Tips on Negotiating Settlements

Most disputes which lawyers are asked about do not end up in the courts, instead they are settled by way of some form of compromise between the parties – a negotiated agreement. Getting the best settlement for the client can often involve some skilful negotiation. Learning about the skills — and the ethics — involved in negotiating is an important part of a working lawyer’s education.

Practical Tip # 10

When is it safe for opposite sides to cooperate in negotiations?

Watch out for yourself when:

• Information asymmetry is great.
• The other side has little to lose or much to gain from deception.
• It is hard to tell if there is intent to deceive.
• Verification is difficult.
• You do not have resources to safeguard against deception.
• Interaction or interdependence between you and the other party is infrequent.
• If deception is caught, redress is difficult.
• Reputation information is unavailable, unreliable, costly.
• You do not have a personal relationship with the other side’s negotiator.

In each of the above situations, you must be on your guard when the other side suggests you give more cooperation to reach a settlement.

Practical Tip # 3

What is the Purpose of Settlement Negotiations and Fair Dealing?

The ABA Litigation Section Guidelines on Settlement Negotiations says:

The purpose of settlement negotiations is to arrive at agreements satisfactory to those whom a lawyer represents and consistent with law and relevant rules of professional responsibility.

While that may be true, I suggest we have to look at the phrase “satisfactory to those whom a lawyer represents” more closely. The client will not be happy with a settlement if the adverse party does not comply with the settlement or seeks to overturn it. Likewise the client will not be happy if a third party finds the settlement so offensive that it attempts to block or frustrate the settlement. Therefore, there are really five separate characteristics of a proper settlement agreement:

• Satisfactory to the client.
• Sufficiently beneficial to the adverse party so that he/she/it will comply with the settlement until the end of the time period your client wants compliance.
• Sufficiently inoffensive to outside parties so that they will not block implementation of the settlement.
• Consistent with law.
• Consistent with professional responsibility rules of lawyers.

You will note that these five characteristics are in large part the results of fair dealing and mutual respect. As a part of this seminar on negotiations, I want to communicate to you an idea. If you are a good negotiator, you will start with the following premise.

“A traditional value such as honesty — and others such as promise keeping, truth telling, justice, benevolence — endures because it is essential to the social fabric of human existence. Without certain fundamental principles of fair dealing and mutual respect, business would be impossible.” [Rion, 21.]

We as lawyers all too often adopt the attitude that the result the client wants is all-important, and we drive to that result by whatever means are at hand. “The end justifies the means” creeps into our actions. No matter how unfair your client wants to be to the other party, you have an obligation to produce a settlement that works. Without certain fundamental principles of fair dealing, business is impossible. If your client, and you, want something that lasts beyond the next sunrise, the settlement agreed upon today must have fairness.

“Fairness” does not mean giving the house away. Because of the situations of both parties, the amount given to one side may be very little compared to what the other side received.

Relationship is almost always a factor in a settlement that lasts. You or your client may think you may never meet the adversary again. But you never know. And the way you handle the negotiations is noticed by the adverse side, who are people that you may have additional significant relationships with in the future. This is particularly true of negotiations with commercial entities or with the government.

There are many unethical negotiation behaviors beside lying. For example, cruel treatment of others, bribes, selling other parties out if they are not present, threats of violence, and unnecessary demeaning of others.

We need to remind ourselves of the following Litigation Section Committee Note in the Guidelines.

Committee Notes: While there is no Model Rule that expressly and specifically controls a lawyer’s general conduct in the context of settlement negotiations, lawyers should aspire to be honorable and fair in their conduct and in their counseling of their clients with respect to settlement. Model Rule 2.1 recognizes the propriety of considering moral factors in rendering legal advice and the preamble to the Model Rules exhorts lawyers to be guided by “personal conscience and the approbation of professional peers.” Model Rules, Preamble, Cf. infra Sections 4.1.1, 4.1.2, and 4.3.1. Whether or not a lawyer may be disciplined, sanctioned, or sued for failure to act with honor and fairness based on specific legal or ethical rules, best practices dictate honor and fair dealing.

An article further discussing the duties of the attorney is available here.