What Deal Lawyers and Dispute Lawyers Can Learn From Each Other

Business Conflict Blog by Peter Phillips

It sometime sometimes seems that the community of business lawyers is divided into two broad tribes: The lawyers who handle the deals, and the lawyers who handle what happens when the deals fall apart. Unfortunately, these two tribes too seldom mix. They don’t go to the same ABA meetings, their spouses don’t dine together, their kids are on different soccer teams.

Yet each has skills that the other would benefit greatly from developing. Deal lawyers have an approach to problems that litigators would do well to adopt. And litigators use tools that deal lawyers (and their clients) would benefit from.

Deal lawyers are problem-solvers. They see the whole picture. Clients who engage them intend to make money by coming to an agreement that benefits them at the same time that it addresses the expectation of their counterparty. There is little on the table except the business, the money, the deal. Each deal lawyer is there to negotiate terms that will benefit the client, make sense to the counterparty, and get the deal done.

By contrast, litigators are gladiators. Their job is to “win.” They often don’t see (more accurately, they are not entrusted with) the whole picture. Their clients intend to see justice done, and to extract their vengeance, by making the other party wish it had never been born. There is little in the arsenal except bombs, and success is measured not by money, but by blood. The lawyer isn’t there to make money, or even to save money, but to kill.

This is true despite everyone’s acknowledgement that we don’t try litigated cases any more. More than 98% of filed cases are terminated by means other than a verdict at trial. They are withdrawn, they are dismissed, or (in the case of many business disputes) they are settled on mutually satisfactory terms that include stipulated dismissal, mutual releases of all claims, and either agreed-upon payment or reformation of the terms of the original deal.

Clients are, presumably, satisfied with the work of the lawyers who put the deal together through negotiation. Therefore it would, presumably, be advantageous to those clients if those same lawyers negotiated a solution to the problem that gave rise to the litigation – a solution that ended the litigated claim, provided for payment and/or reformation of the deal, and a speedy return to business. The mind-set of the transactional lawyer – that the client’s business is best served by negotiated deals – is highly valued in dispute resolution, and it is a pity that more transactional lawyers are not involved in resolving business disputes.

Conversely, deal lawyers perceive the negotiation process as a one-on-one game. They have a high regard for their own negotiation skills, and the suggestion that value might be added through the intervention of a neutral facilitator is not just meaningless – it is insulting. Deal lawyers want control, they want a clear field for strategy, and they want no interference or meddling. They certainly don’t want to suggest to a client that they are inadequate to close this deal themselves, and need a go-between.

By contrast, many litigators are highly attuned to the utility of mediation in devising an optimal negotiated outcome. Adding a skilled middleman in settlement negotiations can reduce transaction costs and add value in multiple ways. Mediators can assist lawyers in helping their clients to prioritize their goals, and distinguish between critical terms and those that are less important. Mediators can help to “bundle” deals, linking a “give” and a “take” in order to create trades that are of minimum cost and maximum value to both parties. Mediators can coach parties and counsel in negotiation strategies. Mediators can add rigor to the valuation process through decision trees or discounted present value analysis of outcomes. Mediators can assist parties to recognize cognitive barriers in their own or their adversaries’’ assessments, and provoke “reality testing” of positions or tactics. Mediators can develop “most favorable,” “least favorable,” and “most likely” scenarios that can have a decisive impact on the value of the claim. Mediators can urge clients to develop best alternatives in the event that settlement negotiations fail. Mediators can push disputants through impasse.

All of these skills have a place at the deal negotiation table, yet I am unaware of a single instance in the negotiation literature where a deal mediation has actually taken place. The practice is urged, but it is seldom if ever adopted. The added cost of introducing deal mediation is negligible, and the risks are nonexistent. Indeed, it has been argued that deals achieved through direct negotiation are necessarily less economically efficient than deals that are mediated, simply because no party in a direct negotiation will reveal its underlying interest, and therefore that interest will not be thoroughly addressed in the final terms. One must chalk it up to a mixture of ignorance and lack of imagination. And there’s hubris.

Deals would be more robust if a skilled, confidential mediator were included. Disputes would be briefer, and end on better commercial terms with fewer transaction costs, if the lawyers who handled them approached them as solvable problems rather than cases.

It’s time for the two tribes to start eating together.

                       

F. Peter Phillips

F. Peter Phillips is a commercial arbitrator and mediator with substantial experience providing consultation on the management of business disputes to companies around the globe. A cum laude graduate of Dartmouth College and a magna cum laude graduate of New York Law School, Mr. Phillips served for nearly ten years… MORE >