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Initiating and Conducting Meaningful Dispute Resolution Procedures

Negotiation

By Charles B. Craver July 12, 2013
Gains & Losses

The issue: Assessing real negotiation goals.

The problem: It’s still pervasive—we overestimate our claims, and we underestimate our exposure.

Better practices: Get the emotional component on the table. Get a mediator. Get focused on effective interactions.

When I conduct continuing legal education and in-house effective legal negotiation programs, I am amazed how often attorneys ask about initiating dispute resolution procedures.

The questioners seem to believe that whoever broaches the subject first will signal a weakness that will be exploited by the opposing side. They seem to assume that case settlement negotiations are secondary to the litigation process, despite the fact the reverse is actually correct.

Today, fewer than two percent of federal court civil complaints are resolved through adjudications. More than 98% are dismissed, withdrawn, or settled, with the vast majority being resolved through settlement interactions conducted by the parties alone or with mediator assistance. In most states, less than 10% of civil actions are tried.

In fact, if going first was evidence of weakness, plaintiffs would never file complaints. A party contemplating a lawsuit should not hesitate to contact the opposing side even before any formal complaint has been filed to see if an amicable resolution could be achieved through informal talks.

Prior to the filing of a complaint, the parties are often more amenable to such discussions than they are after a complaint has been filed, due to the fact the adversarial process has not yet been initiated.

Before they ever contact the other side, parties must be thoroughly prepared to negotiate. They must become familiar with the factual, legal, and economic issues involved.

Once they possess this information, they must ask themselves three critical questions. First, what happens to their side if no agreement is reached with the other side? If the case might go to trial, what is the probability the claimant will prevail, and how much might be awarded to that party?

They should multiply the percentage of cases the claimant is likely to win by the amount they think would be awarded to determine the anticipated trial value. If they represent the claimants, they must then subtract their anticipated litigation costs, and if they represent the responding party, they must add their anticipated litigation costs to the predicted trial outcome. This figure should establish their bottom line, since it would be unwise to accept less—or pay more—than the likely outcome of litigation.

Almost all litigators ask this question to determine their own bottom line, but they fail to explore a related issue. What do they believe the other side thinks will be the outcome if no settlement is achieved?

Due to an egocentric bias, claimants tend to overestimate trial outcomes, while defendants underestimate such occurrences. Nevertheless, the impact of “gain-loss framing” suggests that claimants are less likely to go to trial than defendants. Persons facing a sure gain and the possibility of a greater gain or no gain tend to be risk averse, and they take the certain gain. Persons facing a sure loss and the possibility of a greater loss or no loss tend to be risk takers, hoping to avoid any loss. Since claimants are facing a sure gain while defendants are facing a sure loss, there is greater psychological pressure on the claimants to accept reasonable defense offers to settle than there is on the defendants to accept a reasonable claimant demand.

GET YOUR GOALS

After parties determine their own bottom lines—and those of the other side—they must establish their goals. How high or low do they hope to go? There is a direct correlation between claimant aspiration levels and negotiation outcomes. Individuals who think they should get better deals usually obtain more beneficial results than persons with more modest objectives.

The final thing parties must determine is what their opening demands/offers should be. Some individuals like to begin with modest opening demands/offers hoping to induce the opposing side to begin with equally modest offers.

But due to a phenomenon called anchoring, however, such an approach has the opposite effect. Persons who receive modest initial position statements begin to think they will do better than they initially expected, and they move psychologically away from the other side.

On the other hand, when parties begin with offers that are less generous to the opposing side, those persons begin to believe that they will not do as well as they originally hoped. As a result, they lower their expectations and begin to move more toward the other side. It is thus beneficial for litigants to plan opening positions that benefit their own side, but which they can logically explain to the other side. If they are unable to defend their opening positions, they lose credibility and undermine the validity of their offers.

Once parties have established their bottom lines, their aspirations, and their planned opening positions, they are ready to commence the bargaining process. This may be accomplished with a phone call or a written message. The initiating party must articulate its concerns in a detailed, but non-adversarial, manner that is designed to generate a meaningful response from the other side.

This approach can be especially beneficial where the disputing parties have a continuing business relationship they wish to preserve. The initiating side may request specific redress for any wrongful behavior being alleged, or it may generally describe what it believes was done wrong and try to elicit a substantive response from the other side.

If a party does not believe that the opposing side will respond meaningfully to a general demand communication, it may indicate an intention to file a formal complaint if no appropriate reply is received by a specific date. To demonstrate its definite intention to file a complaint if no significant response is received, the initiating party may include a prepared, but unfiled, complaint to make it clear it means what it has threatened.

When a party receives a demand letter from another party, it should not hesitate to contact the other side to ask what it hopes to obtain. Even though this side may be the first one to formally raise the settlement issue, it can usually induce the other side to begin the substantive talks by asking it what it hopes to achieve.

Once the substantive discussions have begun, the participants must go behind the overt demands and explore the underlying interests. What is the complaining party really concerned about, and what does it want to obtain?

Business representatives frequently make the mistake of assuming that legal disputes are entirely objective matters that can only be resolved through detached legal analysis. They ignore the emotional aspects of many conflicts. The initiating side often wants to have the other side express some regret for what has occurred, and may especially appreciate an express apology. The contrite party may simply indicate that it is sorry for what has happened, or, in appropriate situations, may apologize for its inappropriate behavior.

GET A MEDIATOR

When interparty settlement discussions do not generate mutual accords, disputing parties should not hesitate to seek mediator assistance. They may initiate this process on their own by agreeing upon a neutral expert to facilitate their talks, or this process may be commenced through the formal settlement conference required by most federal and state courts.

If mediator-assisted procedures are to be effective, the disputing parties must be thoroughly prepared for substantive talks. They must be familiar with the relevant factual, legal, and economic issues, and know what they hope to achieve through the settlement process.

I am amazed how often other mediators and I begin sessions with parties that have not even conducted any substantive settlement talks before our first session. It is imperative for disputing parties to conduct such discussions on their own well before any neutral facilitator becomes involved, to enable them to resolve many conflicts without the need for third-party intervention.

Even if they are unable to resolve their conflict through such direct communications, they can become familiar with the specific issues involved, and the underlying interests associated with those matters. This makes the subsequent mediation process far more efficient than when the disputing parties begin with no appreciation of each other’s positions.

Once mediation procedures are begun, the disputing parties must be prepared to negotiate—with each other, with the neutral facilitator, and through that person with the opposing side. When people ask me what I do when I mediate, I indicate that I negotiate with the disputants. Two critical factors provide the authority I need: first, the fact that I am a neutral person with no interest in the matter to be resolved, and second, the fact that I have no authority to tell either side what to do. This enables me to help the disputants explore the different options in an unbiased and non-threatening manner.

A significant debate among ADR academics concerns the degree to which neutral facilitators may offer their opinions. A pure facilitative/elicitive neutral endeavors to avoid such issues by asking the parties questions designed to get them moving toward one another without any suggestions concerning where they should end up.

Relationship-oriented/transformative neutrals similarly eschew direct suggestions regarding what the disputants should do.

On the other hand, evaluative/directive mediators frequently assess the merits of disputant positions and indicate how they believe the matter should be resolved.

Most mediators I know admit to employing all three styles at different times during most of the mediations they conduct. When continuing business partnerships are involved, they work to preserve those relationships. They endeavor to initiate direct party-to-party discussions through the use of non-evaluative inquiries. If these procedures begin to stall, they regularly conduct separate caucus sessions—either through their own initiative or at the suggestion of the parties themselves. During such caucuses, parties frequently ask the neutral facilitator what he or she thinks, or that individual simply suggests possible ways to resolve the matter.

Despite the continuing debate among academics, recent studies have found that most disputing parties actually appreciate some evaluative assessments by neutral facilitators, both to educate their own clients and to move the discussions forward in a more focused manner.

When such opinions are offered in separate caucus sessions, the parties should not think that only their side is being cajoled. They must appreciate the fact that the neutral person is using a similar approach when he or she meets with the opposing side to get it to move toward them.

If disputing parties effectively initiate meaningful settlement discussions on their own, they should find it easy to resolve many disputes without the assistance of third-party neutrals. Even when such interparty communications do not result in mutual accords, they can help the parties narrow their focus and enhance the subsequent efforts of neutral facilitators to generate settlement agreements. If no meaningful talks begin until the mediation process has commenced, the settlement process will be inefficient and needlessly delayed.

The author is the Freda Alverson Professor of Law at the George Washington University Law School in Washington, D.C. He is the author of “Effective Legal Negotiation and Settlement” (7th ed. 2012 LEXIS); “Skills & Values; Legal Negotiating” (2nd ed. 2012 LEXIS); and “The Intelligent Negotiator” (2002 Prima/Crown). He is coauthor of “Skills & Values: Alternative Dispute Resolution” (2013 LEXIS); “Legal Negotiating” (2007 Thomson/West) and “Alternative Dispute Resolution: The Advocate’s Perspective” (4th ed.2011 LEXIS).


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