The chair with 4 legs

Let's say that you need to reach something important or valuable on a high shelf. You can't find a stepladder and you decide to stand on a chair instead. Of course, you don't want to fall -- if you do, you won't reach the important object and you might end up badly injured. So, you look for a sturdy chair.

Who, in this example, would think about using a chair with only one leg? Or even two legs? Nobody who has a sensible approach and who is careful in how they do things. That person would reach for a chair with four sturdy legs---and that person would probably give the chair a test to make sure that all the legs are solid before climbing up to reach for the important object.

In mediation, I often analogize a lawsuit to the chair with four legs. And, just like in real life, a chair that's missing legs, or has all four but they are wobbly, isn't going to provide good support or lead to success in grabbing the valuable object on the shelf -- which is, of course, a great settlement, a great verdict or great arbitration award. So often I see counsel and parties trying to stand on a chair that's missing legs or teetering on a chair where all the legs are there but some are ready to snap at any moment. More concerning is how often the lawyers and clients convince themselves that they don't need all four legs -- they think that the strength of only one leg will be enough to support their reach for the valuable object. As they reach, they balance precariously on that one leg, hoping that they can snatch the valuable object off the shelf before they come crashing down. It's an optimistic approach, but it usually doesn't work.

What are the four legs of our lawsuit chair? We could label them: liability, damages, intangibles and collectability.

Liability, of course, simply means the ability to prove a legal wrong, whether negligence, breach of contract, fraud, strict liability, or some other legal theory that allows you to seek legally recoverable damages. Damages are the obvious second leg. What are the "intangibles?" These are a group of factors that can profoundly affect the strength of our lawsuit chair. They include factors like the appearance of the "star" witness, the ability of your client or important witness to effectively communicate, bias on the part of the trier of fact, a document or other evidence that has a serious impact on credibility (of your side or the other side), "likeability," sympathy, socio-economic standing, overreaching, an uncontrollable client or witness, a claim that is or isn't likely to "resonate" with the trier of fact or some other factor that isn't directly related to liability or damages that might derail your case. Finally, the fourth leg of our chair is collectability. You have won, but will you ever be able to collect your judgment or arbitration award?

There are many cases of clear liability but no damages or damages that are so small that it's not worth the time, money and effort to even reach for the chair, let alone stand on the chair and reach for the verdict. Likewise, there are many cases where liability is weak but damages are strong. Because there are no damages at all without liability, these cases become an "all or nothing" endeavor. If the trier of fact fails to find liability, there won't be any discussion of damages.

A recent case provides an interesting illustration of this (as usual, I have changed the facts somewhat to protect confidentiality). The plaintiff buys a commercial property. The title report shows nothing unusual. Months later, the buyer starts to construct a storage shed in a portion of the parking lot of his property. The owner of the adjacent property tells the owner that he has an easement over the area in question and demands that he remove the shed. The adjacent property owner produces the easement, which was "missed" by the title company. Liability in the case is clear. We have one leg of the chair. The buyer claims that had he known of the easement, he would not have bought the property -- he states that he had other choices and had identified another property that he could have bought for the same price that was unencumbered by any easement. The title company points to a standard provision in the policy, and well-settled case law that supports the argument that it isn't liable for "reliance" damages, e.g., the buyer's claim that he relied on the title report in making the decision to buy this particular property. The title company argues that their policy limits damages to the diminution in value caused by the title defect, which in this case is minimal -- only a few thousand dollars.

At the mediation the buyer was extremely focused on the fact that he relied on the title report in deciding to buy the property. He repeatedly said to me: "If I had known of the easement, I never would have bought this building." It was a classic case of focusing on only one leg of the chair -- and not understanding that at least one other important leg was missing.

In another recent case involving non-disclosure in a residential real estate transaction the buyer discovered that the windows in a comprehensively remodeled home had been installed incorrectly, leading to massive water intrusion and a costly repair bill. The damages leg of the chair was clear and solid. But what about the liability leg? The seller had hired a licensed general contractor. The work was inspected and permitted. There had been no rain between the completion of the building and the time of sale. There were no water leaks or other visible clues to show that the windows had been installed incorrectly. The remodel was a one-time effort (meaning that there was no strict liability argument). The seller liability leg of the chair was missing at worst or too weak to stand on at best.

Can you guess what the buyer said, over and over during the mediation? "But it's going to cost me $200,000 to replace the windows!" The buyer was right, but the challenge in the mediation was to help the buyer understand that his focus on damages, to the exclusion of liability, left him with an unstable chair -- and he wasn't going to be able to grab the verdict from the top shelf.

The intangible leg of chair, by its very nature, is often the most difficult leg to analyze in evaluating the risk of a case but in so many cases this leg will make the difference between winning and losing. Here are some examples from recent cases: in a case where credibility was a central issue, one of the parties had been convicted of financial fraud and served time in prison. The conviction was recent and involved moral turpitude. In many respects the convicted felon had a good case but the overwhelming likelihood that the felony conviction would be admitted in evidence took all the legs out from under the chair.

In another case the plaintiff in a commercial breach of lease case had a strong liability and damages claim, but was so enraged at the conduct of the defendant that he was unable to control himself. At the mediation, every time I asked him to comment on something he broke into a profanity laced tirade, delivered at maximum volume. After the first couple of such outbursts his lawyer told me privately "By the time of the trial, I will have him under control." After another 5 or 6 shouting episodes the lawyer told me privately: "I can't try this case."

In a construction dispute the owner was requesting payment for delay damages when it was clear that there were no documents to support the claim. The owner's counsel was unable to persuade the owner that his claim was not only unfounded, it would "poison" the rest of the case because it was an obvious overreach. A case that otherwise had four strong legs was severely weakened by this intangible element.

All of these examples are similar in three important ways. First, there is a tendency to focus on the strongest leg of the case and to lose focus on the fact that the other legs are weak. Second, there is a tendency to underestimate the need for the lawsuit chair to have four strong legs and to realize that even one weak leg can cause the collapse of the whole case. Third, there is a tendency to resist the independent risk analysis of the mediator in suggesting weakness in the legs of the chair.

Before your next mediation give some thought to the visual image of the four-legged chair. Ask yourself: Do I have four strong legs in this case? Do I have liability, damages, intangibles and collectability working in my favor? Or do I have a wobbly chair that's likely to collapse before I get to the top shelf, leaving me in a heap on the floor? One strong leg, or even two, isn't usually enough to support a case. In just the same way that you wouldn't want to stand on a chair with one leg in real life, think about whether you want to climb on such a chair in court or arbitration. 