Settlement Tactics Series: Figuring out your starting position

November 26, 2014

Settlement ADRAs many practicing attorneys are well aware, the vast majority of cases are settled outside of court (and many of them are literally settled right outside of the courtroom).

But how do you decide when it’s right to settle your case?  There are a multitude of complex factors that demand attention in this consideration, making any decision to settle a potentially difficult one.  What’s more, judges expect attorneys to attempt to resolve their dispute outside of court before the case is even heard (and on an ongoing basis thereafter), so settlement needs to be seriously considered by attorneys in nearly every case.

With the assumption that a negotiated agreement must be at least attempted, we need to know how to begin; that is, going into any settlement discussions, how do you know what your opening offer should be?  And how do you know what you should agree to settle for?

To make these determinations, you first must determine your specific “BATNA” and “WATNA” – or, respectively, the “best alternative to a negotiated agreement” and the “worst alternative to a negotiated agreement.”

As the terms imply, your BATNA is the best possible outcome for your case if you forego settlement and proceed to litigation.  Your WATNA is the worst possible outcome.  Unfortunately, determining these specific values often requires a significant amount of analysis, and isn’t as easy to deduce as “we win” or “we lose.”

True, outright winning your case through litigation is typically your BATNA, while losing is your WATNA, but several other factors come into play in these calculations.

First, you have to look at the law and facts behind your case to determine the likelihood of your success in court.  You have to analyze what the opposing party could potentially argue against your case, and the strength of those arguments.  Naturally, the stronger your case, the stronger your negotiation position.

However, there is an element of uncertainty to any litigation, in that the decision-maker, whether it’s the judge or the jury, can’t always be expected to follow the expected paths (even if those paths are clearly set out by law).  It happens more often than it should, so you should never view your case as a sure thing because you rarely know what the judge or jury is going to do with any degree of certainty.

Further complicating this analysis is the possibility of factual unknowns that may affect your case for better or for worse (i.e. there may be a fact unknown to either or both parties, but one that reveals itself later in litigation, that may substantially change the strength of your case).

And there’s another major factor to consider that “reveals itself later in litigation:” costs.  As litigation drags on, so do the attorneys fees and other costs, which is something of which your client must be reminded during negotiation.  If the settlement attempt is taking place in the earliest stages of litigation, there could be a great deal of money saved by negotiating an agreement at that point, rather than potentially negotiating later with a stronger bargaining position after incurring hefty costs and fees.

Finally, and perhaps most importantly, you should identify what it is that is most important to your client.  If it’s all about money, the calculation is much simpler than in family law or criminal law cases, where the stakes and interests are far more intangible.  In cases where the primary focus of negotiation is a dollar amount, it’s important to differentiate between how much you could conceivably win (which is your BATNA) and how much your client hopes to win.

In all likelihood, your client may very well be perfectly satisfied with a dollar amount that is much lower than you potentially could achieve through litigation.  If that’s the case, then you have a little easier time in negotiation, since this number should be privy only to you, while the opposing party is looking at numbers that could be achieved through litigation (but a more detailed discussion of actual negotiation tactics will come in a future post).

More intangible interests, such as custody and parenting time in family law cases and avoiding a conviction in criminal law, are difficult to put a price on, so it may well be worth it to your client to continue with litigation if he or she is unhappy with the settlement possibilities.  In these circumstances, it’s important to discuss your case’s BATNA and WATNA with your client, along with the notion that litigation is often a gamble, and it may be preferable to reach a conclusion on your own terms rather than roll the dice.  That being said, if the opposition is being patently unreasonable in their demands, you shouldn’t feel any overwhelming urge to settle (again, specific tactics will be discussed in a forthcoming post).

With all of these factors in mind, you should be able to go into settlement talks with a fairly strong grasp on the relative benefits and drawbacks of any proposed settlement.