Category Archives: Settlement

THE A-B-C’s OF NEGOTIATION

I’d like to review the basic simple ideas of negotiation, which most of you already are totally aware about, but perhaps younger lawyers might benefit from.

Pawn Stars is a popular TV show which features people bringing various items into the pawn shop and selling them to the pawn shop owners. Rick Harrison, one of the owners, is frequently shown on the program negotiating with the seller over the price he will pay for the item. If you want to see an example after example of how not to negotiate watch the sellers attempt to get the best price they can for their item. Virtually every one of them violate the fundamental rules of negotiation.

For a review of what we all know are the basics of negotiation let me start with a recent show I watched. A woman had a set of large antique wooden doors she wanted to sell to the pawn shop. Before she negotiated, she disclosed on camera, she intended to ask for $5000, but would take a minimum of $1000. She did the first step correctly. She had checked background information and comparing her purchase price to her evaluation of the fair market value of the doors established a minimum.

In simple injury cases, following a traditional approach,  the first thing we need to do with our cases for settlement negotiation is to review the likely jury verdict in the venue where we will have to try  the case. That involves (1) the total insurance coverage available to us (2) the likely chance of winning given liability factors and (3) the probable value range of the injuries and damages. The balance between liability evaluation and damages represents a range of percentage of winning and value of injuries. The total is a range of likely verdict which is then reduced in amount for settlement benefit.

Next, we need to determine our demand amount. With the exception of “must settle” cases we always make that amount substantially more than our verdict evaluation for a lot of reasons, the chief one being you might just get it and it allows room for negotiation.

In this example, she had established her minimum and had set her maximum at a range that was substantially more than her minimum. So far, so good, assuming she was right about the maximum value of the doors being $5000 and wasn’t leaving money on the table.

When she told him she wanted to sell the doors, the first thing Mr. Harrison did was to ask what she was asking for the doors. She told him she wanted $5000. Note that there is an advantage in having the other person go first in saying how much they are after. It makes  them set the maximum range which might be lower than you are willing to pay and forces the other person to fix the negotiation range.

When he heard her amount, Mr. Harrison exhibited shock and disbelief, shaking his head . The first rule of negotiation is that no matter what the other person offers, even if more than you are willing to settle for, you always are in disbelief at the unfairness of the offer. There is ample psychology to justify doing this and he did it well.

He followed that with his pointing out to her various defects or problems that he found in the doors. You know the drill – you are at the car lot and after hearing the salesperson’s purchase price for the car, you began pointing out problems with it everywhere and reasons why the price just isn’t going to work. Offering reasons why the number is unfair gives  the other person an excuse to adopt a new figure.

Mr. Harrison then counter offered $500. Look at the spread he created between the high of $5000 and his $500. There is a $4500 difference which allows plenty of negotiation room. More importantly, sets the boundaries so far apart that it signals a low evaluation by the seller and creates a low mid point as well.

The seller then complained  the figure was too low and gave reasons why  the doors were more valuable. She then offers to sell them for $1000, her minimum number! She dropped from her opening demand directly to her minimum  figure of $1000. We all know that this was an entirely wrong tactic unless she has decided this is a take or leave it offer and plans to walk if he declines. It’s wrong for many reasons.

  1. She gave the buyer and immediate $4500 discount without getting anything in return.
  2. She failed to see that the only response to that would be a counter offer for less which would be below her minimum
  3. She has reset the negotiation range between his $500 and her $1000 leaving no possibility of getting a mid point number

What should she have done? She should have applied the first rule of negotiation: shock and disbelief at such a low figure for such valuable doors.  Her counter proposal after his first response should have been close to her opening demand to test how firm Mr. Harrison was about his number.  With her staying high, the back and forth exchanges would have revealed whether there was a reasonable chance of settlement and given her a much better chance of a larger payment for the doors. She torpedoed her chances by her response.

Of course, her counter offer resulted in a counter proposal from Mr. Harrison for less than her minimum figure: $800. Note that his figure is perfect from his standpoint. First, even if he thought the doors were worth a whole lot more than $1000, he wants to get the best possible figure so instead of agreeing to a bargain he offers less than she proposes. Plus, he stays close to his original figure to test her resolve. For him, it is a win – win situation.

You can guess the outcome which resulted in a sale. Afterwards, the seller says outside the pawn shop that even though she didn’t get what she wanted she is happy because she paid less for the doors. Note our human psychology. We always rationalize our outcomes to our favor. We pay more than we should have for the car, but find reasons why it was still a good deal. Which brings up my last point. It is important you always leave the other side with the idea that they got a good deal in the negotiation. You may see them again and you sure don’t want to gloat about taking advantage over them because they will not forget it.

I’ve mentioned Roger Dawson’s great publications on negotiation which I recommend to trial lawyers. You might also want to see Harvard University publications on the subject: http://www.pon.harvard.edu/freemium/improve-your-negotiation-skills-negotiation-training-from-the-pros/

MEDIATION AND MEDIATORS

I’ve written about settlement mediation before on this blog: http://plaintifftriallawyertips.com/wp-admin/post.php?post=157&action=edit

The entire subject of modern settlement negotiations has been much more complex then when I started the practice. The insurance adjustor would come to the office and negotiate with you. In other cases, you would get a phone call from the defense lawyer who would want to talk settlement. In all but rare situations you negotiated your own cases directly, either with an insurance representative or the defense lawyer.

Now, even the smaller cases are settled through mediation. We have created an entire new field of mediators and mediation companies. The most common issue seems to be finding a “good” mediator. Experience has shown that one lawyer’s idea of a great mediator is not that of some other lawyer. I think there is an inherent problem in our trying to objectively evaluate mediators. That’s not just due to the mediator, but as much the approach and expectations of the lawyer towards mediation.

How, we regard the mediator depends to a large extent upon how we approach mediation and our attitude about the role of the mediator. Therefore, we are not going to be able to objectively evaluate a mediator until we agree on what we are looking for in mediation and in the mediator.

Some lawyers approach a mediation with a willingness to remain until it gets done, who are willing to cooperate with the mediator by giving them a large measure of control and who are chiefly relying upon the mediator to get the job done. These lawyers are looking for a mediator to fulfill that role and if the mediator doesn’t fit that idea the lawyer is likely to be unhappy.

On the other hand, lawyers who see the mediator as essentially having a limited role as a communicator between sides and who retain control of everything from how long they will allow the process to last, to not allowing the mediator to have exchanges with their client to argue the mediator’s view and who are have strong ideas about the process are not going to be happy with a mediator who doesn’t fit that role.

Conceding that we all have, from time to time, cases where we are desperate to settle a case we wish we didn’t have in the office, nevertheless my personal strong belief was the latter approach fit me best. Everyone has their own idea, but for what it’s worth here is mine.

I have long believed that 80% of the progress in a mediation happens in the last 20% of available time. When we do not set firm time limits there is a great likelihood that the mediator will waste time and things will drag out unnecessarily. My position was that mediations should never be scheduled for more than ½ a day. If for some reason there was a genuine reason for a longer session I always wanted it re-scheduled and not extended past the firm deadline.

I also believe the mediator will never have the same skill I have to evaluate my case and am not concerned about his or her idea of the settlement value. What other verdicts have been are also irrelevant to me because I didn’t try those cases and the defense lawyer in those cases wasn’t the same as in my case so there is no way to draw logical conclusions from verdicts in other cases. 

I will never allow the mediator to make an argument to my client about the settlement and strictly control those communications.

I am interested in what the mediator can tell me about the defense position. I am interested in a qualified mediator telling me what they see as the issues in the case but not a jury argument about it. I either agree or don’t agree, but I want to know about any issue I may have overlooked.

I see the chief role of the mediator to communicate between the two sides and I expect the mediator to be able to tell me in a very short time whether there is any reasonable chance of settling the case. If not, I do not stay and waste my time dickering. I will discontinue the processs if there is no likelhood of reaching a settlement in my range.

Clearly some mediators are not qualified for any of our cases and some are qualified for the great majority of our mediations. But. Finding the right mediator for each of us depends a lot upon what we are looking for in the mediator and mediation.

Not to be overlooked are those plaintiff attorneys who avoid mediation except where required by courts or law. They have their own approach. One great plaintiff’s lawyer I know, would make a demand and warn that the amount would go up by a specified sum every week from that point and if not accepted within a minimum specified period before trial would be automatically withdrawn. Defense lawyers who did not believe him soon learned to regret it and his verdict success was outstanding. Yes, there are ethical considerations involved, but the approach is still an alternative for the qualified lawyer.

THOUGHTS ABOUT NEGOTIATION & SETTLEMENT

I have been a fan of Roger Dawson for many years. See:  http://www.rdawson.com I have read most of his books about sales and negotiation. I have attended his lectures. His ideas about communication, persuasion, sales and negotiation make a great deal of sense to me. Dawson was born in England and then became president of one of California’s largest real estate companies. Since 1982 he has been a full-time speaker and writer regarding sales issues. Here is a brief summary of some of his ideas regarding negotiation:

  1. Act dumb, not smart. When you do that it tends to defuse the competitive spirit of negotiation. You also have the advantage of learning more than if you act smarter than the other person.
  2. Always congratulate the other side. When you’re through negotiating always credit the other side with the  winning outcome. You want the other side you feel good about what happened. It avoids after settlement controversy and you are likely to encounter the same person again. You don’t want them in frame of mind where they are looking for a way to pay you back.
  3. Always get the other side to commit first. The reason is that their first offer may be better than you expect. It also gives you information about for you have to tell them anything.
  4. Never say yes to the first offer. For obvious reasons you need to explore the extent to which the other side is willing to go.
  5. Always act shocked at the offer. Good negotiation skills are like playing poker. You do not want to reveal your hand by the way in which react.
  6. Remember the tactic of higher authority. Always have a higher authority in negotiation  that you need to clear with before making a deal. It can be your client, your partner, or someone else, But you need to be able to say that before you can accept an offer you need to clear with someone in a position higher authority in order to be able to have our negotiation. The police have used “good guy – bad guy” tactics in interrogating. It’s a similar psychology where one person is friend and the other is the unreasonable one to ingratiate better attitudes.
  7. Project the reluctant buyer attitude. You will not get the best off when you demonstrate and over eager interest in offers or settlement.
  8. Never offer to split the difference.Splitting the difference doesn’t mean down the middle because you can do that more than once. Encourage the other person split the difference only when it is to your advantage.
  9. Time pressure is important in negotiation. It has been well established that in general 80% of the progress in the negotiation occurs within the last 20% of the time left for negotiation. That’s why you should have inflexible time limitations allowed for negotiation.
  10. Be on guard for nibbling. Nibbling is the tactic of adding terms after the deal has been made. We are most vulnerable when the negotiation appears to be over. We’re feeling good because the pressure and tension of negotiation is over. The defense lawyer waits until that time and says “of course we will want a confidentiality agreement.” That’s nibbling. You think to yourself: “oh no, I don’t want to reopen the negotiation again and risk losing the whole deal we just made.” So, you give in. Big mistake. guard against nibbling.