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James Nolan didn’t know what hit him. On a bright June day in 1997, Nolan, a retired telephone engineer, was hosing down the underside of his running Lawn-Boy lawn mower when a lug nut came loose from the machine. The nut shot out from the mower, ricocheted off the pavement, and smashed the second knuckle of Nolan’s index finger. A trip to the emergency room confirmed a crushed bone, severed tendon, and nerve damage. Not long after the incident, Nolan fired off an angry letter to the Bloomington, Minnesota, headquarters of The Toro Company, the outdoor equipment manufacturer. (Toro acquired Lawn-Boy in 1989.) In the letter, Nolan blamed the accident on faulty design. But he didn’t threaten to sue. “I was angry and thought that [Toro] was probably at fault,” he recalls. “But I really wasn’t expecting the company to send me a check.” A week after he sent the letter, Carol Kelly, a paralegal from Toro’s legal department, called Nolan to ask if she and a company engineer, Herman Christopherson, could visit him to talk about the accident. Nolan was skeptical at first: Was the meeting just a public relations ploy? But then Kelly told Nolan that she had the authority to settle claims. Kelly and the engineer showed up at Nolan’s Lansing, Michigan, doorstep a few weeks later. They inspected the mower, answered Nolan’s questions about its design, and expressed sympathy for the accident. Later, over coffee, Kelly told Nolan that although he had misused the mower by cleaning it while it was running, the company would still compensate him for his injury. In return for a waiver of his claims, Nolan would get a new mower and a payout in the “low five figures.” Nolan was thrilled: “It was a lot more than I’d expected.” Kelly says that she and Christopherson were pleased with the outcome too, even though they thought Nolan’s case was weak. They’d settled yet another potential claim without involving any lawyers or legal fees and had managed to hold on to a customer. Nolan, who says his relationship with Toro went “from bad to wonderful,” sent Kelly a handwritten thank-you note. Resolving cases before legal expenses pile up certainly isn’t a novel corporate strategy. But over the past decade, few companies have pushed settlements for product liability claims as aggressively and systematically as Toro. The $1.5 billion business uses a slick, highly choreographed approach that includes nonthreatening paralegals, experienced settlement counsel, and mediators familiar with Toro’s preference for early case resolution. The program has been in place since 1991, and Toro says it will have saved $100 million in litigation costs by mid-2005. “Toro is the pioneer of the aggressive settlement strategy,” says Taysen Van Itallie, an associate general counsel at Johnson & Johnson. Five years ago, J&J began incorporating Toro’s “settlement-first” methods into its own litigation approach, in an effort to save legal costs. Toro has cut the cost of handling each claim it receives by some $80,000, from $115,000 to only $35,000 � a figure that includes lawyers’ fees, verdicts, and payouts � according to “product integrity manager” Andrew Byers. The head of Toro’s settlement program, Byers boasts that his company hasn’t “set foot in a courtroom” on a product liability claim since 1994. Toro’s program has a few loyal followers. J&J, E.I. du Pont de Nemours and Company, Georgia-Pacific Corporation, and General Electric Company have adopted settlement-friendly litigation programs, that are, in part, based on the Toro model. According to Elpidio “P.D.” Villarreal, GE’s counsel of litigation and litigation policy, “A company that’s still pushing everything to trial is suffering from a serious lack of imagination. Litigation heads stuck in that mind-set should be ashamed of themselves.” But given that Toro’s program has been around long enough to show significant cost savings, why haven’t more companies, especially Toro’s competitors, adopted a mass settlement strategy? Toro’s rivals refuse to disclose similar per-case statistics, which makes it difficult to compare the company’s program with more litigious approaches. But lawyers at other equipment manufacturers offer a variety of reasons, some logistical, others more philosophical, as to why they haven’t adopted Toro’s approach. They say that, as a practical matter, such a strategy wouldn’t work because most of their cases involve many defendants with complex fact patterns. For instance, when Cummins, Inc., a Columbus, Indiana � based engine manufacturer, gets sued over an alleged malfunction, “we often see a whole slew of codefendants and a whole bunch of finger-pointing,” says Marya Rose, the company’s general counsel. “You can’t just run out and settle.” Other chief legal officers simply don’t want to be seen as an easy mark for plaintiffs and their lawyers � and insist on backing up their products, whatever the cost. “If you make products that you feel are well made and safe, your instinct is to stand behind them when others attack them,” says James Buda, the general counsel at Peoria, Illinois � based Caterpillar Inc. Toro’s Byers scoffs at the idea that an aggressive settlement policy creates a “soft target” for enterprising plaintiffs lawyers. He says that from 1986 to 1991, the five years prior to the start of its settlement approach, Toro received 640 injury-related claims. From 1991 to 1996 and from 1996 to 2001, that number actually declined, to 536 and 404, respectively. “Look, you can stand on principle all you want, but we’ve saved millions handling claims this way,” says Byers. Still, some observers worry about the ethical implications of meeting with victims before they have lawyers, especially in the aftermath of a disfiguring accident. “I can’t imagine that the plaintiffs are truly getting what they deserve,” says Laura Nader, a professor of law and anthropology at the University of California, Berkeley. Nader, who has written scholarly articles on the unfairness that can result when parties settle disputes, says, “The [Toro] plaintiffs are giving up one of their most fundamental rights � the right to our court system.” But Stephen Gillers, a legal ethics expert at New York University School of Law, retorts, “These plaintiffs are free to walk away at any time; they’re not getting [coerced] into anything.” Until 15 years ago, Toro was just another company with a scorched-earth litigation policy. But a 1988 case involving a Florida man who suffered serious burns when a Toro mower he was using exploded helped push the company down a new path. Toro brought the case to trial and got hammered; a jury awarded the plaintiff $1 million. “The litigation model just wasn’t working,” says Byers, who in 1988 left the claims department at the Minneapolis office of Boise Cascade Corporation and took the helm of Toro’s product liability claims process. “Our expenses were going up, our caseloads were growing, and we had lost any ability to predict the outcomes of the cases.” At the time, Toro was paying an average of $115,000 per claim in legal fees and settlements and verdicts. Alarmed by that figure, in 1990 James Seifert, the assistant general counsel at American Hoist & Derrick Co. (now part of Terex American Crane Corp.), was hired as a senior attorney to help Byers fashion a new approach to handling Toro’s product liability caseload. Seifert had overseen an aggressive settlement program while at American Hoist, which, in his five-year tenure there, he estimates saved the company $5 � 10 million. About that time, a worrisome claim landed on Byers’s desk. A 16-year-old boy in Melbourne, Florida, had severed most of his right foot with a Toro mower while working at a summer job (the foot was later reattached), and his family threatened to sue. Through a referral, Byers hired a brash, young local lawyer, Miguel “Mike” Olivella, Jr., to negotiate with the boy’s family. Although Olivella says he saw big holes in the family’s case against Toro � either the dealer or the lawn service had removed an engine guard prior to the accident � Olivella settled the matter for $5,000, an amount “not atypical” for injuries involving reattached appendages, says Linda Klein, a personal injury lawyer in Atlanta. Recalls Byers: “Had we pushed the case toward trial, we might have won, but we probably would have spent close to six figures on Mike [and other lawyers]. But Mike understood what we were trying to do, and he got it done.” Olivella went on to settle several more cases for Toro in the next few months. The company eventually retained him to handle all product liability claims against it nationwide. But Byers quickly realized Olivella couldn’t do it all, so in 1991 he began using a paralegal, Helen Gotzian, to meet with plaintiffs and resolve the more routine claims. Gotzian was well acquainted with the department’s caseload; at the time, she had worked in Toro’s legal department for 14 years. And she had the right temperament. “She was sympathetic and kind and unthreatening,” says Byers. “She proved to be very good at getting rid of cases.” The team was complete after Toro hired Carol Kelly in 1995, then an assistant in the legal department of Minneapolis-based Grayco, Inc.’s product liability department, to be an emissary, like Gotzian. Kelly’s demeanor also impressed Seifert and Byers. “Like Helen, she seemed to have a very human side,” says Byers. With Kelly aboard, the company began settling cases by the handful. Within days of receiving word from a dealer or customer that someone was injured while using Toro equipment, either Kelly or Gotzian sets up a visit to the victim’s home to talk about what happened and ultimately discuss a settlement, regardless of whether the victim has made a demand for money. “I make it clear that they really have nothing to lose [by meeting with us],” says Kelly. “The [injured parties] aren’t obligating themselves to anything.” From the moment the victims answer Kelly or Gotzian’s knock on the door, they’re assaulted by nice. Kelly and Gotzian avoid business garb; instead they don Toro polo shirts and khaki pants. They explain that they’re not lawyers, a point the company takes very seriously. “Bring a sharply dressed lawyer to one of these meetings, and immediately you’ll see the walls go up,” says Byers. “If Carol and Helen were attorneys, this program simply wouldn’t work.” Inside, usually over coffee, the paralegal asks the victim to recount the accident. She listens attentively, nods sympathetically, and expresses regret “that such an unfortunate incident had to happen.” Says Kelly: “We understand that coming to terms with anger or grief is part of the healing process, and it also happens to be helpful in resolving cases.” The paralegals will dole out hugs and even cry if they’re moved by a victim’s story. In the end, they have the authority to settle claims up to “somewhere in the mid five figures,” says Gotzian. Together, the duo disposes of about 70 percent of the claims that Toro receives. If Kelly and Gotzian are unable to resolve a case, they suggest a mediation between the plaintiffs lawyer and Olivella � typically with a mediator Toro has used before. Plaintiffs lawyers who have negotiated with Toro say they are happy to get a satisfied client and a chunk of cash for just a couple hours’ worth of work. “There was really little downside to trying mediation,” says Joseph Baggett, a solo practitioner in Oroville, California, a small town 75 miles north of Sacramento. Baggett mediated � and settled � a case against Toro on behalf of a man who cut off his toe while using a Toro mower. “We knew we could just walk away from the table [and sue] if we felt we weren’t being treated fairly,” he says. Like Kelly and Gotzian, Olivella takes a similar let’s-just-get-along approach, but he says he doesn’t hide the fact that he’s a lawyer. In his initial meeting with a plaintiff, he offers his sympathy and regrets by way of a well-rehearsed spiel. “I tell them that I understand that they’ll never again be able to do things that I take for granted, like brushing their hair,” says Olivella. “And for that, I tell them that Toro and I are deeply sorry.” If the plaintiff doesn’t accept Olivella’s initial offer � often the sum of the plaintiff’s medical expenses plus some pain-and-suffering compensation � the lawyer says he turns off the nice-guy act. “I tell them that they’re never going to see a dime more than what we’ve just offered,” says Olivella, a partner at the Orlando-based firm Akerman Senterfitt. Olivella spends nearly all his time handling claims for Toro. According to Toro, Olivella disposes of most of the 30 percent of cases that Kelly and Gotzian don’t. A handful remain, and of the 15 or so claims that have even made it to the discovery phase, all were dismissed on summary judgment motions. “Toro’s track record is amazing,” says Michael Lewis, a mediator in the arbitration group JAMS’s Washington, D.C., office. (Lewis is familiar with Toro’s approach, but has never mediated a Toro case.) So why then are so many companies reluctant to adopt a settlement program that’s as sweeping as Toro’s? The company’s direct competitors, which receive similar claims � like Moline, Illinois � based Deere & Co.; Valley City, Ohio’s MTD Products Inc.; and Brillion, Wisconsin � based Ariens Corporation � do use mediation in more than half of their injury claims. But because they’re afraid that a blanket willingness to settle will lead to a flood of bogus claims, none use it as aggressively as Toro. “[John Deere, MTD, and Ariens] all feel it’s important to go to trial at least a few times a year to show they’re willing to fight dubious claims,” says Richard Coyne, a lawyer at Cleveland’s Wegman, Hessler & Vanderburg, who handles product liability work for all three. And some manufacturing companies simply don’t buy into the settlement-first philosophy. “It’s expensive to try cases, but we feel we have a terrific product that we’ll pay to defend,” says Caterpillar’s Buda. He declined to give an estimate of Caterpillar’s product liability defense litigation costs. But according to former Toro in-house lawyer Seifert, who in the late 1990s did a blind survey of GCs in the outdoor power equipment industry, other lawn mower manufacturers routinely spend $200,000 � $300,000 per claim in legal expenses alone. (Seifert is now GC of Bemis Company, Inc., a Minneapolis-based maker of packing materials.) But other industry lawyers, speaking on the condition of anonymity, call this figure “high by many multiples.” Toro’s team has a quick answer for every criticism leveled at its program. Byers disagrees with the argument that his company has a duty to defend its products whatever the cost: “You can think you have the best case in the world, but if a jury thinks otherwise, you get killed.” He points to a 2003 case involving a snowblower manufactured by Ariens in which a Bronx man lost parts of two fingers while operating the device. After the victim sued, Ariens pushed the case to trial, where a jury awarded the man $10.5 million (the verdict was later reduced to just over $1 million). Toro admits that it routinely pays claims that probably would collapse in court. For instance, the company settled with Joseph Baggett’s client for $25,000 even though, as Baggett concedes, some protective guards were removed from the mower after it left the store. It’s clear that Toro hasn’t started a revolution throughout corporate America with its mass settlement approach. But a few big companies have adopted Toro-like programs. Neither Johnson & Johnson nor DuPont, for example, settle as aggressively as Toro. But, inspired by Toro’s success, each has hired Olivella and Michael Miller, a lawyer in Akerman Senterfitt’s Orlando office, to mediate product liability claims. According to Julie Mazza, the head of DuPont’s early case assessment program, the work by Olivella and other settlement counsel has cut the “cycle time” of DuPont’s average lawsuit from around 24 months to between six and eight months. “When you’re saving 18 months’ worth of outside counsel fees, that adds up in a hurry,” she says. Mazza adds that DuPont’s willingness to settle cases earlier hasn’t increased its average settlement fee. After Toro, General Electric might well have the most aggressive settlement approach in the country. About ten years ago, GE lawyers visited Toro and came away “incredibly impressed,” says GE litigation head Villarreal. The company married Toro’s approach with a larger Six Sigma quality-control effort. Now GE evaluates the possibility of settlement at various stages within the life cycle of a lawsuit. According to Villarreal, the approach has worked. “We’ve always settled more cases than we’ve taken to trial,” he says. “But now we’re getting them settled much earlier.” Villarreal says that, like DuPont, GE has cut down on the cycle time of its lawsuits by “more than 50 percent,” on average. And that has helped the company keep its outside counsel costs flat despite the fact that since 1998 GE has grown its gross revenues by 25 percent. “There are very few categories of cases that this approach doesn’t work with,” adds Villarreal. And how does Byers take the news that the nation’s fifth-largest company is reaping the benefits of his work? With a Minnesotan “aw-shucks” shrug. “It’s not surprising at all,” he says. “This type of approach works.”

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