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Litigation in a Court of Equity: Adjusting Mindsets in a Settlement Conference

Editor’s Note: This is the seventh article in a special, ten-part weekly series on settlement of litigation.

What makes one case more difficult to settle than another? Sometimes, the factual and legal issues in dispute are complex, requiring significant time and energy to resolve. Other times, however, the roadblock to resolution has little to do with the actual issues, and much more to do with the mindsets of the parties regarding settlement itself.

Some of the most contentious cases frequently arise in the Chancery Division, both in courts of general equity and in the family division. Often, due to the personal dynamics between the parties, even relatively simple and straightforward matters can become the subject of long-running legal conflicts and unsuccessful settlement conferences.

Preliminarily, it is important for litigants to understand that matters in the Chancery Division often have unpredictable results, because they involve not only principles of “law” but also principles of “equity.” “Equity” means “fairness.” A primary function and goal of a court of equity is to consider the facts and law in a case, and then reach a result which the court finds is “fair” and “equitable” under the particular circumstances.

It is reasonably safe to assume the vast majority of litigants are generally good people in bad situations, who honestly want to settle their cases in a fair manner. The real issue, however, often boils down to a party’s perception and understanding of the word “fairness.” For this reason,  when  lawyers  help educate litigants in such cases on certain basic concepts regarding “equity,” such efforts may sometimes bring about a refreshingly productive and important shift in mindset by both  parties, and thereafter help settle previously stalemated cases.

In a highly contested case between two opposing litigants, each party may naturally start off with a completely opposite view of what is a fair or equitable result. Specifically, some may instinctively define “fairness” very narrowly, with a tight and exclusive focus on what is fair, or most beneficial to themselves only, with no real consideration to what might reciprocally be fair or unfair to the other party in the process. This type of restrictive mindset can hurt or even destroy settlement negotiations, thereby forcing a risky, expensive and time-consuming trial in what might otherwise have been a very straightforward case to fairly resolve with a balanced degree of mutual fairness and common sense.

Accordingly, it is often helpful for counsel to enlighten parties on certain fundamental realities in a court of equity. An inexperienced litigant may never have previously appreciated or even thought about these realities. Yet, both parties’ advance knowledge and understanding of these points may make a very substantial difference between resolution and trial, by slightly broadening and shifting the parties’ mindsets at a settlement conference in a very constructive and forward-looking way.

First, it is important for competing parties to appreciate that courts of equity have a substantial amount of discretion in rendering results to further the cause of fairness (i.e., “equity”). Hypothetically, it is entirely possible that 10 different judges can look at the same exact case and reach 10 different conclusions as to what is a “fair” and “equitable” under the circumstances. Further, none of these different conclusions may necessarily be incorrect or objectively unreasonable. In a court of equity, there often are no black-and-white answers of a “right or wrong” result. Rather, a judicial analysis contains an inherently vast degree of possible outcomes, consistent with a court’s significant discretion to accomplish equity and fairness. As a result, a court may have an entirely different viewpoint than either party as to what is a fair or equitable result.

Second, in a two-party case, while it might be natural for each party to focus solely on what he or she wants or feels he or she “deserves,” it is absolutely critical for each party to understand the concept that the judge presiding over the case is dealing with two parties, not just one. If the function and goal of a court of equity is to render a “fair” result, then the court’s focus may well be trained on what is the most “fair” result for both parties under the totality of circumstances. The definition of fairness utilized by the court may therefore be substantially wider in scope than the one utilized by any single plaintiff or defendant.

When a party has a rigid notion of fairness that focuses solely and exclusively on oneself, to the exclusion of the other party, such a focus is inconsistent with a more even-handed manner in which a court may attempt to evaluate the matter. In such a circumstance, the case may not only be less likely to settle, but the litigant may well be surprised at a judicial decision that is based upon consideration of fairness to both sides rather than one.

Hence, if a party at a settlement conference insists on taking a rigid and hard-line position for an apparently lopsided result, it is sometimes fruitful for counsel or a mediator to point out to the litigant that he or she may have to explain to the court at trial exactly how such a result is fair and equitable to both parties under the circumstances. It may also be helpful for counsel or a mediator to ask both parties at a settlement conference to perform a very simple task: “Pretend you are the judge in this case and you have to write an order that is completely fair and equitable to both parties rather than just yourself. What would you write, and why?”

Such a task may at first be difficult for a party, particularly if he or she has never been asked this simple question before. Once the question is posed to a party in such an even-handed fashion, however, the party’s mindset and position may become more flexible and expansive, particularly when he or she digests the concept that a court of equity strives to be fair to both parties simultaneously. This seemingly tiny mental exercise may pay significant dividends in terms of productivity at a settlement conference. The light bulb may turn on brightly as one or both parties recognize, perhaps for the first time, that there is practical merit to brainstorming and suggesting settlement options and mutual compromises that are arguably fair and equitable to both parties, rather than simply continuing to wrestle endlessly over demands and cross-demands that focus only on the demands of one party to the complete detriment of the other.

In some cases, a party might be willing to consider the broad concept of “mutual” fairness, but is restricted by a self-imposed belief that any compromise constitutes an admission or concession that the other party was somehow “right” in his or her claims, defenses or counterclaims. In this respect, it is also helpful to discuss the fact that public policy strongly encourages settlement, but few parties settle because he or she suddenly realizes that the other party is right, or that he or she is wrong regarding the merits of the case. Rather, settlement comes about for more practical and self-protective reasons, without any actual finding of who was “correct” or “incorrect.” These reasons include, but are not necessarily limited to, a desire to (a) end the ongoing time, expense, attention, and negative energies and stress that accompany ongoing litigation, and (b) avoid the risks of trial and appeal.

Most practical-minded litigants want to have at least some role and control in fashioning a specific outcome, which can logically occur when the terms are mutually fair to both parties as a constructive compromise. Sometimes, the only way to reach a balanced settlement is for both parties to adjust their demands and expectations for the sake of resolution. More importantly, such a process may be highly consistent with principles of striving for mutual fairness, and equity, as a court may do at the time of trial. As one retired judge once poignantly noted, “a good settlement is when both parties leave the settlement table unhappy.” Food for thought.

 

Jones is a former Superior Court Judge in Ocean County. He retired from the Judiciary in 2017 and now practices mediation and arbitration.