Wednesday, August 31, 2011

How Litigators Negotiate

I've been working on a case lately with a corporate lawyer, and we've been trading war stories about various negotiations in which we have participated. Most of the deals that this corporate attorney negotiates are deals for buying or selling properties or companies, but he has also been involved in some negotiations to settle lawsuits. He can't believe the difference. He is astounded that a plaintiff might start off a settlement negotiation in a litigated case by demanding, say, $2 million, while the defendant offers $25,000 for the same case. He can't believe that litigators make such off the wall opening bids, and are thereby forced, if they want to settle, to make tremendous concessions from their opening numbers. To him, it all seems like a ridiculous game, and calls into question the credibility of the negotiators for both sides. Litigators, however, know that this pattern is common.

In a business negotiation, parties are probably more likely to start the negotiations closer together, and are therefore forced to move proportionately less. This makes sense when you consider that when you are buying a business or a piece of property, both sides should walk in with a pretty good idea of its value. You can look at an appraisal. You can look at a business's profit and loss statement. In a lawsuit, on the other hand, the defendant may legitimately feel that the case is worth absolutely nothing, while the plaintiff feels it is worth millions. That is because there may be a real possibility of either a defense verdict, or a multi-million dollar verdict, in the same case.

I wonder whether the culture of litigation also contributes to some of the game-playing that is so astonishing to corporate lawyers. Do parties in litigation just like to posture more? Have they developed a different style of negotiation that lends itself to making grossly overvalued demands, and paltry offers, just to mess with the minds of their adversaries? Because even though a claim in litigation might be more difficult to value than a piece of property, both sides interested in settling a lawsuit should still be able to arrive at an approximation of the probabilities of winning and losing, and a realistic range of possible outcomes. It just seems to take more work to get to that point in litigated disputes.

Of course, it would be an over-generalization to characterize all business negotiators as reasonable, and all litigators as posturers.  There are plenty of people in the corporate world who approach negotiations with a lot of swagger, and who start off with wildly off-the-mark numbers to try to gain some advantage. (See my prior post on the subject of anchoring.) And there are plenty of litigators who believe in presenting a reasonable number in a settlement negotiation to let the other side know that they are very serious about their number, and they are not likely to move very much. Both approaches can work in either context. My point is more about the clash of expectations when a negotiator who favors one style meets a negotiator with the opposite style. 

If you walk into a negotiation to settle a lawsuit with the expectation that both sides should start with numbers that bear some relation to reality, you may encounter frustration and delays. You might think it makes sense to offer a number that is close to the actual value of the case, and not move very much from that position. You might think that offering a number that is highly skewed in your own direction is a waste of time, and would reflect badly on your credibility. But if you do that, you run the risk that the other side perceives your initial offer or demand as something much further from the ultimate outcome than you do, and expects much more movement than you are prepared to make. To make the negotiation work in that scenario, you have to make the other side understand that your initial offer was not intended as an expression of your most optimistic forecast of the case. It has to be conveyed with the appropriate message about your intentions and seriousness. Otherwise, closing the deal may prove elusive.

Wednesday, August 17, 2011

War is over!

Joshua Goldstein has an article in Foreign Policy (and apparently a book coming out on this topic) in which he proves that, as President Obama announced in June, and contrary to popular belief, the tide of war in fact is receding, and has been for some time. Compared even to the 1990's, we are seeing about half the number of deaths worldwide from war. The U.S. has substantially reduced troop levels in places like Korea and Europe, and when withdrawals from Iraq and Afghanistan are finally complete, will have fewer troops abroad than at any time since the 1930's. There are far fewer civilian casualties from war than in decades past. Some intractable conflicts (e.g., Northern Ireland, Bosnia, Kashmir) have subsided. The great powers have essentially renounced wars with one another. And the UN seems to have figured out how to make peacekeeping work in some areas. Obviously, there is still a lot of war going on, and too much death and destruction from war, but we are so focused on all that conflict, that we might not realize just how greatly the scale of war in general has been reduced compared to past decades.

I remain fairly pessimistic on this subject, because it's hard to imagine that with expanding populations and increasing resource competition, we will not be facing some substantial man-made cataclysms and conflicts in this century. Perhaps we are only enjoying a temporary, and relative, lull in war activity. But Goldstein's thesis is still fascinating, because it goes so much against conventional wisdom. And it's probably disconcerting to a lot of people in the hate and fear business, those who have been trying to promote the fearsomeness of some new enemy or other ever since the end of the Cold War eliminated our most powerful enemy. The idea that we can actually measure progress away from war provides hope that mankind might finally be learning how to resolve at least some large scale conflicts without the waste and destructiveness, of war.

Wednesday, August 10, 2011

Mediation briefs

I received a mediation brief a few weeks ago from the plaintiffs' side in a contractual dispute. The brief contained a detailed description of the parties' agreement, a recitation of the elements of each one of the various causes of action in the complaint, a calculation of the damages due under the contract, including precise interest calculations, and an explanation of why attorneys' fees were recoverable. It also attached the relevant contractual documents as exhibits. Sounds like as much as any mediator could wish for, right? What else would I possibly want to know about the plaintiff's position? It turned out, however, when I saw the defendant's brief, that nothing in the plaintiff's brief was seriously contested. The real problem was that the defendant simply could not pay what was due under the contract. In fact, the defendant was contemplating filing bankruptcy.

Are mediation briefs important? I will admit that I find most of them less helpful than they could be. A lot of the briefs I get don't even seem to be written for the purpose of mediation, and don't address some of the questions that I am interested in, as a mediator. I appreciate that attorneys may have a legitimate, even commendable desire, to spare their clients from being billed a lot of hours for writing a pre-mediation brief.  They also frequently believe that what they say in the brief is not going to affect the mediation very much. They know that it is ultimately the parties, not the mediator, who are going to determine whether or not to settle the case. So why bother trying to influence the mediator, who is not a decision-maker anyway? If those are the dominant considerations, then it is easy to understand why a lot of mediation briefs look like a cut-and-paste job from the parties' pleadings, or the most recent motion filed in the case.

In the example I started with, the problem was not so much that the attorneys were trying to cut corners, or treat the briefs as unimportant. And after reading both briefs I got a clear picture that the plaintiff had a fairly airtight case but was going to have difficulty collecting a judgment. The problem was that the plaintiff's brief never really addressed the issue that was going to be critical in determining whether the case could be settled or not.

So let me suggest a couple of ways in which parties might make their briefs more effective, and why it might be worthwhile to put a bit more thought into this aspect of the mediation. First, consider writing a brief that is going to be persuasive to the other side. Even if you think that there is no point trying to influence the mediator into a more favorable view of your side of the case before you show up in his office, it is usually worthwhile to try to influence the opposition. Isn't that the whole purpose of a negotiation? Look at the mediation brief as another opportunity to affect the other side's thinking. Make them aware of facts and arguments that should make them reluctant to proceed to trial. Show them why settlement on the terms your side is looking for is in their interest.

If you are writing with the other side in mind as the audience, you should probably plan to exchange briefs with the other side. Speaking for myself, I wonder why many lawyers prefer to file briefs for the mediator's eyes only. When you do that, you are putting the mediator in the difficult position of needing to ask permission to share any information in the brief with the other side. Most of the time, the information in your brief does not come as news to the other side anyway. And if the information is not shared, one has to wonder what use it is in a negotiation. I understand when parties do not want to share their bottom line figures with the other side at the outset of a mediation. But they probably shouldn't divulge that information to the mediator either. What parties going to mediation should be trying to do is affecting the thinking of their adversary. Try writing a brief with that purpose in mind. Think about how the other side views the case, and try to write something that addresses those concerns.

Second, try to include information in the brief that directly addresses the considerations most applicable to settlement, as opposed to the issues that a judge might need to understand prior to trial.  It is of of course of some value for the mediator to know what the case is about, and the contentions of each side. But a mere recitation of the various legal theories being advanced by each side, and their respective damages calculations, might only be the first step in the analysis. What is of more benefit to the mediator, and to the parties, is understanding what obstacles have prevented settlement of the dispute. If there is a legal issue that the parties disagree about, identify that issue. If there is a factual dispute, identify that. If the lawyers simply have different views about the range of possible outcomes at trial, that is helpful to know. If the main problem is the defendants' ability to pay, both sides' briefs should address that problem. It is also useful for the mediator to understand the nature of the relationship between the parties. Were they friends at one time? Do they have any future prospects of doing business together? Did some other problems arise between the parties, or did someone else add an element that has contributed to the conflict?

If parties take the time to answer these kinds of questions in their briefs, they will not only put the mediator a couple of steps ahead in being able to conduct an effective mediation, they will also help move their own thinking, and that of their adversary, closer to a possible resolution.

(photo from the Eyeglass Shop)

Friday, August 5, 2011

The Blame Game

A cartoon in the New Yorker a couple of months ago showed a family lost in the jungle. The father, scratching his chin, is saying, "OK, I admit it, we're lost. But the important thing is to remain focused on whose fault it is." I'm thinking of getting a framed copy to hang in my caucus room. Frequently the task in a mediation is to get the parties away from focusing on recriminations and blame for how they got themselves into their situation, and toward focusing on possible solutions to their conflict. It might be helpful for people to look at this picture, which enables us to see how obviously ridiculous it is for a family lost in the jungle to spend their time arguing about who was mainly responsible for getting them there, instead of working together to find a way out.

I love doing mediation because it is designed for the sole purpose of helping people trapped in conflict find a way out. People usually arrive at my office for a mediation because they need a way out, not only of the underlying conflict, but also out of a new legal conflict in which they find themselves embroiled after they went to court to try to resolve their dispute. There they learned that the courts are not designed primarily to help people find a way out. The courts are designed for assigning blame. One reason people are naturally inclined to go to court to resolve a dispute is that they think like the family in the cartoon, that the way to resolve their conflict is to figure out whose fault it is. Now if your object is to punish your adversary, and you believe you need all the trappings of the justice system to establish who is right and who is wrong, or if your adversary gives you no other choice, then court is the place for you. But even if that is your intent, you quickly find out that the cost of that system is rather high, and the results are not always what you were hoping for.

For those seeking a principled resolution of their dispute, mediation can still serve as a useful shortcut, to obtain a better approximation of the results that might be reached in court, at lower cost. I prefer, however, to think of mediation as the anti-court, in part because in mediation it is not always even necessary to assign fault, or accept blame. Mediation works best when it allows the participants to work together to design a solution to their common problem. 

What prompted this post (which is adapted from something I posted on my political site), was reading some of the reactions people are having to the debt ceiling deal from last week, and also to the stock market crash this week. We seem to be stuck in a continuing, and perhaps deepening, economic quagmire, and we don't seem to know how to get out of it. So we spend our time blaming one another for the mess we are in. In part, politicians may feel compelled to do this for their own survival. But it does seem like a colossal waste of energy, that could be put to better use in designing solutions to our economic and political problems. Maybe we have to engage in finger-pointing, because we just don't know how to get out of the mess we find ourselves in. Even to the extent some of us think we know, we can't agree on solutions. And that leaves us no alternative but to play the blame game.