A California Mediator’s Observations On Effective Negotiations Skills and Techniques In A Mediation: Dealing with outrageous opening offers/demands.
I cannot count how many mediations started so promising. The parties had a productive joint session. Both sides gave their respectful pitches. They retired to their rooms, and then I met with one side.
Twenty minutes later.
I entered the other room with only bad news. A terrible opening offer/demand from the other side. It's the kind of offer/demand that makes an attorney's blood boil. Their instinct is to storm off. They are insulted. They think the other side clearly does not respect their case, the client, or the work that has been put into this litigation.
I get it. It's painful.
But before the attorney leaves I ask one question, "Why do you think the other side started like that?"
Why Do Attorneys Start With Outrageous Opening Offers/Demands?
After the initial shock and insults, the attorney usually says something like, "The other side is being disrespectful." Or "They clearly don't know what they are doing!" Or some variant of this.
After going through the possible reasons, counsel usually calms down a bit. Many times, the outrageous opening offer/demand is not what we think. It is usually a deeper psychological reason that, if asked, the other party would never even admit to, but it exists. I have seen it.
It's called the "Winner's Curse."
The "Winner's Curse" Drives Attorneys To Ask For The Moon For Fear Of Missing Out
The Winner's Curse, in short, is when someone "wins" in a negotiation, but regrets doing so.
The Program on Negotiation at the Harvard Law School states the Winner's Curse is defined as a "Tendency to overbid in competitive auctions and thus overpay for an item because of competition for it. Because the winner overbids, he/she is said to suffer the winner's curse because she has what she desired, but at a much greater cost than it is worth."
The classic scenario is in competitive actions, but it rears it head in bilateral negotiations for the same reason: The negotiator overestimates or underestimates the value of the negotiated settlement.
For example, Plaintiff's counsel never wants the client to think that he or she started out by asking too little or the defense does not want their client to think they value Plaintiff's case higher than Plaintiff. This is the "Anchoring High" effect, as detailed by Michael P. Carbone. We all know it happens, but WHY it happens is more important.
Once you know the WHY, you can process, evaluate, and counter the high demand/offer with unemotional deft and skill.
In Mediation, the Curse of Winning Arises When The Attorney Fears Winning At The Outset
Let's start with an easy scenario. Plaintiff is at a mediation and issued an exorbitant demand. Plaintiff has two reasons (likely unconscious or at least not stated) to issue the high demand:
Fear he undervalued the case
Fear the other side's counsel over valued the case and he missed out on that windfall.
An example of the fear he undervalued the case
Let's say you are involved in a case that is worth $100,000.00 by most accounts. However, Plaintiff's counsel spoke to his client and Plaintiff is willing to settle this case for $50,000.00, and everyone will be excited and happy. Plaintiff then demands $50,000.00. The defense seizes on the opportunity, accepts the opening offer and immediately writes up a settlement agreement.
Plaintiff feels cursed. Plaintiff obtained what he desired, but at a much lower cost that what is was "worth". Plaintiff feels they under valued their case and were taken advantage of, even though he opened the negotiations and received exactly what he wanted.
To prevent this fear, counsel (both Plaintiffs and Defendants) make exorbitant openings.
So, in the above scenario, Plaintiff's attorney would make a demand of $900,000.00, just to prevent the off-chance he miscalculated the "value" of the case. This demand may enrage the defense, but it was done out of fear of winning early, and Plaintiff's counsel would rather upset Defendant than to be wrong.
An example of the second option--
the other side over evaulated the case
The second option occurs when the defense thought the case was worth $500,000.00 (even though it was worth only $100,000 objectively). When Plaintiff demanded $100,000, the defense accepted, and the Plaintiff learns (or suspects) that defense would have paid up to $500,000. (the subsequent revelation may never occur but it is present in every attorney's mind-- consciously or subconsciously).
Plaintiff fears this happening, so he makes an outrageous opening offer just in case his evaluation is lower or the defense is too high. Simply put, he fears missing out on a fortuitous windfall.
As you can see, most of the times, the real reason for the Outrageous Opening is not to insult, disrespect, or to bully, but out of fear.
The other side is so fearful that you would accept the opening offer/demand and they would feel they "left something on the table" that they are willing to risk angering the other side (or even jeopardizing the entire negotiations) with a high opening.
It reminds me when I went to negotiate a car purchase for my Mother after passing the Bar; after all, I was now an attorney. I offered $7,000 below MSRP, and the salesman reached across the table and shook my hand. In 45 minutes we had the car for what she wanted to pay but I felt like a failure. Perhaps, I could have gotten a better deal, got a better warranty, perhaps forced them for nicer wheels (even though my mom clearly didn't want the nice rims). I wanted that car salesman to squirm, balk, and negotiate down. I wanted him to argue and complain to make me feel like a "fleeced" the car dealership (which I know can never happen). To this day, I wonder if I could have gotten a better deal, if I had only offered less.
This is the Winner's Curse.
How To Prepare Yourself For The Outrageous Opening?
Most attorneys know, or at least, have an idea what the other side's counsel is like. In your heart-of-hearts you can suspect the other counsel is going to low ball you or give you a "crazy" demand. Many times, when I transmit an outrageous opening, the receiving counsel rolls his eyes and sarcastically says, "Big surprise." If you know it is coming, prepare yourself, and more importantly, your client.
Preparing your client will reap dividends throughout the mediation and will prevent the case from getting derailed before the negotiations really gets started.
A good Trick is to use the Prediction Protocol: Play a game with your client to guess how low/high the other side will start with an opening. This takes the motions out of it and lessens the sting from the other side. It desensitizes you, and your client.
This will keep your mediation on track, keep your client objective, and get the case to meaningful negotiations faster. Do not let a bad opening throw you off of your game plan.
What To Do After The Outrageous Offer/Demand?
Your first instinct is anger and disrespect. That's fine. Take it in and breathe. Hopefully, you prepared your client with the Prediction Protocol, so the distaste wears off fast.
Now, analyze the Opening. You can extract a lot of information from an Opening, so do not waste the opportunity. If the Opening was from the Winner's Curse, then ask yourself these questions:
Is the other side fearful because they are not prepared?
Is the other side fearful because they lack key information?
Is the other side fearful because a lack of knowledge of the law in this area?
Is the other side fearful because they fear you might use a Bulldog, Stonewall, or Bulldozer tactic?
Is the other side fearful because they might not have the case properly evaluated?
Is the other side fearful because they are not sure how to evaluate this type of case?
Use this opportunity to gather intel on the other side's position and strategy, which can help you later in the mediation. In fact, work through these questions with your client because it will help take him/her, and you, out of the emotional state you surely are in. Discussing these questions will not only show your client your professionalism and experience in tough negotiations, but also gives you an advantage in negotiation because you will not be affected by emotional ploys by the other side.
A WARNING: Don't always assume an "outrageous" offer/demand is a sign of weakness. Take time and re-evaluate your case and positions. Maybe, the other side has information you do not. Probe with questions to ensure you are not missing something that will negatively affect your case
How To Respond To Outrageous Offers/Demands
You have calmed yourself. You prepared your client. You reviewed possible motives of the other side. You determined there is not any missing information. Now, you must respond. There are several ways to respond, and to choose the right way, is obviously different for every case, but you need to be aware (and ready to accept) the consequences of your Opening Response.
No matter how you respond, you must prepare yourself and your client for the rocky negotiations in the beginning stages of the mediation. Just being aware of it will be a success. You cannot have patience, if you have not prepared to be patient. It will not be easy, but a deft and skilled attorney can withstand the early storm to ensure a successful negotiation and a satisfactory mediation.
The "Respond In Kind" Tactic
You could easily respond with an equally outrageous response. They made a demand of seven figures for a five figures case, you can make an offer of $1,000.00. This is the most common response. I see it all the time, and it has the least emotional blow-back in the mediation.
The possible consequences: You are in for a long day. Just prepare yourself and your client for it. Everyone, including your mediator, will need patience. The negotiations will be lengthy, often, and tedious. That is fine-- as long as you are prepared for it. It wall take numerous offers/ demands rather than the three you had hoped for.
The "Refusal To Respond" Tactic
You could just not respond and request another opening offer/demand. This tactic usually comes from a sense of residual resentment, but it used quite often.
The possible consequences: You are taking a gamble because the other side may not bid against themselves, especially if they are a hi-ego attorney. You are risking the entire mediation and the effort to get there. The negotiations may never get started. You may get lucky and the mediator can save the negotiations but it will be tough.
The "Gameplan" Tactic
This one is effective but rarely used. You could make your planned opening offer/ demand regardless of the other side. You know what your case is worth (or more precisely what your client is willing to accept/pay). You will not let the "lesser" attorney throw you off your gameplan.
The Possible Consequences: Even if you make your planned offer, the other side might retort with another "outrageous move." Just prepare yourself for it. This will speed negotiations because if the case does not get in the Negotiation Zone fast, you will have to slow down on your movements or stand pat until the other side gets reasonable. Afterwards, you can make a 998 offer and put real pressure on the other side.
Regardless of your chosen tactic, or combination of them, just know the consequences and prepare your client for it. The more objective you can be, the better.
Summary Of Dealing With An Outrageous Opening Offer/ Demand
You are going to get outrageous opening offers/demands.
Just accept it, and it has nothing to do with you, only the other side. When it happens take the following steps to prevent it from derailing your next mediation:
Take a deep breath
Recognize your first emotional reaction, label it, and move on
Explain to your client the Winner's Curse
Evaluate the possible reasons for the "outrageous" opening
Confirm you are not missing an important fact or issue of law
Respond with a calculated Tactic, such as the Gameplan Tactic, and prepare your client for the possible impacts on the mediation
Get discussions into the Negotiation Zone as fast as possible
And like that, your case is back on track and settled before lunch.
WHAT'S NEXT?
I am a mediator who mediates in Fresno and throughout California. I am available for all your mediations, and I can help you settle that nightmare case. You can reach me to schedule a mediation at:
PEEL | GARCIA
3585 W. Beechwood Ave., Suite 101
Fresno, California 93711
559-431-1300
--Troy
P.S.-Get a FREE printable PDF of our
TOP 5 NEGOTIATION TIPS
to help at your next mediation
(throw it in your briefcase to read while that mediator is in the other room and impress him when it's your turn to negotiate)
**This publication is provided as an educational service and is not meant to be and should not be construed as legal advice. Readers with particular needs on specific issues should retain the services of competent counsel.