Thursday, January 30, 2014

How do you Use a Written Evaluation of Likely Damages Effectively in Mediation of Business Disputes? ?

    Numbers have their own mystical language and I find that sometimes writing out the most likely, least likely and somewhere in between outcome in a business case can be a useful vehicle for further discussion. 
     After I elicit the parties best estimates of those figures, I can project a range of most likely outcomes.  For example, in the lawsuit arising out of an allegation of damage to manufacturing equipment due to a leak at a warehouse, I was able to project that if the property proved to be a total loss, after the salvage value of about $50,000,  the owner would be left with a hypothetical loss of $250,000 (since he claimed the depreciated value of the equipment was $300,000.). 
     On the other hand, if the equipment could be restored, at a cost of $25,000 and resold at a discounted price of $200,000., the loss would be only $75,000.  ($300,000 less $225,000 for costs of repair less purchase price).  The third possibility was that he could use the machinery himself once it was restored, making the loss only $25,000.00 (the cost to restore to it's full value of $300,000.).         
     After assessing these values, the analysis goes further to assess the likelihood that each occurs.  In my example, the lawyer and I believed that there was only about a 10% chance the machinery would be a total loss. The settlement value of 10% of $250,000 turned out to be $25,000.  On the other hand, we agreed that there was a 50/50 chance that he could re-sell the property, making the settlement value approximately 50% of $75,000.  The chance that the only loss would be the cost of repair, or $25,000 was again only 10%, making the settlement value $2,500.00.  By assessing these potentials, and writing them out, the numbers demonstrated that if the case could be settled at something between $25,000 and $75,000, the Plaintiff would have achieved his goal of being compensated for the most likely amount of loss occasioned by the leak at the warehouse.   Whereas he arrived at the mediation assuming his case was worth no less than $250,000., he left feeling fine about a settlement of $60,000. based upon this careful analysis.
     This technique is particularly useful where, as here, there is a language barrier and the concepts are translated but the numbers are too quickly glossed over.  Somehow seeing these numbers throughout a long day's mediation can achieve a magical consensus on the value of settlement in a business dispute.
     Do you find a written number analysis useful in your mediation hearings?