 These exercises counter overconfidence by forcing decision makers to preview adverse outcomes and identify the assumptions most likely to precipitate failure. Judge Learned Hand, an esteemed jurist and sage observer of human fallibility, recommended a similar consciousness of error, urging decision makers to continually contemplate the possibility of error and to vigilantly protect themselves from overconfidence. He cherished Oliver Cromwell’s warning to the General Assembly of the Church of Scotland, written in 1650, “I beseech you, in the bowels of Christ, think it possible you may be mistaken.” Expressing his affinity for Cromwell’s warning, Judge Learned Hand remarked, “I should like to have that written over the portals of every church, every school, and every courthouse, and, may I say, of every legislative body in the United States. I should like to have every court begin, I beseech ye in the bowels of Christ, think that we may be mistaken.”142 If mediators and judges could clean up the language a bit, Judge Learned Hand’s admonition would be equally cogent in persuading attorneys and clients to evaluate their beliefs and positions.
9.5.2
Take the Outside View
In estimating the probability of major life events, e.g., illness, marriage, college graduation, and job promotion, people are impressively accurate about other people’s chances and abysmally inaccurate about their own chances. When informed that one in five people will die of heart disease, for instance, student participants in psychology experiments accurately conclude that heart disease will kill 20% of their classmates, but virtually none of the student participants expect to die of heart disease themselves. Taking “the outside view” and assuming outcomes will be the same for all similarly situated parties can temper this self-serving bias. The outside view requires the decision maker to select a reference class similar to the decision maker’s project, document outcomes in the reference class, and make probability assessments based on that reference class.143 The outside view tempers the deficiencies and offsets the biases of intuitive forecasting, which is invariably skewed by unrealistically positive self-evaluations, the illusion of control and optimistic overconfidence about future events.144 By forcing themselves to assume they are just average, decision makers increase their predictive reliability. 141
Schiffres, Manuel. (2009, January). A bargain hunter stands tall. Kiplinger’s Personal Finance, p. 36. 142 Hand, Billings Learned. (1951). Morals in public life. 143 Lovallo and Kahneman supra note 138 at 62. 144 Kahneman, Daniel and Lovallo, Dan. (1993). Timid choices and bold forecasts: A cognitive perspective on risk taking. In Kahneman, Daniel, & Tversky, Amos (Eds.). (2000). Choices, values, and frames, (pp. 406–408). Cambridge: The Press Syndicate of the University of Cambridge.
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Keep Positions Aligned with Facts
Facts and events run faster than perceptions and positions, outpacing decision makers’ ability to concurrently detect, assimilate, evaluate and adapt to new and more accurate information. When new information becomes available, decision makers may integrate only confirming data and ignore or require further testing of disconfirming data. Cognitive conservatism, defined as “the reluctance to admit mistakes and update beliefs,” prevents decision makers from acknowledging and assimilating new data which would require an adjustment in their beliefs and positions.145 In his study of political experts, for example, Professor Tetlock found that they did not adjust their beliefs and forecasts adequately to reflect new, disconfirming data. When presented with new information, the “foxes” (experts who know many things and draw upon an eclectic mix of traditions to solve problems) move 59% of the prescribed amount, while the “hedgehogs” (experts who know one major concept and use a formulaic approach to solve problems) move only 19% of the prescribed amount. Some hedgehogs, moreover, “nudged up their confidence in their prior point of view after the unexpected happens” – sticking their heads in the sand to a depth “incompatible with all normative theories of belief adjustment.”146 Cognitive conservatism, Tetlock found, is strongest among inaccurate forecasters. Political experts who performed poorly in predictive accuracy “resisted revising their prior opinions. Ironically, inaccurate forecasters rely on twice as many faulty belief system defenses to justify why they failed to update their beliefs in light of new evidence.”147 Like the sunk cost bias, cognitive conservatism appears to be strongest when prior investments, monetary or egotistic, are high and present conditions are discomfiting. Instead of forming new beliefs to fasten onto solid facts, errant decision makers tenaciously clasp and vigorously polish the flotsam of old ideas. For these errant forecasters and decision makers, cognitive conservatism is reflexive, protecting against self-doubt and obscuring the recognition of mistaken judgment. This steadfast refusal to acknowledge mistakes and change opinions also is rooted in the “consistency bias,” the tendency to adhere to a position regardless of its original weakness or changed circumstances. The consistency bias reflects a general reluctance to re-evaluate a decision that already has consumed valuable time and mental effort. This bias is reinforced by society’s preference for people who present a unitary personality and its attendant aversion to people who “flipflop” or “change horses in mid-stream.” As psychology professor Robert Cialdini explains in Influence: The Psychology of Persuasion, the person whose beliefs, words, and deeds don’t match may be seen as indecisive, confused, two-faced, or even mentally ill. On the other side, a high degree of consistency is normally 145
Tetlock, Philip. (2005). Expert political judgment (p. 128). Princeton, New Jersey: Princeton University Press. 146 Id. 147 Id. at 137.
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associated with personal and intellectual strength.”148 The expression “often wrong but never in doubt,” applied to leaders in fields as diverse as surgery, cosmology, geophysics and sports, conveys this preference for stalwart, consistent leaders. Superior decision makers, however, are driven by facts and recognize that dispositive facts continually change or were initially misjudged; these adaptive decision makers have learned how to overcome their own cognitive conservatism and alter their positions unencumbered by the weight of parochial consistency, predictability and constancy. They show little course consistency and have no qualms about changing their minds, mirroring Henry David Thoreau’s casualness, “Do I contradict myself? Very well, I contradict myself.” Although their objectives remain steadfast, they are as adept as world-class sailors in discerning environmental changes and altering tacks and tactics to exploit these changes. In Nicholas Taleb’s phrase, they have no “path dependence of beliefs.” They revise opinions “rather rapidly, without the slightest embarrassment;” they do not feel bound by their past actions; and for them and their decisions “every day is a new slate.”149 Although such inconstant people often are regarded as unreliable, flaky, and uncertain, they see consistent decision makers as stubborn, plodding and maladaptive, easily manipulated by an overdeveloped need for consistency. Given a choice between these two different decision making styles – changing positions in light of new evidence or maintaining an image of consistency – effective decision makers select the evidence-driven style. Instead of being strong but wrong, they choose to be light but right. Karl Weick’s study of high reliability organizations like aircraft carriers and nuclear power plants shows that the people and organizations most effective at evaluating problems and handling unanticipated consequences continually update their “mental categories” and the expectations that attend those categories. Weick observes that placing labels or categories on people and events facilitates a sense of control and simplifies planning but it inevitably limits the amount of information acquired about a categorized condition. Categories often prevent problem solvers from seeing new information about the categorized person or condition and fossilize their expectations and predictions; the categories themselves define and limit expectations of performance, reliability and risk. Weick urges people to avoid the dangers of categories and expectations through “mindfulness,” which, he explains, “exploits the fact that two key points of leverage in managing the unexpected are expectations and categories. People who persistently rework their categories and refine them, differentiate them, update them, and replace them notice more and catch unexpected events earlier in their development. That is the essence of mindfulness.”150 Mindful decision makers expect their conceptions and assumptions to be challenged and revised, and they invite and continually recalibrate their judgments to incorporate different opinions and new data.
148
Cialdini, Robert. (1984). Influence (p. 60). New York: William Morrow and Company, Inc. Taleb supra note 21 at 239. 150 Weick and Sutcliffe supra note 14 at 46. 149
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Separate the Primary Decision from the Secondary Decision
Many decisions consist of two components, a strategic decision and an implementation decision, an exceptional decision and a series of related but routine decisions, or a primary decision and a seemingly related but non-dispositive secondary decision. The decision to terminate an incompetent employee is an independent decision but is often linked with the decisions on how to find a substitute employee, how long the search should take, what qualifications should be required of applicants for the position, and what salary the new employee will expect. The decision to sell an automobile when the repair costs exceed its value is an independent decision but often is delayed until all issues regarding the replacement vehicle have been resolved – what car should be purchased, how should it be financed, where should it be purchased, how much can be spent? Decision makers often agonize over every implication of a decision, ultimately failing to make the primary decision or melding unnecessary compromises between multiple-tier decisions. Effective executives, Peter Drucker observes, “do not make a great many decisions,” and they “try to make the few important decisions on the highest level of conceptual understanding.”151 To be effective decision makers, litigants often need to separate cardinal decisions from second-tier decisions and devote their attention exclusively to the cardinal decision. Major decisions are determined by overriding principles and strategies, and not all second-tier implementation decisions, however important, can be resolved at the optimal time for making the major decision. The cost of settling an antitrust case, for instance, may necessitate layoffs, the settlement of a wrongful termination case may harm the morale of other employees, defense costs for a product liability case may reduce the research budget of a pharmaceutical company – but failing to make the right cardinal decision until the fallout can be measured, funded, mitigated and managed can be far more costly. Even making the wrong decision is often better than making no decision. In the process of making the wrong decision, decision-making criteria are analyzed and established and metrics for evaluating decision outcomes are debated and adopted. When a decision turns out to be a massive flop, a framework remains for evaluating, selecting, and testing another decision. When parties avoid making any decision at all, neither selection processes nor evaluation tools are developed. As David James, a crisis manager who has rescued more than 90 companies, has learned, “not making a decision is worse than making the wrong one because it is often easier to manage your way out of a bad decision than to recover from the consequences of delay.”152
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Drucker supra note 7 at 241. James supra note 103 at 48.
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Assumptions Were Made to be Explicit and Tested Continuously
Assumptions initially underpin positions, but over time positions have more staying power than the underlying assumptions. “The problem with defining and refining your hypotheses without testing them,” explains Karl Weick, “is that the world keeps changing, and your analyses get further and further behind. So you’ve got to constantly update your thinking while you’re sitting there and reflecting.”153 To prevent implicit and outdated assumptions from undermining effective decision making, all material assumptions should be identified at the outset of a conflict and continually reevaluated during the conflict. Assumptions about claims, causes, objectives, costs, motivations, and alternatives, moreover, should be in a tangible, accessible form for all stakeholders to review, challenge and revise. Although people seem to have investments in their assumptions, the only assumptions that yield positive returns are those that are continually tested, modified and refined. Conversely, assumptions that are considered inviolate and preserved intact have preceded every serious error of judgment from Cain’s assumptions about Abel’s intentions to investors’ assumptions about the credit quality of securitized residential mortgages. Behind every catastrophe is at least one major and entirely erroneous premise. The destruction of the United States’ air fleet at Pearl Harbor, for instance, was ensured by the assumption that the threat of sabotage was greater than the danger of external attack. The entire fleet of 190 planes was clustered closely together at Hickam Field and Wheeler Field for guarding from local citizens assumed to be sympathetic to the Japanese; this tight assembly presented an ideal configuration for aerial bombing. Protecting the planes from domestic sabotage thus enabled a small quantity of bombs to turn the entire fleet into a fireball. Because the law of unintended consequences is not slated for repeal, effective decision makers routinely re-evaluate premises and are prepared to answer economist John Maynard Keynes’ question, “When the facts change, I change my mind. What do you do, sir?”154
9.5.6
Walk Around the Sunk Cost Trap
Bad decisions are often driven by previous bad decisions, creating an “escalation of commitment” to avoid acknowledging a mistake or realizing a loss. When deciding whether to extend additional credit to a defaulting borrower, for example, loan officers who participated in the initial loan approval are much more likely to 153
Coutu supra note 14 at 88. Li, Wei. (2007, October). Changing one’s mind when the facts change: Incentives of experts and the design of reporting protocols. The Review of Economic Studies, 74(4), 1175–1194.
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approve the additional extension of credit than loan officers not previously involved in the credit decision.155 Similarly, parties in litigation often feel compelled to continue conflict long past the point of diminishing marginal returns because they have an “investment” in their attorney fees. In reality, attorneys fees rarely are investments that consistently yield positive returns on each additional increment of expense. Intelligent decision makers recognize the sunk cost bias and not only solicit but defer to the opinions of people who were not involved in the previous decisions. Even notably successful investors like Warren Buffet remind themselves, “When you find yourself in a hole, the best thing you can do is stop digging.”156
9.5.7
Past Performance is no Guarantee of Future Results
Clients tend to overweight pre-trial successes and assume those successes augur well for the case at trial. In fact, strategies and tactics that seem brilliant in pre-trial skirmishes frequently prove counterproductive at trial. Pre-trial successes often are misleading and the first gust of blowback is the jury’s verdict. Superficial interrogatory answers, intended to thwart an adversary’s discovery efforts, can preclude or make suspect the introduction of more informative explanations at trial; positions taken to successfully oppose an adversary’s pre-trial motions may be antithetical to the client’s position at trial; declarations that seemed so effective in defeating an adversary’s motion for a preliminary injunction can prove to be damaging when subjected to full cross-examination at trial; and a successful pre-trial discovery motion can become an element of an adverse party’s attorney fee claim when it is determined to be the prevailing party at trial. The efficacy of many pre-trial tactics is not fully tested unless a case proceeds to trial, and many apparent victories before trial are seen as Pyrrhic at trial. Although settlements bury deficiencies in pre-trial tactics and strategies, trials turn them into exhibits. A district court’s dismissal of the indictments against 13 former KPMG executives, accused of promoting abusive tax shelters, demonstrates how successful pretrial tactics turn to liabilities at trial. Before trial, the executives’ former employer, KPMG, halted its payment of the executives’ attorney’s fees and agreed to pay $456 million to the United States government as part of a deferred prosecution agreement. Although the government denied that it pressured KPMG to stop paying the attorneys fees for the former executives, U.S. District Court Judge Lewis Kaplan found that KPMG withheld the fees “because the government held the proverbial
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Hammond, John S., Keeney, Ralph, and Raiffa, Howard. (1999). Smart choices (p. 193–194). New York: Broadway Books. 156 Id. at 193.
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gun to its head.”157 This pressure, ruled Judge Kaplan at trial, violated the defendants’ constitutional rights and prevented them from “presenting the defenses they wished to present and, in some cases, even deprived them of counsel of their choice.”158 If the government had settled with the 13 executives, its misdirected pre-trial efforts to cut off the defendants’ attorneys fees would still be regarded as tough, incisive and triumphant instead of coercive, overreaching and unlawful. Before trial, the KPMG case, which the government billed as the largest criminal tax prosecution in U.S. history, was “the showpiece in the government’s crusade against questionable tax shelters.” After trial, it became an icon of unlawful government bullying.159 The government’s successful effort to choke the defendants’ defense by blocking their attorney’s fee payments, Judge Kaplan wrote, “shocks the conscience” and “is intolerable in a society that holds itself out to the world as a paragon of justice.” A seemingly successful pre-trial tactic thus resulted in the case’s dismissal, illustrating how pre-trial tactical victories do not reliably portend favorable trial outcomes.
9.5.8
Funny Things Happen on the Way to the Forum
Attorneys breathe two sighs of relief when a case is settled, one for the satisfaction derived from bringing a client’s case to a certain conclusion instead of risking an uncertain verdict and another for the relief that any mistakes made up to that point in representing the client probably will never see the light of day. In virtually every lengthy case, a multitude of errors, usually minor but sometimes major, occur, and even well-managed law firms make embarrassing mistakes and well-intentioned attorneys show lapses in attention and judgment. Confidential documents are mailed to an adversary when they were intended for the client, a client’s billing statements are attached to a different client’s statements, privileged documents are inadvertently produced or left at depositions, and advisory letters are emailed or faxed to the adversary’s attorney instead of the client. The litigation itself may be the result of a contract clause negligently drafted or a security interest unperfected by a transactional attorney in the same firm as the client’s litigation counsel. Trials have an ugly tendency to bring these errors to light, and settlements have a remarkable record of keeping them in the dark. Because trials reveal the innards of both the client and the attorney, clients need to determine whether their counsel has extrinsic motivations to settle their case and whether the client is factoring in all risks in deciding whether to settle or litigate. Clients should specifically ask, and 157
Reilly, David, and Davies, Paul. (2007, July 17). KPMG ruling marks setback for prosecutors. The Wall Street Journal, p. A2. 158 Browning, Lynnley. (2007, July 17). Charges dropped against 13 in KPMG tax-shelter case. The New York Times. 159 Browning, Lynnley. (2007 July 17). Judge rejects charges for 13 on tax shelter. The New York Times.
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attorneys should be prepared to answer, the questions, “Will I be surprised by anything at trial?,” “Are there any problems with this case we have not discussed?,” “Is there anything your firm has done or failed to do that could hurt us at trial?”
9.5.9
Linear Thinking Leads to Impasse
Successful negotiators are not wedded to a single issue, offer or demand at one time. They multitask to maintain negotiating momentum and prevent impasses, simultaneously negotiating multiple issues and presenting multiple settlement proposals. Business administration professors Deepak Malhotra and Max Bazerman, who have taught negotiation classes for both MBA students and executives for decades, caution against sequential, linear bargaining: In most complex negotiations, issues are discussed one at a time. . . . However, when there is only one issue on the table at any given moment, both sides behave as if it is the most important issue to them. When you move to the second concern, that concern appears to be the most critical. And so you continue to clash on each issue and never learn what the other party truly values or needs most.160
Instead of mechanistically dealing with one disputed issue at a time, Malhotra and Bazerman recommend that negotiators identify all of the issues, shift the discussions back and forth among multiple issues, and make offers and counter-offers as the discussion moves among the issues. This fluid process prevents negotiations from breaking down over a single issue and ultimately reveals the other side’s priorities and sensitivities by testing which issues provoke the greatest stress, elicit the least flexibility, and require the most attention. Multiple, alternative offers also serve to flesh out an adversary’s needs and preferences. A vendor who will not directly answer the question, “What is more important to you – advance payment, a guaranteed minimum order, or sole source status?” may indirectly signal a preference when presented with simultaneous offers to pay for a small quantity of a commodity at the time of shipment, pay for a minimum annual order within 30 days of shipment, or make all purchases of the commodity from the vendor and pay within 60 days. Multiple offers provide multiple insights into another party’s negotiation objectives, and while generating critical information multiple offers also convey an attitude of flexibility, cooperation and accommodation.161
160 Malhotra, Deepak, and Bazerman, Max. (2007, September). Investigative negotiation. Harvard Business Review, p. 77. 161 Id. See Malhotra, Deepak, and Bazerman, Max. (2008). Negotiation genius: How to overcome obstacles and achieve brilliant results at the bargaining table and beyond. New York: Bantam.
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9.5.10 Appeals are Part of the Settlement Equation Settlement negotiations center on predictions about the likely trial result; parties bargain in the shadow of the law and, more particularly, in the shadow of expected trial outcomes.162 Often overlooked in these negotiations is the next step after trial: what will happen if the trial court judgment is appealed? This question is critical because exceptional successes at trial – whether favorable to a plaintiff or a defendant – provoke appeals and well-financed challenges in the appellate courts. To comprehensively evaluate litigation outcomes, therefore, parties must calculate the cost of an appeal and the likelihood of a reversal on appeal. The most recent study of appellate court reversal rates, based on 8,038 state court trials and 549 appeals, shows surprisingly high reversal rates, upending the conventional advice to clients that “appellate challenges to jury findings rarely succeed.”163 The overall reversal rate (meaning the trial court judgment was reversed or the case was remanded for a new trial) was 32.1%, and defendants were far more likely to prevail on appeal than plaintiffs.164 The reversal rate for appeals filed by defendants was 41.5%, compared with 21.5% for plaintiffs. When the results were categorized by case type, the reversal rate for defendants was 50% or more in five case types: assault, slander and libel; professional malpractice (nonmedical); employment contracts; leases; and other contracts. For plaintiffs, the reversal rates were highest in property (26.3%), products liability (37.5%), premises liability (26.1%), and employment contract (38.5%) cases. (The initial decision to appeal a case also varied by case type; 20% or more of the judgments in employment, product liability, professional malpractice, and property cases were appealed.) Integrating the frequency of appeals with the reversal rate produces a tale of Dickensian proportions, suggesting that the result in Jaryndyce v. Jaryndyce was relatively benign because the case remained within the chancery court system. For modern litigants, the takeaway is that trial verdicts in certain types of cases are often appealed and reversed. Because litigation may continue years after seemingly great trial victories, settlement decisions must incorporate both probable trial results and probable appeal outcomes, with further adjustments for attorneys fees, appeal bonds, and delay costs.
162
Mnookin, Robert H., and Kornhauser, Lewis. (1979). Bargaining in the shadow of the law: The case of divorce. Yale Law Journal, 88, 950–997. 163 Eisenberg, Theodore, and Heise, Michael. (forthcoming 2009). Plaintiphobia in state courts? An empirical study of state court trials on appeal. Journal of Legal Studies, 38. 164 Data regarding appeal and reversal rates is reported in Eisenberg and Heise supra note 163.
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9.5.11 Moderate the Mediator In contemporary civil litigation practice, mediator selection is more important than jury selection. Investigating a proposed mediator’s experience, style and reputation thus is a critical responsibility for litigation attorneys and their clients. This responsibility is complicated by the “lack of objective measures of mediator quality, other than settlement rates,” and the rapid increase in the number of available mediators.165 Although research indicates that “the supply of willing mediators by far exceeds the demand for their services,” it remains difficult for attorneys and clients to obtain reliable information regarding many mediators’ qualifications.166 Absent solid information about a mediator’s skills and background, obtained through personal experience or from reliable sources, attorneys and clients should approach mediation with a receptive yet cautious attitude. An ongoing debate among mediators centers on the efficacy and appropriateness of “evaluative” mediation. Mediators sometimes prod parties by presenting the mediator’s evaluation of the case, especially when the parties have reached an impasse in their settlement negotiations. Mediators’ purpose in sharing their evaluations is to facilitate settlement and insure that the parties are rationally considering their settlement positions and decisions. Despite these good intentions, mediators often lack a statistically valid basis for their evaluations; they have litigated or decided too few cases to assemble a statistically valid sample of trial results in specific types of cases and some have no recent experience in trying or presiding over cases. The average federal district court judge, for instance, presided over about six civil trials in 2006, a fairly narrow dataset for forecasting outcomes in all civil case types. Many mediators, moreover, have very little actual civil trial experience; some became mediators because they disliked their litigation practices and exited the courthouse at their earliest opportunity. Mediators tend to be diplomats and anecdotists, not statisticians or decision scientists. Their extensive experience as mediators has taught them that people are persuaded more by narratives than data, more by reading faces than charts. So they may relate information about what happened in “a case very much like your own” or “quite similar to a case tried by a colleague a few years ago.” They rely on their own experiences and those of their colleagues and familiarize themselves with the case by reading the parties’ briefs, not compiling all available similar case data for summary judgment dispositions, average win rates, and median verdict amounts from the National Center for State Courts, VerdictSearch, RAND, PACER and the Administrative Office of the United States Courts. To forecast case outcomes and steer the parties toward resolution, they focus more on the stormy dispositions in the mediation room than historical records of juror temperament. They also know that, 165
Velikonja, Urska. (2009). Making peace and making money: Economic analysis of the market for mediators in private practice. Albany Law Review, 72, 257. Available at SSRN: http://ssrn.com/ abstract¼1302891 166 Id.
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since nearly all civil cases are resolved before trial, case evaluations are rarely tested at trial and, in any event, an evaluation for settlement purposes may be grounded on factors other than actual verdicts. When adverse parties reach a negotiating impasse, some mediators’ stories have a common theme, purpose and effect – creating doubt and occasionally scaring the bejesus out of recalcitrant litigants. A mediator’s narratives often reflect the mediator’s bias in favor of settlement, her desire to maintain a high “settlement rate,” and the fact that mediators generally do not assess the likely trial outcome using predictive analytics.167 Recognizing that mediators may “try too hard to ‘break’ real impasses,” Magistrate Judge Wayne Brazil states, “Their primary goal cannot be to ‘break’ impasse; mediators are not supposed to be in the business of ‘breaking’ anything. Rather their objectives should be to help the parties explore and understand the source and character of their apparent impasse and to help the parties determine whether they can move beyond it.”168 Many mediators, like the attorneys and clients participating in mediation, bring their own biases to the mediation session; these biases may affect their case evaluations. They are in the mediation business because they generally favor settlement over trials; many are risk averse and express little confidence in the jury system; some mediators left litigation practice because they have conflictavoidant personalities; and many mediators measure and publicize success by the percentage of cases settled, not the percentage of cases that settled for more than the plaintiff’s BATNA or less than the defendant’s BATNA.169 The emphasis on quantity of cases settled rather than the quality of outcomes indicates that it may be difficult to measure mediators’ actual financial contribution by an objective or mutually agreed-upon standard.170 Parties may be subjectively satisfied but objectively disadvantaged, pleased with the mediation process but ignorant of superior financial outcomes that could have been achieved. If no consensus exists regarding how to measure the quality of mediated settlements and whether procedural satisfaction outweighs substantive satisfaction, how much weight should a litigant assign to a mediator’s opinions regarding a reasonable settlement range? Is the range reasonable because it is within all parties’ reservation price ranges and hence likely to result in a settlement, or is it reasonable because it is a reliable assessment
167
Some research suggests that mediators do not reduce negotiating impasse rates. See Bazerman, et al. The effects of agents and mediators on negotiation outcomes. In Connolly, Terry, Arkes, Hal R., and Hammond, Kenneth R. (2000). Judgment and decision making (p. 450). New York: Cambridge University Press. 168 Brazil, Wayne D. (2009, Winter). Thoughts about impasse for mediators in court programs. Dispute Resolution Magazine, p. 11. 169 See Menkel-Meadow, Carrie J. (1995). Whose dispute is it anyway? A philosophical and democratic defense of settlement (in some cases). Georgetown Law Journal, 83, 2663–2696. Sander, Frank E.A. (1995, October). The obsession with settlement rates. Negotiation Journal, 11 (4), 329–331. 170 See Bazerman, et al. supra note 167 at 450 (finding that use of a mediator does not decrease the impasse rate in experiments using a “no mediator” control).
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of the probable trial outcome? Because these questions evade definitive answers, litigants may find that mediators are best utilized more as facilitators than forecasters; they are sagacious listeners, adroit communicators, wise diplomats, astute observers of human behavior and improbable actuaries. One retired federal judge, now a mediator, participated on a California State Bar annual meeting panel and presented this fact situation for discussion: the plaintiff confidentially tells the mediator that he is willing to settle for x dollars, and the defendant confidentially tells the mediator he is willing to settle for an amount that represents x þ $100,000. In other words, the plaintiff is willing to settle for an amount that is $100,000 less than the defendant is willing to pay, but neither party wants the other party to know its position. Other mediators on the panel and in the audience fidgeted, raised their hands, and claimed they would never place themselves in this position because they do not allow the parties to express “bottom line” positions. But the judge persisted and said this dilemma happens fairly often. That was the end of the panel discussion on this topic. The judge, in essence, was raising a fundamental and perplexing question for mediators: what are the ethics and objectives of mediation? Should the mediator facilitate a settlement for (1) an amount equal to or more than the amount the plaintiff demands but less than the defendant is willing to pay; (2) $100,000 more than the plaintiff wants but nevertheless an amount the defendant already said it found acceptable; (3) $100,000 less than the defendant is willing to pay but nevertheless an amount the plaintiff said is acceptable; (4) an amount less than the plaintiff demands because the plaintiff is probably bluffing anyway and the defendant will be happy with “saving” more than $100,000; or (5) some other amount that cloaks one or both parties with the illusion of negotiating success? Is it the mediator’s duty and sound dispute resolution practice to serve a compromise confection, knowing the plaintiff is settling for less than it could have obtained from the defendant and the defendant is paying more than the plaintiff was willing to accept? These issues trouble mediators, attorneys and clients, and they evade consensus.171 Until clients can reasonably assume that a common, explicitly articulated objective motivates both the mediator and the client, clients need to stay focused on their own long-term objectives and sensibly cautious about the shortterm attraction of immediately resolving a case in mediation.172
171 See Bazerman, et al. supra note 167 at 444. (“Whether mediators should be concerned with the specific nature of the agreement is an ongoing dispute in the mediation literature.”) 172 A longitudinal study comparing adjudicated outcomes with non-adjudicated outcomes indicates that settling parties are not more satisfied than parties whose case is adjudicated by a third party. Shestowsky, Donna, and Brett, Jeanne. (2008). Disputants’ perceptions of dispute resolution procedures: An ex ante and ex post longitudinal empirical study. Connecticut Law Review, 41(1), 63, 101. See Hensler, Deborah R. (2003). Our courts, ourselves: How the alternative dispute resolution movement is re-shaping our legal system. Penn State Law Review, 108, 165.
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Phase Six: Checking
In the checking phase, attorneys and clients monitor and evaluate the results of their decisions and the consequences of decisions imposed on them. For decisions that culminated in negotiated resolutions, performance of the settlement agreement is monitored to insure compliance with its terms; for decisions that resulted in adjudicated resolutions, compliance with the judgment or award is monitored. The cost of compliance, alternatives to compliance, and the cost of preventing non-compliance also are evaluated at this phase. Key questions in this phase are: Did we foresee the issues and understand the facts that preceded this resolution? Did we accurately predict the direct and indirect costs of this result? Are all parties complying with the requirements of this outcome? What are the alternatives to compliance and what are the costs of circumvention? Are we receiving the benefits contemplated by this resolution? In retrospect, did we excel in any aspect of decision making and where could we have improved? Monitoring and evaluation in the checking phase have external and internal dimensions. While the parties’ compliance with the settlement agreement, judgment or award is scrutinized, attorneys and clients simultaneously evaluate their own decision-making skills. The questions with the greatest value in the long term are often neglected: What was the quality of the decision making that led to this result and how can we accurately measure it? Did we select benchmarks for evaluating the quality of the decision before we made the decision, or are we defining and changing the benchmarks afterward to skew the evaluation? Looking back on the assumptions we made and the risks we weighed, how could we have made a better decision? Attorneys easily overlook these questions as they quickly move on to another case, handling one urgent matter after another without ever finding the time to assess their decision-making skills. As Myer Sankary, a mediator and former president of the Southern California Mediation Association, has observed, attorneys primarily rely on intuition and their past experience and “fail to analyze what they are doing or to learn how to improve their negotiation skills.”173 Although managers recognize that these evaluative questions are the most important, they concede they rarely devote sufficient time to assessing their own decision-making performance. Managers report that they spend only 13% of their decision-making time on “learning from experience,” although they intend to correct this allocation in the future by nearly doubling that allocation to 23%.174 Ironically, they report spending 35% of their time on the preceding stage, “coming to conclusions,” and intend to reduce that allocation to 22%. At least at the conceptual stage, managers recognize that they spend too much time on reaching 173
Sankary, Myer. (2003, September). Critical cross-roads: Good decision making is key to successful negotiations. Big News for Smaller Firms. Solo and Small Firm Section of the State Bar of California. Available at http://www.mediate.com/sankary/pg7.cfm 174 Russo and Schoemaker supra note 2 at 9.
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conclusions and too little time on learning how to evaluate and improve the conclusions they reach. Due to misplaced priorities, these decision makers spend inadequate time gathering and evaluating evidence, excessive time reaching conclusions based on insufficient evidence and comparatively scant time evaluating their conclusions. To start a rigorous program of self-evaluation in the checking phase and balance the time allocated between reaching conclusions and evaluating them, decision makers may adopt the three practices described below.
9.6.1
Pin Yourself Down for Some Real Feedback
To avoid hindsight and self-serving biases, decision makers intent on improving their skills maintain a written record of their decisions. The record, at a minimum, includes: (1) the decision made; (2) the major premises supporting the decision; (3) the objectives to be achieved by the decision; and (4) the decision maker’s confidence level in the decision, stated as a percentage. After the decision has been implemented and the outcome ascertained, decision makers add a fifth component, the actual result. Decision makers who are strongly committed to becoming superb decision makers make a copy of (1) – (4) before the results of the decision are known and file it or give it to a trusted colleague or friend with whom they can later discuss the results. “A systematic decision review,” states Peter Drucker, “can be a powerful tool for self-development, too. Checking the results of a decision against its expectations shows executives what their strengths are, where they need to improve, and where they lack knowledge or information. It shows them their biases.”175 To be effective, training, feedback and recalibration have to generate dissonance. They necessarily push decision makers beyond their comfort zone by forcefully signaling weaknesses, shortcomings and mistakes. A simple example of the deliberate practice essential to improved decision making illustrates the educational value of putting some self-esteem on the line: Say you have someone in your company who is a masterly communicator, and you learn that he is going to give a talk to a unit that will be laying off workers. Sit down and write your own speech, and then compare his actual speech with what you wrote. Observe the reactions to his talk and imagine what the reactions would be to yours.176
175
Drucker, Peter. (2004, June). What makes an effective executive. Harvard Business Review, pp. 59, 61. On attorneys’ duty to inform clients of their own malpractice, see Cooper, Benjamin P., (2009, February 6), The lawyer’s duty to inform his client of his own malpractice, Baylor Law Review, Forthcoming. Available at SSRN: http://ssrn.com/abstract¼1338807. 176 Ericsson, K. Anders, Prietula, Michael J., and Cokely, Edward T. (2007, July–August). The making of an expert. Harvard Business Review, pp. 115, 119.
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That example is offered by K. Anders Ericsson, the nation’s expert on expertise. The key element in Ericsson’s exercise is writing one’s own speech, not just showing up for the talk. Writing the speech forces one to compare actual performances and eliminates two calibration killers: deluding oneself about what one would have said and indulging in the misconception that critiquing another person’s performance perforce improves one’s own performance. Law firms routinely feed these two calibration killers when they send summer clerks and associates to court to watch a partner’s performance at trial, followed by collegial banter over toro tartare about the strengths and weaknesses of the argument. If these adult field trips were designed to have educative value, firms would ask attorneys to draft their own arguments, circulate them among other attorneys, discuss and compare them to the star’s performance, and re-write them to reflect the discussions and comparisons. That type of deliberate practice compels re-calibration and guides attorneys toward expertise, but it inevitably is more self-revealing and potentially embarrassing than evanescent observations. As Ericsson reminds would-be experts, the deliberate practice that results in expert performance may require painful self-assessment, as it “focuses on tasks beyond your current level of competence and comfort.”177
9.6.2
Don’t Just Provide Feedback – Discuss it
Providing feedback on outcomes may be ineffective in improving judgment calibration – unless the feedback is accompanied by interactive discussion. Interactively discussing the outcome, like the exercise of justifying one’s position to a third party, increases the accuracy of probability judgments. In one notable study, meteorologists received written feedback on their forecasts of temperature and precipitation. They did not show an improvement in accuracy over time. The research assistants conducting the study, however, showed significant improvements and actually outperformed the meteorologists. The research assistants had extensive opportunities to discuss the forecasts and results, while the intended subjects of the study, the meteorologists, received feedback only in a written form without discussion. Similarly, another study found that the most successful method of increasing decision-making quality and the accuracy of results was “interactive training” with feedback and verbal suggestions.178 Noting that the debates in 1986 about launching the ill-fated Challenger spacecraft in abnormally cold temperatures were conducted over a telephone, not face to face, professor Weick explains the importance of personal meetings in complex problem solving: Unexpected events are often confusing and people need to use rich media to build some idea of what they face. Face to face communication is generally regarded as the richest 177
Id. at 115. Stewart and Lusk supra note 61 at 408–409.
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medium, and richness declines as people move to interaction by telephone, written personal communique´s (letters and memos), written formal communique´s (bulletins) and numeric formal communique´s (printouts). Face to face is the richest because of the capacity for timely feedback, the ability to convey multiple cues, the degree to which the message can be personalized, the variety of language that can be used, and the range of meaning that can be conveyed. As richness is lost, so is key information.179
Despite its inefficiency and costs, interactive feedback conveys information far more effectively than unidirectional communications like faxes, emails, and voice mail messages. Personal interaction may be tension-filled, frustrating, and timeconsuming, but for the most complex decisions it is imperative.
9.6.3
Learn from Surprises
Surprises are simply an indication that a decision maker’s concept of the world is incorrect. Characterizing an event as predictable or surprising does not describe the event itself but rather reveals one’s degree of preparedness for the event. Surprise is the emotional manifestation of unpreparedness, the upset, awkward, and embarrassed sense that a decision maker feels when reality appears outside the limited range of consequences he anticipated. Professors Karl Weick and Kathleen Sutcliffe urge decision makers to undertake “self-conscious auditing” when they discover that the world does not conform to their expectations, citing Winston Churchill’s surprise upon learning during World War II that Singapore had few defenses to a Japanese invasion. Objectively assessing his own decision-making weaknesses, Churchill wrote, “I ought to have known. My advisors ought to have known, and I ought to have been told, and I ought to have asked.”180 Churchill’s self-enquiry, in essence, poses four critical questions which overarch many decision failures, including those that arise in the attorney-client context: (1) Why did I obtain and hold inaccurate and incomplete information? (2) Why did my advisors obtain and hold inaccurate and incomplete information? (3) If in fact my advisors had better information, why did they withhold it? (4) Why did I not probe, express my curiosity or seek additional or disconfirming information? Surprises invariably are accompanied by semantic adaptations intended to obscure disquieting oversights. These cognitive comforters assuage and mute the inner conviction that negative consequences could have been anticipated and avoided. Facts and events preceding surprises are variously described as “imperceptible,” “unknown,” “undisclosed,” “impossible to have foreseen,” “unimaginable,” “unprecedented,” “without warning,” “exceeding all previous records,” or “bizarre.” Decision makers committed to improvement and re-calibration remove
179
Weick and Sutcliffe supra note 14 at 168. Weick and Sutcliffe supra note 14 at 86.
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these palliatives from their vocabulary and replace them with realistic terms to describe the facts, processes and events that precede surprises – “ignored,” “undetected,” “overlooked,” “neglected,” “unquestioned,” “underestimated,” “misjudged” and “disregarded.” When candid decision makers are surprised, they acknowledge they were simply unprepared and had mistaken forerunners for outliers, harbingers for histrionics.
9.7
Chapter Capsule
The 45 concrete steps to improved personal decision making, described above, introduce new, substantiated ways of perceiving, thinking and deciding. These steps facilitate quality decision making by requiring problem solvers to reconfigure their perceptions, analyze problems in multiple dimensions and test numerous alternative solutions. Because they describe complementary attitudes and actions, the steps are only mildly effective when implemented selectively or sporadically and are most effective when integrated into a composite model for decision making. The aggregate effect of the steps is to improve decision making in seven fundamental respects: (1) broadening the definition of the problem, time frames for solving the problem, sources and types of information, potential resolutions, personal and organizational objectives and the range of acceptable options; (2) challenging and sometimes reversing a decision maker’s perspectives, positions, goals, assumptions, stereotypes and beliefs to enable the decision maker to understand, counter, accommodate or defeat an adversary’s claims; (3) probing to learn more about the evidence, premises, prior experiences, purposes and values underpinning the dispute; (4) anticipating likely problems, delays, outcomes, surprises, changes and objections; (5) imagining ideal and optimal resolutions and the full range of possible failures, successes, effects, obstacles and outcomes; (6) numerating and becoming numerate about base rates, risks, probabilities, averages, and costs; and (7) synchronizing new and evolving evidence with the client’s values, objectives, priorities, timing and positions.
Chapter 10
Group Expertise In Legal Decision Making
The fatal tendency of mankind to leave off thinking about a thing when it is no longer doubtful is the cause of half their errors. John Stuart Mill, On Liberty (1859)
Police officers call it “contagious shooting” – the sight of an officer shooting a suspect is followed instantaneously, almost uncontrollably, by multiple rounds fired at the suspect by fellow officers. In 2006, five police officers shot 50 bullets and killed an unarmed man whose car hit a minivan carrying police officers; earlier that year, three officers fired 26 bullets at a dog that bit an officer.1 In previous incidents, police officers shot 41 bullets at Amadou Diallo, an unarmed immigrant street peddler, and 107 bullets at suspects in a Bronx bodega robbery, one officer alone shooting 45 rounds.2 Describing the mesmerizing effect of the other officers’ firing, a former police official said, “He shoots, and you shoot, and the assumption is he has a good reason for shooting.” Acknowledging “you see it in a lot of shootings,” the official elaborates: “You just chime in. I don’t mean the term loosely. But you see your partner, and your reflexes take over.”3 In some instances, officers mistakenly conclude that the muzzle flashes from another officer’s gun signal shots from the suspect, triggering yet another burst of gunfire by fellow officers. Referring to the bodega robbery, another former officer reflected, “They were shooting to the echo of their own gunfire.”4 Group decision making has its own form of contagious shooting, often manifested in “group polarization” and “groupthink,” and it is aimed at independent thinking and disconfirming facts. Like police officers caught up in contagious shooting, group members start with shared allegiances, simultaneously perceive a common threat, immediately adopt another member’s assumptions, unconsciously 1
Wilson, Michael. (2006, November 26). 50 shots fired, and the experts offer a theory. The New York Times, p. A1. 2 Baker, Al. (2007, March 17). 3 detectives are indicted in 50-shot killing in Queens. The New York Times, p. A1. 3 Wilson supra note 1. 4 Wilson supra note 1.
R. Kiser, Beyond Right and Wrong, DOI 10.1007/978-3-642-03814-3_10, # Springer-Verlag Berlin Heidelberg 2010
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imitate each other’s reactions and allow reflexes, mimicry and conformity to hijack objective decision making. They are cognitively “shooting to the echo of their own gunfire.” This chapter explains the decision-making errors unique to group deliberations and identifies nine corrective measures. Although many precepts of individual decision making are applicable to group decision making, three specific questions relate to groups and are treated separately in this chapter: l l
l
What decision-making deficiencies are unique to group settings? What are the characteristics of effective decision making in groups and organizations? How can groups improve the quality of their decision making?
To answer these questions, this chapter describes the dangers of group conformity and consensus building, the distinct characteristics of high reliability organizations (HROs) and expert teams, and specific methods to achieve decision-making proficiency in groups. The research described in this chapter generally is based on organizational behavior in corporations and governmental entities, but it applies directly to group interactions in trial teams, litigation departments, law firm management committees, case selection and evaluation committees, and litigation committees reporting to boards of directors.
10.1
Deficiencies in Group Decision Making
Group decision making has unparalleled advantages and devastating disadvantages. Properly managed, group decision making has the potential to overcome the weaknesses and biases of individual decision making and may result in greater predictive accuracy than that achieved by the average decision maker in the group. “In most circumstances,” explains former CIA analyst Morgan Jones, “the analytic power of a group of analysts is greater than that of any of its single members.”5 When poorly managed, however, group decision making produces extreme outcomes reflecting the absence of deliberative assessment, planning and execution. As flight director Gene Kranz sadly noted after the Apollo 1 fire in 1967, “We were too gung ho about the schedule and we locked out all the problems we saw each day in our work. Every element of the program was in trouble and so were we . . . Nothing we did had any shelf life. Not one of us stood up and said, ‘Dammit, stop!’”6 Although the causes and manifestations of sloppy group decision making are abundantly clear in retrospect, they are rarely recognized until the consequences are irreversible. Recent instances include financial institutions’ widespread extension 5
Jones, Morgan. (1995). The thinker’s toolkit (p. 53). New York: Three Rivers Press. Chiles, James. (2002). Inviting disaster (p. 111). New York: Harper-Collins.
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of credit to unqualified home buyers, institutional investments in Ponzi schemes generating impossibly steady quarterly returns, extensive back-dating of stock option grants by publicly traded corporations and the initial assumption that the cost of reconstruction in the Iraq war would be paid by oil production revenues. In each of these gross errors, the fundamental problem was not the absence of conflicting data and opinions but rather the collective suffocation of conflicting data and opinions. Judge Learned Hand warned of this tendency to ignore or suppress independent thought in 1927: “Our dangers, as it seems to me, are not from the outrageous but from the conforming; not from those who rarely and under the lurid glare of obloquy upset our moral complaisance, or shock us with unaccustomed conduct, but from those, the mass of us, who take their virtues and their tastes, like their shirts and their furniture, from the limited patterns which the market offers.”7 The stifling of dissent and the social pressure to adopt prevailing opinions distinguish group decision making from personal decision making and highlight the social coercion inherent in collective decision making. At an elementary level, though, group problem solving is similar to individual problem solving and roughly follows these phases outlined by Professor Paul Kleindorfer: (1) problem finding and representation; (2) problem analysis; (3) evaluation and choice; and (4) implementation, legitimation, and learning.8 Although the phases of decision making may be similar for both individuals and groups, group decision making introduces additional factors that exert strong and singular effects on its quality: the similarity of member backgrounds and values; the relationships among group members; the power, authority and credibility of each group member; the history of group interaction; the group leader’s communication and decision-making style; group resources; the group’s mission or goals; and the expectations imposed by the group members and stakeholders.9 Group decision making, therefore, is more complex than individual decision making and is affected by how group members feel about each other and, in particular, whether they trust each other; how they feel about what they are to accomplish; how others evaluate the group’s processes and performance; and the resources, processes and strategies that the group utilizes.10 The sheer complexity, scale and number of actors in group decision making virtually insure that the costs of erroneous group decisions will vastly exceed the costs of individual mistakes. Very few of the scandals that today rock the political and business worlds are caused by the nefarious, surreptitious acts of a single person. More often, they reflect a group decision-making process conducted deliberately, albeit defectively, by educated, experienced and intelligent executives and
7
Learned Hand. (1927, June 2). “The Preservation of Personality,” commencement address at Bryn Mawr College, Bryn Mawr, Pennsylvania. 8 Kleindorfer, Paul R., Kunreuther, Howard C., and Schoemaker, Paul J.H. (1993). Decision sciences (p. 214). Cambridge, United Kingdom: Cambridge University Press. 9 Id. at 215. 10 Id.
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professionals succumbing to the insidious dynamics of group decision making. In groups, the steady drift toward conformity and hence incompetent decision making proceeds unconsciously and imperceptibly, and it is difficult to pinpoint the moment when group consensus replaces independent judgment. Because group consensus and conformity support a social system more tangible than an individual’s ethical framework, the group members often feel no need to hide their actions from later scrutiny. For ethically compromised group decision making, the surprise is not its iniquity but its banality. When the inevitably disastrous consequences of deficient group decision making unfold, the discussions, events and decisions leading to the disaster are amply documented in e-mails, meeting minutes, and notes to financial statements. The confidence with which people execute fundamentally flawed decisions attests to the enormous power of consensus and the strong sense of protection afforded by collective action. Executives at Mercury Interactive Corp., for example, documented their manipulation of stock option dates in multiple e-mails. Explaining to a new employee why her stock options were being repriced, Mercury’s payroll manager sent this e-mail closing with a smiley-face emoticon: “The reason the paperwork was not sent out is because the stock price drop made us change the grant date so that you could get the lower price. . . I know it has been a while, but believe me, you will be happier with the new price.”11 Another e-mail referred to the Chief Financial Officer’s use of “her magic backdating ink.”12 In yet another e-mail Mercury’s general counsel wrote to Mercury’s finance chief, suggesting that the option price for a grant to 30 new employees should be based on a date two weeks before the e-mail, “unless we think the price will be better than that later this month. Let me know what you’d like to do.”13
10.1.1 Elements of Defective Group Decisions Irving Janis, the psychologist who wrote Groupthink, has identified the elements of defective group decision making. He believes incompetent group decision making usually reflects seven fundamental deficiencies: (1) “gross omissions in surveying objectives;” (2) “gross omissions in surveying alternatives;” (3) “poor information search;” (4) “selective bias in processing information at hand;” (5) “failure to reconsider originally rejected alternatives;” (6) “failure to examine major costs and risks of the preferred choice;” and (7) “failure to work out detailed implementation,
11
Boslet, Mark, and Maremont, Mark. (2007, February 20). Emails reveal backdating scheme. The Wall Street Journal, p. A4. 12 Id. 13 Id.
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monitoring and contingency plans.”14 Each of these factors reflects a cognitive shading or disregard of information easily accessible but uneasily discrepant, a deference to social cohesion at the cost of social responsibility.
10.1.2 Group Polarization and Groupthink The two most common causes of group decision-making deficiencies are described as “group polarization” and “groupthink.” These cognitive maladies often are lumped together and colloquially referred to as “incestuous amplification” or more pejoratively, “breathing your own exhaust.” These colloquialisms share the central idea that group members disregard external sources and stop challenging each other, preferring the warm, secure, and affirming sense of internal deference and congeniality. Although decision makers immediately recognize the symptoms of groupthink and group polarization in other people and deplore the consequences that flow from these deficiencies, they rarely recognize the symptoms when they infect their own decision making. People instinctively seek group approval, conform to group behavior patterns, and exhibit very poor calibration in distinguishing between a legitimate need for cooperation, consistency and integration, on the one hand, and a counter-productive insistence on allegiance, conformity and submission, on the other hand. Human ambivalence about the conflicts between loyalty and independence and between conformity and creativity is reflected in The New Yorker cartoon depicting one senior executive remarking to his colleague, “Encouraging dissent is a good way of finding out who the traitors are.”15 Although attorneys and clients may feel confident in believing that they would not succumb to the coercive effects of group decision making, their everyday conversations belie this confidence. Attorneys and clients often engage in the same behavior that preceded harmful incidents of group polarization and groupthink, and they regard their behavior as merely promoting “teamwork” and encouraging others “to get with the program.” Viewing other businesses and public entities, for example, attorneys and clients may decry management and policymaking teams composed of “yes” men and women, but in their own leadership and management roles they emphasize the importance of “consensus building,” getting “buy-in,” being a “team member,” “making sure we’re all on the same page,” presenting a “united front,” “not airing our dirty laundry,” and “staying on message.” Following the military adage that “when you get too far ahead of your own troops, you get mistaken for the enemy,” they leave little ground between their opinions and those of other group members.
14
Janis, Irving. (1972). Victims of groupthink (pp. 32–33). Boston: Houghton Mifflin Company. See Janis, Irving. (1989). Crucial decisions (p. 59). New York: The Free Press. 15 (2005, October 3). The New Yorker, p. 75.
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Group Polarization
Until the early 1960s, social scientists assumed that group decisions were superior to individual decisions – the “two heads are better than one” premise. An unpublished masters’ thesis written in 1961 by MIT student James Stoner upended this assumption, finding that group positions were more extreme and riskier than the average of the individual positions initially held by the group members. Stoner called this phenomenon “risky shift.”16 Psychologists Serge Moscovici and Marisa Zavalloni later named the phenomenon “group polarization,” the term presently used to describe the robust tendency of groups to “radicalize” their members and produce extreme positions.17 “Like polarized molecules,” psychology professor John Turner explains, “group members become even more aligned in the direction they were already tending.”18 Group polarization, law professor Cass Sunstein states, occurs when “members of a deliberating group move toward a more extreme point in whatever direction indicated by the members’ predeliberation tendency.” He presents these examples: professors disposed to be supportive of affirmative action will become more firmly committed to affirmative action; voters tentatively in favor of greater gun control “will probably end up favoring gun control quite enthusiastically;” and citizens “leaning in favor of impeachment” will “tend to favor impeachment.”19 Jury verdicts also exhibit group polarization, their verdicts ultimately being higher than that of the individual judgments before deliberation. Sunstein explains the effect of group polarization on jury verdicts: “For any dollar award above zero, the general effect of deliberation was to increase awards above those of the median voter.”20
10.1.2.2
Groupthink
Groupthink “is a characteristic of group decision making that causes otherwise capable individuals to make manifestly poor decisions in a group setting.”21 16
Stoner, J.A.F. (1961). A comparison of individual and group decisions involving risk. Unpublished master’s thesis, Massachusetts Institute of Technology, Cambridge. 17 See Moscovici, S. and Zavalloni, M. (1969). The group as a polarizer of attitudes. Journal of Personality and Social Psychology, 12, 125–135. Moscovici, Serge, Zavalloni, Marisa, and Weinberger, Monique. (2006). Studies on polarization of judgments: II. Person perception, ego involvement and group interaction. European Journal of Social Psychology, 2(1), 92–94. 18 Turner, John, et al. Rediscovering the social group, 142, 187, cited in Sunstein, Cass R., (1999, December). The law of group polarization (John M. Olin Law & Economics Working Paper No. 91, p. 4). University of Chicago Law School. Available at SSRN: http://ssrn.com/ abstract=199668 or DOI: 10.2139/ssrn.199668. 19 Sunstein, Cass R. (December 1999). The law of group polarization (John M. Olin Law & Economics Working Paper No. 91, pp. 2–4). University of Chicago Law School. Available at SSRN: http://ssrn.com/abstract=199668 or DOI: 10.2139/ssrn.199668. 20 Id. at 18. 21 Kleindorfer, Kunreuther, and Schoemaker supra note 8 at 217–218.
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Irving Janis, the psychologist who popularized the term “groupthink,” explains that the underlying motivation for the groupthink tendency “appears to be a strong desire to avoid spoiling the harmonious atmosphere of the group upon which each member has become dependent for maintaining self-esteem and for coping with the stresses of policymaking.”22 Members follow a simple decision rule: “Preserve group harmony by going along uncritically with whatever consensus seems to be emerging.”23 Groupthink is different from group polarization in at least two basic respects. First, as Professor Sunstein explains, “cascade effects lead people to fall in line with an existing tendency, whereas polarization leads them to a more extreme point in the same direction.”24 Thus, groupthink generally reinforces a consensus reached with limited consideration of alternatives but does not necessarily result in a more extreme position than originally contemplated by the individual group members. Second, group polarization does not appear to require the same antecedents as groupthink; groups adopt extreme positions without necessarily exhibiting the precursors of groupthink, e.g., external pressures and group cohesion, insulation and homogeneity. In his study of groupthink, Janis analyzed the decision-making history of policy advisors in the following predicaments: Neville Chamberlain’s appeasement of Hitler; Admiral Kimmel’s failure to heed warnings that Pearl Harbor would be attacked; Harry Truman’s decision to escalate the Korean War despite clear evidence that China would intervene; John Kennedy’s approval of the Bay of Pigs invasion in Cuba without consulting knowledgeable experts in the CIA or the Joint Chiefs of Staff; and Lyndon Johnson’s decision to escalate the war in Vietnam despite reports that this would be unavailing. Based on his study of these decisionmaking misadventures, Janis identifies the following antecedent conditions for groupthink, many of which exist in law firms and attorney-client relationships, especially in high-risk cases: insulation of the group from outside influences; lack of a tradition of impartial leadership; the absence of norms requiring methodical decision-making procedures; homogeneity of members’ social background and ideology; high stress from external threats with low hope of a better solution than the leader’s proposed action; low self-esteem temporarily induced by recent failures; excessive difficulties on current decision-making tasks that diminish each group member’s sense of self-efficacy; and an apparent lack of feasible alternatives except ones that violate ethical standards.25 Stereotyping of people outside the group may compound these antecedent conditions.26 The fallout from these antecedents to groupthink, Janis found, is a group’s illusion of invulnerability, a belief in the inherent morality of the group, collective
22
Janis, Irving. (1989). Crucial decisions (pp. 56–57). New York: The Free Press. Id. at 57. 24 Sunstein supra note 19 at 9. 25 Janis supra note 22 at 59. 26 Kleindorfer, Kunreuther, and Schoemaker supra note 8 at 218. 23
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rationalizations, stereotypes of out-groups, self-censorship by group members, an illusion of unanimity, pressure on dissenters, and self-appointed mind guards. He broadly classifies these consequences into three categories: overestimation, closedmindedness and pressures toward uniformity.27 The homogeneous group susceptible to groupthink, Janis noted, is “hostile to deviant views,” including those that may be important for future adaptation and survival.28 Janis’ deep insights into group decision making, unfortunately, have been validated by numerous business and political fiascos during the 40-year period after Groupthink was first published. The defective decision-making processes that marred each of Janis’ case studies have been replicated precisely, albeit unintentionally, by executives, professionals, and politicians in debacles ranging from Enron’s financial scandals to the Department of Defense’s conviction that the Iraq war “would pay for itself with oil revenues,” from 60 Minutes’ airing of forged records regarding George Bush’s Air Force reserve service to Bill Clinton’s initial denial of a sexual relationship with Monica Lewinsky, from the Soviet Union’s concealment of the Chernobyl nuclear plant release to Adelphia’s fraudulent accounting practices. Despite Janis’ identification of the factors instrumental in defective decision making and decision makers’ consequent ability to recognize and avoid these pitfalls, defective decision making is perpetuated through assiduous practice in board rooms, war rooms, classrooms and courtrooms throughout the country.
10.1.2.3
Application of Groupthink Research to Business Decisions
Although Janis’ research focused primarily on political leaders, his main findings are equally applicable to businesses. In 2001, after interviewing hundreds of executives in failed organizations over a six-year period, business professor Sydney Finkelstein concluded that businesses fail for “surprisingly few causes.” In Why Smart Executives Fail, Finkelstein explains that business failures are rooted in defective decision making: “Leaders who are invariably crisp and decisive tend to settle issues so quickly that they have no opportunity to grasp the ramifications. Worse, because these leaders need to feel that they already have all the answers, they have no way to learn new answers.”29 Describing the “Seven Habits of Spectacularly Unsuccessful People,” Finkelstein chronicles the common characteristics of decision-making failures and the leaders who confidently dispatch their organizations over a cliff. These characteristics are remarkably similar to the ultra-hazardous conditions depicted by Janis 40 years earlier: (1) they overestimate the degree to which they control their 27
Janis supra note 22 at 59. Janis supra note 22 at 62, citing Ouchi, W.G. (1981). Theory Z: How American business can meet the Japanese challenge. Reading, Mass.: Addison-Wesley. 29 Finkelstein, Sydney. (2003). Why smart executives fail (p. 224). New York: The Penguin Group. 28
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environment and underestimate the effect of chance and change, basking in an illusion of personal and corporate preeminence; (2) they see no difference between their personal interests and the company’s interests, failing to recognize an obligation to a larger audience and often treating the company’s assets as their own; (3) they know they have all the answers and can infallibly make all the decisions; (4) they ruthlessly eliminate any source of dissent, cutting themselves “off from their best chance of correcting problems as they arise;” (5) they are obsessed with image and cannot distinguish between actual accomplishments and the appearance of accomplishment, overlooking operational details and complexity and elevating public relations to the corporation’s highest priority; (6) they persistently underestimate major obstacles, fail to correct unrealistic expectations, and escalate commitments when the validity of the initial commitment is questionable, pursuing their vision “full steam into the abyss;” and (7) they fail to learn new information and strategies, solving today’s problems with yesterday’s responses and stubbornly relying on the “tried and true.”30 The psychological qualities of Finkelstein’s smart but failed executives – arrogance, isolation, insulation, self-delusion, intolerance of dissent, overconfidence, maladaptation – would appear to describe Janis’ maladroit politicians and public servants as well.
10.1.2.4
Methods to Counter Groupthink
Janis argues that groupthink must be countered with “vigilant problem solving.” Corrective steps advocated by Janis include: (1) invite experts and colleagues who are not core members of the policy making group to participate in the group’s meetings and specifically question its members; (2) require leaders to present problems in a neutral manner and delay stating their own preferences until a broad range of options has been elicited; (3) consider alternative perceptions of an adversary’s intentions; (4) set up at least two independent groups to work on the same issue, each led by a separate chairperson, and then assemble the groups at a joint meeting to discuss their ideas; (5) hold a “second chance” meeting to discuss lingering doubts and reconsider tentative choices; (6) remind the group of the entire range of individuals and organizations to which they are responsible; (7) determine whether group members are being subjected to implicit threats of retaliation; (8) urge group members to seek new and discrepant information; (9) postpone final decisions and “buy time” when faced with a short deadline; and (10) rigorously enforce a “no punishment” policy to encourage dissident viewpoints and invite contrary information and arguments.31
30
Id. at 213–237. See Sonnenfeld, Jeffey, and Ward, Andrew. Firing Back (p. 61). 2007. Boston, Massachusetts: Harvard Business School Press. 31 Janis supra note 22 at 244–248.
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Characteristics of Effective Decision-Making Groups
In this section, the focus shifts from the deficiencies of group decision making to the characteristics of high performance groups. Serving as models of decision-making proficiency, these high performance groups exist in every business, profession, public entity and academic institution. For every organizational debacle chronicled on today’s New York Times website, attorneys and clients could find another organization or a different group of people in the same organization that performed an identical or comparable assignment differently and superbly. Defective decision making in organizations is not endemic but simply receives more popular attention than proficient decision making. The stellar performance of another group within an organization may escape media attention because its superior performance embarrassingly demonstrates the avoidability of the mistaken group’s decision-making errors. These superior performances, though under-publicized, serve as examples of comparative decision-making proficiency and the capacity for effective decision making to surmount seemingly inevitable outcomes. The media extensively covered the tragic deaths in 1988 of 290 civilians killed when the USS Vincennes, a U.S. Navy cruiser, launched two missiles at an Iranian Airbus 300. The Vincennes’ captain mistakenly believed the Iranian commercial jet intended to attack the Vincennes. Unreported at the time was the decision not to launch missiles at the Iranian aircraft by the captain of the USS Sides, a navy cruiser in the same area as the Vincennes. The captain of the USS Sides was looking at similar data at the same time the Vincennes’ captain authorized the missile strike. Unlike the captain of the Vincennes, the captain of the Sides concluded that the Iranian jet was ascending, not descending, toward the American ships and that the jet was civilian, not military.32 It is unlikely that the general public ever heard about the Sides or its captain. Although all crew members of the Vincennes were awarded combat-action ribbons and its captain received The Legion of Merit, the commander of the Sides, according to military historian and retired U.S. Marine Corps Lieutenant Colonel David Evans, “has not received a scintilla of support from the top echelon.”33 Sixty years before the Vincennes accident, nine U.S. destroyers led by the squadron commander’s ship, the Delfy, crashed into the rocks at Point Pedernales, a few miles off the California coast. Believing that his dead reckoning was more accurate than bearings from a radio direction station, the squadron’s commander had ordered the ships to make a sharp course change toward the coast. The skipper of the Kennedy, another boat in the same convoy, disregarded the commander’s order, concluding that the commander had erroneously interpreted the bearing data. The Kennedy and the three destroyers following behind it escaped disaster, but 32
For a full description of the Vincennes accident, see Klein, Gary. (1998). Sources of power (pp. 75–87). Cambridge, Massachusetts: The MIT Press. 33 Evans, David. Crisis decision making: USS Vincennes case study, Naval Science 302: Navigation and naval operations II. University of Pennsylvania.
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there is no official recognition of the Kennedy’s skipper as an independent, lifesaving decision maker. Although the official history of the United States Navy acknowledges “navigational complacency” as a cause of the Point Pedernales disaster, it omits any mention of the Kennedy’s skipper and simply notes that the intact destroyers “steered completely clear.”34 Although much can be learned from the leaders of the Vincennes and Delfy, perhaps more can be learned from the captain of the Sides and the skipper of the Kennedy. For that reason, this section examines models of sound decision making instead of the highly publicized exemplars of erroneous decision making. Tasks and accomplishments differ markedly among the organizations that excel in decision making, but their values, priorities and systems remain remarkably constant. Like Tolstoy’s depiction of happy families, all high performance groups resemble one another.35
10.2.1 High Reliability Organizations (HROs) What do nuclear power plants, air traffic control systems, wild land firefighting crews, and aircraft carrier flight decks have in common? Answer: all are “high reliability organizations” (HROs) required to make hundreds of operational decisions in a high stress environment with little margin for error. They are high risk, low error organizations, adroitly managing unexpected events and consistently delivering low error rate performances in exceedingly difficult conditions. They specialize in “error management” and recognize that large-scale mistakes have numerous antecedents and rarely are caused by single actors or events. HROs are studied to identify the elements of effective group decision making in the most demanding environments and to determine how these organizations systematically avoid the financially and personally disastrous outcomes that often attend deficient group decision making, including attorney-client decision making in corporations, public entities and other organizations. Fortunately, extensive research documents the low error rates in HROs and highlights the values, procedures, training, and monitoring that significantly reduce errors in complex, rapidly evolving and dangerous conditions. Organizational behavior experts first began studying HROs in the 1980s. They observed that these organizations achieve remarkably high safety records while operating under five common conditions: (1) the operating environment is risky and unpredictable; (2) accidents are infrequent but when they occur, often involve 34
Ships History Branch of the Naval Historical Center. Honda (Pedernales) Point, California, disaster, 8 September 1923. Navy Department Library, Department of the Navy: Washington, D.C. Available at http://www.history.navy.mil/library/online/honda.htm. 35 Tolstoy, Leo. Anna Karenina, Chapter 1 (“Happy families are all alike; every unhappy family is unhappy in its own way.” An alternative translation: “All happy families resemble one another, each unhappy family is unhappy in its own way.”)
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massive loss of life and/or property; (3) human error – fatigue, workload, communication misunderstandings, fear, poor quality decision making – causes most accidents; (4) nearly all errors that occur are systematically observed and corrected without serious loss; and (5) performance is continually and objectively measured by outcomes, e.g., lives lost, unsafe landings, and assets damaged or destroyed.36 James Reason, the preeminent psychology professor and author of Human Error, summarizes three distinct features of HROs: they are complex, dynamic, and interactive; they perform demanding tasks under extreme time pressures; and they function with low incident rates and a near-absence of catastrophic failures.37 Although every organization appears to function quite differently from other organizations, the causes of accidents in all organizations show very similar patterns. In surgical operating theatres, for example, the major causes of error are poor communication, failure to follow procedures, unclear lines of responsibility in the leadership team, interpersonal conflict between team members, failure to plan for contingencies and negligence in monitoring conditions.38 In aircrew mishaps, which superficially bear no resemblance to surgical theatres, 70% of mishaps are caused by similar human errors: supervisory, leadership or organizational lapses; missing, inaccurate and misinterpreted communication; faulty assessments of risk conditions; failure to adhere to established procedures; and poor management of known dangerous conditions.39 Human error appears to be the most common cause of adverse outcomes in organizations, and HROs distinguish themselves from ordinary organizations by their systematic anticipation and management of human error. HROs constantly attempt to detect and counter a principal cause of human error: overconfidence. The majority of pilots, for instance, are convinced that “their decision making is as good in emergencies as under normal conditions, that they can leave behind personal problems, and that they perform effectively when fatigued.”40 Demonstrating similar levels of overconfidence, physicians also claim that their decision making “is as good in emergencies as in normal situations, and many outright deny that they commit any errors.” 41 HROs systematically attempt to reduce this pervasive overconfidence by requiring team members to adopt a “safety culture.” Organizations with a safety culture display a collective
36
See Weick, Karl E., and Sutcliffe, Kathleen. (2001). Managing the Unexpected (pp. 51–115). San Francisco, California: Jossey-Bass. 37 Reason, James. (2000, March 18). Human error: Models and management. BMJ [British Medical Journal], 320, 770. 38 Helmreich, Robert L. (2000, March 18). On error management: Lessons from aviation. BMJ [British Medical Journal], 320, 783–784. 39 Ciavarelli, Anthony, and Crowson, Jeffrey (2004 March). Organizational factors in accident risk assessment (p. 1). Paper presented at Safety Across High-Consequence Industries Conference, St. Louis, Missouri. Available at http://www.high-reliability.org/Documents/Articles/StLouispaper 12-03.pdf. 40 Helmreich supra note 38 at 782. 41 Helmreich supra note 38 at 783.
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“mindfulness” of the risks, expectations, assumptions and connections in their highrisk operating conditions. HROs “achieve low accident rates through keen awareness of their risks, close monitoring of high-risk operations, and encouragement and use of standardized procedures, and continuous training.” 42 Most importantly, they identify, update and modify assumptions and routines to avoid the danger of automaticity in a changing context. Karl Weick, the psychology professor who first identified and defined HROs, emphasizes five processes that distinguish HROs from ordinary organizations and could be applied by law firms to distinguish their decision making from ordinary law firms. First, they are preoccupied with failures rather than success.43 This preoccupation with failure is manifested by a series of practices that are successful in detecting small errors before they become major accidents: l l l
l l
l l
All performances are evaluated. All group members are encouraged, indeed required, to report errors. Reporting systems are designed to eliminate the threat of retaliation and retribution. Minor lapses are treated as reflections of serious underlying deficiencies. Anomalies are examined to detect possible problems with practices and procedures. Members challenge each other’s decisions and actions. Disconfirming information is sought and studied.
Second, HROs are reluctant to simplify risks and the complexity of their operations. “My worry when executives say, ‘Keep it simple, stupid,’ is that they’re misunderstanding the complexity of their own organizations and environments,” explains Weick. Part of the solution to managing the unexpected, he says, is “to get executives to step back and acknowledge just how messy reality can sometimes be.”44 Third, HROs show a high level of situational awareness, sensitivity to operations and constant attention to unexpected events. Surprises are neither dismissed nor rationalized; they are “a solid cue that one’s model of the world is flawed.”45 Fourth, HROs are resilient and adept at improvisation when old rules and protocols interfere with quality outcomes. Fifth, HRO members defer to expertise; missions are led and decisions are made by the person most knowledgeable about the assignment regardless of seniority or hierarchy. In the Israeli Air Force, for instance, pilots are graded by skill level, and the most skilled pilot leads the formation even if this results in a general flying behind a captain. Weick groups the first three qualities of HROs (preoccupation with failure, reluctance to simplify, and sensitivity to operations) under the broad rubric “anticipating and becoming aware of the unexpected.” He categorizes the other two
42
Ciavarelli and Crowson supra note 39 at 2. The five processes are described in Weick and Sutcliffe supra note 36 at 10–17. 44 Coutu, Diane L. Sense and Reliability. (2003, April). Harvard Business Review, 86–87. 45 Weick and Sutcliffe supra note 36 at 112. 43
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qualities (commitment to resilience and deference to expertise) as “containing the unexpected.” In anticipating, becoming aware of and containing the unexpected, HROs collectively display the distinct characteristic Weick calls “mindfulness” – a vibrant, adaptive, systematic state of situational awareness and vigilance in sensing and correcting errors that could become catastrophic.”46 Attorneys who see little relation between HROs and law firms are invited to reconsider the role of attorneys and the context in which they operate. Like air traffic controllers and operators of nuclear power plants, attorneys actually are in the public safety business. They are licensed as attorneys but the most effective among them serve as safety professionals, protecting clients from entering an unsafe environment or, if the client already has fallen into a hazardous zone, extricating it promptly with the lowest risk of harm. This responsibility for public welfare is consistent with the quasi-public nature of law practice; even private-sector attorneys remain “officers of the court,” regulated by entities established by a state legislature and governed by ethical standards which often elevate the client’s welfare over the attorney’s benefit. Although the skills exercised by an attorney are different from the skills demonstrated by safety professionals in HROs, their task is identical: minimizing harm in inherently dangerous conditions. Each of the five conditions that distinguish HROs from ordinary organizations also exist in law firms: the professionals operate in uncertain and risky conditions; errors occur infrequently but may be catastrophic; human error is the cause of most accidents; most errors can be anticipated, detected and corrected before causing serious loss; and performance can be continually measured by outcomes. The similarity between HROs and law firms suggests that law firms are nascent HROs operating under high-risk, high-consequence environments without the protective systems employed by other safety professionals. Consistent with their emphasis on objective evaluation and continual performance monitoring, HROs audit themselves regularly to test and track their performance.47 The audits usually focus on five dimensions of performance, applicable to law firms as well as HROs:
46
HROs understand that disastrous consequences rarely occur spontaneously, and all possible sources and signs of error merit serious attention. Catastrophic events, Weick states, “are triggered by a deceptively simple sequence in organizational life: A person or unit has an intention, takes action, misunderstands the world; actual events fail to coincide with the intended sequence; and there is an unexpected outcome.” Weick and Sutcliffe supra note 36 at 2. 47 Weick and Sutcliffe supra note 36 at 115. Roberts, Karlene, and Libuster, Carolyn. HRO hypotheses. (1993). Available at http://www.high-reliability.org/Documents/Articles/Roberts_ and_Libuser.pdf. VanStralen, Daved W., et al. (2008). Changing a pediatric sub-acute facility to increase safety and reliability. In Advances in health care management, Vol. 7. Patient safety and health care management (pp. 251–274). Emerald Group Publishing. Libuser, Carolyn B. (1994). Organization structure and risk mitigation. Unpublished dissertation, School of Management, University of California, Los Angeles.
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Process Auditing. Is there a system for continuous monitoring and correction of anticipated and unanticipated problems and follow-up on shortcomings noted in prior audits? Reward System. Does an organization’s reward system discourage safety and encourage risk taking, discourage prompt reporting of mistakes and encourage concealment of mistakes and discourage attention to small mistakes and close calls and encourage the allocation of resources to evident crises? Quality Control and Degradation. Does the organization have policies and procedures to establish and promote work performance standards, and how do these standards compare to other organizations’ quality standards? Perception of risk/risk management. Are risks acknowledged, and if so, what risks are accurately assessed and properly minimized or mitigated? Command and Control. Does the person with the most expertise make the decision; are back up systems and resources sufficiently redundant; does the organization have an overall safety climate and systematic training?
The results of these audits, in turn, are analyzed closely, compared with prior audits, and then evaluated again in light of subsequent audits. When the performance of HROs is compared with that of non-HROs, HROs exhibit remarkably greater sensitivity to safety and leadership and consequently show significantly better operating results. A comparison of naval flight operations on an aircraft carrier, a quintessential HRO operating in a high-risk environment, with patient care in hospitals, typical non-HROs also operating in a high-risk environment, illustrates the dramatic differences in attitudes and outcomes.48 In 2001, the U.S. Navy’s Command Safety Assessment Survey Questionnaire, a 61-item confidential survey used in studies of U.S. Navy and Marine Corps units, was distributed to about 6,300 hospital personnel, including physicians, nurses, technicians and management, at 15 hospitals. About 3,000 people completed the surveys. The survey results for the hospital personnel later were compared with the responses of about 6,900 naval aviators who completed the survey between 1998 and 2001. “The magnitude and consistency of the difference surprised us,” said David Gaba, the director of the Patient Safety Center of Inquiry at the Veterans Administration Palo Alto Health Care System.49 The differences reflected the enormous attitudinal and organizational gaps between HROs like naval flight operations and non-HROs like hospitals: “Given the statement, ‘Management provides adequate 48
Hospitals, professor Weick states, clearly are not HROs: “To the currently controversial question of how many people die each year from medical errors, the answers range as high as the equivalent of two fully loaded 747s crashing with no survivors, each day of the year. Hospitals aren’t even considered high reliability organizations.” Weick and Sutcliffe supra note 36 at 19. 49 Center for Health Policy, Freeman Spogli Institute for International Studies and Center for Primary Care and Outcomes Research, Stanford School of Medicine (2003, November 11). Hospitals should learn from naval aviation on patient safety, suggests Stanford/VA research (CHP/PCOR News). Palo Alto, California: Stanford University. Available at http://healthpolicy. stanford.edu/news/11/2003/.
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safety backups to catch possible human errors during high-risk activities,’ 23.7 percent of the hospital personnel disagreed, versus just 2.7 percent of the naval aviators. For the statement, ‘Management has a clear picture of the risks associated with [the organization’s] operations,’ 21.9% of the hospital personnel disagreed, versus just 1.9% of the aviators.”50 Overall, the hospital personnel were three times more likely to state "problematic” responses to the survey, illuminating serious safety oversights and, in particular, the absence of standardized procedures and policies. “If hospitals truly aspire to be high reliability organizations,” Gaba noted, “they ought to have a safety climate that’s similar to successful HROs.”51 Ironically, both the hospital personnel and the aviators reported that their organization was “committed to safety.” As shown by the disparity in responses between the hospital personnel and the naval aviators, however, this commitment is meaningless when an organization has no system of assessing, measuring, monitoring and improving performance. The results speak for themselves; naval aviators experience about two mishaps per 100,000 flight hours, while the number of adverse events per hospital admission ranges from 2.9% to 20.2%.52 In explaining why hospitals’ performance falls so far below those of naval aviators, Dr. Gaba’s study identifies four major reasons: hospitals lack standardized training and procedures; hospitals “don’t regularly assess the performance of their personnel;” hospitals are “highly decentralized;” and hospitals “can’t exert much control” over how physicians practice because physicians are “largely autonomous.”53 These four impediments to organizational proficiency – absence of systematic training and procedures, failure to assess performance, decentralized organization, and professional autonomy without standardized processes and outcome measurements – describe the modern law firm as well. Like hospitals, law firms display a similarly high-minded commitment to their customers, extolling work product quality, professional dedication and client service. Like hospitals, few law firms have moved beyond mission statements to a rigorous assessment of their problem-solving culture, the establishment of systems and controls needed to achieve problem solving-acumen, and the implementation of continuous training and grading programs required of people who handle and control high-risk operations for clients. Although attorneys are entrusted with the responsibility for protecting clients’ assets and reputations, their law firms generally lack the precise, ongoing evaluative
50
Id. Id. 52 Erwin, Sandra. (2000, October). Navy aims to curtail aviation mishaps caused by crew error. National Defense. U.S. General Accounting Office (1998, March). Military aircraft safety: Serious accidents remain at historical low levels (Briefing report to the honorable Ike Skelton, ranking minority member, Committee on National Security, House of Representatives, GAO Publications No. NSIAD-98-95BR). Washington, DC: U.S. Government Printing Office. Adams, Charlotte. (2006, February 1). Military FOQA next step in safety. Avionics. Office of Inspector General. (2008, December). Adverse events in hospitals: Overview of key issues (OEI-06-07-00471). 53 Center for Health Policy and Center for Primary Care and Outcomes Research supra note 49. 51
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systems employed by HROs. Naval pilots, for example, are graded on every landing and must be recertified after a landing falls outside clearly defined standards; attorneys, however, usually are evaluated, if at all, annually in connection with compensation decisions. And the evaluation can be remarkably subjective, as the former vice chair at O’Melveny & Meyers, an 842-attorney firm, remembers: “It was very common to hear an associate evaluation as follows: For a male associate it would read, ‘They haven’t had the opportunities to get real trial experience, but we have all the confidence in the world that he has all the capability to be a success.’ Then for a female associate, and I am talking about some of the most exceptional young attorneys, they would say, ‘She has not had the opportunity to get any real trial experience, and so the jury is still out.’”54 The evaluative band for attorneys is flexible, ambiguous, idiosyncratic and manipulable; apart from determining whether annual billable hour requirements have been met, it lacks the objective performance standards that characterize HROs. Although law firms operate in a high-risk environment and the impact of their poor decision making can be as devastating as accidents in HROs, law firms have proven reluctant to incorporate the procedures, practices, values and monitors that inform and direct HROs. The major quality control procedure is the hiring process, where law firms attempt to eliminate defective performers before they are hired. Apart from the initial hiring decision, law firms generally do not perceive themselves to be responsible for designing and implementing a culture of safety and, except for calendaring software and the idiosyncratic, uneven feedback between associates and partners, do not have systematic quality control procedures and audits. At firms where quality control committees exist, they often perform postaccident reporting and ameliorative functions. Like the American automotive industry in the 1960s, many law firms have placed the quality control function at the end of the production process and, all too often, have transposed it to the consumer experience.
10.2.2 Expert Teams Looking beyond HROs, scientists have studied a broad range of organizations to identify the characteristics of expert teams. Whether studying cockpit crews, military combat units, air-traffic controllers or surgical teams, researchers find that certain characteristics distinguish expert teams and can be emulated by any organization, including law firms. Nine characteristics of “dream team” members are:
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Matuszak, Peter B. (2007, June 29). Beyond the alpha-male culture. San Francisco Daily Journal, p. 9.
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Mental Models. They have common mental models of the team objectives, what members can expect from each other, and how they can anticipate tacitly each member’s requirements and actions. Self-Correction and Adaptation. They reassign functions and form new routines as necessary to adjust to different challenges. Clear Roles and Accountability. Each team member has clearly defined but moderately flexible responsibilities and understands the roles, skills and responsibilities of other members. Explicit Purpose. They share and articulate explicit and common values and purposes. Routine Prebriefing and Debriefing. They regularly self-assess their effectiveness with “prebrief/perform/observe/assess/debrief” protocols to provide feedback, anticipate problems and confirm priorities. Strong Leadership Skills. Leaders of high performance teams know how to lead groups and exhibit strong leadership skills apart from technical competence. They convey a sense of genuine interest in and caring about the people working with them, and they understand how to motivate and direct people through regular updates, coordination and clear tasks. Confidence and Trust. Because they trust each other’s intentions, tend to play down power differences and are highly confident about the group’s abilities, expert team members can confront each other with relative ease and resolve conflicts promptly. Managed Outcomes. Expert teams make better quality decisions and are less likely to commit errors than ordinary teams. Their optimal decision-making performance results, in part, from a highly efficient system of disseminating information critical to task accomplishment; each individual understands not only what information she needs to perform effectively but anticipates and comprehends what information another team member will require to achieve the team’s objectives. Organization and Coordination. Expert teams in general and emergencymanagement teams in particular assign work deliberately to optimize individual expertise while balancing out the workload; they exhibit a keen ability to assess the precise requirements of a task and match those requirements with team members’ expertise and availability.55
Applying this research to a law firm, an expert litigation team would integrate all members – partners, associates, paralegals, contract attorneys, administrative staff and consultants – into a highly purposeful, fluid, communicative, motivated and effective problem-solving team. Like emergency-management teams, a litigation team would thrive in persistently uncertain and stressful conditions by inculcating each team member with a clear vision of the client’s requirements and the law 55
Salas, Edward, et al. The making of a dream team: When expert teams do best. In Ericsson, K. Anders, et al., Eds. (2006). The Cambridge handbook of expertise and expert performance (pp. 446–449). New York: Cambridge University Press.
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firm’s objectives; cultivating a high level of trust among all team members regardless of seniority, compensation or position; and requiring team leaders to consistently display broad aptitudes and competence in communication, coordination, empathy, judgment and execution as well as subject matter expertise. The team also would continually adjust workloads to reflect individual competencies and time limitations; regularly re-evaluate objectives, priorities and assignments and inform all team members of adjustments and changes; resolve conflicts rapidly with direct communication and confrontation grounded in shared concepts of individual roles, responsibilities, and accountability; and routinely monitor, test and enhance performance with explicit and collectively acknowledged metrics.
10.3
Steps to Improve Group Decision Making
Personal decision-making skills include “the ability to gather and integrate information, use sound judgment, identify alternatives, select the best solution and evaluate the consequences.”56 Supplementary skills for group decision making include the ability to select and transmit information for collective consideration, facilitate the evaluation of data, identify dubious assumptions, listen to and assess other opinions, challenge and, if necessary, reverse policies previously adopted, guide group members in deliberating and choosing among alternatives, motivate group members to complete a decision-making task and alert group members to the full range of consequences. Nine concrete methods of building these supplementary skills, in addition to the HRO practices and expert team qualities previously discussed in this chapter, are explained below.
10.3.1 Ask For Multiple Opinions To reduce group conformity and enhance decision quality, “ask each individual to bring at least two alternative views on each major issue. Better yet, encourage three, four or five options,” urge Edward Russo and Paul Schoemaker, authors of Winning Decisions. Not to be outdone, one aerospace company insists on generating at least seven possible solutions to a problem. “The first two or three might come pretty easily,” an executive explains. “Then it becomes very difficult. We often find that creates a whole other set of options.”57 This insistence on multiplicity of options is supported by studies indicating that groups’ superior performance in decision making may be attributable primarily to aggregation – “simply having more people 56
Id. at p. 441. Austin, Robert , et al. (2008, July 7). Oops! Accidents lead to innovations. So, how do you create more accidents? The Wall Street Journal, p. R6.
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working on the problem rather than group interaction per se.”58 Soliciting multiple options from group participants not only generates more alternatives but also “helps prevent anyone from being too closely identified with (or taking too much pride in) a single view.”59 When options are reduced to bivariate outcomes – settle or try a case, file or don’t file a motion, mediate or don’t mediate – this signals that decision makers may be pushing resolution ahead of objectives. Reducing choices to go/don’t go scenarios simplifies the decision-making task but obscures the decision maker’s overall objectives and circumvents the cognitively challenging task of generating multiple, practical and creative ways of achieving a client’s principal objectives. “The use of the business case, which forces decisions into a yes-or-no framework,” explains Bob Frisch, the managing partner of The Strategic Offsites Group, “is a tacit admission that groups are not good at discussing and prioritizing multiple options.”60 To counter the tendency to reduce complex decision making into yes-or-no frames, Frisch urges decision makers to develop and consider a wide, nuanced range of options, avoid premature commitment to alternatives by taking nonbinding votes, and discuss possible solutions over multiple meetings to encourage consideration of new information and facilitate individual reconsideration. “It’s essential,” he believes, “to keep discussion of the desired outcome distinct from discussion about how to achieve it. Sometimes, simply articulating the desired outcome will forestall or dissolve disagreements about solutions because the options can be tested against an accepted premise.”61
10.3.2 Cross-Pollinate the Team When teams consist of the “usual suspects,” state decision experts Kevin Hoffberg and Clint Korver, “you get all the usual ideas. Think messy. Think heterodoxy. Get divergent people involved if you want divergent ideas.”62 Medical teams have worked with the Ferrari Formula One pit crew team to learn how to improve patient “handoffs” between hospital departments and shifts, and law firms have partnered with the Ritz Carlton to enhance client service and workflow management.63 Retail marketing professionals work with military researchers for two weeks and discover 58
Plous, Scott. (1993). The psychology of judgment and decision making (p. 213). New York: McGraw-Hill, Inc. 59 Russo, J. Edward & Schoemaker, Paul J.H. (2002). Winning decisions (p. 174) . New York: Doubleday. 60 Frisch, Bob. (2008, November). When teams can’t decide. Harvard Business Review, p. 122. 61 Id. at 123. 62 Hoffberg, Kevin, and Korver, Clint. (2003). Magic Questions (p. 19). DQI, LLC. Available at http://www.bpmforum.org/DecisionROI/PDF/Magic_Questions.pdf. 63 Naik, Gautam. (2006, November 14). A hospital races to learn lessons of Ferrari pit stop. The Wall Street Journal, p. A1. Chanen, Jill Schachner. (2007, January). Puttin’ on the Ritz. ABA Journal, p. 18.
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there is little difference between “handling outgoing disaffected customers and anticipating incoming ballistic missiles.”64 IDEO, the design team that invented the first Apple mouse, promotes creativity by forming multi-disciplinary teams of engineers, linguists, marketing gurus, psychologists and biologists.65 “Hot groups,” asserts Tom Kelley, the general manager of IDEO, “tend to have at least one or two certifiable weirdos.”66 The superiority of diverse groups in complex problem solving and forecasting is demonstrated in Professor Scott Page’s book, The Difference: How the Power of Diversity Creates Better Groups, Firms, Schools and Societies. Relying on quantitative analysis, prior studies and simulations, he concludes that the benefits of diversity go straight to the bottom line of companies. “There’s a lot of empirical data,” he states, “to show that diverse cities are more productive, diverse boards of directors make better decisions, the most innovative companies are diverse.”67 His conclusions are complemented by independent research showing that “cognitive and experiential diversity” expands the scope of problem-solving perspectives; “work units composed of diverse members can tap into broad networks of contacts, making it likely that useful new information will be incorporated into decisions, which can increase commitment to choices and enhance responsiveness to rapidly changing organizational environments.”68
10.3.3 Proliferate Team Leaders The scope of ideas that will be considered in a group – and hence the ultimate success of a group – is largely pre-determined by the selection of a team leader. To prevent decision drift toward a dominant leader, some problem-solving teams adopt fluid leadership structures that continually shift leadership responsibilities based on the problems presented and a group member’s expertise. Distributing leadership responsibility among multiple team members, based on the specific problem presented and the group members’ expertise, produces superior team performance among high-skill employees and reflects an historical shift from autocratic management to teams of knowledge workers. “Hierarchies persist in the information age,” notes Professor Martin Merry, “but the more successful organizations are
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Snowden, David F., and Boone, Mary E. (2007, November). A leader’s framework for decision making. Harvard Business Review, p. 72. 65 Austin, et al. supra note 57. 66 Kelley, Tom. (2001). The art of innovation (p. 97). New York: Doubleday. 67 Dreifus, Claudia. (2008, January). In professor’s model, diversity ¼ productivity. The New York Times. See Page, Scott. (2008). The difference: How the power of diversity creates better groups, firms, schools, and societies. Princeton, New Jersey: Princeton University Press. 68 Zhong, Chenbo James. (2001, Fall). Group heterogeneity and team negotiation Kellogg Journal of Organizational Behavior, p. 5.
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likely to be those that can mobilize leadership behaviors and skills among not just a few workers, but a majority.”69 The traditional designation of a single leader actually may defeat the purpose of forming a problem solving team. Professors Yves Doz and Mikko Kosonen note that “most companies choose leaders with strong records for new projects, but that very experience can make them less open to new ideas or too confident of their abilities.”70 To avoid that result, they suggest balancing the leadership team with leaders from other divisions or industries. Management professor Craig Pearce describes another weakness in the “single leader” tradition: But more often than not, the company makes one of those experts the sole team leader, and immediately that leader is at a knowledge disadvantage. After all, the purpose of the team is to bring together people with a diverse set of skills. So the leader often doesn’t understand enough about the other team members’ jobs to guide them at crucial moments.71
Modern teams avoid this disadvantage and exploit individual members’ expertise by continually alternating leadership positions to match problems with proficiencies. Peter Drucker foresaw this shift from hierarchies to competencies as early as 1967, discerning that knowledge workers would change the nature of team leadership: “In one way or another almost every knowledge worker in an organization will either have to become a decision-maker himself or will at least have to be able to play an active, an intelligent, and an autonomous part in the decision-making process.”72 Shared leadership should be delayed or not deployed at all under certain circumstances. Because its effectiveness depends on knowledge and utilization of individual expertise and team members initially may be unaware of each other’s expertise, Professor Pearce cautions “it might be a better idea to rely on a single strong manager to run the show until the team members can suss each other out.”73 Shared leadership also appears to be most successful in highly complex and critical problem solving tasks but can be counter-productive where the leaders are experts in a particular domain yet lack basic management skills.
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Merry, Martin D. (2004, April). Shared leadership: Reframing the hows and whys of leadership. Psychiatric Services, 55(4), p. 463. 70 Dvorak, Phred. (2008, June 16). Experts have a message for managers: Shake it up. The Wall Street Journal, p. B8. See Doz, Yves, and Kosonen, Mikko. (2008). Fast strategy: How strategic agility will help you stay ahead of the game. Philadelphia, Pennsylvania: Wharton School Publishing. 71 Pearce, Craig L. (2008, July 7). Follow the leaders. The Wall Street Journal, p. R8. See Pearce, Craig L., and Conger, Jay A. (2002). Shared leadership: Reframing the hows and whys of leadership. Thousand Oaks, California: Sage Publications, Inc. 72 Drucker, Peter. (1996). The effective executive (p. 162). New York: HarperCollins Publishers. See also Clancy, Julia, M., et al. Command style and team performance in dynamic decisionmaking tasks. In Schneider, Sandra, and Shanteau, James. (2003). Emerging perspectives on judgment and decision making (pp. 586–619). Cambridge: Cambridge University Press. 73 Pearce supra note 71.
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10.3.4 Appoint a Devil’s Advocate Irving Janis counsels organizations to “assign the role of devil’s advocate” and “give him an unambiguous assignment to present his arguments as cleverly and convincingly as he can.”74 Because the role of the devil’s advocate can become ritualized, the devil’s advocate role should be rotated among the most talented members of the group. “With one fresh contender after another on hand to challenge the consensus of the majority,” Janis adds, “the devil could get his due at the meetings and not afterward.”75 Another technique for keeping the devil’s advocate fresh and shifting focus from the source of the counter-argument to its content is to designate more than one person to serve simultaneously as devils’ advocates. Morgan Jones, the former CIA analyst, suggests that a devil’s advocate be required to actively research and advocate a contrary position, not just pose rhetorical questions and make insincere or insubstantial comments before slipping back into the mainstream of conventional thought. In this more forceful model, “the devil’s advocate goes a step further by seeking out and obtaining new evidence, evidence about which the prime advocate has no knowledge or curiosity or that was disbelieved and discredited. This further step is the secret weapon of devil’s advocacy, the extra dimension that makes it a formidable analytic technique.”76 Yet another devilish role is suggested by professors Max Bazerman and Dolly Chugh. Instead of designating a devil’s advocate, they recommend that groups assign the role of “devil’s inquisitor” to a group member. The devil’s inquisitor does not argue against any particular position but rather generates questions about the position. By inquiring instead of arguing, the devil’s inquisitor “pushes people to look for evidence outside their bounds of awareness. Moreover, this role can be comfortably worn by those who are reluctant to take on the majority; it gives them a safe way to contribute.”77
10.3.5 Seed the Brainstorm Greg Krehel, the Chief Executive Officer of CaseSoft, encourages trial team members to hold multiple brainstorming sessions. For plaintiff attorneys, he believes the initial session should be held before the complaint is filed, and for defense attorneys, he recommends scheduling the session shortly after the 74
Janis, Irving. (1989). Crucial decisions (p. 248). New York: The Free Press. Janis, Irving. (1972). Victims of groupthink (p. 215). Boston: Houghton Mifflin Company. 75 Janis, Irving. (1972). Victims of groupthink (p. 216). Boston: Houghton Mifflin Company. 76 Jones, Morgan. (1995). The thinker’s toolkit (p. 218). Emphasis in original. New York: Three Rivers Press. 77 Bazerman, Max H., and Chugh, Dolly. (2006, January). Decisions without blinders. Harvard Business Review, p. 93.
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complaint is filed (or pre-filing if a defendant expects the claim). The first session should last about five hours, take place at an off-site location with whiteboards, projection units and a screen, be limited to six members of the trial team and result in four documents: Issue List, Cast of Characters, Chronology of Key Facts, and Questions/To Do List. The Issue List should include both legal claims and factual disputes and can serve as a reminder of facts to incorporate into the Chronology. Once the Chronology is completed, trial team members should add “prospective facts” – “facts we wish we had, as well as facts the opposition is probably hoping to develop.”78 In subsequent brainstorming sessions, Krehel explains, the trial team shifts its focus from these initial issues to trial themes, trial strategy, and demonstrative evidence. Consultant Kevin Coyne and his colleagues, though, caution against conventional brainstorm sessions, noting that few people respond well to on-the-spot pressures to generate creative ideas, most people clam up in large groups and one or two people invariably dominate brainstorm sessions.79 They suggest that these sessions be re-structured to form smaller groups of four people and that the dominant speakers (the “pushy people”) be placed in a single group. Noting that “few people are good at developing ideas without receiving guidance” and conventional brainstorming sessions often fail to produce practicable ideas, he also believes participants need some basic information to “clarify what constitutes a good idea” and explain the organization’s present financial or personnel constraints.80 Instead of the open-ended dialog that marks stereotypical brainstorming sessions, Coyne prefers concrete questions to structure and assist participants.81 An open-ended question like “How can we cut costs?” should be replaced with “What element of our business would we have to eliminate to cut costs 50%, and are there customers who do not need that element?”82 Concrete questions, Coyne finds after working with more than 150 clients, “coax all those quiet, thoughtful souls who have hated traditional brainstorming sessions dominated by blowhards to emerge from the shadows and open up.”83
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Krehel, Greg. (1993). Brainstorming your way to a winning case strategy. Decision Points Litigation Library. 79 Coyne, Kevin P., Clifford, Patricia Gorman, and Dye, Renee. (2007, December). Breakthrough thinking from inside the box. Harvard Business Review, December 2007. 80 (2007, January 29). How brainstorming can frustrate creativity. The Wall Street Journal, p. B5. 81 Specific brainstorming questions posed by Coyne that could promote fresh thinking about law firm operations and client service include: “Which customers’ needs are shifting most rapidly? What will they be in five years? What is the biggest hassle of purchasing or using our product? Which customers does the industry prefer not to serve, and why? Which customers could be major users, if only we could remove one specific barrier we’ve never previously considered? For which current customers is our product least suited? Coyne, Gorman, and Dye supra note 79. 82 supra note 80. 83 Coyne, Gorman, and Dye supra note 79.
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10.3.6 Promote a Good Fight Sir Dennis Weatherstone, the former chief executive officer and chairman of J.P. Morgan, had a remarkably deft way of disagreeing with a colleague while encouraging divergent views. “I don’t think you’re wrong,” he would say, “I just disagree with you.”84 This attitude encourages the “good fight” advocated by organizational behaviorists, in which the emphasis is on the substance of ideas rather than the clash of personalities. Group members engaged in a “good fight” recognize that high quality decisions “emerge out of disagreement, not consensus” and that “dissent does not mean dissension.”85 In their article entitled “How Management Teams Can Have a Good Fight,” business professor Kathleen Eisenhardt and her colleagues outline six methods to have a good fight, minimizing internal personal conflict while closely scrutinizing positions and options: (1) analyze facts instead of debating opinions; (2) generate multiple solutions so that a group member can easily change positions without being aligned with a single position; (3) define common goals and evaluate alternatives as possible methods of achieving those goals rather than expressions of group member preferences or biases; (4) use humor to ease interpersonal stress and soften critical comments; (5) avoid autocrats who dominate decision making and weak leaders who dodge it and foster a belief that all team members have participated in strategic decisions; and (6) accept the fact that consensus is not always reached and ultimately a decision must be made by a manager after considering the group’s input (“consensus with qualification”).86 After studying numerous companies, Eisenhardt concludes that “where there is little conflict over issues, there is also likely to be poor decision making.”87 In the absence of conflict, she observes, groups become ineffective and managers become impassive. Finding that the alternative to conflict is not harmony but rather apathy and disengagement, she encourages companies to elicit conflicting views and recognize that forcing consensus may heighten interpersonal conflict and delay critical decisions.
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Sidel, Robin. (2008, June 21–22). J.P. Morgan’s former chief executive helped to lower barriers on the banking industry. The Wall Street Journal, p. A6. 85 Surowiecki, James. (2004, March 8). The finance page: Board stiffs. The New Yorker, p. 30. See Gandossy, and Sonnenfeld, Jeffrey, Eds. (2004). Leadership and governance from the inside out (p. 20). New York: Wiley. 86 Eisenhardt, Kathleen, Kahwajy, Jean, and Bourgeois, L.J. (1997, July-August). How management teams can have a good fight. Harvard Business Review, pp. 77–85. See Eisenhardt, Kathleen and Bourgeois, Jay. (1997, Autumn). Strategic decisions and all that jazz. Business Strategy Review, 8 (3), pp. 1–3. 87 Eisenhardt, Kathleen, Kahwajy, Jean, and Bourgeois, L.J. (1997, July-August). How Management Teams Can Have a Good Fight. Harvard Business Review, pp. 77–85.
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10.3.7 Build Trust Organizational behaviorists previously determined that ineffective groups suffered from “relationship conflicts” (interpersonal spats, tension, suspicion and antagonism) while effective groups limited their disagreements to “task conflicts” (disputes about the best way of achieving common goals). Recent studies, however, indicate that the distinction between “personal conflict” and “task conflict” is artificial and in reality organizations that experience task conflict invariably experience relationship conflict as well.88 These recent studies seem to present a Hobbesian choice, as described by James Surowiecki, The New Yorker’s staff writer on financial matters: “you can be collegial and friendly and make bad decisions, or you can be locked in a room with people who can’t stand each other and make better decisions.”89 The solution to this dilemma, Surowiecki writes, has emerged from research performed by Tony Simons of Cornell University and Randall Peterson of London Business School. These researchers discovered that a sense of mutual trust enabled groups to focus on problem solving (“task conflict”) without degenerating into personal disagreements (“relationship conflict”).90 Professor Peterson believes that vigorous debate has the potential to enhance the quality of group decisions but also presents the risk of triggering personal hostilities. The management challenge, therefore, is to facilitate thorough evaluations of alternatives without inviting nasty conflicts among the evaluators. In a survey of 380 chief executive officers and senior officers and managers, Peterson tested the hypothesis that task conflict does not devolve into relationship conflict when a high level of trust exists within the group. He measured trust along three dimensions: the perception of group-wide trust; expectations of truthfulness, integrity and reliability; and respect for other group members’ competence. After analyzing the survey results, Peterson concluded, “Where trust is high, task conflict does not lead to relationship conflict. For groups where trust is low, task conflict almost always leads to relationship conflict.”91 Peterson’s research demonstrates that, if groups intend to gain the benefits of constructive debate (task conflict) without antagonizing each other (relationship conflict), an organization must generate high levels of trust. Otherwise, soliciting the criticism and dissent essential to effective decision making “spills over into destructive animosities and interpersonal tensions.”92
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Surowiecki, James. (2006, October 9). The financial page: Zip it. The New Yorker, p. 31. Id. 90 See Simons, T.L., & Peterson, R.S. (2000). Task conflict and relationship conflict in top management teams: The pivotal role of intragroup trust. Journal of Applied Psychology, 85, 102–111. Peterson, Randall S. & Behfar, Kristin Jackson. (2003). The dynamic relationship between performance feedback, trust, and conflict in groups: A longitudinal study. Organizational Behavior and Human Decision Processes, 92(1–2), pp. 102–112. 91 Simons, Tony L., and Peterson, Randall. (2007, September). Why trust matters in top management teams (Cornell Hospitality Report, Vol. 7, No. 14), p. 12. 92 Id. at 7. 89
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For lawyers and clients intent on stimulating group debates without triggering personal enmity, the largest hurdle is creating trust. This is especially difficult in the litigation field, which rewards skepticism, promotes adversarial relationships and regards personal assurances as being considerably less reliable than written contracts. Despite the enormity of the task, researchers have identified the key elements of trust amenable to systematic, unilateral improvement by organizations attempting to develop a culture of trust. Management professor Robert Hurley, for instance, describes seven situational factors that instill trust: security, number of similarities, alignment of interests, benevolent concern, capability, predictability and integrity, and level of communication.93 These seven factors are amplified below: l
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Security. The sense of personal security is proportional to the risk perceived. High levels of risk engender higher levels of distrust. To increase the sense of security, senior executives and attorneys have to moderate the risk of loss to an individual and spend time instilling in team members a sense of objective safeness and subjective confidence. Similarities. Trust is dependent on shared values and common personal experiences, affiliations, habits, and tastes. Conversely, a lack of similarities heightens suspicions and intensifies remoteness. Changing speech from the “I” habit to the “we” paradigm and focusing on common goals increase the perception of similarities and promote trust.94 Interests. Trust diminishes as individuals perceive their interests to be diverging from or directly conflicting with the organization’s interests. Leaders tend to assume that every team member has aligned interests and do not compensate for the complexity and multiplicity of individual interests. To develop a culture of trust, leaders first need to understand others’ interests and then explicitly articulate how those interests are reflected in the organization’s operations and goals. Concern. Trust is eroded when leaders place a higher value on their own objectives than the organization’s welfare. Elevating the level of trust requires actual sacrifice on the part of the leader – decisions that improve the status of team members while resulting in some loss to the leader – to convince the team members that their collective interests are paramount. In a law firm, trial attorney Kurt Schlichter notes, “you need to demonstrate that you put the welfare of your subordinates first, and the only way to demonstrate it is by doing it.”95
Hurley, Robert F. (2006, September). The decision to trust. Harvard Business Review, pp. 55–62. 94 See Haslam, S. Alexander, et al. (2001) Social identity and the romance of leadership: The importance of being seen to be ‘doing it for us.’ Group Processes and Intergroup Relations, 4(3), 191–205. 95 Schlichter, Kurt Andrew. (2009, March 30). Firm heads often confuse leadership with management. San Francisco Daily Journal, p. 5.
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Capability. Individuals place trust in organizations that have proven to be competent in developing and implementing sound practices and detecting and correcting weak performances. Team members become distrustful when incompetent performances are tolerated for some team members and authority is delegated to underperforming team members. Enforcing performance-based standards, acknowledging performance deficiencies and assigning responsibilities based on actual capabilities heighten a sense of trust. Predictability and Integrity. Integrity and predictability are inextricably linked; people who act with integrity are perceived to act predictably as well. As Professor Hurley explains, “when a person fails to deliver, he’s not just missing a deadline; he’s undermining his own trustworthiness.”96 To maintain trust, leaders must avoid being overly confident about what they can actually deliver, keeping their promises in line with their performance. They also may benefit from explicitly stating their values so that others see the link between a leader’s values and her actual behavior. Communication. Candid and frequent communications underpin a sense of trust, and inaccurate, insincere or misleading communications rapidly erode trust. In high-conflict situations, organizations often hunker down and release information in the smallest possible increments; this self-protective reaction, unfortunately, eviscerates trust.
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Instilling trust is a test of an organization’s authenticity and its capacity to promote constructive debate. When a few individuals dominate group discussions and the exchange of ideas seems ponderous and stiff, the underlying cause often is a lack of trust. Because people are acutely sensitive to insincerity and manipulation, an organization’s efforts to heighten a sense of trust must be deliberate, tangible and durable, entailing some concrete sacrifices on the part of leaders and a degree of transparency that initially places some leaders outside their comfort zone.
10.3.8 Reach a Consensus, Don’t Build One “Consensus is a goal,” state Russo and Schoemaker, “not a process.”97 The popular notion of “consensus-building” actually hinders sound decision making, as it encourages group conformity at each incremental level leading to a decision and builds uncritical momentum to reach a final resolution upon which all agree. This well-intentioned but frequently insidious process of “buy-in” prematurely commits individual group members and coerces uniformity before frames and options are thoroughly evaluated.
96
Hurley supra note 93 at 59. Russo & Schoemaker supra note 59 at 184.
97
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Expert decision makers solicit and encourage a robust exchange of disparate views and a lively discussion of the values and objectives underpinning those views before moving toward option selection. They do not seek consensus at the stages prior to option selection, and they recognize that unanimity regarding the final option selection is neither necessary nor achievable in all circumstances. “The effective decision does not, as so many texts on decision-making proclaim, flow from a consensus on the facts,” explains Peter Drucker. “The understanding that underlies the right decision grows out of the clash and conflict of divergent opinions and out of the serious consideration of competing alternatives.”98 To insure that multiple viewpoints are elicited and considered, and to defeat the powerful forces of social conformity, effective leaders often ask members to state their opinions before the group actually meets and then prepare a written summary of those pre-meeting views for group discussion. Ideas that otherwise would not be aired at a personal meeting may receive full attention when solicited and documented before the meeting. The leader also may set up sub-groups to evaluate the same problem and then bring the groups together to share their opinions. This prevents a single individual – “the most overconfident but not necessarily the most astute” – from controlling discussions and suppressing opinions.99
10.3.9 Schedule a Last Clear Chance Meeting To assure that all critical viewpoints have been discussed and considered before a preliminary decision is finalized, Janis recommends a “second chance” meeting. The team members should be asked “to express as vividly as they can all their residual doubts and to rethink the entire issue before making a definitive choice.”100 If some group members are reticent to express dissident views in front of the proponents of the preliminary choice, Janis suggests that their opinions be sought in the form of written statements or, alternatively, some group members can meet with them privately. Janis’ concerns are similar to those expressed by Alfred P. Sloan, the former chairman of General Motors’ board of directors, after his fellow committee members nodded affirmatively in response to his confirmation, “Gentlemen, I take it we are all in complete agreement on the decision here.” Seeing his colleagues’ assent, Sloan declared, “I propose we postpone further discussion of this matter until our next meeting to give ourselves time to develop disagreement and perhaps gain some understanding of what the decision is all about.”101
98
Drucker supra note 72 at 143. Janis, Irving supra note 22 at 248. Russo & Schoemaker supra note 59 at 172. 100 Janis supra note 22 at 248–249. 101 Drucker, Peter. ( 2001). The essential Drucker (p. 254). New York: Harper Collins Publishers. 99
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Chapter Capsule
“Group polarization” and “groupthink” are the two most common shortcomings of group decision making. Group polarization describes the tendency of groups to take more extreme and risky positions than the average of the individual positions initially held by the group members. Jury verdicts, for example, exhibit group polarization, verdicts ultimately being higher than that of the individual juror judgments before deliberation. Groupthink occurs when decision makers unconsciously suppress dissenting viewpoints and reach a consensus without fully considering alternatives. Some of the circumstances conducive to groupthink are a group’s insulation from outside influences, lack of a tradition of impartial leadership, homogeneity of members’ background and ideology, high stress from external threats, an apparent lack of feasible alternatives, and stereotyping of people outside the group. High reliability organizations (HROs) and expert teams overcome group polarization and groupthink and deliver outstanding results under extreme time pressures and dangerous conditions. HROs are preoccupied with failure, reluctant to simplify problems and highly sensitive to operational deficiencies. They regard seemingly minor glitches as signals of potentially serious errors. Expert teams, whether sports teams or combat units, consistently exhibit common objectives and values, minimize power differences and hierarchical decision making, closely align responsibilities with individual expertise, disseminate information necessary to accomplish immediate tasks as well as all anticipated tasks, and re-evaluate their effectiveness and provide feedback after every critical action. To achieve exceptional decision-making performances, trial teams, litigation departments, law firm management committees and other groups can utilize nine specific methods: (1) solicit multiple opinions to generate better alternatives and prevent individuals from being identified with a single view; (2) broaden the range of people participating in the group’s interactions to invite divergent ideas; (3) distribute leadership responsibilities among multiple team members; (4) designate team members to function as a devil’s advocate, rotating the position to incorporate new evidence and fresh arguments; (5) hold multiple brainstorming sessions with small groups and structured questions to prevent dominant speakers from squashing the ideas of thoughtful but introverted individuals; (6) encourage members to engage in robust debate without provoking personal conflict; (7) build trust through communication, integrity, reliability, predictability, respect and competence; (8) delay reaching a consensus on intermediate issues and promote disparate views until an option must be finally selected; and (9) schedule a “second chance meeting” to discuss any residual doubts and provide an opportunity to reconsider a decision before it is implemented.
Chapter 11
Peer Review, Client Evaluations and Law Firm Audits
Comparisons are odious. John Fortescue, De Laudibus Legum Angliae, ch. 10 (1471)
“Quality control” in law firms usually means high quality, low control. Most experienced attorneys produce outstanding work product as a result of their own training, intellect and pride, and the law firm itself is the beneficiary, not the progenitor, of the outstanding work product. This result follows from the rigors of law school education, the screening function of the bar examination, the personal characteristics of individuals drawn to the legal profession, the fiduciary and personal nature of the attorney-client relationship and the degree of independence traditionally afforded to legal professionals. It also results from attorneys’ fierce resistance to institutional constraints on attorney discretion and law firm’s reluctance to question or interfere with an individual attorney’s judgment and style, especially when an attorney’s conduct is mildly idiosyncratic but demonstrably profitable. To change the tradition of attorney autonomy and impose external systems to set, monitor, rectify and improve the quality of legal services rendered by individual attorneys would require a massive professional reorientation in support of heightened public accountability and professional responsibility. Law firms would have to evoke nine attitudes presently absent in the traditional law firm model and antithetical to the prevailing “no partner is in a position to judge another partner” ethic: (1) a consensus on what the legal profession is accountable for apart from avoiding manifest legal malpractice; (2) a shared belief that the practice of law is amenable to explicit attorney performance standards; (3) generally accepted, uniformly applied models of superior client service or “best practices;” (4) common professional values and aspirations to delineate acceptable professional conduct where quality service standards have not yet been expressly defined; (5) a high level of confidence in the fairness and ability of peers to evaluate an attorney’s performance; (6) a commitment to continuous, quantitative measurement of client satisfaction; (7) an abandonment of the apprenticeship model of lawyer development which promotes vigorous criticism of attorney work product and client relationship skills before an
R. Kiser, Beyond Right and Wrong, DOI 10.1007/978-3-642-03814-3_11, # Springer-Verlag Berlin Heidelberg 2010
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attorney becomes a partner and then relieves an attorney of scrutiny as a reward for achieving partner status; (8) a willingness to disrupt the “go along to get along” attitude that places more emphasis on partner congeniality than continuous quality improvement; and (9) a recognition that lawyers can adopt and learn from quality improvement systems and values developed by other professions, institutions, and occupations.1 The magnitude of this attitudinal change demonstrates why proposals to impose external performance review systems provoke “fear and loathing in many lawyers and firms” and are rejected as impudent challenges to “attorney individuality” and “the cottage industry structure of most large law firms.”2 Although businesses implemented quality control and improvement programs in the last half of the 20th century – ISO certification, ASTM standards, zero defects, Kaizen, Six Sigma – law firms generally ignored the quality revolution.3 “Firms have sloughed off the customer revolution for years,” writes Aric Press in The American Lawyer, “and who could blame them?”4 This is why clients do not see law firms certified as meeting the type of external standards by which their own companies are evaluated, whether it be J.D. Power and Associates’ ranking of customer satisfaction levels, Morningstar’s grading of financial performance and management stewardship or U.S. News and World Report’s ratings of institutions. Nor will clients find that their law firms are subjected to the type of peer review systems utilized for decades by the medical, accounting and engineering professions.5 To the extent law firm performance is objectively measured, the yardstick is profits per partner, associate/partner ratios, and total headcount. This is like evaluating patient medical care by abstracting physicians’ tax returns.
1
“Partner” is used for brevity and is intended to include all attorneys with an ownership interest in a law firm, whether denominated as partners or shareholders. 2 Davis, Anthony E. (1994). The long term implications of the kaye, scholer case for law firm management – risk management comes of age. South Texas Law Review, 35, 677, 692, quoted in Fortney, Susan, (1997), Are law firm partners islands unto themselves? An empirical study of law firm peer review and culture. Georgetown Journal of Legal Ethics, 10, 271, 292. 3 Morgan Lewis is one of the few firms that uses Sigma Six software in some practice areas. See Terry, Laurel S. (2008). The legal world is flat: Globalization and its effect on lawyers practicing in non-global law firms. Northwestern Journal of International Law & Business, 28, 527. 4 Press, Aric. (2008, December). A long time coming. The American Lawyer. 5 The Martindale-Hubbell peer rating is not a traditional peer review system. Attorneys’ work product and client surveys are not submitted by Martindale-Hubbell to reviewers. Its website states that “lawyers under review are sometimes asked to provide professional references to assist with the process,” a law firm generally “is given the rating of its highest rated active partner,” “Peer Review Ratings Toolkit subscribers also receive the opportunity to submit additional ratings sources to augment those solicited by Martindale-Hubbell,” “Martindale Hubbell Peer Review Ratings Specialists work closely with larger law firm clients to educate, engage and assist their lawyers in the peer review process and the marketing opportunities surrounding the Martindale-Hubbell Peer Review Ratings,” and “under no circumstances are any MartindaleHubbell Peer Review Ratings review materials released.” Martindale.com, “Martindale-Hubbell Peer Review Ratings,” retrieved at http://www.martindale.com/xp/legal/About_Martindale/ Products_and_Services/Peer_Review_Ratings/ratings.xml.
11.1 A Brief History of Quality Management in Law Firms
11.1
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A Brief History of Quality Management in Law Firms
Early efforts in the 1980’s by the American Law Institute and American Bar Association to set practice standards and establish quality assurance and testing methods were rejected by practitioners, who doubted that the “quality-evaluation techniques applied in other professions could be applied to them.”6 Practitioners not only questioned the premise that other attorneys could evaluate their work but also “were hostile to having competence measures imposed on them.”7 Although practitioners accepted the concept of minimum standards of practice, below which malpractice liability would be imposed, they rejected bar association and academic institutions’ efforts to set any standards or goals above the minimum. They agreed on a modicum of professional conduct, setting the standards at a level sufficient to merit continued self-regulation, dampen public oversight and avoid extensive governmental regulation. Lawyers accurately perceived that most companies in high-demand, low-competition and wide profit margin industries do not sabotage their short-term profitability by voluntarily raising their own production quality standards. With gross law firm revenue rising from $153 billion in 2000 to $222 billion in 2006, far outstripping domestic GDP increases during that period, no financial incentive existed to increase attorney efficiency or work product quality.8 For large law firms, hourly rates have risen 6%-7% annually between 2000 and 2007, more than double the rate of inflation. Payments to law firms by large companies increased by 49% between 2002 and 2005; and “while non-law firm costs increased by 20 percent over the past 10 years, large law firms’ prices jumped almost 75 percent in the same period.”9 Sheer market demand for legal services thus excused law firms from the rigorous self-evaluation and continuous innovation practiced by businesses in highly competitive industries. Like businesses gauging the minimum effort required to keep a lucrative franchise, lawyers assessed the minimum level of control and performance necessary to remain a highly profitable, self-disciplining professional organization. Focusing on the floor of client service instead of the ceiling, practitioners preserved their regulatory independence by disciplining attorneys for serious breaches of professional ethics; and they generally avoided the development of publicly visible metrics for comparing the average attorney with the exceptional attorney. 6
Regan, Francis, et al. Eds. (1999). The transformation of legal aid: Comparative and historical studies (p. 242). New York: Oxford University Press. 7 Id. 8 United States Bureau of the Census. (2006). Service annual survey, Table 6.1, professional, scientific, and technical services (except notaries and landscape architectural services) (NAICS 54)—estimated revenue for taxable employer firms: 1999 through 2006. 9 Koppel, Nathan. (2007, August 22). Lawyers gear up grand new fees. The Wall Street Journal, p. B1 (citing data from the law firm group of Citi Private Bank, a unit of Citigroup, Inc.). Curtis, Diane. (2009, January). Will a bad economy force more changes in the profession? California Bar Journal.
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As the court observed in Cline v. Watkins,10 “the bar supplies no means of assessing the qualifications of its members. A member of the public seeking the services of a lawyer thus has no real means of determining his capability.” The present system of regulating legal services through state bar disciplinary committees and civil malpractice lawsuits invariably enforces minimum performance standards while ignoring optimal standards. “State bar controlled grievance boards,” states law professor Susan Martyn, “purportedly invite client complaints, but have barely begun to define performance standards. In fact, infighting within the bar itself concerning the competence issue has often served to obscure the real issue: the definition of competent legal service.”11 Insisting that the practice of law is an art, not a science, practitioners have avoided peer review of another attorney’s work product and discouraged efforts to compare the quality of legal services rendered and the costs charged by different lawyers in the same firm or similar law firms. Every client assignment, for quality and cost comparison purposes, was sui generis. A general reluctance to meddle in another partner’s work and the intense pressure of everyday practice – filing deadlines, billable hour requirements, multiple clients, numerous assignments, and keeping current on changes in the law – kept attorneys focused on their own “have to do” items and deterred systematic evaluation of client satisfaction and work product quality. As one attorney expressed his disdain for any form of attorney oversight, “Good attorneys have barely got time to properly care for their own clients. . . . The idea of routinely double-checking a competent attorney’s work is stupid, cost prohibitive and only effective as an appearance activity.”12 To the extent law firms consider or employ quality control mechanisms other than annual compensation determinations and associate attorney reviews, they emphasize three methods: peer review, client evaluations and law firm assessments and audits. The history, structure, content, implementation and benefits of those three methods are discussed below.
11.2
Peer Review in the Medical Field
Despite some attorneys’ view that peer review is unduly intrusive and unnecessarily time-consuming, the medical field has found peer review to be highly effective in measuring and achieving high quality outcomes. The legal profession, in fact, is more than 90 years behind the medical profession in promoting quality control
10
66 Cal. App. 3d 174, 180, 135 Cal. Rptr. 838 (1977). Martyn, Susan R. (1979–1980). Informed consent in the practice of law. George Washington Law Review, 48, 307, 308. 12 Fortney, Susan. (1996). Are law firm partners islands unto themselves? An empirical study of law firm peer review and culture. Georgetown Journal of Legal Ethics, 10, 271, 295, fn. 133. 11
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through confidential peer review. Other professions – accounting and engineering, for example – also instituted peer review decades ago.
11.2.1 The Inception of Medical Peer Review Beginning in 1916, the American College of Surgeons established medical practice standards and methods for monitoring compliance with those standards. As an integral part of setting and implementing professional standards for hospitals and physicians – and despite intense opposition from physicians – the American College of Surgeons instituted peer review in 1918. Leading the peer review movement was Dr. Ernest Codman, a surgeon at the Massachusetts General Hospital and one of the founders (with Charles H. Mayo (Mayo Clinic) and George W. Crile (Cleveland Clinic)) of the American College of Surgeons. Adopting Dr. Codman’s concept that medical practice can be improved by candid and objective examination of clinical experience, the American College of Surgeons inaugurated the “morbidity and mortality” conference, a regularly scheduled meeting of physicians in which recent cases are discussed, errors are acknowledged, systems and policies are evaluated and preventative measures are proposed.13 Dr. Codman advanced three tenets of what he called the “end results system” of patient care outcome management: collection of data regarding patient outcomes, standardization of professional standards, and peer review. Emphasizing quantitative, systematic measures of patient outcomes, Dr. Codman “attempted to collect data, learn from experience, shed light on systematic causes of bad results, and improve care by prevention of error and standardization of hospital techniques.”14 He classified and recorded his own errors into five categories: lack of knowledge, poor judgment, inadequate care or equipment, lack of diagnostic skill, and “calamites of surgery or those accidents and complications over which we have no known control.”15 Even as to the last category, uncontrollable events, Dr. Codman said, “these should be acknowledged to ourselves and to the public and study directed to their prevention.”16 Although Dr. Codman is now regarded as a “visionary” and an “Ernest Amory Codman Award” is given annually by The Joint Commission on Accreditation of Healthcare Organizations to recognize outstanding achievement in patient outcome
13
See Mallon, Bill. (2000). Ernest Amory Codman: The end result of a life in medicine. Philadelphia, Pennsylvania: W.B. Saunders Company. 14 Parsons, Donald W. (2000, November/December). Federal legislation efforts to improve patient safety. Effective Clinical Practice, 6, 309–312. 15 Neuhauser, D. (2002). Ernest Amory Codman M.D. Quality and Safety in Health Care, 11, 104–105. 16 Id.
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measurements, his ideas were “considered heretical at the time.”17 Agitated by Dr. Codman’s proposal to evaluate surgeon competence, his colleagues at the Massachusetts General Hospital in Boston threw him out shortly after he published the first monograph on morbidity and mortality conferences. He then started his own hospital, known as the “End Result Hospital,” to implement his ideas regarding error prevention, systematic recording of patient outcomes and complications and standardization of procedures. True to his beliefs, he published the results of his own patient care and sent the results to other hospitals, acknowledging 123 errors in the treatment of 336 patients – a 37% error rate. His criticism of his own surgical mistakes was blunt and unsparing; when a patient died after he ligated his hepatic duct, he wrote, “I had made an error of skill of the most gross character and even (during the operation) failed to recognize that I had made it.”18
11.2.2 The Modern Medical Peer Review System Throughout decades of experience with peer review, the medical profession has attempted to resolve the chronic tension between the “fear of incrimination” and the “need for learning” by shifting the focus in peer review from “who did it?” to “what happened?”19 Consistent with the emphasis on causes and solutions rather than individual culpability, residents and physicians are encouraged to identify root problems and contributing factors; acknowledge errors; pinpoint what actions, countermeasures, or conditions enabled a patient to survive “close calls;” propose improvements, “make a change, no matter how small, after each case;”20 and track the effect of different procedures and systems. They are discouraged from being personally defensive, blaming adverse outcomes on “bad luck” and making excuses like it’s “the only time I made an error.”21 The essential features of modern peer review, therefore, are an objective and quantitative analysis of adverse patient outcomes; an overall goal of creating a culture of patient safety; a candid recognition of errors “without blame or derision;” an identification of system failures and human errors through root cause analysis; the formulation of strategies and procedures to prevent adverse outcomes; and statutory confidentiality for the records and statements generated in peer review proceedings.22 17
Swensen, Stephen J., and Cortese, Denise A. (2008, January 1). Transparency and the “end result idea.” Chest, 133(1), 233–235. 18 Neuhauser supra note 15 at 104–105. 19 Gosbee, John, et al. Patient safety case conference/modified M&M – faculty development. United States Department of Veterans Affairs. Available at http://www.va.gov/ncps/curriculum/ TeachingMethods/PtSafety_Case_Conference_Format/index.html 20 Id. 21 Id. 22 Kravet, Steven J., Howell, Eric, and Wright, Scott. (2006, November). Morbidity and mortality conference, grand rounds, and the ACGME’s core competencies. Journal of General Internal
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Peer review is more than a desirable practice in hospitals; it is a requirement. The Joint Commission on Accreditation of Healthcare Organizations (JCAHO) requires hospitals to conduct peer review as a condition of accreditation. Since 1983 the Accreditation Council for Graduate Medical Education (ACGME), moreover, has required all health care organizations that have residency training programs to conduct regular morbidity and mortality (M&M) conferences. At many teaching hospitals, the M&M conferences are integrated into the six general competencies identified by ACGME as essential to developing competent physicians: patient care, medical knowledge, practice-based learning and improvement, interpersonal and communication skills, professionalism and systems-based practice.23 If one removed the words “patient” and “medical” from ACGME’s list of six core competencies, the list replicates conceptually many of the fundamental lawyering skills identified by the American Bar Association’s MacCrate Commission: client counseling; research, analysis and reasoning; factual investigation and problem solving; oral and written communication; professionalism; and organization and management of legal work.24
11.2.3 Confidentiality of Medical Peer Review Peer review proceedings are confidential, protected from discovery by state and federal law.25 “The purpose of a peer review statute is to encourage full candor in peer review proceedings,” the court explained in Ex parte Krothapalli,26 and that purpose “is advanced only if all documents considered by the committee or board during the peer review or credentialing process are protected.” The public policy conflict between peer review confidentiality and litigants’ right to discovery has been resolved in favor of confidentiality: “Should a conflict between access to such evidence and peer review confidentiality arise, it was the legislature’s judgment in enacting the peer review privilege that the strong public policy favoring open peer review would outweigh any incidental burden on discovery.”27 The privilege, however, generally is limited to records generated by the peer review committee, Medicine, 21(11), 1192–1194. See New Jersey Law Revision Commission. (2005, September). Final Report relating to medical peer review privilege (deciding “not to recommend the enactment of a statute protecting peer review materials”). 23 Id. 24 Sullivan, William, et al. (2007). Educating lawyers: Preparation for the profession of law (pp. 174, 189). San Francisco, California: Jossey-Bass. 25 See American Medical Association. (1988 & Supp. 1994). A compendium of state peer review immunity laws. Chicago, Illinois: American Medical Association. Creech, Charles D. (1988). The medical review committee privilege: A jurisdictional survey. North Carolina Law Review, 67, 179. 26 762 So. 2d 836, 839 (Ala. 2000). 27 Babcock v. Bridgeport Hospital, 742 A. 2d 322, 344 (Conn. 1999).
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not patient records reviewed by the committee. As the court explained in Babcock v. Bridgeport Hospital, “the privilege applies to the peer review committee’s selfgenerated analysis, but not to the underlying facts that provide the basis for that analysis when such facts have been collected by an independent source.”28 Peer review thus serves to identify and prevent adverse outcomes but not to conceal the circumstances leading to an adverse outcome.
11.3
Peer Review in Law Firms
Peer review in the legal profession has a long history of formal promotion by the organized bar and malpractice insurers and passive resistance from practitioners. The American Bar Association diplomatically acknowledges “the legal profession . . . has made a number of ‘false starts’ in its effort to develop some form of a model peer review system.”29 The American Law Institute – American Bar Association (ALI-ABA) drafted a model peer review system in 1980, which was generally ignored by practitioners. In 1985, ALI-ABA issued law practice quality guidelines, again meeting polite comment and practical disregard by practitioners. Ten years after ALI-ABA drafted the initial model peer review system, the American Bar Association’s Standing Committee on Lawyers’ Professional Liability declared partner peer review to be “an idea whose time has come.” At that time, insurers like St. Paul International Insurance Co. Ltd. recommended that “law firms with five or more members should have a formal peer review program for all member lawyers that is utilized on a regularly scheduled basis.”30 Despite the existence of a model peer review system and practice guidelines, and the endorsement of insurers, the concept of attorney peer review has floundered.
11.3.1 Priorities in Law Firm Peer Review To the extent law firms have formed committees to oversee partners’ conduct, those committees focus more on increasing profitability than improving client service. They are not peer review committees in the traditional sense but instead serve to detect, prevent and remove obstructions to the firm’s income stream. In law professor Susan Fortney’s survey of major Texas law firms she found a general resistance to peer review of client service and a specific reluctance to review a 28
Id. American Bar Association Standing Committee on Lawyers’ Professional Liability Seminar (1990, April 19–20). Partner peer review: An idea whose time has come, cited in Ablan, Paul M. (2002). Law firm loss prevention systems and procedures. St. Paul International Insurance Co. Ltd. 30 Id. 29
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partner’s performance unless it directly impacted the firm’s income. Her study, partially funded by the Texas Bar Foundation, showed: l
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41% of the attorney respondents “believed that attorneys cannot agree on standards for evaluating legal competence.” 44% of the attorneys believed that “peer review will take too much time away from billable practice.” Only 10% of all law firms responding to the survey “employ formal procedures for reviewing the work of principals, other than a review conducted in connection with compensation decisions,” and, among the few firms that employ formal peer review procedures, it is often done for marketing purposes, “to impress clients.” 82% of firms review principals’ compliance with firm billing procedures, but only 10% “employ formal procedures for reviewing the work of principals.” 80% of firms monitor compliance with policies for accepting contingent fee cases, but only 34% “designate a principal or committee to evaluate the manner in which principals handle client matters.”31
Professor Fortney summarizes the results of the survey: “Responses indicate that firms are more likely to monitor compliance with office procedures relating to firm finances than procedures relating to client representation matters.”32 Although attorneys’ resistance to peer review of client matters stems primarily from a perceived threat to their autonomy and a general feeling that peer review “can create ill will and resentment among principals,” many attorneys in Professor Fortney’s study also expressed a concern about the lack of confidentiality. About one-third of the respondents thought their firms “would be more likely to institute peer review if peer review communications were protected from discovery.” The vast majority of respondents (86%) stated that peer review proceedings should be protected from discovery by third parties.33
11.3.2 Confidentiality of Attorney Peer Review Proceedings Many lawyers have labored under the misconception that advice obtained from another attorney in the firm – especially if the attorney is designated as “ethics counsel” or “general counsel” or serves as a member of the firm’s “quality control” or “malpractice prevention” committee – is privileged. In reality, most courts have refused to extend the attorney-client privilege to these intra-firm communications or have ruled that, to the extent the privilege exists, it is outweighed by the fiduciary duties between an attorney and a client. Beginning with In re Sunrise Securities 31
Fortney supra note 12 at 284–292. Fortney supra note 12 at 271, 284. 33 Fortney supra note 12 at 271, 297. 32
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Litigation34 and continuing through Thelen Reid & Priest, LLP v. Francois Marland,35 the courts have held that neither the attorney-client privilege nor the work product rule protects a law firm from producing records related to the client’s representation. In Thelen Reid, the law firm asserted the attorney-client and work product privileges and refused to produce emails and memoranda of internal communications between the firm’s attorneys and its general counsel. The disputed records were made while the firm represented the subject client and included analyses of the firm’s legal and ethical duties to the client in connection with a modification of the original engagement letter. Acknowledging that his order “would dissuade attorneys from referring ethical problems to their lawyers, thereby undermining conformity with ethical obligations,” Judge Vaughn Walker nevertheless ordered the law firm to produce any internal documents discussing the firm’s known errors and conflicts and the client’s potential claims against the firm.36 If Thelen Reid wanted to invoke a valid claim of attorney-client privilege for “internal” communications, Judge Walker explained, it should have terminated the client relationship with Mr. Marland upon learning of his malpractice claim and retained an outside lawyer to evaluate the firm’s duties.37 Lawyers reacted sharply to Judge Walker’s decision in Thelen Reid. As two former chairs of the Los Angeles County Bar Association’s Professional Responsibility and Ethics Committee stated in the Los Angeles Lawyer, “The judge’s order is, without question, a harsh result.”38 Other commentators depicted the ruling as putting law firms “in a very difficult practical position,” and requiring them to withdraw from the client’s representation or risk losing the benefit of consulting with the firm’s ethics or claims counsel when the advice “will be of greatest benefit.”39 A leading attorney malpractice firm, Hinshaw & Culbertson, LLP, describes the rulings as leaving “some room for in-house claims of privilege,” but cautions that the extent of the remaining privilege “may often prove to be less than the law firm and its in-house counsel would anticipate.”40 Attorneys, in other words, should not assume that any communications regarding a client, produced while the firm is representing the client, are privileged in a subsequent malpractice action filed by the client. 34
130 F.R.D. 560 (E.D. Pa 1989). 207 WL 578989 (N.D. Cal. 2007). 36 Thelen Reid & Priest, LLP v. Francois Marland, 207 WL 578989, p. 8 (N.D.Cal. 2007). 37 Id. 38 Amberg, John W., and Rewinski, Jon L. (2008, March). MCLE Article: 2007 Ethics Roundup. Los Angeles Lawyer, Vol. 31, No. 1. 39 Fucile, Mark J. (2007, November). Inside counsel: The attorney-client privilege within law firms. For the Defense. 40 Hinshaw & Culbertson LLP. (2007, April 27). Northern California District Court addresses privilege and work product issues relating to law firm’s in-house communications. Lawyers for the Profession1 Alert, available at http://www.hinshawlaw.com/knowledge/alert_detail.aspx?id¼ 1162&type¼5303. 35
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The result in Thelen Reid is consistent with a long line of cases either denying a law firm’s claim of attorney-client privilege or declaring that any claim of attorneyclient privilege is superseded, outweighed, or otherwise trumped by conflict of interest rules or the firm’s fiduciary duties to the client. In VersusLaw, Inc. v. Stoel Rives LLP,41 for instance, a former client sued the Stoel Rives law firm, and Stoel Rives declined to produce memoranda between one of its attorneys and the firm’s internal ethics and loss prevention counsel. The attorney had consulted with the firm’s in-house counsel regarding her concern that the firm, during its representation of the former client, may have committed malpractice by failing to timely file a counterclaim. Acknowledging the general proposition that law firms may assert an attorney-client privilege for communications between an attorney and an internal ethics or claims counsel, the court nevertheless ordered production of the memoranda and reasoned that the attorney-client privilege cannot be asserted against a law firm’s then-current client. In rejecting Stoel Rives’ attorney-client privilege claim, the court relied on other cases holding the privilege inapplicable when the firm’s interests may conflict with the client’s interests.42
11.3.3 Professional Ethics and Attorney-Client Privilege Although many of the courts’ decisions rely on conflict of interest principles in overruling law firms’ attorney-client privilege claims, their emphasis on conflict of interest issues may be misplaced and their analysis may be misdirected. 41
VersusLaw, Inc. v. Stoel Rives LLP, 127 Wn. App. 309, 333–334, 111 P. 3d 866 (2005). See Koen Book Distrib. v. Powell, Trachtman, Logan, Carrie, Bowman & Lombardo PC, 212 F. R.D. 283 (E.D. Pa. 2002) (attorney-client privilege inapplicable where attorneys within firm discussed and investigated client’s threatened malpractice action; firm should have withdrawn or obtained client’s consent to continued representation); In re Sunrise Sec. Litig., 139 F.R.D. 560 (E.D. Pa. 1989) (court “not willing to hold that a law firm may never make privileged communications with in-house counsel” but no privilege exists for communications that “create a conflict between the law firm’s fiduciary duties to itself and its duties to the client”) and Bank Brussels Lambert v. Credit Lyonnais (Suisse) SA, 220 F. Supp. 2d 283, (S.D.N.Y. 2002) (law firm cannot claim attorney-client privilege against own client when firm conducts internal investigation of possible malpractice liability). See also United States v. Rowe, 96 F.3d 1294 (9th Cir. 1996) (in grand jury investigation, privilege exists for attorneys acting, effectively, as in-house counsel); Hertzog, Calamari & Gleason v. Prudential Ins. Co., 850 F. Supp. 255 (S.D.N.Y. 1994) (because attorney-client privilege applies to communications between corporation and its attorneys, “a comparable attorney-client privilege” applies to a law partnership using one of its attorneys as counsel of record); Nesse v. Shaw Pittman, 202 F.R.D. 344 (D.D.C. 2001) and 206 F.R.D. 325 (D.D.C. 2002) (records of internal investigation by firm counsel privileged); Lama Holding Co. v. Shearman & Sterling, 1991, U.S. Dist. Lexis 7987 (S.D.N.Y. 1991) (claim of attorney-client privilege validly asserted against production of client records including attorney time sheets); Burns v. Hale & Dorr, LLP, No. 05-11113-NMG (D. Mass. May 14, 2007) (purposes of attorney-client privilege not served by allowing fiduciary to withhold documents prepared in anticipation of a possible lawsuit).
42
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At least three authorities contend that law firms may assert an attorney-client privilege for internal communications during the representation of a client: the New York Bar Association’s Committee on Professional Ethics, the authors of the Restatement of the Law Governing Lawyers, and law professor Elizabeth Chambliss, author of the Notre Dame Law Review article, “The Scope of In-Firm Privilege.” These authorities argue that confidential, internal law firm investigations are not only permissible but may be essential for firms to fulfill their ethical duties to “adopt measures giving reasonable assurance that all lawyers in the firm conform to the Disciplinary Rules and that the conduct of non-lawyers employed by the firm is compatible with the professional obligations of the lawyers in the firm.”43 In Ethics Opinion 789, issued on October 26, 2005, the Committee on Professional Ethics of the New York Bar Association answered the ethics question, “When a law firm seeks advice from one or more of its own lawyers about the firm’s legal and ethical obligations in connection with representing a client, without first obtaining the client’s consent, does the consultation create an impermissible conflict between the interests of the law firm and those of the affected client?”44 The committee concluded that a law firm ethically may establish an attorney-client relationship with its own attorneys to obtain legal advice on professional responsibility matters affecting an ongoing client representation: In considering its obligations to its clients, a law firm may consult with one or more lawyers in the Firm without thereby violating the Code’s prohibition on the unauthorized representation of differing interests or the Code’s prohibition on continuing employment if the exercise of the lawyer’s professional judgment might be affected by personal interests. The law firm does not ordinarily need to disclose to the clients the fact of such consultation, but may need to disclose the conclusions reached, as when the firm concludes that it has a conflict or that it has made a significant error or omission.45
The Committee specifically noted that consultation with an in-house attorney facilitates rather than impedes an attorney’s discharge of her ethical duties: “The law firm is not only entitled, but required, to consider the ethical implications of what it does on a daily basis. That the law firm does so through consultation does not change the interest being pursued.”46 43
New York State Bar Association, Committee on Professional Ethics. (2005, October 26). Ethics Opinion 789, p. 3. See Model Rule 5.1(c), stating that a lawyer is responsible for another lawyer’s violation of the rules if he ratifies the conduct or “is a partner or has comparable managerial authority in the law firm in which the other lawyer practices, or has direct supervisory authority over the other lawyer, and knows of the conduct at a time when its consequences can be avoided or mitigated but fails to take reasonable remedial action.” See also Fortney, Susan Saab. K. (1995). Am I my partner’s keeper? Peer review in law firms. University of Colorado Law Review, 66, 329, 345: “By instituting a peer review program, partners may also avoid violations of state disciplinary rules that are based on Model Rules of Professional Conduct 5.1(a) . . .” 44 New York State Bar Association, Committee on Professional Ethics. (2005, October 26). Ethics Opinion 789, p. 1. 45 Id. at 8. 46 Id. at 5. See Richmond, Douglas R. (2007-2008). Law firm partners as their brothers’ keepers. Kentucky Law Journal, 96, 231. Available at SSRN: http://ssrn.com/abstract¼1124127.
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In August 2005, a few months after the New York Bar Association issued Ethics Opinion 789, the Board of Governors of the Oregon State Bar approved Formal Opinion No. 2005–125, which squarely addressed the issue of whether an attorney may withhold from a client documents related to the attorney’s consultation with his own counsel regarding potential malpractice liability. After reiterating the general principle that a lawyer must deliver the entire file to the client upon discharge, including all work product, the opinion approved an exception: “A lawyer might, for example, note in a file that the lawyer has consulted the lawyer’s own counsel to explore the lawyer’s potential exposure to discipline or to explore malpractice liability to the client. Documents reflecting matters of this type need not be produced to the client.”47 In reaching this conclusion, the opinion cites Oregon RPC 1.6(b)(c), the counterpart of the Model Rules of Professional Conduct, Rule 1.6(b)(5), stating that a lawyer may reveal to another lawyer confidential client information “to secure legal advice about the lawyer’s compliance with these Rules.”48 The opinions issued on behalf of the New York State Bar Association and the Oregon State Bar are consistent with the position articulated in the Restatement (Third) of the Law Governing Lawyers. The Restatement declares that a law firm has a privilege and specifically permits an attorney to withhold from the client documents regarding potential malpractice liability: A lawyer may refuse to disclose to the client certain law-firm documents reasonably intended only for internal review, such as a memorandum discussing which lawyers in the firm should be assigned to a case, whether a lawyer must withdraw because of the client’s misconduct, or the firm’s possible malpractice liability to the client.
The Restatement also explains the rationale for this position: “The need for lawyers to be able to set down their thoughts privately in order to assure effective and appropriate representation warrants keeping such documents secret from the client involved.”49 Consistent with the Restatement’s position, law professor Elizabeth Chambliss argues for the recognition of attorney-client privilege in consultations with in-house attorneys and contends that courts misunderstand the conflict of interest and fiduciary duty issues. She states that the courts’ decisions “conflate two separate issues: the law firm’s fiduciary duty to the client and in-house counsel’s fiduciary duty to the firm.”50 If a law firm has a conflict of interest in seeking advice from in-house counsel while representing a client, as asserted by the courts, that conflict,
47
Board of Governors of the Oregon State Bar. (2005, August). Client property: Photocopy charges for client files, production or withholding of client files (Formal Opinion No. 2005–125). 48 Id. 49 Restatement Third, The Law Governing Lawyers, Sect. 46(2), Comment c. See also, Sect. 73, Comment c (law firm has a privilege, whether organized as a professional corporation, a partnership, a sole proprietorship or otherwise). 50 Chambliss, Elizabeth. (2005). The scope of in-firm privilege. Notre Dame Law Review, 80, 1721, 1723.
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she contends, would exist whether the firm was represented by in-house counsel or outside counsel. “To the extent that the denial of privilege is based on the law firm’s duty to the client,” she argues, “this denial logically should extend to any attempt by the firm to prevent or assess client claims, including communication with outside counsel.”51 Under the reasoning adopted by the courts in Koen Book Distributors and Bank Brussels Lambert, “there is no in-firm privilege for communication about a current client, even if the client is suing the firm. In fact, there is no privilege at all for law firms that seek advice about an ongoing representation, whether from inside or outside counsel.”52 Those opinions, professor Chambliss believes, require a law firm to withdraw from the client’s representation if it seeks privileged advice, and if withdrawal is impractical or impossible, the firm must forego privileged advice. In addition to arguing that the courts’ opinions regarding attorney-client privilege are analytically incorrect, Professor Chambliss claims that the opinions are wrong on policy grounds: As a policy matter, I argue for broad protection of communication with law firm in-house counsel, including communication about the representation of a current client of the firm. Such protection would encourage firm members to seek early advice about their duties to clients and to correct mistakes or lapses, if possible, to alleviate harm. Broad protection of in-firm privilege also would encourage law firms to pursue internal investigations where questions of misconduct arise.53
The practical effects of denying an attorney-client privilege unless a law firm retains outside counsel or withdraws from the representation, she contends, are that attorneys will not obtain preventative advice when the problem is most susceptible of mitigation and will simply avoid written or email communications about the problem – neither of which promotes the client’s interests.
11.3.4 The Role of Confidentiality in Peer Review Whether the court decisions denying an attorney-client privilege for in-house communications are correctly or incorrectly decided, confidentiality is a prerequisite to effective peer review. Noting that peer review is necessarily hypercritical “to avoid institutional stagnation and to ensure improvement of the quality of its services,” law professor James Flanagan states that “confidentiality during the discovery portion of litigation therefore is essential to maintain the objectivity necessary for the success of critical evaluations.”54 Absent confidentiality, he
51
Id. Emphasis in original. Id. at 1721, 1724. Emphasis in original. 53 Id. 54 Flanagan, James F. (1982). Rejecting a general privilege for self-critical analyses. George Washington Law Review, 51, 551, 562–563. 52
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explains, candor is lost, criticisms are bland and unhelpful, and the remedial effect of peer review disappears. For medical peer review, confidentiality is insured by statute, and in a variety of other contexts legislatures and the courts recognize that confidentiality is a prerequisite to improvements in public welfare and safety. NASA’s Aviation Safety Reporting System (ASRS), for instance, is entirely confidential, and, according to its director, Linda Connell, more than 474,000 confidential reports of potential safety hazards have been submitted by pilots, air traffic controllers, and other airline industry employees since it was established in 1976. “Many of those reports have had a direct impact on making the nation’s airways safer,” she states, and “in the 30 years of its existence, the ASRS has never breached the confidentiality of its reporting system.”55 Confidentiality also is afforded to peer review of accountants in some states. The Texas legislature, for example, passed the Public Accountancy Act of 1991, explicitly establishing a privilege for all communications generated in connection with peer review.56 Numerous state bar organizations also protect the confidentiality of attorneys who seek help in overcoming substance abuse problems while they continue to represent clients in legal matters.57 The confidentiality protections afforded by the Florida Lawyers Assistance (FLA) program are typical: Paramount to FLA is the protection of confidentiality for those attorneys who contact FLA for help. Confidentiality in voluntary cases is protected by a written contract with The Florida Bar which guarantees the confidentiality of FLA records, as well as by Bar Rule 37.1(j), Chap. 397.482–486, F.S., and other state and federal regulations. Judges, attorneys, law students, and support personnel who seek the assistance of FLA need not worry that FLA will report them to the Bar, the Board of Bar Examiners, or their employer. Information is shared with these entities only if the participating individual signs a waiver of confidentiality.58
Lawyer assistance programs operate with similar assurances of confidentiality in almost every state. A preference for confidentiality is again evidenced by The American Bar Association House of Delegates’ recommendation that, for attorneys who have recently recovered from chemical dependency or mental illness and are conditionally admitted to the practice of law, “the fact that an individual is conditionally 55
NASA. (2006, November 9). NASA aviation safety reporting system turns 30 (RELEASE: 06345). NASA Press Release Archives. 56 “A report, statement, memorandum, transcript, finding, record, or working paper prepared and an opinion formulated in connection with any positive enforcement, quality review, or peer review is privileged and may not be subject to discovery, subpoena, or other means of legal compulsion for release to any person except the board and is not admissible as evidence in any judicial or administrative proceeding except for a board hearing.” Texas Civil Statutes, Title 2. Art. 41a–1. Public Accountancy Act of 1991, Section 15B(c). 57 See Langford, Carol. (2005). Depression, substance abuse, and intellectual property lawyers. Kansas Law Review, 53, 875, 907. 58 Florida Lawyers Assistance, Inc. What is the Florida lawyers’ assistance program? Available at http://www.fla-lap.org/.
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admitted and the terms of the Conditional Admission Order shall be confidential.” Acknowledging an “inherent tension between the benefits of confidentiality and the public’s (including potential clients) interest in access to all material information about the applicant’s fitness to practice,” the American Bar Association House of Delegates nevertheless concluded that confidentiality would promote early disclosure and treatment.59 It is difficult to imagine that an attorney’s substance abuse presents less of a risk to a client’s interests or a conflict of interest less consequential than an attorney’s consultation with an in-house attorney. If public policy now protects the confidentiality of an attorney’s current or recent substance abuse and deems that confidentiality promotes early treatment and prevention, it seems incongruous to deny confidentiality to the cold sober, cautious attorney seeking advice from in-house counsel to prevent the emergence or escalation of a malpractice or ethics problem. In both instances, the public interest is served by prompt recognition of a problem, timely efforts to treat it, and the skillful exercise of an expert’s judgment and counseling.
11.3.5 The Structure of Law Firm Peer Review The concept of peer review may be controversial, but the actual staffing, scheduling and methods for peer review committees are relatively simple. As one of Dr. Ernest Codman’s colleagues noted in the early 1900s when he encountered opposition to medical peer review, “There is nothing difficult about the system except the human nature part.”60 Every organization, in fact, has a form of peer review; the difference between high performance organizations and average organizations is that the high performance organizations have replaced anecdotal peer review with systematic peer review. Peer review systems range from informal committee meetings with individual attorneys to comprehensive surveys of an attorney’s work habits, client communications, work product and billing procedures.61 In a large law firm, the peer review committee may meet with the attorneys in specific practice groups and, like physicians conducting a morbidity and mortality conference in a hospital, may 59
ABA House of Delegates. (2008, February). Proposed model rule on conditional admission to practice law (08M112). 60 Reverby, S. (1981). Stealing the golden eggs: Ernest armory codman and the science and management of medicine. Bulletin of the History of Medicine, 55, 156. Cited in Dans, Peter E., (1993, April). Clinical peer review: Burnishing a tarnished icon, Annals of Internal Medicine, 118(7), 566–568. 61 See Martyn, Susan. (1989). Peer review and quality assurance for lawyers. University of Toledo Law Review, 20, 295, 318–322. See also Connecticut Rules of Professional Conduct, Comments to Rule 1.1: “If a system of peer review has been established, the lawyer should consider making use of it in appropriate circumstances.”
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designate attorneys to describe and discuss recent adverse client outcomes and remedial measures. Although a peer review committee’s style can be relaxed or formal, conversational or directive, the essential requirements are: (1) committee members who are not involved in the conduct being reviewed at the meeting and, preferably, are not serving on committees with overlapping interests and biases, e.g., compensation and management committees; (2) regularly scheduled meetings at intervals necessary to complete review of all firm attorneys; (3) review of individual attorneys and randomly selected client files at intervals not less than annually (six month maximum for new firm attorneys); (4) explicit standards for evaluating attorneys in core proficiencies, e.g., subject matter expertise, client communication, client conflict evaluation, judgment, client satisfaction, fee estimates, time management and economic effectiveness, and compliance with firm procedures; (5) comparison of an attorney’s self-evaluation with the evaluation of other attorneys in the firm familiar with the attorney’s work and interactions; (6) personal improvement goals, timelines and benchmarks for all evaluated attorneys; (7) identification of recurring errors and systemic causes and implementation of firm-wide efforts to reduce or eliminate them; and (8) firm-wide articulation of “best practices” accompanied by illustrations of exceptional client service. Depending on the size of the firm, the evaluative process preceding a peer review committee meeting may be conducted by interviewing an attorney’s colleagues and associates or may include a formal, comprehensive survey of associates, partners and clients. In any event, attorneys should anticipate that the inauguration of peer review will initially distress the partners being reviewed and provoke criticism of the peer review committee members conducting the peer review. Fred Corbus, a management consultant who has spent more than 30,000 hours in medical practice management and peer review design, shares his experience: “Let’s be honest – the mere mention of ‘Peer Review’ instantly stirs up deeply embedded emotions: the fear of being confronted and the fear of being asked to do the confronting, the anxiety of causing a strain on relationships and the fear of being part of a process that will result in people disliking you.”62 After the initial discomfort, however, he finds that developing a peer review system is highly rewarding because it elevates practitioners’ performance and enhances communication: “if done correctly, it provides a safe, constructive way to talk about the quality of almost any professional interaction.”63
11.4
Client Evaluations
In addition to peer review systems, formal client evaluations can serve as valuable tools for measuring, monitoring and improving attorneys’ decision-making capabilities. These evaluations are relatively inexpensive yet recurrently overlooked 62
Corbus, F. (2004, November). Professional interactions: implementing the internal peer review. Maricopa County Medical Society Round-Up, 50(11), 17–21. 63 Id.
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tools to leverage attorney performance. Despite law firms’ ability to easily identify their own clients and obtain critical performance feedback from them, law firms infrequently avail themselves of this resource. In American Lawyer’s “Law Firm Leaders Survey 2008,” only 2% of managing partners reported that they had met with each of the firm’s 20 most important clients, as measured by total client billings, during the last 12 months “to discuss the client’s satisfaction with your firm’s performance.”64 The vast majority of firms (87%) had sought evaluations from one-half or fewer of their Top 20 clients, and 48% of firms acknowledged they had met with five or fewer of their Top 20 clients to elicit the clients’ opinions about the firm’s performance. This inattention to client feedback reflects managing partners’ priorities and preferences, not a general lack of time available for law firm management. Eightyseven percent of the managing partners responding to this American Lawyer survey reported that more than half of their time was spent on law firm management. The low priority placed on client feedback is not limited to law firms but extends to corporate law departments as well. Consultant Marci Krufka notes that law departments in many companies “rarely, if ever, seek feedback from their clients about whether they are meeting client needs.”65 A typical client evaluation covers a range of law firm performance factors – work product quality, timeliness, staff attitudes, attorney accessibility, billing amounts and descriptions – that are far beyond this book’s focus on decision making. This section, therefore, is limited to identifying common problems with the design, administration and interpretation of client evaluations and then presenting 16 sample questions to measure law firms’ decision-making performance.
11.4.1 Challenges of Evaluation Design and Analysis To the extent firms seek evaluations, the evaluations may be misdirected, poorly designed and ineffectively administered; the responses may be misinterpreted and incorrectly analyzed; and the surveyed clients may be disappointed by the lack of accountability and improvement after the evaluation.66 Some of these problems stem from the threshold debate as to whether the firm itself or an outside consultant should conduct the evaluation. Attorneys argue that “outsiders” do not understand how law firms operate and thus cannot respond intelligently to client criticisms or
64
Heinz, Francesca. (2008, December). How full? The American Lawyer, p. 93. Krufka, Marci M. (2005, June). Client surveys can demonstrate your law department’s value. Report to Legal Management. 66 For a broad study of organizational evaluation see Russ-Eft, Darlene, and Preskill, Hallie. (2001). Evaluation in organizations: a systematic approach to enhancing learning, performance, and change. New York: Basic Books. 65
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recognize opportunities to market the firms’ capabilities.67 Many law firms thus choose to conduct client evaluations as an in-house project. They may assign responsibility for the evaluation to the firm’s marketing director, designate a single attorney to prepare a written evaluation form and review the responses, or establish a “Client Audit Team,” consisting of the firm’s managing partner, the billing lawyer and a “neutral” partner, to interview clients.68 Outside consultants, though, caution against lawyers conducting their own client evaluations because lawyers are not educated or trained in organizational evaluation. Although attorneys may feel confident about their communication skills, most lack the discrete skills required to design and write effective evaluations. As Professor James Doyle notes, “Writing good questions is perhaps the most difficult and complicated part of any survey project, yet it is also one of the most often ignored.”69 Consultant Marci Krufka proffers an additional reason for independent evaluations, citing personality data about lawyers’ aversion to feedback: “Most lawyers have particularly low resilience – the quality that determines how well one responds to criticism and rejection. Therefore, it is not surprising that asking for feedback is particularly difficult for lawyers.”70 Whether led by attorneys or independent consultants, client evaluations often are misdirected and improperly designed and administered. They frequently violate the tenets of sound survey methodology in four respects: skewing the sample selection; missing the purpose of the evaluation; biasing or jumbling the questions and answers; and omitting a statistical analysis of the responses. The first problem – sample selection – is invariably overlooked and easily corrected. Firms usually sample their current clients, who, by definition, are sufficiently satisfied with the firm’s performance to remain a client. Although existing clients may have helpful insights regarding their preferences and degree of satisfaction, they are not a representative sample of a firm’s clients because the firm deliberately excludes the most dissatisfied clients – the former clients – from the survey. Not surprisingly, law firms often report they are pleased with client survey results, just as an amusement park’s survey of patrons who buy annual passes might reveal that the patrons are quite fond of the park. To provide a random or representative sample and identify major failures in client service, client evaluations must incorporate both existing and former clients. Although former clients may be reluctant to spend additional time on a soured business relationship, they may be more receptive to independent consultants 67
See Flannery, William J. (1990, June 11). Opinion surveys can help firms keep clients happy. Texas Lawyer. 68 Schneider, Harry H. (1987, August). The client audit: One approach to partner peer review. Lawyers’ Liability Review. 69 Doyle, James K. “Handbook for IQP [Interactive Qualifying Project] Advisors and Students,” prepared for the Interdisciplinary and Global Studies Division, Worcester Polytechnic Institute, Worcester, MA. 70 Krufka, Marci M. (2005, June). Client surveys can demonstrate your law department’s value. Report to Legal Management.
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trained in client interview and evaluation methods than members of the law firm dismissed or not retained on a new matter. Even if a law firm elects to conduct evaluations internally, it should consider using outside consultants to communicate with its former clients; independent evaluation fosters a sense of confidentiality and defuses the defensiveness both attorneys and clients may exhibit in reviewing a failed business relationship. Like other service providers, law firms may learn more about their shortcomings from the people who are not buying their services than from the people who already display a strong preference for them. The second basic problem in evaluations – missing the purpose – occurs because surveys are underutilized for performance evaluation purposes and overutilized for marketing purposes. Often prepared by marketing directors of law firms, many client evaluations probe for untapped legal markets instead of detached billing partners. Clients, consequently, sense that the firm may be more interested in knowing what other law firms the client retains and how they can capture a competitor’s market than improving the firm’s performance. Typical survey questions – “How likely are you to refer others to the firm?” – may strike law firms as good tools to measure client satisfaction and firm performance, but they backfire if clients perceive the purpose of the evaluation to be the firm’s revenue enhancement rather than its service improvement. Evaluations also backfire when the clients expect a change or improvement in the firm’s performance after completing the survey and discover, to their chagrin, that the firm has no systems or procedures to correct the shortcomings identified in the survey. One general counsel expressed his frustration by comparing the evaluations with “being caught in the movie ‘Groundhog Day’ – the law firm kept asking him what was wrong but nothing ever changed.”71 This occurs because firms again miss the purpose of the survey; the questions and responses are merely a means to identify the sources of client dissatisfaction while the purpose is to change firm systems and procedures and attorney attitudes and performance to achieve higher levels of client satisfaction. Implementation clearly is the most difficult aspect of the evaluation, and although many firms market the fact that they perform periodic client evaluations, few describe how they changed after an evaluation. The third deficiency in evaluations – biasing and jumbling the survey questions and answers – often requires advice from independent consultants to correct because the biases are deeply rooted in lawyers’ perceptions and training. As a preliminary matter, surveys contain questions determined by attorneys to be relevant, but they do not necessarily reflect clients’ priorities and concerns. A typical survey, for example, asks clients to rate the attorney’s “expertise,” “quality of the work product,” and “knowledge of subject matter.” These qualities are critical to delivering high-quality legal services to a client and they measure how attorneys measure themselves, but they are not distinguishing characteristics for clients. Existing clients presume these basic qualifications exist – otherwise they would not have retained the law firm in the first place and subsequently paid its
71
Borgal, Marcie L. The power of one. The Complete Lawyer, Vol. 1, No. 5.
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hourly billing rates – and if a client experienced manifest incompetence during the representation it would have retained another law firm long before receiving the evaluation form. Asking an existing client to evaluate the attorney’s competence level is as befuddling and ineffective as asking an airline passenger whether or to what extent the passengers were satisfied with the performance of the engines during the flight, the structural integrity of the wings, or the pilot’s command of the plane throughout the flight. These issues may be the most important but they are not particularly helpful in achieving or maintaining a competitive advantage. Clients expect a modicum of expertise, and attorneys distinguish themselves by the creativity, timeliness and efficacy of their efforts above the competence threshold. In an increasingly competitive legal marketplace, firms whose key feature of client service is “we know the law” risk displacement by firms that convincingly demonstrate they know how to solve client problems economically, effectively and promptly. Biases in selecting the survey topics are exacerbated by problems with the content of questions and the format of responses. One client evaluation form, for instance, diverges from survey protocols by beginning with questions in the form “How satisfied were you that . . . .” Leading questions like these clearly are permitted in examining an adverse witness but generally are discouraged in survey design. These questions are followed by a (1)–(5) ranking system with (1) being “very satisfied” and (5) being “very unsatisfied.” This conflicts with the survey protocol that higher numbers in rating scales should be matched with positive answers. The evaluation form also asked the client to identify which of the firm’s legal services it uses and, separately, the legal services the client anticipated needing in the future. Omitted was a question about what legal services the client was using at other law firms or a general question about all of the law practice areas for which the client presently retains counsel. If the firm had decided to use the form for both evaluative and marketing purposes, information about the client’s present legal portfolio, including practice areas unserved by the firm, presumably would be critical. Another survey comprehensively and precisely identifies law firm performance areas, e.g., work product and billing, but employs a rating scale where “D” is defined as “Failed to meet my standards in a material way” and “I am seeking other counsel, ” and “F” is defined as “Unacceptable” and “Without a significant and sustained effort . . . to improve, I will discontinue using the firm.” Under these definitions, a client who is “seeking other counsel” selects a “D” grade, but the client who only contemplates retaining other counsel chooses an “F” grade. The point here is not to criticize every aspect of sample client surveys but rather to indicate that survey design is an expertise, and it may be unrealistic to assume that any service provider is sufficiently objective and skilled to design its own critique. The fourth deficiency in client evaluations – lack of sound statistical analysis – usually requires the retention of independent consultants. Evaluations present a host of statistical issues foreign to many lawyers and marketing directors, and independent consultants are invaluable in assessing pretest methods, sampling errors and response rates and testing the validity of survey results. Absent facility with statistical analysis and software, law firms’ reliance on survey results may be
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misplaced. Changes in a firm’s operations may not be warranted despite superficially disturbing responses, and complacency may be unjustified despite facially satisfactory responses.
11.4.2 Sample Questions to Probe for Decision-Making Skills To assess the quality of attorneys’ decision-making skills, client evaluations need to incorporate specific questions emphasizing attorneys’ analytical abilities, foresight, resiliency, adaptability, creativity, receptiveness and efficacy. Questions measuring these characteristics, which can be modified for an agreement scale or a ratings scale or worded as “the law firm” or “the attorney(s),” include: l l
l
l
l l
l
l
l
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Did the attorney anticipate the issues and problems that arose in your case? Did the attorney have a realistic view of the merits of each party’s position in this case? Did the attorney understand your business sufficiently to provide practical solutions? Did the attorney discuss ways of resolving issues in your case that you had not already considered? Was the attorney receptive to your thoughts and ideas? Did the attorney provide adequate information and advice to enable you to consider alternative ways of resolving your case? Did the attorney’s advice show an appropriate balance between the legal issues and non-legal issues that arose in your case? Was the attorney knowledgeable about all of the factors that ultimately determined the outcome of your case? Did the attorney’s litigation strategies reflect both the strengths and weaknesses of your case? Was the approach taken to resolve your case consistent with your specific needs and objectives? Did the attorney update you on important developments in the case? Did the attorney understand and accurately evaluate the full range of risks in your case? Was the resolution of your case consistent with the expectations you developed during the initial communications with our attorneys? Was the quality of the attorney’s advice and recommendations consistent with the fees charged for the advice and recommendations? Did the legal fees charged for this engagement reflect the value realized by you in resolving this case? In retrospect, do you think the attorney accurately predicted the results and costs in your case?
These questions are illustrative inquiries to test decision-making competencies and learn about client perceptions. The key difference between these survey questions
11.5 Assessments and Audits
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and many typical survey questions is that they attempt to measure the attorney’s decision-making performance through the client’s viewpoint, placing the highest priority on value and service to the client.
11.5
Assessments and Audits
A third formal method of evaluating firm performance, in addition to peer review and client evaluations, relies on formal assessments and audits of attorneys usually prepared and scored by independent consultants. These assessments and audits gauge an individual’s decision-making skills and an organization’s “learning environment“ or “culture of safety.” Once completed, they usually result in a series of scores against which one can compare the individual or organization with peers, competitors and benchmark data. For individuals seeking jobs with decision-making responsibilities, the most widely used assessment tool is the Watson-Glaser Critical Thinking Appraisal. It contains five subtests of skills related to analytical thinking: assessing the validity of inferences, identifying assumptions, judging whether conclusions can be reasonably deduced from premises, determining what conclusions can be derived validly from information, and evaluating the strength of arguments. Large companies like Raymond James Financial have used the Watson-Glaser, and it is sometimes administered along with the Rust Advanced Numerical Reasoning Appraisal, another test of analytical skills that emphasizes numerical reasoning. Although “the Watson-Glaser assesses skills that are likely to be highly relevant for many legal occupations (e.g., evaluating the strength of arguments, recognizing assumptions, weighing evidence to arrive at a conclusion),” it is rarely used by law firms to evaluate attorney applicants.72 Law firms apparently prefer to rely on traditional indicia of attorney talent – grade point averages, law review and law school academic ranking – instead of assessments employed by major corporations to discern candidates’ problem-solving skills. For organizations, professors David Garvin, Amy Edmondson and Francesca Gino have developed an extensive “Learning Organization Survey,” available online, without charge.73 The survey attempts to measure whether an organization fosters the creation, expansion and transfer of knowledge and thus qualifies as a learning organization. The survey measures three essential components of a learning organization: “a supportive learning environment, concrete learning processes and practices, and leadership behavior that provides reinforcement.”74 Representative survey statements, the possible responses to which range from 72
Mark Rose, Director of Research, Pearson (email to author, February 5, 2009). https://surveys.hbs.edu/perseus/se.ashx?s¼381B5FE533C282FF. 74 Garvin, David A., Edmondson, Amy C., and Gino, Francesca. (2008, March). Is yours a learning organization? Harvard Business Review, pp. 109, 110. 73
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“highly inaccurate” to “highly accurate” are: “people are open to alternative ways of getting work done,” “this unit quickly and accurately conveys new knowledge to key decision makers,” “there is simply no time for reflection” and “we frequently identify and discuss underlying assumptions that might affect key decisions.” The survey scores and comparisons are shown immediately after the survey is completed, and although the survey is not targeted to legal professionals, it presents insightful information regarding a law firm’s capacity for attorney development through continuous learning. Like the Watson-Glaser, this assessment tool does not appear to be used by many law firms. Another method to test attitudes, values and operations within an organization is presented by professors Karl Weick and Kathleen Sutcliffe in their book, Managing the Unexpected. Reflecting their intensive study of high reliability organizations like aircraft carriers, nuclear power plants, and firefighting crews, Weick and Sutcliffe gauge whether an organization anticipates, detects, handles and learns from challenges in fast-paced, complex operations with an enormous risk of loss in the event of failure. Illustrative statements in their audit, using an agreement scale to test overall reliability, are: l l
l l
l
There are incentives in the work environment to hide mistakes. If something out of the ordinary happens, people know who has the expertise to respond. We have access to resources if unexpected surprises crop up. Managers constantly monitor workloads and are able to obtain additional resources if the workload starts to become excessive. This organization is actively concerned with developing people’s skills and knowledge.75
Although many attorneys do not relate their litigation practices to high reliability organizations, they are, in fact, “safety professionals” entrusted to protect clients under inherently dangerous conditions. Hence, they may benefit from completing the audits and evaluating their responses with the scoring guides in Managing the Unexpected. The decision-making skills and practices of law firm associate attorneys also can be evaluated with an on-line audit designed by DecisionSet1. The audit, which presents 148 statements with scaled agree-disagree or never-seldom choices, integrates organizational behavior concepts and assessments used in diverse occupations ranging from Navy aircraft carrier pilots to emergency room physicians. A sample of 14 statements from the audit and a rough scoring method are presented below. The person completing the audit is instructed to “choose the option that most closely matches your opinion.”
75
Weick, Karl, and Sutcliffe, Kathleen. (2001). Managing the unexpected (pp. 95, 106, 108, 110). San Francisco, California: Jossey-Bass.
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For the first part of the audit, the possible responses are “Never,” “Seldom”, “Sometimes,” “Often,” and “Always,” and seven illustrative statements are: 1. I am reluctant to ask questions because partners may perceive them as reflecting a lack of competence. 2. I have seen situations where we filter or disregard information that later affects a client’s settlement prospects or the trial outcome. 3. Attorneys in this firm who consistently voice contrary views are perceived as having negative attitudes. 4. I have had reservations about assignments or strategies that I did not express at the earliest opportunity. 5. Important facts about our clients’ cases are missed or overlooked because we don’t ask the right questions. 6. I have sensed client dissatisfaction with some of our work but did not bring it up with the other attorneys involved with the case. 7. I receive key information when it is too late for the information to be useful. The values assigned to each response are shown in parentheses: Never (1); Seldom (2); Sometimes (3); Often (4); and Always (5). Estimating very roughly, and without the benefit of basic statistical tests and responses to the other 141 audit questions, an average score between 3.04 and 5 signals a relatively high level of risk to clients; an average score between 2.32 and 3.03 indicates a moderate risk; and an average score below 2.32 suggests a low or minimal risk. The second part of the audit employs a disagree-agree scale (“Disagree,” “Disagree Slightly,” “Neutral,” “Agree Slightly,” and “Agree Strongly”) and a different evaluation system. Representative statements appear below: 1. This firm has clear and consistent procedures to follow if an attorney makes a significant mistake in representing a client. 2. I trust other attorneys in this firm to fairly evaluate my legal skills and my contribution to the firm. 3. This firm has systems for measuring and improving attorneys’ problem-solving and decision-making skills. 4. I have learned innovative and creative problem-solving skills from working with other attorneys in this firm. 5. I can easily obtain advice regarding ethics issues by consulting with an expert in this firm. 6. If a major personal emergency prevented a colleague from working tomorrow, the other attorneys in this firm would know what client matters and deadlines were pending and how to handle them. 7. Attorneys in this firm are as candid about discussing their failures and shortcomings as they are about discussing their successes. The values assigned to each response are: Disagree (1); Disagree Slightly (2); Neutral (3); Agree Slightly (4); and Agree Strongly (5). Qualified by the fact that the sample size, the population size and the number of respondents who selected a particular answer are unknown and the questions represent fewer than 5% of all the
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audit questions, an average score below 1.97 tentatively signifies a potentially high risk to clients; an average score between 1.97 and 2.68 indicates a moderate risk; and an average score above 2.68 suggests a low or minimal risk. Whether firms employ assessments or audits developed by Karl Weick or other individuals familiar with organizational behavior, these tools can illuminate shortcomings in client service, attorney development and law firm communication. These assessments and audits are critical as competition among law firms intensifies and firms distinguish themselves through superior management and leadership. Although law firms “never really had to worry about management skills” and many “don’t have the management talent to run the large convoluted organization,” according to business professor James Bailey, increased competition is rapidly winnowing out firms that fail to systematically evaluate and upgrade their operations.76 “Managing partners at law firms resemble CEOs of conventional corporations,” asserts Santiago Iniguez, a business school dean, “and they need to practice similar managerial skills.”77 By implementing systematic, periodic assessments and audits, law firm managing partners take a large step toward aligning their management practices with those of the corporations they represent.
11.6
Chapter Capsule
Formal quality control measures in law firms usually assume three forms: peer review, client evaluations, and attorney and law firm assessments and audits. Peer review was first adopted by the medical field about 90 years ago and subsequently has been employed in other professions like accounting and engineering. Despite encouragement from the American Bar Association and professional liability carriers, law firms have been slow to adopt peer review. To the extent law firms implement peer review procedures, research indicates that these procedures emphasize compliance with firm billing requirements more than evaluation of client representation. Attorneys’ reluctance to utilize peer review systems stems, in part, from the absence of statutory confidentiality protections such as those afforded to health care professionals and the consequent concern that information generated in the course of peer review could be used against a law firm in a client’s malpractice suit. Although not a substitute for peer review, client evaluations are valuable tools for measuring, monitoring and improving attorneys’ decision-making capabilities. Typical problems with client evaluations are the omission of former clients, who may have the most useful information for assessing attorney performance and insuring the retention of current clients; the tendency to rely on law firm partners 76
Dizik, Alina. (2009, May 20). Law firms embrace business school 101. The Wall Street Journal, p. B5. 77 Id.
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and personnel to design and administer the evaluation despite a possible lack of education, training and experience in survey design and analysis; clients’ reluctance to reveal certain concerns directly to firm principals and responsible partners when law firms conduct the evaluations themselves instead of retaining third party consultants; unmet client expectations that problems they identify will be resolved when in reality they are merely recorded; and the measurement of attorney performance by attorneys’ standards and expectations rather than the clients’ objectives. A third formal method of evaluating firm performance, in addition to peer review and client surveys, relies on formal assessments and audits of attorneys usually prepared and scored by independent consultants. These assessments and audits gauge an individual’s decision-making skills and an organization’s “learning environment” or “culture of safety.” In assessing prospective employees’ analytical thinking, many businesses use the Watson-Glaser Critical Thinking Appraisal, and in evaluating their own organizations, businesses may take advantage of tools like the “Learning Organization Survey” prepared by professors David Garvin, Amy Edmondson and Francesca Gino and assessments based on professor Karl Weick’s and Kathleen Sutcliffe’s extensive study of high reliability organizations. None of these assessment tools, however, appears to be used extensively by law firms.
Chapter 12
Conclusion
How long shall we blunder along without the aid of unpartisan and authoritative scientific assistance in the administration of justice, no one knows; but all fair persons not conventionalized by provincial legal habits of mind ought, I should think, unite to effect some change. Judge Learned Hand, Parke, Davis & Co. v. H. K. Mulford Co. (1911)
This book began by posing four questions central to attorney-litigant decision making: l
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Do attorneys and their clients make financially sound decisions about pre-trial settlement offers in civil litigation cases? What psychological and institutional factors affect decision making in civil litigation cases? What are the legal malpractice and ethical implications of making ineffective decisions about the settlement or trial of civil cases? How can attorneys and clients improve their decision-making skills in all phases of civil litigation?
To the extent space permits, this book has addressed these questions by surveying prior research and presenting new data regarding attorney-litigant decision making, identifying psychological biases, heuristics, defenses and illusions that impede sound judgment, describing how law schools, law firms and the civil justice system may foster sub-optimal decision making, delineating the circumstances in which poor judgment may render an attorney liable for legal malpractice or disciplinary action and presenting more than 65 ideas, methods and systems for improving personal, group and law firm decision making.1 The four questions that preface this book reflect a broader inquiry: for what outcomes in litigation are attorneys and law firms responsible? The answer is elusive because clients ultimately decide whether to accept a pretrial settlement proposal or proceed to trial, and a judge, jury or arbitrator determines the outcome if 1
See Chapters 9, 10, and 11.
R. Kiser, Beyond Right and Wrong, DOI 10.1007/978-3-642-03814-3_12, # Springer-Verlag Berlin Heidelberg 2010
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the client forgoes a negotiated resolution. For both settled and adjudicated cases, a client’s decision or a third party’s judgment seems to eclipse the attorney’s role. This inability to squarely affix responsibility on attorneys has facilitated a philosophical resignation to unsatisfactory settlements and unfavorable verdicts and a tendency for attorneys to distance themselves from the actual consequences of improvident settlements and trials. Like bridge toll takers, many attorneys have become familiar barriers to access who warrant neither the safety nor the suitability of the route. This sense of detachment, in turn, fosters a civil justice system devoid of reliable data regarding the financial benefits and costs of litigation. In most cases tried to verdict, it is impossible to answer readily the threshold question of whether the financial result was better than the settlement amount proposed by an adversary or suggested by a mediator. Nor are data available to determine whether an attorney or a law firm is above or below average performance in prevailing on motions, winning cases at trial, incurring court-ordered sanctions, prolonging case resolutions, obtaining attorney fee awards proportionate to the actual fees incurred, settling cases for amounts bearing some resemblance to the client’s damages, meeting client expectations or accurately forecasting case outcomes. The nation, consequently, cannot determine whether its conflict resolution system delivers sound financial results or intangible societal benefits and whether its attorneys function as problem solvers or surcharges on conflict resolution. Law firms, for their part, have placed themselves in the anomalous position of marketing superior quality legal services without demonstrating how their quality is defined, measured, compared or disclosed. To the extent law firms agree upon methods of measuring performance, those methods often promote internal financial objectives rather than external client expectations. The tendency to focus on internal objectives usually signals a business in a post-mature phase, gross revenue having peaked, the capacity to raise prices having weakened, new technologies having displaced old business models and competitors in other businesses and regions having diverted revenue streams. In a world where businesses achieve a competitive advantage in four fundamental ways – creating utility as defined by the customer, charging a price that represents value to the customer rather than cost to the supplier, adapting to the customer’s economic reality, and delivering true value to the customer rather than a generic service – many law firms may prove to be singularly maladaptive in the next decade.2 By divorcing themselves from responsibility for costs and outcomes, attorneys risk disengagement from their clients. The issue of attorney responsibility for outcomes is pivotal because, in the absence of responsibility for costs and consequences, no compelling reason or financial incentive exists to record, monitor or improve attorney decision-making performance. Accountability is the keystone of performance, and the tendency to offload responsibility for litigation outcomes onto clients minimizes attorneys’
2
Drucker, Peter. (1985). Innovation and entrepreneurship (pp. 243–252). New York: HarperBusiness.
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legal and ethical responsibilities and thwarts their professional development. As explained in the previous chapters, attorneys must advise clients regarding the likely outcome of their cases, attempt to effectuate a negotiated resolution of their cases, proffer advice on legal and non-legal issues, and be proactive in understanding and alerting clients to all facts and factors essential for them to make informed decisions. Although the client is responsible for making major substantive decisions, the attorney bears responsibility for the investigation, research, analysis and advice that precede those decisions. The quality of the attorney’s work product, analytical abilities and communication skills thus controls, in large part, the quality of a client’s decision. Recognizing the critical role attorneys play in advising clients and facilitating conflict resolution, some bar associations have adopted aspirational statements on professionalism. These statements express an aspiration “to expeditious and economical achievement of all client objectives” and declare “the way in which our clients resolve their disputes defines part of the character of our society.” Specific aspirations for informed client decision making include: l l
l l l l
Counsel clients about all forms of dispute resolution. Counsel clients about the value of cooperation as a means towards the productive resolution of disputes. Communicate promptly and clearly with clients. Avoid non-essential litigation and non-essential pleading in litigation. Explore the possibilities of settlement of all litigated matters. Advise clients about the obligations of civility, courtesy, fairness, cooperation and other proper behavior expected of those who use our system of justice.3
Although characterized as “aspirational,” these actions should be regarded as minimum responsibilities for ethical, effective and efficient attorney-litigant decision making. Attorneys intent on improving their decision-making performance and hence their client service will look beyond minimum requirements and focus on ideal professional service. Attempting to achieve the highest standards of client service shifts attorneys’ attention from acceptable practices to best practices and ultimately provides a distinct competitive advantage in marketing and retaining clients. Most importantly, it re-unites attorneys with the idealism, commitment to service and sense of consequence that initially attracted them to the law. In setting high standards and attempting to implement best practices, attorneys may borrow concepts and adopt practices from the medical profession’s five-year project to define “professionalism.” The Charter on Medical Professionalism 3
See “Ideals and Goals of Professionalism,” adopted by the Board of Governors of The Florida Bar on May 16, 1990, and “The Lawyer’s Creed and Aspirational Statement on Professionalism,” adopted by the Commission on Professionalism in 1990 and incorporated into the Rules and Regulations for the Organization and Government of the State Bar of Georgia. See also Section 2, “Responsibilities to the Client,” and Section 13, “Settlement and Alternative Dispute Resolution,” of the Santa Clara County Bar Association “Code of Professionalism,” revised October 25, 2007.
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establishes three controlling principles and ten commitments to restate the professional responsibility of service to others.4 Translated into the terminology of the legal profession, the three principles and their definitions are: l
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Primacy of Client Welfare (dedication to serving the client’s interests despite market forces, administrative exigencies, and societal pressures). Client Autonomy (honesty with clients, respect for clients’ right to make independent decisions consistent with ethical practices and appropriate demands, and empowerment of clients to enable them to make informed decisions). Social Justice (elimination of all forms of discrimination, whether based on race, gender, socioeconomic status, or any other social category, and promotion of fairness and justice in the delivery of and distribution of legal services).
These principles, in turn, are implemented through commitments to professional competence, honesty, confidentiality, appropriate client relations, continuous improvement, access to a uniform and adequate standard of care, just distribution of finite resources, scientific knowledge, conflict of interest management, and professional responsibilities. The principles and commitments of medical professionalism, as expressed in the Charter, embody many time-honored standards and ideals of legal professionalism. Both professions confront the challenge of defining professional responsibilities for alleviating harm already inflicted, sometimes irreversibly, on the principal. The harm may bear no relation to the principal’s behavior or may be a direct consequence of the principal’s carelessness or choices. Both the physician and the attorney could easily absolve themselves of responsibility for the impending outcome, yet neither professional resigns herself to defeat before exhausting all of her professional skills. They do not blame the patient or client for his predicament but work skillfully within the confines of the extant conditions, neither downplaying their responsibilities nor excusing their mistakes when confronted with seemingly intractable problems. Like the medical profession, the legal profession entrusts its practitioners with wide latitude in judgment and broad discretion in client relationships. The principles and commitments of professionalism are an attempt to insure that judgment and discretion are properly exercised, consistently reviewed and continually refined. To ensure a high quality of professional judgment and promote relationships based on mutual respect, individual responsibility and appropriate accountability, the principles and commitments emphasize lifelong learning, continuous improvement, reduction of errors and optimization of outcomes; require the development of uniform and adequate standards of care and guidelines for cost-effective service; and promote research to create new data and knowledge about performance 4
Medical Professionalism Project. (2002, February 5). Medical professionalism in the new millennium: A physician charter. Annals of Internal Medicine, 136(3), 243–246. The Medical Professionalism Project is a joint project of the American College of Physicians-American Society of Internal Medicine, American Board of Internal Medicine, and European Federation of Internal Medicine.
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based on scientific evidence and practitioner experience. They further encourage active participation in establishing educational requirements for current and new members; mandate discipline and remediation for members who fail to meet professional standards; and urge internal assessment and external scrutiny of professional performance to ensure members are competent.5 To protect individuals’ dignity and welfare, the principles and commitments declare that professionals must completely and honestly inform them about probable outcomes and alternatives; empower them to intelligently choose among alternative courses of action; protect them from members of the profession who may misuse their position to obtain personal financial gain or some other private purpose; disclose all conflicts of interest that could compromise professional responsibilities; and earn their trust and confidence by protecting their confidentiality and avoiding the provision of unnecessary services.6 For lawyers, professionalism serves as both the impetus and the guide to measure, record, analyze and enhance the quality of attorney-litigant decision making. It requires a collaborative effort by attorneys, law firms and the courts to determine appropriate objectives for all participants in the civil justice system, reach a consensus on how to evaluate progress toward those objectives, collect and disseminate data to accomplish those objectives and properly adjust outcome data to account for anomalies in risks, costs, timing and other distinct case characteristics. This collaborative effort is the first step in generating reliable data for case evaluation, presenting clients with metrics for assessing attorney performance and providing incentives for attorneys to deliver superior client service. As Dr. AnneMarie Audet observes in the medical context: If quality is to be rewarded, it will have to be measured; and the data will need to be more accessible than they are now. Physicians should take the lead in making care more transparent. This will mean balancing issues of ethics, fairness, accountability and confidentiality. Physicians can engender increased trust between the public and the profession by allowing greater openness about the quality of care they provide.7
Attorneys’ commitments to clients are no less enduring than physicians’ commitments to patients, and in many instances legal practice affords greater potential for promoting clients’ interests than medical practice permits for preserving patients’ health. This opportunity for quality measurement and improvement in legal services simultaneously presents a towering responsibility and a deep source of professional gratification.
5 Id. See Smith, Richard. Medical professionalism: Out with the old and in with the new. JRSM [Journal of the Royal Society of Medicine], 99(2), 48–50. 6 Medical Professionalism Project supra note 4. 7 Audet, Anne-Marie, et al. (2005). Measure, learn and improve: Physicians’ involvement in quality improvement. Health Affairs, 24(3), 852.
Appendix: Primary California Dataset Variables
The definitions, classifications, sources and coding of the variables in the primary California dataset are described below.
A.1
Awards
The award recorded in each case is the net financial award made by the judge, jury, or arbitrator. If attorneys fees and/or costs were awarded separately to a party, they were added to the amount of the award or subtracted from the award (depending on which party was awarded the fees and/or costs) to determine the net financial award. Gross awards were recalculated as necessary to adjust for comparative negligence allocations, “high-low” agreements, workers compensation intervenor claims and similar legally mandated offsets or adjustments. In cases where the defendant prevailed and fees or costs are awarded to the defendant, the net result is recorded. A defense verdict with an award of $10,000 in attorney fees, for example, is recorded as a $10,000 award. Awards generally do not reflect the results of subsequent motions, appeals or post-verdict haircuts. In some types of cases, post-trial haircuts are common and substantial. See Hyman, David A., et al. (2007). Do Defendants Pay What Juries Award? Post-Verdict Haircuts in Texas Medical Malpractice Cases, 1988–2003. Journal of Empirical Legal Studies, Vol. 4, No. 1, pp. 3–68.
A.2
Settlement Demands and Offers
The amount of a party’s demand or offer is based on the last settlement demand or offer made before the jury renders a verdict, the judge issues a decision, or the arbitrator serves an award. Defendant offers are coded as $0 when the Verdict 431
432
Appendix: Primary California Dataset Variables
Search California report states “none reported,” “none,” or “waiver of costs.” Cases in which the settlement negotiations section of the Verdict Search report was omitted or incomplete were excluded from the study. Cases in which equitable relief was awarded or the precise amount of a demand, offer or award could not be ascertained (e.g., “$100,000 offer with an indication of $125,000,” “mid $800,000,” or “$50,000 plus reasonable attorneys fees”) were excluded.
A.3
Case Type
The cases are tort, contract, and real property disputes and are classified by the type or nature of the legal claim asserted: contract, employment, fraud, intentional tort (non-fraud), medical malpractice, personal injury, premises liability, eminent domain, product liability, negligence (non-personal injury), and other. Some cases are classified as mixed cases, e.g., contract/fraud, while other cases, e.g., employment, are coded as a single type although the plaintiff may have alleged multiple theories of recovery. The nominal positions of the parties in an eminent domain action (public entity as plaintiff and owner as defendant) are reversed in the datasets to achieve consistency with their functional roles (owner, the nominal defendant, functions as a plaintiff in seeking compensation from a public entity) and eminent domain trial procedure (defendant owner assumes role of plaintiff in presenting its evidence first and commencing and concluding the argument). See California Code of Civil Procedure, Section 1260.210(a). Cross-complaints are treated as separate cases where the parties’ settlement positions and the award amounts can be allocated between the complaint and the cross-complaint. Where multiple plaintiffs or defendants have severable settlement positions or case outcomes, those cases also are coded as separate cases or excluded due to insufficient allocation information. Although the book generally refers to a plaintiff’s demand or a defendant’s offer, these terms are for convenience and include cases in which multiple plaintiffs or defendants submitted an aggregate settlement proposal in a single case.
A.4
Parties
Nine party types are coded: corporation, business (unincorporated business or possibly incorporated entity not specifically identified in the case facts as a corporation), insurer, male individual, female individual, female/male individuals, public entity, trust, or “other” party type.
A.6 Nature of Damages
A.5
433
Attorneys
Plaintiff and defendant attorneys are identified and coded by gender; firm size (whether among the 50 largest law firms in California based on information in The Daily Journal, California Lawyer, Martindale-Hubbell or Daily Journal Directory of Attorneys); years of experience after admission to the State Bar of California; academic rank of law school from which he/she graduated (whether a graduate of the nation’s 20 best law schools as ranked annually by U.S. News and World Report and diversity ranking of the law school from which he/she graduated (whether a graduate of the 20 law schools with the highest diversity index, as ranked annually by U.S. News and World Report). Verdict Search California reports only the name, firm, and location of the attorneys in each case. Data regarding other attorney characteristics, e.g., years of experience, law school and law firm size, was obtained from membership records on the State Bar of California’s public website, Martindale.com, the MartindaleHubbell Law Directory, The Daily Journal’s California Directory of Attorneys, and the websites of the subject law firms. Where gender could not be ascertained readily from the attorney’s first name or the first name is common for both males and females, coding was based on the probability that the first name was male or female, as determined by various programs like “Baby Name Guesser,” formerly “Geoff’s Gender Guesser.” If an attorney’s first name did not yield information regarding the attorney’s likely gender, the attorney’s middle name was input. In cases where more than two attorneys represented one party, only the first two reported attorneys were coded, except where multiple law firms represent a single party. In those multiple law firm conditions, the first attorney listed in the first two law firms was coded, to incorporate data from at least two different law firms representing that party. In public entity cases, however, the perfunctory listing of the County Counsel in the first position is ignored and the next two listed attorneys from the County Counsel’s office are coded. Some attorneys appear in more than one case in the database, although this is an infrequent occurrence. Random sampling indicates that “repeat” attorneys represent 2%–3% of the total attorneys in the primary dataset. Thus, the total number of individual attorneys in the primary dataset is slightly less than 6,945.
A.6
Nature of Damages
Damages are classified as “Past” damages (injuries, damages and pain and suffering already incurred or sustained); “Future” damages (prospective losses not yet paid or incurred); and punitive damages (damages sought to punish or make an example of a defendant upon a showing of malice, oppression or fraud). (See California Civil Code Section 3294). The coding of damages is based on the type of damages alleged by the plaintiff, not the actual award.
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A.7
Appendix: Primary California Dataset Variables
Nature of Alleged Wrong
The underlying wrong alleged by the plaintiff is classified as an omission, commission, or both. A personal injury caused by an automobile driver’s inattention, for example, is coded as an omission, while a personal injury resulting from an assault is classified as a commission. The classification of the underlying wrong is based on plaintiff’s allegations.
A.8
Forum
The forum type is determined by the type of adjudicator and is coded as a judge, jury or arbitrator.
A.9
Section 998 Offers of Compromise
The service of a settlement demand or offer under California Code of Civil Procedure Section 998 (a “998 offer”) is coded as a plaintiff 998, defendant 998, or plaintiff/defendant 998. This statutory “offer of compromise” procedure is similar to Rule 68, Federal Rules of Civil Procedure, although Rule 68 is limited to offers made by defendants. A party who does not accept an adverse party’s 998 offer and fails to obtain a better result at trial may be liable for the adverse part’s court costs, expert witness fees and, in personal injury cases, interest from the date of the 998 offer. Because a party’s demand or offer reflects the last demand or offer made before a verdict or decision is rendered or an award is served, the amount of a parties’ 998 offer may be different from the demand or offer entered in the datasets. A 998 offer must be served at least 10 days before trial, and in many cases demands and offers are changed after the period for service of a 998 offer has expired.
A.10
Insurance
The existence of an insurer is coded in the database. Attorneys appear to underreport insurance, as many Verdict Search case reports omit the “Insurer(s)” section but indicate elsewhere that insurance existed. In the settlement demand part of the report, for instance, an attorney may report a “policy limits” demand but fail to report a carrier in the Insurer section of the report. In cases where insurance is indicated but not expressly reported in the Insurer section, the existence of an insurer was coded.
A.12 Pre-Trial Dispute Resolution Procedures
A.11
435
Offer/Demand Ratio
The offer/demand ratio is derived by dividing the amount of the defendant’s offer by the amount of the plaintiff’s demand.
A.12
Pre-Trial Dispute Resolution Procedures
If a party reports participation in a pre-trial alternative dispute resolution, the procedure is coded as non-binding arbitration or mediation. Parties’ participation in alternative dispute resolution procedures probably is underreported.
Index
A ABA Formal Opinion 06-438, 216, 273 Accreditation Council for Graduate Medical Education (ACGME), 402, 403 Actor variable, 27, 52–54, 76–86 ADR. See Alternative dispute resolution (ADR) Agent-principal conflicts, 174 Aggregate settlement, 216, 250, 272–274, 279, 432 Alexander, Janet Cooper, 190, 191 Alternative dispute resolution (ADR), 12, 159, 176, 192–194, 233, 234, 339, 361, 427, 435 Alzheimer’s disease, 263 American Bar Association (ABA), 4, 11, 13, 30, 65, 147, 150, 156–160, 166–168, 170, 171, 173, 181, 183, 184, 186, 189, 200, 201, 215, 216, 250, 264, 265, 268, 273, 275, 277, 279, 297, 313, 336, 339, 344, 347, 386, 399, 403, 404, 411, 412, 422 American Bar Foundation, 79, 182 American Law Institute, 399, 404 Amygdala, 306 Analytics, 14, 90, 110, 135, 169, 360, 368, 389 Anchoring, 70, 75, 90, 108, 109, 111, 115–120, 139 Anello, Michael, 169 Anger, 94, 179, 346–348 Appellate court review, 156 Argyris, Chris, 285, 286, 293 Arkes, Hal R., 136, 298, 304, 328, 360
Asher, Martin A., 6, 27, 28, 53, 86, 111, 115 Attention Deficit Trait (ADT), 344 Attorney disciplinary actions, 301 Attorney-mediators, 33, 48–52, 86 Attribution bias, 92–97, 119, 289, 316 Attribution error, 90–97, 102, 108, 139, 316–317 Audet, Anne Marie, 429 Availability heuristics, 120, 129–133, 140 Ayres, Ian, 14, 162, 304, 324, 336
B Baker, Tom, 190 Balabanian, David, 327, 328 Baron, Jonathan, 65, 69, 72, 82, 133, 136, 139 Base rate, 74, 125, 129, 191, 333–335, 366 Bassok, Miriam, 68 BATNA, 109, 338–339, 360 Bazerman, Max, 93, 95, 98, 102–104, 133, 137–139, 340, 341, 357, 360, 361, 389 Beckmann, Jens, 297 Begley, Sharon, 101, 128, 297 Behavioral economics, 26, 44, 61, 64, 65, 72, 89, 90, 108, 111–114 Belief system defenses, 289, 293–295, 351 Berkowitz, Bruce, 349 Berlin, Isaiah, 328 Bibas, Stephanos, 118, 119, 124, 135 Binding phase, 322, 323, 327, 330 Birke, Richard, 102, 103, 124, 127, 130, 340
437
438
Blaming, 93, 285–287, 291, 295, 307, 310, 312, 402 Blumer, Catherine, 136 Bonabeau, Eric, 303, 306, 330, 331 Brainstorming sessions, 389, 390, 396 Brazil, Wayne D., 317, 360 Brehmer, Berndt, 335 Brest, Paul, 131, 159, 160 Brett, Jeanne, 192, 202, 361
C Cahill, Mia, 19, 193, 202 Cain, Maureen, 312, 354 Calibration, 14, 22, 56, 57, 74, 108, 298, 299, 334, 364, 371 California Code of Civil Procedure Section 1141.21, 61 Cambridge Psychological Society, 99 Camerer, Colin F., 112, 123, 299, 302, 304, 305 Cantor, Norman, 144 Cardozo, Benjamin, 152, 153 Carnegie Foundation, 144, 145, 147, 155–158 Caruso, Eugene M., 96, 127, 128 Case method, 21, 143, 144, 146, 150–158 Chambliss, Elizabeth, 408–410 Charter on Medical Professionalism, 427 Checking phase, 362, 363 Cheifetz, David, 154, 155 Chesler, Evan, 164, 165 Choosing phase, 348, 349 Christian, Douglas, 217, 218 Chugh, Dolly, 98, 389 Cialdini, Robert B., 98, 351, 352 Civil Discovery Act of 1957, 48 Civil Discovery Act of 1986, 48 Clermont, Kevin M., 17, 18 Client evaluations, 284, 397–423 Client surveys, 283, 398, 414, 415, 417, 423 Coase, Ronald, 108, 122 Code of Civil Procedure Section 998, 58, 434 Codman, Ernest Armory, 401, 402, 412 Cognitive conservatism, 289, 351, 352 Cognitive dissonance, 90, 104 Colvin, Geoff, 78
Index
Confirmation bias, 120, 125–129, 132, 140, 175, 182, 295 Conflict of interest, 167, 174, 204, 215–218, 247, 254, 265, 319, 321, 407, 409, 412, 428 Context variable, 27, 52–71, 76, 86 Contingency fee, 23, 55, 56, 80, 210, 247 Cooney, Mark, 205, 207, 242 Coyne, Kevin P., 390 Coyne, William F., 312, 313, 322, 326, 337 CPR Institute, 160–161 Creativity, 148, 160, 161, 166, 317, 318, 325, 343, 344, 371, 387, 390, 417, 418 Csikszentmihalyi, Mihaly, 325 Currall, Steven C., 345–347 Curry, Richard, 313
D Daicoff, Susan, 182, 184, 185 Darling, Scott, 172 Daum, Meghan, 129, 130 Davenport, Thomas, 14 Dawes, Robyn M., 69, 116, 118, 119, 121, 132, 133, 170, 304, 311, 333 DecisionQuest, 294, 329, 330 DecisionSet, 27, 420 Declarative knowledge, 297, 298 Depression, 143, 183–185, 187, 188, 263, 343, 411 Devil’s advocate, 389, 396 Dijksterhuis, Ap, 305 Diminished capacity, 67, 250, 262–266, 279 Diminishing marginal returns, 138, 139, 174, 355 Disciplined physicians, 300 Discounting of future costs, 90, 133–136 Divergent thinking, 325, 326 Diversity, 52, 55, 85, 317, 318, 387, 433 Doherty, Joseph, 82 Domnarski, William, 178 Donoghue, David, 16 Doz, Yves, 388 Drucker, Peter, 68, 139, 156, 169, 311, 312, 323–325, 353, 363, 388, 395, 426 Duty of competence, 218, 258, 265–268 Duty of truthfulness, 276, 277
Index
Duty to effectuate settlement, 233 Duty to expedite litigation, 232 Duty to supervise, 269
E Early neutral evaluation (ENE), 193, 316, 317 Eaton, Thomas, 19 Edmondson, Amy C., 419, 423 Edwards, Harry T., 162, 163, 169, 171, 180, 269 Egocentric bias, 104, 126 Eisenberg, Theodore, 12, 19, 35, 67, 155, 156, 358 Eisenhardt, Kathleen, 391 Ekman, Paul, 307 Email, 345–347, 365, 370, 406, 410, 419 Endowment effect, 90, 120–123, 140 English Rule, 61, 62 Enhanced loss aversion, 72 Epley, Nicholas, 96, 127, 128 Ericsson, K. Anders, 5, 284, 299, 300, 302, 363, 364, 384 Erlandson, Eddie, 285, 286 Escalation of commitment, 354 Estoppel, 238–240 Ethical Guidelines for Settlement Negotiations, 181, 216 Ethics Opinion 789, 408 Evans, Keith, 324 Exercise of professional judgment, 208, 228 Expected utility, 109, 111, 113 Expert teams, 5, 368, 383–385, 396
F Factor, Max, 347 Farnsworth, Ward, 287 Fatigue, 320, 344–345, 378 Faust, David, 298, 304 Feedback, 74, 172, 285, 286, 288, 299, 307, 347, 363–365, 383, 392, 396, 414, 415 Felstiner, William, 93, 94, 142, 173, 175, 176, 180, 194, 291, 310, 312 Feynman, Richard, 125 Fifty percent implication, 25, 31–32, 55 Finding phase, 310 Finkelstein, Sydney, 309, 374, 375
439
Fischhoff, Baruch, 125 Fisher, Roger, 142, 321, 322, 338 Flaherty, John, 142, 338 Flanagan, James, 410 Fogel, Jeremy, 78 Forecasting, 5, 20, 22, 110, 141, 142, 173, 189, 194, 195, 289, 291, 307, 328, 332, 335, 350, 359, 387, 426 Formal Opinion No. 2005-125, 409 Fortney, Susan, 167, 168, 344, 345, 398, 400, 404, 405, 408 Forum, 52, 54, 63–65, 71, 86, 194, 234, 356–357, 434 Fox, Craig R., 103, 124, 127, 340 Framing, 26, 46, 49, 75, 90, 108, 109, 111–115, 122, 139, 140, 142, 149, 310 Freund, James, 160 Friedman, Raymond, 345–347 Fuller, Lon, 151 Fundamental attribution error, 91–97, 102 Future damages, 52, 65–69, 433
G Gaba, David, 381, 382 Galanter, Marc, 12, 18–21, 24, 50, 75, 76, 166, 177, 186, 188–191, 193, 202 Game theory, 6, 109, 335, 336 Garvin, David, 419, 423 Geiger, Jeffrey, 211 Gender, 52–54, 76, 81–84, 86, 301, 307, 317, 428, 433 Gigerenzer, Gerd, 89, 303 Gilovich, Thomas, 14, 22, 56, 124, 133, 145, 146, 296, 304 Gilson, Ronald J., 173, 174 Gino, Francesca, 419, 423 Gladwell, Malcolm, 89, 305, 306, 326, 327 Glendon, Mary Ann, 166, 177 Goldberg, Lewis, 299 Goleman, Daniel, 98, 100, 102 Green, Kesten, 335, 336 Griesa, Thomas, 151, 152 Griffth, Sean J., 190 Grisham, John, 29 Gross, Samuel, 25–27, 31, 34, 37, 38, 55, 57, 111, 113, 114, 119, 138, 155, 287 Group polarization, 367, 371–375, 396
440
Groupthink, 109, 326, 367, 370–375, 389, 396 Guthrie, Chris, 50, 70, 75, 102, 104, 117, 118, 306, 334 Gutke, Jurgen, 297
H Hagafors, Roger, 335 Hallowell, Edward M., 168, 344 Halpern, Charles, 188 Hand, Learned, 350, 369, 425 Hans, Valerie, 18–20, 23, 154 Hastie, Reid, 69, 116, 118, 119, 121, 132, 133, 170, 311, 333 Hatamyar, Patricia, 251, 252 Henderson William D., 166, 177, 186, 345 Hensler, Deborah, 176, 193, 194, 361 Hermann, Philip, 20, 21 Hersch, Joni, 19, 67 Heuristics, 14, 22, 56, 75, 89, 90, 109, 111, 120, 124, 125, 129–133, 139, 140, 284, 298, 303, 304, 333, 425 Hewlett, Sylvia Ann, 168, 344 High reliability organizations (HROs), 352, 368, 377–383, 396, 420, 423 Hindsight bias, 17, 89, 120, 131–133, 140, 207, 315 Hoang, Ha, 137 Hoffer, Eric, 127 Holmes, Oliver Wendell, 3, 314 Hostility, 184, 194, 264, 265, 347 Hourly billing system, 319 Hurley, Robert, 393, 394 Hurricane Katrina, 130
Index
Insurance, 15, 20, 21, 25, 48, 53, 54, 56, 71, 73–76, 86, 92, 93, 118, 129, 134, 187, 190, 193, 201, 205, 214, 223, 225, 267, 268, 277, 278, 321, 334, 404, 434 Intertemporal choices, 134, 135 Intuition, 3, 14, 31, 82, 98, 102, 111, 113, 128, 296, 303–308, 314, 331, 333, 334, 362 Investigative negotiation, 93, 340, 357 Isen, Alice, 343 Issacharoff, Samuel, 156
J Jacobs, Dennis, 162 Janis, Irving, 182, 326, 334, 370, 371, 373–375, 389, 395 JDS Uniphase, 107, 108, 191, 325 Johnson, Eric, 299, 302, 304, 305 Johnson, Frank, 343 Joint Commission on Accreditation of Healthcare Organizations (JCAHO), 401, 403 Jones, Morgan, 368, 389 Journal of Empirical Legal Studies, 6, 19, 27, 28, 50, 53, 67, 86, 156, 188, 301, 431 Journal of Legal Education, 84, 146, 183, 185 Judge-jury agreement, 15, 17–18, 20 Judgmental immunity, 207–209, 222, 228, 238, 241–242, 248 Judicial error, 227–231
K I IDEO, 387 Iijima, Ann L., 183 Inadequate advice, 206–209, 227, 237, 258 Inadequate settlement, 213, 219 Incrementalism, 349 Independent professional judgment, 257, 267 Informed consent, 205, 211, 215, 228, 252, 260–262, 270, 272, 273, 400 Inglis, Laura, 62
Kahneman, Daniel, 14, 22, 56, 66, 69, 73, 75, 89, 108, 111, 112, 116, 120–126, 131, 133, 135, 284, 298, 324, 349, 350 Kalven, Harry, 17, 18 Katz, Steve, 331 Kennedy, Kevin, 108, 325 Kiser, Randall, 27, 53, 111, 115 Klein, Benjamin, 25, 31 Kleindorfer, Paul R., 72, 309, 315, 369, 372, 373 Klein, Gary, 170, 349, 376 Knetsch, Jack L., 121–123
Index
Korobkin, Russell B., 50, 82, 94, 96, 103–106, 116, 117, 122–124, 130, 132, 336 Kosonen, Mikko, 388 Krehel, Greg, 389, 390 Krieger, Linda, 159, 160 Krieger, Stefan, 146, 147 Kritzer, Herbert M., 75, 80 Kronman, Anthony, 143, 144, 168, 260 Krufka, Marci M., 414, 415 Kunreuther, Howard C., 309, 315, 345, 369, 372, 373
L Labroo, Aparna, 343 Laibson, David, 135 Langdell, Christopher Columbus, 143, 144 Langevoort, Donald, 160, 165 Law firm assessments, 400, 422 Law firm audits, 283, 284, 400, 422 LAWPRO. See Lawyers’ Professional Indemnity Company (LAWPRO) Law School Admission Test (LSAT), 148 Lawyers’ Professional Indemnity Company (LAWPRO), 201 Learning Organization Survey, 419, 423 Lee, Cynthia Ming-Mei, 170 Legal malpractice actions, 2, 203, 204, 236, 238, 239, 243, 249–251 Legal malpractice liability, 199–249 Legal services industry, 11, 12, 14, 27 Legal specialization, 327 Lehman, D.R., 145, 146 LeHocky, Mark, 316 Lempert, R.O., 145, 146 Lerman, Lisa, 250, 255–257, 259, 270 Lerner, Jennifer, 347, 348 Leubsdorf, J., 205 Levmore, Saul, 154 Lewandowsky, Stephan, 128 Lippe, Paul, 164 Liptak, Adam, 155, 162, 166 Litigant-jury agreement, 20 Llewellyn, Karl, 171 Loewenstein, George, 337, 348 Loftus, Elizabeth, 22, 56 Lord, P., 205, 246
441
Loss aversion, 64, 66, 72, 121–123, 342 Love, Lela, 11 LSAT. See Law School Admission Test Luce, Carolyn Buck, 109, 168, 344 Ludeman, Kate, 285, 286
M MacCrate Report, 147, 158–160 MacKillop, Kara, 201, 300 Malhotra, Deepak, 93, 340, 357 Mallen, Ronald, 79, 80, 177, 178, 204 Malpractice liability, 199–249, 399, 407, 409 March, James, 109, 124, 326, 327 Martyn, Susan, 262, 400, 412 Math-law divide, 154 McCabe, Kevin, 62 McElhaney, Jim, 170, 171 McShane, Blakeley B., 6, 27, 28, 53, 86, 111, 115 Medical malpractice, 55–57, 61, 110, 201, 204, 209, 301, 431, 432 Medina, John, 187 Meehl, Paul, 108, 109, 303, 304 Menand, Louis, 333, 336 Menkel-Meadow, Carrie, 153, 360 Mental discounting, 134, 135 Mental impairment, 182–188 Merry, Martin, 387 Methodological reasoning, 143, 145–148, 154, 172, 195, 296 Mindfulness, 352, 379, 380 Mnookin, Robert, 173, 174, 358 Model Rules of Professional Conduct, 4, 205, 215, 217, 218, 224, 234, 249, 250, 253, 258, 260, 263–266, 268, 269, 271, 274–276, 278, 279, 313, 334, 408, 409 Moore, Don, 337 Moral reasoning skills, 145 Morbidity and mortality conferences, 48, 401–403, 412 Motive mongering, 93, 316 MRI, 135 Multivariate analysis, 27, 53, 55, 58, 85 Munneke, Gary, 173, 205, 217, 249 Myers, David, 82, 102, 111, 112, 125, 151, 314, 333
442
N Nalebuff, Barry, 324, 336 Neale, Margaret, 110, 341, 342 Negative transfer, 68, 73 Neisser, Ulric, 100 Nisbett, R.E., 145, 146 Nixon, Peabody, 6, 7 Noonan, John, 151–153 Nowak, Martin, 62
O Obsessive compulsive disorder, 143, 184, 187, 195 Offer/demand quotient, 70 Omission/commission bias, 72, 73 Optimistic overconfidence, 56, 120, 124–126, 140, 182, 350 Orr, Dan, 118 Outside view, 350 Overconfidence, 22, 37, 44, 56, 80, 82, 90, 120, 124–126, 140, 182, 298, 299, 349–350, 375, 378 Overextremity bias, 22, 56
P Page, Scott, 318, 387 Papadakis, Maxine, 300, 301 Past damages, 65–69, 433 Path dependence of beliefs, 352 Pattern matching, 306, 326–327 Patton, Bruce, 142 Pearce, Craig, 388 Peer review, 5, 18, 283, 301, 397–423 Personal defenses, 283, 284 Peterson, Randall, 392 Pezdek, Kathy, 101 Pfeffer, Jeffrey, 14, 15 Plous, Scott, 83, 95, 98, 99, 116–118, 125, 132, 136, 138, 313, 324, 386 Popkin, Samuel, 89 Positive affect, 343 Posner, Richard, 342 Predictive validity, 22, 56 Predictor variables, 52–85 Prefrontal cortex, 130, 132, 135, 306, 314, 330 Priest, George, 25, 26, 31, 32, 34, 55, 109
Index
Primacy effects, 119, 311 Probabilistic reasoning, 141, 147, 154, 303, 349 Probability judgments, 13, 14, 124, 154, 364 Problem-solving skills, 5, 7, 143, 146, 150, 159–161, 173, 195, 285, 297, 298, 419, 421 Procedural knowledge, 297, 298 Prospect theory, 109, 111, 112, 122, 123 Punitive damages, 19, 52, 66–69, 73, 232, 433
R Rachlinski, Jeffrey, 25–27, 34, 49, 50, 61, 70, 75, 76, 98, 102–104, 110, 113–115, 117, 118, 126, 149, 306, 334 Rader, Randall, 189, 190 RAND, 34 Rand, David, 62 Randomness, 306, 314–316 Ratification, 240 Reactive devaluation, 90, 91, 104–108, 110, 119 Reason, James, 180, 378 Recalibration, 133, 290, 293, 295, 299, 363 Reference point, 69, 75, 122, 191 Representativeness heuristic, 129, 130, 314 Restatement (Third) of the Law Governing Lawyers, 254, 258, 259, 408, 409 Reversal rate, 102, 358 Rhode, Deborah, 167, 177, 254, 272, 276–278 Risk aversion, 44–46, 57, 64, 75, 112–115, 174 Risk taking, 26, 27, 33, 44–46, 49, 57, 59–62, 64, 75, 76, 82, 83, 111, 112, 114, 115, 125, 149, 155, 174, 241, 341, 350, 381 Ritov, Ilana, 72 Robbennolt, Jennifer, 18, 19, 125 Robinson, William, 274 Role-playing, 335, 336 Rosenthal, Douglas, 13, 21, 167, 215, 217, 256 Ross, Lee, 94, 105–107, 173
Index
Ross, William, 167 Royer, Isabelle, 136 Russo, J. Edward, 92, 132, 142, 296, 304, 305, 309, 330, 362, 385, 386, 394, 395
S Safety culture, 378 Saffo, Paul, 332 Sankary, Myer, 362 Sarat, Austin, 93, 142, 173, 175, 176, 180, 194, 291, 310–312 Schenider, Stephen, 333 Schneider, Sandra, 80, 226, 299, 343, 388 Schoemaker, Paul, 92, 132, 142, 143, 296, 304, 305, 309, 315, 330, 362, 369, 372, 373, 385, 386, 394, 395 Schultz, Marjorie, 148 Seabury, Seth, 34, 191, 192 Securities fraud class action, 2, 107, 108, 190, 191, 325 Selective memory, 91, 99–102, 305 Selective perception, 90, 97–102, 108, 139, 182 Self-assessment, 111, 284, 285, 294, 364 Self-awareness, 285 Self-esteem, 75, 90, 91, 95, 286, 363, 373 Self-serving attribution biases, 289 Self-serving biases, 75, 91, 102–104, 108, 110, 118, 139, 140, 235, 295, 311, 331, 350, 363 Seligman, Martin, 186, 187 Sells, Benjamin, 169, 172, 184 Settlement counsel, 312, 321–322 Settlement counseling, 199–248 Seymour, Whitney North, 174 Shanteau, James, 80, 110, 299, 303, 343, 387 Shell, Richard, 345 Shepherd, Jay, 166 Shestowsky, Donna, 192, 202, 361 Simmons, Kevin, 251, 252 Simon, Herbert, 108 Simons, Tony, 392 Simon, William, 175, 259 Slovic, Paul, 108, 111, 125, 284, 298 Sluga, Gena, 217, 218
443
Smith, J., 79, 80, 179, 204 Smith, Vernon, 108 Solving phase, 330–337 Sonnenfeld, Jeffrey, 286, 375, 391 Spiegel, Mark, 205, 228, 261, 262 Standard of care, 199, 203, 205, 211, 215, 217, 219, 220, 227, 246, 249, 250, 259, 334, 428 State bar disciplinary actions, 249 State Bar of California, 36, 251, 265, 362, 433 Status quo bias, 90, 120–124, 140 Statute of limitations defense, 213 Staw, Barry, 137, 138, 348 Steele, Patricia, 16 Sternlight, Jean R., 125 Stracher, Cameron, 154, 156, 157 Stuckey, Roy, 157, 182, 183 Stupid juror defense, 293, 294 Substance abuse, 143, 184, 187, 195, 251, 264, 301, 411, 412 Sunk cost bias, 74, 90, 120, 136–140, 351, 355 Sunk costs, 90, 354–355 Sunstein, Cass, 67, 72, 110, 122, 287, 372, 373 Surowiecki, James, 328, 391, 392 Sutcliffe, Kathleen, 313, 325, 336, 339, 352, 365, 378, 380, 381, 420 Sutton, Robert, 14, 318 Sympathetic detachment, 174, 181, 182 Syverud, Kent, 25–27, 31, 34, 37, 38, 55, 57, 110, 111, 113, 114, 138, 287
T Taleb, Nicholas, 306, 314–316, 352 Task conflict, 392 Testing phase, 338 Tetlock, Philip, 110, 288–291, 293, 304, 334, 336, 351 Thaler, Richard H., 69, 120–123, 134, 135 The Restatement (Third) of the Law Governing Lawyers, 254, 258, 259, 408, 409 Thin-slicing, 89, 110, 305, 306 Thomas, M., 134, 205, 206
444
Trust, 3, 213, 224, 225, 229, 230, 251, 252, 267, 278, 297, 303, 331, 346, 369, 384, 385, 392–394, 396, 421, 429, 432 Turow, Scott, 167, 319 Tversky, Amos (Eds.), 66, 69, 73, 75, 89, 108, 109, 111, 112, 116, 121–123, 125, 126, 131, 135, 284, 298, 324, 350
U Ulen, Thomas S., 103–105, 110, 116, 130, 132, 336 Ultimatum game, 341 University of Chicago Jury Project, 18 Unsettled area of the law, 228, 242 Ury, William, 142, 338 USS Vincennes, 376, 377
Index
W Wagenaar, Willem, 22, 56 Ward, Andrew, 286, 287, 375 Watson-Glaser Critical Thinking Appraisal, 419, 423 Weber, Klaus, 336 Weick, Karl, 80, 97, 313, 325, 326, 339, 352, 354, 364, 365, 378–381, 420, 422 Williams, Edward Bennett, 54 Williams, Gerald, 21 Winston & Strawn, 6 Wissler, Roselle, 18, 23, 73, 192 Wistrich, Andrew J., 70, 102–104, 117, 118, 126, 306
V VerdictSearch California, 33–35, 39, 40, 49, 51, 65, 432, 433 VerdictSearch New York, 33, 34 Vidmar, Neil, 17–20, 23, 154, 201, 300 Viscusi, W. Kip, 19, 67
Z Zaslow, Jeffrey, 97 Zeisel, Hans, 17 Zhong, Chenbo James, 317, 387 Ziskin, Jay, 298, 304
