Civil Litigation Legal Topics Litigation Strategy Settlement Negotiation

Should You Make the First Settlement Offer?

ThinkstockPhotos-488306818Skilled negotiators disagree on whether it’s better to make the first offer or demand, or to let the other side go first. Although the correct approach will likely vary from case to case, in the context of settling litigation, it’s often advisable to have the other side open. But there are times to take the first plunge.

The disadvantages of going first when it comes to settlement offers relate to the value of the case. Even if you feel certain of your assessment of your case or defense, you might undervalue it if you lack complete information. For example, perhaps you’ve overlooked the significance of a fact or piece of evidence, or perhaps there are facts in the exclusive possession of the other side that bear on your assessment.

By the same token, the other side will sometimes surprise you with an unexpectedly favorable opening because it has undervalued its own case. By waiting for the other side to open, you can take advantage of the small but real possibility that this will happen to you.

And no matter how strong their case is on the merits, the other side may have reasons to settle rather than litigate. For example, they may view the case as “small beans” or they may be concerned about adverse publicity. This means that they may be willing to agree to an outcome that is much more favorable to your client than you might have initially thought.

There are, of course, some advantages of going first. For example:

  • You may be able to take advantage of what is known as the “anchoring effect.” Psychological studies have shown that when people are asked to give an estimate of value, their estimates are greatly influenced by the first number they see or hear, even if that number has no necessary connection to the thing being appraised.
  • Starting with a reasonable or even modest opening can build trust, heal a severed relationship, or project optimism about settlement. These considerations may be important in cases in which there’s an ongoing relationship between the parties, or when the concerns about reputation or the interests of third parties balance or outweigh the need to maximize monetary gain for your client.

There are special situations that favor going first. If you have reliable information about the bargaining range, it’s probably safe to open. Similarly, in smaller or less complex cases in which damages aren’t in dispute or when legal outcomes are predictable with a high degree of certainty, it may be to your advantage to open first.

In the business context, disputes often arise in the context of long-term relationships. When the long-range success of the business enterprise or relationship is just as important as or perhaps more important than maximizing your client’s share of the settlement, it is generally safe to open first.

Get practical advice for all stages of settlement negotiation in CEB’s California Civil Procedure Before Trial, chap 46.

Other CEBblog™ posts you may find useful:

© The Regents of the University of California, 2016. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited.

10 replies on “Should You Make the First Settlement Offer?”

what should always be avoided at the outset is the plaintiff’s demand for policy limits or defense nuisance value offer. these knee jerk reaction settlement offers only act to diminish the possibility of settlement. later in discovery either approach may reflect a true valuation of the case but almost never will do so at the outset.

More great stuff, Julie. I often find that my business clients are far more skilled in negotiation than the lawyers. And the older I get, the more I find that a skilled mediator is worth their weight in gold.

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