Before the Litigation Takes Over: Using Neutral Analysis as a Strategic Business Tool
Imagine a CEO receiving an update on a significant piece of litigation. Outside counsel believes the company has the stronger legal position. The business team is convinced the facts are on its side. Millions of dollars may be at stake, but everyone is reasonably confident about the strategy.
Discovery will be extensive. Experts need to be retained. Depositions will consume significant executive time. A dispositive motion is contemplated, and trial could be a year or more away.
The CEO has a decision to make: Do we continue investing in this strategy, or is this the moment to test our assumptions?
It is a question business leaders should ask more often.
By the time a significant dispute reaches the executive suite, the people closest to it have often spent months—or years—developing the facts, analyzing the law and building a strategy. Business leaders may have strong views about what happened and who was responsible. Outside counsel may be deeply invested in a particular theory of the case.
Everyone involved is doing what they should be doing: advocating for the company’s position. But advocacy and objective assessment are not the same thing.
Before committing significant additional resources, management may benefit from an independent perspective on a deceptively simple question: How does our case look to an experienced legal decision-maker who has no stake in the answer?
An Independent View of the Case
Neutral analysis, sometimes called neutral evaluation, provides that independent perspective.
It is a confidential, nonbinding process in which an experienced neutral evaluates some aspect—or potentially all aspects—of a dispute. Depending upon the circumstances, the neutral might be a former federal, state or appellate judge; an experienced former litigator or transactional attorney; or another alternative dispute resolution (ADR) professional with deep experience in the relevant subject matter.
The process can be as focused or comprehensive as the situation requires. It might involve a confidential second opinion on a difficult legal question, a brief-based written case evaluation, an assessment of expert testimony, a mock oral argument or summary judgment proceeding, or even a mock bench trial, jury trial, arbitration or appellate argument.
The purpose is not to replace counsel or second-guess the legal team. It is to provide another lens through which to view the dispute.
An experienced neutral can consider questions that may have significant strategic consequences: Which claims are strongest and which present the greatest risk? How might a judge, jury or arbitrator respond to key witnesses or experts? How is controlling precedent likely to be applied? How persuasive is a planned dispositive motion? What are the prospects on appeal? And, perhaps most importantly from a business perspective, does the assessment suggest that the company should reconsider settlement or proceed with greater confidence?
In other words: Fine-tune the arguments, reassess settlement options and better manage expectations before making the next major investment in the case.
Pressure-Testing the Internal Narrative
Every significant dispute develops an internal narrative. Facts are investigated. Legal theories emerge. Documents and witness testimony reinforce some conclusions and undermine others. As time passes, however, organizations can become anchored to assumptions formed early in the dispute.
A neutral evaluator can pressure-test those assumptions.
Consider a company involved in a complex contractual dispute. Its legal team believes the language of the agreement strongly supports the company’s position. The opposing party relies heavily on the history of the relationship, the parties’ course of conduct and several witnesses who may present well at trial.
An experienced neutral might agree that the contractual argument is strong while identifying evidentiary, credibility or procedural issues that make the ultimate outcome less predictable than management realizes.
That conclusion does not mean the company should settle.
It means management has better information.
The company may decide to litigate aggressively. It may explore an early commercial resolution. It may narrow the issues, pursue mediation or adjust its settlement authority. Or the independent analysis may validate the existing strategy and give executives greater confidence in committing the resources necessary to pursue it.
All of those are successful outcomes of neutral analysis.
When Neutral Analysis Creates the Most Value
Neutral evaluation is not necessary for every dispute. Its value generally increases with the consequences of getting the assessment wrong.
One of the most useful times to obtain an independent assessment is before the cost curve rises dramatically due to extensive discovery, multiple experts, significant motion practice or trial preparation. An evaluation at that point can help management determine whether the expected business value of continuing justifies the investment.
Neutral analysis does not need to encompass the entire dispute. A company might seek an independent assessment of a single contractual provision, expert opinion, damages theory, class certification issue or planned dispositive motion. A narrowly tailored evaluation can sometimes materially change the strategy of a much larger case.
Settlement discussions frequently stall because each side is operating from a fundamentally different view of the facts, law or likely outcome. Independent analysis can help determine whether the disparity reflects genuine risk assessment or simply negotiating posture—and may create a more realistic foundation for mediation or direct negotiations.
The CEO, general counsel, business unit leader, board and outside counsel may view the same dispute differently. An independent evaluation can provide a common reference point for those discussions without requiring any participant to abandon his or her position.
Some disputes can affect an entire business model or industry. An adverse ruling may create precedent, encourage similar claims or affect contractual relationships well beyond the parties to the litigation. In those circumstances, neutral analysis can help management evaluate not simply the probability of prevailing, but also the broader consequences of losing.
Designing the Process Around the Business Question
One of the advantages of neutral analysis is its flexibility.
At JAMS, for example, neutral analysis can include prefile evaluations, written brief-based case evaluations, evaluative summary judgments, second opinions and mock exercises involving oral arguments, Markman hearings, bench or jury trials, arbitrations and appellate hearings. The process can range from an informal consultation to an extensive evaluation of a complex, high-stakes matter.
In some cases, a single experienced neutral is appropriate. In others, a panel of three or more neutrals can provide a range of independent perspectives and more closely approximate the uncertainty inherent in appearing before a judge or arbitration panel.
Mock proceedings offer another advantage: They allow lawyers and executives to see how arguments, witnesses and experts perform rather than simply predicting how they will perform. In a significant arbitration—particularly one involving international parties—a mock arbitration can also serve as a dry run for participants who may be unfamiliar with the applicable procedures.
The key is to design the process around the business question that needs to be answered, rather than employing neutral evaluation simply because it is available.
Litigation Risk Is Enterprise Risk
CEOs should also resist framing litigation analysis solely around one question: Will we win?
That question matters, but it is incomplete.
A better business analysis considers the probability and range of potential outcomes together with the full cost of achieving them. Legal fees are only part of that equation. Litigation can consume executive time, require extensive employee participation, disrupt customer or commercial relationships, create reputational exposure and distract the organization from strategic priorities.
There is also opportunity cost. Every hour a CEO, CFO, general counsel or operating executive spends preparing for a deposition, reviewing documents or discussing litigation strategy is an hour not spent on customers, employees, innovation or growth.
At the same time, settlement is not always the right business decision. A company may need to protect intellectual property, establish an important contractual principle, defend its reputation or discourage claims that could multiply if left unchallenged.
The objective is not to avoid litigation. It is to make deliberate decisions about litigation with the best information available.
Bringing Business Discipline to Litigation Decisions
CEOs routinely seek independent perspectives before making consequential business decisions. Boards retain outside advisors. Companies commission market studies. Executives conduct financial sensitivity analyses, model alternative scenarios and challenge assumptions before making major investments.
Significant litigation deserves the same discipline.
Neutral analysis should not be viewed simply as another ADR process to consider when a case is approaching settlement. Used strategically, it can be an executive decision-making tool throughout the life cycle of a dispute.
Sometimes an independent assessment will expose risk that management has underestimated. Sometimes it will identify weaknesses that can be addressed before they become decisive. Sometimes it will reveal an opportunity for mediation or another negotiated resolution. And sometimes it will confirm that the company’s strategy is sound and that continuing to litigate is the right business decision.
Each of those outcomes creates value.
The goal is not necessarily to change the company’s strategy. It is to test that strategy while management still has meaningful choices.
Because in litigation—as in every other significant business investment—the best time to challenge your assumptions is before the market does it for you.
Kimberly Taylor, Esq., CEO and president of JAMS, leads the organization’s global operations and strategic direction. Since joining JAMS in 1999, she has held numerous leadership roles overseeing business development, panel relations, operations, and legal affairs. A respected voice in alternative dispute resolution, Kim frequently writes and speaks on effective conflict resolution and organizational leadership. She earned her J.D. from Ventura College of Law, where she also served as an adjunct professor. Disclaimer: The content is intended for general informational purposes only and should not be construed as legal advice. If you require legal or professional advice, please contact an attorney.
