Because the vast majority of cases settle before trial, it is important to know how to negotiate effectively. This requires knowing how to deal with the inherent stresses of negotiating, when to negotiate, the benefits of making the first offer, modes of negotiation, negotiation strategies, what to do if negotiation is successful, and what to do if it is not.
1. How to Deal with the Stress of Negotiating
By its nature, any negotiation triggers external and internal stress. By being aware of this, and knowing how to deal with that stress, you can improve the likelihood of a satisfying experience for you and your client in any negotiation.
As your client’s advocate in a negotiation, you feel pressure to resolve the matter to maximize your client’s satisfaction (recognizing that a good settlement is one in which neither party is delighted), while minimizing the potential costs and uncertainties of proceeding with arbitration or litigation.
How do you reduce these external stressors? First, gather the information you need to be effective in the negotiation—not just information about the facts and the law relevant to the matter but also an understanding of your client’s motives, priorities, and objectives in seeking a resolution. Second, prepare for the negotiation. This requires an understanding of the negotiation process, the style of negotiation that is appropriate for you, tailored to the matter in question; the strategies and techniques that will be effective for you in this particular negotiation; the opposing party’s motives, priorities, and objectives; and opposing counsel’s negotiating style. Third, get the support you need from other members of your firm.
Internal stressors in a negotiation arise from your own self-regard, confidence in your abilities, personal measures of success, and the real and presumed career and business implications hinging on the results of a particular negotiation. You don’t want to enter into a negotiation feeling uncomfortable, insecure, anxious, or fearful—all emotions that can have a corrosive effect on your performance and sabotage your negotiation.
You can deal with these internal stressors by second-chairing negotiations handled by more experienced attorneys in your firm before negotiating on your own. If you do so, keep in mind that each attorney has his or her own style of negotiation. You must develop your own. There is no “right” or “wrong” way to negotiate, and while you can learn negotiation guidelines, there are ultimately no negotiation “rules.”
2. When to Negotiate
As with mediation, you should negotiate only after you have a solid grasp of the facts supporting all claims and defenses, and a thorough knowledge of the applicable law. You don’t want to wait too long before negotiating, or you might find the parties have invested so much time, effort, and money in litigating that positions have hardened.
You always want to negotiate from a position of strength, such as after you have obtained material admissions from the opposing party at a deposition or after you have filed a compelling motion for summary judgment, putting the opposing counsel at significant risk of loss.
A prerequisite for any settlement negotiation is your client’s authority, and then continued authority, for each settlement proposal you make. Avoid ambiguity in knowing just what your authority is in negotiating, and promptly disclose to your client each offer and counteroffer when made.
3. Benefits of Making the First Offer
Based on the theory of anchoring, you have an advantage in making the first offer in a negotiation because negotiation is framed based on where the parties start. How do you determine what your first offer should be? Your first offer should be high but within reason. The more you ask for, the more value you are likely to get if your first offer is within the realm of reasonableness.
Opposing counsel has a psychological need for you to make concessions; making an initial offer that is high but within reason allows room for you to make them. Negotiation is a dance, and the music must play for a while before the dance is over. Be patient.
If your opponent makes the first offer and you consider it outrageous, don’t ask for justification—the more you focus on that anchor, the more powerful it becomes in defining negotiation parameters going forward. Also, don’t come back with an equally outrageous counteroffer. By doing so, you may create a gap that will be difficult to bridge. Instead, be explicit: You will not continue the negotiation with that offer on the table.
If your opponent makes a first offer that is high but reasonable, reduce the anchoring effect. Find out if opposing counsel has any as yet undisclosed information that alters the playing field. If not, shift attention away from opposing counsel’s anchor by defining the negotiation in your own terms, from your own perspective. Make a counteroffer that is minimal but that the opponent may accept, and emphasize the potential consequences to the opposing party if the parties fail to reach an agreement. As with any proposal, be able to provide justification for it.
4. Modes of Negotiation
You need to adopt your own mode of negotiation that suits your personality and is tailored to the strengths and weaknesses of the claims and defenses in each case. You must also understand how to deal with opposing counsel’s mode of negotiating. Those modes include, among others, cooperative, competitive, and relational.
- Cooperative: There is always a better deal for both parties. All we need to do is find it. Trust is high, cards are on the table, so confirm needs and goals, and explore options.
- Competitive: The opposing party’s gains will come out of your client’s pocket. You need to prevent, and even reverse, that possibility. Parties focus on separate rather than mutual interests with an air of one-upmanship. If opposing counsel is in the competitive mode, be skeptical, benefit from formal and informal discovery, give yourself room to move in the negotiation, change your negotiation stance gradually, don’t go tit for tat, and don’t succumb to deadline pressures.
- Relational: The parties have the potential for a mutually beneficial ongoing relationship, so better not to jeopardize the relationship between the parties by a damaging negotiation. The underlying characteristics are trust, friendship, integrity, good will, credibility, recognition, and a commitment to satisfy the other party’s needs. Caveat: Beware exploitation in the name of ongoing cooperation. Know your client’s motives, priorities, and objectives, and negotiate accordingly. Don’t give away too much in the spirit of cooperation.
5. Negotiation Strategies
You must understand your own client’s motives, priorities, and objectives in reaching a resolution, and the significance of each. What is your client willing to concede and what is nonnegotiable? What is your client’s initial walk-away position?
Likewise, you must understand the motives of the opposing party. What does the other party want? Can you agree to it? What are the other side’s motives, priorities, and objectives? What is the value of each priority and objective to the other side? On what can the other side move? What common interests do both sides share?
Keeping these motives, priorities, and objectives in mind, people evaluate potential negotiation outcomes as gains and losses—and losses loom larger than gains. This loss aversion creates an asymmetry that can interfere with negotiations. You are better off avoiding the zero-sum game of one winner and one loser, in which the pie size is fixed and the party who gets the bigger slice wins. Instead, focus on collaborative negotiation, in which you work with opposing counsel toward a resolution that is mutually beneficial. So how do you expand the pie?
Here’s a simple example that is easy to remember: Assume two people argue over who gets a lemon. Each claims to need the entire lemon, so they can’t just each take half. They are at an impasse. But then they talk about why each needs the lemon. It turns out that one needs it for the juice and the other for the zest. So they negotiate a resolution: After the zest is removed by one party, the other party extracts the juice from the zested lemon.
Even though negotiating a resolution of a complex legal dispute is not as simple as resolving the lemon dilemma, the basic concept is the same. By understanding your client’s and opposing party’s motives, priorities, and objectives, you can negotiate from an informed position, think creatively, and incorporate nonmonetary terms in a successful negotiation.
As in mediation, make settlement proposals to generate movement, aware that if you change your position parallel to your opponent’s, you will likely end up halfway between your opening positions. To signal that you are getting close to the limit of your authority, reduce the increments in your position. To avoid ambiguity in what you’re putting on the table, be careful in your choice of words. Also, listen carefully to the words of opposing counsel and get clarification as necessary. Track each change in position, remaining vigilant to where the negotiation will end up if you stay on the course you’re heading. Remain flexible in considering elements of a productive settlement. When appropriate, modify your settlement position as you learn new information during negotiations.
Avoid these common mistakes: making the first offer when not in a strong position; making an insufficiently aggressive first offer; talking but not listening; trying to influence the opposing party but not trying to learn from the opposing party; not challenging your own assumptions about the opposing party; making greater concessions than the opposing party; and miscalculating the ZOPA and not reevaluating it during the negotiation.
ZOPA is an acronym for the “zone of possible agreement,” the set of all possible deals that would be acceptable to both parties. You want to settle as close to your end of the ZOPA range as possible. If you and opposing counsel both know your best and worst alternatives to a negotiated agreement and walk-away positions, you should be able to assess settlement proposals knowledgeably and eventually identify and ultimately settle within the ZOPA.
If opposing counsel gets angry during negotiations, find out why. If opposing counsel is misinformed, correct the misinformation; if disrespected, show some respect (if you can); if misunderstanding your intentions, clarify them; if feigning anger, don’t fall for it.
Don’t take opposing counsel’s anger personally, even when it is real. Consider it, instead, a consequence of opposing counsel’s beliefs, which you should seek to change. Help opposing counsel shift attention away from what fueled anger and toward elements of a settlement that fulfill opposing counsel’s interests, by asking such questions as the following: “What would you like to see happen now?” and “What would help put this behind us?”
6. Confidentiality Issues in Negotiation
To promote settlement discussions, Federal Rule of Evidence 408 (“Compromise Offers and Negotiations”) provides a degree of confidentiality protection. Generally, it prohibits introducing into evidence statements made during settlement negotiations and documents related thereto.
Even so, you cannot assume that Rule 408 provides absolute confidentiality protection in your settlement negotiations. The mere fact that statements are made and materials are disclosed in connection with settlement negotiations does not immunize the substance of those statements, or those materials, from formal discovery or admissibility in court proceedings.
If, while making a settlement proposal, you make certain factual admissions to opposing counsel, your client could be bound by those admissions and they could be admissible.
How can you protect your client from opposing counsel using information and materials in connection with settlement negotiations, while engaging in meaningful and productive discussions to resolve the matter? First, review applicable statutes and local court rules regarding confidentiality protections in connection with settlement negotiations. Second, enter into a confidentiality agreement with opposing counsel regarding limits on the discoverability and admissibility of statements and materials in connection with settlement negotiations, carefully defining what is within the ambit of that agreement. Third, in all communications with opposing counsel regarding settlement, whether oral or written, if you make a statement of fact, state it as a hypothetical or as a privileged statement made only for purposes of and in the context of settlement negotiations, without prejudice. If written, include a header such as WITHIN SETTLEMENT NEGOTIATION PRIVILEGE.
7. What to Do If Negotiation Is Successful
As in mediation, if the negotiation is successful, promptly get the settlement terms in writing. You need finality. If the resolution is complex, obtain a prompt written agreement on the essential terms of the settlement, then work out the language of a settlement agreement without delay.
As part of the negotiation, you should reach clarity about whether a pending action will be withdrawn or whether judgment will enter in that action. If your action is withdrawn as part of a settlement, you can enforce the settlement only by bringing a new action on the settlement agreement. If judgment enters against the opposing party, you can enforce it as you can enforce any other judgment, without the cost and delay of bringing a new action and obtaining a judgment in that new action. Of course, most defendants do not want a judgment on the record against them. If you can get a defendant to agree to judgment entering, consider a two-stage judgment: If the defendant complies with the terms of the settlement agreement, judgment enters accordingly; if not, judgment enters in a larger amount and on more onerous terms.
When drafting a settlement agreement, you should endeavor in good faith to state the understanding of the parties accurately and completely, and you should identify changes from draft to draft or otherwise bring them explicitly to the other lawyer’s attention. See ABA Guidelines for Litigation Conduct. It would be unprofessional, if not unethical, to knowingly exploit a drafting error or similar error concerning the contents of the settlement agreement.
8. What to Do If Negotiation Is Unsuccessful
If your negotiation is unsuccessful, determine why it failed. Has your client taken an unreasonable position? If so, talk with your client about the lack of logic and risks of the position. If your client is willing to listen to reason, renew the negotiations. Even though the best time to initiate negotiations is when your opponent is at a disadvantage, you can renew negotiations at any time—even during trial and through the appeal process.
If your negotiation is unsuccessful because the opposing party is being unreasonable, consider highlighting for opposing counsel the unreasonableness with this question: “Help me understand why . . . ?” Also consider proposing new elements for a settlement that had not been discussed, especially a fresh proposal that incorporates nonmonetary factors. Another option to consider if your negotiation is unsuccessful is to propose mediation, after getting your client’s consent.
Stewart Edelstein, who taught clinical courses at Yale Law School for 20 years during his 40-year career as a trial lawyer, is the author, most recently, of How to Succeed as a Trial Lawyer, 2d ed. (ABA 2017).