To Settle or Not Settle: Crossroads in Litigation

When and whether to settle a lawsuit is a critical crossroad to almost every lawsuit. Given that a very high percentage of cases settle, by some estimates as high as 95%, we realize that decisions on settlement are critical.

The reason cases settle vary, but the common theme to settlements is the same for both sides: reducing the risk and expenses of continuing the litigation and receiving or paying a guaranteed sum. Thus the risks inherent in continuing the litigation are reduced to zero for both sides. There is finality. The case ends.

This points to one of the primary drivers to settlements: the cost of litigation, which in construction defect and real estate litigation matters can be expensive, in large part because these cases require experts to testify at trial on matters such as the existence and extend of defects, the scope of repair, the costs, any consequential damages, property value and standards of care. Experts are expensive, and while there are instances where expert fees are recoverable, generally they are not, and in the circumstance where there is a § 998 offer to compromise, an award of expert fees is discretionary, meaning the court has wide latitude to decide the issue, can award none or all, and the court’s decision is unlikely to be overturned on appeal. So, in any settlement negotiation, especially those that take place before the expert witness designations (50 days before trial), expert costs yet to be incurred are a paramount consideration. And, one of the simple questions is this: If the case does not settle, what are the expenses going forward, and does it make sense to continue to spend, while seeking to recover what is being spent, plus the difference between the settlement positions.

Another consideration is the financial strength of the parties. Do the defendants have the assets, collectible assets, financial ability and insurance, to pay the claim in full if you win, or pay the sum your seeking in settlement if you settle the case? Does a plaintiff have the resources to continue?

settle or continue litigation

A prominent consideration in the settlement and negotiation of settlements in construction defect cases is the availability of insurance. Notable, the matters that contractors’ insurance covers is actually very limited, and does not cover defects that have not caused property damage, with limitations on coverage for property damage claims as well, no coverage for fraud, and doubtful coverage for attorney fees and your experts. The solution is that a plaintiff must investigate the assets of persons involved, and specifically real property which they own in this state with substantial equity, and determine whether these persons participated in the tort, which renders them individually liable without the need to pierce the veil of the corporation or pursue alter ego liability. Individuals who participate in torts are individually liable, Francis T. vs. Village Green Owners Assn. (1986) 42 Cal.3d 490, 580.  This applies in particular to Responsible Managing Officers, or RMO, of construction contractors, who is the person who hold the contractor’ license for that entity. By law, the RMO has a non-delegable duty to directly supervise the construction, which makes an inquiry into whether the RMO participated in creating the defects either by directly supervising the creation of those defects, or who allowed the defects to occur because the RMO failed to directly supervise the construction, is an important line of inquiry to determine involvement, participation and individual liability.  Many contractors take on multiple projects and utilize one RMO, who is often so overtaxed with the task of supervision, that real supervision is compromised and the RMO becomes a scheduler, simply coordinating the trades and subcontractors to keep the project moving, not actually directly supervising the construction.

Piercing the veil of the corporation is another approach. However, whether the veil is pierced may not be determined until trial, or even after trial, when a judgment is rendered. In any event, all individual-person targets should be investigated for assets, particularly valuable real estate assets. This analysis is especially important in dealing with small corporations and LLCs which may not adhere to the separateness of the entity from themselves, and the entity is merely a figurehead.

Many parties establish family trusts in the mistaken belief that property and assets place in these trusts are shielded from creditors. These trusts are typically revocable and controlled by the person who established the trust and are therefore that person’s assets, not the trust’s.. In essence, they personally own the asset, and the asset is subject to collection on a judgment after trial.

The point of this analysis is not to focus on the collectability of a judgment, or trial, although that is an important analysis. Rather, the point is to develop an awareness of the financial means and vulnerability of target defendants and develop approach that in the case and in settlement negotiations and to use that information to further the settlement negotiations and assist in the settlement by creating and multiply the persons, entities and insurance carriers who contribute to the settlement. The more contributions, the better, for everyone.

Many settlements take place several months before trial. At this point in time, the parties are all familiar with this case and the sides have likely already engaged in some settlement discussions, such that the respective settlement positions are known. A compromise by all sides, looking at the costs, the benefit of a zero risk settlement and the goals one seeks to accomplish drive all settlement discussions, especially those that result in settlement. Importantly, parties to settlement negotiations should not become enamored of their own position, and continually work to explore the opposing view of the case, and the often substantial room for flexibility that almost always exist.

Many experts say a good settlement is disliked by all, attributing this to a compromise. However, there is a different view, which is that a good settlement attains the best offer available at that time, taking into account the costs, the time consumed and risks of trial, and with an analysis of these factors, reaches for that result.

Norton & Associates settlement strategy is simple: Focus on settlement from the outset, develop a damages analysis, and exposure analysis for defendants and pursue mediation and settlement negotiations from the beginning, while preparing the case for trial, and that will fuel the settlement and provide the clearest sign of your resolve and give you the detailed information to build your case, build your understanding of your damages, which must be accurate and combined with internal discussions of the nuances of your case. And, note that most cases require more than one mediation/settlement sessions to acclimate the parties to the parameters of the case and what it will take to reach a resolution by settlement.

If you have an existing construction defect or real estate matter and you have concerns about your settlement negotiations and how they’re being handled, call today for a consultation.

Settlements are a vital element of every case.  They must be handled with care.

For a consultation on your construction defect settlement issues, call Norton & Associates at: (310) 706-4134, or visit us on the web at: constructiondefect.com to make an appointment.

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