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Richard L. Darst

Effects of Federal Court Pre-Trial Processes Timing of Settlement Discussions Factors Affecting Settlement
Terms and Conditions of Settlement Agreement Other Provisions Closure

I. Effects of Federal Court Pre-Trial Processes

A. Settlement Practices of the Northern and Southern Districts of Indiana

For settlement conferences, it is essential to have a client representative for each side present who has settlement authority. Attorneys prefer to have the client present at a settlement conference, where personal appearances of the parties can be followed up with settlement negotiations. The appearances of the parties at other occasions which do not provide an opportunity to follow up with settlement negotiations are less productive.

B. Northern District Rule 26 Automatic Disclosures and Southern District Formal Discovery

Both the Northern District procedure and the Southern District procedure encourage the parties to engage in early discovery. Each procedure for achieving early discovery has its criticisms. The more counsel can cooperate to achieve early discovery, regardless of the procedure used, the better for the parties and the court. Some counsel cooperate in an informal review of the file before formal discovery. Copies of documents intended as exhibits must always be produced. The parties are also entitled to see relevant documents which the holder does not intend to introduce.

The argument is sometimes raised that a party does not know what documents are "relevant." The starting point for relevant documents is all of the documents which the client produces to the attorney representing the client for this case. If the client thought the documents were relevant, they probably are relevant, unless the attorney wants to take the responsibility of taking a position as to why a certain document is not relevant. Then, from the relevant documents, any privileged documents must then be described, and the claim of privilege objection must be specified.

Documents are requested by the attorney from the client in order to represent the client in the case, and those documents requested by the attorney are usually relevant. Any documents which the attorney considered relevant at any time are usually relevant, unless there is a specific reason why they are no longer relevant.

The term "relevant" is used in Rule 26 and in decisions enforcing motions to compel. When an attorney claims that he does not know what the term relevant means, he has not made an effort to determine what is relevant to the case. If an attorney makes a mistake as to what documents are relevant, he must be able to produce a good faith reason why he did not believe the documents were relevant. If the attorney or the client treated the documents as relevant at one time, there must be a reason stated as to why they are no longer relevant. If neither the attorney nor the client considered the documents relevant to the case at any time, the opponent would need to show a reason why the attorney would have been put on notice of their relevancy.

Both sides need to work to produce the relevant documents from their side. For example, relevant documents from the plaintiff would ordinarily include employment action documents, policies and handbooks, pay records, mitigation employment applications and payments, medical records or releases, and tax returns. Relevant documents from the defendant would ordinarily include plaintiff=s personnel file, comparable employees= personnel files, supervisors= personnel files, policies and handbooks, and similar complaints and employment actions. The parties may disagree on the scope of relevancy for such things as other employment, medical records, tax returns, comparable employees= personnel files, supervisors= personnel files, and similar complaints and employment actions. However, each party must take a position on the scope of relevancy, and if an agreement can not be reached, the court must decide. The facts of the case and the decisions in similar cases provide guidance for the parties and the court.


II. Timing of Settlement Discussions

Employment problems are like open wounds. They usually get worse if a remedy is not applied.

Back pay increases. Emotional distress increases. Attorney fees for the plaintiff increase. Attorney fees for the defendant increase. The parties are looking at ballooning damages.

Employment cases are not like automobile accident cases, where the cause of the damages has already occurred. In employment cases, the cause of the damages may be continuing. In an accident case, the defendant has little control over the mitigation of damages of the plaintiff after the initial occurrence. On the other hand, the parties in employment cases have the opportunity to reduce damages by early remedial action and settlement.

Often, the parties are not ready to enter into settlement negotiations early, because they do not have the facts. Employees assume that the employer knows all the facts, but that may not be true. Employers desire to depose the plaintiff to find out the facts and to see how the plaintiff holds up under questioning. If the parties can settle a case before depositions, the parties can save money. However, because of the above factors, the parties often are not able to capitalize on the opportunity.

The sooner the facts can be determined (to some reasonable extent), the sooner the parties can be ready for settlement negotiations. This illustrates the need for attorneys to find ways to resolve discovery disputes and to get on with the job of finding out the facts.

The job of attorneys is to resolve disputes, not to create disputes. The more attorneys create disputes, the more clients will choose alternate methods of resolving disputes than relying on attorneys. If all attorneys want to do is to argue, then we can argue ourselves out of business.

As in all settlement negotiations, each side must be realistic. If either party is not willing to be realistic in early settlement negotiations, then litigation must serve as the education process. Being realistic requires each party to be receptive to listen to and to try to understand the other side as well as the party=s own side. If a party is not receptive to listening to and understanding the other side, then settlement of the dispute has little chance.

Plaintiffs usually want to be compensated and to teach the employer a lesson. The employer does not want to change anything and wants to get out of the case as cheaply as possible. Each party may have information that the other party can learn from. Getting this information conveyed and used to settle the case is the job of the attorneys.

In the past, attorneys have tended to want to hide information from the other side and to surprise the other side with it at trial. This may be a counterproductive tendency for lawyers.


III. Factors Affecting Settlement

Plaintiffs are concerned with the facts of the case, what happened to them. Defendants are more interested in the economics of the case, how much will it cost. As a result, defendants analyze the parties and their counsel more in settlement negotiations than do plaintiffs. Plaintiffs tend to concentrate on the facts, unless the solvency of the defendant is an issue.

However, governmental defendants are a particular problem. They hire numerous attorneys for numerous cases, so the individual cost of the lawsuit is not a primary concern. That enables governmental defendants to demand that their retained attorneys "do what they are paid for," which is too often viewed as "to litigate" instead of to resolve problems. Governmental attorneys are famous for refusing to offer realistic settlements. Those actions cause the worst kinds of results. Either the government is surprised when a substantial judgment is entered or the government succeeds in defeating an employee who may have had some good points among the bad points.

Governmental leaders have tried to solve the problems with government lawyers, but they have not had much effect. President Clinton issued Executive Order 12988 on February 5, 1996 on Just and Efficient Government Civil Litigation, including settlement conferences and alternate dispute resolution, but the government attorneys have not followed it. For example, governmental lawyers have refused to stipulate to any facts in a case. Governmental lawyers use two or three lawyers at a time and then try to object to one plaintiff=s attorney=s more limited attorney hours. Governmental lawyers have tried to disqualify a private attorney who had been required to represent more than one plaintiff with similar interests. Governmental lawyers, more than any other lawyers, see their mission as being "to argue," "to defend," or "to litigate," instead of as being to resolve disputes. Governmental lawyers have discouraged witnesses from voluntarily coming to court to testify for a plaintiff, unless they were personally served with a subpoena. Government regulations which were intended to protect national security matters have been misused by governmental lawyers to try to prevent government employees from testifying against the government employer. Thus, the government often sets the worst example of what litigation should be like.

One defense tactic which is particularly counterproductive is the get-tough policy. In the last decade, it has been called hardball, in an effort to put an acceptable face on the tactic. Some attorneys have been taught that the tougher they are, the better lawyers they are. We do a disservice to attorneys to try to teach them to be tough, instead of problem solvers. We tell attorneys to fight, and then we are disappointed when all attorneys do is fight. Our training of attorneys needs to be examined.

If the client or the attorney wants to get tough with the other side, it usually only lengthens the proceedings and increases the damages and attorney fees. Sometimes, a defendant with extensive resources tries to wear down an employee with limited resources. It usually backfires by getting the plaintiff=s attorney more dedicated to the employee who is being abused. It also invites the plaintiff=s attorney to make more money through extended attorney work. When the client and counsel have a strong position, they can present it without obstructing discovery, engaging in harassing discovery, refusing to stipulate, filing dispositive motions in every case, or other obstructions.

Arguments over plaintiff=s attorney fees usually do not produce settlements. If the defendant wants to malign the plaintiff=s attorney as well as the plaintiff, chances of settlement are greatly reduced. Successful settlements usually involve an agreement to pay plaintiff=s attorney fees. If the defendant=s attorney does not trust the plaintiff=s attorney to be accurate, challenges can be made to particular portions. Governmental attorneys have been known to spend more money arguing about plaintiff=s attorney fees than could have been saved by not creating additional disputes for which attorney fees must be paid.

Another undesirable defense tactic is an attempt to create a conflict over money between plaintiff=s attorney and the plaintiff by offering a lump sum to be split between the two of them. The plaintiff=s attorney and the plaintiff can avoid the conflict by agreeing before the settlement negotiations what the client will pay the attorney. If the amount offered is not enough to cover the attorney fees and the damages needed by the client, then the case is tried, without further conflicts.

Plaintiffs are often criticized for carrying on a case to prove a principle, instead of resolving disputes on an economic basis. On the other hand, governmental employers and many private employers get caught up in the fear that if they provide any remedy for one employee, it will create a precedent. Fear of any remedial action inhibits the very remedial action which is required to solve the problem, and which may be required by law. Fear of a precedent may also create a trial which assures that a precedent will be set. A trial may also create more publicity, regardless of the outcome of the case. If a case is planned to be tried on principle, it better be a very important principle. Fear of a remedy or fear of a precedent are not such principles.


IV. Terms and Conditions of Settlement Agreement

A. Confidentiality

If confidentiality is addressed by the parties, it is often not addressed until late in the negotiations or after the negotiations. If, after negotiations, a party tenders a settlement agreement with a confidentiality provision which has not been bargained for and agreed upon, that party is not entitled to the provision. It is not a standard provision of a release. Furthermore, if it has not been requested during negotiations, no consideration has been given by the requester for confidentiality. The requester has not paid for the confidentiality provision. The additional consideration for the request for the confidentiality provision must be negotiated or the case tried.

Governmental defendants may have restrictions on them as to what they can keep confidential. If the government is not going to keep the matter confidential, the government should not be able to request the plaintiff to keep the matter confidential, but governments make those requests. It is up to the plaintiff to decide whether the plaintiff wants to agree to the request.

If the defendant has the ability to agree to keep the matter confidential, and if the defendant requests a confidentiality provision, and if the plaintiff is interested in keeping the matter confidential, then the plaintiff can request that the confidentiality provision be mutual. This provides the parties with equal rights and remedies and equal control over each other. A settlement agreement in which the plaintiff must be careful not to disclose any terms or be sued for damages, but which leaves the defendant free to tell anyone does not make any sense. In at least one case where a mutual confidentiality provision was signed, the defendant was less careful about not disclosing the terms than was the plaintiff.

There are also exceptions to any confidentiality provision which should be requested. These exceptions include the plaintiff=s immediate family, counsel, tax advisors, health advisors, and "except as required by law." The except-as-required-by- law provision allows the plaintiff to report to the tax authorities. It also permits the plaintiff to report to agencies and courts when ordered to do so. The defendant will want similar exceptions included, such as reporting the terms to superior decision-makers.

B. Allocation of Payments

Payments in employment cases can be made for back pay, front pay, benefits, emotional distress damages, punitive damages, and physical injury or physical illness. All of these damages, except the last, are usually taxable as income. 26 U.S.C. 104(a). Wages are additionally taxed for the employee=s portion of various social security taxes at the rate of .0765. The facts of the case may allow the parties to negotiate differently on some claims, but care should be taken not to create more problems.

Unless counsel is in the business of providing tax advice, counsel should advise the client in writing to consult with the client=s tax advisor about the tax consequences and the reporting requirements. Counsel should provide the client with all factual information about the allocation of payments in any settlement and allow the client to obtain the tax advice.

C. Indemnifications

Indemnifications, like confidentiality agreements, are often not bargained for, and thus, are not required. Indemnifications which are one-sided are particularly objectionable. In many cases, the defendant will submit an indemnification which has not been bargained for and which places great potential liability on the plaintiff. There is no incentive for a plaintiff to receive an inadequate amount of money and to subject himself to great potential liability. Counsel for plaintiffs should protect their clients from potential liability. Some counsel have considered the subject immaterial, because their clients are insolvent. However, it may be that the plaintiff will not always be insolvent, and there is no reason to agree to something which could possibly require the plaintiff to file for bankruptcy if the plaintiff does not have to. Such provisions can also be a cause of mental anguish for the plaintiffs.

Plaintiffs may be asked to indemnify the defendant for any of the employee=s tax obligations, but plaintiffs can not be expected to hold the employer harmless from the employer=s share of any tax obligations.

D. Restrictions On Future Employment

The employee has a right to work for the employer free of discrimination and retaliation. Many employers confirm their retaliation against the employee by stating that they do not want the employee to be able to work again for the employer. This is contrary to the employee=s statutory right. By law, the employee is not required to agree to such provision. If the employee ever desires to agree to such provision, he can be compensated for such provision. The compensation is in the nature of front pay from the employer. In some cases, this has been accomplished by keeping the employee on the payroll for a period of time as a consultant without any physical work being required.

In the best situation, the parties will resolve their differences through settlement of this case and will be able to work harmoniously together. They may even learn something from each other and improve their policies, procedures, and work habits. In order to be able to work together, the parties must be able to put aside any grudges after settlement of the case.

Defendants fear that they will be sued for retaliation if they settle a case, and if they engage in retaliation, they probably will be sued. If they have a legitimate independent basis for future actions, they have a defense.

However, in many cases, defendants take blatant retaliatory action against the employee and then wonder why the employee complained. Defendants have stated that they never want the employee to work for them again. Defendants have instructed their other employees not to talk to the plaintiff. Defendants have barred plaintiffs from their plant. Attorneys may be able to advise the parties so that they understand the law, and so that the parties are able to work together.

Plaintiffs may be reinstated to the same or similar positions. However, defendants should be careful not to retaliate against the plaintiff by transferring the plaintiff when an offender has not been transferred. The district court has been required to make the following obvious statement: "Penalizing the victim, as the Navy did here (through an unwanted transfer), is not an appropriate response to a claim of sexual harassment."

The intent of the law is to provide workplaces free of discrimination and retaliation. Counsel can help their clients achieve the purpose of the law and protect their clients at the same time.


V. Other Provisions

Sometimes the term "standard release" is used. An example of a standard form release is an Indianapolis Bar Association release form or other stationary form. If any other provisions are requested by any party, they must be negotiated. Otherwise, the parties are asking for trouble between the time of the close of negotiations and the signing of the documents.

Some releases attempt to omit the limitation that the release is for all claims to the date of the release. Releases of liability for future acts (as opposed to future damages) are contrary to public policy, contrary to the EEOC position, and simply invite litigation. They should not be executed.


VI. Closure

Just as counsel try to advise the parties in such a manner that they can work together, counsel should strive to achieve some closure between counsel. If the case has been settled, it was due in part to the work of the attorneys, and they should try to recognize the good work of each other.


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