GOVERNMENT & LEGAL AFFAIRS

For most people, the term litigation still conjures images of a Perry Mason courtroom scene. Jurors hang on the words of the key witness's testimony and the lawyer's summation. The gallery is filled with members of the press. Tension builds until the foreman renders a verdict that either dooms or exonerates.

However, these images are best left with the 1950s television shows in which they originated. Trials today have grown so complex, expensive, and risky that the great majority of cases are resolved not before a judge, but rather through an agreement before a mediator. Steadily building over the past two decades, this trend transcends all forms of civil disputes and fundamentally changes the way in which medical device manufacturers should approach risk management. This article discusses when and how companies can use mediation to resolve a medical device product liability dispute on favorable terms (see sidebar).

Mediation Basics

While civil filings in federal courts increased by 29% between 1990 and 2004, the number of civil trials for the same period declined by 52%.¹ The chief reason for the decline is the increased use of alternative dispute resolution techniques, with mediation leading the pack. In 1998, federal legislation mandated all federal courts to make mediation and other alternative dispute resolution procedures available to litigants. Many state court systems have followed suit.

When it comes to product liability cases in the medical device realm, the vast majority of cases are resolved through mediation rather than the courts. However, decisions related to how and when to mediate a case can have a significant impact on the case's outcome.

Mediation takes many forms but, loosely defined, it is no more than the negotiation of a dispute facilitated by a neutral party (see sidebar). The process usually involves decision makers from each side, their lawyers, and the mediator. It usually takes place in a neutral setting—often at a hotel, a courthouse, or in a law office conference room. Mediation often begins with a brief joint conference, after which the mediator caucuses with each side separately until a settlement or impasse is reached.

The dynamic of mediation is fundamentally different from that of a trial. In the courtroom, the task of the judge or jury is to render a verdict reflecting the merits of a claim. Many medical device product liability cases are all-or-nothing propositions. Either the device is found to be defective and unsafe and the plaintiff is entitled to recover damages, or it is not.

Conversely, a settlement resulting from mediation may have little to do with the merits of the case. Rather, a negotiated settlement reflects each side's risk tolerance. The settlement amount is often set at a point above which the defendant would rather accept the risks and expense of trial. Similarly, it is a point below which the plaintiff would accept the risks and expenses of trial. Thus, the quantum of perceived risk on both sides drives the settlement amount.

Rarely does a party emerge from mediation with a clear sense of victory. Rather, it is commonly said that settlement occurs when both sides are equally miserable, each having been pushed to the edge of their risk tolerance.

The mediation process can take anywhere from hours to weeks. A case can be mediated in as many different ways as there are mediators, and few rules apply. The process is intentionally flexible because there is no single best way to mediate a case. Mediation is an art form, and the shortest path to a settlement varies according to the subject matter of the dispute and the personalities and interaction of the players.

Benefits of Mediation

Mediation is popular—and, in some court systems, even mandated—because it works in a majority of cases and offers something to all stakeholders. For plaintiffs in medical device cases, mediation offers a confidential forum in which to air what can be deeply personal emotions and sensitive medical information. It also offers the plaintiff a voice—the opportunity to express their loss and anger on their own terms—that the courtroom rarely permits. Plaintiffs' lawyers generally favor mediation because the resulting settlement can mean an early payday and greater payoff without the time and expense of full discovery and a trial.

For the defense, above all else, mediation offers confidentiality and finality. Unproven allegations of device defectiveness remain behind closed doors and out of the reach of the media, which has the ability to destroy the reputation of a product or company well before a single jury verdict is reached. Early settlement can also save a medical device manufacturer hundreds of thousands of dollars in defense costs and expert fees. Most insurers have mastered the art of mediation and will insist on it in cases in which they control the defense.

For court systems, many of which are straining under congested dockets and scarce funding, mediation offers a cheap means to thin the docket. Courts exercise little oversight over the mediation process. A mediator is often a private attorney hired jointly by the litigants.

For these reasons, when a medical device product liability claim arises, the question is often not whether to mediate, but rather when and how to mediate. Savvy manufacturers can use mediation to their strategic advantage. With increasing frequency, business contracts are being written to include mandatory mediation or arbitration clauses. And when a product liability claim arises, every step of the defense—from selection of counsel through the appeals process—should be taken with a view toward using mediation to leverage a successful outcome.

When to Mediate

Mediation can be considered at any time, from before a complaint is filed to after trial. When to mediate may depend on how much the parties know about their respective claims and defenses. Mediation should not be used fundamentally as an educational process. Rather, the parties should arrive at the table with a basic understanding of the case and each other's positions. Only then can settlement negotiations proceed with the best chance of success.

The conventional wisdom is to mediate bad cases early. In cases in which the facts do not favor the device manufacturer, companies are well advised to bring the dispute to the mediation table before the parties are mired in expensive and damaging discovery.

In cases in which the defense is strong, on the other hand, a company may have its best settlement leverage after a motion to dismiss or a motion for summary judgment is filed. Plaintiffs looking at the possibility of having their cases dismissed may be receptive to lower settlement offers.

In some instances, when a device manufacturer has completed an investigation of a claim, the company may be prepared to mediate even before a complaint is filed. Mediation does not require a pending lawsuit. More-sophisticated plaintiffs' counsels will provide notice of a claim to a potential defendant, coupled with an invitation to mediation before litigation. Manufacturers that are sensitive to the public exposure of a lawsuit may be particularly receptive.

At the other end of the spectrum, mediation can occur even after trial. Parties may wish to explore a settlement after a verdict is rendered, taking into account the possible outcomes of posttrial motions or an appeal. Indeed, most appellate courts now require some form of mediation before a case proceeds to briefing and argument.

More commonly, mediation occurs after the parties have completed their pleadings and at least a preliminary round of discovery. But, as noted earlier, there is no best time to conduct mediation for all cases. Each case is unique, and determining the appropriate time to conduct mediation depends on the development of the case, instincts of counsel, and the court's calendar. A manufacturer may not want to mediate before it has mined basic information about the claims and defenses in the case--but not after the parties have already expended significant sums and hardened their settlement positions.

Some judges believe that all cases should be mediated early. And in some courts—particularly federal courts—the parties may have less control over when or how to mediate. Such decisions may be made by the judge or magistrate judge.

Proceed with Caution

Mediation does not work in every instance, and not every case should be mediated. Some parties will enter into mediation with no sincere intention of compromising; they do it only to discover information about the opponent's case. Medtech manufacturers should also consider the consequences of rushing into mediation every time a product liability claim arises. Word might spread through a well-networked plaintiffs' bar that a particular company is an easy target.

Because mediation is less about the merits of a case than it is about risk aversion, every case in mediation has value. Even baseless product liability claims cost money to defend, and settlements resulting from mediation will sometimes reward a frivolous plaintiff with a cash payment. Although mediation may offer a quicker and less expensive means of disposing of a frivolous case, the cumulative effect may be an increase in meritless litigation. Indeed, for a device maker suddenly faced with an onslaught of cases alleging the same product defect, a few early trial victories can be far more valuable than mediated settlements.

Conclusion

The costs, risks, and delays of conventional litigation have driven product claims to a new battlefield: the mediation table. Fighting the battle requires the proper tools and the proper mind-set. Approaching the battle with the right outlook gives manufacturers a strategic advantage and may lessen the impact of product liability on the bottom line.

Reference

1. "Judicial Facts and Figures" [online statistics] (Washington, DC: Administrative Office of the U.S. Courts,     2007); available from Internet: www.uscourts.gov/judicialfactsfigures/contents.html.

Brooks Magratten is a partner in the law firm of Vetter & White (Providence, RI).

Copyright ©2007 MX