15 Tips for a Successful Mediation (Part II) by David Hathaway

Civil lawsuits are most often resolved by a mediated settlement agreement, which could have an infinite variety of settlement numbers and terms.  What result a party achieves, after months or even years of litigation, is in large part a function of what happens on the day of mediation.  Mediation is therefore the most important day of the case.  Ironically, most lawyers go through law school and their legal practice with no formal education or training on how to represent a party at mediation.  They just watch others, whether good or bad, and learn the ropes over time.  However, mediation is far too important to learn by trial and error, because it is the day where all the fruits of a lawyer’s labor are put to the test.  Therefore, this article is meant to provide lawyers of all experience levels with some practical pointers on how to succeed at mediation and thereby better serve their clients and improve judicial economy as a whole.

The following is a continuation of the article 15 Tips for a Successful Mediation, which appeared in the October edition of the Briefs, a publication of the Orange County Bar Association.

Tip #6: Draft a Good Mediation Summary.

Lawyers should be sure their written mediation statement is neutral, has the right information, and is not overly long or technical. For example, you probably do not have to attach every will and trust that a decedent ever executed. However, if there is one paragraph of a contract whose interpretation is central to the case, you should attach the actual page from the contract and not try to paraphrase. It can be comical for a mediator to read, “the contract is clear and unambiguous” followed by three paragraphs of detailed interpretation. The mediator is going to read both summaries for probably an hour or two the night before mediation, so use your space wisely. The mediation statement should include the key facts, claims and defenses, and the status of discovery. It should comment on expert witnesses, dispositive motions, related litigation, prior litigation between the parties, prior negotiations (i.e., anchors), offers of judgment or proposals for settlement, fee shifting issues, and who is coming to mediation. Fee shifting changes a perspective of the risk. A mediation statement generally would not be confidential, particularly if it attaches filed pleadings, so you may want to ask the mediator to keep it confidential. See Fla. Stat. § 44.405 regarding confidentiality. In fact, some attorneys prepare a second summary containing only the confidential information. If you need the mediator to know that he or she will have to calm someone down from the start, feel free to call the mediator the night before. Also, prior to mediation, consider whether you have any ethical issues in dealing with multiple individuals. For example, if you represent three sisters against their brother, they may disagree on how to judicially reform a will or trust. The same goes for individual shareholders in closely held corporations, or where a corporation is paying to defend an employee as in a non-compete case. Get waivers under Rule 4.1-7 of the Rules of Professional Conduct, or have the clients agree in advance as to precise percentages or formulas for sharing a recovery before the money becomes available. You might even have to consider whether the lawyer could be a witness under Rule 4-3.7, such as where the lawyer has performed the pre-suit investigation, or drafted a challenged will or trust. You need to flesh out these issues before you get to mediation, include them in the mediation summary, and perhaps even call the Florida Bar ethics hotline (800-235-8619) with any questions before you attend.

Tip #7:  Set Bargaining Points.

The day before mediation, lawyers should make a chart with a starting point, target point, and reserve point. Make sure you know what your fees and costs are to date. In the illustration above where the case was valued at $175,000, your starting point could be $1M, your target might be $300,000, and your reserve may be $175,000. A central goal at mediation will be to make the other side think your target point is actually your reserve point. A positive bargaining zone is where the plaintiff’s reserve overlaps with the defendant’s reserve (for example, the least the plaintiff would take is $175,000 and the most the defendant would pay is $250,000). Unfortunately, this does not happen often. Usually there is a negative bargaining zone, and if it is large, the case probably will not settle. If the bargaining zone deficit is small, the parties will have to decide whether a small movement from the reserve is better than continuing with litigation. When you get to mediation, you might question whether you have really pulled the other side down to its reserve, but only the mediator knows. If you believe the other side can do better, your pre-mediation bargaining points should be your cue to walk away. In simplest terms, the question of when to walk away is whether the outcome of mediation would be worse than continuing to litigate. On the television show “Pawn Stars,” the employees at a high-end pawn shop in Las Vegas are experienced negotiators who stick to their final number, leaving plenty of room for profit, even when the customers ask for more. Although more than half of the deals fall through, the owners have a successful operation because they stick to their bargaining points. In fact, the employees keep track of their profit percentages and rank themselves from top to bottom as negotiators at the store. Likewise at mediation, it is wise to set your bargaining points the day before and be willing to walk away if the other side expects you to go beyond your reserve.

Tip #8:  Make a Good Opening Statement.

At the start of mediation, your opening statement should be persuasive but should not cross the line to offensive. If the delivery is so caustic that even the mediator is uncomfortable, the lawyer needs to tone it down. Lawyers should stick to the facts of the case and not speak to the relative experience or abilities of counsel. If an expert witness is going to offer remarks in the opening statement, he or she should present like a college professor, not an adversarial blowhard. Lawyers sometimes miss the mark when it comes to good communication at the opening of mediation. Often plaintiffs’ counsel, after giving their opening statement, spend the rest of the time in the joint conference before caucus thinking about a possible rebuttal, when they should be listening closely to the other side. The expression “we are here in good faith” has become such a cliché that it now means very little. The mediator will probably be looking at how the opposing parties react when a lawyer makes his or her statement. Normally a lawyer’s client will love it, but the mediator may look to see if the other party is fidgeting or passing notes. The audience for your opening statement is the decision maker on the other side, not the mediator. The best statements are informal and are directed to the opposing decision maker, as “the one chance I have to speak to you informally.” It is acceptable to involve your clients to say something if they wish, as long as you believe it will be productive. There is no need to repeat the same legal arguments that the other side has heard 10 times before. The best statements include a new “thunderbolt” and use it as the opening act of the negotiation. Pictures can be effective. Be sure never to threaten an adverse party of criminal penalties, as that probably would be a second degree felony under Fla. Stat. § 836.05. A defense lawyer needs to respond to the plaintiff’s statement with more than just a brief, “we disagree,” because otherwise it creates an imbalance. The opening statement should be longer if the mediation is early in the case, and shorter if the mediation is later in the case. Even though the opening statement may be long forgotten at the end of the day, it is very important to setting the negotiations on the right track.

Tip #9:  Start the Negotiation Properly.

People who ask for more generally get more, but you should also heed the expression, “pigs get fat; hogs get slaughtered” (i.e., asking for a big number can be rewarding, but demanding an outrageous sum can kill the negotiations before they start). At some point in the case the plaintiff has probably already demanded all amounts potentially recoverable. At mediation, it does not help to ask for more than your best case at trial, but it may be wise to start with your best case. You should then move slowly off that number, adapting to new information and making the smallest concessions possible while still keeping the other side in the game. If they shut down, you failed. It may be helpful to give a rationale for the starting number, and possibly for the number after that, but over time, it often becomes unproductive to give a rationale. Just submit a number and don’t explain it, because truly it reflects nothing more than a negotiated compromise. Take your time and use strategies to make the opposing side think you are nearing your bottom-line reserve when actually you are nearing your target. The lawyer who “gets it” is the one who asks the mediator how many times the offers will go back and forth, because you need to save room to make final concessions at the end. A lawyer should keep a chart of the plaintiff’s demands, the defendant’s offers, and the midpoint, and watch that midpoint to be sure it is going in the right direction. If you start slowing down (say, from $100,000 to $90,000 to $85,000 to $82,500) you are reinforcing a message and signaling where you will end. Signal early that you cannot move much, but break the bad news slowly because that way it is easier to digest. A quick illustration of breaking bad news slowly: If you house-sit for your neighbor, and the cat dies, your first sentence when they return home should not be that the cat died. You might explain the cat was missing, you saw him on the roof, you took him down safely, he was acting strangely, you took him to the vet, the vet prescribed medicine, the next day he was barely moving, you took him back to the vet, they ran some tests, and later the cat had to be put down. Remember that some negotiations at mediation are between the lawyer and his own client, and these principles also apply in that regard. Never move backward from a prior offer because it is extremely damaging to the process (unless of course you find a “smoking gun” e-mail in the file during mediation or learn that the court entered summary judgment that day). If the other party claims to be broke from the outset of the negotiations, the best you can do is settle for what he can pay based on his representations, and if they turn out to be false, the agreement would be void and immediate judgment entered for the full amount. There is no sense in continuing to litigate if what he says is true, as it would be against your client’s best interest. Rarely will one succeed in getting guarantees from the wife or liens on the house or car. Never take a promissory note from someone who already defaulted on a payment obligation because you have just let the guy escape the lawsuit and return to square one with a new payment obligation that will require enforcement. Mediation is like a game, and the mediator is going to do what you say, whether it is wise or unwise. The goal is never to convince the other side you are right about the case, as opposing counsel literally are paid not to agree. The goal from the start is to convince the other side that your target is really your bottom line and to get the other side to reach or exceed its reserve.

Tip #10: Balance Puffing with Credibility.

The law allows puffing about possibilities of settlement or as to what a party might be willing to accept. Rule 4-4.1 of the Rules of Professional Conduct is titled “Truthfulness in statements to others.” The Comment following the Rule states that a lawyer is required to be truthful as to statements of fact, but that “[u]nder generally accepted conventions in negotiation, certain types of statements ordinarily are not taken as statements of material fact.” It specifies that “[e]stimates of price or value placed on the subject of a transaction and a party’s intentions as to an acceptable settlement of a claim are ordinarily in this category.” The rule basically carves out an exception to the rule against making untruthful statements. Thus, you are ethically allowed to say, “this is a final offer” even if you know it is not, although query whether that is advisable for your client. Some lawyers expect opposing counsel to be puffing at mediation, and expect their adversary to call them out on it. However, do not lose credibility. If you say “final offer” and continue to negotiate, you have cried wolf. Another way to lose credibility is to make an outrageous opening demand and then huge concessions. In one case, a plaintiff’s attorney made an opening demand of $15M and a follow-up demand of $5M. At the end of the day he took only $85,000. As he was walking out of the building, he asked the mediator if he could have done better, and the mediator said, “yes.” Sometimes a lawyer will insist that one point is non-negotiable, and then offer it away later, which hurts credibility. Remember that whether the other side settles depends, at least in part, on whether the other lawyer believes you have moved as far as you will go, and therefore credibility matters. One way to establish credibility is to respond to an unacceptable offer by simply saying, “no.” It is amazing how difficult it is for some lawyers to just say “no.” Some law schools videotape their students saying “no” just to help them study all the nonverbal signals and hesitations that might indicate serious consideration of the offer. If you say you are “about at the end of your rope,” “the train is leaving the station,” or the like, all you are really saying is “there is more money left.” Any phrase or expression that is not a “yes,” is just a “no” with several qualifiers that might give away your mental impressions. Even with the mediator you do not have to be totally frank, such as blurting out your bottom number from the start, but the mediator eventually will need to know how much money there really is left to spend, because an apparent impasse might be avoided. Often if the mediator really needs to know the truth about where things are headed, it will be in a hallway chat. Of course, a lawyer must be careful not to give away client confidences when talking to the mediator in the hallway. See Fla. Stat. § 44.405 regarding the lack of confidentiality for mediation communications offered to prove malpractice (e.g., breach of attorney-client privilege). The bottom line is to observe the principles of puffing while at the same time maintaining credibility during mediation.

David provides additional insight in part III of this article series.