You’ve heard it before--the mediator cautions you that litigation will be very expensive. But you already knew that and advise the mediator that the litigation will also be expensive for the other side.
That is exactly the point.
Both sides are probably looking at significant litigation expense. Isn't that reason enough to consider the idea of early settlement discussions?
But there is more to consider.
What about the potential for a prevailing party attorney fee award in the case? California follows the American Rule of no attorney fee shifting. In the absence of a governing contractual provision or statute, each party pays for their own attorney fees and costs. CCP ?1021.
But the rule has many exceptions.
Many contracts and statutes provide for a prevailing party attorney fee recovery. For example, real estate contracts often provide for the recovery of prevailing party attorney fees in a suit brought under the contract. See also Civil Code ?1942.4 providing for a fee recovery in a landlord/tenant habitability dispute. These are just a couple examples of the many provisions that allow for such an award. Various contracts and statutes may also bar such a recovery to a prevailing party who does not first attempt to mediate the dispute. Ultimately, while one party may benefit from a recovery of litigation fees and costs, the other party suffers a substantial detriment in having to pay the prevailing party's fees and costs.
However, the question of who is the prevailing party is often complicated.
What if a party prevails on some claims but loses on others? For example, a plaintiff might prevail on a singular cause of action for unfair business practices, recover little or no compensatory damages, yet still be entitled to a significant attorney fee award. There is also much uncertainty in terms of how a judge or arbitrator will rule on the motion for fees. What amount will be awarded as reasonable and necessary? Also, in California, where there is an Offer to Compromise under CCP 998, a non-accepting party may be responsible for an offering party's post-offer attorneys fees. Judges and arbitrators have broad discretion in ruling on these issues and the results are often unpredictable.
...is the award collectible?
Even if a party is successful in obtaining a prevailing party attorney fee award, is the award collectible? California insurance law, under some circumstances, afforded coverage for a prevailing party fee award as a recoverable "cost" under the Supplementary Payments section of a Comprehensive General Liability policy. Prichard v. Liberty Mutual Ins. Co., (2000) 84 Cal. App. 4th 890; State Farm General Ins. Co. v Mintarsih, (2009) 175 Cal. App. 4th 274.
Recently issued insurance forms removed coverage...
However, more recently issued insurance forms have removed coverage for prevailing party attorney's fees as an item of recoverable costs under the policy. Without insurance coverage, what assets are available to collect on the award? If there are limited assets available for collection, or alternatively, the client's assets are exposed, could that result have been avoided with an early settlement?
The lesson - properly evaluate litigation risk
The lesson here is that it is important to properly evaluate litigation risk in terms of the ability of one party or another to shift fees and costs. This leads us to one of the key advantages of early mediation, i.e., the opportunity to settle before fees and costs substantially increase. Without question, the expense of several days of mediation pales in comparison to the cost of courtroom litigation. In mediation, the parties and counsel work constructively towards resolving their dispute as opposed to scorched earth litigation tactics designed to make things expensive for the other side. Mediation presents predictable expense, and the prospect of a negotiated resolution is within the control of the parties in contrast to the uncertainties presented by courtroom litigation.
No doubt there will be some fees and costs already incurred by the parties even in an early mediation, and that may impact the negotiations in terms of what the parties decide to offer or demand. But the overall stakes only increase over time, especially where one party or another may ultimately bear responsibility for an award of prevailing party attorney fees.
The above is not to suggest that early mediation is always the answer. Some disputes are not ripe for an early mediation. The parties may have differences that make early settlement unlikely. Some cases may require discovery, or a court ruling on a dispositive motion, to move the ball forward. But quite often, the fee shifting component, and uncertainties related thereto, should incentivize the parties to work towards an early mediation of their dispute.
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