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When to Settle a Case — A Matter of Arithmetic and Other Things

by | Jan 15, 2023 | Business Litigation, Firm News, Real Estate Litigation, Trust & Estate Litigation

Buffington Law Firm’s litigation attorneys often use mediation or other forms of alternative dispute resolution as an alternative to taking a case to trial.  Statistically, in California it is said by some authorities that up to 97% of all civil lawsuits settle out of court, with presumably about three percent of them going to trial and resolving that way.  Thus, when you bring a lawsuit or if you are being sued, it is much more likely that your case will reach a negotiated settlement than is resolution by actual trial.

There are many reasons for this.  Sometimes settlement appears to be dictated by simple arithmetic.  For example, a Plaintiff may be suing a Defendant for $250,000, not at all an uncommon figure in today’s world for even a modest lawsuit. The Defense attorney may evaluate that the Plaintiff has maybe a 40% chance of winning in court, or some similar figure.  This makes this a moderately strong Plaintiff’s case.  Expected value theory would compute that the case is “worth” $100,000 minus attorney’s fees to the Plaintiff, i.e. 40% x $250,000 = $100,000 less attorney’s fees to achieve the verdict.  In a typical case attorney’s fees might well be $50,000, or even more, depending upon the complexity of the case and many other factors.  Thus, the real value of the case is perhaps in the vicinity of $50,000 ($100,000 – $50,000 in fees).

A case like our example would very likely settle because settlement is in the interests of both sides.  For example, if Defense counsel could achieve a settlement for his or her client for $35,000, this would generally be considered a good outcome for the Defendant.  This is simple dollars, cents, common sense, and probabilities.  Put simply, it will almost certainly cost the Defense more than $35,000 to take the case to trial.  While the probabilities favor a Defense verdict in our example, this is not a certainty.  Thus, the alternatives for the Defense are: 1) settle the case and pay $35,000 and not risk a big Plaintiff’s verdict or 2) try the case at perhaps a $50,000 cost, and still have a risk of a Plaintiff’s verdict of $250,000.  This is the proverbial “no brainer” for both sides.  In the trade, such a settlement is often referred to as a “cost of defense” settlement, where the Defendant, who has no real upside at trial other than the psychological satisfaction of a court win, can get out of the case for (or less than) the cost of defense and bear no other risk.

Our example is a good deal for the Plaintiff as well.  The Plaintiff gets $35,000 without having to risk paying his or her attorney and losing the case anyway.  Plus, the Plaintiff (and Defendant) avoid the enormous mental and physical wear and tear of preparing for trial.  This factor should not be minimized by anyone.  Trial is fun only for attorneys.  It is a significant psychological strain for most litigants, not to mention both sides are fronting attorney’s fees which is never any fun.

This example seems simple enough, but many litigants resist this kind of logic when well-meaning attorneys explain it to them.  Plaintiffs argue that they believe that they are entitled to the damages they are claiming.  Defendants often cannot understand why they should pay any money to a Plaintiff with (what they often believe is) a meritless case.  But the way our civil justice system works is not based solely upon rights and wrongs, but also upon probabilities and possible outcomes.  Don’t believe me?  Well, I’ve never ran into a Judge who disagreed with me on this.

Besides the simple probabilities and arithmetic of our example, settlement has other advantages for many cases, including:

  • Controlling the outcome.  By settling a case, a litigant does not place his or her fate in the hands of a hard-hearted judge or an unpredictable jury.  By definition a settlement is something that each side has decided that he or she can live with.
  • Timeliness.  Settlement generally occurs much quicker than a trial outcome.
  • Finality.  Settlements are generally unappealable and final.  A Superior Court trial may go up on appeal, with the outcome uncertain for another year or more.
  • Collectibility.  Even if a Plaintiff wins the case, collecting the judgment from the Defendant is not always simple.  Settlements usually have safeguards built into them that mostly eliminates this risk.
  • Privacy.  Settlements can be confidential.  Court verdicts never are.

There are other factors in favor of settlement.  There is a reason by over 95% of California civil cases conclude by settlement rather than trial.  It is usually better for both sides.  There are exceptions.  Some cases simply need to go to trial, no doubt of this.  There is a time and place for trial and trial does not have to be ruinously expensive.  If you have a civil or probate dispute within our  Practice Areas and are seeking an attorney, Buffington Law Firm invites you to contact us for a Free Legal Consultation.  All consultations are with an experienced civil litigation and probate attorney and are fully protected by the attorney-client privilege.

Roger J. Buffington