The stage is set.
After a joint session among all mediation participants, the mediator moves into the first caucus with plaintiff's counsel and her client and spouse. After a further discussion of the issues, the mediator emerges with an opening demand - $1,675,000.
After a discussion of issues in the first caucus with defense counsel and in-house counsel, the demand is presented and they are dumbfounded. "$1,675,000! There must be some mistake," says defense counsel. "If I had known that the opening demand would be well over a million dollars, we never would have agreed to mediate. The demand is ridiculous. Offer them $2,500."
Back to the plaintiff's conference room for a second caucus. "$2,500! The offer is ridiculous. This is a big case. If I had known that the opening offer would not be at least $50,000, we never would have agreed to mediate."
Within another hour, the mediation is over. How did this happen? Why didn't they know?
Let's go back in time.
Seven weeks ago, the parties agreed to mediate and selected a mediator. Ten days ago, each counsel spoke separately before the mediation with the mediator, who leamed there had been no prior settlement negotiations.
In the first separate conversation, plaintiff's counsel told the mediator, "We have a policy of not making a demand before mediation." In the second separate conversation, defendant's counsel told the mediator, "We have a policy of not making an offer unless we get a demand and plaintiff's counsel will not give us a demand before mediation."
Last week, each party painstaking prepared a comprehensive mediation brief. Yesterday, the in-house counsel for the defendant boarded a plane on the East coast and flew to California. Today, plaintiff and his spouse took the day off from work. The entire day has been set aside to settle the case. Privately, plaintiff's counsel has evaluated the case as having good liability and damages with a settlement value in the middle to upper six figures. She is prepared to recommend settlement for anything over $600,000.
Privately, defense counsel has evaluated the case as having no liability, the likelihood that a motion for summary judgment will be granted and minimal damages due to the plaintiff's failure to mitigate. She views the case as having nuisance value and has recommend settlement for up to $50,000. But counsel never discussed any amounts with each other before mediation. Each just assumed the other would see the case their way, and if not, the mediator would convince opposing counsel of her "misevaluation."
What could have been done differently? Counsel on both sides do all mediation participants a favor by exchanging one demand and one offer before mediation. Negotiation by ambush rarely succeeds. Instead, the usual result is a failed negotiation.
Here are three actual opening demands and offers from mediations that I conducted during the first half of 2010: Plaintiff's first demand ($10 million); defendant's first offer ($150,000). Plaintiff's first demand ($1.9 million); defendant's first offer ($2,500). Plaintiff's first demand ($10 million); defendant's first offer ($75,000).
None of these mediations made it past lunchtime. Fortunately, I was able to facilitate settlements in all three cases through persistent telephone follow up, but this was accomplished months after the mediation.
Before committing to mediation, there is nothing tactically erroneous about giving the other side some sense of how you value the case. Experienced mediators may be persuasive, but they are not miracle workers.
In the hypothetical above, the mediatior might even persuade the plaintiff to settle for half of $600,000 and the defendant to pay double the $50,000. But even the most skilled mediator is not going to persuade plaintiff's counsel to recommend 10 percent of her evaluation or the defendant to recommend 1000 percent of her evaluation.
Plaintiff's counsel and defense counsel sometimes fear they will "scare the other side off" with an extremely high or extremely low opening demand. But the first settlement positions are quite often harbingers of whether the mediation will result in settlement or impasse.
What if plaintiff's counsel were to adopt a policy that she would only to go mediation after making an opening demand and receiving an opening offer? That way, both parties would be in a position to handicap the likelihood of settlement.
Granted, there are counsel who believe "there is no such thing as an unsuccessful mediation." Indeed, one counsel recently told me, "Even if the case doesn't settle, I always learn something valuable at mediation." Open-minded counsel and their clients want to know why the parties are so far apart and how the mediator, a neutral third party, sees the case.
On the other hand, if your only "measure of success" is whether the case settles at or shortly after mediation, it is probably better to go in with your "eyes open." Otherwise, you may leam for the first time at the mediation that the initial demand is hundreds of times greater than the initial offer. And your clients and you will be free for lunch.