Mediation Tip: Opening numbers---do they matter?

September 19, 2014

Outrageous vs. Reasonable?  Give pre-mediation or only at mediation? Some people believe that "outrageous" demands beget better end results.  Some "outrageous" demands have derailed the negotiation process.  Others believe that they get the best deals by giving reasonable numbers which "inspire" others to reciprocate.  One plaintiff lawyer gives a pre-mediation demand, then at mediation lowers it before receiving any offer.  She confessed to lacking patience for the usual "two hours of "BS" numbers, so she eliminates them at the start.  In mediations we have done together,  good will carried through the mediation, with plaintiff achieving her goal.


As far as when to give the demand, defense counsel have a real challenge in preparing their decision maker (defendant and/or the carrier) for the probable range of settlement- often they can't "see" a case in the way the plaintiff does, so if unable to get an advance number before mediation, they can only go by their own judgment in determining how much authority to prepare for.  However, plaintiff counsel are often reticent about giving an early demand outside the mediation process, because of concern that defendant will then say "that is too high, we won't go to mediation".  Indeed, in some of my cases, the defense lawyer has said that had they known plaintiff would have made such an "outrageous" demand, they would not have come to the mediation.  Yet, the majority of these cases still settled.   Some cases were unable to settle at mediation due to the lack of an advance demand and defendant's resultant underassessment of the settlement value. In these, it took additional days, or in some cases, months to finally settle.  In one case with a company sued for the first time, Plaintiff made a high, but not overly unreasonable demand, but it was negatively perceived by the defendant who had never gone through this experience. The defendant was so angry about the initial demand, that he was unable to fully participate in the mediation the rest of the day even when plaintiff's number was clearly in the "reasonable" zone.  We had to end for the day, but the lawyers and I worked out a mediator's proposal that would be held for one week, during which time the defense lawyer was able to work with his client to get past his feelings, the proposal was issued and accepted by both sides.


So what is the take away from all this?  There is no one-size-fits-all for negotiation numbers.  However, it behooves everyone to give a realistic assessment of the "settlement' value of their case.  Is it realistic for the case and early settlement? or is it trial value?  Is there any incentive built in for the other side to want to settle?  Or will it leave the other side feeling "we might as well roll the dice at trial"?   Other factors also come into play.  For instance, lawyers consider how often their opponent goes to trial.  They also assess their opponent's propensity for being "reasonable" during litigation, as that may play out in how they perceive their "reasonableness" in negotiations.  Plaintiffs should share more and early information about their client's damages with the defense, and defendants who usually have the upper hand with document possession, should share more of the relevant documents earlier.


For the first-timer defendant, it needs to be understood that a plaintiff has to "balloon" up their demand in order to make room to negotiate.  Seldom does any party or negotiator feel that they made the "best deal" without much back and forth, and give-and-take.  Think of the last time you bought a car.  Of course you bargained extensively.   You most likely did not accept the first, or any of the early offers they made on price.  It was not until you felt that you had negotiated the "best" deal you (and the dealership) could make, that the deal was made.


I traveled to Viet Nam in 2001, and was surprised to have offended shopkeepers when I just accepted their price.  They pushed me to negotiate.  I felt guilty, given that in U.S. dollars, the item cost mere pennies.  Nonetheless, I complied and ended up purchasing large quantities of these very beautifully crafted but cheaply priced items, to assuage my guilt for paying so little.  In mediations of human disputes, everyone expects to "bargain", so both sides must factor that into every negotiation.  The problem occurs when the number on either side is so beyond or below what each side expects that they take it personally.  This may happen more often in employment cases than others, but sometimes "business decision" takes a sideline or backseat to emotional reactions.


I have sometimes been able to get each side to agree to one round of numbers in advance of the mediation, but issued through me so they remained part of the mediation process.  In doing so, each  side committed that, no matter the number, they would still proceed forward with the mediation and continue negotiations.  In this way, the defense could better prepare their client/carrier for authority, and the plaintiff could also be better prepared to deal with defendants' perspective.  That having been said, most cases settle well off of the initial demand and offer, and I am constantly reminding people that most cases start off with each side feeling the other is being unreasonable; yet most end with a settlement.


If a demand made is high multiples of where the case should be valued,  it can set a negative tone for the day and prevent the other side from getting even to their given authority.  If the offer is too low, it may make it more difficult for plaintiff to move down.  The doctrine of "reciprocity" is truly powerful, and is something I mention often in mediations especially when parties are reluctant to be the "first" to make the larger move.  Since plaintiff often moves first, it frequently occurs that defendant's numbers are driven by where plaintiff is.  For example, in a recent case, defendant had come with "real" money to the table, but was reluctant to dole any of it out given how "high" the plaintiff's number was.   When I explained to plaintiff the dynamic and suggested a certain move, plaintiff responded in kind saying that they would not move much given where defendant was.  This "dance" persisted for the first few moves, until I convinced both sides to make the moves they should make and convey the message of where they felt the other "should" be.  Not quite a bracket because their offer was not conditioned on the other's number, but it helped to move numbers.

 

In my experience, some of the best settlements have been achieved where the parties each gave realistic opening numbers, and did some preparation for their numbers in advance of mediation, whether it is conveying damages information, or documents that show the merit or lack of merit of claims, or earlier opening numbers.  The best numbers are those which can be backed up or supported, and show some compromise.  Bringing verdicts as support for your valuations may help, but include a varied sampling, rather than just those which all support your view to the extreme; even better if you can tie your facts to those in the samples.  Most important is preparing your client for the process, the highs and lows (literally and figuratively) of mediation, and instill a commitment to the mediation process, which often takes time, patience and flexibility.
 

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