Tuesday, September 29, 2009

Taking Offers Off the Table

Settlement offers as well as demands frequently carry a time limit: For example, "If not accepted, this offer will expire at 5:00 p.m. on Tuesday," or "If we cannot resolve this matter to our client's satisfaction within 10 business days, we will take all appropriate steps, including filing suit against your client." Why do people, including myself, include these deadlines? Everyone knows we may be bluffing, because we would generally still prefer to settle on the same offered terms the day after, or even the month after, the offer expires. If the settlement demand or offer were not a more attractive alternative than a failure to reach agreement, we would not have made the demand or offer in the first place. Usually that option remains more attractive than the costs and risks of non-agreement even after the artificial deadline has expired.

Similarly, near the end of a mediation session, parties have the choice of accepting the other side's last offer, or walking away without an agreement. Frequently, parties cavalierly threaten to walk away, even though it seems that they are jeopardizing the entire negotiation. They act recklessly because they count on being able to revive the negotiations at a later date. Sometimes parties merely need time to think about the last offer, and still expect to be able to take it the following week or month, even though the other side has told them that all bets are off after the mediation session ends.

Once a party makes a settlement offer, the offering party is rarely able to negotiate for a lesser amount. One reason is that parties' risk calculations going forward still favor the original offer. Parties might leave a negotiation session without a deal, then go back to spending many thousands of dollars doing more discovery and filing more motions, but that work usually doesn't change the value of the case. It is water under the bridge by the time the parties get to their next settlement opportunity. Perhaps more importantly, the opposing party will rarely be willing to settle for less than previously offered. So any offer that is made usually sets a floor for future negotiations. Backtracking is looked upon as bad faith. Parties should therefore not expect that they will be able to retract an offer that was made previously. That only happens on rare occasions, perhaps only when parties' view of the value of the underlying case has substantially changed. Parties can always walk away from the table after an offer has been rejected, but they should not expect to be able to make a better deal than the one they told the other side they would be willing to take.

Setting a time limit on acceptance of an offer still serves some useful purposes, however. It lets the other side know that you are serious about negotiating now, but you might not be interested in negotiating later. Putting an expiration date on an offer also prevents a belated acceptance of an offer that a party might later regret having made.

(photo from freedigitalphotos)

Wednesday, September 23, 2009

Pre-Conditions

President Obama yesterday succeeded in getting Israeli Prime Minister Netanyahu and Palestinian President Abbas to meet in the same room in New York. The President said "Simply put, it is past time to stop talking about starting negotiations, and time to move forward." (quoted in the Los Angeles Times) According to a Netanyahu aide quoted in the New York Times, the meeting was to take place "without preconditions, as the Prime Minister has always wanted." This is obviously a reference to the Palestinian insistence on a settlement freeze prior to any serious negotiations. But the Israelis have also set preconditions to various meetings in the past, and Israel and the United States still will not negotiate with Hamas unless Hamas renounces terrorism and recognizes Israel's right to exist.

An insistence on pre-conditions can create a stalemate before any negotiations have even begun. If each party demands that the other side "give in" on some point before they will even deign to talk to each other, they may give up an opportunity to obtain concessions on those points as well as others. By demanding a settlement freeze, for example, the Palestinians may not obtain any concessions whatsoever on settlements. In the more mundane settlement negotiations in which I operate, I sometimes encounter parties who do not want to proceed unless the other side has an appropriate representative physically present; or who do not even want to attend a mediation unless the other side indicates in advance that it is willing to consider certain settlement parameters. In those situations, I generally try to find out whether there is a possibility of getting anything constructive done even if these pre-conditions cannot be met. If the parties and the mediator insist on waiting until ideal conditions are present, sometimes they miss an opportunity to resolve a dispute.

On the other hand, requiring that certain agreements be made even before negotiations can begin is often an effective way of getting the necessary pillars in place that will support an eventual settlement. And it is difficult to start a negotiation without at least some ground rules, so it can be said that there are certain minimal pre-conditions to every negotiation. For example, parties need to understand when and where the meetings are going to take place, and they have to accept the legitimacy of the people negotiating for the other side. They ought to enter into negotiations with a willingness to listen, and a willingness to consider resolving the dispute. Without at least a minimal acceptance of the idea of mediating a dispute, it is probably not possible for parties to resolve a dispute through mediation.

Tuesday, September 22, 2009

Litigating efficiently

A hot topic in the litigation field during these bad economic times is how to reduce litigation costs. Numerous articles and discussions have appeared about alternative billing or staffing arrangements that can save clients money, presumably by reducing the amount of time spent on activities that do not advance cases toward trial. I agree that billing by the hour sometimes creates perverse incentives for attorneys, just as it does in any profession that bills by the hour or by the procedure. I also agree that over-staffing and engaging in unnecessary work drives up legal bills. But I also think that discussions about litigating more efficiently sometimes miss the larger point.

The best way to reduce litigation costs is not to litigate. Because once parties have chosen or are forced to litigate, they have entered into the most expensive possible way to resolve a dispute. Moreover, costs are a double-edged sword in litigation. Parties should be conscious of the costs they are incurring in filing a motion or serving or responding to discovery, but they also can't help but take into consideration that they are inflicting costs on the other side by engaging in various activities. Often these costs drive cases toward resolution. Therefore, the whole idea of "efficient litigation" may be something of an oxymoron.

The problems of conducting a lawsuit may be analogized to the problems of fighting a war. The nation does not want a general who needlessly wastes troops and equipment in fighting unnecessary battles. But at the same time we recognize that if we want to win the war, we sometimes have to throw our troops and equipment into the battle for the purpose of causing the other side to throw their troops and equipment into the battle. And if we really want to reduce the costs of war, the best way to do that is not to leave war-making decisions entirely to the generals. Because generals tend to think about solving problems by military means.

One of the most potentially wasteful litigation activities is discovery disputes, generally the least favorite type of dispute that judges have to decide. So the courts have been trying for years to develop methods of resolving discovery disputes without needless acrimony and massive expenditures of resources. First they tried imposing sanctions for discovery abuses, but this only seemed to increase the stakes of discovery battles. Then they tried imposing requirements for meeting and conferring in advance of filing discovery motions. This seems like the right way to go, but still in many cases, these meet and confer sessions have turned into just another adversarial stage of a lawsuit. In order to make the meet and confer process work, the parties are supposed to seize the opportunity to have a genuine give-and take about discovery and actually try to come to an agreement that satisfies both their needs without burdensome requests and responses and motions. To do that, however, they have to get out of the litigation mind-set and get into the negotiation mind-set. These are fundamentally different ways of trying to resolve a dispute. To reduce time and expense spent on solving a discovery dispute requires the parties to act a different way from the way they generally act in conducting litigation.

Parties can best control costs only by choosing a different process of dispute resolution than litigation, because litigation is fundamentally an adversarial process that is not necessarily dedicated to reducing the number of issues that are in dispute, but instead often provides incentives for the parties to create more issues to fight over. So the best way to control costs in litigation is not to litigate, just as the best way to control costs in warfare is to resolve disputes at the peace table instead of the battlefield.