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LEFT BRAIN APPEALS
 

The Negotiation “Coach” (cont'd)

Assisting parties in establishing their settlement goals with a “decision tree”

In order to develop a negotiation strategy, it is necessary to first establish one’s preliminary settlement goal. A mediator may propose that a party attempt to reach an appropriate settlement goal through the development of a “decision tree,” which is a two step process.

The first step involves gathering information regarding the jury verdicts 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.”

Although imprecise, information from which to develop such probabilities may be drawn from the Verdicts & Settlements Section of the Daily Journal, interviews of other attorneys, and/or various verdicts summaries.

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 reasonable settlement goal for the case.

The point of developing a “decision tree” graph is to arrive at a settlement goal 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 probability to derive the discounted value of that outcome. The discounted values are then added together to calculate the settlement goal.

An example of a “decision tree” graph that might be developed by a plaintiffs’ attorney follows:

Outcome Recovery/
Costs		   Probability   Discounted
Value
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
           

 

A defense attorney can calculate what his/her client’s settlement goal in an action should be, taking into account the risks of proceeding through trial, with a “decision tree” graph as well.

Of course, the defense attorney’s projected outcomes and their associated probabilities are likely to be at variance from those developed by the plaintiff’s counsel.

Notwithstanding, going through the process of creating such a graph will operate to inject a degree of rationality into the formulation of one’s settlement goal.

A major issue a defense attorney 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.

In any case, a good mediator can be expected to engage the parties regarding the validity of the assumptions they employed in constructing their respective “decision trees.” The point is that a settlement goal achieved through the use of a “decision tree” is only as good as the assumptions upon which it is premised.

A good mediator can also be expected to urge the parties to remain flexible regarding their settlement goals in recognition of the facts that: (a) they are based on imprecise and subjective information; and (b) the essence of mediation is compromise.
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