Aiding Mediation Through Objective Case Evaluation

[Editor's Note: This article on objective case evaluation echoes a practical subtheme of two preceding articles. The Daubert article argues for including the now-increased cost of using experts in case evaluations. The Boosting Receivables article notes the importance of sizing up a client's ability to pay during the intake process.]

Psychological tendencies that are at play in traditional negotiating postures greatly impede litigation settlement discussions. Following are several examples of these tendencies.

Reactive Devaluation

Decision-making analysts have identified a psychological phenomenon known as “reactive devaluation,” which refers to people's tendency to assess and respond to offers and counter-proposals differently depending on the source of the suggestion. In other words, the mere fact that an offer or a particular proposal emanates from an adversary causes the receiving party to distrust the proposal, discount it and reject it. However, if the very same proposal is linked to an objective standard, originates with an outside expert or is conveyed by a mediator, it can evoke an entirely different response by the parties to the negotiation.

Delusional Optimism

Another psychological element at play in negotiations is the tendency of advocates to view the strengths and weaknesses of the case they are handling through rose-colored glasses. Empirical studies demonstrate that individuals tend to make economic decisions based on “delusional optimism rather than on a rational weighting of gains, losses and probabilities,” according to a July 2003 article in Harvard Business Review.

To counterbalance this overly optimistic approach, business strategists recommend that decision-makers use an objective forecasting method that incorporates an outside view that examines the outcomes and experiences of similar cases or analogous projects. This evaluative process yields a much more realistic or accurate estimate of probable results than one focusing only on the case at hand.

These studies appear particularly relevant to decision-making in the context of litigation. Trial lawyers are typically (and necessarily) self-confident, convinced that all they need to win is to get before a jury. However, before getting to the jury, there are many uncertainties: establishing liability (or a defense), ability to prove damages, costs of litigation, attorneys' fees, success of motions, time to trial, judicial temperament, composition and behavior of juries, and outcomes of appeals. Any lawyer who has ever attempted to prepare a budget at the beginning of a case is familiar with the difficulty of predicting any of these eventualities.

Therefore, litigators intending to conduct a successful mediation would be well served to evaluate the uncertainties of litigation by reviewing similar cases in similar jurisdictions.

Anchoring

Finally, individuals negotiating under uncertain conditions make subconscious assumptions that have an impact on their decision-making. These assumptions include the individual's tendency to discover, retain and process information in a self-serving manner. Thus, litigants tend to seek information that confirms their preexisting beliefs, to ignore information that contradicts their point of view and to anchor their estimates on conspicuous numbers rather than on empirically sound data. For example, plaintiffs in personal injury cases will have great difficulty distinguishing their case from huge jury verdicts against the tobacco companies. Sexual harassment plaintiffs will invariably recall the notorious cases of Monica Lewinsky, Paula Jones and Anita Hill.

Advocates who are proponents of mediation know that a mediator can provide the needed reality check to impress on their clients the differences between their case and those reported in the media. However, it is counsel's role to furnish the mediator with the factual tools that will help the mediator paint a more realistic picture.

Using Verdict Data

To offer an objective basis for framing a reasonable settlement proposal, litigants can review available jury verdict data for similar claims in similar jurisdictions. This information is readily available on a variety of databases. In addition, counsel can employ the services of forensic accountants and economists, who can provide analyses using economic, statistical and legal expertise.

If counsel can bring such a report to a mediation session, the document can serve two purposes. First, if presented appropriately, it can frame continued settlement discussions. Second, even if rejected as a basis for settlement, the report can serve as a reality check as to the uncertain nature of continuing the litigation.

Using Experts

An example of the use of expert reports illustrates the point. Let's say that a partnership dispute arises over a disagreement relating to the value of a piece of real estate. One partner makes an emotional assessment of what the parcel is worth, dwelling on the fact that he inherited the property and basing the assessment on anecdotal recollection of what other parcels have sold for in the neighborhood. The other partner, who has worked to develop the commercial value of the property, has hired a real estate appraiser who has provided a written report showing the comparables in the area, the value of improvements and the like. Use of the appraisal at a mediation may help set a rational tone to the discussions.

On the other hand, there is also a possibility that the appraisal can drive the parties even farther apart, with each insisting that he have the opportunity to find his own expert. However, even if one party's proposed market value is rejected as the basis for settlement, it will provide both parties with an idea of what forms of proof may be required for trial. Indeed, the prospect of a potentially expensive battle of the experts may be sufficient incentive to settle.

Using Cases on Point

Another source of objective criteria that a mediator may be able to use to bring the parties into the settlement zone is the case on point. Mediation provides an excellent opportunity to educate the opposing side as to prevailing case law, historical precedent or industry practice that will be presented to a court should the case go to a motion to dismiss or summary judgment. Even modest legal research can yield significant results.

Skillful use of published precedent by a mediator can then help counsel and client test their assumptions about litigation outcomes, and may make settlement more attractive.

Conclusions

Regardless of whether parties enter mediation by order or consent, counsel should not depend on their sheer conviction that they have a strong case, that the law is on their side and that a judge or jury will vindicate their position.

Objective criteria in the form of difficult-to-dispute facts, expert or third party sources of information and published precedents all provide helpful tools for a mediator to use in the effort to transform a litigation into a problem that can be solved.

In their advance preparation for mediation, advocates should help develop such objective criteria by taking into account psychological influences that affect the processing of information in negotiations. Reducing the impact of those subjective factors can contribute to efficient and effective dispute resolution long before the parties find themselves on the courthouse steps.

[Editor's Note: This article on objective case evaluation echoes a practical subtheme of two preceding articles. The Daubert article argues for including the now-increased cost of using experts in case evaluations. The Boosting Receivables article notes the importance of sizing up a client's ability to pay during the intake process.]

Psychological tendencies that are at play in traditional negotiating postures greatly impede litigation settlement discussions. Following are several examples of these tendencies.

Reactive Devaluation

Decision-making analysts have identified a psychological phenomenon known as “reactive devaluation,” which refers to people's tendency to assess and respond to offers and counter-proposals differently depending on the source of the suggestion. In other words, the mere fact that an offer or a particular proposal emanates from an adversary causes the receiving party to distrust the proposal, discount it and reject it. However, if the very same proposal is linked to an objective standard, originates with an outside expert or is conveyed by a mediator, it can evoke an entirely different response by the parties to the negotiation.

Delusional Optimism

Another psychological element at play in negotiations is the tendency of advocates to view the strengths and weaknesses of the case they are handling through rose-colored glasses. Empirical studies demonstrate that individuals tend to make economic decisions based on “delusional optimism rather than on a rational weighting of gains, losses and probabilities,” according to a July 2003 article in Harvard Business Review.

To counterbalance this overly optimistic approach, business strategists recommend that decision-makers use an objective forecasting method that incorporates an outside view that examines the outcomes and experiences of similar cases or analogous projects. This evaluative process yields a much more realistic or accurate estimate of probable results than one focusing only on the case at hand.

These studies appear particularly relevant to decision-making in the context of litigation. Trial lawyers are typically (and necessarily) self-confident, convinced that all they need to win is to get before a jury. However, before getting to the jury, there are many uncertainties: establishing liability (or a defense), ability to prove damages, costs of litigation, attorneys' fees, success of motions, time to trial, judicial temperament, composition and behavior of juries, and outcomes of appeals. Any lawyer who has ever attempted to prepare a budget at the beginning of a case is familiar with the difficulty of predicting any of these eventualities.

Therefore, litigators intending to conduct a successful mediation would be well served to evaluate the uncertainties of litigation by reviewing similar cases in similar jurisdictions.

Anchoring

Finally, individuals negotiating under uncertain conditions make subconscious assumptions that have an impact on their decision-making. These assumptions include the individual's tendency to discover, retain and process information in a self-serving manner. Thus, litigants tend to seek information that confirms their preexisting beliefs, to ignore information that contradicts their point of view and to anchor their estimates on conspicuous numbers rather than on empirically sound data. For example, plaintiffs in personal injury cases will have great difficulty distinguishing their case from huge jury verdicts against the tobacco companies. Sexual harassment plaintiffs will invariably recall the notorious cases of Monica Lewinsky, Paula Jones and Anita Hill.

Advocates who are proponents of mediation know that a mediator can provide the needed reality check to impress on their clients the differences between their case and those reported in the media. However, it is counsel's role to furnish the mediator with the factual tools that will help the mediator paint a more realistic picture.

Using Verdict Data

To offer an objective basis for framing a reasonable settlement proposal, litigants can review available jury verdict data for similar claims in similar jurisdictions. This information is readily available on a variety of databases. In addition, counsel can employ the services of forensic accountants and economists, who can provide analyses using economic, statistical and legal expertise.

If counsel can bring such a report to a mediation session, the document can serve two purposes. First, if presented appropriately, it can frame continued settlement discussions. Second, even if rejected as a basis for settlement, the report can serve as a reality check as to the uncertain nature of continuing the litigation.

Using Experts

An example of the use of expert reports illustrates the point. Let's say that a partnership dispute arises over a disagreement relating to the value of a piece of real estate. One partner makes an emotional assessment of what the parcel is worth, dwelling on the fact that he inherited the property and basing the assessment on anecdotal recollection of what other parcels have sold for in the neighborhood. The other partner, who has worked to develop the commercial value of the property, has hired a real estate appraiser who has provided a written report showing the comparables in the area, the value of improvements and the like. Use of the appraisal at a mediation may help set a rational tone to the discussions.

On the other hand, there is also a possibility that the appraisal can drive the parties even farther apart, with each insisting that he have the opportunity to find his own expert. However, even if one party's proposed market value is rejected as the basis for settlement, it will provide both parties with an idea of what forms of proof may be required for trial. Indeed, the prospect of a potentially expensive battle of the experts may be sufficient incentive to settle.

Using Cases on Point

Another source of objective criteria that a mediator may be able to use to bring the parties into the settlement zone is the case on point. Mediation provides an excellent opportunity to educate the opposing side as to prevailing case law, historical precedent or industry practice that will be presented to a court should the case go to a motion to dismiss or summary judgment. Even modest legal research can yield significant results.

Skillful use of published precedent by a mediator can then help counsel and client test their assumptions about litigation outcomes, and may make settlement more attractive.

Conclusions

Regardless of whether parties enter mediation by order or consent, counsel should not depend on their sheer conviction that they have a strong case, that the law is on their side and that a judge or jury will vindicate their position.

Objective criteria in the form of difficult-to-dispute facts, expert or third party sources of information and published precedents all provide helpful tools for a mediator to use in the effort to transform a litigation into a problem that can be solved.

In their advance preparation for mediation, advocates should help develop such objective criteria by taking into account psychological influences that affect the processing of information in negotiations. Reducing the impact of those subjective factors can contribute to efficient and effective dispute resolution long before the parties find themselves on the courthouse steps.