What Clients Should Expect in Mediation

Clients sometimes think mediation will produce a kumbaya moment where both sides will work out a compromise that leaves everyone feeling good about the outcome of a dispute. Conversely, there are those who are so sure of the strength of their case that they expect nothing less than a full vindication. Having been through countless mediations in my career, I explain to clients that mediation is usually a competitive process, seldom produces victories and should not be approached lightly.

While the very act of sitting down to a mediation suggests a willingness to work out a solution, mediation is not cooperative. Mediation is a zero-sum game — $100 out of your pocket is $100 in my pocket – and a competitive negotiator will clean the clock of a cooperative one.  While some people naturally are better negotiators than others, I have found that the attorney who comes to the mediation with the most preparation usually fares better for his client. Still, the process seldom goes as smoothly as clients would like, and outcomes often leave both sides feeling like they could have done better. I wrote previously on 15 tips for a successful mediation, and here are a few pointers.

Don’t drop anchors

Negotiation begins long before mediation or sometimes even before a lawsuit is filed. Any number mentioned early in the process will sound like an offer. If you say, “I might consider settling for $100,000,” it will sound like an offer, regardless of any qualifiers attached to it. We call this early mention of numbers “anchors,” and they have a powerful effect on the formal negotiations that come later. If I know you are coming into a mediation having previously considered $100,000, you can be sure I will need to beat that number at mediation. However, if nobody had mentioned numbers, I wouldn’t have a bottom line in mind. If you are asked what you want early in the case, it’s better to say, “we want to recover the whole amount,” or “we don’t want to pay anything.” Don’t show your hand too early.

Skip the phone debates

Just like dropping anchors, avoid revealing too much to the other side in pre-negotiation discussions. While there may be merit to feeling out the other side to see if an early settlement can be reached, you don’t want to concede that any part of your case is weak. There was a scene in The Godfather where Sonny Corleone openly questions a rival mob family’s proposal during a meeting with the other side and his father. Afterward, Don Corleone tells his son never to let anyone outside the family know what he is thinking. The same is true in civil litigation: less is more.  If you don’t reveal your thoughts about the case, opposing counsel may not know which of his arguments carries the most weight against your side during a mediation opening statement, or later at trial.

Understand the bargaining points

There are three critical numbers that you may want to keep in mind during mediation. The first is the starting point – the number you are going to ask for – or agree to pay, if you are the defendant – as the process begins. The second is the target point, and that is the confidential dollar amount you realistically would be willing to settle on. The third number is the reserve – the absolute final number before you walk away.

There may be a wide range in these numbers. The starting point for a plaintiff might be $1 million, the target could be $300,000 and the reserve might be as little as $175,000. These numbers are arrived at after valuing the case, a calculation that takes into account a plaintiff’s provable damages, as well as the chances of winning at trial and the associated expense. The numbers also may change in the course of the mediation if one side produces evidence or case law that indicates it has improved its odds of winning at trial.

Be sure you are comfortable with the target and reserve because all your offers and counteroffers will be made with these undisclosed end-game numbers in mind. The idea is to gradually make concessions and keep the other side guessing at everything except the starting point. However, you will need to allow some flexibility, particularly if you are mediating earlier in the case, to account for new information and viewpoints that might change your overall assessment of the strengths and weaknesses of the case.

Ask your attorney how the value of your claim was calculated

The value of a case is not simply your best outcome at trial divided by two, in that winning with a jury can be unpredictable. Establishing a value starts with determining the likelihood of winning a trial verdict, the most likely damages that would be awarded, and the expense to litigate from the date of mediation through trial. For example, perhaps the chances of recovery are around 25 percent for a $1 million verdict, 50 percent at $500,000 and 25 percent at $250,000. Use the most likely outcome ($500,000) and then multiply by the odds of winning the case, which is often 50% given the number of variables in a trial. Finally, deduct the anticipated future litigation expenses and fees from the date of mediation through trial (say, $75,000). You may find that your $1 million case is more accurately valued at $175,000, not $500,000, and this does not account for possible appeals.

Always remember that the valuation is tied to the day of mediation. Litigants can learn a lot more about their case during mediation.  New testimony or evidence or a change in circumstances of the litigants may change the valuation considerably. When you ask about legal fees and costs going forward, be sure your lawyer gives a realistic estimate given how much discovery is yet to be taken.

Pigs get fat and hogs get slaughtered

People who ask for more generally get more, but don’t overreach. Asking for an outrageous sum may kill negotiations before they start. Once I saw an insurance adjuster who had flown in from another state simply walk out after an exorbitant opening demand. In most cases, plaintiffs should start with the amount you believe is their best outcome at trial. Take your time and make the opposing side think you are nearing your bottom-line reserve when actually you are nearing your target. In the beginning, you may want to explain how you arrived at an offer or counteroffer, but as the negotiations progress that becomes unproductive. Remember you are never going to convince the other side you are right, as lawyers are literally paid to disagree. Your goal is to get the other side to move as far as possible.

Making progress at the end of the day

If the parties are not getting very close by the end of the day, there may be a few approaches to still reach a deal. One is to dump “the rest of the money,” which imparts a sense of urgency and suggests this is the best you can do. Or you may “split the baby” and meet in the middle. This 50-50 compromise can work if you are close, but don’t do it too early. There also is the “would ya, could ya” strategy where you say if you go to this number, I will go to that number. These sometimes are called “brackets.” And don’t get into percentages because it’s the actual numbers that count. One party could come down 5% ($100,000 to $95,000) and the other could go up 100% ($5,000 to $10,000), but both sides only moved $5,000.

Sometimes offering a small victory to the other side will entice them to close the deal. For example, you might offer to pay the entire fee for the mediator. Or if you remain far apart in a complex case, perhaps you can settle part of the case. The other side also may offer a nonmonetary concession. This may be valuable, but place a monetary value on the concession so that you know how it affects your continuing negotiation over money. I once settled a case where the defendant refused to pay anything to the plaintiff, but agreed to make a donation to a charity of the plaintiff’s choice. Have a game plan that includes all of your options.

Know when to walk

You may have to consider coming off your reserve, but how far? In simplest terms, you walk when the outcome of the mediation is worse than taking your chances at trial. There can be nonmonetary reasons to avoid a trial, such as keeping testimony out of the public record or resolving a dispute that is holding up a more important matter, like a corporate merger. But if it comes down to a dollar amount and there are no reasons why you can’t go to trial, know your limit and stick to it.

On the television show Pawn Stars, the employees at a high-end Las Vegas pawn shop are smart negotiators who make offers that guarantee them a satisfactory profit. More than half their deals fall through, but they run a successful operation because they understand the value of the items that are brought in, and they stick to their bargaining position. Likewise at mediation, no deal may be better than any deal.

You probably will not get close to what you want

Occasionally, your target range will overlap with the target or reserve of the other side. This is called a positive bargaining zone, and if it occurs, everyone will go home getting what they wanted. In a recent case, my client received more at mediation than even her target number going in, and she was so ecstatic she quit her job the next day!  However, this rarely happens. More likely, you will find yourself in a negative bargaining zone. That is, the least you would agree to take is still more than your opponent is willing to pay.

At the end of the day, this will force the parties either to go past their reserves or walk away and proceed to trial. You never know for sure if the other side really has made their “best offer,” and a lot of factors come into play. If the defendant is a big corporation, you know they have the ability to pay, but they also can afford litigation. Emotions can play a big role, and there may be other factors, such as one party wanting to end the amount of time expended with the litigation. You will consider the importance of the money as well as your appetite for risk.

Guard against overconfidence about trial

Most lawyers are confident and competitive. However, as you consider the offers at mediation, don’t be overconfident about your chances at a trial, and be aware of all the risks involved with a possible loss. I usually tell clients who have a strong case that they should go into mediation assuming a 50 percent chance of winning at trial where various factors, including unexpected testimony and interesting viewpoints of the judge or jury, can produce results that are different from what you expect. Lawyers tend to be overly optimistic about both their chances of winning and the recoverable damages. You should definitely go to trial if you don’t get what you want at mediation, but do so with a thorough and realistic assessment of the risks.

What is a win in mediation?

Mediation will save you the cost of a trial and bring a dispute to a merciful conclusion. But mediation is not a perfect science, and you will never know if you struck the best deal or if you would have done better at trial.

While mediation is a competitive process, it is not a winner-takes-all outcome like a trial. It also allows for creative resolutions that judges cannot order, so the parties remain in control. That being said, many mediators will say the sign of a good mediation is often when both sides walk away not totally satisfied with the result. If the satisfaction level is too low, simply walk out and prepare for trial.

Learn more in parts I, II and III of Hathaway’s article series: 15 Tips for a Successful Mediation.