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She Negotiates

She Negotiates

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How Can I Convince My Client to Lose More than Predicted and Still Maintain My Own Credibility?

The provocative comment we're following is Jay Welsh's remark that to settle most cases the Plaintiff has to accept a lot less than he wanted to recover and the defendant has to pay a lot more than he ever imagined paying.  And the response we're replying to is Canadian lawyer Michael Webster's:

When the issues have been crystallized into legal ones so well, you are in a lose/lose situation. The manager's dilemma then becomes counsel's dilemma: how do I manage to convince my client to lose more than I ever predicted and still maintain my own credibility.

The reason litigators settle law suits is because the outcome of litigation is uncertain and its pursuit expensive.  But that just states the problem.  How do you "tell" a client in the midst of expensive litigation that he's going to have to pay way more or accept way less than his attorney predicted (with appropriate disclaimers) long, long ago?

First, let me provide a checklist for success in commercial mediation:

  1. Bring the real deal-makers to the mediation or settlement conference for it is they -- not their attorneys -- who will  make the decision to pay way more or to accept way less than they had previously imagined.   
  2. Bring the parties back into the conflict as participants in its resolution again.  Businesses have commercial problems that have business solutions.  Litigation is often just the stick to force the continuation of commercial negotiations that broke down in so spectacular a way that the parties stopped talking to one another, hired lawyers, and began to fight over legal issues the parties neither care about nor understand.  The parties have now experienced how surreal their negotiation becomes when it's conducted in the courts.  They're probably ready to deal again.  Let them.  
  3. Permit the parties to discuss all aspects of the conflict whether they are relevant to the legal issues or not.  The reason one party initiated litigation against the other party is not because he wanted to create precedent.  And if precedent is what a party wants, money might but often cannot settle the matter.  
  4. Bring the experts along and let them talk to one another about the ways in which the matter might be resolved or even why their expert opinions are diametrically opposed.  
  5. Address the parties' justice issues.  People seek out lawyers for one reason and one reason only.  Because they believe themselves to be the victims of an injustice.  And if its the defendant you represent, the injustice visited upon it is the litigation itself.  I spend a significant amount of time during a mediation discussing justice issues with the parties. 
    1. they're being extorted
    2. they're being low-balled
    3. they were defrauded
    4. their trust and confidence was betrayed
    5. their competitor's market tactics have been unfair and violative of any number of state or federal laws
    6. their intellectual property was stolen
    7. etc., etc., etc.
  6. Let the mediator talk with the parties about what the justice system can do, what it should do, what it most likely cannot or will not do.  Most parties will not be happy with their attorneys if their justice issues are not addressed at the time of settlement.  And its my job to make clients happy with their attorneys.
  7. Let the mediator help the parties understand that their case has -- with no one's fault -- gotten worse rather than better over time and why.   
  8. When all else fails, blame the "system." 

Why Parties Pay More or Accept Less than They Want To

Jay Welsh is right.  If the parties have hired a mediator to settle complex commercial or mass tort litigation, they have done so because they need to pay more and accept less than they are prepared to do.  Otherwise, they'd settle without the assistance of a mediator.

This does not mean that the mediator bangs heads or twists arms.  There are hundreds of reasons why parties do not continue to trial and thousands of good excuses for corporate counsel to stop the bleeding.  They include:

  1. the witnesses on the other side performed better in pre-trial testimony than expected
  2. the Judge made pre-trial rulings that cut the heart out of your case
  3. the Supreme Court (state or federal) just over-turned a hundred years of precedent making one party's legal case far worse and the other's far better than expected
  4. it's the economy, stupid
  5. the client realizes during the course of the mediation that there's more than one way to organize the facts and apply the law -- something lawyers are trained to do and even sophisticated clients find hard to swallow.  Having had an "aha" experience during the mediation, the client realizes there's more (or less) at risk than he's been thinking and the offer/demand now on the table looks pretty darn good after all
  6. the other side becomes un-demonized during the course of the mediation, making it easier to part with money for the purpose of resolving the one thing both sides have in common -- a difficult, uncertain, expensive, dangerous lawsuit.
  7. one side simply out-negotiates the other (it happens) 
  8. one or both sides lose heart for the battle when they see that the delta between the their bottom lines is not as great as they expected it to be
  9. the parties manage to "expand the pie" (more about this later) such that the plaintiff does not have to accept that much less nor the defendant pay all that much more than each anticipated (it happens)
  10. one party genuinely develops an understanding of and empathy for the other side's position and changes a hard line attitude against settlement as a result (it happens)

 

Comments (3)

Read through and enter the discussion by using the form at the end
Michael Webster - April 26, 2008 10:34 PM

This is a great checklist!

I would add one other point.

In discovery, there is no back and forth. Counsel tries to nail down a position in anticipation of trial. As counsel, I don't care about anything other than a clean transcript.

But in mediation, a controlled back and forth can give rise to a mutual understanding about the legal strengths of the case. It can be hard to justify a legal position to a mediator who has no stake in the outcome.

I wonder if Jay has ever opened up a mediation with "If there is a solution today, you are both going to lose more than you ever thought as a result of your interaction today. And you will like it."

Vickie - April 26, 2008 11:10 PM

I don't know that even Jay could START a mediation like that. You DO still have to buy a girl dinner before you make your first move. But more seriously, I do use coached principal to principal discussions quite a bit. When I attend these meetings, the principals always far exceed my expectations. We're all so used to controlling our clients that we forget the reason they can afford our services is because they're incredibly savvy business people.

But let me address your comment that "[i]t can be hard to justify a legal position to a mediator who has no stake in the outcome."

Mediators are thinking on two main tracks (with many sub-stations).

The first track is positional -- what is the likelihood of either side achieving victory at trial and what is the likely range of damages, i.e., are the various offers and demands placed on the table better alternatives to the "odds" of winning $Q to $Z at the time of trial.

The second track is interest-based, whether those interests are available to "expand the pie" or not. The issues involved here include the parties' appetite for further litigation; external events that make the existence of expense of litigation problematic from an organizational point of view; internal events that make even a small potential (say 25 or 30%) for an adverse verdict at trial to be unacceptable for the people whose decision it is to make or who may be held "responsible" for the existence of the dispute or its resolution at day's end.

These "internal" concerns include the retained litigators and their relationships within their own firm and between the firm and the client. At one "off the record" luncheon with opposing counsel in which we both agreed to share our individual concerns about the impending trial date, I learned that this attorney's position in the partnership was precarious and that a settlement at any number less than $10's of millions posed a serious threat to his career. I wish we'd brought a seasoned mediator to that luncheon.

As it was, I genuinely had nowhere to go with this information other than to report back to my client that I was persuaded that the Plaintiff was not "posturing" when it said it would not discuss settlement unless my client were willing to start negotiations at $10 million.

Today, I would have used this frank conversation of trouble on both sides of the suit as an opening for mediation regardless of my client's refusal to attend in the face of such a demand. Today I would know how to convene that mediation despite the Plaintiff's "position" that they wouldn't negotiate below $10 million.

Michael Webster - April 28, 2008 3:54 PM

Let me guess: Plaintiff gets $X million below 10, but Plaintiff's lawyer gets fees as if settlement was $10 million.

Was I close?

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