Whether you’re traveling from Santa Monica or Sanibel Island, getting to Pepperdine for a few days of training isn’t easy, and I don’t endorse any class lightly.  That said, I’m happy to recommend a course I took last summer that’ll be taught again this June by Don Philbin and Doug Noll — because it’s just that good.

Philbin and Noll’s course, Preventing Bad Settlement Decisions and Impasse Using Brain Science, Game Theory, Animated Communication, and Micro-Interventions, is one of 15 courses offered in Malibu this June at the 25th Annual Summer Professional Skills Program put on by Pepperdine’s Straus Institute for Dispute Resolution, and it has earned its place among Pepperdine’s top-tier offerings.

Two Fantastic Instructors

Whether you’re a mediator or an advocate, know that the Philbin/Noll duo combines two different backgrounds, two different perspectives, and two different accents to achieve a real, immediate change in those who take their course.  Doug Noll is an established keynote speaker, an author of several helpful and relevant books (like Peacemaking: Practicing at the Intersection of Law and Human Conflict), and a top-tier mediator, and his teaching partner Don Philbin is equally distinguished — you may know Don through his cutting edge Picture It Settled app, his often-cited Harvard Negotiation Law Review article, his on-point Twitter feed (@DonPhilbin), or his successful mediation practice.  But don’t just take it from me; one of Don’s recent conference attendees said:

In my role as the Executive Vice President, General Counsel of [x] I see and participate in many programs all over the world.  Don Philbin is clearly head and shoulders above the rest and presents one of the most entertaining and most informative programs on risk analysis I have ever seen.  Drop whatever you are doing and try to see him in action.

Preventing Bad Settlement Decisions and More

Philbin and Noll have agreed to cover several critical topics in the three-day course, most of which are neglected or underserved in mediation training.  I learned last June that they can deliver on their aggressive course description:

Most mediators operate on instinct, intuition, and experience. This session will elevate your practice — you’ll learn enough of the theoretical underpinnings of neuropsychology to gain clarity, understanding, and a driving purpose to kick your game up a notch. And you’ll get to immediately practice effective tools that will help you implement that theory in the working laboratory that is this advanced course.

Count on Philbin and Noll to cover some of the less intuitive topics that drive results in the negotiation context, like:

and, as you can imagine, a whole lot more.  Make it to Malibu this summer — you’ll be glad you did.

Later I learned the rest of the story, and the case of the unrelenting marimba ringtone is now an easy way to make an important point to mediators, lawyers, and the the clients they serve.

Patron X’s Perspective

“Every truth has two sides; it is as well to look at both, before we commit ourselves to either”.  Aesop’s quote made sense over 2000 years ago, and the rest of this story reminds us it’s good advice today.  Unlike me, The New York Times asked “Why?” and “How?”, and their follow-up tells us a few things about the man who apparently couldn’t turn his phone off.  Patron X (as he is known today):

• Is a 20-year subscriber to the orchestra (hence his seats down front);
• Changed from a BlackBerry to an iPhone just one day before the concert;
• Made sure to turn his new iPhone to silent mode before the concert began;
• Had no idea his iPhone’s alarm was set — or that phones even had alarms; and
• Had no idea an iPhone’s alarm would sound even in silent mode.

Yes, Patron X’s alarm rang and, as alarms do, it rang and rang and rang — all within the oblivious reach of its owner.  None of these facts will bring back the final measures of Mahler’s Symphony No. 9, but we now know “why,” and “how”, and this is no longer an open and shut case.

Have You Asked “Why?” and “How?”

Lately I have noticed mediators, counsel and the other side arguing against the mediation joint session, citing the emotions or personalities of the parties. Apparently there’s a bit of a debate on this, and posts from Diane Levin, Victoria Pynchon, and Joseph C. Markowitz explore this dispute further. Without wading into the joint session debate here, I do believe the parties need to understand the other side’s perspective, and they need to understand it early in any dispute.

Michael Hyatt’s post Both Sides of the Story reminds us that jumping to conclusions is a problem we all face:

The problem is that most of us (me included) forget [that there are at least two sides to every story] in actual practice. Someone comes into our office and shares their tale of woe. We listen carefully, nodding our head in sympathy. We are surprised by how our colleague was treated. We may even become angry. Their response to the situation appears perfectly reasonable. Then, without further reflection, we take some action that we later regret.

So what do we do?  A million miles or so ago I wrote One Secret the Two Million Miler Club Has Taught Me, where I told the story of the $24 breakfast that catalyzed the end of an eight-figure, multi-year dispute.  The short of the story is that — despite temptations to the contrary — I set up a meeting, got on a plane, and sat down to listen to the other side.  By the end of breakfast I understood how the dispute had started and why the other side thought they were right, and we were well on our way to settling our differences.

The next time you’re ready with your side of the story, ask what the other side’s is.  You’ll be glad you did.

I don’t stray off topic often, but occasionally I do — with a warning like this one. This post is about BELawsuit.com rather than negotiation or settlement strategy; feel free to scroll to the next post if that’s why you’re here.

On a long plane ride home from New York in 2009 I wrote about BearingPoint, Inc.’s bankruptcy filing and the next steps in the process, which ultimately led to the sale of BearingPoint’s operations memorialized in press releases here, here, here and here.  This post is about the next chapter in the story.

Since late 2009 our team has been hard at work pursuing assets on behalf of the BearingPoint, Inc. Liquidating Trust, and the most significant of those assets is litigation against BearingPoint, Inc.’s former CEO and many of its directors.  To seamlessly and efficiently address requests for information about the case from BearingPoint, Inc.’s former creditors and employees, as well as the press and others, we have just launched BELawsuit.com, which provides a Case Summary, a copy of the Complaint, Court Filings, Case Updates, News Updates and More. Those interested in the progress of the case can subscribe to its RSS Feed or to its Twitter feed @BELawsuit.

Those having questions or comments about the site should contact John DeGroote at John DeGroote Services, LLC, who is responsible for maintaining the site.

Fifteen years as a client have taught me that people don’t pay lawyers because they want to; they pay them because they have to.  If you’re a lawyer in a law firm, this isn’t abstract advice for somebody else — like it or not, your clients are looking for ways to pay less for what you do.  And I just found another way they will succeed.

Until recently I thought that clients’ drive for efficiency was a function of the economy, and that we’re just a recovery away from business as usual.  Alternative fees are a great idea that most are afraid to implement, discounted hourly rates are as creative as most ever get, and outsourcing legal tasks to anyone other than a traditional law firm was, for all practical purposes, unavailable to most clients.  On one of these thoughts, I was wrong.

A Patch for The Yetis

This story doesn’t start with a legal problem at all.  Instead it begins with 16 boys in my son’s YMCA Adventure Guides tribe, The Yetis.  They needed patches to show what tribe they’re in, and the patches needed a logo.  With no good Yeti images handy, I took a page from Tim Ferris’s The Four Hour Workweek and outsourced the logo design through a posting on iFreelance.com.  The Yetis ended up with a great patch, and I learned two things lawyers should know.

Outsourcing Even Discrete Tasks Isn’t Hard Any More

Sure, the big clients have been sending work offshore for years, but until recently the average client hasn’t had convenient access to offshore service providers or domestic legal talent in remote markets.  Before now, transaction costs and a lack of a roadmap have caused too much friction to make outsourcing available to most clients.  But my Yeti logo project showed me this is no longer true.

I found iFreelance.com, registered as a user, and posted my Yeti Logo project in under 20 minutes.  In that post I left the bidding open for 48 hours, gave a few particulars, and listed a $250 price cap.  In less than two days I had settled on Keehan & Partners to do the work, and ended up with a better logo than I had ever imagined.  The statistics tell the story:

• 20 minutes on iFreelance.com
• Resulted in 16 bids
• From 4 countries
• With prices from $40 to $250
• With 1 freelancer, Keehan & Partners, selected within 36 hours
• Who completed the project within 4 business days for well under $250
• With $0 paid by me to any intermediary.

I ended up with a great product and a promising long-term relationship with a California firm I would never have met otherwise.  Had I known how easy — and cheap — it was to outsource even a single task, I would have done it earlier.  It can’t be that long before this realization hits the legal space.

Outsourcing’s Advantages Can Apply to Legal Tasks, Too

Once my Yeti project was done I began to poke around to see if there are others who are outsourcing discrete legal tasks now that the process has gotten easier and cheaper.  I quickly found Disaggregation:  An Emerging Issue by John Steele as well as Milton C. Regan and Palmer T. Heenan’s Supply Chains and Porous Boundaries:  The Disaggregation of Legal Services, and realized that our seamless access to lawyers and other legal vendors everywhere means that legal services disaggregation is here to stay.  Increased competition on discrete tasks can’t be good news for the traditional law firm economic model.

On my plate now are a dozen things that can be done by freelance lawyers, including corporate policy revisions, discrete legal research projects, and revisions to a contract template.  No, freelancing won’t work for a major transaction or “bet the company” litigation, but individual tasks in any transaction or dispute, like researching the other side’s experts, document review, and a few others, can be segregated and outsourced.

It’s been a while since I learned about the concept of comparative advantage back at Mississippi State, but there are a few reasons why freelance legal talent might be a cheaper alternative for certain tasks:

• an established lawyer nearby might be excited to work on this specific project and willing to cut her rates;
• a lawyer in your industry but across the country might have a template for just the project you propose;
• a lawyer in “flyover country” might be a new entrant into the market and be willing to cut his rates to gain experience as a freelancer; and
• a vendor in Montana, or Mauritius, might have a lower cost structure than your go-to law firm.

A Quick Word to the Naysayers

Yes, I know what the critics will say:  you have no quality control if you hire a service provider in India or Indianapolis or wherever.  Maybe this deserves its own post, but a few responses come to mind fairly quickly:  Must the first draft of that template I need be perfect?  Don’t I need to look carefully at every new service provider’s work, and let their work speak for itself?  And finally, with the cost savings they’ll realize through legal service disaggregation and outsourcing, clients can afford to pay someone to review the work from these new channels.  Will that be outsourced someday, too?

At the end of the day, do clients need the same stable of firms to do all the tasks they need to do?  Not at all.  Naturally, clients will have to assess their needs and what the ever-emerging market has to offer, but — like The Yetis — they may end up with just the product they need, at a fraction of the price.

What’s your dispute worth – to you and to the other side? It’s hard to imagine settling without knowing the answer, and a decision tree can be a critical tool to help you get there. As I have said before, there are plenty of reasons why we should use decision trees, but – until now – there hasn’t been a step by step guide detailing how to use them. It’s time to change that.

Smith v. BiggCo, Inc. – Case Background

To demonstrate how to create a decision tree I have used a few screenshots from Resolution Tree, a decision tree product from my friends at Unit Interactive and me.  In this decision tree, you represent Smith, who plans to sue BiggCo, Inc. for wrongful termination. You know that BiggCo will fight the case hard, but you’re well into your Early Case Assessment and know that – if you can make it to trial – you have a real shot at $1,000,000.

You anticipate BiggCo. will file a Motion to Dismiss and a Motion for Summary Judgment, and you’ll need to determine your costs to overcome each, as well as the chances you won’t. If you make it to trial, you’ll more than likely win, and you have determined (through your Early Case Assessment) that your damages will be clustered at low, medium and high ranges of $25,000, $150,000, and $1,000,000.

Your First Event — Settle or Litigate?

The first real step in any decision tree is to articulate the decision. This initial choice can be anything over which you have control – “File suit in California or Ohio?” or “Arbitrate or Litigate?” or “Settle or Litigate?”. For disputes, I often insert “Settle or Litigate?” as shown below:

Note that you’ll be asked to insert a “Cost” and a “Payoff/Payout.” In this case I have assumed it’ll cost $1,500 at my hourly rate to negotiate a settlement agreement. The “Payoff/Payout” amount is what you’ll expect to receive or to pay if this event occurs; I have inserted $27,500, which is BiggCo’s settlement offer in my case.  If you don’t have a settlement offer, you can insert the offer you anticipate will come, or you can leave it at $0 for now.

Your Second Event – The Motion to Dismiss

For your second event, you need to use your experience and what you know about the case to answer a few questions:

• What are the possible outcomes?
• What is the probability – the chance or the likelihood – that each outcome will occur?
• What will it cost to respond to the Motion to Dismiss – no matter what the outcome is?
• What is the Payoff/Payout to or by your side, if any?  What payments will you make or receive? (Note that, if you are the plaintiff, you will enter a positive number, since you will be receiving a payment; if you are a defendant, you will enter a negative number, since you will be making the payment.)

As you can see below, on behalf of Smith you have decided it will cost $10,000 to respond to the motion, and you only have a 20% chance of losing it. There is no payout to you whether you win or lose, since a loss on the motion is a loss of the case and the reward to a plaintiff for winning a motion to dismiss is simply the next stage in the lawsuit.

Naturally, you want the motion to be denied so you can take the next step toward trial. That next step in this case is the Motion for Summary Judgment, which is represented as an “event” that follows the denial of the Motion to Dismiss.

Your Third Event – The Motion for Summary Judgment

You know the Motion for Summary Judgment in your case will be tough. As shown below, you have determined:

• it will cost $25,000 to prepare a response;
• you have only a 33% likelihood of prevailing;
• the next step is trial – if the motion is denied; and
• there is no “Payoff/Payout” at this stage:

Your Final Event – Trial

At trial you could win or lose, but if you win you have clustered your likely damages into “low,” “medium” and “high” damages of $25,000, $150,000 and $1,000,000. You list these outcomes on the tree as follows:

The Tree

At the end of the day your decision tree will look something like this:

Just as you suspected, there are lots of potential outcomes, including your million-dollar verdict. But what’s your case actually worth before it starts?

The Report

The Summary Report on Smith’s case is telling.  The following graphic shows that:

1. The plaintiff in this case has an 80% chance of losing her case before it even begins;
2. If costs are reflected in the equation, the plaintiff ends up owing money in 86% of the outcomes in this case; and
3. Even with a 30% chance of a $1,000,000 verdict at trial, the costs to get there – and the chances she won’t – render the Expected Value of the tree a mere $48,870.

Indecision over what to add into your decision tree is often the most difficult part of any tree, and there are no perfect answers, particularly at the outset of the case. So keep your tree simple as your case begins, and revisit and revise the tree as your case progresses. Smith v. BiggCo, Inc. is a perfect tree for an Early Case Assessment, but after winning a Motion to Dismiss, I would likely revise the tree to incorporate more details and issues in the case.

Try a decision tree in your next case.  You’ll be glad you did.

For more on Decision Tree Analysis, read the Settlement Perspectives series on decision trees, which includes:

1. Decision Tree Analysis in Litigation: The Basics;

2. Why Should You Try a Decision Tree in Your Next Dispute?;

3. Advanced Decision Tree Analysis in Litigation: An Interview with Marc Victor, Part I;

4. Advanced Decision Tree Analysis in Litigation: An Interview With Marc Victor, Part II;

5. Decision Trees in Mediation: A Few Examples;

6. Avoiding the Limitations of Decision Trees: A Few Tips from Mediators Who Use Them; and

7. The Decision Tree – Step by Step (this post).

In the spirit of full disclosure, my chapter on “High-Low Agreements and More: Definitive Tools to Break Impasse in Mediation” is among those in the book, which contains 19 chapters filled with real tips and tactics you’ll be able to apply in your next mediation.  As you can see from the book’s Table of Contents and Contributor Biographies, our (persistent and helpful) editor Molly Kapper, J.D., Ph.D. pulled together some of the best mediation personalities and commentators in the business:

Editor: Molly Klapper, J.D., Ph.D.

Authors:

• Simeon H. Baum, Esq.
• Professor Vivian Berger
• John DeGroote, Esq.
• Julie Denny
• Hon. William A. Dreier
• Professor Dwight Golann
• Elayne E. Greenberg, Esq.
• Stephen A. Hochman, Esq.
• Professor Jonathan M. Hyman
• Laura A. Kaster, Esq.
• Molly Klapper, J.D., Ph.D.
• J. Anderson Little, Esq.
• Julia Morelli
• Daniel Rainey
• Ruth D. Raisfeld, Esq.
• Terri Roth Reicher, Esq.
• James F. Ring, Esq.
• Irene C. Warshauer, Esq.
• Hon. Barbara Byrd Wecker

Before your next impasse, take a look at Definitive Creative Impasse-Breaking Techniques in Mediation.  You’ll be glad you did.

Longtime readers know I’m a big fan of training programs at Pepperdine’s Straus Institute for Dispute Resolution, but our friends in Malibu have just given us two more reasons to come back for the 24th Annual Summer Professional Skills Program in Dispute Resolution – Don Philbin and Douglas Noll.

You probably know Don as a mediator or through his work on adrtoolbox.com or his often-cited Harvard Negotiation Law Review article, and you likely know Doug from his numerous books, his mediation practice focusing on “difficult, complex, and intractable conflicts,” and his various works at lawyertopeacemaker.com – but what you may not know is that they have teamed up to teach a cutting-edge class at Pepperdine this summer to help mediators, lawyers and their clients achieve better settlements from the Monday after the training ends.

Preventing Bad Settlement Decisions and More

Philbin and Noll have agreed to cover several critical topics in the three-day course, most of which are neglected or underserved in mediation training – the title to their course is “Preventing Bad Settlement Decisions and Impasse Using Brain Science, Game Theory, Animated Communication, and Micro-Interventions”, and their course description makes clear that this won’t be the ho-hum training you’re used to:

Most mediators operate on instinct, intuition, and experience. This session will elevate your practice–you’ll learn enough of the theoretical underpinnings of neuropsychology to gain clarity, understanding, and a driving purpose to kick your game up a notch. And you’ll get to immediately practice effective tools that will help you implement that theory in the working laboratory that is this advanced course.

Two Teachers Who Can Actually Teach

Theory is one thing, but the ability to make it stick it is another. This year Doug drew and entertained the largest attendance at the Texas State Bar Dispute Resolution annual course with exceptional reviews, and Don regularly earns similar praise. I have seen Don present, and I’m writing this post, but don’t just take it from me — one of his recent presentation attendees left the following comment:

In my role as the Executive Vice President, General Counsel of [x] I see and participate in many programs all over the world. Don Philbin is clearly head and shoulders above the rest and presents one of the most entertaining and most informative programs on risk analysis I have ever seen. Drop whatever you are doing and try to see him in action.

I’m not sure I could have said it better myself. I hope you can make it to Malibu this summer.

a .pdf copy of “Break that Impasse:  Practical Solutions to Eliminate Deadlock in Settlement Negotiations” is available here

Lately I have heard about impasse more often than normal — Marc Lanzkowsky posted 3 Settlement Techniques that Will Help Move a Case to Resolution on The Claims SPOT, which drove a great follow-on discussion about impasse among LinkedIn’s Commercial and Industry Arbitration and Mediation Group.  As the comments continued, I thought about how much we all try to avoid — or work through — impasse, and an old article of mine came to mind.  This is a quick post intended to reintroduce that article to the discussion.

Break that Impasse:  Practical Suggestions to Eliminate Deadlock

It seems like only yesterday, but in 2004 I co-presented  Break that Impasse: Practical Suggestions to Eliminate Deadlock in Settlement Negotiations to the Association of Corporate Counsel’s Annual Meeting in Chicago with an all-star group of copanelists, including Eric D. Green, Ross W. Stoddard, Melvin S. Merzon and Mark Tatelbaum.  The paper, available here, is more than a few years old and I wrote it before my mediation training (so all disclaimers apply), but “Break that Impasse” includes:

• 20+ pages of ideas about how to prevent and break impasse — written primarily from the client’s perspective;
• Over 100 footnotes to mediators, judges, lawyers, clients and others who contributed their ideas to the paper; and
• A sample mediator’s proposal form, supplied by copanelist Ross Stoddard.

Take a look at “Break that Impasse” the next time impasse approaches — I hope it helps.

It’s  no secret I have been on a bit of a Decision Tree kick lately — I just spent two days in one of Marc Victor’s (fantastic) training sessions, and Settlement Perspectives’ series on this important topic continues to grow.  Today we’ll explore how one experienced mediator uses a similar approach to prepare mediator’s proposals, and how you can use the same process as you make your next settlement offer.

What Are the Chances Your Offer Will Be Accepted?

As I wrote my recent post on decision trees in mediation, accomplished mediator Jan Frankel Schau added her perspective on how she settles important cases on a related LinkedIn Commercial and Industry Arbitration and Mediation Group discussion.  Jan, who publishes Schau’s Mediation Insights, told us she frequently uses decision trees, but adds that a similar tool can be used to help parties determine the likelihood a counteroffer will be accepted:

I draw a distinction between a Decision Tree — which I use routinely to highlight the expenses and risks of litigation, from a Risk Based Analysis — which I use more sparingly in coaching parties about making a counter-offer or demand and the likelihood that it will be accepted — or in my own analysis before preparing a mediator’s proposal.

As I followed up with Jan, she walked me through her style “Risk Based Analysis”:

Risk Based Analysis is a tool I use to help the parties evaluate the risk of losing or winning particular challenges. Usually, I use it when there is already a Motion for Summary Judgment pending. I ask the parties to analyze: what are the risks that the Defendant is going to win the pending motion and you don’t get to a jury? Usually that answer is no more than 20-25%. So if I’m considering a mediator’s proposal for $1 million, that would make the likely settlement value at $750K. Now I ask the parties what are the risks that even if the Plaintiff survives the MSJ, they win at trial? Let’s say that’s 50/50. Then the settlement value may be more like $375K. Now I ask the Plaintiff’s counsel, what’s the likelihood that the jury finds his client comparatively negligent and in what %? Usually, that’s also 50/50. That may mean the value is now $195K.

How Do You Form Your Next Settlement Offer?

So far I’m clear where Jan is going:  a big headline number gets smaller as the likelihood of success diminishes at each turn. But Schau’s next move — predicting the likelihood a proposal will be taken — is where she sets herself apart:

After all of that, I make a chart, in which I make predictions as to what each side will accept in a mediator’s proposal. So, in my example, I’d suggest that there would be a 75-80% chance defendants would agree to pay $195K, but only a 20% chance they’d pay up to $750K. I use this to help evaluate what will work in the proposal — but of course I also consider what the parties have told me by that time in the process — so sometimes I have to adjust my percentages and evaluation a few times to make it work.

Schau’s approach adds adds a little science to the art of settlement. The next time you’re considering your next move, give Risk Based Analysis a try. You’ll be glad you did.

]]> http://www.settlementperspectives.com/2010/06/risk-based-analysis-how-do-you-make-your-next-move/feed/ 3 http://www.settlementperspectives.com/2010/04/settlement-perspectives-the-newsletter-april-2010/ http://www.settlementperspectives.com/2010/04/settlement-perspectives-the-newsletter-april-2010/#comments Thu, 29 Apr 2010 16:59:59 +0000 John DeGroote http://www.settlementperspectives.com/?p=4102

A Brief FYI for Readers Seeing This as a Post Online:

This continues the series of Settlement Perspectives Newsletters I started in 2009, sent occasionally to those who have requested the email version. Future versions will be shorter, published monthly, and generally sent by email only. If you’d like to receive the next edition directly, feel free to send me an email or sign up using the space provided on the right and I’ll put you on the list.  Thanks–

JD

______________

Dear Newsletter Reader–

Welcome to another issue of Settlement Perspectives’ occasional newsletter, designed to explore even further what we usually discuss — thoughts on how to resolve disputes and get your deal done.

These newsletters are designed to deliver three things:

1. A preview of upcoming posts on Settlement Perspectives;
2. Recent news, comments and miscellaneous information; and
3. Links to recent posts on Settlement Perspectives.

Miscellaneous News, Comments and Events

I’m happy to report a few recent developments:

• New professional website. In February I launched johndegroote.com as my professional website.  My friends at Unit Interactive did a great job — again.
• GCF Annual Meeting. Early this year I was asked to Chair The General Counsel Forum’s 12th Annual Conference of General Counsel.  We’re looking forward to a great conference in San Antonio this November.
• Chief Litigation Officer Summit. In March I presented Lawsuit Settlement: 7 Ways to Get There Faster, Better and Cheaper to a great group of lawyers with a real stake in when cases settle at the Chief Litigation Officer Summit in Miami.
• SMU Law. In March I also presented a guest lecture entitled “Marketing from One Client’s Perspective:  Traditional Marketing, Managing Your Own Digital Identity and More” to Professor Shank’s Law Practice Management class at SMU’s Dedman School of Law.  It’s always fun to work with law students.
• State Bar Article. In March the Texas Bar Journal published “It’s Who Knows What You Know:  Three Ways to Manage Your Digital Footprint”, which I wrote to help us navigate the changes that social media are bringing to us all.

Recent Posts

In case they slipped past you, check out the most recent posts on Settlement Perspectives:

• Zen Unicorn:  4 Mediator Marketing Lessons from Seth Godin
• Toward Better Client Service:  A Few Questions for Outside Counsel
• What Will She Tell Her Husband?
• Another Look at How the Brackets Work
• New Information:  One Way to Help Your Client Save Face
• A Settlement Lesson from Switch:  Who Does Your Opponent Think He Is?
• In Mediation, Who Gets to Say “We’re Done?”
• Lawsuit Settlement — 7 Ways to Get There Faster, Better and Cheaper:  The Presentation
• Settlement Perspectives Welcomes Gary Kitchen to a New Role at the Patent Mediation Table
• Decision Trees in Mediation:  A Few Examples
• Avoiding the Limitations of Decision Trees:  A Few Tips from Mediators Who Use Them
• Multi-Step Dispute Resolution Clauses:  7 Reasons They Work
• The Multi-Step Dispute Resolution Clause:  A Few Reasons Why Clients Like Them

If you missed some of the posts in late 2009, this post will catch you up, and to be sure you don’t miss any more you can receive a regular feed of Settlement Perspectives’ posts by clicking here. Still not sure about this whole RSS thing? Daniel Schwartz gives a great explanation about how RSS Feeds and blog subscriptions work, which are time-savers as well, on his Connecticut Employment Law Blog.

What’s Next on Settlement Perspectives?

What’s in the pipeline at Settlement Perspectives — what’s next on the editorial calendar? While topics change to fit events (and, admittedly, moods and whims), posts with the following working titles are in various stages of research and preparation; you should see each of the following between now and May 31:

• Collaborative Law for Commercial Disputes:  Is It Time?
• A Book Review:  Robert H. Mnookin’s Bargaining with the Devil:  When to Negotiate, When to Fight
• Decision Trees in Settlement Negotiation:  More Uses from Mediators and Advocates
• Multi-Step Dispute Resolution Clauses:  A Few Forms to Get You Started
• Settlement Perspectives: The Newsletter, May 2010 (by email only on May 31).

As always, if you have a topic related to negotiation or settlement you’d like to see explored on Settlement Perspectives, please don’t hesitate to let me know.

Thanks again for subscribing to Settlement Perspectives’ newsletter by email; if ever you want to unsubscribe, please just reply to this email and tell me so.

Thanks–

John DeGroote

No tool is perfect, and decision trees are no exception.  A few of the comments on prior posts in this series have explored some of the problems mediators and advocates have with decision trees and what we can do about them.  Today we’ll explore both the problems some mediators see in decision tree analysis and how those mediators make the tool more effective for parties and their counsel.

Garbage In, Garbage Out

Garbage in, garbage out is a problem in all forms of data analysis.  In decision tree analysis every input — from numerical values to probabilities to the construct of the diagram itself — affects the output, or the expected monetary value of your case.  Los Angeles mediator Joseph C. Markowitz summed it up nicely in Quantifying Uncertainty:

One [kind of uncertainty that decision trees can never resolve] is the “garbage in, garbage out” kind of uncertainty. When a lawyer says he has a 60% chance of prevailing on a claim, all that represents is a seat of the pants feeling about the case. That is not to say that the lawyer’s assessment is wrong — it could be based on years of experience and some pretty good hunches about what juries might do with a case. But it is also not a very firm number to start with. And when you start with a very unscientific probability number as a basis for calculating the value of a case, you are conveying a degree of certainty about the ultimate value that is probably not warranted. Add in the uncertainties about things like appeals over issues that have not even materialized yet, and you are dealing with a whole lot of uncertainty.

How do you avoid the GIGO problem?   As Geoff Sharp told us in Risk analysis in mediation, “[g]ut instinct, sloppy guesswork and grey hair no longer seem to be enough in complex, high stakes mediation.”  This is the time, as Montreal’s Brian Daley reminds us, for client and counsel to “deconstruct a complex lawsuit into discrete steps and possible outcomes that can pave the way for appropriate decision-making.”  There’s no shortcut to rigorous analysis and candid evaluation, and I can’t make up one here.

Avoiding the “Black Box Syndrome”

Don Philbin, a Texas mediator and negotiation consultant (whose post ADR Decision Tree — Fit the Forum to the Specific Issues is one of the most creative and useful tools out there), tells us by way of our recent discussion on LinkedIn’s Commercial and Industry Arbitration and Mediation Group:

[Decision trees] are interesting graphics that help engage the frontal cortex. The chief criticism seems to be that they take a number of wild guesses and roll them back to a very precise number that often is not one of the remedies available in the case. So I’ll usually start with a hand drawn version on tear sheets and then put it in the computer later so we don’t have the black box syndrome. Since the most valuable part of adding this science to the art of negotiation is that it breaks the psychological link to the number “we like,” I prefer animated outcome curves that move with various adjustments for costs, cognitive errors, etc. They graphically display the difference between possibilities (y-axis) and probabilities (x-axis) without overly focusing on the one net expected value that a decision tree produces.

Don is right that computer-generated decision trees can produce the black box syndrome, and starting with a hand-drawn map is an easy fix. (For those who want more on how to actually use decision trees, see Don’s article in the Harvard Negotiation Law Review styled The One Minute Manager Prepares for Mediation:  A Multidisciplinary Approach to Negotiation Preparation.)

Math Isn’t Enough

In addition to his point about garbage in/garbage out, Los Angeles mediator Joe Markowitz explored a second decision tree problem on Mediation’s Place:

[Another] uncertainty you cannot eliminate is the uncertainty of predicting how people will deal with the choice between the mathematical probabilities of the decision tree analysis and the concrete offer on the table. So if you tell the plaintiff that they have the choice between the defendant’s $50,000 offer and a 30% chance of scoring a million dollar verdict at trial (or you tell the defendant that they can pay the plaintiff $200,000 or face a 10% chance that the plaintiff will get a million dollar judgment), you would think that taking your chances at trial would be the obviously better option in both cases, but a lot of people will take the offer rather than risk getting nothing (or pay the unreasonable demand even if they are very unlikely to lose at trial). Their choice will depend on how much they like to gamble and a lot of other psychological factors that cannot be very easily quantified. Remember how Monty Hall used to offer people the choice between something like $500 in an envelope or a one in three chance of winning a new car? A surprising number of people chose the envelope. . . .

So yes doing the decision tree exercise can be very useful, but mainly to demonstrate to people just how much uncertainty remains in front of them if they want to continue to litigate, and perhaps as a means of making people comfortable with the fairness of the settlement offer. That kind of analysis can’t really give you a precise indication of what a case is “worth,” but it might help some people decide if they want to settle or not.

And even if clients could be persuaded to follow the math, Michael Webster has commented here previously that decision trees can’t produce a true expected value of a case:

A complex decision tree might help you find outcomes that you had not thought about, but it is highly unlikely that decision analysis is ever going to progress to give you an expected value of a case.

While Marc Victor has a persuasive response to this last point, Philip J. Loree Jr., who writes at the Loree Reinsurance and Arbitration Law Forum, reminds us that “[t]he art here is predicting how the decision maker will analyze the case.”  Phil and Joe are right — standing alone, the expected monetary value at the end of the decision tree doesn’t settle the case.  But a decision tree, and the analysis required to get it done right, can highlight unforeseen contingencies, uncertainties and opportunities in the case.  With a little help from a good neutral, this may help your decisionmaker decide if she wants to settle or not — and that’s plenty to ask for.

Some Lawyers Aren’t Good at Math

For a final tip, Phil Loree implicitly acknowledges what many of us already know — lawyers aren’t always good at math — and proposes a solution:

[I]f you have someone on your team who is an actuary, statistician or mathematician — or simply someone with a solid quantitative background like an engineer or skilled accountant — you might want to enlist that person’s assistance to be sure that at least the quantitative aspects of the analysis are on the mark.

We always get smart, practical advice from Phil.

Try some of the tips above to make your next decision tree more effective.  You’ll be glad you did.

[Note:  For for more on Decision Tree Analysis, Settlement Perspectives' series on decision trees includes:

1. Decision Tree Analysis in Litigation:  The Basics
   
2. Why Should You Try a Decision Tree in Your Next Dispute?
3. Advanced Decision Tree Analysis in Litigation:  An Interview with Marc Victor, Part I
   
4. Advanced Decision Tree Analysis in Litigation:  An Interview With Marc Victor, Part II
   
5. Decision Trees in Mediation:  A Few Examples, and
6. Avoiding the Limitations of Decision Trees:  A Few Tips from Mediators Who Use Them (this post)]

How do mediators and advocates use decision trees in mediation? A month or two ago we had a great discussion among the Commercial and Industry Arbitration and Mediation Group on LinkedIn styled “Do You Use Decision Trees in Your Mediation Practice?” More than a few mediators and negotiators spoke up, with each providing insight into how decision trees can help get your case settled.  I’ll highlight some of those tips, and a few more from other sources, in this and subsequent posts over the next two weeks.

A Better Way to See the Dispute

Portland area mediator Debra Healy summarized the thoughts of many when she said that mediators can use decision trees as a “visual, tangible reality check”:

It can be so difficult for a client with no experience with litigation to even fathom the scope of uncertainties involved. Add to this that the client may not understand when his/her attorney is posturing. If his/her attorney says something, the client takes it at face value and hangs on every word. . . . I primarily use decision trees as a visual, tangible reality check.

A Way to Work with “Quantitative Sorts”

Pittsburgh mediator and civil engineer Rebecca Bowman mediates complex technical disputes, and provides some insight into why decision trees work well with “quantitative sorts”:

Engineers and many accountants generally prefer finite things. It can be extremely powerful to have a clean, concrete decision tree to evaluate risk. Quantitative sorts find it very comfortable to wrap their heads around a 60% probability of an outcome of X dollars. Fold in a time prediction and they can fold in a time-value-of-money factor. If you can show the parties a way to reduce the mushy, often gut-feel outcome predictions to something concrete that they can evaluate, it has been my experience that they are much more likely to march directly to a resolution. Of course, this requires that you understand the decision tree intimately so that you can help them to make appropriate predictions. But that’s what they pay us the big bucks for, right?

A “Dash of Ice Water” for Clients

Dallas mediator Richard Faulkner described how decision trees can serve as “a dash of ice water” to clients’ expectations:

If the parties, or any of them, are inclined toward using logical approaches, [decision trees] can be very effective. However, I use it only after I have obtained as much of the decision point percentage analysis information as possible from the party’s attorney. That allows me to use a combined set of techniques. First, I ask counsel to provide me an evaluation of the probable outcome if the case is not settled. That is usually offered in generalized language like, “a good chance”, most probable etc. We all know as experienced lawyers that means “50 -50″, “60 – 40″ etc to us. The client is typically thinking far higher percentages. I then ask for the lawyer to quantify in numbers their percentage evaluations or evaluation ranges for me. Those “numbers” and “ranges” tend to surprise many clients, which then helps me change the client’s expectations through rigorous reality testing. After that dash of ice water, I will sketch out the “Litigation Risk” analytical decision tree based on their lawyers numerical percentages. We then work towards settlement using that information and modifying it as necessary when new information is learned. It can be a very powerful technique with any parties that are mathematically inclined or impressed. Of course, I always reminded my advanced mediation students to remember Mark Twain’s quip, “There are lies, there are damnable lies, and then there are statistics.” . . . If this does not work in the mediation, it can then later be used as the basis for a “Mediator’s Dynamite Charge” follow up.

A Credible Perspective for Upper Management

New York litigator and arbitrator Philip J. Loree Jr., who blogs at the Loree Reinsurance and Arbitration Law Forum, uses decision trees as he analyzes cases with his clients’ executives:

I have found decision trees to be a valuable tool to help advise clients of the settlement value of complex cases. Often times the client is looking for something with some basis in logic and science to help convince upper management to authorize a settlement number, and a decision tree can provide that kind of support. Predicting settlement value is part art and part science and one should draw on both disciplines when putting together a decision tree. The nice thing, though, is the end product looks more like science than art, and that can boost its credibility in the eyes of upper management.

Helping Clients See the Hurdles

UK mediator Philip Hesketh argues that clients see the case — and understand the rigor of their counsel’s analysis — through decision trees:

Decision trees can help clients who want a valuation based on more than your legal intuition. Working through a decision tree with your client will show them that you have vigorously evaluated each aspect of their claim. They will know each and every hurdle in their way and understand how you have assessed each.

(Hat tip to Jacob Ruytenbeek at the Decision Tree Analysis Blog for leading me to Philip’s article.)

Settlements that Stick

Washington lawyer Patrick F. Hofer, a former student of decision tree pioneer Marc Victor, commented on a prior Settlement Perspectives post that decision trees help parties get to the actual value of the case, resulting in settlements that stick:

I have successfully used decision trees to settle dozens of cases . . ..  I have used them to convince opponents of the reasonableness of my client’s deal – from in-house counsel at a large multi-national conglomerate, who viewed themselves as God’s gift to the law, to the owner of a dry-cleaner who didn’t have a high school diploma. In every case I settled using a decision tree, the deal stuck and did not come unglued or get retraded, because both sides saw the value in the deal they made. Decision trees are amazingly effective, efficient and powerful tools to get parties to settle their differences.

You Need More Than a Tool

There’s no question that decision trees can improve your mediation results, and the perspectives above show us why.  But you need more than a tool — ADR Toolbox’s Don Philbin has reminded us that decision trees are helpful, but at the end of the day they’re “just another tool in the mediator’s toolbox”.

So what does get the deal done?  Bethesda mediator Daniel Preston Dozier helps us with that:

[A decision tree] can look more like science than art; the ’science’ can assist a negotiator sell a settlement to internal decision-makers. But in the end the settlement is generally art — perhaps realistic art, but art none the less.

Yes, settlement is art — but add a little science to your art with a decision tree next time.  You’ll be glad you did.

[UPDATE:  For for more on Decision Tree Analysis, Settlement Perspectives' series on decision trees includes:

1. Decision Tree Analysis in Litigation:  The Basics;
   
2. Why Should You Try a Decision Tree in Your Next Dispute?;
3. Advanced Decision Tree Analysis in Litigation:  An Interview with Marc Victor, Part I;
   
4. Advanced Decision Tree Analysis in Litigation:  An Interview With Marc Victor, Part II;
   
5. Decision Trees in Mediation:  A Few Examples (this post); and
6. Avoiding the Limitations of Decision Trees:  A Few Tips from Mediators Who Use Them.]

]]> http://www.settlementperspectives.com/2010/04/decision-trees-in-mediation-a-few-examples/feed/ 3 http://www.settlementperspectives.com/2010/04/the-multi-step-dispute-resolution-clause-a-few-reasons-why-clients-like-them/ http://www.settlementperspectives.com/2010/04/the-multi-step-dispute-resolution-clause-a-few-reasons-why-clients-like-them/#comments Thu, 01 Apr 2010 11:34:42 +0000 John DeGroote http://www.settlementperspectives.com/?p=3570 Last week we defined multi-step dispute resolution clauses and explored why a dispute resolution framework, negotiated before the contract is signed, can help businesses avoid litigation in many cases.  This post will give you a few more reasons why your client might want a multi-step dispute resolution clause next time — even if a dispute seems unlikely.

To better understand why I spoke with my longtime transaction counsel Colleen Vossler last week, and she made her clients’ case clearly:

In my experience many clients with long-term contracts understand the intrinsic value of creating, at the outset of the relationship, a roadmap to follow when disputes arise. Importantly, the client shares the same roadmap with the other party – rather than creating separate roadmaps when the dispute is upon them. Clients who have experienced conflicts in long-term contracts, where the preservation of the relationship may have more value than in a short-term contract, often view these clauses as an insurance policy for when a dispute arises.

The “roadmap” provided by a multi-step dispute resolution clause (also called a “multi-tiered dispute resolution clause” or an “executive escalation clause” or an “escalating levels of management clause”) can give clients comfort.  In response to my last post on these clauses, a nonlawyer business executive reached out to remind me how valuable it can be to have a pre-negotiated way to stop “the letter writing and ask for a visit with all key parties involved.”  When clients speak, it pays to listen.

Why Your Client May Want an Executive Escalation Clause

Here are a few reasons, in no particular order, why your client may want an executive escalation clause next time:

• They Eliminate an Appearance of Weakness. Why I don’t know, but clients (and their lawyers) are often afraid that proposing settlement talks is a sign of weakness. A contract that requires these talks when a dispute later arises eliminates this concern.
• They Can Require Confidentiality. Most disputes — and the discovery information your clients exchange — can remain confidential, if your contract provides for it. Even if trade secrets aren’t at issue, most commercial clients I know prefer the comfort of pre-negotiated confidentiality.
• They Confirm What Kind of Deal This Is. Inserting a tiered dispute resolution clause into the contract negotiations confirms that it’s a cooperative deal. You can’t think of every contingency in many contracts. The other side’s reaction to your tiered dispute resolution clause will give you insight into just how cooperative they really are.
• They Create a Safety Valve. As they negotiate, companies without the resources for a protracted legal fight know they’ll have one last clear chance to avoid litigation with a multi-tiered dispute resolution clause in the contract.
• They Allow for Creativity. Kathleen M. Scanlon and Harpreet K. Mann tell us in CPR’s September 2002 issue of Alternatives (membership required) that this kind of clause “provides the parties with an opportunity to develop creative, business-oriented solutions” to their commercial problems.  The parties can use a tiered dispute resolution clause to require the involvement of neutral executives, arbitration in a mutually inconvenient town, or — as Anne Shuttee, a Dallas mediator and former Senior Litigation Counsel to HP and EDS advocates — cutting edge techniques like the use of collaborative law to resolve the dispute.
• They Can Preserve the Relationship. With a tiered dispute resolution clause, you know you’ll have a chance both to preserve the relationship and to avoid the dispute. You’ll get a chance to explain what happened, work through protocols to avoid a similar problem in the future, and move on with the relationship — a better result for all involved.
• They Promote Efficiency. Litigation or arbitration avoided means lower legal fees and an increased focus on the business — and clients always like that.
• They Work. We said it in our last post on tiered dispute resolution clauses, and it’s still true.  Russ Bleemer and Erica Jaffe summarized it well in the January 2010 issue of Alternatives (CPR membership required) as they described a tiered dispute resolution program involving commercial insurance claims:  “The mere presence of a stepped resolution facility . . . has policyholders and insurance adjusters talking more, talking earlier, and getting the claims settled.”

With these perspectives on why clients like them and last week’s 7 reasons they work, you have plenty of incentive to give a multi-step dispute resolution clause a try in your next commercial contract.  You’ll be glad you did.

The PowerPoint, with Hyperlinks (and Directions)

After last week’s presentation I promised a few of the attendees I’d post a PowerPoint version of Lawsuit Settlement: 7 Ways to Get There Faster, Better and Cheaper to Settlement Perspectives, with hyperlinks to the underlying material — including posts on managing expectations, decision trees, mediation, settling halfway, Rule 68, early case assessment and more.  The PowerPoint slides are attached here, and the easiest way to access the hyperlinks within the presentation is to view it in “Slide Show” view and click on the underlined text for additional resources.  Otherwise, in “Normal” view, click on the underlined text while holding down the “Control” key.

Take a look at the presentation — I think you’ll be glad you did.

]]> http://www.settlementperspectives.com/2010/03/lawsuit-settlement-7-ways-to-get-there-faster-better-and-cheaper-the-presentation/feed/ 10 http://www.settlementperspectives.com/2010/03/another-look-at-how-the-brackets-work/ http://www.settlementperspectives.com/2010/03/another-look-at-how-the-brackets-work/#comments Mon, 22 Mar 2010 11:22:42 +0000 John DeGroote http://www.settlementperspectives.com/?p=3447 It’s no secret that I went to Duke Law School and I’m happy to see the Blue Devils advancing through the NCAA Tournament brackets this year, but this isn’t a post about basketball.  I wander off topic every now and then, but there are limits.

This post is about bracketing — one of the more important, and overlooked, aspects of negotiation.  First, a summary:

In negotiation no number is irrelevant, and no proposal is ever forgotten.  Every offer you make, every figure you float, and every potential path to settlement you communicate to the other side will forever impact your negotiations.

Negotiators ignore this rule at their peril.

What Are Negotiation Brackets?

The message from my client’s deal lawyer was as informative as it was economical:  “We’re bracketed at 250 and 400.”  With this shorthand he summarized the negotiation in just a few words: the settlement range was between our offer, $250,000, and the plaintiff’s last demand, $400,000.  This is the essence of settlement brackets — they embody the stated settlement positions of the parties, and define the outer limits of where the case will settle.

Why Are Brackets Relevant?

Adam Galinsky’s article When to Make the First Offer in Negotiations, published in Harvard’s Negotiation in 2004, tells us:

Research into human judgment has found that how we perceive a particular offer’s value is highly influenced by any relevant number that enters the negotiation environment. Because they pull judgments toward themselves, these numerical values are known as anchors.

(Thanks to experienced attorney and mediator Victoria Pynchon and her post The Power of Framing and Anchors for leading me to Galinsky’s article.)  Stated plainly, the number you communicate to the other side anchors your position — and brackets the negotiation on your side — because it’s the best information your opponent has about what you’ll settle for.  It’s hard to imagine information more relevant than that.

You Can’t Unring the Bell

I was once given great communication advice:  “You can’t unring the bell.”  You can’t take back what you said about last night’s meatloaf, and you can’t get the other side to forget a proposal you made last week.  It doesn’t matter if your offer expired, and it doesn’t matter if you feel you’ve had a slight edge in discovery since you made your proposal — technically you aren’t bound by it, but your number won’t be forgotten.

It wasn’t so long ago that a good friend of mine who serves as a Fortune 500 general counsel bragged about settling a case outside his original brackets after a mediation with one of the country’s top mediators.  The reason he bragged about it is because settlements outside the brackets are unusual; without a drastic change in circumstances they almost never happen.

Beware the “Whisper Number”

If what you say can’t be unsaid, can you say it with caveats?  Can you propose, as one well-known Los Angeles plaintiff’s lawyer said to me:

Let me tell you what — my client hasn’t approved this, but I think I can get him to $3 million if you can get there.  What do you say?”

The short answer is that you’re stuck with that number.  You may want to run away from it, disavow it, or ignore it, but never forget that Galinsky tells us that we’re “highly influenced by any relevant number that enters the negotiation environment.”  We are bracketed at your self-named “whisper number.”

The Brackets Are Not the Same as a Bracketed Proposal

You now know what “the brackets” are — the stated negotiation positions of the parties.  Although the words are almost the same, “the brackets” are not the same as a “bracketed proposal.”  Los Angeles mediator Ralph Williams gives us an example of a bracketed proposal:

I will offer you $100,000 if you will reduce your demand to $300,000.

In this case, if the parties have offered and demanded $50,000 and $600,000, the case is bracketed at $50,000 and $600,000, but Williams’s “bracketed proposal” abandons the brackets, resulting in hypothetical offers with a similar name.  But they actually aren’t the same, and I’ll write more on that later.

Let’s Go Duke!

Know what bracketing is before you start.  You’ll be glad you did.

And Let’s Go Duke!