The On-Going Search for the Settlement Unicorn
The jig is finally up. I've been hemming and hawing long enough. I need to just go ahead and answer Max Kennerly's question whether it's possible to convene an early settlement conference in which the parties are united in a desire to settle the litigation.
This is how you know I'm still as much a lawyer as I am a mediator.
The answer is yes and no.
But you can help change the "no" to a yes.
That's the hope part.
Here's the dispiriting part --The answer will not become "yes" if the parties continue to primarily engage in position-based distributive bargaining sessions in separate caucuses.
My own professional experience (and the behavioral research of which I'm aware) suggests that Mr. Kennerly's Unicorn will only come into a room in which an interest-based negotiation is taking place, one in which there is at least one joint session among the baragaining parties.
But first a story.
This very morning I failed to settle a very small case that is poised to become a very big case with cross-actions for legal malpractice and malicious prosecution.
The delta between the Plaintiff's final demand and the defendant's final offer?
$3,000.
And I offered to throw in half the delta myself by making a contribution to the presidential candidate/s of the parties' choice. Shock value.
The parties' failure to achieve settlement couldn't have been about money could it?
(image from The Sphere of Economic Calculation at the Ludwig von Mises Institute)
Why not? Because it was economically irrational not to settle. Which is not unusual. Because there is no rational economic man. Because we are incapable of making a decision in the absence of emotion. /**
As Professor Lee Alan Dugatkin explains in his article Discovering That Rational Economic Man Has a Heart,
Although some economic decisions are made outside a social context, they are a minority. Social dynamics, many economists believe, are at the core of economic decision making—that is, decision-making about resource acquisition and expense allocation. What I decide affects you, what you decide affects me, and, even more to the point, I care how I fare economically compared with how you fare.
I send a client a bill for $15,000. He pays $9,000, refusing to pay the additional six because he believes I didn't earn it or that I did my job badly or that I didn't communicate to him all of the items I would naturually include in my bill. There is a written agreement but no attorney fee clause. It will cost me at least $3,000 in attorney fees to collect the six. My client offers to pay me half of what is owed.
Do you have the hypothetical in mind? What would the rational economic man do?
The rational economic man would take the $3,000 because he cannot do better at trial.
Did rational economic man appear at the mediation this morning? Of course not. Because he is a Unicorn! He doesn't make decisions based upon numeric calculations or emotionless cost-benefit analyses -- which is why I knew the parties would not accept my gap-closing political contribution suggestion (whew!)
Why Rational Economic Man is a Unicorn
In a social-economic experiment known as the Ultimatum Game, many researchers have found that when one party offered less than half the money subject of the game, "the other player often rejected it, even though by doing so he end[ed] up with nothing." Id. Dugatkin describes the results of one research project involving this Ultimatum Game as follows:
Alan Sanfey, Ph.D., and his colleagues at Princeton University examined the Ultimatum Game with 19 subjects in the role of responder and . . . observe[d] their brain activity. They found that when unfair offers (deďŹned as those of less than half the resource) were made, responders often rejected them. As they did so, the area of their brains associated with negative emotional states (in this case, the bilateral anterior insula), rather than those associated with complex cognition (in this case, the dorsolateral prefrontal cortex) were most active. The more the offer deviated from fair, the more active was the bilateral anterior insula when such an offer was rejected. Anger at being treated unfairly by other players appeared to override rational economic reasoning. In the minority of cases when the offer was accepted, the dorsolateral prefrontal cortex was most active.
We, like the capuchin monkeys mentioned yesterday, will deprive ourselves of thousands, tens of thousands, even millions of dollars if we believe the compensation being offered is so little related to our value or our loss that it seems unfair. We will not pay money at the point of a gun nor accept money offered to us by villains or cheapskates.
Mediation, Money and Justice
In today's semi-hypothetical mediation, the $3,000 offered felt too unfair to the plaintiff and the hypothetical $6,000 demanded felt too unjust to the defendant for the parties to reach a rational economic deal. The parties' potential to achieve settlement was also seriously undermined by the degree of anger they expressed toward one another and the way in which they had villified one another - "rich deadbeat" on one side and "dishonest fiduciary" on the other.
I am neither magician nor miracle worker. Nor am I in the social work or therapy business. I do, however, know that when parties to a lawsuit are hopping mad and believe that the opposition behaved immorally, money is unlikely to change hands.
In an effort to defuse the anger and de-demonize the parties, I held two joint sessions -- one that was not coached and one that was. Then I separated the parties for the purpose of conducting a distributive bargaining session (she offered x; he counters with y, etc.)
In both the joint session and in the separate caucuses, I strove to humanize the parties for one another; attempted to reframe their behavior in a less villianous light; and, assisted them in conducting as rational a cost-benefit analysis as possible. I also helped the parties reality test their beliefs about the likely outcome at trial and to evaluate the likelihood that the strength of their feelings today would translate into a hearty appetite for further, higher-stakes litigation two years down the line.
No dice.
So What Can You Do?
I would love to deliver a stirring tale of a heroic mediator helping parties settle their dispute in the early stages before the threatened action and cross-actions were even filed. But I can't. This is more art than science and compared to my 25 years of experience as a litigator, I'm still a little green as a mediator after four years of full-time neutral practice.
Let me just say this. Mediating settlements in the early stages works more often than it fails, particularly if you do one or more of the following:
- hire a mediator who can rock and roll with the process rather than one who is a one-trick pony -- head-banger, or evaluator, or prophet of doom; peacemaker, or rabble-rouser or King of the Distributive Bargain -- your mediator should be able to play all or any of these roles as the situation demands;
- if you're angry and if you have villified opposing counsel or the opposition party, take a deep breath, sit down at your computer and write down the best, the mid- and the worst-case scenarios (I know you've done it already; but take a fresh look again right before the settlement conference)
- share these evaluations with your client
- if a trustworthy mediator with whom you've worked before suggests that it would be useful in joint session for your client to express his irritation, disappointment, anger or any other feeling that might interfere with his ability to make a rational decision, don't reject it out of hand
- help your client de-demonize the opposition, reminding him that the "other side" is human and therefore fallible and is rarely downright evil
- remind your client that many disputes that seem to arise from malicious conduct actually stem from faulty communication
- know your bottom line and stick to it unless you genuinely learn something that makes you see the entire dispute in a different light, remembering that "a foolish consistency is the hobgoblin of little minds"
- despite everything I've now said about litigants behaving irrationally, as I've written elsewhere in greater detail, Harvard negotiation gurus Deepak Malhotra and Max H. Bazerman suggest that negotiators too often confuse hidden interests and constraints with irrationality. The mistakes and solutions when this is the case?
- Mistake No. 1: They are Not Irrational; They Have Hidden Interests -- find out what they are and you may well be able to resolve the dispute and settle the litigation without putting any more money on the table or making any further concessions;
- Mistake No. 2: They are Not Irrational; They Have Hidden Constraints -- keep one ear to the ground for hidden constraints, explore them with the mediator, opposing counsel or the opposing party; often those constraints can be problem-solved away;
- Mistake No. 3: They are Not Irrational; They Are Uninformed -- listen and respond; respond and listen. You will find that EACH of you is uninformed about something that will likely make a genuine difference in the manner in which the litigation is resolved.
- If your opponent cannot or will not see reason, there's always the joy of just trying the darn thing.
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**/ This thesis is based on the work of Antonio Damasio as described by him in Descartes’ Error.
