Leveraging an early neutral evaluation ("ENE") as a source of valuable information

September 01, 2011

Assessing risk is fundamentally about evaluating information and outcomes. Better information can lead to better risk assessment and better choices.

This especially applies to litigation and settlements of disputes. Parties, both plaintiffs and defendants, invest resources – money, time, reputation, emotion – in order to resolve disputes. Repeatedly, the same questions are asked: Do I have a good case? Am I throwing good money after bad? Should I settle, and if so, for how much? How can I improve my chances of winning?

Key pieces of information are generally missing when these questions are pondered: What will the judge (public judge or arbitrator) decide on governing issues of law? How will the judge evaluate the facts? What will be the judge’s final ruling? These same questions apply to even micro components of the case, such as rulings on interim motions.

A crystal ball would help, but absent that, the next best source for such valuable information is early neutral evaluation (“ENE”). There, an experienced arbitrator (i.e., a private judge) reviews the business aspects of the dispute, the applicable law, and the facts, and provides studied previews of the actual judge’s likely decisions. Using that, the party can make better-informed risk analyses and thus better-informed decisions whether to continue the fight or settle (and on what terms). Essentially, the neutral is evaluating the case just as the judge would, based upon the neutral’s experience in evaluating the law and facts in actual cases that the neutral previously decided. It is the neutral’s “been-there-done-that” experience that makes the ENE compelling
and valuable.

What an ENE Covers

Topics for an ENE can include discussions of:

  • Favorable and unfavorable facts
  • Favorable and unfavorable law, as well as important but unsettled legal issues
  • Strengths and weaknesses of each party’s case
  • Likely successful or meritless claims and defenses
  • Considerations of the client’s business needs, and the impact of an outcome on that
  • Possible litigation strategies (such as the feasibility of dispositive motions)
  • Possible end-game strategies, including mediation, settlement, and attendant demands or offers
  • Possible legal costs and expenses, including which costs or initiatives are most worthwhile

It is quite possible that an ENE will show that the dispute is best resolved through full litigation or arbitration. The ENE may then be used as a road map for case strategy. The client can emphasize the most effective claims or defenses, thereby avoiding expenditures of valuable resources on less justified positions. The ENE thus leads to a more sharply focused case – one that will have maximum impact on the judge, jury, or arbitrator.

To perform the ENE, the neutral could review relevant contracts; review internal and party communications; interview the client’s personnel involved in the transaction; discuss with management the transaction’s place in the client’s overall business operations and strategies (both long-term and short-term); review applicable legal authority; talk with in-house or outside legal counsel about the dispute; and research or investigate the opponent’s business. The quality of the ENE will be proportional to the value and volume of the information received and analyzed by the neutral.

An ENE can be done for virtually any type of case, and especially for commercial disputes. For most contractual and business disputes, a neutral with general but broad decision-making experience is fine. After all, the actual judge will likely be a generalist too. Where the subject matter of the dispute is technical – such as patents – the neutral should have experience in that area.

The Timing and Scope of an ENE

An ENE is, by definition, done “early” in the case, before all of the facts are known. But, even then, it is widely believed (by this author too) that the parties already know or can readily access 80 percent of all of the information that exists for the case or will be offered at the hearing. Because the cost to obtain increments of evidence sometimes outweighs the value of those increments, there is good reason to perform an ENE at the outset, even if the information is incomplete. Indeed, judges frequently make very important interim decisions – such as injunctive relief – at the case’s beginning based on less than full information.

“Early” can be even before the complaint or arbitration is filed. Once a party knows of a potential dispute, such as by receipt of a demand letter from the opponent, ENE is fairly triggered. Indeed, it is often best to assess a dispute before the parties are entrenched in pleadings. Also, as a private process, ENE can be done even while the client, with the aid of counsel, engages in pre-litigation or early-litigation posturing with the other side.

Nonetheless, if the client prefers, the neutral evaluation can instead be done later, and it can also be done more than once during the case. A neutral reassessment can also be used to prepare submissions for mediation and even pre-trial briefs. ENE therefore can be, but need not be, one and done.

The scope and breadth of the ENE can be determined together by the client and neutral. Obviously, a small-budget ENE may be less helpful than a more expansive one. The chosen scope can be based upon the complexity of the dispute, the volume of evidence, and the timing for the project. Given the purpose of ENE – an important guide for making critical risk analyses early in a dispute – clients should be willing to give the neutral wide latitude in order to make the best evaluation. A more truncated ENE can, however, contain a list of unexplored or undeveloped issues or points that the client can later authorize for analysis.

The Distinctive Benefits of an ENE

For very important reasons, this “neutral” assessment is qualitatively different from the analysis of the dispute by the client’s lawyer. First, the neutral has no ongoing representation in that dispute (e.g., continuing fees). Rather, the neutral completes the discrete task quickly without any prospects for long-term work. That absence of any economic conflict ensures complete candor in the analysis. Second, the neutral also will not likely have any ongoing relationship with the client generally, and therefore the neutral is not concerned about rendering “bad news” about the case and possible outcomes. In this way also, candor is ensured. Thus, the neutral is able to provide a totally independent and unbiased evaluation – exactly the approach that should be taken by the actual judge.

An ENE can also complement or supplement an independent expert’s financial analysis. Thus, the client can learn even more when the ENE is coupled with a financial consultant’s damage analysis that separately gauges risk. This combined evaluation provides case projections with even more rigor. The ENE adds the factual and legal assessments, too, thereby making the overall analysis much more complete.

An ENE can be treated as an attorney/client communication or attorney work product. Thus, the ENE can remain confidential, even though the neutral may not be the client’s counsel in the dispute.

Conclusion

A company’s management of its disputes should be handled like any other business concern. Better information leads to better – or at least less risky – decisions or strategies to handle the matter and how resources are allocated to it. ENE provides valuable information on the probable outcomes of the dispute based upon the neutral’s experience in handling similar disputes in the past. ENE can therefore be a vital analytical tool for management in handling or minimizing potentially costly and damaging litigation.

About the author: Stuart M. Widman, Esq. is a nationally recognized commercial litigator, arbitrator, and mediator. As a neutral for 23 years, he has been asked to decide or assess commercial disputes exceeding $1.5 billion. A partner at Miller Shakman & Beem LLP, Chicago, he can be reached at +1.312.759.7242 or swidman@millershakman.com.