None of these responses is “soft.” To use them successfully, you’ll need to be assertive and push for a problem-solving process. It’s not easy to tame a hard bargainer while protecting your client’s interests. But it’s certainly more productive than the alternatives: giving in and then having to explain to your client why you were intimidated by the other side’s tricks, or responding in kind unnecessarily and then having to deal with a protracted, bitter negotiation.
When faced with hard-bargaining tactics, you can draw on each of these skills alone or in combination. The following example shows how these techniques might be integrated into a unified approach.
VICTORIA’S ATTORNEY: (Take-it-or-leave-it offer; Good cop, bad cop) I’ve consulted with my client and we’ve decided that we will not make any representation about environmental conditions on the site. Although I have been involved in transactions where the sellers have shown more flexibility, my client is firm on this point. I’m afraid that’s the best we can do for you.
DAVID’S ATTORNEY: (Reframe) Help me understand why from the buyer’s perspective the deal simply isn’t worth doing unless the property is explicitly sold as-is. Does the seller know something about an environmental hazard?
VICTORIA’S ATTORNEY: Well, I don’t want to get into making representations about what we know or don’t know about the land.
DAVID’S ATTORNEY: (Listening and inquiring) What are your concerns about making such a representation?
VICTORIA’S ATTORNEY: Because at the end of the day, it’s irrelevant, since my client insists that we’re not going to make a representation about environmental hazards on the property.
DAVID’S ATTORNEY: (Listening) OK, so you think talking about a representation is irrelevant because your client won’t offer one.
VICTORIA’S ATTORNEY: Yes. What’s the point in wasting time?
DAVID’S ATTORNEY: (Reframe; Name their game) Well, I’m glad to hear you don’t want to waste each other’s time. That’s a concern of mine, too. And right now, I have to say that your position puts me in a bind. You’ve made a take-it-or-leave-it offer. I could reciprocate, dig in, and make a similar demand that the clause be in the contract—without alterations. We’d fight about it, and probably stalemate and waste a lot of time. But if we both play that game, I think we might not end up with a deal, even though a deal might exist that both our clients would be happy with. What can we do to avoid that outcome?
VICTORIA’S ATTORNEY: That’s just the way my client wants it.
DAVID’S ATTORNEY: Perhaps you can explain to your client that we do not understand why this should be a take-it-or-leave-it condition of the sale.
VICTORIA’S ATTORNEY: We have discussed how it might come across to you, as I said before. I’ve been in land sale deals in which the seller has shown a great deal more flexibility than my current client. And though you might not have a good understanding of why my client insists on this provision, and maybe I can’t blame you, that’s really all we’re prepared to offer.
DAVID’S ATTORNEY: Let’s suppose there is an environmental hazard. And let’s suppose further that it could be shown that the seller knows about it. Under the now-existing environmental rules, what is your understanding of the seller’s potential liability?
VICTORIA’S ATTORNEY: Why does that matter?
DAVID’S ATTORNEY: (Change the players; Reframe) Because my understanding is that in fact your client would be on the hook even if you sell it as-is. If there is a problem that the buyer knows about, then selling it as-is would not be enough to give your client the protection she wants. Let me suggest the following. Why don’t you talk to your client again? Perhaps ask whether in fact your client does know about any environmental hazards or has done anything during her period of ownership to contaminate the property. If there are problems, we’d like to know about them now. Possibly they are not as serious as your client fears, and we can investigate how big a deal it would be to rectify it. On the other hand, if your client genuinely doesn’t know of anything wrong with the property, having that representation costs her rather little and is worth something to me. I could imagine our combining that representation with an inspection—the cost of which we could share. That could offer a lot of assurance to the buyer and, as a practical matter, eliminate any real risk for the seller.
VICTORIA’S ATTORNEY: Well, I guess I could talk to my client about that.
Here, David’s attorney tries patiently to turn the other side’s approach to problem-solving. He combines listening, reframing, and naming their game to try to bring the other side around. Ultimately he also tries to change the players—sending the other lawyer back to the other client for further behind-the-table negotiations. Throughout, he defends his client’s interests while working proactively to change the game.
CONCLUSION
Lawyers can create enormous value for their clients by forging strong lawyer-client relationships and then working jointly with their counterpart to reach wise agreements efficiently. Yet you won’t run into a problem-solving lawyer every time. That is why the advice in this chapter is proffered as a first step in helping you change the game at the table. Although not every lawyer out there is a problem-solver, lawyers who follow these techniques can protect their clients while continuing to hold open the possibility of problem-solving.
9
Advice for Resolving Disputes
A lawyer’s strategic challenge in dispute resolution is to pursue his client’s interests and defend against exploitation in a negotiation context marked by great uncertainty and posturing, while simultaneously establishing a relationship with the other side that permits value-creating trades. But because the dominant reference point for settlement is usually the expected value of proceeding to trial, negotiations are often very distributive—a dollar more for one side is a dollar less for the other.1 As a result, litigators typically focus on dividing the pie, not enlarging it.
This creates two problems. First, the parties may end up in a rancorous contest that generates unnecessary and exorbitant transaction costs. This can occur as a result of a variety of the issues we have explored: lawyers and clients may enter negotiations with a zero-sum and adversarial mindset; attorneys may benefit from the higher fees generated by protracted litigation; lawyer-client communication and coordination may be poor; and the shifting and fluid nature of litigation may make it difficult to change the game to problem-solving.
Second, although litigation can contain value-creating opportunities, parties often overlook them. The typical negotiation process leaves no room for a broader discussion of interests and creative options. Lawyers and clients may be so focused on demonstrating their advantage in litigation that they ignore trades—potentially outside the scope of the original dispute—that might make the parties better off.
This chapter suggests ways to change the status quo to produce more efficient and satisfying dispute settlements. But, again, we are realistic optimists. Change is possible, but not easy. The adversarial legal culture is deeply entrenched, the strategic temptations are great, and unproductive relationships in the system of a legal negotiation can present formidable challenges. Nevertheless, lawyers (and clients) too often despair that nothing can be done, and thus do nothing. Here we present some possibilities for changing the game while minimizing the risks for your client.
Our general advice is to try to settle legal disputes early rather than late and to construct a bargaining process that permits exploring whether deal-like trades are possible. This may not be feasible (or even desirable) in every case. Early on, you and your client must tailor a negotiation strategy to your client’s situation. We recommend that you ask three questions.
First, is this the rare case where settlement may not make sense even if the other side is willing to settle? At the outset of a dispute, perhaps before litigation has even begun, a lawyer should consider whether his client’s interests require a complete victory, either in court or through capitulation by the other side
. Will a loss in court serve the client’s interests better than a settlement? Some legal disputes may threaten a company’s “crown jewels”—for example, by putting at risk core intellectual property.2 In others, it may be indispensable to create or defend a binding legal precedent. Or a client may want to deter a particular kind of litigation by demonstrating a commitment to never settling. For cases that you and your client conclude fall into this first category, a problem-solving approach to negotiation is not all that relevant. A word of caution, however. Lawyers and clients can too quickly and superficially put cases in this category.
Second, how can I create value by minimizing transaction costs and exploring trades based on differences in time or risk preferences? We offer two rules of thumb:
• Adopt early settlement as a goal. A problem-solving attorney will vigorously and regularly explore the possibilities of settlement—even before, and certainly after, a suit is filed.
• Use decision analysis as a tool. For a legal dispute, pursuing litigation is typically a client’s BATNA. A rational settlement process requires that a client compare the advantages and disadvantages of a possible settlement with the opportunities and risks of litigation. It is a lawyer’s responsibility to assess systematically the opportunities and risks of the litigation, and decision analysis is a tool that can help. It can also help you communicate with your client. And the same tool can sometimes be used in conjunction with the other side to facilitate settlement.
Third, could the parties to this dispute conceivably create value by exploiting opportunities for a broader range of trades? This question should be addressed whenever the parties have had a past—or might have a future—relationship. Many business conflicts are with customers, suppliers, partners, competitors, employees, or some government agency. Some legal conflicts are between family members, friends, or neighbors. In all such disputes, our advice, as we elaborate below, is:
• Search for ways to turn the dispute into a deal. In some disputes you can look for value-creating trades that are based on the parties’ interests, resources, and priorities. These trades may have little if anything to do with the parties’ formal legal dispute. And the settlement may be of a sort that a court could never consider imposing. As we suggest below, negotiating in this way often requires bringing new players to the table and changing substantially the roles of lawyers and clients.
We have devised a simple metaphor—the “two tables”—to explain the two basic modes of negotiation in dispute resolution. By two tables we don’t necessarily mean two physical locations for negotiating, although that can sometimes be the case. We mean two frames of reference that lawyers and clients can adopt when negotiating legal disputes. We call these tables the net-expected-outcome table and the interest-based table (see Box 17).
Settling a legal dispute almost always requires evaluating the litigation alternative by spending some time at the net-expected-outcome table. Those disputes that can be turned into deals also permit discussing a broader range of opportunities for value-creating trades at the interest-based table. In this chapter we explain our approach at both tables.
Box 17
NEGOTIATING AT THE NET-EXPECTED-OUTCOME TABLE
In all legal disputes, reducing transaction costs can create value. It should therefore be your goal to pursue early settlement whenever it is in your client’s best interest.
Pursue Early Settlement
Lawyers are often told to settle early—by clients, judges, scholars, and books (like this one) on negotiation. It’s good advice. The problem in litigation is not that cases don’t settle; it’s that they settle late, after huge costs have been incurred in the expensive discovery process. But if settling early were easy, we are confident that lawyers would do so more often and that far fewer cases would drag on through protracted litigation. Here we describe the challenges of settling early and ways in which a lawyer can work to overcome them.
THE CHALLENGES OF SETTLING EARLY
Imagine that as a lawyer you have set out to help your client resolve a dispute at low cost. You’d like to settle early if possible. As we began to explore in Chapter 4, several things make this difficult.
First, early in a dispute, each side is often keenly aware of how much it doesn’t know. A defendant corporation may not know if its employees actually engaged in the misconduct of which they are accused. A plaintiff may not know the extent of her injuries or whether she will be able to find proof that the defendant caused her damages. Because these issues may affect the expected value of the litigation, each party fantasizes that through discovery it will find a smoking gun to strengthen its case and weaken the other side’s. But the search for the smoking gun is expensive—and elusive. And half the time what a party learns makes his case look worse. If a party waits to settle until it has almost all of the relevant information that might affect the outcome, it will have to complete discovery, consult with its experts, and do all of the legal research necessary to try the case. Most of the possible transaction cost savings of settlement will be lost.
Second, the search for information takes place in the context of intense strategic interaction. Neither side wants to signal weakness, and each wants to take advantage of the uncertainties surrounding the litigation to capture greater distributive benefits for itself. Making one more motion, filing extensive interrogatories, or taking another deposition might provide that extra edge that’s needed to get the other side to concede. The dilemma is that at the margin—at each point that a lawyer or client considers whether to push forward with the litigation—it may appear to make sense to spend the extra dollar to learn more or to burden the other side. In hindsight, however, the benefits of these incremental investments will often turn out to be illusory.
Additional challenges make early settlement difficult. A litigating attorney paid by the hour has no incentive to encourage his client to settle when substantial uncertainty about the case remains, because the lawyer earns more by working to reduce that uncertainty. An organizational client may also have internal principal-agent problems. There may be no one in the organization with the courage or authority to settle a matter quickly. Unless the lawyer has access to senior management, a case may drag on through discovery because no one wants his name on the settlement check.
It is also often difficult to settle early because the relationship between the two clients is strained and neither has yet been worn down by the burdens of protracted litigation. The clients may be angry at each other and quite willing to bluster about revenge and going to court or defending a lawsuit as a matter of principle. Each may want to punish the other. This is an extremely volatile mixture.
Finally, moves in the formal litigation process can undermine attempts to settle early. There is often a first-move advantage in litigation. When a business client receives a threatening letter from a distant party to a supply contract, it might make more sense to sue quickly for a declaratory judgment in your home jurisdiction than to pursue negotiation with your potential adversary. Grabbing jurisdictional advantage initially may affect the value of the case. Similarly, early litigation moves to change venue, remove to federal court, or add or dismiss parties at the initial stages can have dramatic consequences. The downside, of course, is that such moves can also antagonize the other side, provoke costly escalation, and make early settlement impossible.
TRUST YOUR CLIENT
There are no easy solutions to these problems, but there are clearly costs to not trying to settle early and great benefits if you succeed. Often you will have to lead the way, first with your client and then with the other side.
Behind the table, you should first diagnose whether your client, and your lawyer-client relationship, will support settling early. Does your client want to try to resolve the matter quickly? Is the client institutionally capable of making the difficult decisions necessary to weigh the risks of doing so even in the face of remaining uncertainties about the litigation? Is your relationship with the client strong
enough to work with the client for an early negotiated resolution?
Next, you should test your own assumptions about the client and about risk-taking. Often lawyers and clients have very different attitudes toward risk. As Richard Weise, the former General Counsel of Motorola, has written: “Lawyers, as a class, are not up for much risk. They like to get all of the facts before making a decision. If ten pre-litigation interviews are good, twenty would be better. In discovery, the more depositions, document requests and interrogatories, the better. In the courtroom, a lawyer seldom asks a question unless he knows the answer. Conversely, the client believes that he makes extremely important decisions with a small fraction of relevant facts: What technology to pursue? What R&D to do? What products to design? What markets to pursue? What factories to build? Who to hire? . . . As a matter of fact, I know clients who believe that they make more important decisions every day than the most difficult legal problems they generally see. The point here is: Let the client in! The client is smart enough to be trusted with concepts of risk.”3
This is good advice. By trusting that your client is sophisticated enough to weigh the costs and benefits of moving quickly even in the face of uncertainty, you can solidify the lawyer-client relationship. You must, of course, work to ensure that the client has as much information as can be gathered to make such decisions as wisely as possible. But ultimately it is the client’s preferences toward risk that should govern.
CHANGE THE GAME
Like the $20 Auction (see Chapter 4), there are some games that you just shouldn’t play. Sometimes traditional litigation is one of them. If the other side is intent on marching through the litigation process, there may be no way to force them to settle—you have to defend your client. But often there are ways in which you can change the game for mutual advantage.
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