The Other Side Will Not Negotiate in Good Faith. Your Options

Why there is no duty to negotiate

Texas does not impose a general obligation to bargain in good faith. In English v. Fischer (Tex. 1983) the Texas Supreme Court refused to recognize an implied covenant of good faith and fair dealing in every contract, calling the idea contrary to the state's adversary system of enforcing bargains as written. Good-faith duties exist only where a statute or a special relationship, such as insurer and insured, creates them, or where the parties wrote one into their contract. A counterparty that ignores a demand letter, sends a token offer or declines mediation has therefore not breached any duty you can sue on, however frustrating it is. The scope of the Texas rule is covered in whether Texas recognizes a duty of good faith in business contracts.

That changes if the contract contains a dispute resolution clause requiring negotiation or mediation before suit. Then the refusal may be a failure of a condition the other side itself must satisfy before it can proceed, and a party that obstructs the step tends to lose the benefit of it. Those clauses are discussed in negotiation and escalation clauses.

What "bad faith" usually is

Before reaching for tools, name the problem accurately. A refusal to negotiate usually has one of a few causes, and each calls for a different response.

• They value the case very differently, because they have not seen your evidence or because their lawyer has told them your claim is weak. More information, delivered in a form they must take seriously, is the answer.
• They cannot pay, and delay costs them nothing. The answer is to learn their finances and to move toward a judgment and the remedies that follow.
• Someone else controls the money: an insurer, a lender, a parent company. The decision-maker is not in the room, and the answer is to put that person in the room, through a deposition or a mediation order.
• The dispute is personal and they want the fight. Nothing but a ruling moves a party in that state, and the answer is to get rulings quickly.

Tool one: the Rule 167 offer of settlement

Texas Rule of Civil Procedure 167, with Chapter 42 of the Civil Practice and Remedies Code, lets a party make a formal offer that carries a penalty for rejecting it. The procedure is available once a defendant files a declaration invoking it, which must be done no later than 45 days before trial. Either party may then serve an offer that is in writing, states that it is made under Rule 167 and Chapter 42, states the terms on which all monetary claims between the parties may be settled, gives at least 14 days to accept, and is served on the other party. Offers may not be made within 60 days after the offering party's appearance or within 14 days before trial.

If the offer is rejected and the judgment on the monetary claims is significantly less favorable to the rejecting party than the offer, the court must award the offering party its litigation costs from the time of rejection to judgment. Rule 167.4(b) defines the threshold: for a claimant who rejected, a judgment of less than 80 percent of the offer; for a defendant who rejected, a judgment of more than 120 percent of the offer. Litigation costs include court costs, reasonable deposition costs, reasonable fees for up to two testifying experts, and reasonable attorney's fees, subject to a cap tied to the claimant's recovery. The rule does not reach non-monetary claims, class or derivative actions, or claims against governmental units.

The rule does not compel anyone to talk. What it does is give the silent party a number it must evaluate against a concrete downside. A defendant that has refused every overture and then receives a Rule 167 offer at a realistic figure now faces paying the plaintiff's attorney's fees through trial if the verdict comes in more than 20 percent above the offer. That tends to produce a response.

Tool two: Rule 68 in federal court

If the case is in federal court, Federal Rule of Civil Procedure 68 is the parallel device, though a weaker one. A defending party may serve an offer to allow judgment on specified terms at least 14 days before trial. If the offeree does not accept within 14 days and later obtains a judgment that is not more favorable than the unaccepted offer, the offeree must pay the costs incurred after the offer was made. "Costs" under Rule 68 ordinarily means taxable costs, not attorney's fees, unless the underlying statute defines costs to include fees. Only a defending party may make the offer. It is less powerful than Rule 167 but still forces an evaluation and creates a record.

Tool three: court-ordered mediation

Under Tex. Civ. Prac. & Rem. Code § 154.021 a court may, on its own motion or a party's, refer a pending dispute to mediation or another ADR procedure. Section 154.022 requires the court to notify the parties and gives any party ten days to object, with the court declining to refer if it finds a reasonable basis for the objection. Dallas County civil district courts order mediation as a matter of course. A party that will not negotiate voluntarily can be ordered to attend with a representative who has settlement authority, and courts enforce attendance. What the order can and cannot require, and how Dallas courts handle it, is covered in whether the court will order you to mediate.

The limit is real: a court can compel attendance, not agreement. Nobody can be sanctioned for declining to settle at a mediation. But attendance with a decision-maker in the room, a neutral's candid assessment delivered privately, and a trial date on the calendar often accomplish what six months of letters did not.

Tool four: a case that keeps moving

The most reliable response to a party that will not negotiate is to stop trying to negotiate and litigate well. Serve discovery that reaches the documents they least want to produce. Depose the decision-maker, not the account manager. File a motion for summary judgment on the claim or defense you can win on paper, because a ruling against them replaces their lawyer's optimism with a fact. Ask for a trial setting. Every one of those steps raises their cost and their risk without requiring their cooperation, and each is a moment at which a party that has refused to talk often starts talking. The points at which that typically happens are described in when business cases usually settle, and why.

What not to do

• Do not threaten criminal referral, regulatory complaints or publicity to extract payment. A demand letter can cross from advocacy into something a court will punish, and the line is discussed in the article on whether a demand letter can be defamation or extortion.
• Do not keep sending letters that lower your number. Each unanswered reduction teaches the other side that silence pays.
• Do not let the refusal to negotiate become the story. Judges and arbitrators decide cases on the merits; a party that spends its energy complaining about the other side's conduct in negotiations, which is largely inadmissible under Texas Rule of Evidence 408 anyway, has not advanced its claim.
• Do not stop preparing for trial because you expect a settlement. The party ready for trial is the one that gets offers.

Example

Suppose a Dallas architecture firm is owed $310,000 by a developer who has not responded to three letters and whose lawyer, when finally reached, offers $25,000 "to go away." The firm sues. The developer answers and continues to ignore settlement overtures. The firm serves document requests aimed at the developer's lender communications, notices the deposition of the developer's principal, and, after the developer invokes Rule 167, serves a formal offer to settle all monetary claims for $265,000. The developer lets the 14 days pass. The firm moves for summary judgment on the contract balance; the court grants it on liability. Three weeks before trial, with the court's mediation order in place and a Rule 167 offer on the record that would shift the firm's fees if the verdict exceeds $318,000, the developer's lender attends the mediation and the case settles at $280,000 with payment in 30 days. The firm never made the developer negotiate. It made the alternative worse.

When the clause requires good faith

If your contract does impose a duty to negotiate in good faith, the question becomes what the words require and whether the other side did it. Courts enforce concrete steps, such as attendance at a meeting of executives within a stated time, far more readily than a state of mind. Document each proposal you made and each response you received. If the other side skipped a required step, the remedy is usually that the condition is treated as satisfied so your claim can proceed, or that their claim is abated until they comply, rather than damages for bad faith.

Tina Wysk represents businesses in negotiations, mediation, and the Dallas state and federal court cases that proceed when negotiation fails. Her pre-litigation strategy page describes that work.