5.2 Position Bargaining

Imbedded in the adversarial process is a position bargaining model of dispute resolution. The parties both seek information that will allow them to value their cases, and hide information from the other side that might give the other side an opportunity to take advantage.

The parties do not provide information to each other freely.² They seek to only inform the other side about those facts that they must turn over because of discovery rules. The adversarial nature of the process is inherent in the rules that dictate what the parties responsibilities are with regard to discovery. Information exchange in negotiation also seems to be driven by the assumption that you have uncertain information, at best, about your opponent’s weaknesses, and if you settle out of court before putting people under oath at trial, you risk settling for too much or too little. Position bargaining strategies best test what cards the other side actually holds. Your positions serve as bets in the gamble of litigation, and may inform each side on what cards each holds. Position bargainers use their positions to get information, and the willingness to settle, and while often, this combination of factors occurs on the court house steps, it might also occur after jury selection, opening statements, after the jury has started to deliberate, or even on appeal.

A classic example of position bargaining occurs in the bazaar or market place. Imagine you are at an open air market in Beijing. You stop at a table and pick up a shirt.

Position bargainers use positions to get information about what the other side really thinks. They posture and bluff to try to force movement. They provide little information about why or how they determine the price. We don’t know what the buyer wants the shirt for, or how much the seller has in mark up or carrying costs. Reasons are not given. The parties think of the exchange as purely voluntary. Each may use psychology, and threats, and try to raise the sunk costs of each side by dragging out the time of bargaining. They may use the pressure of the public audience to shame the other into moving. But in the end, the process is governed by getting information by taking positions, to test what each side thinks the transaction is worth. 5.2.1 An Analytical Economic Model

Assume, for a minute, however, that each side had perfect information about the other side’s case. Assume that discovery has been completed and each side has all that it can legally expect to get. Position bargainers still must predict the outcome at trial as a way of determining the fair price of resolving the dispute. Every lawyer knows the dangers of prediction. Predicting victory can raise false expectations in the client, making the client spend the money before the client gets it. It also subjects the lawyer to the, “but you said” from the client, when the prediction doesn’t come true. Still, the client is entitled to make an informed decision when giving the lawyer settlement authority for negotiation purposes. The question is whether economic models which use probabilities will provide the useful language of prediction in order for the client to make informed decisions.

In order to use economics and probabilities to provide the client with information about what his case is worth, the lawyer first needs to be clear about what economic modeling and what probabilities really provide. The beauty of economic analysis is that for every real world problem that makes prediction impossible, you simply make an assumption. And the result is a “mathematic-like” formula that gives the appearance of a scientific method, or certainty, and of objectivity. Perhaps it gives a false impression. In addition, a second dangerous assumption the economist makes is that jurors are rational. The client also assumes perfect information about a case will be produced by the litigation process and trial. The question is whether these assumptions are so false and will so cloud any probabilities so as to make the probabilities misleading rather that helpful.

On the other, the lawyer needs to start some place in communicating his legal assessment of the case, and with these two assumptions in mind, the lawyer can start to calculate how jurors will likely calculate damages in a given case. Analytically A and strategically speaking, we might be able to create a formula that will make us more precise in valuing our case, and enable us to better inform the client about what to expect. The corollary benefits are also substantial. A byproduct of making an economic calculation for cases in order to place a value on the case provides more information to the client so that he can truly control the outcome. A second by-product of using economic tools will be to give the lawyers more persuasive arguments in their negotiations about what the case is worth, and provide the language to move their opponents off of their position, (provided our reasoning doesn’t open up counter arguments to our disadvantage.)

As we’ve said, before actually communicating with the client, the lawyer should look at the case from the perspective of the jury, or the end game.

Second, if the jury determines there is compensable liability, then the jury needs to figure damages. Damages are made up of “hard damages” like:

1. past medicals, in personal injury cases and

2. past lost income figures, (loss of business from product disparagement) and then moves to “softer damages,” including

3. predictions on future medical expenses,

4. and future loss income, to “softest damages,” for

5. pain and suffering, or

6. humiliation and mental anguish, or

7. loss of consortium, or

8. loss of “hedonic” damages (the pleasure of playing the piano),

9. loss to future trade, and

10. punitive damages, to send a message to the defendant and like defendants to deter future behavior.

Third, the jury will need to multiply the percentage of fault times the total amount of damages found. Or, depending on joint and several liability rules, it simply takes the total damages and subtracts the percentage of fault attributed to the plaintiff to come up with a figure for damages.

Yet in predicting what the jury will actually do in such a case, the lawyer knows that there are “non-rational” factors that the jury may take into account.

To factor these biases into an economic calculation, lawyers may try to determine a multiplier—the amount that they multiply, times the “hard” economic damages in the case, to come up with a prediction as to what the jury will do.⁴ Certain jurisdictions try to keep tabs on how much juries give in relation to the “hard” damages in the case. Historically, Philadelphia or New York may have a multiplier of 4.5 to 5. Chesterfield, Virginia may have a multiplier of 2 to 3. Of course, any given case can and should be distinguished from the average verdicts (just as with any jury verdict service), arguing even about what are hard damages. Additionally, there are definitional problems with multipliers: for example, should future loss income be counted as hard damages in a particular case, or, should pain and suffering be greater or lesser when death was imminent? Still the multiplier can be a way of predicting how much over the hard damages that the jury might pay in a given jurisdiction.

So, in a given case, a lawyer might value a personal injury case as follows—

The difference is presumably made up in pain and suffering, emotional distress, and the like.

Further, the attorney needs to predict percentage of liability to plaintiff, say 30 percent.

Now, assuming that the probability figure is accurate, $2,016,000 is the lawyer’s prediction of the most likely jury damages award.

Or take for instance, the Homestead case at the preliminary injunction stage. Here the prediction is about what the judge will likely do. Homestead may show a fall off in business in the past three months they attribute to Best Home’s disparagement. They project that if this disparagement continues, it could put them out of business. Assuming that they can show a income statement that shows net profits at $10 million a year, the losses they may show would amount to approximately $100 million over ten years. The chances that they might get an injunction might be 5 percent, but, they might be will to spend $500,000 in litigation costs even if it is only a 5 percent chance of winning.

In a jury case, some attorneys also find it helpful knowing the latest percentages of plaintiff success once a case goes to a jury. For example, plaintiff’s’ lawyers quote a 70 percent win rate in front of Los Angeles County juries. Medical malpractice defense lawyers quote recent Center-for-State Courts statistics showing the doctors sued for malpractice win close to 60 percent of the time when the case goes to jury.⁵ These percentages can again add information to a lawyer’s case evaluation, so long as they realize the predictive nature of these figures and still assess the biasing factors of the individual case.

In a judge decider case, a particular judge may be known by his or her track record, to never give an injunction, and this may be useful in framing the prediction for the client.

Defendants’ lawyers like to argue in negotiation, that economically speaking, the rational thing to do is weight each decision the jury needs to make by its probability of occurring in plaintiff’s favor. So weighing duty, and weighing breach, proximate cause, and some damage would mathematically result in a better understanding of the probabilities involved. Instead of giving a probability to the chances of winning, they give a probability to each element of the cause of action, and multiply them together. For example, if proving a duty existed was 0.9, breach was 0.5, proximate cause was 0.7 and proving some damage was 0.9, then the probability of plaintiff success would be 0.2835.

Similarly, the chance of getting a preliminary injunction needs to be viewed in light of the court deciding Homestead’s way on four different factors, the likelihood of success on the merits, the balance of harms, the adequate remedy at law, and on public policy issues of competition in the marketplace versus fair competition.

Yet probability weighting could be more sophisticated, but less complicated. In the garden variety personal injury case, the plaintiff might argue that if breach is proven, then proximate cause and damages are virtual certainties. For example, in the personal injury example above, the probability might be.45 calculated by multiplying the percentage chance of prevailing on the issue of duty times the percentage chance of prevailing on breach. Plaintiffs would cite to attitudinal studies which seem to indicate that accountability for one’s behavior is the Number One value in the United States today.⁶ The jury would focus in on one tough decision concerning who is responsible—the blameworthiness of the defendant—and then simply do what was required after they made that decision.

Donald Vinson finds some support for plaintiffs’ arguments⁷ that jurors think deductively from certain strongly held values. This would mean that giving a single probability on liability may be more a more accurate predictor. For the purpose of early case evaluation, focus groups may provide the quickest and most accurate prediction of the attitudes jurors may have that are outcome determinative, and as a result best help the lawyer and client assess the cases chance of success before a jury. Pay $15 an hour to twelve persons whom you assemble that meet the demographics of your jury. Present opening statements on both sides, and for under $1,000 you can see where the jury is likely to come out. Of course, where the focus group has questions and proof can be obtained, you might refine your theories and themes in the process. In any event, for purposes of telling the client what the case is worth, the focus group could be a pretty good predictor of how the jury might respond to your case. Of course, the credibility of the witness will not be tested, but attitudinal values of the likely jurors could be surveyed to determine what the likely result would be.

Similarly, current thinking about preliminary injunctions suggests that balance of harms is the factor most heavily weighted in determining whether a preliminary injunction should be issued. Probability estimates that under-weighted this factor would not provide the client with an accurate understanding of whether the client should seek an injunction.

In addition, early involvement of damages experts is important for case evaluation. Used as a consulting expert, as opposed to a testifying expert, such consultants can provide invaluable information for the client’s valuation of the case and decision making. These experts provide great experience in helping the lawyer determine what variable may affect the damages figure, and the volatility of each variable. Armed with this information, the lawyer can better look for facts and evidence that will best fit what the expert needs to make the expert opinion reasonable and reliable.

Focus group results may also help the parties value their cases. Just as product marketers use focus groups to test market reactions to products and particular marketing strategies, focus groups can provide clients with better empirical evidence of what a case may be worth. If fairly and objectively presented, focus groups not only can give the parties insight into what themes will best resonate with jurors, but they can help the sides persuade each other that groups of likely juror place high or low values on an “objective” presentation of the case.

Finally, for the purpose of developing settlement authority from the client, there are three additional economic forces that need to be considered,

1. the expense already incurred and expense involved in further trial preparation, (while maybe not rational to consider, have a psychological affect on parties willingness to settle),

2. expense of the trial itself,

3. a discount factor until trial.⁸

Dealing with number 3 first, in some jurisdictions, trial could still be a long way off, and the further away it is the larger a big factor discounting may become. Moreover, if payment is going to be made over a significant period of time, as with structured payments, then counsel needs to be familiar with the present-value-of-money calculations to advise the client about settlement authority.

In sum, an economic value of a case for developing client settlement authority would include total damages, subtraction of plaintiff fault, a weighing of this figure on percentage chance of winning and proving damages as predicted, any discounting for present value, and costs yet to be incurred in producing the result, minus lawyer’s contingency fees or lawyers fees.

Using this formula can help prepare the lawyer for meetings with the client to discuss the legal and economic consequences of a decision, and will help the lawyer be more precise in informing the client in order to develop settlement authority. It will also help prepare the lawyer to be more persuasive during settlement negotiations. 5.2.2. Client Role in Position Bargaining

In this regard, we must turn to how the lawyer communicates this economic evaluation to the client. Of course, here is where the lawyer must be careful. In counseling the client, the plaintiff should be told how this figure depends on persuading the jury or decision maker about a number of key elements of the case, including duty, breach, proximate cause and damages. For example, the client needs to be told the jury may conclude future hospital treatment will cure the ailment (and for that reason reject alternative damages), or the jury may conclude another job will come along some where (and for that reason reject part of the damages calculation). Likewise), the jury may attribute only 30 percent of the total responsibility to the plaintiff if the court excludes evidence of plaintiff’s drinking (because the Breathalyzer was under the legal limit), or if counsel is successful in keeping off the jury people who are religiously opposed to drinking.

Some lawyers like to summarize all the variables of prediction by giving a percentage chance of winning and include a best possible alternative, a most likely alternative, a likely alternative, and a worst likely alternative. In our example above, the lawyer might use these numbers: $2,880,000 as the best possible alternative; $2,016,000 as the most likely alternative; $100,000 as a likely alternative; and $0 as the worst alternative. The plaintiff might even weight these outcomes by percentage.

In any event, the client is armed with substantially better information to make an informed decision, and the negotiator is more precise about what he thinks the case is worth and why.

Moreover, position bargainers argue that this kind of strategic thinking makes each side’s thinking more objective and analytical. It better helps the bargainer “control” his own behavior during the negotiation, knowing the limits of his authority, and the steps he plans to take to arrive within a reasonable bottom line. In fact, each side’s figures should not be that far apart. Often, experienced dispassionate business litigators prepare a valuation from the perspective of the opponent. Preparing from the opposing side’s perspective better prepares the lawyer to anticipate the points of difference and prepare arguments to overcome those differences. This preparation process makes them better able to talk with each other and discover the strengths and weaknesses in each other’s positions and reach a reasoned agreement. It is often the case that the lawyers work something out, even if on the court house steps, after jury voir dire, after opening statement, after closing argument and before the jury reaches a verdict, or the clients work something out in spite of their lawyers’ failures to communicate. When this happens, the clients are guessing about outcomes, and assessing risks in the light of their views of their business objectives.

Recognize, however, that the rationality of the probability assigning process depends on the quality of the information each side has. Furthermore, the assignment of probabilities is an inherently value-laden process. Probabilities depend on experience, but experience is always seen through human eyes. So, where a CEO experiences law suits by the government, with eyes that see the market as having been harmed by excessive government regulation, the CEO may place a probability figure on the chances of a win based on the CEO’s chances at doing something about a broader societal issue. Or the plaintiff (and attorney) may demonize the opponent and place probabilities on the outcome at court based on these biasing beliefs. Building in a range of probabilities can at times still provide an analytical basis for reasoned agreement.

Yet the position bargainer knows that he must plan to conduct the negotiation itself in order control the risks in any analytical approach to case valuation. He must test the other side’s case to determine how good its information is, and whether the values of the opposing side so effect the valuation of the case, that his client is risking an unfair, disadvantageous resolution. The position bargainer sets up the negotiation, to help maximize its advantages concerning information exchange, bargaining positions and persuasion to move the opposition toward its view of the value of the case.