Posts Tagged ‘negotiations at mediation’

Mediation Message No. 132

MICHAEL D. MARCUS’S MEDIATION MESSAGE NO. 132
NEGOTIATION PHASES OR PROCESSES AT MEDIATION

The types of negotiation tools used at mediations go through stages. This Mediation Message examines each of those processes in the order that they usually occur.

Distributive or marketplace bargaining – In most instances, mediations start with distributive or marketplace bargaining, in other words, the parties exchange single numbers, a process very similar to how people buy houses and cars. Generally, the plaintiff makes the first move, although the defendant, for strategic reasons, may go first. (See Mediation Message no. 14 which discusses the pros and cons regarding who should make the first move.) There is no set number of demands and offers before integrative or market place bargaining loses its effectiveness; it occurs when the exchanges cease to produce significant movement. For example, if the plaintiff’s opening demand is $425,000, the defendant responds with a $5,000 offer, the plaintiff answers with $410,000 and the defendant next offers $7,500, it should be obvious to everyone that distributive-marketplace bargaining has run its course.

Integrative bargaining – Distributive bargaining is competitive and concerned with distributing something (generally money) whereas the parties in integrative bargaining are trying to make more out of what is at issue and discuss the process as equals, which is not the situation with distributive bargaining. Integrative bargaining may be more useful in partnership and marital dissolutions.

Brackets – Brackets are most often the next method used when marketplace bargaining ceases to be effective. They invigorate the negotiations, provide some insight into a party’s thinking and allow the parties to make bigger moves without compromising their respective credibility because the brackets are conditional or amorphous, since a party is indicating it will move only if the other side is also willing to move. (See Mediation Message no. 80 for an in-depth discussion of brackets.) Brackets, however, rarely lead to settlement by themselves, so the parties may return to distributive or marketplace bargaining after the financial divide has become smaller.
Where are you or what is your authority? – This question is not an existential inquiry. Instead, at some point in the mediation (especially, the bracketing process), it may become obvious to the mediator that a party is disinclined to make meaningful or significant moves. When that occurs, the mediator should attempt to find out, with an absolute promise of confidentiality, what that party is attempting to achieve. This discussion may reveal that the party has limited authority or sees the value of the case much differently than does the opposing party. If it’s an “authority” issue and cannot be resolved immediately by a telephone call, the options are either to recess the mediation or have the mediator make a proposal (see below), which is kept open so that the party with the “authority” problem has an opportunity to resolve it.

Wouldya-Couldya – After lengthy negotiations have taken place and with some sense of how the parties value their respective cases, the mediator, on his own, “floats” a settlement term to one side or, alternatively, asks that same party what it is trying to settle the case for. The mediator then may discuss with the disclosing party the term’s reasonableness or probability of success. (This process is always undertaken with the promise of absolute confidentiality.) If the mediator believes the suggested settling term is achievable, he may, at an appropriate moment and without any telegraphing, discuss that term with the opposing side. The subject is dropped if it does not produce a favorable response. However, if there is some comparability between the “wish lists” for the two sides, the mediator will then attempt to narrow the divide between the two positions until unanimity (and a settlement) is achieved.

“Split the baby” – This tactic simply has the mediator suggesting that the pending demand and offer be equally divided. It works best when the parties have been negotiating for a while and the difference between the demand and offer is relatively small, although larger amounts are susceptible to this device. It also can be a corollary to or work in conjunction with “wouldya-couldya.”

Take it or leave it – One of the parties, either because of limitations on its authority to settle the matter or out of frustration, tells the mediator it wants to make a “take it or leave it” demand or offer. The mediator should warn that party that it has to “walk” or promptly leave the mediation if the demand or offer is not accepted because to continue negotiating after a rejection demeans the offeror’s credibility. Obviously, this tactic is used sparingly since it is drastic and often rejected.

Best and final – This negotiating step often occurs after an impasse in negotiations and, unlike “take it or leave it,” allows for further negotiations because it is not absolutely final. It is used when one party believes the only way to resolve the conflict is to have the mediator make a proposal.

Baseball – Like baseball arbitration, the parties submit their respective settlement terms (usually financial numbers) to the mediator. The mediator must pick one of the two submitted terms and may not offer an alternative. This method is rarely used because it is totally unpredictable.

Mediator’s proposal – The proposal has two approaches: it either reflects the mediator’s expectation as to which settlement terms will be acceptable to everyone or, alternatively, is the mediator’s evaluation of what the case is “worth.” In the second approach, for example, the mediator might have opined that the plaintiff’s case has a substantial chance of being “defensed” at a motion or trial. In that situation, the proposal will have a lesser value than the first type that attempts to bridge the parties’ goals. Because of the potential disparity between the two types of proposals, mediators should advise the parties which approach they are using. Depending on the wishes of the parties, the proposal can be responded to immediately or kept “open” for an agreed upon period of time. Also, depending on the nature of the individual case, the proposal may reflect input from one or both parties or solely reflect the mediator’s educated guess on terms that will be acceptable to all. (See Mediation Message no. 127 for a detailed discussion of the mediator’s proposal.)

Court trial or arbitration – If the case cannot settle, the mediator may discuss with the parties their waiving a jury trial or arbitrating it, if the case does not have strong emotional appeal or holding down costs is an important consideration for both sides. If they choose arbitration, it is preferable that the parties not ask the mediator to be the arbitrator but, if they do, the mediator must, pursuant to Rule of Court 1620.7(g), inform the parties, inter alia, of the consequences of their having previously revealed confidential information to him or her.

Hi-Lo – If the case cannot settle at mediation and if it shall be tried to a court, jury or arbitrator, the mediator may suggest that the parties agree beforehand that any judgment or award shall be no greater or less than two specified amounts.

Judge Michael D. Marcus (Ret.)
ADR Services, Inc.
1900 Avenue of the Stars, Suite 250
Los Angeles, California 90067
(310) 201-0010

Copyright Michael D. Marcus, April 2017

Mediation Message No. 80

MICHAEL D. MARCUS’S MEDIATION MESSAGE NO. 80

BRACKETS

No aspect of mediation is more misunderstood than the use of brackets (less commonly known as “ranges”) in negotiating settlements. As a result, I’m using this message to clarify that process. (By the way, any similarity between mediation brackets and NCAA basketball tournament “bracketology” is purely coincidental and unintended.)

What are brackets? Brackets are the use of two contrasting numbers to create a range for continued negotiations. For example, a plaintiff first demands $300,000 and then successively reduces her demands to $275,000, $265,000 and $255,000 and the defendant, in turn, offers $5,000, $7,500, $9,500 and $11,000. The plaintiff then proposes that she will demand $175,000 if the defendant will offer $50,000. Frequently, the responding party does not accept the first offered bracket so, in this example, the defendant may answer with a bracket of $20,000 and $80,000.

Bracket positives. Generally, brackets are used after normal “market place” bargaining (i.e., the back-and-forth exchange of single numbers) has bogged down. There is no set number of demands and offers when market place bargaining loses its effectiveness; it occurs when those exchanges no longer produce significant movement and, as a result, a different approach is needed to invigorate the negotiations. Brackets bring new energy because they enable the parties to make bigger moves without compromising their credibility. Thus, for example, instead of lowering her demand from $255,000 to $250,000, the plaintiff, by proposing a bracket, can make a bigger move because, at the same time, she is also asking the defendant to increase its offer.

Brackets also send a message about a party’s settlement intentions or goals. An opening $400,000 demand, with successive moves of $375,000, $350,000 and $325,000 in response to offers of $15,000, $20,000 and $25,000, generally suggests that the plaintiff hopes to settle between $100,000 to $200,000, but a subsequent bracket of ­­­­$100,000 and $175,000 is more telling not only because the plaintiff has dropped below $200,000 but also because the midpoint of that bracket is $137,500. 

Bracket negatives. Bracket recipients (particularly plaintiffs) tend to rely on the opposing party’s bracket midpoint, which can be misleading since a midpoint is not always a party’s goal. Also, because there are no rules regarding brackets, subsequent demands or offers can bring consternation and confusion when one of the parties reverts to single numbers or changes its midpoint. For example, assume competing brackets of $30,000-$75,000 by the defendant and $100,000-$175,000 by the plaintiff. Not “appreciating” the plaintiff’s bracket, the defendant goes back to a single number offer of $27,500, which is only $2,500 above its last market place offer of $25,000 and below the bottom number of its $30,000-$75,000 bracket. The defendant also advises the mediator to tell the plaintiff it considers her last demand to be $175,000, which was the top number of her bracket, but well below her last single number demand of $325,000.  Or, consider that the defendant, in response to the plaintiff’s $100,000-$175,000 bracket, offers a new bracket of $35,000-$65,000, which has a midpoint lower than that of the $30,000-$75,000 bracket. The plaintiff, most probably, will not be pleased about either of these moves but there is nothing procedural she can do to stop the defendant from having done so. The alternative for the plaintiff in the first instance is to come back with a single number demand greater than $175,000, the top number of her bracket or, in response to the new bracket, Increase her midpoint. These types of tactical moves test the mediator’s abilities to calm the waters and keep the negotiations moving forward.

Bracket protocol. Ideally, parties proposing a bracket should also advise that they will make the next move if their bracket is accepted. Thus, if a bracket has been made and accepted, the party suggesting that bracket can either come up with a new bracket or a single number. Obviously, that responsibility is negated if the recipient rejects the brackets and responds with a different set of numbers.

How to interpret or respond to brackets. Bracket confusion is caused, in part, when the parties propose competing brackets instead of agreeing to a certain range. Assume that the two initial brackets are $30,000-$75,000 and $100,000-$175,000, with respective midpoints of $52,500 and $137,500. Depending on their goals, both parties have several subsequent options: they can compress their brackets without changing the midpoints (e.g., $40,000-$65,000 and $115,000-$160,000), which signals that the midpoints are fairly accurate; change only one number in the bracket, which also changes the midpoint (e.g., $30,000-$65,000 and $100,000-$165,000); refuse to provide a new bracket because the opponent’s last bracket is “unreasonable”; go back to single numbers now that the brackets, although not agreed to, have still moved the parties’ positions closer together, ask the mediator to propose a bracket of his or her own or, with the mediator’s leadership, move onto other negotiating tactics such as split the baby, baseball, “wouldja-couldja,” “take it or leave it” and a mediator’s proposal. A discussion of those latter processes is reserved for another day.

Judge Michael D. Marcus (Ret.)

ADR Services, Inc.

1900 Avenue of the Stars, Suite 250

Los Angeles, California 90067

(310) 201-0010

Copyright Michael D. Marcus, October 2012

Please visit my website at www.marcusmediation.com for information about my mediation and arbitration background and experience. Copies of my previous Mediation Messages and Arbitration Insights are available by going to the articles link on the website.

Mediation Message No. 51

THE MEDIATOR’S PROPOSAL

Because of misconceptions regarding a mediator’s proposal, I am taking this opportunity to clarify them.

What is a mediator’s proposal? It is just that, a proposal by a mediator for settling litigation between the parties. It does not indicate the mediator’s opinion of the merits of the case. Instead, it reflects his educated guess as to the terms that all of the parties will find acceptable.

When is a mediator’s proposal made? There are no rules for when it should be made, just as there are no formal rules for how any other part of a mediation should be run other than that the process must be conducted under a cloak of confidentiality. Experience, however, shows that a proposal is most effective when the parties have reached a stalemate and there are no other methods of breaking it.

Should a proposal be made without the consent of the parties? It is preferable to have everyone approve its use beforehand because one of the parties may not wish to participate in this process.

Is the proposal oral or in writing? A proposal should be in writing so that there is no ambiguity or confusion about the recommended terms and conditions.

What terms or subject matter should the proposal contain? The proposal should include all material issues that have been discussed by the parties, such as the amount of the settlement, whether it be a lump sum or in payments, when the payment(s) should commence and whether the settlement should be confidential. As a practical matter, parties have little problem in subsequently resolving collateral issues when the major ones have been agreed to.

When should the parties respond to a proposal? The timing of the response is up to the parties. It is best to obtain immediate answers to a proposal so that, should it be accepted, a settlement agreement can then be finalized, thus preventing any of the parties from having second thoughts. On the other hand, one or more of the attorneys may need additional time to talk to their respective clients about the implications and consequences of the proposal. In that instance, they should advise the mediator how long to keep the proposal “open.”

Is a proposal binding if accepted only by the attorneys for the parties? The proposal is not binding if the parties have not executed it.

What if everyone agrees to a proposal? In that instance, the mediator tells the parties that they have a “deal” and to finalize the terms of the proposal.

What if one party accepts a proposal and the other rejects it? Should that occur, the mediator shall not tell the rejecting party that the other accepted it because, to do so, would give the rejecting party an incalculable advantage in the continuing negotiations.

What are the parties’ options if a proposal is rejected? The world has not come to an end. The mediator will determine how far the parties are apart and continue, either in person, by e-mail or on the telephone, to discuss the alternatives with them.

Judge Michael D. Marcus (Ret.)
ADR Services, Inc.
1900 Avenue of the Stars, Suite 250
Los Angeles, California 90067
(310) 201-0010

Copyright Michael D. Marcus, June 2009

Mediation Message No. 18

THE LAST-MINUTE DEAL BREAKER

After several hours of intense back-and-forth discussions, the mediation process prevails once again and the mediator, with great satisfaction, informs one of the parties that “We’ve got a deal!” only to be told, in response, “Oh, by the way, we can only make payments in installments” or that “We must have a confidentiality clause; substantial liquidated damages for breach of the confidentiality clause and/or a stipulated judgment for an amount far above the settlement figure.” Not surprisingly, the timing of this additional condition or conditions is enough to cause the other side to feel that it has been blind sided and, as a result, to threaten withdrawal of its offer.

The last-minute introduction of a substantial term in a mediation is sometimes inadvertent but, just as often, is a conscious decision by a party to hold back out of fear that the term’s earlier inclusion in the discussions may impede settlement or reduce that party’s bargaining power.

Reference before the end of a mediation, however, to a new condition need not be a problem if it is brought up early enough by one of the parties in a separate and confidential caucus so that the mediator has the opportunity not only to review with that party the implications of the condition on settlement but also the timing of when to mention that term to the other side. As an example, a request by a defendant to make payments rather than a lump sum of an agreed-upon amount of money may cause the plaintiff to want a greater amount of money in return but, at the same time, a reasoned justification for that or any other condition can be the basis for some give-or-take on a related issue, especially if the mediator has had the opportunity to consider the arguments in support of the request and to present them in a logical, rather than hurried last-moment, manner. In other words, it is more expedient for the parties to rely on the good sense, knowledge and experience of the mediator in negotiating all material issues rather than risk the collapse of a settlement because of the late, unilateral insistence on new facts or terms.

Copyright, Michael D. Marcus September 2004

Mediation Message No. 14

Who Goes First?

Message no. 13 discussed the issues to consider in deciding what an opening offer or demand should consist of. This message looks at which side should make that first move.

Typically, plaintiffs and defendants appear to be comfortable with the former making a demand and the latter responding to it. Both sides, though, should consider the advantages and disadvantages of sticking to or deviating from this order rather than maintaining the status quo.

Going first allows that party to set the table for ensuing negotiations. To some extent, every ensuing movement and negotiation is a reflection of that first move. “Zone of agreement,” “reasonable,” “credible” or “insulting” offers should result in comparable counter-offers. On the other hand, there may be some resistance to open in one of the first three ranges for fear that the counter-offer will, nonetheless, be an insulting one, thereby committing the first party too early in the process to a position that it only wanted to make, if at all, later on. That concern is exaggerated, however, because the first party can simply reply with a minimal or modest second move, signaling both its reaction to the insulting offer and a belief in the strength of its own case.

Finally, under this first consideration, there appears to be little reason for a party not to want to make the opening offer if, going into the mediation, it has already decided how to respond, regardless of what the opponent shall first ask for.

Having the other party open allows the responsive side to evaluate the initial move. What does it say about that party’s evaluation of its case, including the facts and the law? Is the offer realistic or completely out of the ballpark? What kind of message is being sent? And what type of message should be sent in response? Going second thus has its own considerable advantages.

Consequently, who goes first or second should not be set in stone; instead, as in who kicks off in a football game, it should reflect the strengths and weaknesses of both sides on that particular day and whether starting off on offense or defense is a plus or minus.

Copyright, Michael D. Marcus, May 2004

Mediation Message No. 13

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