Litigation Strategy New Lawyers Settlement Negotiation

Settlement: It’s Not All About Money

ThinkstockPhotos-543045702When it comes to settlement negotiations, money is usually not the entire picture. Parties generally have more than just cash to offer; it’s a question of coming up with the right combination of incentives.

In his blog post for Above the Law, Mark Herrmann notes the “blind spot” for many lawyers: “[h]aving spent years settling cases only by extracting cash from the unwilling, many litigators don’t consider that big companies may have personal relationships, or business clout, or goods or services to offer, or something else that’s worth a great deal in a negotiation.”

Litigators often approach settlement as if it too were a zero-sum game. This is known as the “fixed-pie bias.” The tendency is to assume that settlement negotiations are all about how to divide up a fixed pie (usually money), when in fact there may be numerous ways to make the pie bigger before you divide it.

One of the advantages of negotiation over litigation is that it enables us to look for value-creating opportunities, i.e., opportunities that expand the pie, instead of simply fighting about how to divide up what appear to be fixed resources.

Money is still likely to be involved; it’s a convenient, indiscriminate way of addressing deeper interests such as security, recognition, well-being, or control. The purpose of money is to enable people to realize these interests privately, after they’ve settled the case and returned to their own business.

But when money is an obstacle, try a different path: Find out what the parties seek to achieve with money and use the negotiation to help them achieve those things without money exchanging hands. Look for value-creating opportunities made possible by shared interests or differences in resources and preferences. Think of your task as shifting the perspective from “It’s all about money” to “It’s about money and…” What you identify in the “and…” category may reduce the amount of money required to seal a deal.

In the scenario Herrmann sets out in his blog post, there’s $5 million needed to bridge the gap between the settlement demand and the offer; he suggests these nonmonetary ideas to close the deal:

Does our company offer any products or services that might interest the other side? Maybe we can find something that’s worth $5 million. Better yet, maybe we can find something that’s worth $5 million to the plaintiff, but costs us only $1 million to provide. Or, better yet, maybe we can lock our opponent into a long-term contract with us, yielding revenue for years to come in exchange for providing a discount today.

Taking off your standard lawyer hat and using your creative side is key to successful negotiations. For advice on negotiation and case settlement, turn to CEB’s California Civil Procedure Before Trial, chap 46. Also check out CEB’s program Overcoming Settlement Impasse, available On Demand.

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.

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