Negotiation 19 September 2003 Please read

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Negotiation 19 September 2003

  • Please read:

  • Mnookin 260-271 for Tuesday, 23 September

  • Mnookin 274-286 for Friday, 3 October

  • Mnookin 286-294 for Tuesday, 7 October

(these are the last reading assignments)

  • Next negotiation: Tuesday, 23 Sept. - Tuesday, 30 Sept.

  • Exam date: Friday, Nov 14 2:30-5:30 pm

  • Today: Critique exercise 5 & Mnookin

  • How assess the probabilities? Nest?

  • Diagram and justify

  • Verdicts?

  • $28,800 mistake, sorry

  • 0 or 30,050 or + 10,000 or + 50,000

  • Costs

  • Include what have already spent?

  • Have put $1000 into what turns out to be a bad investment. Can drop and lose money, or put in an additional $500, in which case will get $400 back. Should you do it? What is the appropriate comparison?

  • Time value of money

  • Is the result at trial PV or FV?

  • What is getting money earlier really worth? Bank interest is only one measure. If you’re not going to put it in the bank, PV is even higher than if based on bank interest (because otherwise would put it there)

  • HC has cash flow problem, must borrow at 13.5%. If you knew how much money was needed, you could assess it at 13.5% and if any spare, at lesser interest rate.

  • Translating average result at trial into an LA.

Was this a solely distributive negotiation?

  • No, some integrative (value-expanding) options

  • Some pairs, as Mnookin suggests, moved between the net-expected outcome and interest-based (deal-making tables

  • Mnookin advises including clients; would be a good idea.

  • Hard to expand value much without more information on HC’s needs, WW’s costs, etc.

Options for Mutual Gain

  • Apology (sometimes in writing, sometimes with dinner)

  • Promises to give advance notice in future (does this perhaps go without saying?)

  • Discounts

  • Discounts (within reason) are a good idea: WW doesn’t lose money by offering a discount unless a new order is placed, and the discount is not the full amount of their profit on the new order, so they gain. HC also gains, it has the option of cheaper widgets.

  • A discount on their next order is particularly good, to get HC back into using WW and having a good experience to counter this bad one

  • Some people over-discounted (eg 30% off, for several years, on 40,000 widgets, etc)

Some Options Were a Bad Idea for One or More Clients

  • Exclusive and preferred contracts. Why would HC agree to be bound to WW given the circumstances? It would take a huge incentive! What if a new manufacturer starts locally? What if there is a new improved kind of widget that WW doesn’t have the patent for? Often there was no obvious incentive (eg guaranteed price or significant discount) for HC.

  • Endorsement and advertising. Would HC really be happy to endorse WW and advertise themselves as a “satisfied” customer??? Or put a sign on their building sites saying “we proudly use Wonderful widgets in all our building contracts”?!

  • Remember you can ask me as the client in advance.

Handling Australian Widgets

  • These were known (in at least one recent case) to be defective.

  • IF this is never discovered, WW gains a distributive advantage (mitigation argument is possible)

  • IF it is later discovered, what will the consequences be?

  • Affect reputation of client (may diminish likelihood of future business)

  • Affect reputation of lawyer (may increase transaction costs and result in future breakdowns because lawyer’s word is not trusted)

Honesty Continuum

  • Affirmatively volunteer the information

  • Reply if asked what you know

  • Refuse to answer if asked

  • Mislead about the situation without lying

  • Actively lie about the situation

(Overlaid is the possibility that TOS is mistaken.)

What Can You Do if You Suspect TOS of Lying/Misleading/Failing to Disclose?

  • Ask a question to which you know the answer (here, was HC’s full order ever manufactured? [more neutral than Qs on BB])

  • Reasonable request test (possibly interview manager, look at factory records)

  • Watch body language (but be sure)

  • Get it in writing

  • Eg recitation of underlying facts in contract

  • You send letter of your understanding

  • Get TOS to say it publicly, before neutral witnesses

  • Build enforcement into the contract

  • Conditional contracts

  • Installment payments

Mnookin’s Advice on Resolving Disputes (continued)

  • Involve the client and respect client’s preferences

  • Consider changing the game (settlement counsel, use own scheme instead of discovery, bring in neutral third-party mediator early, arbitrate).

  • Use aggressive litigation tactics deliberately if desirable, not as a knee-jerk reaction.

  • There can be risks to foregoing traditional approaches.

Moving to the Interest-Based Table

  • Communicate 3 explicit messages:

  • Looking for trades may be good for both sides

  • It does not require or imply a ceasefire

  • Discussing interests does not signal weakness

  • Negotiate a process to jointly explore what each side cares about and why, and what each hopes the lawsuit will accomplish.

  • Consider involving clients

  • Manage conflicts between the tables by facing the issue explicitly, separating them as much as possible, and consider rules for information exchange between the tables.

Mnookin’s Advice on Making Deals

  • The challenges:

  • Communicate with clients clearly about the risks that might be covered by the deal

  • Manage the tension between creating and distributing value

  • Even if major terms have already been decided, there can be a tendency to seek further distributive gains

Preparing to Problem-Solve

  • Identify issues and risks

  • Experience and forms can help

  • Consider how TOS might try to take advantage of your client

  • Understand and prioritise your client’s interests

  • Set realistic expectations

Negotiating Across the Table

  • Dealing with the first draft problem:

  • Justify your draft with reference to your client’s interests and your guesses about TOS’s interests

  • Discuss before exchanging drafts & work together on language

  • Serve your client’s interests extremely well (don’t start with your minimum), but be able to justify it and avoid being unreasonably one-sided

  • Deal with their extreme draft in a way signalling your ability to defend yourself but without provoking further escalation.

  • Rely on available norms (objective criteria), but only if desirable (eg what a court would do is not always best)

  • Change the players to break an impasse (bringing in clients may enable re-thinking the terms already agreed to)

  • Put dispute resolution terms in contracts

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