The Negotiation “Coach” (cont'd)

Assisting the parties in “crossing the ocean”

Anticipating the number of rounds of negotiations

A good mediator will explain that the number of rounds of offers and counter-offers one should anticipate in a negotiation varies depending on: (a) the extent of disagreement between the parties over the existence of liability; (b) the degree to which the plaintiff’s damage claims are subjective or finite in character; and (c) whether the parties have already closed the gap between their respective bargaining positions in prior settlement discussions.

In the typical case, in which there have been no prior settlement discussions, liability is disputed, and some of the plaintiff’s damage claims are subjective in nature, one should anticipate that each side will make approximately 5 or 6 offers or counter-offers before they find themselves at loggerheads or with a deal.

One should project that there will be fewer rounds of negotiations in other contexts. There are usually fewer rounds of negotiations, for instance, where the dispute relates to the alleged breach of an express employment contract for a specified term. This is because there should be less disagreement regarding the outside amount of damages the plaintiff may hope to recover on such a claim.

In any event, one should develop a negotiation strategy that permits one to “dance the dance” of the negotiation process – i.e., one that takes into account the number of projected concessions one will be required to make in the negotiation.

“Diminishing” v. “constant” or “increasing” ratios

Once having established the dollar multiple they are prepared to give the defendant coming down toward their goal, some plaintiffs’ attorneys make offers that precisely conform to that ratio throughout the negotiations. A plaintiffs’ attorney making use of this strategy who has set his/her opening demand anticipating a $2 to $1 multiple, might respond to settlement offers from defendant as depicted in the following graph:

Plaintiff		Defendant
$975,000		$25,000
$925,000	(drop = 2 x $25,000)	$45,000
$885,000	(drop = 2 x $20,000)	$60,000
$855,000	(drop = 2 x $15,000)	$70,000
$835,000	(drop = 2 x $10,000)	$75,000
	Impasse

A mediator can be expected to inform plaintiff’s counsel that the use of constant ratios is a poor bargaining strategy because it fails to provide a mechanism for “crossing-the-ocean” between the parties’ opening positions to get into a “zone of agreement” in which the case may be settled.

The reason this is so is that in distributive bargaining, parties tend to take “baby steps” toward one another, and then to look across-the-divide to see if their moves are reciprocated.

While 5 or 6 rounds of negotiations may sound like a great number, it is usually far too few to reach agreement if the parties never get past making “baby steps.”

If the parties fail to reach the “zone of agreement” by the fifth or sixth round of negotiations, they will typically give up and declare negotiations at an impasse.

A good mediator may explain that a superior approach for a plaintiff is to plan on making moves that: (a) provide the defendant a greater dollar multiple at the beginning of the negotiations to encourage it to make reasonable concessions; and (b) entail progressively smaller multiples thereafter as he/she works toward the “zone of agreement.”

This can be done through the making of “bracketed” or “conditional” offers which are backed up by “unconditional” offers, if they are not accepted. These are sometimes referred to as “two tier” offers.

Such an offer would be communicated substantially as follows: “My unconditional offer in response to the proposal you just made is $__________. However, you can treat me as making an offer of $__________ at this step if, but only if, you respond to it with a counter-offer of $__________ .

The advantage of the “bracketed” offer is that it provides assurance to the plaintiff’s attorney that he/she will receive reasonable reciprocity from the defendant if he/she makes a more substantial move than he/she might otherwise have been willing to make.

It also provides the defendant a motivation to start putting real dollars on the table so that the gap between the parties’ opening positions can begin to close.

Such a proposal should be designed so that the defendant gets “more bang for the buck” (in terms of dollar multiples) if it accepts the “bracketed” offer than if it responds to the “unconditional” offer.

It is best used in the earlier rounds of negotiations, when the plaintiff’s attorney is prepared to give larger dollar multiples to the defendant than in the later stages of negotiations.

In pursuing this strategy, the plaintiff’s attorney will usually attempt to make sure that the average dollar multiple of his/her offers (in the plural) approximately equals the dollar multiple he/she determined he/she would provide in establishing plaintiff’s opening demand.

The defense attorney will commonly attempt to increase or maintain the dollar multiple being offered as the plaintiff continues to drop his/her demands.

An example of the use of “diminishing ratios” in combination with “bracketed” offers would be as follows:

Plaintiff		Defendant
$975,000		$25,000
$950,000 unconditionally or $795,000 if you go to $85,000 (3 x $60,000 move from $25,000 to $85,000)		$85,000
$770,000 unconditionally or $630,000 if you go to $145,000 (2.75 x $60,000 move from $85,000 to $145,000)		$145,000
$605,000 unconditionally or $495,000 if you go to $205,000 (2.25 x $60,000 move from $145,000 to $205,000)		$205,000
$470,000 unconditionally or $390,000 if you go to $265,000 (1.75 x $60,000 move from $205,000 to $265,000)		$265,000
$350,000 <ZONE OF AGREEMENT> $300,000

 

Sometimes a defendant responds to a “bracketed” offer with a “bracketed” offer of its own. This is done because the defendant seeks assurance that its move will be met with a dollar multiple it regards as more advantageous than that offered by the plaintiff.

What follows is often a series of missed offers and counter-offers as the parties struggle to achieve the dollar multiple they regard as appropriate.

An example of such a negotiation would be as represented in the graph below:

Plaintiff		Defendant
$975,000		$25,000
$950,000 unconditionally or $795,000 if you go to $85,000 (3 x $60,000 move from $25,000 to $85,000)		$85,000 if you go to $600,000 (seeking a 6.25 to 1 multiple)
$600,000 if you go to $155,000 (2.79 x $70,000 move from $85,000 to $155,000)		$155,000 if you go to $435,000 (seeking a 3.5 to 1 multiple)
$435,000 if you go to $225,000 (2.36 x $70,000 move from $155,000 to $225,000)		$225,000 if you go to $345,000 (seeking a 2.8 to 1 multiple)
$345,000 if you go to $270,000 (2 x $45,000 move from $225,000 to $270,000)		$270,000
$320,000 <ZONE OF AGREEMENT> $285,000

It should be observed that this entire negotiation could have come “unzipped” if the defendant had not accepted the plaintiff’s final “bracketed” offer. Even if that acceptance had not occurred, however, the parties would have succeeded in exchanging a tremendous amount of information regarding their settlement positions. This would have substantially advanced the settlement process.

Some mediators propose a variation on the use of “bracketed” offers which involves offering to negotiate within settlement “ranges.”

Such an offer is communicated more or less as follows: “I propose that we negotiate in the range of plaintiff demanding $___________ and defendant offering $___________.”

Like a “bracketed” offer, a “range” based offer provides the attorney assurance that a significant move will be reciprocated by the opposing party.

One difference between the two approaches is that “range” based negotiations leave somewhat unclear in whose “court” the “ball rests” to make the next move.

An offer to negotiate within a “range” also leaves the recipient with no backup offer to which it can respond if it is unwilling to accept the proposed “range.