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Devil in the Details: Sticker Term Shock

by Victoria Pynchon
January 2009

From Settle It Now Negotiation Blog

Victoria Pynchon

The anger, suspicion and ill will that has characterized the first eight hours of this mutli-party, eight-figure antitrust mediation is about to heightened as I deliver Defendants' terms:  they will pay the settlement agreed upon in six equal yearly installments over three full years without any security to back it up.

Are you wondering what your mediator is thinking at times like this?

Aaaarrrrggggghhhhhhhhhhhhhhhhh!!!!!!!!!!!

That "thought" is momentary, however, like the cry you squelch when the trial judge does something like, say, grant the other side's motion to disqualify your expert witness during the second week of trial. 

I don't have a plan, but I do have ideas.  Just as my suggestion that we use a bracketed offer to break impasse had eventually done just that, I'm already thinking of ways that the parties' most intractable and conflicting positions might move them toward agreement.

"They can wait," defense counsel is saying, "or they can try the case in February and see if they can collect it," to which a principal adds,  "this puts them on our side for a change.  If we make the money we believe we can, they'll benefit too."

"I thought you said you knew you could," I say, laying groundwork for the contingency ahead. 

"Yes, absolutely.  We know we can."

Back in the Plaintiffs' caucus room, the parties and their counsel aren't simply angry; they're flabbergasted.

"They sand-bagged us," says Plaintiffs' counsel.  "We'll report this to the Judge.  They didn't come here in good faith.  They're deliberately wasting our time."  

After some calming discussion about why the cash-poor defense would deliberately pay their own attorney and one-half of my daily fee in bad faith . . . a question to which no answer ever eventuated . . . Plaintiffs and their counsel begin to confidently predict the defense's inability to make a single installment payment.  Plaintiffs believe the defendants have resources - secreted away somewhere - but will never use them to settle this case.

When the temperature of the room has diminished to that of the sun's surface rather than its core, I ask about the possibility of a stipulated judgment in the event of default. 

"In a sum you hope the jury will award you at trial," I proffer.  "If you're right; if they have no intention, nor any ability, to pay even the first installment, you'll be in the same position on default that you'd be in if you prevailed at trial.  And if they're capable of paying, they're much more likely to do so if the alternative is a mutl-million dollar judgment against them."

Though the total sum of the Stipulated Judgment is the main topic of discussion over the following two hours, the parties' insistent conflicting predictions for the future make it all but inevitable they will eventually reach agreement.  If the defense never pays, the Plaintiffs will have their judgment more or less immediately, without the burden of proving it up.  And if the defendants are good for their word that they can service the "debt" the settlement agreement creates, they never have to worry about this potential judgment becoming a reality. 

The Stipulated Judgment as Contingency Contract

As Professor Leigh Thompson of the Kellogg School of Management, Northwestern University, writes in The Mind and Heart of the Negotiator, the contingencies built into the parties' agreement (and the Stipulated Judgment providing for its enforcement) permit them to use their differences to reach agreement - betting on their own predictions for the future and protecting themselves against their worst fears about the other.  As Professor Thompson instructs:

Often, a major obstacle to reaching negotiated agreements concerns negotiators' beliefs about some future event or outcome.  Impasses often result from conflicting beliefs that are difficult to surmount, especially when each side is confident about the accuracy of his or her prediction and consequently uspicious of the other side's forecasts.  Often, compromise is not a viable solution, and each party may be reluctant to change his or her point of view.

Fortunately, contingent contracts can provide a way out of the mire.  With a contingency . . . differences of opinion among negotiators concerning future events do not have to be bridged; they become the core of the agreement. . . . [Parties] can bet on the future rather than argue about it.

Here, the agreement calling for a Stipulated Judgment of sufficient size to deter default, allowed the parties to:

  1. bet on rather than argue about their different forecasts for the future;
  2. manage their decision-making biases (overconfidence and egocentrism) by building them into the settlement agreement itself;
  3. solve the trust problem by creating a contingency (judgment) against the unknown ability of the defendants to perform
  4. diagnose the other side's honesty by "daring" him to bet on his own predictions
  5. reduce risk through sharing the upside gain (defendant will pay) and the potential loss (defendant will default)
  6. increase defendants' incentive to perform at or above contractually specified levels.

See The Mind and Heart of the Negotiator, The Six Benefits of Contingency Contracts, Box 8-2.

There's more, however.  The parties agree to the Stipulated Judgment in principle and sum during hour eleven and we've got three more hours to go.

Stay tuned!

Biography


Attorney-mediator Victoria Pynchon is a panelist with ADR Services, Inc. Ms. Pynchon was awarded her LL.M Degree in Dispute Resolution from the Straus Institute in May of 2006, after 25 years of complex commercial litigation practice, with sub-specialties in intellectual property, securities fraud, antitrust, insurance coverage, consumer class actions and all types of business torts and contract disputes.  During her two years of full-time neutral practice, she has co-mediated both mandatory and voluntary settlement conferences with Los Angeles Superior Court Judges Alexander Williams, III and Victoria Chaney.  As a result of her work with Judge Chaney in the Complex Court at Central Civil West, Ms. Pynchon has gained significant experience mediating construction defect litigation.  Ms. Pynchon received her J.D., Order of the Coif, from the U.C. Davis School of Law. 



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