Uncertainty Drives Conflict Resolution

Alec was recently selected as a Southern California SuperLawyer in the field of Alternative Dispute Resolution.

After many years of mediating litigated cases, I find that several threads continually recur. Among the most pervasive are the following:

  • Attorneys believe that their analysis of the case is superior to that of their opponent
  • Parties believe that the opposing party is insincere in his/her/its position
  • Attorneys believe that the opposing witnesses will be surprised by certain evidence when directly confronted by it at trial
  • Attorneys believe that they will be able to communicate the “gestalt” of their case to a jury far better than opposing counsel will his or hers

1. Any dispute can be settled at any time

This is a very straightforward concept. Let’s take a personal injury case in which an injured plaintiff is demanding $150,000, but in which the defendant is not willing to pay more than $25,000. Now, let’s assume that we are totally omniscient and can, with absolute certainty, know what the result will be after trial.

In Case 1, the trial court awards the plaintiff $125,000. Now, given the costs involved in getting to and through trial in order to reach that result, I would expect that, at an early mediation, armed with the knowledge of the outcome, plaintiff might be willing to accept $100,000, believing it to be a better overall result than he/she would get at trial. And, in the same vein, defendant might be willing to pay a premium, say $140,000, to avoid spending additional defense costs knowing the final outcome. As a mediator, I would know that I had a zone of about $40,000 within which the case would have to settle. Life would be good.

In case 2, the trial court defenses the case. Now, given the same analysis, plaintiff will take anything he/she can get in settlement. Similarly, defendant might be willing to pay anything less than cost of defense, looking upon that as an overall savings. Cases like this often result in a walk away, since continuation of the litigation would be as costly to one side as the other. Again, life is good.

The point is clear: If the results were known in advance, mediation would be unnecessary; the cases would settle themselves. In that scenario, the only reason that a case might not settle would be because one or both sides made their decisions on an economically irrational basis, such as anger, revenge, or other such factors. Does this happen? It does, and it happens often. But that’s another topic for a different article.

2. Dispute participants are unduly optimistic

This is an inherent and totally predictable facet of our adversarial system. When I convene a mediation, I expect all participants to be unduly optimistic. Those who are not are truly the exceptions, in my experience.

a. Attorneys

It is a rare litigator who is not in love with his or her work. I certainly fell into that category during my courtroom days. I often wonder whether or not a litigator without that trait could be the best possible advocate. But, while perhaps a necessary component of the best litigators, it has two unintended consequences. First, the litigator will give him or herself a better chance of winning than that of an “average” litigator handling the same case. Second, the inherent optimism of the litigator, even if tempered with cautious words, often, sometimes invariably, is transmitted to the client.

b. Parties

To start with, parties believe strongly in their positions. At least, that’s my hope. And, just as hopefully, they believe in their attorney(s). Prudent attorneys always temper their language in order to avoid giving their clients any false optimism about their likelihood of success. But as we all know, many clients read optimism “between the lines,” in their attorney’s demeanor, or in any other way that justifies their own need to be optimistic. And, of course, this optimism can be further buoyed at various times, such as at deposition, where the attorney will take a particularly vigorous position as advocate.

3. Settlement value

For the purpose of this article, I am using the simpletonian method that I always used in my own practice: value times percentage of success. Using this method, a $50,000 case with a 50% chance of success, for example, has a settlement value of $25,000. Similarly, a $100,000 case with a 25% chance of success also has a value of $25,000.

4. The Index of Over-Optimism

This is a tool that I developed myself that has been useful in my own evaluation of the status of the mediation. Initially, I ask each attorney to tell me, privately of course, what his or her opinion of the likelihood of success at trial is. Keep in mind that I believe that “slam dunks” win, at best, 75-80% of the time. I then take the two numbers, add them together, and have my Index of Over-Optimism.

The lowest reasonable number would be 100%. That would be when each attorney measures the likelihood of success at 50%. In that case, the only difference would be in the valuation of the case itself, a straight distributive issue that, while challenging, would certainly be simpler to address than would inflated expectations.

More typically, the Index ranges from 120% to 160%. I’ve even had a case in which both attorneys felt 90% sure of success at trial, for an index of 180%. The Index is a measure of the degree of difficulty presented in the mediation based on the evaluation as stated by the attorneys themselves. I emphasize this because too often the percentage given does not reflect the true opinion of the attorney, but rather what the attorney wants the mediator to think. As the mediation goes on, the mediator should adjust the Index as developments change the “lay of the land.”

5. The job of the mediator

Even when all of the foregoing information is absorbed and understood, the challenge of putting it into effect remains. This is where the experienced mediator will transcend the basic training and call on his or her years of experience to use the knowledge and seal the deal.

a. Getting beyond the numbers

Emphasizing the costs of litigation is something that every mediator is taught to do in the first hour or two of training. It’s a valuable tool, but as we all know, it’s a very limited one. It doesn’t work very well with parties who don’t put a value on the costs, insurance companies in particular, and it may not work at all in cases in which substantial sums are at issue. And there’s a certain amount of resistance to this pitch, since almost all litigators have heard this argument hundreds of times already and already discussed it with their client(s). When you can resolve a case based on the costs of litigation, that’s great. When you can do it on the costs and other elementary tools, that’s great, too. But what happens when you cannot?

b. Feeding the fire

The primary reason attorneys are anxious to mediate, regardless of what they say or how they act out the outset of the session, is because, when all is said and done, they’re uncertain of the result. Paradoxically, the more certainty they’ve shown up to that time, the more worried they often are about the potential of failure and how their client will react were that to occur. My own favored technique is to use personal anecdotes to relate to the latent fear of failure in a similar situation. However you do it, the goal is to reinforce the fact that nothing is certain and that good attorneys are always bullish. A bit of devil’s advocacy never hurts, either.

In a similar fashion, many parties have never had a reality check from a disinterested third party prior to the mediation. In my experience, even after a reality check performed in a gentle manner, many parties emerge shell-shocked. I’ve watched them whisper to their attorney, and the attorney whisper back, audibly, “I’ve been telling you that all along, but you wouldn’t listen. It happens all the time.

After feeding the fire, I find it best to step back and mollify a bit. Rather than press the issue, I tell the participants that, after all, they might prevail in the end, but, on the other hand, this might be an opportune time to cash out.

c. Forging the deal

All of the foregoing activity will often take place within the first hour or so of the process, and continue intermittently as the mediation moves forward. The deal will be forged against the backdrop that has been created through your exploitation of uncertainty. Yes, the costs of litigation, the emotional toll and all the other factors will still play a major role in your pitch, but the context in which it is received is, I think, the overarching factor in whether or not the case will settle.

In my experience, the more uncertain the attorneys and parties are about the outcome in court, the more amenable they will be to all the other solutions available to them in mediation. These solutions can include simple distributive negotiation, a mediator’s proposal, creative construction of terms, or anything else that works for the parties.

The point to take with you is this: A party that feels certain, that it has little to lose, will feel that it has little motivation to go that extra step that invariably makes mediation successful. Your job is to dispel that certainty!

Mediating Commercial Relationships

Alec was recently selected as a Southern California SuperLawyer in the field of Alternative Dispute Resolution.

In mediating commercial disputes, once all of the frills are striped away, the dispute is very typically about money. The money can evince itself in a number of ways: one side paying the other cash; one side paying the other in specific performance; one side paying the other by refraining from competing, and so foregoing potential income, and so on. But, when the dust clears, the outcome is generally that money either does or doesn’t change hands.

A second characteristic of such mediations is that they’re almost always distributive in nature. In many cases, the lawsuit is about one party trying to collect from another that is no longer in business. And in the others, by the time that the parties have hired lawyers, filed suit and enjoyed the pleasures of litigation, each has probably come to loathe the other in such a personal way that they’d rather do business with the devil than with each other. That’s not surprising, when each side perceives the other to have broken faith, lied, cheated, and other wise proven to be completely untrustworthy. Welcome to a commercial mediation on a very typical morning

Not long ago, I walked into just such a room. The facts, while not so typical, were not too complex, either. The Plaintiff owned a wholesale warehouse, from which he sold electrical components to retailers, including the Defendants. Plaintiff told me that his cousin, who had worked for him for many years, had apparently been “back dooring” (ie. stealing) merchandise worth $300,000, and then selling it secretly to customers, including the in pro per Defendants. When the fact of the missing merchandise was discovered, Plaintiff said, the cousin confessed all, pointed to the Defendants and was fired after agreeing to make restitution. Naturally, Defendants denied all, telling me that the cousin, now an admitted felon, was giving Plaintiff this “story” to make it easier on himself.

Now a lot of questions were never addressed and/or answered, such as why the police were not brought in, but my overarching understanding is that Plaintiff wanted his money back and wanted reimbursement from his cousin, rather than his cousin in jail and the family complications that would follow.

For a few hours, we engaged in classic back and forth negotiation, but, because each side had invested in a very different reality, very little progress was made. Because Plaintiff insisted that he was dealing with thieves, he expressed an unwillingness to substantially reduce his demands, since this was a case of good vs. evil. The Defendants, on the other hand, lived in a world in which they’d been unfairly smeared and vilified, were now involved in a totally unwarranted lawsuit.

Did I accept either reality? Well, first of all, that’s not my job. My usual approach might be to get each side to understand the reality of the other side, while not necessarily modifying their own reality. Here, that seemed doomed to failure, since each reality overtly required the other party to be lying. I skirted around this several, times, but was starting to run out of ideas. Then, as is often the case, a little nugget was dropped into my lap.

One of the things I always do in caucus is chat up the parties. Among the reasons I do this is because the key to settlement can often inadvertently come from the parties themselves. In this case, one of the Defendants remarked how he was especially infuriated because the Plaintiff, his brother, himself and their families had had so many fun times in the past. In other words, he felt betrayed. I had my lever!

I caucused with the Plaintiff, and after a few minutes of the usual housecleaning discussion, I casually said to him, “I understand that you had a lot of good times with the Defendants. Sitting hear today, that seems hard to believe. Is that true?” The Plaintiff sighed, and said: “Yeah. We used to go to Vegas a lot, we’d spend the holidays with one another’s families. We had a lot of laughs over the years.” I went on: “It’s a shame those times are over, huh?” The Plaintiff agreed, but went on to say that he could never do business with the Defendants after what they’d done to him. I asked him, for the umpteenth time, whether his cousin could have been making it up, and he again said that that was impossible, but with a bit of regret in his voice.

Then I asked him the key question. I asked whether he would be willing to do business with the Defendants if, in the long run, they could repay the value of the goods and he could continue to make a profit along the way. He thought it over, consulted with counsel and then said that he would.

I caucused with Defendants, and, after a lot of wrangling, got them to agree that they’d resume business with Plaintiff and make payments toward the loss, but said that the payments were entirely dependent upon the profit they would make on their end from the product Plaintiff would provide. Several caucuses ensued, and, bottom line, both sides agreed to do $3 million worth of business as soon as reasonable, Plaintiff would bill at his lowest price, and Defendants would pay a surcharge of 10%.

At the end of the mediation, all parties were sitting together, reminiscing and laughing. It’s not something I get to see very often, but I don’t think you’ll ever see that in a courtroom.

Moving the Goalposts 2 – The Blowback

Alec was recently selected as a Southern California SuperLawyer in the field of Alternative Dispute Resolution.

In my last blog post, I described, at length, my personal methodology in crafting a mediator’s proposal. Today, I’m going to consider what I call the “blowback,” which is the downside of the method itself. It’s something that’s always on my front burner whenever I’m actively involved in “moving the goalposts.”

There’s an important ideological divide between facilitative and evaluative mediation, and it’s one that I’m not entirely comfortable with. Let’s examine the relative strengths of each in the context of the mediation of a matter, currently in litigation, which the parties are paying you to help bring to resolution.

Facilitative Mediation

The obvious advantage here is that the solution is controlled by the parties themselves. Because the mediator acts as a facilitator and, perhaps, a referee, the his/her input is limited to being a sounding board, and, perhaps, engaging in brainstorming with the parties, whether in caucus or in joint session. To the degree that a facilitative mediator suggests his/her own ideas, it is generally in order to widen the scope within which a party can seek their own solutions.

Another “advantage” can be the lack of confrontation. Because a facilitative mediator doesn’t have a position of his/her own, there oughtn’t be a reason for any party to feel the necessity of defending a position vis a vis the mediator.

Evaluative Mediation

A key advantage here is that the mediator is able to both broaden and narrow the discussion.

Broadening the discussion can be important when each party has limited itself in such a way that there is no common basis for a settlement. In such a case, an evaluative mediator is often able to step in with suggestions that neither party may have considered, but which can form a nexus upon which each party can reach a consensus. In a similar vein, a good mediator, by evaluating the importance of various issues, can often persuade the parties to narrow the discussion and, in so doing, prevent tangential issues from becoming deal breakers.

And, of course, evaluative mediation very often shortens the length of the process, saving the parties money.

My Dilemma

The problem that I always find myself facing is that, while I almost always act evaluatively, I’m very uncomfortable with the exercise of power that that method requires. I always wonder whether, by my evaluations and resultant statements, I’m not predetermining the terms of the settlement itself. Because this invariably occurs, and re-occurs to me during the mediation itself, I feel, for lack of a better word, haunted by my own choices. Do I stay evaluative, risking that my technique will, even subconsciously, impose my opinions on the process? Or do I revert to facilitative, allowing nature to take its course, presumably getting fewer settlements and spending more time in session?

My Solution

I’m clearly a work in progress. Some of the time, the dilemma resolves itself, as the parties take a little bit of evaluation, run with it, and come to their own settlement. More often, I continue to move the parties, using evaluative techniques among the many in my mediator’s toolbox.

My Request

Help!! I’d really like some feedback from those of you reading this blog post. What’s your reaction to this post? What are your experiences in this area? Do you have any suggestions for the rest of us?

Moving the Goalposts – How To Craft a Mediator’s Proposal

Alec was recently selected as a Southern California SuperLawyer in the field of Alternative Dispute Resolution.

As a professional mediator, some of my most challenging and, yes, enjoyable moments have come when I’ve been able to go “under the line.” That is to say, I’ve been able to do things to increase the size of the pie that was presented to me when I first entered the room. Perhaps I was able to assist the parties in re-establishing a business relationship that had gone south and ended in litigation. Or maybe I was able to provide a safe haven within which somebody was able to commence the process of grieving.

But these occasions are the exception. In mediations involving commercial, business, contractual, employment, construction and insurance issues, the bottom line is most often dollars and cents. This is referred to as “distributive mediation,” meaning that the size of the pie is predetermined, and the issue is limited to determining what size each claimant’s slice will be. In my practice, I’ve developed a systemic method (sort of) through which I can narrow down my focus as much as possible in order to be able to insert my own proposal in a final effort to close the gap and obtain settlement.

A. The Purpose of the Mediator’s Proposal

In many situations, as the parties make a series of concessions, they reach a point where each demands that the other make the final concession. There may be several reasons for this. Perhaps one of the attorneys is such an alpha personality that it is constitutionally impossible for him/her to settle without having the last word. Perhaps the attorney needs to tell a partner or an adjuster that he/she beat down the plaintiff to the very end. Perhaps a plaintiff’s attorney feels unable to make a further concession in light of the anger his/her client already feels after so many previous moves.

A common solution for this is for the mediator to propose a settlement. When I do this, the terms are simple. I present each side with the same proposal. Each side has the same period of time to respond “yes” or “no.” If I receive two affirmative answers, I congratulate the parties on their settlement. If not, I report that the case didn’t settle. I explain to the parties that the beauty of this mechanism is that each side can take one final leap off the diving board, knowing that, if they don’t do the same thing, the other side will never know that they made the leap. I refer to this as the “double blind blink.” Each side gets the chance to blink outside of the vision of their opponent.

B. The Crux of the Problem

This should be self evident. Suppose that a plaintiff arrives at the mediation with a demand of $500,000 for personal injuries. Then suppose that the defendant arrives, with an adjuster, offering, say, $15,000. As a mediator, what possible number can you possibly choose with any hope that both parties might accept it. The answer? There isn’t any. At least, not at that time. The art that the mediator must master is in reducing the size of the playing field; he/she must move the goalposts closer together, with or without the knowledge of the parties.

C. The Method As I Use It

I really do just two things. First, I assume that there’s always a settlement number. That’s because if the parties had a crystal ball and could predict, with certainty, the litigated outcome of the case, each would settle for that result, minus the cost of achieving it. Thus, the mediator, in an ideal hypothetical, ought to always have the joint cost of litigation as a buffer area within which settlement should always occur. Unfortunately, we don’t have crystal balls, and parties and their attorneys evaluate cases very differently. So the first thing I do is give each party a continuing series of reality checks, playing upon their uncertainties, emphasizing my experience, and creating WATNA’s (Worst Alternative To Negotiated Settlement) that they’ve likely never thought of. But, more importantly, I measure the playing field in several distinct phases. These phases are:

  1. The offer and demand at the outset of the mediation.
  2. The first serious offer and demand from each side.
  3. The bottom line (based upon my impressions) of each side.
  4. What each side thinks their bottom line is.
  5. The number that actually settles the case.

The first three of these ought to be easy for any experienced mediator. After all, the first is handed to you at the outset. The second ought to be available after a caucus or two. By serious offer, I don’t mean serious by an objective standard, but, rather, a number reasonably calculated by the proponent to move toward settlement. The third number is where the mediator’s art kicks in. There’s no way to teach this; each mediation provides another learning experience. A good mediator pays careful attention to everything going on: what is said, what isn’t said, the timing of attorney-client caucuses, intonations, facial expressions and body language, how devil’s advocate arguments are handled, etc.

When I do this, and if I’m on my game, number four should come naturally. Again, based upon hundreds of mediations, I try to intuit what each side actually believes their bottom line to be. Sometimes, a party will tell me their bottom line, but even then, it may only be for publication to me, rather than accurate. The determination of a party’s real bottom line is a subjective one and I have to make that call.

Once I’ve decided on number four, I move on to number five. By this time, the goalposts ought to be a lot, lot closer than they were at the outset of the mediation session. Now comes the hardest judgment. Which side is less likely to accept further pressure? Again, this is a purely subjective call. It has to be based upon every single thing that the mediator has learned during the mediation. The trick is to find the number that will be equally offensive to each side. When the mediator feels comfortable with that number, he/she is ready t make a proposal.

D. How This All Fits In

I don’t like mediator’s proposals! I cannot say that too often. It’s always better if the parties themselves hammer out their own agreement with the assistance of the mediator. However, I believe that the mediator has an inherent conflict of interest. The mediator has, on one hand, an interest in providing the parties with the best possible environment within which they can decide how they want to proceed with their matter, but on the other. the mediator is being paid, presumably, by the hour or the day. It is this conflict that impels me to use the mediator’s proposal. When I realize that a mediator’s proposal is likely to resolve a matter in short order, whereas continued, very tedious, negotiations could go on interminably (often because of non-economic elements), I feel an obligation to offer this tool to the attorneys and/or parties.

My success rate with the mediator’s proposal is extraordinarily high. And that never ceases to amaze me. If you agree with my reasoning, give it a try. If it fails, you can do as I have done, and suggest that the mediation continue.