Negotiation News: Volume 5, Issue 1
Welcome back to Negotiation News, and Happy New Year!
In this issue, we are going to discuss that often overlooked part of the mediation known as the “middle muddle” — the various ways you can get into it, how to recognize it when you get there, and how best to get through it and move toward closing.
Stuck In The Middle With You: How You Get In Affects How You Get Out
Picture this familiar situation:
The parties, counsel and representatives arrive at the mediation hoping to resolve their dispute. Each side has a “no way, no how” number in mind that they will never get to. The mediation begins with a joint session where, lo and behold, the sides exchange “ridiculous” numbers. They retreat to their respective caucus rooms to consider the starting points that have just been exchanged.
Although this initial “chutzpah” communication can be eased somewhat by the exchange of pre-mediation briefs and conferences with each side before the mediation, we are all familiar with mediations that begin this way.
So how do we get toward serious negotiation and out of the initial demand/offer phase? The demand/offer phase generally sets the tone for negotiation. In his work developing the predictive analytics software called “Picture It Settled®,” Don Philbin has found that how we get into the “middle muddle” is of paramount importance.
What’s the “middle muddle”? It is the part of the mediation after the opening offers have been exchanged, during which most, if not all, of the pertinent factual information has been exchanged and considered, and where substantive negotiations begin to take place. It’s the part of the mediation where the sides begin the process of inching toward their true settlement ranges.
For example, consider the case of a personal injury dispute with undisputed liability and $25,000.00 in medical expenses consisting of spinal steroid injections and a possible future surgery, but stronger evidence of continuing treatment. The reasonable settlement value of such a case in Los Angeles may be “ball parked” between a defense “hope for number” between $35,000.00 and $50,000.00 and the plaintiff “hope for number” range of $100,000.00 to $150,000.00, depending on medical liens, expert costs, etc. So how can we get past the opening phases and into the “middle muddle”?
Chances are that if the Plaintiff starts out north of $500,000.00, the Defendant is likely to respond with an offer between $2500.00 and $5000.00. These “message” numbers are rarely realistic and are communicated merely to show that each side “means business” or in reaction to a perceived unrealistic offer or demand. Though there are some jurisdictions where outliers like this are customarily communicated in the opening rounds, I generally discourage the parties from exchanging numbers like this, and depending on the sense in the room, it may take a some time to get into the settlement zone.
Consider the case on which the book and movie A Civil Action was based. The case involved an environmental contamination of ground water in Woburn, MA in which dozens of families suffered catastrophic personal injuries. Plaintiff evaluated the settlement range at around $25 million based on the jurisdiction and time period of the case. Plaintiffs’ counsel started the negotiations north of $250 million, drawing only a renewed commitment from the defense to take the case to trial. Plaintiffs were ultimately outlasted by better financed defense firms, and after having to dismiss one defendant late in the litigation, ultimately accepted about $8 million from the remaining defendant. Plaintiffs’ firm and many of its lawyers encountered extreme financial distress, and Plaintiffs themselves recovered far less than adequate compensation after protracted and emotionally draining litigation. Had Plaintiff begun at $60-65 million, the chances of recovering something in the $25 million range may well have been increased.
The point is that how we get into the “middle muddle” affects the chances of how we get out of it, if at all. Philbin’s research showed that while the exchange of unreasonably high demands or low offers may be successful, the chances of success are significantly decreased by doing so.
Human nature is remarkably predictable, and reacts to both reasonable demands and “non-starters” fairly consistently. This research concluded that the settlements often occur at the mid-points between the first two reasonable settlement offers. Thus, the challenge becomes how to get to “reasonable settlement offers”. This begs the question of whether (a) it is more satisfactory to negotiate by anchoring at unreasonably high or low numbers at the beginning only to have to make big drops or increases in the later rounds, or (b) whether a case be better negotiated by principled and supported offers and demands that are reasonably justifiable throughout the negotiations. If a settlement is to occur, starting off with unreasonably high or low numbers may yield similar results ultimately, but it may also entail having to capitulate greatly in the latter rounds in order to “just get it done”. Alternatively, there is a significantly greater risk that negotiations will reach impasse and/or that the session will last much longer than necessary if concessions from extreme numbers are small, yielding little progress through the middle toward the reasonable numbers.
Beginning negotiations from extreme and unjustifiable positions, although they may address an emotional component held by the parties, is far less effective than negotiating from principled positions at the outset. Establishing extremely high or extremely low anchors in the initial rounds may never get the parties beyond them. Further, doing so leads to a “middle muddle” that stands a much higher risk of impasse, and one that is far more difficult to “muddle” through so that the parties can move into the end game. The middle is an extremely important part of the case, and often the part upon which as the mediator, I am called upon to provide the most guidance. Not all negotiations are easy or proceed smoothly. But where there is a chance to maximize the possibility of a settlement within a range that is acceptable to the attorney and client, consider this approach rather than standing by outlier numbers in the opening rounds.
I look forward to working with you in mediation soon.
Sean E. Judge is a mediator with offices in Woodland Hills, CA. In his 21 years as a litigator, he has represented corporate and institutional clients, and individual litigants and small businesses, both as Plaintiffs and Defendants. He can be reached via telephone at 818-616-8500, at www.judgemediation.com or via email at [email protected].