It can be difficult to settle cases where opposing parties have strong disagreements over case value. This difficulty can rise exponentially when multiple defendants participate in a mediation, with divergent ideas about responsibility, exposure and appropriate levels of participation.
At times, disputes between different defendants can become intractable, threatening to derail the entire mediation process. If the defendants can’t even agree on how to divide up a starting offer, how can a negotiation proceed? There are, however, some creative strategies to keep multi-defendant mediations on track and headed to resolution.
Fixed Percentage Allocations
The simplest approach for handling participation by multiple defendants is a straight allocation on a percentage basis: for instance, two defendants going 50/50; three defendants going 50/25/25 or some other agreed-to method of sharing offers. While the amount of each combined offer requires consultation and concurrence, the apportionment is fixed going forward.
Occasionally, I will walk into a mediation where proactive counsel have worked out percentages ahead of time. Those mediations are more efficient and more likely to succeed.
Provisional Allocations with an Opt-Out
In certain cases, however, one or more defendants comes to the mediation with limited exposure and limited settlement funds, while another defendant has more exposure and resources. The defendant with limited funds may voice concern that at some point in the process they may not be able to continue to participate on a percentage basis.
A useful tool for addressing this concern is to agree to a provisional allocation with an “opt-out”: for instance, one party puts in 75 percent and the other 25 percent of each offer, but all agree in advance that any party can drop out or try to renegotiate their participation at any point in the process. The primary virtue of this approach is allowing offers to be extended to the plaintiff in a timely fashion without locking anyone into participation beyond their comfort zone or authority.
“Black Box” Approaches
There are times when defendants simply cannot or will not work together. They either fail to agree on percentages or try to impose preconditions on their participation that stop all progress. An interesting response is the use of a “black box,” by which offers by each defendant are pooled on a blind basis and extended to the plaintiff. Each defendant knows its own offer but does not know the offer by other defendants or the collective amount extended. This allows the negotiation to proceed forward despite the profound disagreements among the defendants without anyone feeling that their level of participation is unfair.
With one variant of the black box approach — a “true black box” — the defendants are not advised of the combined offer and the plaintiff is not advised of the breakdown as between the various defendants: each defendant contributes on a blind basis into the box and the plaintiff is simply told of the combined amount in the box: contributions are extended anonymously as a package.
Another variant, which adds slightly more illumination to the process, is to agree to keep participation levels confidential among the defendants while sharing them with the plaintiff. This partial transparency can create some incentive for recalcitrant defendants to contribute at a level that appears meaningful.
Black boxes can get mediations off and running, but they contain an inherent problem: the defendants never know how close their combined offer is to the demand of the plaintiff, and therefore can’t tell if overall progress is being made. Accordingly, the defendants may decide to change the rules after starting off with a black box and agree to full transparency at a certain point, allowing a better assessment of where the mediation stands, as well as clarity on relative participation levels.
There are times when one or more defendants shows up at a mediation with money and motivation to settle, but another defendant is perceived as showing up looking for a free ride. Employing terms like “frosting on the cake” or “sweetener,” one defendant may refuse to offer any money until the case is nearly settled and then only offer to help close the gap with a very small contribution.
If a defendant refuses to participate, sometimes the plaintiff and other defendants will decide to freeze the non-participating defendant out of the negotiations in the hope of striking a separate settlement and leaving the last defendant standing. This is the negotiation equivalent of musical chairs.
There are cases where cross-claims or indemnification issues make this option impossible, and there are states, like New Hampshire, where contribution rules can make partial settlements challenging. However, a freeze-out approach and threat of being left off a release sometimes can bring the non-participating defendant back into the negotiation.
Non-Allocated Offers with a Postponed True-Up
In-fighting among defendants about how to carve up an initial settlement offer can cause tremendous delays in the mediation process. If a plaintiff or counsel gets frustrated and discouraged, in-fighting can even lead to the collapse of negotiations. One approach that avoids delay by putting money on the table is for defendants to simply agree on the total amount of offers, without finalizing how those offers will be apportioned.
This approach recognizes the reality that the first half-dozen offers in most mediations are never accepted and constitute placeholders while the divide between the parties is decreased. The rationale for this approach is that allocation issues should not hold the central negotiation with the plaintiff hostage and, if by some miracle, the case settles for a low amount, the defendants will figure something out. After starting off with non-allocated offers, the defendants will sometimes work out allocations among themselves or with the mediator’s assistance once resolution looks more promising.
Provisional Allocations with Subsequent Arbitration
There are cases that need to be settled by defendants even if allocation of percentages cannot be agreed to. There may be facts that have not come out yet that will make settlement later on more difficult or impossible, there may be a trial date approaching that requires resolution of the case, or there may be room to settle at a figure that all defendants find reasonable.
In this situation, the defendants may agree to a provisional allocation for purposes of paying the settlement and subsequently resolve their percentage contributions with a post-mediation arbitration. For instance, three insurance carriers might provisionally go thirds on a million-dollar settlement but agree that a jointly selected arbitrator will determine final percentages, post-mediation. Alternatively, the carriers might ask the mediator to make a final determination of percentages at the conclusion of the mediation if they are not able to work this out themselves: a med/arb arrangement.
I once mediated a complex case arising from construction accident with close to two dozen participants. There were complicated indemnification and coverage issues impacting the participation of each of the many defendants in the case. If we could not work these issues out, the case was not going to resolve.
Experienced counsel wisely suggested that we convene the defense and coverage participants for a morning mediation and ask the plaintiff to not even show up until the afternoon.
By the time the plaintiff arrived, the participation levels of all the defendants was almost completely squared away, allowing an afternoon session devoted to resolving the injury claim. The case settled the same day.
In an appropriate case, a mediation can be conducted in two days, the first day dealing solely with apportionment among defendants and the second dealing solely with settlement with the plaintiff. The primary advantage, of course, is allowing focused attention on sorting out the multi-defendant issues without keeping the plaintiff waiting and wondering why progress appears to have halted.
Cases with multiple defendants pose unique challenges for both the mediator and participants. Fortunately, there are many creative solutions to help work past these challenges and allow meaningful progress toward resolution.
This article originally appeared in the October 16, 2019 issue of New Hampshire Bar News. Reprinted with permission.