Monday, December 28, 2015

The Psychology of Settlement

For some, litigation has become a less popular option for people who find themselves in a legal dispute. Depending on the issue, litigation can be a costly process, both financially and emotionally, and there is no assurance that either disputant will receive a satisfactory end result through the court system. To address these concerns, and many others, more attorneys are suggesting alternative forms of dispute resolution to their clients.

There are those who won’t feel satisfied unless and until they have their day in court; however, attorneys have an obligation to inform clients of all dispute resolution options so that they can make fully informed decisions on what is best for their situation and desired outcome. Disputants willing to engage in Alternative Dispute Resolution (ADR) will need to undergo a complete paradigm shift in the way they perceive the legal system. Mediation and arbitration are two types of ADR; however, the law is applied quite differently for both. Attorneys should work with their clients to guide them through the process, providing recommendations along the way.

In order to offer the best legal advice to a client, it is helpful for an attorney to understand where the client’s mindset is from a psychological standpoint. This will enable the attorney to determine how open the client will be to negotiation and settlement.

When some people are in conflict, they enter into a “fog-like” experience. The “fog” clouds their thinking, muddles their direction, and increases their anxiety. Heightened anxiety has its own effects on a person’s ability to reasonably negotiate and reach an agreement. It also diminishes the brain’s ability to fire the appropriate level of neurons up to the rational part of the brain, known as the cerebral cortex. When people become anxious, the limbic part of the brain, which processes responses and emotions when humans are threatened by immediate danger, causes them to become more reactive.

When disputants under stress react from the limbic part of the brain, they tend to resort to fight, flight, or freeze behaviors. Their ability to think rationally is diminished. Furthermore, the ambiguity of the situation, (whether they could do better if their issue was brought before a judge or jury) also intensifies the anxiety disputants are experiencing. The fact that neither the disputants nor their attorneys can be certain of how things may turn out creates an anxiety level that has the potential to develop into anger.

ADR, particularly mediation, helps mitigate emotions, such as anxiety and anger, because it offers disputants control over coming up with their own resolution rather than having one decided for them. Litigation, on the other hand, often drives or exacerbates these emotions because the outcome of the issue is in the hands of a third party – the jury or the judge.

So, how can attorneys help clients avoid succumbing to the emotional and irrational part of their brains and enable them to be more productive and reasonable during settlement negotiations?

First, it is essential that attorneys are upfront from the start about the pros and cons of litigation and ADR. When clients are knowledgeable about how to proactively work in an ADR settlement context, they gain a sense of self control and direction.

Second, attorneys should also reinforce that settlement can be the “win” the client seeks. Mediation settlements are created by the terms as agreed to by the disputing parties instead of a “stranger” ordering the client how to deal with an issue.

Third, inform the client that ADR is a voluntary process. This provides the client with some level of autonomy and control. In the settlement context, the clients are more willing to accept all suggested outcomes as possibilities and reasonable options become clearer. As a result, anxiety levels begin to abate. When anxiety levels are reduced, the brain becomes empowered to operate more easily with rational, rather than emotional, thinking.

Once disputants are working from a higher form of thinking, they are more skilled and efficient at identifying goals and questions, generating options, and brainstorming solutions. They ultimately become more emotionally intelligent and better listeners who are motivated, not by anger or a need to win, but by a need to create outcomes both sides can live with going forward.

Norma C. Izzo is vice-chair of the firm's Alternative Dispute Resolution department. She focuses her practice in the areas of family law and domestic relations, including collaborative divorce, mediation, arbitration, parent coordination, custody, and child support. Ms. Izzo serves on the State Bar of Arizona Committee for Family Law Rules of Practice and Procedure and on the Board of Directors for the Maricopa County Bar Association.

Wednesday, December 16, 2015

2015 Year End Tax Planning Strategies

By: Jack N. Rudel

Every year we lament how complicated year-end tax planning has become. This year is no exception. Attorney Jack N. Rudel provides 2015 year-end tax planning strategies that will help to yield rewards and avoid surprises.

Read the client alert here.

Wednesday, December 2, 2015

FERC Reacts to First Pipeline Modernization Tracker Proposal under New Policy

As reported in our prior blogs, on November 2014, the Federal Energy Regulatory Commission (FERC) proposed a Policy Statement on Cost Recovery Mechanisms for Modernization of Natural Gas Facilities in Docket No. PL15-1 that would allow interstate pipelines that meet certain criteria to recover the costs of modernizing their facilities through an approved cost tracker or surcharge mechanism. On April 15, 2015, following its review of substantial initial and reply comments, FERC issued an order implementing the Policy Statement, effective October 1, 2015. By order issued November 30, 2015 in Tallgrass Interstate Gas Transmission, LLC (“Tallgrass”), Docket No. RP16-137, FERC took the opportunity to preliminarily address the first cost recovery tracker proposed under the Policy Statement, one heavily contested by the pipeline’s shippers.

Tallgrass’ Proposal
On October 30, 2015, Tallgrass filed a general rate case under Section 4 of the Natural Gas Act. 15 U.S.C. 717c. As part of the filing, Tallgrass proposed a commodity surcharge to recover one-time system integrity costs pursuant to the Policy Statement. Through this mechanism, Tallgrass would recover “system safety, integrity, reliability, and environmental-related costs” in a volumetric surcharge to its usage rates. The revised General Terms & Conditions of its Tariff would define costs eligible for recovery through the Cost Recovery Mechanism as both capital costs and operation and maintenance (O&M) costs related to projects designed to comply with the regulations of  the Pipeline and Hazardous Materials Safety Administration, Environmental Protection Agency, and other governmental agencies.

FERC’s Reactions
In its November 30 suspension order, FERC was “encouraged that Tallgrass submitted a comprehensive proposal” that included “detailed testimony and exhibits explaining how its proposed Cost Recovery Mechanism charge satisfies the five standards set forth in the Modernization Cost Recovery Policy Statement.” FERC found that “Tallgrass’ filing of a general section 4 rate case in conjunction with its proposed Cost Recovery Mechanism will allow a thorough review of the justness and reasonableness of the base rates to which the Cost Recovery Mechanism will be attached, consistent with the policy statement.” Nevertheless, FERC determined that the proposal raised “numerous significant issues” of material fact that, along with the traditional rate case issues presented, should be addressed in an evidentiary hearing.

First, FERC found that protestors raised valid questions as to whether the specific projects included in the Cost Recovery Mechanism are consistent with the Policy Statement’s requirement precluding recovery in the Cost Recovery Mechanism of ordinary capital costs routinely incurred as part of regular system maintenance, costs that should continue to be recovered in the pipeline’s base rates.

Second, protestors pointed out that Tallgrass failed to include a mechanism for ensuring that a representative level of ordinary system maintenance capital costs are excluded from the tracker, as suggested by the Policy Statement.

Third, FERC found that the protestors raised “serious concerns” that Tallgrass included ordinary, recurring O&M costs in its Cost Recovery Mechanism charge (e.g., in-line inspections and hydrostatic testing), contrary to the Policy Statement.

In addition to the issues set for hearing, FERC summarily rejected Tallgrass’ proposed design of its Cost Recovery Mechanism charge, finding it in violation of FERC Order No. 636, which requires pipelines to use a Straight Fixed Variable (SFV) rate design that assigns all fixed costs to a pipeline’s reservation charges. While Tallgrass proposed to continue to design its base rates using an SFV rate design, its proposed Cost Recovery Mechanism is a volumetric surcharge through which Tallgrass impermissibly seeks to recover fixed costs. FERC ordered Tallgrass to revise its Cost Recovery Mechanism to be consistent with an SFV rate design.

Looking Ahead
Responding to the first pipeline Cost Recovery Mechanism proposal under the Modernization Policy Statement, it is not surprising that absent a comprehensive settlement offer the Commission would apply a strict interpretation to the Policy Statement’s underlying rate design criteria; nor is it surprising that the Commission would set all aspects of Tallgrass’ heavily contested Cost Recovery Mechanism proposal for hearing to determine their justness and reasonableness. Time will tell whether, and to what extent, the record in this proceeding will seek to test the scope of the Policy Statement’s criteria and require FERC to provide additional guidance to the industry regarding its proper implementation. For this reason, we will continue to monitor this case and report out any significant developments.

If you have questions or would like more information on the issues discussed in this article, please feel free to contact us.