This week I read an article in NEGOTIATION BRIEFINGS, July 2014, Program on Negotiation at Harvard Law School by Max H. Bazerman, Professor of Business Administration, Harvard Business School. He discussed using final -offer arbitration (FOA) as way of putting “fair” offers to the test. FOA is also known as baseball arbitration. In FOA, each party submits its best and final offer to an arbitrator, who must select either of the two offers and not any other value. The parties cannot appeal the arbitrator’s decision.
FOA could be used effectively in family law negotiations and mediations when the parties are too far apart on their offers and neither seems willing to move on the issue. For example each side might be too far apart on the value of real estate, a business or on the percentage division of the community estate. Let’s say wife places a value on the house at $300,000 and husband at $450,000. Despite competing appraisals and their personal opinions, neither will give an inch on their values. The lawyers or mediator could explain the concept of a FOA and that the mediator for this limited purpose would be the arbitrator (or they could select another person). If the parties agree to use FOA, they face a real dilemma-one value will be selected, either $300,000 or $450,000 and it is not appealable.
FOA or the prospect of FOA causes husband and wife to get real and become reasonable. They have a strong incentive to deliver an offer (value) the arbitrator would view as the most reasonable. As Max Bazerman says: “The logic and power of FOA is that the uncertainty it creates leads parties to reach agreement, avoiding arbitration and litigation. In Major League Baseball, for example, teams’ and players’ uncertainty about what an arbitrator might decide typically drives them to reach agreement on contract disputes.”
The same logic applies in family law disputes if party A wants a 60/40 property split in A’s favor and party B wants the opposite.
The uncertainty of the FOA outcome pushes the parties to reasonableness, because they lose control of the outcome. Similarly, the uncertainty, risk, stress and expense of no agreement and thus litigation should push parties to an agreement. As I explain in mediations, today you have control over the terms of the agreement. However, you will have no control over the outcome of a court’s ruling. I then tell them, “Going to court is like taking your favorite dog to a partnership between a veterinarian and a taxidermist. The only thing you know for sure is that you will get your dog back.”