As I was growing up, my father would tell me stories about his upbringing in Watts. We spoke about all types of things like how the landscape was much different and how guns were rarely used to settle disputes in his day, but he took a more serious tone when he spoke about law enforcement and their role in the community then. He shared many of his personal encounters and ultimately would share his memories of the Watts riots. I was familiar with the critical and jaded lens he viewed law enforcement through having had my own experiences to confirm this perspective. Then, in the 90’s, I experienced the Rodney King riots. Like so many in the inner city of Los Angeles, I was disappointingly vindicated about my views regarding law enforcement and flashbacks of my father’s days in Watts further reinforced this perspective.
Despite several harsh interactions, I was fortunate enough to have a few positive encounters with law enforcement that helped to counterbalance my previous experiences. When I was asked to help create the pilot for a program designed to mediate disputes between law enforcement and the community, I was skeptical at first, but then I thought about my trajectory and how a simple conversation could lead to a vastly different outcome. Accomplishing this has become a personal goal.
The City Attorney’s Dispute Resolution Program (DRP) has a long-established history, beginning in 1989, of conducting mediations of all types; RSO, Community, and most recently, the program I am fortunate to have been a part of launching, their Community Police Unification Program (CPU). The CPU Program started as a pilot in 2012 with the goal of using mediation to facilitate difficult conversations, which can sometimes go awry at the initial point of contact, between LAPD and the community.
During an encounter with a community member, the officer is in a position of authority and power while the citizen is clearly not. Personalities, emotional intelligence, perceptions, and biases can convolute this experience. Prior to CPU, community members could register a complaint, which would be routed to Internal Affairs, and would more often than not result in a letter stating their claim was “unfounded”. Perception is reality, and community members that truly felt aggrieved gained no satisfaction and the police officer involved gained no opportunity to grow from these experiences.
Mutual understanding is our program’s objective and the CPU creates a space for this to occur. The process is relatively straight forward. Community complaints are routed to Internal Affairs and sorted; cases involving an arrest, physical contact, racial epithets or that are otherwise egregious in nature do not have the option for CPU mediation. Cases involving discourtesy and allegation of bias get routed to the CPU. A Coordinator from the LAPD side gets in touch with the officer to get their buy-in and a coordinator from the City Attorney’s office reaches out to the community member. Once both parties are committed, mediators are assigned, and a date is set. Let the community unification begin.
While a noble cause, this is no small feat. These mediations are quite different than traditional mediations. Typical mediations involve participants that have some vested interest in repairing the relationship. Often, there exists a tacit investment and ongoing interest between the parties that operates as an unseen undercurrent to the relationship. This is noticeably absent in CPU mediations, making these conversations tenuous and more difficult to navigate.
The first year of the program produced many lessons and best practices that continue to inform the program today. One such lesson has been the importance of pairing mediators according to the personalities in the room. Success of CPU mediations largely depend on the mediator’s ability to adapt to the personalities.
This lesson was hard won. Although most of our mediations have been successful, there is always room for improvement. The program has had some mispairings that resulted in less than desirable outcomes. In response, the LAPD coordinator and I began to discuss the personalities of the parties in more depth. Based on conversations and descriptions of personalities, I would select mediators that would balance the dynamics in the room. This more thoughtful approach seemed to improve results. But, there was no way to measure these pairings and therefore no way to measure if the correlation between participants resulted in greater success.
The program was able to secure a COPS grant from the U.S. Department of Justice in 2013. Part of the grant deliverables was to develop a tool that captures the knowledge-based process that was happening intuitively in the pairing of mediators in CPU cases. CPU administrators came up with the name “Responsivity Tool” because it was designed to measure the effectiveness of the program’s responsiveness related to mediator pairings in these mediations.
Searching for a way to measure and evaluate a mediator’s style, we came across Dr. Riskin’s assessment grid. The grid works along two continuums.
“… One continuum concerns the goals of the mediation. In other words, it measures the scope of the problem…The second continuum concerns the mediator’s activities. It measures the strategies and techniques that the mediator employs…” (Riskin 1996).
When defining the goal of measuring the problem, Riskin’s continuum ranges from “narrow” to “broad”. When evaluating mediator styles, Riskin’s continuum ranges from “evaluative” to “facilitative”. Once measured and plotted the result falls into a grid containing four quadrants pertaining to mediator styles: Evaluative Narrow, Evaluative Broad, Facilitative Narrow and Facilitative Broad.
Riskin accurately states that with any mediation a particular issue can have a primary and secondary focus. This is also true with CPU mediations; cases involving discourtesy typically require the mediator to start narrow and work toward the broad end. Cases involving allegations of bias typically require mediators to start broad and move toward the narrow end.
CPU mediations involving allegations of discourtesy have a particularly narrow focus on the event that occurred. A transactional or superficial mediation can begin and end without moving from the event, offering no more than an explanation of police policy supporting what occurred. Mediators must work toward opening the conversation to include the secondary broader benefits that can also arise which is a goal of the program.
CPU mediations involving allegations of bias, oftentimes, have a particularly broad focus typically including personal and community trauma that have culminated at the recent point of contact. A transactional mediation, in this case, can begin and end without moving away from the general trauma never actually discussing the specific event that occurred. Mediators, in this case, must start broad working their way down to the specific incident and migrate back toward a broad community focus.
In both instances, the goal is for the participants to feel heard, understood and gain new perspectives from seeing through the other’s lens, if even for a moment.
To accomplish this outcome, having a mediator with the right skill-set is essential. We utilized the MCI (mediator scoring index) to rate our mediators. The MCI “…is designed to assist mediators in understanding the particular approach or style that they tend to use during the mediation process” (Krivis & McAdoo 2000). These evaluations are scored and catalogued for future reference.
Once we were able to uniformly identify our mediator’s style and approach, we began to develop questions that would allow us to measure the difficulty of the mediation. Questions include length of residency in the area or length of years on the job for officers, tone of the conversation, does the party seem willing to mediate, etc.
The coordinators gather answers to these questions and rate the participants on a scale ranging from 5 to 15; the lower score being more amenable and likely to experience the benefits of mediation and the higher score requiring more active involvement from the mediator to achieve such outcomes.
The assumption is that there is a mediator style that is a “best fit” when evaluating participants in conflict and when appropriately paired satisfaction among participants will improve. To test our tool and gather data we took participants with a higher score and paired them with mediators that fell into the strong and/or Average Facilitative Broad categories on Riskin’s grid. Conversely, participants that have lower scores were paired with mediators that fell into the Facilitative Narrow and Broad categories, and participants in the midrange were paired with Facilitative or Evaluative Broad mediator styles. Currently, the program’s pool of CPU mediators is shallow, which at times leads to pairing mediation styles that don’t align with the parties’ scores which impacts the success level of the mediation. The program collects exit surveys with each mediation and will be able to track the level of effectiveness as we continue to collect more data.
The program has commissioned a professor from USC, to conduct a program evaluation in part to evaluate the effectiveness of the Responsivity Tool.
The process is imperfect, and challenges have been noted that offer opportunity for improvement; I have listed a few below:
Pool of Mediators – mediators are volunteers and ones with the skill set to be successful in these types of mediations are of limited supply. Due to this constraint, we have sometimes had to pair meditations based on availability and not on the grid. However, the random pairings did allow for various styles to be paired with a variety of cases. Hopefully the analysis of the Responsivity Tool will help to clarify which pairings were successful.
Assessment of the Participants – the questions used to assess the parties may not be in depth enough or even correlate to a challenging mediation.
MCI Style Assessment – Currently, the program administers the mediator assessment once at the time mediators are selected for the CPU. Styles can evolve and develop over time and the best mediators evolve depending on the case. Therefore, pinning down which style is most appropriate for which case type can be elusive. Continued evaluations on a periodic basis can remedy.
Counter Balancing Biases – Providing equal exposure to both community and LAPD culture has been difficult. Empathy is a key attribute of any successful mediator and we seek to stimulate this empathy by exposing our mediators to various aspects of community and LAPD life. Because LAPD is an institution, they have a structure in place that easily replicates the dangerous and complex decisions officers need to make daily. As a part of CPU mediator training we require our mediators to become familiar with LAPD policies and go through use-of-force training simulations. On the other hand, we don’t have a similarly balanced structure representing the community’s perspective. The mediators themselves come from the community, but often come from communities other than the ones of CPU participants and therefore with very different life experiences. It’s difficult to measure how exposure to LAPD policies and training simulations manifest in mediation, but it’s possible that in the absence of something comparable on the community side this could lead to bias toward law enforcement within the mediation setting.
Because the program is always learning and adapting to become more effective, it has produced many beneficial outcomes for participants. It’s our hope and intent to share our lessons learned and best practices with other organizations while continuing to grow and develop ourselves.
– Shaphan Roberts
Works Cited
Leonard L. Riskin, Understanding Mediators’ Orientations, Strategies, and Techniques: A Grid for the Perplexed, 1 Harv. Negot. L. Rev. 7 (1996), available at http://scholarship.law.ufl.edu/facultypub/668
This is an exciting time for the SCMA as our membership reaches record highs and our programing and events continue to expand and are well attended. It is a good time to reflect on the history of our organization. Recently, at the Past President’s Breakfast in April, our SCMA former Presidents shared stories and remembrances of their time in office. This wonderful compilation of stories included many achievements and successes of the SCMA in promoting and supporting mediators in Southern California, but these were tempered by recollections of some challenges that the organization encountered along the way. This dialogue inspired our current President, Dr. Jack R. Goetz, Esq., to lead an initiative with the Communications Committee and key members of our community to draft a history of the SCMA featured in the “About SCMA” section of our website. The new section features the many layered story of the early days of SCMA’s creation to the present day.
July is the month when we leave the “June gloom” behind and really heat up, only this year that appears to apply not just to the weather but to the collective political rancor in our country. There may not have been a time in our recent history that cries out more for us peacemakers to be trying to facilitate civil dialogue and ways to connect with one another. As emotionally draining as that can be, it is the role we selected and wear proudly.
Some of our greatest peacemakers amongst us in the community remain largely unheralded, so I wanted to devote this space for a big “thank you” from SCMA for all the work you are doing. We were recently invited to an event hosted by Kathy Shimizu of the Orange County Human Relations, a Dispute Resolution Programs Act (DRPA) organization, and were so impressed by their work both in and out of the courts in Orange County. The DRPA organizations operate throughout the state, providing pro bono or low cost mediation to so many in need, and those with whom we have frequent contact with, including Professor Mary Culbert (2017 recipient of SCMA’s L. Randolph Lowry award) and Sara Campos of the Center for Conflict Resolution at Loyola Law School, Christopher Welch of the Center for Conflict Resolution in Reseda, and Maritza Gutierrez of the Los Angeles County Department of Consumer and Business Affairs, deserve a “shout out” for all their efforts…as do the other dozens of organizations locally and statewide. SCMA continues to provide its support for their efforts and hope that all of you who attend our Annual Conference on November 3 will stop by their Mediation Fair tables and thank them for all they do. The Annual Conference RFP for workshop proposals is now accepting submissions and registration is now open!
Of course, prior to its Annual Conference, SCMA will have its Annual Summer Mixer so that all of us can “let our hair down” with our colleagues. This year is planned for 6 p.m. on Thursday, August 9th at the Bonaventure Brewing Company in Los Angeles. Join us as we celebrate our latest class of graduates from the SCMA Mentor Program and join immediate past president Jason Harper in bestowing the President’s award to our esteemed colleague Woody Mosten. Good food and conversation with your friends and colleagues is on the menu! This event is FREE for members. Click here to find out more.
Many thanks again for all our volunteers who make SCMA such a great organization. Our 1st annual Family Mediation Institute was a huge success as over 75 participants joined us on June 8 and 9 at the Doubletree Hotel in Santa Ana for a day and a half of workshops and learning. I personally witnessed our Board members Terri Breer and Susan Guthrie and a host of other committee volunteers “raise the bar” on a well-run conference, including the exhibitors and the sponsors as participants in an event where everyone shared and learned together. In addition, many thanks to our Executive Director, Anne Sawyer, for ably helping to coordinate the event for all of us.
We so appreciate all our volunteers who make SCMA events so special, with special acknowledgement to our Professional Development Group leaders who continue to facilitate lively and energetic get togethers throughout the summer months. If you haven’t had a chance to join one yet, please make it a plan to use this summer to connect with your colleagues either at a PDG and/or at the Summer Mixer located at Bonaventure Brewing Company next month.
I will keep this message short, but it carries with it my hopes for you and your families to have a peaceful and restful summer despite the rancor around us. I hope to see you at a SCMA event soon and certainly, if not before then, at our Summer Mixer on August 9th.
SCMA’s Annual Family Institute 2018 Was A Success!
The inaugural 2018 SCMA Family Mediation Institute – “Essential Skills and Innovative Approaches for Family Mediators” was held this past weekend at the Doubletree OC Airport location. Family mediators from Orange, Los Angeles and San Diego Counties gathered together for the 2-day event and participated in workshops, networking activities, an Exhibitor Hall and Book Fair.
The event kicked off with Friday’s workshop “The Emotionally Intelligent Mediator” presented by Keynote Speaker, Dr. Sam Alibrando and was followed by a Mixer and Reception on the Lakeside Patio where attendees were able to socialize and network.
On Saturday, institute attendees chose from 6 workshops on topics that included the business aspect of establishing, managing and growing a mediation practice, new technologies for delivering mediation services, parenting plans and co-parenting issues in divorce, and how mediators can collaborate effectively with mental health professionals. In the afternoon workshop attendees learned new skills to competently address financial issues, including support, division of marital property and the challenges that come with real estate and retirement assets.
The luncheon Keynote, “Lessons from the Yellow Brick Road – Helping Clients Navigate Divorce” was an enjoyable presentation by Dr. Sam Alibrando based on his book, Follow the Yellow Brick Road – How to Change for the Better When Life Gives You its Worst. Dr. Alibrando’s keynote entertained attendees with his creative and whimsical metaphor that demonstrates how the adventures of Dorothy in the land of Oz, can be used to instruct us all on how we can use our heart, minds and courage to positively change through life’s challenges.
As we have heard from many of you, one of the things SCMA can do for you is to continue to provide lost cost and high-quality programming to help nurture your minds and to continue to build your practices. Judging from the attendance at our workshops, webinars, town halls, and institutes this year, that is working for you. But our hard-working volunteers are not done yet! June 8-9 is our new Family Mediation Institute (FMI) titled “Essential Skills and Innovative Approaches for Family Mediation.” The keynote speaker, Dr. Sam Alibrando, will kick off the FMI with a Friday afternoon workshop on “The Emotionally Intelligent Mediator,” a relevant topic to all mediators. That workshop will be immediately followed by a reception, and then a full day of Family Law-only programming on Saturday. If you are not a family law mediator and just want to attend Friday, our easy registration makes it possible; all others can get combined pricing for the two-day event at the Doubletree Hotel in Santa Ana. There is still time to register for the event! You may register here.
June is also the time when many of you start making your plans for our Annual Conference, where hundreds of Southern California mediators come together for a variety of workshops and networking activities. Please save the date for this year’s conference, set for November 2 and 3 at the L.A. Hotel in downtown Los Angeles. We are delighted to welcome the American Arbitration Association and its “Mediation.org” as our Advanced Track program planner; look for us to post more details on that programming in the summer months.
As SCMA President, I often stand in the shadow of mediators who have dedicated much of their lives to helping the mediation community be a better place in which to work. Two of those luminaries have earned SCMA’s highest honors and have agreed to join us for the festivities in November. Our Cloke-Millen Peacemaker award goes to an individual who has inspired us for years through her passion and dedication to peacemaking. On November 3, Ken Cloke will introduce Avis Ridley-Thomas as our award winner and we are so honored to have her be our plenary speaker for our Annual Conference. The previous night, November 2, will be our dinner held to honor a mediator who has inspired us with her dedication and passion for education; we will be delighted to bestow the L. Randolph Lawry award upon Professor Lisa Klerman of USC Gould School of Law. We hope you will make plans to join us for all of the festivities and the learning that accompanies our Annual Conference.
I wish each and every one of you a safe and rejuvenating summer. If you have the opportunity to go to one of our programs, I hope you will take the time to thank one of our many volunteers who made that event happen. None of this is possible without the hard work of your colleagues on the SCMA Board and its various committees that so graciously volunteer countless hours to make our mediation workplace a better place. To all of them, I continue to give my thanks and accolades.
SCMA’s Annual Employment Institute 2018 Was A Success!
I would like to extend a heartfelt thank-you to everyone who made this year’s Employment Mediation Institute possible. The Institute was a great success, with 70 total members and nonmembers in attendance. One attendee even flew from Vancouver, British Columbia to join us for the program! The University of Southern California’s Gould School of Law generously hosted and helped sponsor the program, and we were fortunate to have Prof. Lisa Klerman join us to deliver opening remarks. The first panel presented different perspectives and new ideas for managing and resolving workplace disputes. The second panel featured litigators discussing recent developments in employment law.
Our sponsors for the Institute this year were: ACT Mediation; EXTTI, Incorporated; Finn Financial Group; Reddock Law Group; and USC Gould School of Law. Our partners were Mediate.com and the Los Angeles chapter of the National Association of African-Americans in Human Resources. The individuals who contributed to the program’s development include Dr. Jack R. Goetz, SCMA President; Angela Reddock-Wright, SCMA President-Elect and Employment Mediation Institute Co-Chair; Anne Sawyer, SCMA Executive Director; our panelists, Sabrina Beldner, Christina Coleman, Harold Coleman, Cherry-Marie Destura, and Nikki Tolt; and our roleplay actors, Teri Levin, Kathryn Marshall, Andy Shelby, and Therese White.
Thank you again to everyone!
Samantha Blake,
Chair
On May 3, the SCMA held their 6th Annual Peer Mediation Celebration at the USC Galen Center. The Founders Room was packed with almost 80 attendees and students from more than 8 different schools. Most notably, University High School In Los Angeles received a certificate for Best Practices in Peer Mediation by Kids Managing Conflict (KMC), SCMA’s Education Foundation.
The evening started with a heartwarming panel discussion with high school peer mediators where they discussed their experience as a mediator and how the skills they’ve acquired transformed their lives and the environment of the school. The evening ended with honoring University High School Dean and Peer Mediation Coordinator Karen Crowley as she is embarking on her retirement.
We would like to thank USC, INVLA, and KMC for their co-sponsorship of the event and we look forward to next year.
“A life is not important except in the impact it has on other lives.” These words, uttered by the great American Jackie Robinson, who broke baseball’s “color line” years before the landmark case of Brown vs. Board of Education and decades before the civil rights movement, has special significance for those of us in conflict resolution who are constantly devoting ourselves to impacting lives in positive ways. These words resonated with us as SCMA’s sister organization, Kids Managing Conflict (KMC), hosted dozens of southern California peer mediation program administrators and coaches at its April 26 Symposium on Kids Managing Conflict: Creating Peace on Our Schools Through Dispute Resolution Programs at the California Endowment for the Arts. As Sally Patchen, KMC’s President, noted in her opening remarks, peer mediators have a statistically significant impact on conflict reduction in the schools. SCMA congratulates KMC at its first annual conference of its kind and looks forward to continuing to support KMC’s great work in the community.
SCMA’s own 6th Annual Celebration of Peer Mediation, hosted by SCMA’s immediate Past President Jason Harper, is being held on May 3 at 6 p.m. at the Galen Center at the USC campus. This conference will enable you to hear from student peer mediators and professionals in discussing best practices in peer mediation. Please join us; you cannot beat the $0 cost. You may register at: https://www.scmediation.org/scma-calendar/npe-events/?eid=4361
April finished our initial webinar series to help you build you mediation practices, as past SCMA President Wendy Kramer delivered the very popular webinar on “Tips on Building a Financially Successful Mediation Practice.” If you missed one or more of our Building your Mediation Practice series, and would like to watch a recorded copy, they are available on our website. You may see them at https://www.scmediation.org/webinars/
May brings us our extremely popular annual Employment Mediation Institute. The conference theme this year is “On the Front Lines: How Mediators can Help Heal Workplaces in the #METOO Era.” There is still room to register for this event and discounted “early bird” registration is available through May 4. The panoply of speakers includes some renown employment mediators and speakers, with introductory remarks by Professor Lisa Klerman of USC Gould School of Law. The full schedule of speakers and panels is at https://www.scmediation.org/employment-mediation-institute-2018/, including Cherry-Marie B. Destura, of the Equal Employment Opportunity Commission (EEOC), and Harold Coleman, Jr. of the American Arbitration Association’s Mediation.org. Thank you to President-elect Angela Reddock-Wright and conference chair Samantha Blake for putting together this outstanding lineup of speakers.
And those of you who are in Family Law will not want to miss our two-day Family Mediation Institute in Orange County on June 8-9. Keynote speaker and author Dr. Sam Alibrando heads an all-star lineup of family mediation professionals divided into various panels; a larger description of the program is located at https://www.scmediation.org/family-mediation-institute-2018/ Thank you to Board member Terri Breer and Communications Chair Susan Guthrie and the host of others who have dedicated their time to putting this exciting new conference together.
As you can see from the above, your volunteer Board and committees are dedicated to continuing to add value to your membership. In addition to the above activities, there are a host of others, including our monthly professional development groups. We welcome your comments and contributions and thank you for your continued support.
Abstract: Structured settlements for non-physical injury disputes, such as those arising from wrongful termination and similar employment-related lawsuits, remain a surprisingly underused and unappreciated settlement resolution tool. By taking the time to understand how this useful strategy can positively impact settlement talks, mediators will be better positioned to demonstrate how a series of tax-deferred cash flows can help level out the plaintiff’s tax burden leading to a better, fairer outcome for all parties.
Wrongful termination and similar employment lawsuits present litigants, their counsel and mediators with a few challenges not encountered during negotiations involving most other types of personal injury claims.
One of those challenges is taxes. Unreasonable taxes. Unfair taxes.
Unlike plaintiffs who compromise their physical injury disputes and pay zero taxes on their settlement proceeds (exclusive of punitive damages), those who choose to resolve their employment differences for a single lump sum can end up relinquishing an excessive share of their recovery to taxes.
Regrettably, this grim reality isn’t often realized until well after the case has resolved. Even more regrettable is the fact that overpaying taxes on employment settlements is completely avoidable.
Mediators who are conscious of these dual realities and understand how easily they can help parties overcome them stand to distinguish themselves as conscientious conflict arbitrators who can bring about the fairest of all possible outcomes.
Physical Versus Non-Physical Injury Claims
26 U.S. Code § 104(a)(2) exempts from taxation any damages (other than punitive) whether paid as a lump sum or as periodic payments received “on account of personal physical injuries or physical sickness” even though the word “physical” remains undefined.
Prior to 1996, however, the word “physical” had yet to be added to the code leaving the tax treatment for many types of claims open to interpretation. For obvious reasons, practitioners sought to qualify all sorts of damages, emotional distress chief among them, under § 104(a)(2) in their complaints even when the origin or fact pattern of the claim strayed from the original intent of the law.
Several court cases later (primarily United States v. Burke, Commissioner v. Schleier and Murphy v. IRS), prompted legislatures to address this tax ambiguity culminating with the Small Business Jobs Protection Act of 1996 (Public Law 104-188). The new law added the word “physical” to the code and clarified that emotional distress, unless stemming from an underlying physical injury, was indeed taxable. (See § 1605(b) of P.L. 104-188)
Taxable cash awards, particularly large ones, create serious tax inequity by catapulting the plaintiff into an extraordinarily high tax bracket for a single year even though the award may have been intended to compensation the aggrieved party for years into the future, even a lifetime.
Where is the equity in this?
Clarity Creates Opportunity
With the door for preferential tax treatment of damages permanently closed for wrongful termination and similar torts, the structured settlements industry stepped in to solve the fairness imbalance created when plaintiffs are forced to accept their settlement or verdict in a single lump sum.
By modifying the Qualified Assignment process used to facilitate physical injury structured settlements which pay future income that is 100% income tax-free, the industry was able to create an alternative which allows plaintiffs involved in nonphysical injury claims to mitigate their tax liability.
A Non-Qualified Assignment process now exists which helps parties arrange to have their settlement dollars – and their tax liability – spread out over time. A favorable 2008 Private Letter ruling from the Department of the Treasury (PLR 200836019) reinforced this settlement alternative as a sensible money saving tax deferral strategy.
Save Money, Save Face
Plaintiff A is a single taxpayer earning $80,000 a year (23% tax bracket) after being fired from his job. He plans to work another 15 years but $80,000 is about half of what he had been accustomed to earning. He resolves his wrongful termination lawsuit and nets $1,000,000 which he opts to take in cash.
Using current tax rates for a California taxpayer, Plaintiff A will pay roughly $467,000 in taxes on his $1,000,000 recovery.
Plaintiff B, on the other hand, is also a single taxpayer in identical circumstances and resolves an identical lawsuit netting her $1,000,000. However, she chooses to have her recovery spread out over the next 15 years to avoid the unreasonable, one-time, 47% tax burden. Instead, she chooses to have it paid out over time via a Non-Physical Injury Structured Settlement which lowers the tax she pays on her $1,000,000 to $396,400 – a 15% reduction – netting her $70,600 MORE than if she had chosen the cash lump sum. All at no out-of-pocket cost to anyone.
Aside from the immediate tax savings, the best part about Plaintiff B’s settlement is that it returns her to her pre-termination cash flow situation. The structured settlement generates roughly $80,000 a year for the next 15 years which, when coupled with her current salary, brings her back to $160,000 of taxable income she had been accustomed to. All on a tax advantaged basis.
All Sides Benefit
Cash offers and demands limit the parties during taxable damage negotiations and can lead to impasse. Employing a Non-Physical Injury Structured Settlement strategy instead affords both sides a better opportunity to bridge the negotiation gap more effectively by focusing on the plaintiff’s after-tax income rather than the gross value of the settlement. Mediators who embrace this creative, needs-based approach to negotiations validate their reputations as fair-minded arbiters who could very likely see their practices enhanced as a result.
A Tool For Improving Mediations: Informed Pairings and Predictive Outcomes by Shaphan Roberts
Newsletter, Writer's CornerAs I was growing up, my father would tell me stories about his upbringing in Watts. We spoke about all types of things like how the landscape was much different and how guns were rarely used to settle disputes in his day, but he took a more serious tone when he spoke about law enforcement and their role in the community then. He shared many of his personal encounters and ultimately would share his memories of the Watts riots. I was familiar with the critical and jaded lens he viewed law enforcement through having had my own experiences to confirm this perspective. Then, in the 90’s, I experienced the Rodney King riots. Like so many in the inner city of Los Angeles, I was disappointingly vindicated about my views regarding law enforcement and flashbacks of my father’s days in Watts further reinforced this perspective.
Despite several harsh interactions, I was fortunate enough to have a few positive encounters with law enforcement that helped to counterbalance my previous experiences. When I was asked to help create the pilot for a program designed to mediate disputes between law enforcement and the community, I was skeptical at first, but then I thought about my trajectory and how a simple conversation could lead to a vastly different outcome. Accomplishing this has become a personal goal.
The City Attorney’s Dispute Resolution Program (DRP) has a long-established history, beginning in 1989, of conducting mediations of all types; RSO, Community, and most recently, the program I am fortunate to have been a part of launching, their Community Police Unification Program (CPU). The CPU Program started as a pilot in 2012 with the goal of using mediation to facilitate difficult conversations, which can sometimes go awry at the initial point of contact, between LAPD and the community.
During an encounter with a community member, the officer is in a position of authority and power while the citizen is clearly not. Personalities, emotional intelligence, perceptions, and biases can convolute this experience. Prior to CPU, community members could register a complaint, which would be routed to Internal Affairs, and would more often than not result in a letter stating their claim was “unfounded”. Perception is reality, and community members that truly felt aggrieved gained no satisfaction and the police officer involved gained no opportunity to grow from these experiences.
Mutual understanding is our program’s objective and the CPU creates a space for this to occur. The process is relatively straight forward. Community complaints are routed to Internal Affairs and sorted; cases involving an arrest, physical contact, racial epithets or that are otherwise egregious in nature do not have the option for CPU mediation. Cases involving discourtesy and allegation of bias get routed to the CPU. A Coordinator from the LAPD side gets in touch with the officer to get their buy-in and a coordinator from the City Attorney’s office reaches out to the community member. Once both parties are committed, mediators are assigned, and a date is set. Let the community unification begin.
While a noble cause, this is no small feat. These mediations are quite different than traditional mediations. Typical mediations involve participants that have some vested interest in repairing the relationship. Often, there exists a tacit investment and ongoing interest between the parties that operates as an unseen undercurrent to the relationship. This is noticeably absent in CPU mediations, making these conversations tenuous and more difficult to navigate.
The first year of the program produced many lessons and best practices that continue to inform the program today. One such lesson has been the importance of pairing mediators according to the personalities in the room. Success of CPU mediations largely depend on the mediator’s ability to adapt to the personalities.
This lesson was hard won. Although most of our mediations have been successful, there is always room for improvement. The program has had some mispairings that resulted in less than desirable outcomes. In response, the LAPD coordinator and I began to discuss the personalities of the parties in more depth. Based on conversations and descriptions of personalities, I would select mediators that would balance the dynamics in the room. This more thoughtful approach seemed to improve results. But, there was no way to measure these pairings and therefore no way to measure if the correlation between participants resulted in greater success.
The program was able to secure a COPS grant from the U.S. Department of Justice in 2013. Part of the grant deliverables was to develop a tool that captures the knowledge-based process that was happening intuitively in the pairing of mediators in CPU cases. CPU administrators came up with the name “Responsivity Tool” because it was designed to measure the effectiveness of the program’s responsiveness related to mediator pairings in these mediations.
Searching for a way to measure and evaluate a mediator’s style, we came across Dr. Riskin’s assessment grid. The grid works along two continuums.
When defining the goal of measuring the problem, Riskin’s continuum ranges from “narrow” to “broad”. When evaluating mediator styles, Riskin’s continuum ranges from “evaluative” to “facilitative”. Once measured and plotted the result falls into a grid containing four quadrants pertaining to mediator styles: Evaluative Narrow, Evaluative Broad, Facilitative Narrow and Facilitative Broad.
Riskin accurately states that with any mediation a particular issue can have a primary and secondary focus. This is also true with CPU mediations; cases involving discourtesy typically require the mediator to start narrow and work toward the broad end. Cases involving allegations of bias typically require mediators to start broad and move toward the narrow end.
CPU mediations involving allegations of discourtesy have a particularly narrow focus on the event that occurred. A transactional or superficial mediation can begin and end without moving from the event, offering no more than an explanation of police policy supporting what occurred. Mediators must work toward opening the conversation to include the secondary broader benefits that can also arise which is a goal of the program.
CPU mediations involving allegations of bias, oftentimes, have a particularly broad focus typically including personal and community trauma that have culminated at the recent point of contact. A transactional mediation, in this case, can begin and end without moving away from the general trauma never actually discussing the specific event that occurred. Mediators, in this case, must start broad working their way down to the specific incident and migrate back toward a broad community focus.
In both instances, the goal is for the participants to feel heard, understood and gain new perspectives from seeing through the other’s lens, if even for a moment.
To accomplish this outcome, having a mediator with the right skill-set is essential. We utilized the MCI (mediator scoring index) to rate our mediators. The MCI “…is designed to assist mediators in understanding the particular approach or style that they tend to use during the mediation process” (Krivis & McAdoo 2000). These evaluations are scored and catalogued for future reference.
Once we were able to uniformly identify our mediator’s style and approach, we began to develop questions that would allow us to measure the difficulty of the mediation. Questions include length of residency in the area or length of years on the job for officers, tone of the conversation, does the party seem willing to mediate, etc.
The coordinators gather answers to these questions and rate the participants on a scale ranging from 5 to 15; the lower score being more amenable and likely to experience the benefits of mediation and the higher score requiring more active involvement from the mediator to achieve such outcomes.
The assumption is that there is a mediator style that is a “best fit” when evaluating participants in conflict and when appropriately paired satisfaction among participants will improve. To test our tool and gather data we took participants with a higher score and paired them with mediators that fell into the strong and/or Average Facilitative Broad categories on Riskin’s grid. Conversely, participants that have lower scores were paired with mediators that fell into the Facilitative Narrow and Broad categories, and participants in the midrange were paired with Facilitative or Evaluative Broad mediator styles. Currently, the program’s pool of CPU mediators is shallow, which at times leads to pairing mediation styles that don’t align with the parties’ scores which impacts the success level of the mediation. The program collects exit surveys with each mediation and will be able to track the level of effectiveness as we continue to collect more data.
The program has commissioned a professor from USC, to conduct a program evaluation in part to evaluate the effectiveness of the Responsivity Tool.
The process is imperfect, and challenges have been noted that offer opportunity for improvement; I have listed a few below:
Because the program is always learning and adapting to become more effective, it has produced many beneficial outcomes for participants. It’s our hope and intent to share our lessons learned and best practices with other organizations while continuing to grow and develop ourselves.
– Shaphan Roberts
Works Cited
Leonard L. Riskin, Understanding Mediators’ Orientations, Strategies, and Techniques: A Grid for the Perplexed, 1 Harv. Negot. L. Rev. 7 (1996), available at http://scholarship.law.ufl.edu/facultypub/668
Jeffrey Krivis & Barbara McAddo “A Style Index for Mediators” August 2000 https://www.mediate.com/articles/krivis4.cfm?plain=t#bio
Learn More About the History of SCMA!
News & Announcements, NewsletterThis is an exciting time for the SCMA as our membership reaches record highs and our programing and events continue to expand and are well attended. It is a good time to reflect on the history of our organization. Recently, at the Past President’s Breakfast in April, our SCMA former Presidents shared stories and remembrances of their time in office. This wonderful compilation of stories included many achievements and successes of the SCMA in promoting and supporting mediators in Southern California, but these were tempered by recollections of some challenges that the organization encountered along the way. This dialogue inspired our current President, Dr. Jack R. Goetz, Esq., to lead an initiative with the Communications Committee and key members of our community to draft a history of the SCMA featured in the “About SCMA” section of our website. The new section features the many layered story of the early days of SCMA’s creation to the present day.
Learn more about SCMA and read the new history here: https://www.scmediation.org/about
July 2018 President’s Message from Dr. Jack Goetz, Esq.
From The President, NewsletterDear colleagues:
July is the month when we leave the “June gloom” behind and really heat up, only this year that appears to apply not just to the weather but to the collective political rancor in our country. There may not have been a time in our recent history that cries out more for us peacemakers to be trying to facilitate civil dialogue and ways to connect with one another. As emotionally draining as that can be, it is the role we selected and wear proudly.
Some of our greatest peacemakers amongst us in the community remain largely unheralded, so I wanted to devote this space for a big “thank you” from SCMA for all the work you are doing. We were recently invited to an event hosted by Kathy Shimizu of the Orange County Human Relations, a Dispute Resolution Programs Act (DRPA) organization, and were so impressed by their work both in and out of the courts in Orange County. The DRPA organizations operate throughout the state, providing pro bono or low cost mediation to so many in need, and those with whom we have frequent contact with, including Professor Mary Culbert (2017 recipient of SCMA’s L. Randolph Lowry award) and Sara Campos of the Center for Conflict Resolution at Loyola Law School, Christopher Welch of the Center for Conflict Resolution in Reseda, and Maritza Gutierrez of the Los Angeles County Department of Consumer and Business Affairs, deserve a “shout out” for all their efforts…as do the other dozens of organizations locally and statewide. SCMA continues to provide its support for their efforts and hope that all of you who attend our Annual Conference on November 3 will stop by their Mediation Fair tables and thank them for all they do. The Annual Conference RFP for workshop proposals is now accepting submissions and registration is now open!
Of course, prior to its Annual Conference, SCMA will have its Annual Summer Mixer so that all of us can “let our hair down” with our colleagues. This year is planned for 6 p.m. on Thursday, August 9th at the Bonaventure Brewing Company in Los Angeles. Join us as we celebrate our latest class of graduates from the SCMA Mentor Program and join immediate past president Jason Harper in bestowing the President’s award to our esteemed colleague Woody Mosten. Good food and conversation with your friends and colleagues is on the menu! This event is FREE for members. Click here to find out more.
Many thanks again for all our volunteers who make SCMA such a great organization. Our 1st annual Family Mediation Institute was a huge success as over 75 participants joined us on June 8 and 9 at the Doubletree Hotel in Santa Ana for a day and a half of workshops and learning. I personally witnessed our Board members Terri Breer and Susan Guthrie and a host of other committee volunteers “raise the bar” on a well-run conference, including the exhibitors and the sponsors as participants in an event where everyone shared and learned together. In addition, many thanks to our Executive Director, Anne Sawyer, for ably helping to coordinate the event for all of us.
We so appreciate all our volunteers who make SCMA events so special, with special acknowledgement to our Professional Development Group leaders who continue to facilitate lively and energetic get togethers throughout the summer months. If you haven’t had a chance to join one yet, please make it a plan to use this summer to connect with your colleagues either at a PDG and/or at the Summer Mixer located at Bonaventure Brewing Company next month.
I will keep this message short, but it carries with it my hopes for you and your families to have a peaceful and restful summer despite the rancor around us. I hope to see you at a SCMA event soon and certainly, if not before then, at our Summer Mixer on August 9th.
Warmest regards,
Dr. Jack R. Goetz
RECAP: 2018 Family Mediation Institute
Newsletter, Past Events Reviews & RecapsSCMA’s Annual Family Institute 2018 Was A Success!
The inaugural 2018 SCMA Family Mediation Institute – “Essential Skills and Innovative Approaches for Family Mediators” was held this past weekend at the Doubletree OC Airport location. Family mediators from Orange, Los Angeles and San Diego Counties gathered together for the 2-day event and participated in workshops, networking activities, an Exhibitor Hall and Book Fair.
The event kicked off with Friday’s workshop “The Emotionally Intelligent Mediator” presented by Keynote Speaker, Dr. Sam Alibrando and was followed by a Mixer and Reception on the Lakeside Patio where attendees were able to socialize and network.
On Saturday, institute attendees chose from 6 workshops on topics that included the business aspect of establishing, managing and growing a mediation practice, new technologies for delivering mediation services, parenting plans and co-parenting issues in divorce, and how mediators can collaborate effectively with mental health professionals. In the afternoon workshop attendees learned new skills to competently address financial issues, including support, division of marital property and the challenges that come with real estate and retirement assets.
The luncheon Keynote, “Lessons from the Yellow Brick Road – Helping Clients Navigate Divorce” was an enjoyable presentation by Dr. Sam Alibrando based on his book, Follow the Yellow Brick Road – How to Change for the Better When Life Gives You its Worst. Dr. Alibrando’s keynote entertained attendees with his creative and whimsical metaphor that demonstrates how the adventures of Dorothy in the land of Oz, can be used to instruct us all on how we can use our heart, minds and courage to positively change through life’s challenges.
Thank you again to everyone!
June 2018 President’s Message from Dr. Jack Goetz, Esq.
From The PresidentDear colleagues:
As we have heard from many of you, one of the things SCMA can do for you is to continue to provide lost cost and high-quality programming to help nurture your minds and to continue to build your practices. Judging from the attendance at our workshops, webinars, town halls, and institutes this year, that is working for you. But our hard-working volunteers are not done yet! June 8-9 is our new Family Mediation Institute (FMI) titled “Essential Skills and Innovative Approaches for Family Mediation.” The keynote speaker, Dr. Sam Alibrando, will kick off the FMI with a Friday afternoon workshop on “The Emotionally Intelligent Mediator,” a relevant topic to all mediators. That workshop will be immediately followed by a reception, and then a full day of Family Law-only programming on Saturday. If you are not a family law mediator and just want to attend Friday, our easy registration makes it possible; all others can get combined pricing for the two-day event at the Doubletree Hotel in Santa Ana. There is still time to register for the event! You may register here.
June is also the time when many of you start making your plans for our Annual Conference, where hundreds of Southern California mediators come together for a variety of workshops and networking activities. Please save the date for this year’s conference, set for November 2 and 3 at the L.A. Hotel in downtown Los Angeles. We are delighted to welcome the American Arbitration Association and its “Mediation.org” as our Advanced Track program planner; look for us to post more details on that programming in the summer months.
As SCMA President, I often stand in the shadow of mediators who have dedicated much of their lives to helping the mediation community be a better place in which to work. Two of those luminaries have earned SCMA’s highest honors and have agreed to join us for the festivities in November. Our Cloke-Millen Peacemaker award goes to an individual who has inspired us for years through her passion and dedication to peacemaking. On November 3, Ken Cloke will introduce Avis Ridley-Thomas as our award winner and we are so honored to have her be our plenary speaker for our Annual Conference. The previous night, November 2, will be our dinner held to honor a mediator who has inspired us with her dedication and passion for education; we will be delighted to bestow the L. Randolph Lawry award upon Professor Lisa Klerman of USC Gould School of Law. We hope you will make plans to join us for all of the festivities and the learning that accompanies our Annual Conference.
I wish each and every one of you a safe and rejuvenating summer. If you have the opportunity to go to one of our programs, I hope you will take the time to thank one of our many volunteers who made that event happen. None of this is possible without the hard work of your colleagues on the SCMA Board and its various committees that so graciously volunteer countless hours to make our mediation workplace a better place. To all of them, I continue to give my thanks and accolades.
Regards,
Dr. Jack R. Goetz, Esq.
RECAP: 2018 Employment Mediation Institute
Newsletter, Past Events Reviews & RecapsSCMA’s Annual Employment Institute 2018 Was A Success!
I would like to extend a heartfelt thank-you to everyone who made this year’s Employment Mediation Institute possible. The Institute was a great success, with 70 total members and nonmembers in attendance. One attendee even flew from Vancouver, British Columbia to join us for the program! The University of Southern California’s Gould School of Law generously hosted and helped sponsor the program, and we were fortunate to have Prof. Lisa Klerman join us to deliver opening remarks. The first panel presented different perspectives and new ideas for managing and resolving workplace disputes. The second panel featured litigators discussing recent developments in employment law.
Our sponsors for the Institute this year were: ACT Mediation; EXTTI, Incorporated; Finn Financial Group; Reddock Law Group; and USC Gould School of Law. Our partners were Mediate.com and the Los Angeles chapter of the National Association of African-Americans in Human Resources. The individuals who contributed to the program’s development include Dr. Jack R. Goetz, SCMA President; Angela Reddock-Wright, SCMA President-Elect and Employment Mediation Institute Co-Chair; Anne Sawyer, SCMA Executive Director; our panelists, Sabrina Beldner, Christina Coleman, Harold Coleman, Cherry-Marie Destura, and Nikki Tolt; and our roleplay actors, Teri Levin, Kathryn Marshall, Andy Shelby, and Therese White.
Thank you again to everyone!
Samantha Blake,
Chair
RECAP: 2018 Annual Peer Mediation Celebration
Newsletter, Past Events Reviews & RecapsOn May 3, the SCMA held their 6th Annual Peer Mediation Celebration at the USC Galen Center. The Founders Room was packed with almost 80 attendees and students from more than 8 different schools. Most notably, University High School In Los Angeles received a certificate for Best Practices in Peer Mediation by Kids Managing Conflict (KMC), SCMA’s Education Foundation.
The evening started with a heartwarming panel discussion with high school peer mediators where they discussed their experience as a mediator and how the skills they’ve acquired transformed their lives and the environment of the school. The evening ended with honoring University High School Dean and Peer Mediation Coordinator Karen Crowley as she is embarking on her retirement.
We would like to thank USC, INVLA, and KMC for their co-sponsorship of the event and we look forward to next year.
Best Regards,
Jason A. Harper
Upcoming Events as of May 2018
News & Announcements, NewsletterWe have an amazing 2018 Spring in store for you. As of May 1st, here are some of the key events and activities that you may be interested in!
SCMA Annual Peer Mediation Event
SCMA Annual Employment Institute
2018 Family Mediation Institute
SCMA Annual Summer Mixer
SCMA’s 2018 Conference
May 2018 President’s Message from Dr. Jack Goetz, Esq.
From The PresidentDear colleagues
“A life is not important except in the impact it has on other lives.” These words, uttered by the great American Jackie Robinson, who broke baseball’s “color line” years before the landmark case of Brown vs. Board of Education and decades before the civil rights movement, has special significance for those of us in conflict resolution who are constantly devoting ourselves to impacting lives in positive ways. These words resonated with us as SCMA’s sister organization, Kids Managing Conflict (KMC), hosted dozens of southern California peer mediation program administrators and coaches at its April 26 Symposium on Kids Managing Conflict: Creating Peace on Our Schools Through Dispute Resolution Programs at the California Endowment for the Arts. As Sally Patchen, KMC’s President, noted in her opening remarks, peer mediators have a statistically significant impact on conflict reduction in the schools. SCMA congratulates KMC at its first annual conference of its kind and looks forward to continuing to support KMC’s great work in the community.
SCMA’s own 6th Annual Celebration of Peer Mediation, hosted by SCMA’s immediate Past President Jason Harper, is being held on May 3 at 6 p.m. at the Galen Center at the USC campus. This conference will enable you to hear from student peer mediators and professionals in discussing best practices in peer mediation. Please join us; you cannot beat the $0 cost. You may register at: https://www.scmediation.org/scma-calendar/npe-events/?eid=4361
April finished our initial webinar series to help you build you mediation practices, as past SCMA President Wendy Kramer delivered the very popular webinar on “Tips on Building a Financially Successful Mediation Practice.” If you missed one or more of our Building your Mediation Practice series, and would like to watch a recorded copy, they are available on our website. You may see them at https://www.scmediation.org/webinars/
May brings us our extremely popular annual Employment Mediation Institute. The conference theme this year is “On the Front Lines: How Mediators can Help Heal Workplaces in the #METOO Era.” There is still room to register for this event and discounted “early bird” registration is available through May 4. The panoply of speakers includes some renown employment mediators and speakers, with introductory remarks by Professor Lisa Klerman of USC Gould School of Law. The full schedule of speakers and panels is at https://www.scmediation.org/employment-mediation-institute-2018/, including Cherry-Marie B. Destura, of the Equal Employment Opportunity Commission (EEOC), and Harold Coleman, Jr. of the American Arbitration Association’s Mediation.org. Thank you to President-elect Angela Reddock-Wright and conference chair Samantha Blake for putting together this outstanding lineup of speakers.
And those of you who are in Family Law will not want to miss our two-day Family Mediation Institute in Orange County on June 8-9. Keynote speaker and author Dr. Sam Alibrando heads an all-star lineup of family mediation professionals divided into various panels; a larger description of the program is located at https://www.scmediation.org/family-mediation-institute-2018/ Thank you to Board member Terri Breer and Communications Chair Susan Guthrie and the host of others who have dedicated their time to putting this exciting new conference together.
As you can see from the above, your volunteer Board and committees are dedicated to continuing to add value to your membership. In addition to the above activities, there are a host of others, including our monthly professional development groups. We welcome your comments and contributions and thank you for your continued support.
Yours truly
Dr. Jack R. Goetz, Esq.
Leveling Tax Matters in Employment Mediation
Writer's CornerBy: Dan Finn, CPCU, MSSC, RICP®
Finn Financial Group, LLC
Abstract: Structured settlements for non-physical injury disputes, such as those arising from wrongful termination and similar employment-related lawsuits, remain a surprisingly underused and unappreciated settlement resolution tool. By taking the time to understand how this useful strategy can positively impact settlement talks, mediators will be better positioned to demonstrate how a series of tax-deferred cash flows can help level out the plaintiff’s tax burden leading to a better, fairer outcome for all parties.
Wrongful termination and similar employment lawsuits present litigants, their counsel and mediators with a few challenges not encountered during negotiations involving most other types of personal injury claims.
One of those challenges is taxes. Unreasonable taxes. Unfair taxes.
Unlike plaintiffs who compromise their physical injury disputes and pay zero taxes on their settlement proceeds (exclusive of punitive damages), those who choose to resolve their employment differences for a single lump sum can end up relinquishing an excessive share of their recovery to taxes.
Regrettably, this grim reality isn’t often realized until well after the case has resolved. Even more regrettable is the fact that overpaying taxes on employment settlements is completely avoidable.
Mediators who are conscious of these dual realities and understand how easily they can help parties overcome them stand to distinguish themselves as conscientious conflict arbitrators who can bring about the fairest of all possible outcomes.
Physical Versus Non-Physical Injury Claims
26 U.S. Code § 104(a)(2) exempts from taxation any damages (other than punitive) whether paid as a lump sum or as periodic payments received “on account of personal physical injuries or physical sickness” even though the word “physical” remains undefined.
Prior to 1996, however, the word “physical” had yet to be added to the code leaving the tax treatment for many types of claims open to interpretation. For obvious reasons, practitioners sought to qualify all sorts of damages, emotional distress chief among them, under § 104(a)(2) in their complaints even when the origin or fact pattern of the claim strayed from the original intent of the law.
Several court cases later (primarily United States v. Burke, Commissioner v. Schleier and Murphy v. IRS), prompted legislatures to address this tax ambiguity culminating with the Small Business Jobs Protection Act of 1996 (Public Law 104-188). The new law added the word “physical” to the code and clarified that emotional distress, unless stemming from an underlying physical injury, was indeed taxable. (See § 1605(b) of P.L. 104-188)
Taxable cash awards, particularly large ones, create serious tax inequity by catapulting the plaintiff into an extraordinarily high tax bracket for a single year even though the award may have been intended to compensation the aggrieved party for years into the future, even a lifetime.
Where is the equity in this?
Clarity Creates Opportunity
With the door for preferential tax treatment of damages permanently closed for wrongful termination and similar torts, the structured settlements industry stepped in to solve the fairness imbalance created when plaintiffs are forced to accept their settlement or verdict in a single lump sum.
By modifying the Qualified Assignment process used to facilitate physical injury structured settlements which pay future income that is 100% income tax-free, the industry was able to create an alternative which allows plaintiffs involved in nonphysical injury claims to mitigate their tax liability.
A Non-Qualified Assignment process now exists which helps parties arrange to have their settlement dollars – and their tax liability – spread out over time. A favorable 2008 Private Letter ruling from the Department of the Treasury (PLR 200836019) reinforced this settlement alternative as a sensible money saving tax deferral strategy.
Save Money, Save Face
Plaintiff A is a single taxpayer earning $80,000 a year (23% tax bracket) after being fired from his job. He plans to work another 15 years but $80,000 is about half of what he had been accustomed to earning. He resolves his wrongful termination lawsuit and nets $1,000,000 which he opts to take in cash.
Using current tax rates for a California taxpayer, Plaintiff A will pay roughly $467,000 in taxes on his $1,000,000 recovery.
Plaintiff B, on the other hand, is also a single taxpayer in identical circumstances and resolves an identical lawsuit netting her $1,000,000. However, she chooses to have her recovery spread out over the next 15 years to avoid the unreasonable, one-time, 47% tax burden. Instead, she chooses to have it paid out over time via a Non-Physical Injury Structured Settlement which lowers the tax she pays on her $1,000,000 to $396,400 – a 15% reduction – netting her $70,600 MORE than if she had chosen the cash lump sum. All at no out-of-pocket cost to anyone.
Aside from the immediate tax savings, the best part about Plaintiff B’s settlement is that it returns her to her pre-termination cash flow situation. The structured settlement generates roughly $80,000 a year for the next 15 years which, when coupled with her current salary, brings her back to $160,000 of taxable income she had been accustomed to. All on a tax advantaged basis.
All Sides Benefit
Cash offers and demands limit the parties during taxable damage negotiations and can lead to impasse. Employing a Non-Physical Injury Structured Settlement strategy instead affords both sides a better opportunity to bridge the negotiation gap more effectively by focusing on the plaintiff’s after-tax income rather than the gross value of the settlement. Mediators who embrace this creative, needs-based approach to negotiations validate their reputations as fair-minded arbiters who could very likely see their practices enhanced as a result.