B. Principle 2: Identifying the Available Settlement Options May Itself Facilitate Agreement

• Library: Crafting Effective Settlement Agreements: A Guidebook for Attorneys and Mediators (ABA) (2018 Ed.)

B. Principle 2: Identifying the Available Settlement Options May Itself Facilitate Agreement

Options are the fuel needed for choice. No fuel, no choice.

The opportunity for creative solutions in a settlement agreement can easily be missed. The default for many negotiators is to focus on increasing the value of their bargaining position on the strengths of their legal case rather than by increasing the value of the deal as a whole. This narrow focus does not encompass possibilities of creating a better deal through sharing of resources to accomplish a mutual goal, optimal allocation of risks according to differing financial situations, or structuring of terms to significantly increase the value of a bargain to one party at only trivial cost to the other side. Similarly, attorneys' exchanges with opposing counsel may focus on distributive negotiations without much, or even any, attention to options that increase the value of the ultimate agreement.

Thus, understanding the available options for a settlement agreement, which may require preparatory legal research and factual investigation, may itself facilitate the parties' reaching an agreement. "Out of diversity—of perspectives, resources, or interests—comes the opportunity to create value. Negotiation is not about papering over differences or persuading others to want what we want. It is about recognizing how those differences can help make each of us better off than we would have been without a deal."¹²⁰ Examples include confidentiality (which can address reputational interests), a release of known and unknown claims (which can provide a defendant with certainty), and quick and certain payment (which can provide a plaintiff with a recovery much sooner than through continued litigation). All too often these are the only value-added terms that parties and their attorneys think about when envisioning what they would like to gain by settlement.

1. Remember an Agreement Can Afford Greater Relief Than Can Be Conferred by a Court

You can't depend on your judgment when your imagination is out of focus.

— Mark Twain¹²¹

The parties can secure a better outcome for themselves in a settlement agreement than any judge or jury could provide under the constraints of the law. When a trial court "approves a settlement agreement by order and retains jurisdiction to enforce its terms, the court has the jurisdiction to enforce the terms of the settlement agreement even if the terms are outside the scope of the remedy sought in the original pleadings"¹²² In other words, a settlement agreement gives the court the authority to enforce the terms of a settlement agreement that it otherwise would be unable to provide.

The outer contours of terms that a court can enforce in a settlement agreement are impossible to delineate with any precision; however, a good rule of thumb is that enforceable terms are those that are: (1) not void as against public policy or illegal; (2) within the authority of the parties to agree; and (3) within the jurisdiction of the court to order. This excludes noncompete agreements in several states, attempts to bind nonparties to the agreement, and enforcement of purely social obligations. As the next section shows, this rule of thumb includes many more options than it excludes.

2. Make an Effort to Identify Nonobvious and Counterintuitive Solutions

Sometimes the best strategy is the simplest one: Ask people what they want ahead of time.

— Paul Sullivan¹²³

Fairness and equality are our highest legal ideals and form the principles upon which our democracy is founded. We rightly celebrate our nation's commitment to equal protection of the law and due process for everyone, but we can do even better when we work with each other to harness our individual talents, collaborate to create new opportunities, and exercise imagination to find effective and nonobvious solutions to our problems. As Albert Einstein noted, "Imagination is more important than knowledge. Knowledge is limited. Imagination encircles the world."¹²⁴ To stimulate your imagination about optimal settlement agreements, consider the following categories of solutions that might not be immediately obvious.

Look for creative solutions that increase the value of the deal to the parties beyond any terms likely to be imposed by a court. Even distributive negotiations have the potential to take advantage of parties' differing (1) risk tolerances by including guarantees by the more optimistic party, (2) timeframes by making quicker payment or fulfillment subject to a discount for the payer, (3) reputational risks by agreeing to jointly seek reversal of a judgment that one party finds embarrassing, and (4) costs by taking advantage of one party's purchasing power or manufacturing efficiency to provide more to the other party than purchases on the open marketplace would allow. As Roger Fisher and Danny Ertel have noted, "[i]n a negotiation, anything that you value highly and the other negotiator does not (or vice versa) represents an opportunity to create value."¹²⁵ With this perspective, it is possible to go through just about every term of a settlement agreement with an aim to find the value in the parties' differences. If one term is more valuable to one party, it may be a set-off that allows the inclusion of another term that the other party may find uniquely valuable.

In addition, parties may be able to combine their efforts, talents, and financial resources to achieve together what they could not achieve by themselves. Licensing agreements, joint ventures, combined advertising, and a host of other cooperative arrangements should be explored whenever the parties are likely to have a continuing relationship.

Consider divisions that are technically unequal (or worse!) but so optimal that they result in an envy-free solution. How about a story from my own life? A few years ago, my mother decided to downsize and give away her good china, silverware, and stemware. Mom had a dozen place settings; therefore, she announced that she would give half of each to her two children—my brother and me. Any court would make the same fair and equal division. The problem with this division? There was a much better but nonobvious solution that we discovered once we began talking about Mom's plan. It turned out that my brother likes the china but dislikes the silverware because it tarnishes too quickly in the salty air where he lives, whereas I dislike the metal-trimmed china because it is not microwaveable. I've always liked the silverware, which does not tarnish as quickly in the dry air where I live. We reached a better than fair and equal division by giving my brother all of the china and me all of the silverware. My brother and I have never been fond of the stemware, so that went to my nephew, who had always admired it. No probate court would have come up with this solution because it gives one-third of the items to a non-heir. Yet, the solution made everyone happy, including me even though I did not get everything to which I would have been entitled under an "equal" division. The moral of this story is that parties who can explore their preferences, resources, and dislikes can often craft better solutions than those likely to be imposed by a court.

Mediator Al Dover helped parties reach an optimal solution in which neither party received any of the disputed funds! One Christmas Eve, Al was working with a divorcing couple who had solved all of the issues of their long marriage except for a remaining few thousand dollars. Being a good listener, Al heard that the parties would rather be celebrating the holiday with their grandchildren than fighting over the last bit of property to be divided. This gave Al the idea for a proposal that both parties loved: give the money as a joint Christmas gift to start college education funds for their grandchildren. Neither party got the disputed funds, but they were instantly happy with the solution.

Focus on solutions that address the parties' underlying problem, even if such solutions seem unrelated to the focus of the litigation.

Litigation has a way of taking on a life of its own, which means that litigation frequently ends up having little to do with the underlying problem that originated the case. When this happens, the best solution for the parties may bear little or no relationship to the litigated case. In a probate proceeding with angry siblings, the object of legal contention was their deceased father's junky old van, even though no one actually wanted it. The van served only as a connection to their father's memory—one to be kept for themselves...