Signals

One of the buzz words in mediation and negotiation circles is "signals." In a tort mediation, after the parties and counsel split up and go into separate rooms, demands and offers are usually filtered through a "what kind of signal are we sending?" lens before they are presented to the other side.

Often — at least for the first couple of hours — the signal each side is trying to send is: "If you were smart, you’d be quaking in your boots; you really don’t want to mess with us!" This approach always reminds me of the inept motorcycle gang in the Clint Eastwood monkey movies ("We’re the Black Widows. We’re feared throughout the land").*

When it becomes obvious that the tough guy approach isn’t working, the parties and their lawyers usually start to moderate their tone and send more realistic signals designed to show a willingness to settle, but without appearing too eager to give away the store. The most common tactic is to give the impression of heading toward a number midway between the last demand and offer. For example, the defense is likely to respond to unreasonably high demands from the plaintiff’s side, with equally unreasonable offers until the plaintiff drops to a point where the mid point is perceived to be "in the ballpark." If the plaintiffs have been in the $250,000 range for a case perceived by the defense to be worth only $75,000 to $80,000, the other side is unlikely to make substantial moves until the demand gets down around $100,000.

One approach that has been used with some success to signal that it is time to get serious, is to make an offer contingent on the plaintiffs lowering their demand to a certain number. This has the advantage of getting the negotiations into the right range without necessarily forcing the defense to show their hole card. For instance, in the example discussed in the previous paragraph, the defense, instead of responding to the last demand with a firm offer, might instead counter by saying that if the demand is lowered to $90,000, the offer will be raised to $45,000. Such a move would likely be designed to signal a settlement range of $65,000 to $70,000. If the plaintiffs also believe that the case is worth $75,000 to $80,000, such a move may encourage them to respond with a demand — or even a suggested range of their own — designed to signal a desired settlement close to, but not quite, where they truly want to go — in the $85,000 to $90,000 range, say. Now the parties probably know that on the surface they are only about $10,000 apart, and it shouldn’t take much to close the remaining gap (which, in reality, is probably no gap at all).

* Any Which Way You Can, Buddy Van Horn, Director (Warner Brothers Pictures, 1980).