For the exercise: For weeks 3 and 4, you will be conducting a negotiation that involves three people. There has been a serious car accident, and the negotiation is trying to divide a pot of money among the accident victims.

IN RE INTERNATIONAL ROOFING CO. General Information for All Parties International Roofing Co. (IR) is a small roofing contractor with six employees that performs roof repair and replacement work. Its assets are limited to three used pick-up trucks and a few thousand dollars' worth of equipment and supplies. It has no office - its owner, Ben Holman operates the business out of his home. Last winter, one of IR's employees, 23-year-old Eddie Angel, was driving one of the company trucks on his way to patch a leaking roof. Rain was coming down hard, and Eddie was driving 60 miles per hour in a 40 MPH zone on a main thoroughfare. Eddie lost control of the truck and skidded across the double-yellow dividing line, colliding with one car head on and careening into two others. Miraculously, Eddie escaped the accident with only minor injuries. The drivers and passengers in the cars with which Eddie collided were not nearly so fortunate. Eddie's truck collided first with an Audi A6 driven by 50-year-old Howard Barker. Howard's eight-year old son, Kevin, was also in the car. Both were killed immediately on impact. The truck then careened into a Ford Escort driven by 30-year-old Marty Clayton. Marty was transported to a local emergency room via helicopter conscious but with massive internal injuries and spent 12 hours in emergency surgery. Doctors thought he would survive, but complications arose two days later. Three additional surgeries were performed over the next four days, but to no avail. Seven days after the accident, after four surgeries and a tremendous amount of pain, Marty died. The third car to be hit by Eddie's truck was a Chevrolet Malibu driven by 72-year-old Mildred Harper. Mildred suffered a severely fractured hip, which cannot be repaired due to her age. Doctors believe that her life expectancy will not be affected by the accident, but Mildred, who lives alone, will require 24-hour a day semi-skilled nursing care for the rest of her life. Each automobile involved in the accident was totaled. Ann Barker filed suit against IR as executor of her husband's and son's estates, on behalf of herself, and on behalf of her daughter. Heidi Clayton filed suit against IR as executor of her husband's estate, on behalf of herself and on behalf of her children. Mildred Harper also filed a lawsuit against IR. IR has an automobile insurance policy with General Insurance Inc. with a policy limit of $300,000 and a liability "umbrella" policy with General that covers it above $300,000 up to $2 million. General Insurance has not challenged the plaintiffs' claim that its client was liable for deaths and injuries. In fact, the company has offered to pay the plaintiffs the full $2 million policy limits provided that they agree on how to divide this sum of money and all agree to release General Insurance, IR, and Ben Holman from any further claims arising from the accident. The plaintiffs can either agree how to divide the $2 million between them and thus settle the case, or they can continue to prosecute their individual suits. If they choose the latter, their cases will be governed by the following rules of tort law in force in your jurisdiction: (1) In tort cases, damages may be awarded for pain and suffering. A jury determines the value of such damages. A claim for pain and suffering on the behalf of a deceased party may be maintained by the executor of his estate. 2 (2) Tort victims may recover medical expenses incurred and the present value of medical expenses reasonably expected to be incurred in the future. Recoveries from collateral sources (i.e., health insurance) should not be used to reduce damage awards. (3) In an action for wrongful death, a surviving spouse and minor children may seek damages for loss of society. A jury will determine damages based on the relationships. There are no formal standards for doing this. (4) In an action for wrongful death, a surviving spouse and minor children may recover for the lost earnings of the deceased. A jury will estimate the future earnings of the deceased, subtract taxes and the amount that would have been spent on the deceased himself, and award the present value of the remainder to the plaintiff(s). Recoveries from collateral sources (i.e., life insurance) should not be used to reduce damage awards. (5) Compensatory damages for lost property are recoverable in tort actions. (6) If multiple tort judgments arising from the same event exhaust the defendant's assets, the courts will allocate those assets to the prevailing plaintiffs pro-rata based on the size of the judgments. Unfortunately, litigation is not a particularly good alternative for the plaintiffs. IR has virtually no assets other than the insurance policy, and it would certainly declare bankruptcy if it were to lose a court judgment or judgments for more than its $2 million insurance policy limits. Even if the corporate veil could be pierced and Ben Holman held liable, his personal assets total only $30,000, so a judgment against him personally would lead to a personal bankruptcy filing; Eddie Angel has left the jurisdiction, whereabouts unknown, and he almost certainly has no substantial assets in any event. In other words, although litigation would result in the division of the $2 million among the claimants, it would not result in the collection of any more money. If there were three court judgments, the most likely result is that the $2 million of insurance would be divided pro rata between the Barkers, the Claytons, and Ms. Harper, based on the size of their judgments. In fact, each would receive less than this, because each party would have to spend at least $50,000 in costs to try the case. Moreover, each plaintiff lawyer would receive forty percent of any trial verdict because each lawyer is working on a contingent fee basis. You and the other two attorneys have agreed to take only 20 percent of your clients' proceeds if a settlement can be reached. Thus, if the plaintiffs can settle the action without going to trial, the total amount of money available to the plaintiffs as a group (after deducting $400,000 in attorney fees, i.e., 20 percent of $2 million) will be $1.6 million. If the plaintiffs can't settle the action and instead elect to go to trial, the total amount of money available to the plaintiffs as a group (after deducing $800,000 in attorney fees, i.e., forty percent of $2 million, plus an additional $150,000 in costs ($50,000 per party)) will be $1.05 million. Thus, by going to trial, there will be $550,000 less money available for the plaintiffs. The plaintiffs have asked their lawyers to meet and see if they can reach consensus on a recommendation as to how to divide the $2 million settlement offer. You must now sit down and 3 attempt to negotiate an agreement. The following basic financial information about the plaintiffs and their families is known to both parties: Howard and Kevin Barker Howard and Kevin Barker are survived by wife (mother) Ann, age 43, and daughter (twin sister) Sheila, age 8. Two years ago Howard Barker became a partner at his mid-sized law firm. He earned $350,000 last year, and $425,000 this year. Ann Barker is a pediatrician on staff at a large HMO. She earned $180,000 last year. Ann and Howard own a house in an exclusive part of town with a current market value of $1,500,000. They purchased the house nine years ago for $920,000. They currently owe $200,000 on the mortgage. The monthly mortgage payment is $2,100. Property taxes are $15,435 a year. When Howard died, he had $400,000 in an employer-sponsored 401K account. He and Ann had $220,000 in stocks, CDs, and other liquid investments. As a fringe benefit, Howard's law firm pays for $500,000 worth of life insurance for every partner in the firm ($250,000 for every associate) under the age of 60. One month after Howard's death, the life insurance company sent Ann Barker a check for $500,000. Howard also had a personal life insurance policy for $500,000, and Howard and Ann had a $10,000 life insurance policy on Kevin. Ann has also collected these amounts from the life insurance company. Howard's late model Audi A6, which was totaled, has a blue book value of $27,800. Marty Clayton Marty Clayton is survived by his wife Heidi, and four children, Estella (5), Evan (4), Max (2) and Leslie (1). Marty worked in the shipping department of a large manufacturing company, moving orders from the company's warehouse to the loading docks. He earned $43,000 last year, including overtime. Heidi used to work as a secretary for the same company, but she has not worked since Max was born more than two years ago. When she last worked, her salary was $37,000. Marty and Heidi own a three-bedroom townhouse in a dangerous part of town, with a market value of approximately $200,000. They purchased it last year for $190,000. They owe $180,000 on the mortgage. Their monthly mortgage payments are $900, and their annual property taxes are $2,050. Marty and Heidi have a savings account with $4,000, and Heidi has an individual retirement account (IRA) with $9,000. They have $6,000 in credit card debt. Marty had no life insurance. Marty's four surgeries and week in intensive care resulted in medical bills of $398,000. All but a $1,000 deductible was paid by Marty's employer-sponsored health insurance plan. Marty's six-year-old Ford Escort, which was totaled in the accident, had a blue book value of $4,900. Mildred Harper Mildred spent 18 days in the hospital recuperating following the accident, at a cost of $113,000 (all but $500 paid by Medicare and Mildred's private health insurance). Because of her hip fractures, she is permanently confined to a wheelchair and needs assistance dressing, bathing, 4 and preparing food. She will need such assistance for the rest of her life. She takes prescription strength painkillers every day to control her pain. Because Mildred lives alone - her husband of 42 years passed away three years ago - her condition has forced her to move to a retirement home with 24-hour hour care. The cost of the home is $54,000 per year. Medicare does not cover any of these costs. She currently has too many assets to qualify for Medicaid. Mildred receives $1,400 a month from social security and $1,600 per month in pension benefits from her former employer (she retired 8 years ago). Her pension has a 2 percent annual cost of living adjustment. Although the annual cost of living adjustment varies for social security (it has ranged from zero percent to 5.8 percent over the last twenty years), on average it is 2 percent. She owns her own home, which has a market value of approximately $320,000, free and clear. She does not have to pay annual property taxes on the home because of a unique law that benefits senior citizens who have owned their home for more than 30 years. She has approximately $205,000 in stocks, bonds, and cash. Mildred's five-year-old Chevrolet Malibu, which was totaled in the accident, had a blue book value of $6,200. Confidential Instructions for Ann Barker's Lawyer Although Ann feels bad for Heidi Clayton and her children and for Mildred Harper, she believes that she has lost the most from the accident and deserves the vast majority of any settlement with IR and its insurance company. The most obvious point is that she lost two family members, while the Claytons lost only one and Ms. Harper survived the accident. A more difficult problem is how to compare the loss of a child (which no other plaintiff suffered) to the loss of a spouse/father (which the Claytons also experienced). Losing a spouse is traumatic, of course, but there is a special kind of pain that comes from the death of a child that is unique. On her better days, Ann can anticipate getting over the death of her husband someday - although it will probably be many years from now - but she thinks she will never get over the loss of her son at such a young age, with so much of life ahead of him. If anything, the loss of Howard and Kevin has been even harder on Ann's daughter Sheila, who had an extremely close relationship to her father and a special relationship to her twin brother; the two were inseparable. Like Ann, Sheila has been in therapy since the accident. As Sheila approaches her teenaged years, Ann fears that her daughter's grief and despair might prevent her from excelling in school, developing a healthy self-image, and forming bonds with peers. Ann is considering either cutting back on her hours or leaving her job entirely until Sheila graduates from high school. 5 In terms of finances, the loss of Howard's earning capacity was, of course, catastrophic. Partners in Howard's law firm earn anywhere from $350,000 to $700,000 a year, depending on seniority and performance. Howard was much loved by his partners and clients, and he had a reputation for being a workaholic, though he did not want to work the rest of his life. Ann believes that within 5-10 years, Howard's income would probably have been at the upper end of that range, and that he would have sustained that level of income until age 65 when he had planned on retiring. She wants any settlement to compensate her for this substantial economic loss. Needless to say, she also believes that the life insurance proceeds that she has collected should not be taken into account in any settlement.