Settlement Perspectives

Negotiating through Impasse: A Paper from the Archives

John DeGroote — Tue, 08 Jun 2010 02:08:22 +0000

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.

Risk Based Analysis: How Do You Make Your Next Move?

John DeGroote — Mon, 07 Jun 2010 02:57:18 +0000

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.

Settlement Perspectives: The Newsletter, April 2010

John DeGroote — Thu, 29 Apr 2010 16:59:59 +0000

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–

______________

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:

A preview of upcoming posts on Settlement Perspectives;
Recent news, comments and miscellaneous information; and
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.

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

Avoiding the Limitations of Decision Trees: A Few Tips from Mediators Who Use Them

John DeGroote — Thu, 29 Apr 2010 02:23:35 +0000

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:

Decision Trees in Mediation: A Few Examples

John DeGroote — Thu, 22 Apr 2010 10:59:40 +0000

It’s no secret that I believe decision trees can make a difference as you try to settle your next lawsuit, and my series on decision trees will tell you why. But I’m not the only one. Your comments to my prior posts, our follow-on discussions since then, and a little research confirm that a confident minority of mediators and litigators use them, too. This post is the first of three over the next few weeks that will give you real-life examples of how decision trees are used to settle disputes.

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:

The Multi-Step Dispute Resolution Clause: A Few Reasons Why Clients Like Them

John DeGroote — Thu, 01 Apr 2010 11:34:42 +0000

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.

Lawsuit Settlement: 7 Ways to Get There Faster, Better and Cheaper — The Presentation

John DeGroote — Tue, 30 Mar 2010 21:06:48 +0000

Late last week I got the chance to present 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. It’s always rewarding to speak with an audience that understands — and cares about — the topic, and this group of senior in-house lawyers reminded me why.

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.

Another Look at How the Brackets Work

John DeGroote — Mon, 22 Mar 2010 11:22:42 +0000

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!

Multi-Step Dispute Resolution Clauses: 7 Reasons They Work

John DeGroote — Fri, 19 Mar 2010 11:44:04 +0000

As we have discussed before, the best way to spend less on litigation is to have less litigation. Yes, sometimes it is better to litigate, and yes, settlement talks are hollow if you can’t walk away from the negotiation table, but most clients prefer to avoid litigation when they can. So how do you accomplish that? The multi-step dispute resolution clause is a good start.

Back in my days as outside counsel I handled a major dispute for a Fortune 500 IT services firm involving one of its larger clients, and I got plenty of time to think about how, and why, tiered dispute resolution clauses work. As soon as I moved in-house, I added these clauses to KPMG Consulting’s standard contracts, and the results were outstanding — we litigated with our clients less and got back to business sooner. This post will give you a few reasons why you might want to include a multi-step dispute resolution clause in your next major contract.

A Definition for the Multi-Step Dispute Resolution Clause

The multi-step dispute resolution clause, sometimes referred to as an “executive escalation clause,” an “escalating levels of management clause,” or a “tiered dispute resolution clause,” is often discussed but not often defined. I define it as:

A multi-step dispute resolution clause is a contractual provision that requires the parties to an agreement to escalate a dispute through varying levels of management or other processes, such as mediation, using agreed-upon procedures before litigation or arbitration may proceed.

D. Jason File’s helpful article on these clauses picks up from there:

These clauses typically prescribe tiered procedures in the event of a dispute. Such procedures often begin with the notification and description of a dispute by the aggrieved party followed by a period of consultation, negotiation and/or mediation. In the event that the parties cannot agree on a way to resolve the dispute, in whole or in part, multi-step dispute resolution clauses typically provide for litigation, or, more commonly, arbitration under specified rules.

Why Does Tiered Dispute Resolution Work?

There’s no doubt that executive escalation is an efficient way to resolve disputes. My longtime friend Colleen Vossler, managing partner at a Virginia technology, licensing and outsourcing boutique, says it best:

In order for the business partners in a deal to continue having a successful relationship, the parties must quickly, efficiently and amicably resolve disputes that arise, particularly in long-term or high-dollar value contracts. The parties can promote a successful relationship when negotiating the contract by including a tiered dispute resolution clause. This vehicle – which adds new people and applies a prenegotiated process to the problem – can help to get important disputes resolved in a cost effective (and hopefully less emotional) way.

And Colleen is right. There are more than a few reasons these clauses work:

The Threat of the Process May Help: Managers may prefer to avoid the supervisor intervention required by an executive escalation process, and this threat motivates line managers to “persist until they find a solution themselves, rather than having to admit defeat and passing the problem up the line,” as described more fully in Dispute Resolution Provisions in Commercial Contracts from London’s Michael Evans
New People Bring New Perspectives: New people bring new perspectives to a problem, and that’s rarely a bad thing. As law firm Smith Gambrell points out in a broad article about dispute resolution on its website, bringing in people who have no direct stake in the controversy is even more promising. And as the ABA reminds us, having people actually deal person to person outside the litigation context can’t hurt, either.
Executives Can Put the Dispute in Context: Front-line managers are often focused on profit and loss metrics for their individual areas. Uninvolved executives can work to settle the dispute in the context of the overall relationship — applying a simple “cost – benefit analysis of continuing the dispute or resolving it,” according to Frederick R. Fucci in his well-written and helpful Getting Transactional Lawyers Thinking About Dispute Resolution.
Preparing for the Process Is Beneficial: I am a longtime believer in early case assessments because you can’t know how to resolve a problem until you know how much it’s worth to everyone involved. The process required by a tiered dispute resolution clause can help accomplish just that.
Acceptance Time Almost Always Helps: I have written about acceptance time before. Escalation clauses force the parties into a process that takes time — time in which they can become accustomed to a compromise.
Deadlines Drive Action: Without a predefined schedule you never know when you’ll hear from the other side, or if you will at all. A multi-step dispute resolution provision — backed by a potential claim for breach if it’s not followed — provides clear deadlines that keep everyone focused and the process moving.
More Early Opportunities Drive More Settlements: More early settlement opportunities can mean more early settlements — an important point Sydney area lawyer Dolone Chakravarti makes in Handling potentially complex disputes: Multi-tiered dispute resolution clauses.

While there may be more reasons that multi-step dispute resolution clauses work, the 7 listed above should give you a good start.

Executive Escalation Clauses: The Time Is Now

I’ll end where I began — the best way to spend less on litigation is to have less litigation. There’s no question that a multi-step dispute resolution clause may help you resolve your long-term outsourcing dispute. In fact, I’ll bet you can think about other places you can pre-negotiate a timetable for mediation, or at least an adult discussion, before someone files suit. You’ll be glad you did.

[Update: See the follow-up to this post at The Multi-Step Dispute Resolution Clause: A Few Reasons Why Clients Like Them.]

Toward Better Client Service: A Few Questions for Outside Counsel

John DeGroote — Thu, 11 Mar 2010 12:53:22 +0000

In a world of alternative fees, law firm convergence, the ACC Value Challenge and more, what does the client really want? Is it lower fees, predictable expenses, more “value” for the company’s legal dollar, or something else? What’s the best way for a law firm to respond? It turns out that clients are eager to share the answers to all these questions — all you have to do is ask.

A few months ago the lawyers at DrinkerBiddle did just that — they asked. The firm invited a few of us with real experience as clients to the firm’s partner retreat to share our perspectives on client service. They got what they asked for.

The Question Outside Counsel Don’t Ask Often Enough

As soon as we began our talk it became clear that I wasn’t the only one who had thought about the law firm/client relationship before we got there. One of my co-panelists, P.H. Glatfelter Company’s GC Thom Jackson, started by sharing a simple question that outside counsel apparently don’t ask him often enough:

What is an acceptable outcome in this matter?

I have shared Thom’s insight with a few lawyers, both in-house and outside, and I’ve only gotten two responses. Outside counsel tell me “I always ask that question,” and their clients tell me “[m]y lawyers rarely ask that question.” Like it or not, there’s a disconnect here. How can we avoid it? As Thom’s question reminds us, and as we discussed in Settlement Advice: Avoid the Assembly Line, the best way to learn what your clients want is to ask.

10 More Questions Outside Counsel Should Ask (But Don’t)

Apparently an overachiever, Thom came to Philadelphia with a written list of 10 more questions outside counsel should ask the GCs they work with. Thom’s questions are quoted below, with his permission:

Can you help me better understand your Company’s budgeting process, its timing, and the Legal cost center?
Are you a fan of alternative fee arrangements, blended or discounted rates — all of which introduce some degree of expense predictability and risk sharing — or are you more concerned with a lawyer’s demonstrated ability to be efficient and knowledgeable and provide added value?
In the case of an RFP, what would cause the Company to solicit an RFP? What value does the Company realize in that process?
If the client is a public company, what has the Company reserved for this matter and what is the rationale for that reserve amount? Does the Company reserve for legal fees? For SEC reporting purposes, what amount is considered “material” for the Company?
Give me some feedback on whether our firm has done a good job for the Company. Are we thought of as a true business partner to the Company?
When was the last time you brought outside counsel in to brief the Board or senior management on a risk management, loss exposure or legal compliance issue? How was that received?
In which areas do you expect to spend the greatest portion of your outside legal spend over the next 12 to 18 months?
In the case of a litigated matter, on the continuum between winning and losing, what is considered acceptable? Is there a possibility for success short of complete victory? Prevailing without success? Not prevailing but not losing?
What can the firm do to help the Company and [its General Counsel] be successful? What are the Company’s and your aspirations?
What do you see as the “next big issue” that your industry and your company will face? What risks or opportunities might that create for us both?

To be clear, this blog isn’t necessarily about customer service — Patrick J. Lamb at In Search of Perfect Client Service and Dan Hull at What About Paris? have that more than covered. But when I saw Thom’s questions, I wanted to make sure that more lawyers than just DrinkerBiddle got the opportunity to ask them. While only a few tie directly to the settlement process, don’t discount the rest. They’ll all give you great insight into your client and what it needs — and that can help you in your next negotiation and beyond.

If you’re an outside counsel, ask your next client a few of these questions. You’ll be glad you did.

A Settlement Lesson From “Switch”: Who Does Your Opponent Think He Is?

John DeGroote — Thu, 04 Mar 2010 12:02:15 +0000

Longtime Settlement Perspectives readers know that I’m a big fan of Chip and Dan Heath. Their first book, Made to Stick, inspired posts back and forth with the authors on why you might not want to send a message in negotiation, and the rest of Made to Stick continues to color my view of message “stickiness” — a term the Heath brothers contributed to today’s communication lexicon.

With advance warning from Mitch Joel, I eagerly awaited my copy of the Heath brothers’ new book, Switch: How to Change Things When Change Is Hard. Like Made to Stick, Switch ostensibly has nothing to do with negotiation, but like its predecessor Switch backs into a settlement insight important to all of us.

The Identity Model of Decision Making

As with most concepts, Switch defines the identity model of decision making early on:

In the identity model of decision making, we essentially ask ourselves three questions when we have a decision to make: Who am I? What kind of situation is this? What would someone like me do in this situation? Notice what’s missing: any calculation of costs and benefits.

According to the Heath brothers, “we adopt identities throughout our lives” that help explain economically irrational behavior — we consider ourselves a patriotic citizen or a devout Catholic or a good mother, and these adopted identities drive decisions beyond superficial self interest. A Silicon Valley millionaire might vote against a Republican who would cut her taxes, or an auto worker might vote against a Democrat who would provide him health insurance.

Identities Drive Settlement Decisions

In our last post we discussed how important kitchen table talking points are to the settlement process, but the identity model insight Chip and Dan Heath provide is just as important. I have had cases that wouldn’t settle despite favorable economic terms because the plaintiff inexplicably wanted her “day in court.” It seemed a bit self-righteous at the time, and I didn’t get why a few more dollars couldn’t get the deal done. But I now see the need that a few more dollars didn’t address; in effect our lawsuit opponents may be asking themselves questions like:

What would a whistleblower do here?
How can I help stop lawsuit abuse with this settlement? or
How would Ralph Nader react to the defendant’s proposal?

We often wonder what’s driving the other side to hold out in settlement talks, and we have often known it’s more than money, but Switch puts our finger on it. The ordinary citizen becomes a safety advocate in a rollover lawsuit, or an everyday cardholder becomes a consumer advocate when he realizes everyone’s interest was calculated that way.

What You Can Do

I once had a grizzled old defense lawyer tell me:

They say it’s not about the money. That’s BS — it’s always about the money. Eventually you pay a little more and all of a sudden that other stuff they were talking about goes away.

In some cases he may be right, but in every case your opponent’s conduct is driven at least in part by who they think they are. You can either ignore that fact, and pay more if you’re going to settle at all, or you can approach the settlement talks with the other side’s identity in mind. To take it back to Switch, that auto worker isn’t going to change his vote just to get health insurance, but he might support a Democrat for other reasons. In your settlement talks:

If the other side thinks she is a whistleblower, put some additional compliance measures in your settlement to satisfy her concerns;
If the other side considers himself a tough negotiator, plan to endure more $2,000 moves today than usual; or
If the other side wants to “make sure this never happens again,” consider implementing a reasonable process that will ensure “this” actually won’t happen again — and tell the other side at the mediation you’re willing to do so.

The idea here isn’t to come up with a new set of unnecessary concessions. The point here is to consider who the other side thinks he is, and factor that into your overall settlement approach. You’ll be glad you did.

What Will She Tell Her Husband?

John DeGroote — Mon, 01 Mar 2010 18:27:04 +0000

When was the last time you were in mediation and the other side just didn’t “get it”? You have what you need to win the case — documents that demonstrate the fraud, confirm the negligence, or whatever — but the other side just won’t go away. You offer a few dollars so you’ll be done by lunch, but she still won’t give in. Why not?

Why won’t the other side capitulate? The answer isn’t in the conference room, and it’s not in the documents. The reason your case won’t settle — at least not just yet — may be at a table far away.

The Smartest Guy at His Table That Night

I have given a lot of thought lately to a cluster of closely related negotiation concepts, each of which ultimately leads to the kitchen table:

Years ago a senior trial lawyer I really admire told me a story about how he positions technology cases for the jury. It went something like:

Tonight that guy on the front row is going to be the smartest person at his dinner table. No matter what else went on with his family today, he will explain to them — in great detail — how a telephone number is called up in a database or what happens behind the scenes when you swipe your credit card at the Wal-Mart or what “just in time” inventory management means to the local bookstore.

Everyone in your case, from the opposing party to her lawyer to the judge, is a real person who talks to someone — a husband, a friend, her dad — about her day when it’s over. The discussion at her dinner table matters.

“What will she tell her husband?”

When was the last time you admitted you had a bad case at home? No one wants to, and it’s especially true in litigation. Someone was mad enough about how they were treated to file a lawsuit, and they aren’t going to drop it without a good story and the time to tell it. That’s why your surprise attack on the merits at mediation can’t succeed — it’s often better, psychologically if not financially, for the other side to lose in court and blame it on the lawyers than admit defeat at home.

Instead, if you want to settle today, ask yourself what your opponent will tell her husband, her friend, or her dad about her settlement and how she got there — because she won’t settle without dinnertime talking points. A few ways you might get there include:

Advance notice of your position through a credible mediation brief, a clear pleading, or a phone call to her lawyer so your opponent has time to manage expectations at home;
An irrevocable offer, such as a Rule 68 offer, so she has time to carefully discuss the offer with her family before it expires;
An offer to settle halfway, discussed here and here and here, settling much of the case while moving forward on a few issues so she gets her (limited) day in court; or
A settlement that allows her to save face, like a donation to charity or a payment for some disputed severance time that she can talk about when she gets home.

At your next mediation, think about your opponent’s dinner conversation and the talking points you’re helping her write. You’ll be glad you did.

Settlement Perspectives Welcomes Gary Kitchen to A New Role at the Patent Mediation Table

John DeGroote — Fri, 26 Feb 2010 22:02:00 +0000

As we go through our careers we all keep a list, whether it’s formal or not — a list of people we’d like to work with again someday. It might be hard work or honesty or an ability to turn an argument, but something puts lawyers on that list. For me, Gary Kitchen is one of those lawyers, so I couldn’t have been more happy to see the recent announcement about his new nationwide patent mediation practice.

This post is a quick welcome to Gary Kitchen to the mediation world — not unlike what Vickie Pynchon and Diane Levin did for me when Settlement Perspectives got its start.

A Patent Mediator with Business Experience

As you can imagine from the title of this blog, on any deal I’m curious about the perspectives of those involved, and Gary’s is tailor-made for patent mediation on a national level. I’ll skip the “former Fortune 50 business executive” blurb from his bio and give you a snippet from a story he told over lunch last week:

I remember when I led a team at SBC [which is now AT&T] responsible for a major, multi-year project in Latin America. It was getting awfully close to the deadline when . . ..

That day I learned something I didn’t know when Gary and I worked together back in the day — Gary has been responsible for projects, P&Ls, teams, and results outside the context of disputes. Perhaps that’s why he works so well with clients — clients who have been responsible for projects, P&Ls, teams, and results outside the context of disputes.

A National Mediator with East Texas Trial Experience

To me, trial experience serves the same purpose as a final exam — not only does it help everyone keep score, but it provides clarity for the process to that point. I know more about Hegel’s dialectic theory because I had to write out my thoughts under pressure for Professor Allen, and I know more about what an auditor is (and isn’t) because I had to cross-examine an expert on it in Judge Rhea’s courtroom. Given the importance I put on trial experience, it should come as no surprise that I tend to look for mediators who have actually been to trial when trial perspective is important.

Back at our lunch, I learned a bit more about what it has been like on patent litigation’s front lines. Gary represented defendants and plaintiffs in trial after trial from McKool Smith’s Marshall office. One of his stories from his time there began:

It wasn’t that long ago when we went to trial on behalf of a defendant seeking to invalidate a patent. Before the jury came back with its verdict, we . . ..

And while it takes more than a few minutes to get the (favorable) verdict out of him, Gary focuses us on how they got there and why trial was the right answer in that case. In the Eastern District of Texas, credibility is built, and maintained, over the long term. Knowledge of the facts, relentless preparation, and civility are rewarded — in trial and in settlement. No wonder Gary has succeeded.

If you get a chance, put Gary’s business, trial and settlement experience to work for you in your next patent dispute. You’ll be glad you did.

In Mediation, Who Gets To Say “We’re Done”?

John DeGroote — Tue, 16 Feb 2010 11:56:13 +0000

It’s been almost 20 years since my first mediation, and I still remember the rehearsed opening sessions from those days. Mediation after mediation began at 9:35 with a map of the day from the mediator’s manual: This is a creative new process; mediation is confidential; today we’ll explore “win-win” approaches to settling your case; there’s a lunch menu on the credenza; don’t leave until I tell you today’s session is over. There were a few more, but you get the point.

Since those early days I haven’t given much thought to why the mediator — rather than the parties — gets to end the session. But in a recent mediation headed for impasse the lawyer on the other side almost ended the day with “I guess there’s no reason to keep talking, is there?” in a late afternoon joint session, and I understood.

Who Will Be the First to Send a Message?

Mediation is admittedly a bit awkward, if not unnatural. For its success the process requires parties and their paid advocates to stop fighting long enough to work toward a compromise acceptable to all. A series of concessions, conditioned on reaching a settlement, ends in a deal or a return to conflict.

If settlement can’t be reached, most parties and advocates immediately look for a way to turn up the heat on the other side — to send a message reinforcing the consequences of not settling. While I have said before that a “failed” mediation is a perfect time to settle halfway, the traditional response is to remind everyone that conflict has resumed as quickly and convincingly as possible.

Don’t Jump the Gun

In my recent mediation, our second meeting was no more successful than the first. By late afternoon we were still stuck. Everyone was ready to head for the airport again, but I thought there might be one last big move left on each side. Our mediator gathered a few of us together to see if we could reach common ground.

A few minutes into our afternoon joint session — a risky move in itself — one of the lawyers saw impasse coming and understandably began the notebook closedown process, highlighting his return to advocacy with something like: “It looks like we just see the case differently,” followed by “[a]pparently we don’t have much more to talk about.” Fortunately our mediator quickly intervened, surprising us all with a reminder that he, rather than the parties, would tell us when it’s over.

Once our mediator refocused us on why the case should settle and how we could get there, we began to make progress that afternoon — enough progress that the mediator was able to formulate a mediator’s proposal that got the deal done shortly thereafter.

Lesson Learned

The lawyer on the other side of my case was, and is, a good lawyer who did what most of us would have done. He began to remind us that the concessions would end as the conflict resumed. But the settlement achieved serves as a reminder of what’s been in the mediation manual for over 20 years: Don’t leave until the mediator tells you today’s session is over.

You’ll be glad you didn’t.

New Information: One Way to Help Your Client Save Face

John DeGroote — Wed, 27 Jan 2010 12:04:34 +0000

The mediation had dragged for an entire day, and we hadn’t made much progress. The other side said they couldn’t give any more, and we wouldn’t, either. The mediator’s proposal that followed was the best deal we’d ever get and, frankly, it was the right number. But my client’s COO reacted instantly, calling in a “no” on his way home. Our answer was due to the mediator in in 24 hours.

As I prepared to discuss the mediator’s proposal with our executive team and the COO the next day I realized my client might have painted himself into a corner — after a good night’s sleep I was confident he would want to change his mind, but sometimes it’s not that easy.

Only Two Ways to Get the Case Settled

I debated how to settle the case that day, and there were only two ways to get it done: with my COO or without him. I could gather the facts and work to persuade the executive team over his objection, or I could get the COO to revisit his decision before the call began. The fact that I recommended the deal would carry a lot of weight with the team, but my client’s COO was his boss’s right hand for a reason. And even if I “won” this one, we had an ongoing relationship to preserve. The choice was easy.

The COO wasn’t irrational and he wasn’t a stranger to big disputes, but he had said “no” rather emphatically. While I suspected he’d want to change his mind, clear, public statements are hard to retract. I have written about the decisionmaker’s need to save face before, and the concept as articulated by Fisher and Ury certainly applied here:

Often in a negotiation people will continue to hold out not because the proposal on the table is inherently unacceptable, but simply because they want to avoid the feeling or the appearance of backing down to the other side.

My decisionmaker would want to avoid any appearance of backing down to his lawyers, to the mediator, and to his executive team. I needed to give my COO a way to change his mind.

Saving Face With New Information

There had to be a reason we disagreed the day before. As I looked through my notes to retrace our steps, I realized my COO had based his decision in part on a “fact” we learned at mediation. As he had flown home the night our mediation ended, the rest of my team had dissected the day and realized that this important “fact” couldn’t be true — an idea we had explored late in the day to keep the parties’ relationship alive just wouldn’t work.

We had found the key to get the deal done.

I called the COO in advance of the broader executive team conference call, and it was clear he was preparing for a fight. Immediately he began to justify rejecting the mediator’s proposal. At that point — before he dug in too deep — I gave him the new information the rest of the team had realized the night before. In a few short minutes we had agreed to jointly support the mediator’s proposal. A settlement of one of the company’s biggest cases ever came that afternoon.

Use a little new information the next time someone on your team needs to save face. You’ll be glad you did.