Articles: Maybe We Should Reconsider This


A few weeks ago, Rob, an attorney friend of mine, told me about a terrific settlement he had achieved for a corporate client after 26 months of litigation. At the inception of the case, the plaintiff had demanded $3.8 million. After four months of litigation, Rob had collected enough information to conclude that the value of the case, based on a risk assessment of liability and damages, was approximately $350,000. However, because plaintiff’s demand was outlandish, Rob and his client agreed they should send a message, so Rob’s client offered $25,000. The plaintiff did not respond to the offer. At mediation almost two years later, the parties agreed to settle for $375,000. Rob said his client was thrilled because it had saved more than $3 million even after taking the litigation costs into account. I congratulated Rob and then asked, “How do you know?”

“How do I know what?” Rob responded.

“How do you know that your client saved $3 million?”

“Obviously, since plaintiff had demanded $3.8 million and we ultimately settled the case for $375,000, with less than $400,000 incurred for the defense, the client saved more than $3 million.”

“But how do you know plaintiff would not have taken $375,000 two years ago? If your client had not slapped plaintiff in the face with a $25,000 offer, perhaps plaintiff would have made a reasonable counter-offer or suggested an early mediation to try to close the gap.”

Rob patiently explained to me that I was missing the point. “You cannot reward a plaintiff’s outlandish demand with a reasonable offer. If I had done what you suggest, the case never would have settled for a reasonable amount.”

Maybe. But this logic places enormous power and control in the hands of an opponent, allowing the opponent to dictate whether negotiations will be based solely on posturing or whether they will be based on a realistic evaluation of the case. While attorneys generally loathe relinquishing power and control to an adversary, most attorneys readily do so in negotiations, just as Rob did.

There may be good strategic reasons to make an offer or demand that is equally as outlandish as the opposition’s. However, responding in kind is sometimes a counter-productive reaction based on emotion and habit, not strategy.

In many cases, ignoring the other side’s offer or demand, and instead making a demand or offer more attuned to the true value of the case, can save months or years of litigation. I am not suggesting that Rob should have immediately offered $350,000, which was his evaluation of the case. But if he had responded, for example, at 50 percent of that amount, the parties may have settled almost two years earlier, saving Rob’s client hundreds of thousands of dollars.

While Rob’s opponent should have known that the initial very low offer from Rob’s client was simply tit for tat, his experience has taught him that two years of litigation would likely turn that low offer into a realistic settlement. In other words, we litigators have fallen into patterns of behavior that are very difficult to break.

The key to breaking the pattern is to convey to your opponent that there is a genuine opportunity to settle for a realistic amount. The goal is to make the opposition sweat, at least metaphorically, in fear of passing up an opportunity. In Rob’s case, the defendant’s offer for less than 10 percent of the value of the case had no prospect of making the plaintiff or his attorney sweat.

Of course, if you accept my premise, then you may do some sweating of your own when you try to explain it to your client. Clients hate wimpy attorneys, and they sometimes confuse bravado with strength. I often hear, “Yes, but we will look weak and will lose our negotiating power.” I disagree. An unreasonable position does not convey strength, but it does wonders for increasing the cost of litigation and generating revenues for lawyers. Strength is better conveyed by confidence and the resolve to take the case to trial if a reasonable settlement cannot be achieved.

Farley J. Neuman, a partner of Jenkins Goodman Neuman & Hamilton LLP in San Francisco, has litigated many types of cases, including business and commercial cases, and cases involving accounting malpractice, employment law, securities laws and consumer class actions.

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