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HOW TO BUILD YOUR PROFESSIONAL SKILLS
Negotiations and Settlements
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01-31-2008 | 11:45 AM
Negotiations and Settlements
Whether an attorney is involved in a sale or a trial, negotiation is a vital part of the attorney’s duties. Before an attorney can negotiate a deal or a settlement for the client, it is important that he know the value of the client’s case and the risk of not settling or making the deal.
Gathering the Facts
It is important that the attorney first gather all of the relevant facts. An attorney dealing with only part of the facts or incorrect facts will not achieve the optimum result for the client. The process of gathering begins with asking the client questions. A client is apt to present the facts as he perceives them. It is up to the attorney to draw out details that might make a significant difference to the case.
A client sees something on the nightly news about heart problems stemming from the use of a certain prescription drug. He comes to the attorney wanting to sue because he had a heart attack. When was the heart attack? Was it before or after the client began taking the prescription drug? How long had he been taking the prescription? Did he have heart problems before taking the drug? Did the doctor warn him of the possible side affects, including possible heart complications? Were there warning signs that he had ignored? The answers to all of these questions could affect the result if the client went to trial.
In addition to obtaining details of the problem or transaction as perceived by the client, the attorney needs to know what actions the client had taken to resolve the matter. Had there been written communications? How had the other party responded to the client?
After gathering as much information as possible from the client, the attorney needs to gather information about the other party’s perspective. In the prescription drug example, did the company run sufficient tests before placing the drug on the market? Had the tests shown any affect on the heart or circulatory system? Had the company been notified that any other consumer had suffered heart problems after taking the drug? What had the company done to notify doctors and consumers of a potential product? Were the possible side affects duly noted on the prescription bottle, rather than hidden away in a mass of very fine print?
Once the attorney has the facts, it is time to review the situation with the client to determine the steps that should be taken.
Negotiating a Contract
Buying and Selling
The client wants to buy or sell property. The client identifies the property, the price, and the terms. It is up to the attorney to present the pros and cons of the proposals and to point out the risks.
A contract for the sale of a piece of land may be limited to price, contingencies such as obtaining a mortgage or zoning, and date of transfer. It is the attorney who points out that there is a non-refundable deposit requirement. It is the attorney who asks about the neighborhood and whether it is likely that a zoning change will succeed. It is the attorney who asks about the terms of the mortgage to make sure that the client can meet the payments.
When the contract is for one corporation to purchase or merge with another, the questions increase exponentially. How will the transaction benefit the client? What is the price? Will there be a change in officers? What is being offered to the client? Will an existing officer lose his job? Where the corporations are publicly traded, will the shareholders approve the deal? What are the risks? Are there lurking liability issues? Have the directors and officers been honest in presenting financial information? What pension or union obligations need to be dealt with?
Once the benefits and liabilities are determined, the attorney needs to know the client’s wants and what terms the client is willing to accept. With this information, the attorney is ready to negotiate to obtain the best terms available for the client.
Before an attorney begins negotiating an employment contract for either an individual or a union, the attorney needs to know financial information about the employer and the terms of the employment contract for others in a comparable position. When negotiating an employment contract, the attorney must always keep in mind the consequences of failing to reach an agreement. Can the prospective employee find alternative employment? Is the employee a key employee necessary for the corporation? Is the union ready to strike? Can the company survive a strike?
At all times, it is important that the attorney maintain her composure and remember the needs of the other party. The understanding of both parties’ needs enables the negotiating attorneys to reach reasonable compromises in a timely manner without leftover animosity or suspicion.
Negotiating a Civil Case
Most court systems require the attorneys to at least attempt to settle civil litigation matters without a trial. The starting point for any negotiation again begins with an attorney who is thoroughly prepared. Not only should the attorney be fully cognizant of the facts of the case, she must also be fully aware of the costs of litigating and the delay in resolving the issue, as well as the likely result.
Knowing the facts of the case requires that the attorney fully discuss the facts with the client, learn what the fact witnesses will say, and determine all possible defenses. Part of the process of obtaining the facts is reviewing any expert witness reports. To properly prepare for trial, the attorneys will depose the experts. Costs for such depositions can be substantial. Presenting those witnesses to a jury is also costly. These costs must be considered in deciding whether a settlement offer is reasonable.
A second consideration is the delay before the matter is resolved. If a construction company will go into bankruptcy if a matter is not settled timely, but it could stave off bankruptcy if it settled a claim against a supplier who delivered faulty goods, the construction company might be willing to settle at a price far less than it would get at trial. An unsecured creditor might be willing to settle a claim for a few cents on the dollar in order to get some payment before the debtor files for bankruptcy and there is a risk the unsecured creditor would get nothing. Delay may at times be used as a trial tactic.
A third consideration is the likely outcome if the matter goes to trial, before a judge or a jury. One valuable source of information is publications of verdicts reports for other similar cases. They are particularly valuable where they provide information on similar cases heard in the same district or circuit. Verdict reports will indicate whether the judge or jury found the defendant liable. Verdict reports will also indicate the amount of damages awarded, and at times, will also state the basis for the damage award. Other valuable resources are attorneys who practice the same type of law and retired judges.
One final, important consideration is the client. Will the client be a competent witness on his own behalf? Will the client engender sympathy from the jury? If the client has a clear case of slander against a publisher, but the client has a reputation for being difficult and hard to get along with, the jury may be stingy in awarding damages.
The attorney entering a settlement negotiation must be fully apprised of the strengths and weakness of her case. With this information, the attorney can best advise the client as to what constitutes a reasonable settlement offer and what does not.
Whenever an attorney enters into settlement negotiations on behalf of a client, it is important to keep the client informed. The client should be told of any offer of settlement and give advice as to whether to accept it. It is up to the client to decide what is in his own best interests. In most situations, the decision is mostly financial. However, where there is a continuing relationship between the opposing parties, such as employee/employer, landlord/tenant, or licensor/licensee, maintaining a workable relationship may be as important as financial compensation.
The star player on a football team with a salary cap may forgo some salary to allow the team more room under the cap to obtain other high quality players. A landlord may forgo tax contributions from a tenant in order to keep the property rented. A tenant may agree to participate in an advertising campaign for a shopping center to benefit all the tenants. The attorney must always remember that getting the most money is not the only way to provide for the best interests of a client.
The attorney also has a duty to be fair and honest in negotiating. While it is not necessary to tip one’s hands as to the lowest or highest amount a client will accept, and it is permissible to use puffery, it is not permissible to be dishonest, to threaten, or to intentionally misstate material facts. In an opinion letter, the American Bar Association stated:
It is not unusual in a negotiation for a party, directly or through counsel, to make a statement in the course of communicating its position that is less than entirely forthcoming. For example, parties to a settlement negotiation often understate their willingness to make concessions to resolve the dispute. A plaintiff might insist that it will not agree to resolve a dispute for less than $ 200, when, in reality, it is willing to accept as little as $ 150 to put an end to the matter. . . In the criminal law context, a prosecutor might not reveal an ultimate willingness to grant immunity as part of a cooperation agreement in order to retain influence over the witness.
A party in a negotiation also might exaggerate or emphasize the strengths, and minimize or deemphasize the weaknesses, of its factual or legal position. A buyer of products or services, for example, might overstate its confidence in the availability of alternate sources of supply to reduce the appearance of dependence upon the supplier with which it is negotiating. Such remarks, often characterized as "posturing" or "puffing," are statements upon which parties to a negotiation ordinarily would not be expected justifiably to rely, and must be distinguished from false statements of material fact. An example of a false statement of material fact would be a lawyer representing an employer in labor negotiations stating to union lawyers that adding a particular employee benefit will cost the company an additional $ 100 per employee, when the lawyer knows that it actually will cost only $ 20 per employee. Similarly, it cannot be considered "posturing" for a lawyer representing a defendant to declare that documentary evidence will be submitted at trial in support of a defense when the lawyer knows that such documents do not exist or will be inadmissible.
American Bar Association Standing Committee on Ethics and Professional Responsibility, Formal Opinion 06-439,
Lawyer's Obligation of Truthfulness When Representing a Client in Negotiation: Application to Caucused Mediation
, April 12, 2006.
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