Mediators and advocates often say at some point during mediation something like the following: A good settlement is one where everyone is equally unhappy. I admit I used to say this in my mediation openings. But that was before I became a student of mediation, and before I began to study the works of William Ury, author of Getting Past No and co-author of Getting To Yes. Now, instead, I say in my mediation openings that a good settlement is one that is better than the party’s BATNA.
BATNA stands for Best Alternative To a Negotiated Settlement. It is what you need to know in order to evaluate any settlement proposal. This is because you are not measuring a settlement proposal against your proposal — that is artificial and unproductive when your settlement proposal has been rejected. You are instead comparing any settlement proposal on the table to your BATNA — your Best Alternative To a Negotiated Settlement — so that you can decide whether to accept or reject that proposal. You must know your BATNA in advance, and put yourself in a position so that you have the strongest BATNA, in order to enter the mediation process with strength and negotiating power.
For example, if there is a mediation of a breach of duty case between a trustee and a trust beneficiary, the trustee may evaluate her BATNA as proceeding with a trial where she believes she has a better-than-fair chance of prevailing. She can do things in advance to improve her BATNA, such as hiring excellent counsel and making sure she has a good expert witness, if appropriate. But the trustee’s BATNA must include consideration of the cost, time and risks involved in litigation. It must include consideration that she may lose the case and face a surcharge damages award. When compared to her BATNA, the trustee may be willing to consider a settlement which has her paying a portion of her own legal fees, or giving up compensation, as a better option than her BATNA which includes significant personal risk.
The litigating beneficiary’s BATNA may also be to proceed with litigation, with the beneficiary acknowledging that if he prevails, the damages award will be paid to the trust and not to him personally. If the beneficiary’s real interest is in putting money into his pocket now, he may evaluate a settlement proposal which has him getting cashed out, even at a discount, as better than his BATNA. Or, he may view the trustee’s willingness to nominate her replacement (if the trust allows) as better than a BATNA where even if the beneficiary succeeds in removing the trustee, he is still stuck with an unfriendly successor fiduciary.
Evaluation of a party’s BATNA, and the opposing party’s BATNA, seems deceptively intuitive and basic. However, many attorneys and clients in trusts and estates mediation have not put any thought whatsoever into what their next best alternative to settlement might be. In one recent mediation, a discussion about a trustee’s BATNA lead her to reject an agreement which kept her tied up with the other parties, and instead to simply resign as trustee without an agreement. In another mediation, one party’s knowledge of his BATNA — a good chance at winning a summary judgment motion disposing of the entire case, but at great personal sacrifice for him to be able to afford the legal fees to get there — lead that party to be able to reach a favorable settlement.
Especially in trusts and estates mediation, identifying a party’s BATNA requires knowledge of the applicable law, understanding of the testamentary instruments, and experience in litigating T&E disputes. Spend the time before mediation to identify and discuss your client’s BATNA and the other side’s BATNA. This will give your client the ability to properly evaluate all settlement offers at mediation, and it will give you, the party’s attorney, an opportunity to contribute in a meaningful way to a positive outcome.