Settlements: 9th Circuit Takes Negotiation Strategy Into Account In Case Where Trial Judge Slashed Fees Because Plaintiff Settled for 10% Of Claim
The Majority Opinion Acknowledges That Parties Can Start High When Staking A Claim.
In today's Daily Journal, I have an article about Vargas v. Howell et al., 2020 DJDAR 905 (9th Cir. Feb. 5, 2020), entitled: 'Mechanical' analysis of attorney fees award in civil rights case results in partial reversal'. In Vargas, the trial judge slashed a senior litigation attorney's fees 90% in a civil rights case. The Court of Appeals panel majority required further explanation for the severe discount, and District Judge Roger Benitez dissented, believing that the trial judge had provided enough explanation already. While my article focuses on the fee issue, one issue addressed in the case will be of interest for mediators, as well as for attorneys and clients negotiating a settlement.
The majority opinion argues that punishing a fee applicant in a civil rights case because the settlement amount is a fraction of the claim can create "perverse incentives." Because it is unusual and interesting for a court to speculate or opine about the effect of a fee award on settlement negotiation strategy, I provide the court's comments. Here is the panel's discussion of the potential impact on negotiation strategy of a trial court's discounting fees 90% because the settlement was 10% of the claim:
The effect of that approach is to punish Vargas’s attorneys for pursuing what might well have been a sensible negotiation strategy. A reasonable attorney representing Vargas could have made the strategic choice to present an initial damages estimate as high as possible. Of course, an unrealistically high estimate could make settlement talks unproductive, and an attorney must also ensure that any estimate presented to the court is “likely [to] have evidentiary support after a reasonable opportunity for further investigation.” Fed. R. Civ. P. 11(b)(3). But within those limits, Vargas’s attorneys could reasonably have decided that by offering a high damages estimate, they would retain “room to later grant concessions, while still reaching a favorable settlement.” Stephen J. Ware, Principles of Alternative Dispute Resolution § 3.15, at 313 (3d ed. 2016). Had they started from a lower number, the settlement might have been lower. Whether or not that is the strategy Vargas’s attorneys had in mind, they should not be faulted for negotiating a settlement.
The district court’s approach threatens to create perverse incentives for lawyers representing civil rights plaintiffs. If fees are reduced whenever a case settles for less than the initial demand, lawyers will be encouraged to make only modest initial demands, limiting the potential recovery for their clients. And as the litigation proceeds, they will be encouraged to refuse to lower their demands, making settlement more difficult and prolonging the litigation. No one will be well served by that approach.
Arbitration: Equitable Estoppel And Third Party Beneficiary Theories Required Additional Insured To Arbitrate Coverage Claims
Additional Insured Had Tried To Avoid Arbitration By Arguing It Was Not A Party To Arbitration Agreement.
Philadelphia Indemnity Insurance Company v. SMG Holdings, Inc., No. C082841 (3rd Dist. 12/31/19) (per curiam), "concerns whether a binding arbitration clause in an insurance policy issued by plaintiff Philadelphia Indemnity Ins. Co., applies to a third party, defendant SMG Holdings, Inc." The trial court ruled it did not apply, and the Court of Appeal ruled it did apply.
Future Farmers of America had licensed the use of the Fresno Convention Center for an event from the Convention Center's manager, SMG. As a condition for doing so, SMG required that Future Farmers of America obtain an insurance policy that also provided coverage for SMG. When someone stepped into a parking lot pothole and suffered serious injury during the event, the injured person sued Fresno and SMG, and SMG tendered the claim to Philadelphia Indemnity Ins. Co. The insurance company claimed there was no coverage, and after a standoff, moved to compel arbitration.
The trial court determined that SMG was not a party to the arbitration clause, and denied the insurance company's motion to compel arbitration. The Court of Appeal, however, concluded that SMG was bound by the arbitration clause. SMG was an intended third party beneficiary; after all, it had insisted that Future Farmers of America provide it with insurance for the event. And SMG was equitably estopped from avoiding avoiding arbitration, because one cannot claim the benefits of a contract — in this case, insurance coverage — while denying the burdens — in this case, binding arbitration of a coverage dispute.
Ethics/Bias/Legislation: Mediator Phyllis Pollack Spoke About Implicit Bias To USDC Central District Mediators
And Provides Us With A Legislative Update . . .
Molecule Man. Edward R. Roybal Federal Building.
Implicit bias is a hot topic that is, or should be, of concern to mediators, arbitrators, judges, attorneys, and clients. Mediator Phyllis Pollack, who also lectures about ADR ethics at the USC Gould School of Law, spoke to United States District Court panel mediators about implicit bias at the Edward R. Roybal Federal Building & US Courthouse in Los Angeles on January 9, 2020, Pres. Richard Nixon's 107th birthday.
Pollack defined implicit bias as:
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- a preference for a group (positive or negative) often operating outside our awareness
- based on stereotypes and attitudes we hold
- tending to develop early in life and
- tending to strengthen over time
Pollack mentioned three legislative developments relevant to the subject of implicit bias:
1. The California CROWN (Create a Respectful and Open Workplace for Natural Hair) Act (SB 188), approved by the Governor on July 3, 2019. The purpose of this law is to prevent discrimination based on hairstyle, based on the belief that hairstyle can be a proxy for race. The new law explains the Legislature's intent: "Acting in accordance with the constitutional values of fairness, equity, and opportunity for all, the Legislature recognizes that continuing to enforce a Eurocentric image of professionalism through purportedly race-neutral grooming policies that disparately impact Black individuals and exclude them from some workplaces is in direct opposition to equity and opportunity for all."
Erich Honecker receives Angela Davis displaying influential hairstyle (1972). Wikimedia Commons. Peter Koard, photographer. German Federal Archives.
2. AB 242, approved by the Governor on October 2, 2019, will require implicit bias training for attorneys, as well as for all court staff who interact with the public. The new law will require attorneys to meet the requirements for each MCLE compliance period ending after January 31, 2023.
3. SB 41, approved by the Governor on July 30, 2019, will prohibit the estimation, measure, or calculation of past, present, or future damages for lost earnings or impaired earning capacity resulting from personal injury or wrongful death from being reduced based on race, ethnicity, or gender.
Reviews: The Browns Of California
Your Blogger Has Reviewed Miriam Pawel's Book, The Browns of California, in California Litigation.
I've reviewed Miriam Pawel's book, The Browns of California: The Family Dynasty That Transformed a State and Shaped a Nation. The review appears in California Litigation, the journal of the California Lawyers Association, Vol. 32, No. 3, p. 46 (2019). With the permission of the California Lawyers Association and its publication California Litigation, I am republishing the article and making it available by clicking here.
Happy New Year !
To all my readers,
Thanks for following along in 2019. Onwards to 2020!
Legislation: Judge Halts California Law Banning Pre-Dispute Employment Arbitration Agreements
Governor Brown Earlier Vetoed Legislation Banning Mandatory Employment Arbitration Based On FAA Preemption Concerns.
Laurence Darmiento, Staff Writer for the LA Times, has authored an article dated December 30, 2019, and entitled: "Judge halts California law banning forced arbitration at the workplace." Darmiento writes, "U.S. District Judge Kimberly Mueller ruled that the California Chamber of Commerce and other business groups had raised 'serious questions' about AB51, which was signed by Gov. Gavin Newsom following outrage over arbitration agreements that hid allegations of sexual harassment and assault against Hollywood producer Harvey Weinstein and other prominent figures." Pushback against the law came from employers, the U.S. Chamber of Commerce, the California Chamber of Commerce, and the National Retail Federation.