Most in-house counsel do not like litigation. For many, it is a distraction from the main task of keeping the company moving forward and can expose the company to reputational damage and financial loss, even if successful. Conversely, when seeking recovery for injury suffered, in-house counsel have the unenviable job of explaining internally that full recovery is seldom achieved even for the most egregious breach because of trial risk, legal fees, and the unknowns of the legal process.
Corporations like certainty. It enables them to plan. But litigation involves too many variables, making it something to be avoided if possible. However, for many companies, this isn’t possible. For commercial litigation claims, in-house counsel will typically turn to the litigation departments of their external corporate legal advisors. The latter understand the business imperatives of the litigation from the company’s perspective.
Many cases are filed at, or near, the expiration of the limitation period. Many companies try to resolve disputes before going into litigation, and some even manage to do so. Despite this, a significant number of cases filed against companies appear to have arisen from the companies’ perspective with little or no prior indication that the parties were about to become embroiled in a litigated dispute. This may be strategic on the part of the party bringing the suit, or expediency to prevent further damage occurring, or simply the need to preserve causes of action before they become extinguished by applying the limitation period. Whatever the reason, they are an unwelcome intrusion on the business of managing the company’s legal affairs and rarely arise at a convenient time.
Early Resolution & External Counsel
The solution most often adopted is to hand over much of the responsibility for investigating the claims to external counsel who can protect the investigation through legal privilege and buy sufficient time for a considered response. By asking external counsel to undertake this initial step in the litigation, in-house counsel will be able to continue to address their current workload and ensure that they are not pressured into making unsupported claims about the likely course of the dispute.
However, the downside of this approach is that many cases take on a life of their own when an answer is filed, and early resolution is usually the first casualty in this process. In part, early resolution is challenging because in the early stages of litigation, the external legal advisors have, in their view, insufficient information to assess legal liability–let alone the potential financial exposure. As a result, many commercial cases move full speed through discovery, and only when sufficient information has been gathered is the case considered ripe for resolution. This approach can merit from establishing the facts and even a better understanding of the legal exposure. However, it can entrench the parties, cost significant amounts of external fees and internal resources and generally interfere with the company’s day-to-day activities, or at least those of its internal counsel.
While many supporters of early mediation extol its virtues in terms of cost-saving and the ability to put disputes behind the affected company, this potential solution is often overlooked internally (as well as externally). The decision to settle early is likely to be based on a smaller set of known facts, resolving the case subject to scrutiny. The advantages of early mediation are therefore often minimized and dismissed in favor of the need for certainty. Too often, the total cost of obtaining that apparent certainty through litigation is overlooked, and, ironically, only a trial (which itself is uncertain) will provide certainty. However, it may not be the certainty that either party wanted.
Gaining a Better Perspective on the Nature of the Dispute
Litigators tend to concentrate on liability early on in the litigation process, however, most cases settle on the issue of “how much”. Too often, the different legal basis for damage calculations and financial losses are addressed later in the litigation cycle, which drives litigation over settlement in the early phases of the dispute. For companies, and their external advisors, greater emphasis on the “how much “of the dispute, at the earliest opportunity, is likely to provide a better perspective of the nature of the dispute compared with any amount of liability assessment. “How much” may not just be the dollar amount but may include critical business issues such as reputation, Intellectual Property ownership, and even the business` viability. An early assessment of the cost of the exposure facing the companies involved has the advantage of positioning the matter for earlier resolution.
For corporate counsel, early mediation, when properly handled and undertaken with a solid understanding of the actual cost of the litigation to both/all parties, can result in settlement. However, even if settlement cannot be reached, early mediation will likely significantly reduce the ambit of the dispute. It can shed light on the issues that are central to the case and provide insight into the likely trajectory of the litigation. It also has the added advantage that it will likely reduce the overall cost of the litigation and reduce the amount of animosity that may be an issue if the matter continues through discovery. Many of the tangential issues may fall away from following a constructive meeting between the parties and a skilled mediator.
Consider the Full Benefits of Early Mediation
The apparent barriers to seeking early mediation are often emphasized as the parties, trained and rewarded for their ability to provide certainty, are hesitant to mediate early in the case for fear of giving away arguments or being unable to advise definitively on facts or the law. The irony of this is apparent to those who regularly litigate, as typically, it is the uncertainty of trial that is most cited as a key reason to settle. Mediation, which is controlled by the parties and can only lead to settlement if the parties agree on all terms, seems an obvious solution for corporate counsel, especially where the costs of proceeding through discovery are likely to cost both sides a disproportionate percentage of the amount in dispute. However, it is equally beneficial to narrow the issues so that a rational decision can be taken as to whether to continue litigation rather than seek compromise. While not every dispute can, or even should, be settled early or even at all, corporate counsel may consider the benefits of early mediation.
A failed mediation is not a mediation without a settlement but rather a mediation that doesn’t settle where the parties learn nothing about the strengths or weaknesses of their case. For in-house counsel, a mediation often provides the best and most accurate insight into their company’s position and an opportunity to discuss the matter with their adversary. For those that embrace early mediation and prepare properly, those rewards come earlier.