Buying respect…and other below-the-line settlement tricks

Not all disputes are about the money

2016 August

Can you buy respect? Not the obsequious type saved for self-indulgent child celebrities or over-haired politicians, but the honest kind of respect, well-earned by good deeds and selfless acts? Can you buy that type of respect? And can that purchase settle a lawsuit?

Or how about this: As part of a settlement, can you make a party a better parent, at least in the eyes of his spouse? Can you resolve a lawsuit by bringing dignity back to a child athlete who feels estranged from her sport (while paying the attorneys’ fees with a snowboard)?

The fact is, in our mediations there is so much more at play than just the dance for dollars. Doing the money dance is the simplest way to negotiate a deal, certainly for the mediator and the lawyers. But how many times have we seen parties look confused, or maybe disappointed is a better word, when the settlement discussions devolve into nothing more than an exchange of numbers, a negotiation game, as if the moral principles the parties thought were underlying their dispute were somehow immaterial.

Now I don’t want to get all Pollyanna-ish here. Clearly there are disputes that are all about the money, the negotiating dance, the gamesmanship of trying to get the most … or spend the least; where victory is in besting the other party in the distributive bargaining game, forcing the other side to leave money on the table. There is a perverse sort of joy in negotiating a “winning” outcome.

But recognize that not all disputes are built this way, or perhaps more accurately not all disputants are so constituted. In some disputes (many, actually), the secret to a satisfying and lasting settlement is getting below the surface – going “below the line” separating “positions” and “interests” in Pepperdine-speak – to address the more human needs and emotions of the parties.

For these latter cases, where there is something else going on, how do we find – and address – what is below the line? How do we figure out that the key to resolving this particular lawsuit, for instance, is finding a way to buy respect?

As with discovering any type of buried treasure, absent divine intervention (though that will work too, as we will see) we must hunt for it. And by “we,” I mean all of us – mediators, lawyers, and even the parties themselves. We must keep our creative beanies lightly oiled, clean of lint, and firmly planted on our heads, ready to spin into action.

We’ll see how this works with three (basically) true stories.

Buying respect

Ms. Martinez was a lovely woman in her early 50’s, devout and generous. Her social world centered around her church, a small but closely-knit congregation in a neat inner-city structure. Ms. Martinez didn’t make much as an assistant in a small bank, but she tithed regularly and felt she supported her church family and contributed to the larger church mission. When she lost her job “as part of a downsizing,” or “because of her complaints about working off-the-clock,” depending on whom you want to believe, Ms. Martinez filed an action.

The attorneys had the good sense to get the case into mediation early, before legal fees made a reasonable settlement impossible. Despite the large chasm between the parties’ opening numbers (“it’s not where we start, but where we finish,” has become this mediator’s resigned refrain), progress was actually made the old-fashioned way, with a little give here, a little take there, until a little optimism actually began to creep into each room.

Unfortunately, it was only a little optimism, for just as there seemed to be a little momentum building, Ms. Martinez hit the brakes. More than that, she seemed visibly upset, believing that the trauma she had suffered by the job termination was now being trivialized by the flea bargaining. It was the mediator’s (i.e., my stupid) mistake for not catching this sooner, but sometimes those real emotions are well-hidden behind a mask of feigned understanding.

The mediator stopped the see-saw of positional bargaining and directed his attention to Ms. Martinez, asking the questions he should have asked much earlier. The “how are you feeling” questions, “how has the separation impacted your life,” “how can I help make things easier and better for you…?”

What the mediator learned was that the employment termination had a very serious, meaningful, and particular consequence to Ms. Martinez. Because she had been unable to find a new job – bank jobs for fired 54 year-old Hispanic women were not easy to come by in her community – Ms. Martinez was surviving on unemployment benefits and thus had nothing left to share with her church.

Ms. Martinez expressed her embarrassment at attending church without being able to carry her weight financially. She felt she was letting her church family down so much so that she was uncomfortable even attending. And as noted earlier, the church was her social network. Ms. Martinez felt she had lost the respect of her church family, and she had clearly lost a little self-respect by believing that she was not contributing her share.

To settle this case, we needed to find a way to bring that respect back – both the perceived respect of her church family, and Ms. Martinez’s own self-respect.

Unfortunately, the defendant was not in the business of respect – it was a bank; it was in the business of money. So we needed to find a way to turn money into respect. In short, we needed to find a way to buy respect – real respect. We all needed to get the propellers on our creative beanies spinning.

The answer came in part thanks to the IRS. It is always nice settling cases with OPM – Other People’s Money – and if that “other person” is the government, so much the better. In this case, the bank makes charitable donations every year. What if we could direct some of that charitable giving to Ms. Martinez’s church? It wouldn’t cost the bank anything extra since it will be making charitable donations regardless, and it will enjoy the tax benefits of the gift. And what if we could have that donation made “in the name of” Ms. Martinez, so that our plaintiff received recognition at the church for bringing the money in? It wouldn’t need to be a huge sum: $5,000 coming to this small church would be very meaningful. And the church family would know that Ms. Martinez had been responsible for the large corporate donation.

Talk about respect…real respect. Her church family would be enormously grateful, both for the unexpected gift and for Ms. Martinez’ charity in sharing her settlement with her church family. And Ms. Martinez could feel legitimately proud for being able to help her church even while she is working hard to get herself back on her feet. As for the bank, it takes care of an important emotional impediment to the settlement without really having to spend any “new” money.

With this issue out of the way – having purchased real respect – reaching a monetary settlement of the underlying employment case became possible.

Divine intervention and a better dad

It seemed like a pretty standard breach of fiduciary duty/shareholder dispute, with each side suing the other for either (a) stealing corporate opportunities and trade secrets, and trying to use them to gain a foothold with a competitor; or (b) forcing a founding member out of the company “just as it was reaching a new level of profitability.” Both sides had already spent over a half million dollars in attorneys’ fees. Rationality was not ruling the day. By the time of the mediation, the attorneys were looking for a way out. The parties? Well, they were still angry with one another.

Eventually, we managed to move the discussion in a direction the parties could accept: In exchange for mutual dismissals with prejudice and waiver of fees and costs, the privately-held company would pay a “fair” amount to buy out the departing member’s shares. Now all we had to do was come up with a “fair” valuation. As one might imagine, there was a slight difference in opinion (expert and lay) as to the value of those shares.

It took nearly a day and a half to get to this point. During that period, the mediator had a good opportunity to get to know the individuals in each room. Heading the company was Mrs. Avila, the 70-year-old widow of the original founder who had been running the company by herself for decades. She was devout, gave liberally to church and community charities, and was looking forward to spending time on a small ranch she had at the outskirts of town. The individual, Louis Morro, was once the best friend of Mrs. Avila’s son, a young man who had actually moved into the Avila home in high school to escape some domestic problems he was having in his own home. Mrs. Avila offered Louis a further lifeline when she brought him into the company after he completed high school, essentially mentoring him in the business. Eventually, she gave Louis some equity. Twenty years later…here we were.

Louis for his part was now married with two middle school daughters. He had felt betrayed, and even disrespected, when Mrs. Avila brought in outside consultants to help her run the business, and possibly position it for a sale. Thinking he was being undervalued and squeezed out of management, he left the company for a competitor.

Interestingly, Louis Morro’s wife, Margarita, attended each mediation session. She didn’t say much regarding the case or the negotiations, but Louis clearly wanted her to be part of the final decision. What little Margarita did say centered mostly around her daughters and the pride she felt for their accomplishments.

Mrs. Avila was willing to pay towards the high end of the valuations; however, as the mediator discussed with Mrs. Avila’s room, Louis was insisting on “making a statement,” and was stuck on a number well above even the highest of the valuations. The challenge was to find a way to redirect and reframe Mrs. Avila’s offer so that Mr. Morro might see the benefits of it. We all agreed that we would need Margarita Morro’s support and influence for that to happen. The question was how to get her to participate more actively in the conversation.

By this time, the mediator knew that Margarita was less concerned about “statements” than she was about her children and family. She had seen the legal fees eat away at the family’s savings and with that went her sense of long-term security. It seemed that the best way to bring Mrs. Morro into the conversation – and more specifically to become a proponent of settlement – was to find a way to turn the conversation into one about protecting the family.

The mediator thus asked Mrs. Avila what she thought of channeling some of the settlement money into a 529 college savings plan for each of the two Morro girls. This would allow each girl to attend the college or university of her choice and would take a huge emotional worry off of Margarita’s shoulders. Mrs. Avila was thrilled with the idea – in fact she said she always felt these girls were like her own grandchildren and would be willing to go a little higher than the highest valuation if those extra funds could be put towards the two 529 plans.

The trick now was to bring this up in the Morro room without sounding like we were pandering to Margarita’s emotions or exploiting the children as a negotiation strategy. If Louis felt we were trying to use his family as a pawn in the negotiations, he would shut down and likely walk out. The mediator asked Mrs. Avila if she had any good ideas for how we could accomplish this, but she simply smiled and said “God will help you.”

Mrs. Avila seems to have been right! The Morro conference room was on the first floor with a window out to the street. Just as the mediator was trying to figure out how to raise the subject of the Morro girls without it sounding canned or manipulative, the two girls walked by the window on their way home from school. Margarita saw them, knocked on the window to get their attention, and waved for them to come in. Once in the conference room, introductions were made and a natural conversation broke out about the girls’ middle school, high school, and even interest in college. It was a welcome respite from the difficult and emotional deliberations that marked the prior day and a half. But most importantly, it brought Margarita front and center into the conversation.

Be it divine intervention or just plain luck, the passing of the girls by the window at just that moment turned the tide. Once the girls headed back home, the conversation continued with the discussion of schools, and the mediator raised the idea of a settlement that included as a component the funding of 529 college savings plans for each of the Morro girls. Margarita was immediately interested, asking “we can do that?” “Of course. This is mediation, anything is possible.” The mediator said he thought it would be possible to negotiate a deal that provided Louis with a high valuation for his interests in the business, thereby providing the family with financial security, while also funding the girls’ college education. Besides the tax benefits of the 529 plan, those funds would be reserved solely for the girls so that it would be their desires and abilities – and not the ability to pay – that would dictate where they went to school.

In other words, Dad could guarantee that the girls’ educational dreams would be realized. And in the process, Louis could be a hero to Margarita. Mom was on board. Dad was getting there. They excused the mediator to allow for some personal reflection. When they all reconvened, there was a deal in the making.

Later, when the mediator recounted to Mrs. Avila how fortuitous it was that the girls walked by the window at exactly the right moment, Ms. Avila smiled ever so gracefully and said simply, “I told you so.” We were all home by dinner.

As the mediator likes to say now – even if you don’t believe in God – if God nonetheless gives you a hand…take it…with gratitude and thanksgiving.

Dignity, and snowboards for the lawyers

It seemed like a pretty standard employment case. Lee, the plaintiff, was a young woman, new mother, and former local snowboard freestyle champion who alleged that Mountain Boards, the town’s most prominent snow equipment shop, had wrongfully terminated her employment because of her pregnancy. Mountain Boards denied the claim, of course, explaining that the termination was the unfortunate result of the Peter Principle in action: Lee had advanced in the company to a position for which she just wasn’t very good. Lee asked for a lot of money; Mountain Boards offered a little; and there we were.

Only in this case, neither side moved much from the opening positions, despite the fact that the lawyers and mediator knew that each extreme was, well, extreme. There should have been movement towards a reasonable middle. Clearly, something else was going on.

With a little probing, the something else became apparent. Lee, it turned out, was not just a local snowboard hero; her entire life, indeed her self-identity, revolved around snowboarding. She grew up in the small mountain town. In fact, Mountain Boards was where she and her friends used to hang out after school. Mountain Boards is where she met her husband. Lee had known the owner Wayne, a freestyle mogul champion himself back in the day, since Lee was a child. In fact, Wayne had been one of Lee’s most enthusiastic supporters when she was a young aspiring competitor, often helping her afford equipment through deep discounts, and even sponsoring her for competitions. Wayne gave Lee her first job at the store back when Lee was in high school, and promoted her to lead buyer after an injury derailed Lee’s promising career.

In Wayne’s room, Wayne had only fond things to say about Lee. He was, of course, disappointed the relationship had degenerated to this point – he blamed Lee’s husband – but Wayne was a pretty laid back dude who held no grudges. Frankly, he would have loved to have kept Lee on at the store; but the fact was, she was a lousy buyer. She missed some critical fashion trends, which cost the store dearly in revenue over two seasons. With a California drought plaguing the ski resorts all over the state, Mountain Boards was just scraping by. Indeed, since Lee left, Wayne was forced to lay off a number of other employees, and the sad reality was that the store was hemorrhaging money and Wayne could barely afford his legal fees to date.

The mediator poked around a little more in Lee’s room. Lee always admired and respected Wayne. She loved skiing with him; he was a role model and mentor. “So why are we here” asked the mediator? How did things devolve so much that a lawsuit seemed like the right thing to do? Lee’s husband answered that: “My wife was disrespected. She is such an amazing person, such an amazing snowboarder, such an amazing mother and wife, there’s no way she wasn’t single handedly holding that store together. It’s absurd for Wayne to suggest that her buying decisions did anything but keep that store afloat for as long as it did. Wayne can’t do that to my wife!”

Well that was eye-opening. It seemed the impetus for the lawsuit was Lee’s husband, a brash and outspoken young man, who clearly loved and admired his wife, and was fighting for her honor. Lee herself seemed much less interested in the legal dispute.

With Wayne’s permission, the mediator shared with Lee and her husband information about Wayne’s precarious financial condition, and Wayne’s belief that if this lawsuit continued, he might have to close the shop down. Wayne would be happy to provide Lee and her lawyers with access to his financial books for verification; but Lee said it wasn’t necessary. She knew how bad things were. And the prospect of Mountain Boards closing because of her lawsuit was clearly something that upset Lee at a very personal level.

The mediator asked Lee how she would like to see this resolve. It was then that the tears began to fall. Lee didn’t want the store to fail. She didn’t want to hurt Wayne. In fact, she wanted the store to thrive. She loved that store. It was her childhood, indeed an essential part of her identity. She became a minor celebrity in town when Wayne hung on the store’s main wall a huge nighttime photograph of Lee in midflight, appearing to soar over a full moon, golden locks flowing in the moonlight. And now the photo is down and Lee is ashamed to be anywhere near the store. She can’t go in. She can’t see her friends there. She can’t visit or ski with Wayne. It’s as if a part of her hometown, the most important part in fact, is now off limits to her.

The mediator asked Lee how this could be fixed. “How can we restore this piece of your personal history? How can we make this better for you?” “It’s too late,” whispered Lee. “It’s not,” returned the mediator. “For starters, what if we could get that photograph of you back on the wall?” Lee brightened up for the first time all day, and actually started to smile.

From this simple beginning the ideas started flowing, replacing the tears. Some of the ideas were…creative (mostly from Lee’s husband, like “Wayne can fly us to northern Washington for some helicopter skiing”). Some were emotional (“I’d like to be welcomed back in the store”); and some were practical (“I miss my employee discount. It was pretty solid”). One was, at least in the mind of the mediator, essential: “I want to be friends with Wayne again.”

The “negotiations” thus changed in focus from “lots of money vs. a little money” to “restore an athlete’s identity and reconcile some old friends.” The latter effort turned out to be simpler…and much more fun. And yes, the mediation did end in a Kumbaya moment between Lee, her husband, Wayne, and his wife…no lawyers.

But the story doesn’t end there. Why did this work? Besides the fact that the parties both wanted it to work, much of the credit really had to go to the plaintiff’s attorneys. They allowed this to work. Lee’s attorneys were of the breed who really, truly, wanted what was best for their client. They understood what was happening; they not only created an atmosphere that fostered creativity, they participated in the generation of ideas. These lawyers were genuinely happy with a deal that provided Lee with reconciliation and a truly important and advantageous resolution, one that made a real and meaningful difference in Lee’s life. The attorneys were astute and caring enough to allow this unusual resolution to coalesce and become a reality.

What about the attorneys’ fees? These attorneys, wonderful as they may have been, still needed something for their efforts preparing the case and guiding the process. They couldn’t get a percentage of a photo being hung in the place of honor in the store. They couldn’t share in the ski adventure being planned. They couldn’t get a contingency fee on an employee discount at Mountain Boards.

Or could they? There was a little money that exchanged hands; the bulk of which was directed to Lee’s lawyers. But it wasn’t really sufficient for the effort they had invested. Fortunately, the lawyers were avid snowboarders themselves. And their small firm had a staff of people who did shop for clothes, and had children who played in the snow. The mediator asked Wayne if he still made a profit on the employee discount, and he said he did. (You see where this is going.) The attorneys were paid with snowboards, and the entire plaintiff law firm and staff enjoyed employee discounts at Mountain Boards for the next few years. The lawyers and staff received discount pricing on items they liked, which encouraged them to shop at Mountain Boards. And Wayne made a small profit on all the new business. A true win-win-win.

What’s the point?

What’s the point of these stories? We know these tales are rare. Like rain in southern California, it happens…but you sure don’t bring an umbrella with you when you go out. Most mediations are all about the money, the dance, the games, the brackets and the mediator’s proposals. Why focus here on the outliers?

It’s a fair question. And I suppose the answer is that I think there are lessons for lawyers and mediators to learn from these experiences. For example, while these types of “below the line” settlements are exceptional, they are not mythical. They do happen. And indeed, if you don’t get below the line to explore more personal and humane ways to resolve some disputes, you may miss out on a chance to do some real healing. As Chief Justice Warren Burger said so many years ago (1982 to be precise): “The obligation of our profession is, or long has been thought to be, to serve as healers of human conflicts.” For those of us privileged to be part of the legal profession, we should be ever vigilant for opportunities to heal.

But I think these stories can help us with all of our mediations by reminding us that the actual disputants, the parties we are all here to help, need some personal attention. Most parties are not repeat players; they do not understand, nor do they like, the negotiation gamesmanship that so often characterizes our mediations. The back-and-forth, the brackets and proposals, tend to marginalize the parties and treat their very real emotional concerns as nothing more than chess pieces. We need to understand that for the parties, there really isn’t a “garden variety” employment or personal injury or business lawsuit. There is just their very real, often scary and confusing, deeply personal conflict wending its way through our at-times bizarre legal maze.

These stories should, I hope, remind us of the human aspects of the parties’ disputes; that our involvement either as lawyers or mediators to assist these individuals is a privilege. Stated slightly differently by the inimitable Abraham Lincoln, “As a peacemaker, the lawyer has a superior opportunity of being a good man.” I think today, Old Abe would have said: As a peacemaker, the lawyer and mediator have superior opportunities of being good humans.