Among the most prominent terms of art in the mediation field in recent decades are the acronyms BATNA and WATNA—representing, respectively, the “best” and “worst” alternatives to a negotiated agreement—as developed by Roger Fisher and William Ury of the Harvard Negotiation Project. See generally Fisher & Ury, Getting to Yes, Negotiating Agreement Without Giving In (Penguin 3rd ed. 2011).
The idea is to narrow the negotiation range by asking the participants to focus on their perception of the best and worst results they might achieve through alternatives, including (most likely) continuing to litigate, taking into consideration not only merits risk but also the sheer expense of reaching the finish line, as well as intangible considerations such as impacts on ongoing relationships and resources. To the extent that the participants’ respective BATNA and WATNA assumptions are shared with the mediator, they may also flesh out broader drivers that can be useful in testing positions and framing negotiations.
While some mediators employ BATNA and WATNA dogmatically as a compulsory exercise in metrics with spreadsheets and percentages, others get to the same place in a less formalized fashion. The discussion may simply engage conceptually on what happens if a settlement is not reached. And the exercise can even be broken down into pieces. Perhaps one discussion will focus on liability assessment and another on the potential damages range. The cost of litigating might be tackled separately and then the numbers or ranges aggregated to build an overall picture of the best and worst litigation outcomes absent a settlement.
Once focused on the best and worst alternatives to a negotiated resolution, economically rational participants, in theory at least, should be willing to negotiate within those bookends. Of course, the perception of BATNA and WATNA are ultimately in the eyes of the beholder, and emotions or other intangible factors may influence the negotiation dynamics.
Decision Tree Analysis
Still other mediators prefer to use “decision tree” analysis to explore and compare potential alternative outcomes. Rather than producing a mathematical spreadsheet, the exercise builds a literal diagram of decision forks with potential outcomes, costs, and consequences, to facilitate a discussion of risks and ranges. See David P. Hoffer, “Decision Analysis as a Mediator’s Tool,” 1 Harv. Negot. L. Rev. 113 (Spring 1996). Probabilities can be assigned to each stage and fork, painting a visual schematic of the litigation road and possible results.
Particularly for participants less familiar with litigation or unsuited to grapple quantitatively with spreadsheets, a decision tree can provide a tangible flowchart that is perceptible and seemingly scientific. Decision tree analysis is also quite prevalent in the world of business management (as in daily life) and so may have more appeal than other technical models from the pure standpoint of familiarity.
Bid Movement, Midpoints, and Brackets
Once an initial demand and offer emerge, mediation participants tend to become obsessed over the amount of each corresponding move and the current midpoint of the spread. Those metrics are more interesting if the bids and offers are realistic. Too often, though, the opening demand is inflated (and even stratospheric) and attracts a reciprocal lowball response, rendering analysis of the movement size and midpoint meaningless. The mediator is left to exhort the parties to become more realistic.
When the bidding becomes reasonable, assessing movements in either abstract or percentage terms may provide a useful benchmark for framing next moves. The size of moves and shifting of midpoints can send adept signals, especially over several rounds of negotiations. Correlatively, too much attention to the size of movement and midpoint can produce lockstep moves that prolong the mediation process.
Parties can avoid a lockstep dynamic by taking some chances, being bold, and inviting the other side to reciprocate. Sometimes, simply presenting an odd sounding number can break the lockstep phenomenon. Or a move can be accompanied by a strong signal that the negotiation will not proceed in lockstep and that the current midpoint has no import.
The talismanic focus on midpoint also plays a role if at some stage a mediator explores acceptable negotiation “brackets” with the parties. Seldom will the parties concur on the appropriate bracket, particularly if they insist on a specific bracket midpoint, resulting in a “battle of the brackets.” Sometimes the brackets they respectively endorse do not even overlap. But achieving agreement on brackets is typically not the goal. Instead, brackets are simply a tool for the mediator to get a better sense of settlement appetites and achieve some momentum toward compromise. See Michael Young & Marc Isserles, “Overcoming Impasse at Mediation: Bargaining with Brackets,” 255 N.Y. L.J., no. 25, Feb. 8, 2016.
Comparative Settlement Metrics
While no two cases are identical, referencing settlements and litigated outcomes in comparable cases provides another useful metrical benchmark. Rather than testing assumptions and valuations abstractly, a deft mediator can ask for comparables and use them as a baseline for exploring whether any distinctions affect the settlement range. Publicly available information and litigation support services data often abound on the outcome of similar disputes, and the lawyers involved will likely have been involved in additional precedents. See Jacqueline Perrotta & Frank Proscia, “Use of Quantitative Data in ADR,” 40 Alternatives, no. 2, Feb. 2022.
Net Recovery Calculations
If a party’s recovery is subject to deductions, the deductions must be factored into the negotiations to calculate how much the client will actually clear. The classic example is a contingency arrangement, whether in an individual or class action. But there may also be up-front lien satisfaction to contend with, e.g., for Medicaid or workers’ compensation. Litigation funding, becoming more common in the commercial landscape, is another variable that haircuts the net return. And, of course, any recovery may be subject to taxation.
From the defendant’s standpoint, anything that deducts from the recovery is irrelevant; the bottom line is all that matters, regardless of how it is allocated and how much reaches the other parties in the end. But selling the deal to a recipient will depend on a sufficient net amount after the deductions. A good plaintiff’s lawyer will recognize that something is better than nothing and shave the fee percentage if necessary to get over the finish line. Liens are also often negotiable, which can help increase the net figure.
In class actions, class counsel’s “index” based on its hourly rates plus expenses is a useful point of reference. If counsel’s expected fee award percentage is 25–33 percent of the settlement fund, it is fairly simple to extrapolate the fund size needed at least to cover the firm’s investment in the case and how larger settlements translate into fee awards generating profit.
Many businesses and insurance companies establish reserves for litigation exposures and adjust them over time as positive and negative developments occur. These reserve calculations reflect judgments as to the “probable” and “estimable” exposure as an accounting measure for purposes of financial statements. As a result, any reserve balance has by definition already been taken as an expense, and paying settlement funds from the reserve therefore will not constitute a current expense or generate a loss. And if the settlement comes in below the reserve level, the unused portion is “gain,” which can be taken back as income.
A mediator’s ability to tease out reserve levels provides valuable information. Settling within the reserves will make defense counsel heroes. Conversely, if the mediation establishes that the reserves are inadequate to resolve the matter, the defendant may need to rethink the level and take an additional charge to income to enlarge the pot. Many insurance companies, moreover, strive to get long-dated matters resolved to free up any excess reserves. See David Brown, “A Mediator’s Guide to Claims Reserves in the Insurance Industry,” JAMS ADR Blog, June 4, 2021.
Less Formal Metrics
Other metric tools may be less refined tools that can help break the mediation ice. If all else fails for a participant convinced of 100 percent victory, the “crazy” judge or jury theory—espousing that there is some risk that any judge or jury could get it wrong—may at least achieve a modest discount. Indeed, most law firms will shy away from predicting outcomes in percentage terms, and few will stray much from expressing an opinion in terms of the “better” side of the case or deviating far from the 60–40 percent range. If the matter is on appeal at the time of mediation, a mediator might, as a starting place, point to the abstract rate of appellate reversal before turning to whether the appellant stands the better chance.
Metrics in Nonmonetary Disputes
Nonmonetary aspects of disputes obviously may be less conducive to metrics analysis. If the relief sought includes specific performance of a contract or possessory rights to a unique asset, quantifying risk and cost may be of little use. If the point of litigation is to vindicate a reputation, a retraction or acknowledgement may be more important than any monetary offer or award.
Indeed, in some respects, even seemingly monetary disputes may have an undercurrent of emotions and personal conflict that cannot be neatly reduced to numbers. Perhaps the litigation is affecting a key employment or customer arrangement or even a personal relationship. Or feelings of betrayal or firmly held principles might make the money less important. Even if the need for an acknowledgement of culpability or responsibility cannot be expressed in numbers, a sincere apology or acknowledgement at the right time can help refocus the discussion around dollars and metrics.
And if nonmonetary aspects cannot so readily be assessed in quantitative terms, some metrics may yet be helpful around the edges. Overall assessments of litigation success and costs, for example, can still provide a backdrop for discussing potential compromises or substantive terms. Tackling the monetary aspects first can often generate momentum for the rest.
Pitfalls of Metrics
While useful tools at times for the mediator, metrics have their limits and, at times, their perils. As noted above, some eyes glaze over when confronted with numbers and percentages, and such participants end up more confused by the metrics exercise. Inevitably, opposing participants are apt to analyze the metrics differently, potentially reinforcing their preconceptions and making them dig in harder to resolute positions. And mediations are dynamic, so a participant’s focus at one point on metrics may move on to other considerations as the mediation progresses. Referring back to earlier metric discussions may then be counterproductive and actually inhibit momentum.
If numbers and quantitative analysis intimidate some participants (including the lawyers), metrics still can play a role but need to be used in a gentler and less formal manner. Spreadsheets and even decision trees may be a bridge too far, but discussing potential costs and outcomes in rough conceptual ranges or estimates may still be constructive.
Mark Twain is quoted as saying “If the metrics you are looking at aren’t useful in optimizing your strategy, stop looking at them.” In mediation, there can be a time and place for metrics to advance the process, but occasions may arise when they serve little purpose or actually derail progress.
Mediators who come to a session intent on a regiment of metrics analysis may be stepping on a landmine. Establishing rapport first with the participants and counsel will inform whether metrics can play a role and, if so, how and when to introduce them for a constructive mediation process.