The Opening Offer
The opening offer or demand, for obvious reasons, ranks far below any final settlement figure in importance. Nevertheless, it is a critical step in the mediation process and can have an impact on whether the matter settles and, if so, at what amount.
Pepperdine Law School’s Straus Institute for Dispute Resolution teaches that the opening offer falls within four self-explanatory zones: “zone of agreement,” “reasonable,” “credible” or “insult.” This message discusses some of the inter-related issues attorneys should consider as affecting which zone they want their first offer to come within.
What Is Your Bottom Line? Experience shows that “bottom lines” are usually soft; nevertheless, before the mediation, the attorney and client should have discussed their expectations and goals, including what they would like to have as a settlement. That goal, influenced, in part, by the strengths of the respective cases and the verdicts and settlements in comparable cases, should impact the opening offer.
What Message Do You Want to Convey? An extremely high or low offer, depending on which side you represent, can express a strong belief in your case, an unwillingness to negotiate, naiveté or inexperience. Amounts in the “agreement” and “reasonable” zones more readily show a willingness, for whatever reason, to settle the case.
What Is the Opponent’s Negotiating History? Does the plaintiff or defendant have a practice of usually making extremely low or high offers? If so, it is not unexpected that the other side’s first offer may anticipate that tactic and similarly be in the “insult” range.
Does the Defendant Have Substantial Assets or Insurance? It is unproductive for a plaintiff to make a demand in the “insult” zone if the defendant does not have the financial means to respond with a reasonable sum, especially if bankruptcy is a foreseeable option. In such circumstances, it is more productive for the plaintiff to keep the first offer in a zone which will create movement and the reality of a financial payout.
What Is the Trial Date? A mediation that takes place well before trial may result in a lower settlement; on the other hand, the net gain or loss for both parties might be more favorable because less has been paid for legal fees and related costs. In contrast, the threat of an imminent trial will probably result in a different settlement but at greater financial costs. The opening offer in both situations should reflect these contingencies.
Copyright, Michael D. Marcus, April 2004