Tips for Success in Mediation
Tip for Success in Mediation No. 4 – Using a “Decision Tree” to Calculate Your Monetary Goal in Mediation
Success in Mediation – Using a “Decision Tree” – Introduction
Where the parties’ relationship has ended, and they find themselves embroiled in litigation, negotiations regarding the settlement of their dispute tend to be “distributive” in character. That is, they usually revolve around the issue of how much money is to be paid by the defendant to secure a settlement and release of claims from the plaintiff. In this setting, the parties’ bargaining positions are ostensibly founded on their respective predictions regarding the outcome of the litigation – i.e., who is likely to win/lose, and how much money is likely to be recovered, if any. Stated differently, the parties purport to base their offers and counteroffers on their analysis of the risks and the potential benefits of proceeding to trial.
Of course, to achieve their settlement objectives, it is necessary for attorneys to engage in a good deal of posturing, puffing and bluffing in negotiations. The problem is that many attorneys get carried away by their own rhetoric, and succeed in convincing themselves that there are significant potential benefits, and few risks, associated with carrying forward with the litigation. The result is that they wind up unwilling to make meaningful concessions off what may be characterized as their “best possible day in court.”
It is one thing to undertake to mislead opposing counsel (and even the mediator) regarding one’s settlement objectives. Such efforts are part of the negotiation process in mediation. However, to achieve success in mediation, it is essential that an attorney discipline himself/herself to fairly weigh both the risks and potential benefits of proceeding with the litigation in establishing a settlement goal. One approach to imposing such discipline on oneself is through the use of a “decision tree.” There are three steps in this process.
Success in Mediation – Using a “Decision Tree” – Steps
First Step.
The first step involves gathering information regarding judgments entered in comparable cases in order to establish the probabilities of various outcomes at trial if the mediation does not succeed. The outcomes in question should be for a “loss,” “low recovery,” “mid-range recovery,” and “high recovery.” When added together, the probabilities at these ranges should total 100%.
Although imprecise, information from which to develop such probabilities may be drawn from such sources as the verdicts & settlements section of the local legal journal, interviews of other experienced attorneys, and/or various verdicts summaries. In comparing the instant case with other cases where the outcomes are known, the strength of the evidence of liability, credibility of the witnesses, nature and extent of the damages, and points made by the mediator and opposing counsel should also be considered.
Second Step.
After such outcomes and their probabilities have been established, the second step is to insert them into a “decision tree” graph for the purpose of establishing a preliminary settlement goal for the case that takes into account the risks, as well as the potential benefits, of proceeding to trial.
This is done by multiplying the amount of a particular outcome times its estimated probability to derive the discounted value of that outcome. The discounted values are then added together to calculate a settlement goal.
The plaintiff’s “decision tree.”
An example of a “decision tree” graph that might be developed by a plaintiff attorney seeking success in mediation would be as follows:
High $1,120,000 x 15% = $168,000
Mid-Range $440,000 x 30% = $132,000
Low $200,000 x 20% = $40,000
Loss -$45,000 x 35% = -$15,750
Settlement Goal: $324,250
The outcomes listed by the plaintiff’s attorney should include the estimated verdict at each range plus the attorneys’ fees and costs that may be recovered, subject to an important caveat. The plaintiff’s attorney should reduce the amount of each outcome by the attorneys’ fees and costs that are projected to be incurred in the future. This is because the potential benefit that portion of the award represents will be offset by the need to invest a corresponding amount of money and attorney time. Moreover, one of the major reasons parties go to mediation is to avoid such litigation expenses.
The defendant’s “decision tree.”
A defense attorney can also use a “decision tree” graph to take into account the risks and potential benefits of proceeding through trial. The defense attorney’s projected outcomes and their associated probabilities are likely to be at variance from those developed by the plaintiff’s attorney for several reasons. First, the development of a “decision tree” graph is an inherently subjective process. Second, a major issue a defense attorney seeking success in mediation will have to address in preparing such a graph is whether he/she is willing to recognize the attorneys’ fees and costs his/her client is inevitably going to incur in defending the action through trial. If he/she is willing to do so, the projected amount of such attorneys’ fees and costs should be added to each of the outcomes. Finally, the defense attorney will have to decide whether he/she is willing to recognize attorneys’ fees that have not yet been incurred by plaintiff’s counsel as a risk in calculating potential outcomes.
Final Step.
The final step in the process is to adjust one’s settlement goal to take into consideration the intangible, non-monetary benefits that may be secured by settlement. These benefits may be the result of a creative problem solving approach that produces means of satisfying some of the interests or needs of the parties without the exchange of money. Even if such an approach is unavailable, bringing an early end to the litigation is a benefit in and of itself. It will usually bring a degree of closure to a negative episode for the plaintiff, and free the defendant to get on with his/her/its business without the burden of litigation and potential of greater liability. These are benefits for which the parties should be willing to make concessions to secure.
Success in Mediation – Using a “Decision Tree” – Conclusion
The use of a “decision tree” does not bring objectivity to the subjective process of formulating a reasonable settlement goal in mediation. The “garbage in/garbage out” principle manifestly applies. However, forcing yourself to go through the foregoing steps will promote success in mediation if you attempt to be honest in estimating the outcomes and probabilities for each range in the graph. At the very least, it should help you reach a conclusion regarding an appropriate settlement goal based on your assessment of the risks and potential benefits of proceeding with the litigation.
Because the process continues to be subjective, your settlement goal should remain flexible. You should be satisfied if you achieve an approximation of your goal. In addition, you should remain open to adjusting your analysis throughout the mediation based on new information and insights. Finally, to achieve success in mediation, you should keep in mind that settlement almost always brings intangible, non-monetary benefits.









