Make The Deal: You Are Better Off

From the Blog of Phyllis G. Pollack.

       It is always better to settle. This is the conclusion drawn in a soon-to-be released study of civil lawsuits: “. . .most of the plaintiffs who decided to pass up a settlement offer and went to trial ended up getting less money than if they had taken that offer.” (“Study Finds Settling Is Better than Going to Trial” by Jonathan D. Glater, New York Times, August 7, 2008.)

       According to the study, defendants made the wrong decision to proceed to trial in 24% of the cases while plaintiffs committed this same error in 61% of the cases studied. In only 15% of the cases – did both plaintiff and defendants choose correctly: as a result of a trial, defendants paid less than the plaintiffs demanded but plaintiffs did obtain more than defendants offered in settlement. (Id.)

       This study will be published in the September issue of The Journal of Empirical Legal Studies by Randall L. Kiser, principal analyst at DecisionSet, Martin A. Asher, an economist at the University of Pennsylvania and Blakeley B. McShane, a graduate student at the Wharton School of the University of Pennsylvania and is based on a study of 2,054 cases that went to trial between 2002 and 2005. It found that,

      “On average, getting it wrong cost plaintiffs at about $43,000; the total could be more because information on legal costs was not available in every case. For defendants, who were less often wrong about going to trial, the cost was much greater: $1.1 million.” (Id.)

       Does this mean that lawyers may not be explaining enough to their clients? That is, not giving them the full and complete picture about the risks of trial? Or, are the clients simply not listening? Quite possibly, both answers could be correct. Without doubt, the study found that over the last forty years, “poor decisions to go to trial have actually become more frequent.” (Id.)

       The study further found that this poor decision making could not be correlated to such factors as the lawyer’s experience, where she attended law school or the size of her firm but rather, with the type of case. That is, for a plaintiff, a contingency fee case will more often go to trial while for a defendant, a case in which no insurance coverage exists, will more often go to trial. (Id.) Why? It has to do with risk taking and/or risk adversity: “. . .people are more adverse to taking a risk when they are expecting to gain something, and more willing to take a risk when they have something to lose.” (Id.)

       In practical terms what does this mean? It means that a party’s BATNA or Best Alternative To A Negotiated Agreement (February 28, 2008 Blog) which oftentimes means going to trial is actually a party’s WATNA or Worst Alternative To A Negotiated Agreement.
 

      It means that going to mediation should be taken seriously and utilized to the utmost since it offers a better outcome than trial. By settling at mediation, both plaintiffs and defendants will do much better than had each proceeded to trial.

       . . . Just something to think about.   

                        author

Phyllis Pollack

Phyllis Pollack with PGP Mediation uses a facilitative, interest-based approach. Her preferred mediation style is facilitative in the belief that the best and most durable resolutions are those achieved by the parties themselves. The parties generally know the business issues and priorities, personalities and obstacles to a successful resolution as… MORE >

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