Settlement
Dynamics of Conflict and Resolution, Part 2: Settlement
By Sherry Cassedy, J.D., MA
As Family Lawyers, we walk intrepidly into the fire of human relationships, often without our asbestos suits. We are schooled in the law and the procedures for finding resolution in the courts, but our education about relationship dynamics and resolution outside the courtroom is gained through hard-earned experience. This series of two articles will attempt to shed some light on the human dynamics of the day-to-day work we engage in with clients, opposing counsel and ourselves, and offer some strategies for structuring our daily interactions to more effectively manage conflict and for structuring settlement processes to resolve cases and keep them settled.
Part II. Settlement.
Family lawyers, mediators and judges generally recognize that resolution of a family law case by settlement will better serve the clients’ interests, economically and emotionally, than a trial. And, in fact, the overwhelming majority of family law cases do settle, some early on and some on the proverbial courthouse steps. This article will attempt to map out some of the required elements for reaching settlement and strategies for keeping the case settled.
Settlement of a family law case is a dynamic process and requires a convergence of various elements, including Preparation, Parties, Plan and Process. “Preparation” refers to the essential process of gathering information and analyzing legal theories and potential outcomes. “Parties” refers to the emotional and psychological readiness of each person to resolve the case and move forward. “Plan” is the basic construct of settlement terms that allows each person to see a way forward. “Process” is the dynamic between the parties, the attorneys, the settlement officer (whether mediator, private judge or public court) that affirms and refines the Plan for settlement, commits each party to it and creates the legal framework for implementation and enforcement.
A. Getting Started.
1. Complexity and Conflict. Each family law case is a unique combination of issues and personalities and will take its own course to resolution. Generally, the two primary determinants of the length of time and the amount of formality required to bring a case to resolution are (1) the complexity of the issues and (2) the level of conflict between the parties. I have had a complex venture capital case arrive in my office with an agreed-upon fairly simplistic settlement between two highly cooperative parties that we were then able to confirm and document very expeditiously (high complexity, low conflict). And I have had straightforward property and support issues that have taken painstaking hours to clarify and resolve due to high levels of emotion, distrust, and the other indicators of negative intimacy referenced in Part I of this article (low complexity, high conflict). The high complexity, high conflict cases are often late to resolve, if at all. In order to structure the case for settlement, it is important to make an assessment early on of the conflict and complexity of the case and then to plan accordingly to structure relationships to reduce conflict and engage resources to address the complexity.
2. Getting Off on the Right Foot. Recognizing that ultimately the majority of cases will settle, we can approach the case in a way that will facilitate a more cooperative tenor. How the case begins can set the tone and expectations for both the parties and the attorneys as to how the case will progress. The parties have likely not been through a divorce before and they rely upon their counsel for guidance on how to engage with the other party and attorney. Simple courtesies such as service by Notice and Acknowledgement of Receipt, early direct and civil communication with opposing counsel, and proactive problem solving to create a reasonable and stable temporary holding pattern, will go a long way toward creating a fertile ground for eventual settlement discussions. Early engagement of a neutral professional for case management can also help focus on preparation for settlement and provide a broader perspective for forward progress.
Establishment of a functional temporary financial and living arrangement is critical to successful settlement. It is likely to take several months or even years to finalize the property and support settlement. The parties need a stable operating plan during this time to be able to reduce day-to-day tensions and look toward the larger picture. If counsel is constantly putting out fires on the monthly support and expenses or child custody arrangements, it is very difficult to do the preparation of the larger case.
B. Preparation.
Having established a temporary arrangement, we will turn our attention to resolution of the overall case. How does preparation for settlement differ from preparation for trial? In the initial stages, probably not much. Counsel must evaluate the case in terms of identifying the legal and factual issues and conducting research of each. However, the level of investigation may differ significantly for trial and for settlement. The factual investigation may be less formal for settlement purposes in that counsel need not have every document authenticated in order to rely upon it for settlement but will certainly need to do so if the case goes to trial. The legal analysis similarly will be more focused as you will invest time in those issues that have significant value to the end result. It is important to make an assessment of the dollar value of each issue in order to prioritize research and begin to make cost-benefit decisions about what areas to pursue.
For example, date of separation is often a hotly disputed issue, with high emotion and contradictory “testimony” from each party. Often counsel will view this as a threshold issue to be resolved prior to the other issues. Chronologically this makes sense but it may be an unnecessary escalation of conflict. If we first evaluate what the issue is worth—what property and support rights will be impacted by the date of separation and to what extent—we may realize that it can be deferred for later resolution as part of a comprehensive settlement. This does require that values be established or at least approximated based on the alternative dates of separation, again helping to quantify the value of the difference. While it may be more efficient to determine the date of separation and only have one value based on that date, the cost of taking this issue first may defeat or seriously impair the settlement process.
Ultimately, to be ready to enter serious settlement discussions, counsel must have a strong assessment of the case both the facts, not only according to their client but with an understanding of the other party’s position, and the law as to areas of ambiguity and the strengths and weaknesses of various arguments. Then the attorney is able to prepare the client for settlement in an informed and responsible manner.
C. Parties.
Preparation of the client for settlement begins at the first meeting as counsel sets reasonable expectations for how the case will progress, informing the client of the limitations of the court’s powers and the expense of full litigation. Many of our clients have not previously interfaced with attorneys or the court system and have a sense of the court as an arbiter of right and wrong and fairness who will redress their perceived wrongs. A client in search of vindication in the courts is rarely satisfied and that education process begins at the outset. Counsel will advise the client about the various processes for reaching resolution including mediation, collaboration, negotiation and litigation. Counsel is also educating the client about the law as the client is informing counsel of the facts, at least as they see them. As this process continues, counsel will share his/her evaluation of the case with the client and set reasonable expectations for resolution by a court which then frames the possible range of settlement outcomes.
In more complex cases, I have used a spreadsheet to illustrate the cost-benefit analysis, showing each issue, client’s reasonable best case result, client’s reasonable worst case result, cost of litigating the issue. This tool immediately highlights the most valuable and the most contentious issues, the relative costs associated with each as well as the overall cost of litigation. It gives the client in black and white the assessment counsel is carrying in his/her head and forms a basis for evaluating settlement offers and responses.
It is also important that the other party is receiving a similar education and preparation process. If the other party’s expectations are substantially different from yours and your client’s, it will be difficult to find common ground. Recourse to a neutral mediator or judge can be helpful to adjust expectations. That may be in the form of settlement assistance or a neutral evaluation of an issue or hearing or trial. Although generally, it is preferable if the parties can avoid a contested hearing, sometimes it is a necessary step to temper the expectations of one or both parties. Unfortunately, it can also lead to a heightened need for vindication and escalate the conflict.
D. Plan.
As counsel and client work together, the format of a settlement will begin to take shape. The major issues will be identified: What will happen with the house, the business; How does that drive the balance of the assets; What is the likely extent of spousal support and is either party interested in a structured settlement or buy out of support; What are the difficult to value assets and how will they be addressed. The answers to these and other questions will establish a basic framework for the property division and support. It is important to consider all of the possible options because sometimes the more conventional approach is not realistic.
For example, Husband may be interested in buying Wife out of the house. If there are not sufficient other assets to do so, he will need to take on additional debt to do so. When he looks at paying the original costs of the house plus the new debt plus child and spousal support, it may not be possible. He might then take an aggressive position on the value of the house or support to make the overall plan workable. If it is not feasible for him to carry the finances of this deal, it is not a workable Plan. Rather than digging into battle over the value of house and support, explore other options to accomplish the objectives. Is Wife willing to maintain an interest, it need not be a full 50%, in the house for a period of time. If she believes the market is likely to improve, she might be. She might also be willing to carry a note for short period of time if there are other attractive features of the overall settlement for her. The Plan must address the reality of the financial situation and both parties’ objectives in order to be realistic.
In one complex, high conflict case, the parties in a long-term marriage shared a series of complex partnership interests in which they would remain partners going forward. Husband was continuing in the business and wife was claiming a community interest in the future business as well as substantial support. Husband was unwilling to buy Wife out of the business or pay long-term support. On the day of trial, we recognized that under any circumstances, these parties were going to be business partners for a long time. We were able to structure a settlement that allowed Wife to participate in future business deals and that created an incentive for Husband to ensure that she was successful in doing so since if her income from the business reached a certain threshold, he was not obligated for support. It was a complex settlement of a complex situation, but created positive incentives for both of them to work together and to share the future benefits.
It is not uncommon for a complex case to require a complex Plan for settlement and counsel must be patient in investigating and refining the terms. Often this may involve consultation with corporate, tax or estate counsel, to ensure the viability of the Plan. It may also be that the Plan is very simple. In a long-term venture capital marriage where the parties were invested in numerous funds over time and Husband had a solid track record and bright future for more funds, the parties agreed that all funds in existence at separation would be community even though they were continuing to vest post-separation and that all future funds were separate property though arguments could be made for a community interest. Though simple, it met both parties needs for clarity and autonomy.
Constructing the Plan for settlement requires full exploration with your own client but cannot be accomplished without considerable engagement with the other party and counsel to determine if the Plan also meets their objectives. This is the blueprint upon which the settlement will be constructed and if you do not have agreement from both parties on the Plan, whatever you try to build from there is vulnerable to collapse.
E. Process.
1. When the Iron is Hot. The timing of settlement varies wildly and is often difficult to predict. It is important to be attentive to signals and openings for settlement throughout the case. Both parties must be ready to come to terms. If one party is not ready either psychologically or in terms of understanding the overall finances, even a very good settlement offer will be spurned. This is dangerous for both sides because the rejecting party may have missed a golden opportunity and the offering party has potentially set a bar from which they will be unable to retreat. It is also important to know whether the other attorney is ready for settlement in terms of their due diligence and if they have adequate information to evaluate or recommend the settlement. These are important factors to assess before making a proposal on behalf of your client who may be anxious to do so. Explain the hazards of a premature proposal and temper the client’s expectations about timing of the resolution.
2. Big Issues/Small Issues. There are (at least) two schools of thought: “If we settle the major issue, everything else will fall into place” and “Let’s resolve the easier issues and then tackle the more difficult.” Both have merit and both have potential problems. To resolve the big issues is likely to require heavy negotiation and compromise, leaving the parties feeling that they have “given” substantially. This may make the smaller issues loom large if either or both party feels that they have made their big concession and have reached their limit. Thus the battle to the death over the shrimp forks or fireplace andirons (both actual large asset cases). Taking up the easier issues first may work well if they are in fact, easier and relatively uncontested. This may allow the parties to practice give and take and creative thinking in preparation for tackling the tougher issues. It may also exhaust their goodwill before you get to the major issues. And it is important to know what really are the “big issues”. Sometimes they are not the most valuable in dollars but have huge emotional meanings.
What we often do as a practical matter is to address the issues incrementally. A first pass to determine what is agreed in terms of characterization, valuation and disposition. A next pass to quantify the areas of disagreement and map out implementation of areas of agreement. Another pass to further refine options for resolution of disputed issues and to confirm agreements. At each turn, both parties are usually adamant that nothing is agreed until there is a complete agreement. Sometimes though it is possible to make independent agreements, for example on personal property, retirement plans or accountings. Seize those opportunities, confirm the agreements and start building the settlement structure.
3. The Pump is Primed. When the issues have been reviewed and the parties are ready to come to terms with the major issues, I recommend first circling back and confirming all of the tentatively agreed-upon terms, so that if they are able to reach agreement, there are no loose ends or ambiguities which will then sabotage the overall agreement.
When the case is fully poised for settlement, we must keep in mind and prepare our clients for the emotional fallout of settlement. It is not unusual to see clients in cases that have gone on for years in hard-fought battle, reduced to tears and some level of grief upon a final resolution. If the attorney and the client recognize that it is an emotional as well as a legal culmination, these emotional responses will be normalized and are less likely to interfere with a reasonable settlement.
It is a delicate process to determine how much to press a client who is emotionally exhausted. This is when the attorney-client relationship that has been built over months of hard work is drawn upon, to support and advise the client but also to respect his/her mental and psychological limits. Recognizing when the client may need “to sleep on it” or when the time is right to commit is truly an art, and all of our hard-earned experience comes to the fore. When the clients do make a commitment, I also advise them that it is not uncommon to have a sense of “buyer’s remorse” the next day, and I sometimes provide additional support such as summarizing the settlement relative to either their respective settlement positions or likely legal results.
4. Keeping it Settled. We are all too familiar with Code of Civil Procedure section 664.6 and a full treatment of the requirements and practice tips with respect to enforcement of settlement agreements is beyond the scope of this article. There are some critical practical aspects that I will offer.
First, the client’s sense of commitment to the settlement is likely the key factor in keeping the case settled. The more arm-twisting and hand-wringing involved in reaching the settlement, the more vulnerable it may be to second thoughts. Stay in contact with the client to support them and respond to their questions.
Second, document the settlement as soon as possible. If it is a complex case, a Term Sheet is advisable since it may take months to draft a comprehensive Marital Settlement Agreement (MSA). Prepare the clients for the fact that in a complex case, the documentation will take some time, even months, to finalize. In the meantime, you have an enforceable settlement based on the signed Term Sheet.
Third, the devil is in the details. This may arise in drafting of the Term Sheet, but try to hold to the critical terms and provide a mechanism for resolving any disputes in drafting of the MSA. Otherwise, the settlement will disappear as you attempt to lock down each detail of the settlement and its implementation.
Fourth, consider appointing a Judge Pro Tem to supervise the settlement, and potentially to resolve disputes in the drafting of the MSA. This may mean appointing your mediator or another neutral as a Judge Pro Tem for settlement so that he/she is able to serve as a judicial officer for purposes of CCP 664.6. To be effective, the appointment should be completed (oath of office signed and order filed with the Superior Court) prior to your settlement.
Fifth, a belts and suspenders approach. I have had occasion to record settlements for the purpose not only of CCP section 664.6, but for other claims as a basis for set aside including duress, disclosure and the like. By holding a brief settlement confirmation conference before the court, you create a record of the parties’ understanding and confirmation of the settlement. The recorded voir dire of the parties will be preserved and not limited to the judge’s recollection or interpretation. Rather the parties commit to the terms and state their understanding of the limitations and the binding nature of the settlement, and agree to be bound. This is an extraordinary precaution but one that is available in that extraordinary case that we have all encountered where the likelihood of claims for set aside is very high.
F. Conclusion: As I continue my Family Law practice, especially in the role of neutral mediator or judge, I find that the settlement of cases is more art than trade. By that I mean, it is as much about attending to the dynamics of the parties and their respective readiness for resolution as about all of the substantive preparation of the case. The preparation is essential and then it is important to look for signals and think creatively about how to bring the essential elements together in a final resolution.
A recent case brought this insight home and actually inspired this article. The couple had been separated for several years managing very well with both finances and young children. They then entered into hard-fought litigation with attorneys and accountants analyzing all of the angles on how to treat the lengthy separation period. When I became involved in the settlement discussions, I was curious how they could have managed so well for a long period and then shifted into intense adversarial action. What I heard from each of them was some confusion about that as well, a sense of betrayal, and a deep concern for their children and the well-being of the other. When I suggested that we meet without counsel for one short session so that they could share some of their feelings, they readily agreed, as did their attorneys. What followed were two intense mediation sessions where each shared their feelings about what had transpired, their hopes for the future and their positions about how to resolve the case. They came to terms. I drafted a Term Sheet which they signed with counsel the following week and counsel had the MSA drafted and reviewed two weeks later. The parties were ready to settle the case and really needed the opportunity to speak directly with each other in a structured environment to do so and to be able to move forward as coparents.
The settlement releases the parties to move forward with their respective lives which is the primary objective from the outset of each case. Thus a final word of advice which I learned from a client upon final settlement of a long-standing, complex, high conflict dissolution: “Better done than perfect.”