How to settle a case
“Discourage litigation. Persuade your neighbors to compromise whenever you can. Point out to them how the nominal winner is often a real loser — in fees, expenses, and waste of time. As a peacemaker the lawyer has a superior opportunity of being a good man. There will still be business enough.”
- Abraham Lincoln
Settling a case is like buying a car. It’s a transaction. So cases only settle if the parties:
agree what the case is worth; and
want to do a deal.
If we want to improve settlement rates (as Mr Lincoln beseeched), we must nurture these pre-conditions.
Agreement
To agree what the case is worth, each side must value it. This requires three Ms:
Method
Materials
Mindset
Method
We must first consider technique. How is litigation valued?
Common cases are valued like antiques — experience and gut-feel. It’s the personal injury lawyer saying “whiplash is worth $150,000 on a good day”. The lawyer is not making a calculation. They are leaning on the wisdom of history.
Over time, a “going settlement rate” emerges for particular types of cases, which lawyers can adjust up (or down) depending on the circumstances of their particular case. This makes valuing common cases relatively easy.
But uncommon or unique cases, by definition, cannot be valued from experience. Valuation requires mathematics: usually, the lawyer’s assessment of the chance of winning (%), multiplied by the amount claimed ($).
“You claim $100,000, and I judge you have a 50% chance of winning. Therefore, your case is worth $50,000.”
While this is not an exact science, in simple cases it works well enough. It is in large, complex cases we hit problems.
In complex cases, uncovering what happened takes time. Until the facts settle, lawyers may feel uncomfortable assessing the likelihood (%) of wining. The window to settle comes late.
Even when the moment arises, the formula struggles with complexity. My case has seven different arguments, of varying strengths, some dependant on what witnesses will say, and each of which will earn a different recovery — how do I put it all in the formula?
But most fatally, even if you tame the formula, what if you miscalculate? Even a 1% mistake in a large case is an expensive professional error. Lawyers are therefore hesitant to recommend large settlement amounts.
So it is rare to settle big, unique cases. Lawyers perceive valuations as too hard and too risky. But if you can’t settle, you must win. And the resulting arms race is expensive.
But if you can’t settle, you must win. And the resulting arms race is expensive.
What would work?
Training. Inescapably, lawyers must be better, more confident valuers of litigation. Methodologies exist. Unfortunately, it is one of those numerous skills which, while very important in practice, is often conspicuously absent from the law school curriculum.
Safety nets also help, so insurers must offer cover for large valuation mistakes. Increased premiums (passed onto clients) will be offset by savings (made by clients) when cases settle earlier.
Material
Once we know how to value the case (or any asset), we need information to do it. “How many miles has it done?” “How many bedrooms does it have?”
For litigation, the relevant information is:
the facts (what happened); and
the law (the consequences).
Assuming competent advice, information about the law is equally available. But facts are not. Except the simplest cases, knowledge is asymmetrically distributed. Each side only knows (at most) what their witnesses and documents know (and how convincing they are). The other side remains hidden.
This hinders settlement. After all, you can’t value a house without seeing half the rooms!
You can’t value a house without seeing half the rooms.
My first case was a good illustration of the problem. I was defending a truck company. A driver allegedly struck a pothole at the depot and jarred his back. Perplexingly, inspection of the depot showed no potholes (I know, I went out there).
We met to attempt settlement. The driver’s very eminent lawyer railed at length about his client’s poor back. Undoubtedly true, but where was the pothole? Plucking my courage, I ventured:
“Ah, thanks James, I can see your clients injury is significant, I think the real issue we’re having from our perspective…it’s a little unclear exactly what the precise mechanism of the injury was…would your client be willing to clarify exactly where this, ah, hole was in relation to the …?”
James’ interjection was swift:
“We’re not disclosing that! What do you think we are, complete idiots?!”
Bludgeoned into silence, I shut up. James switched targets, no beat skipped, next decrying our “lax maintenance”. When the monologue concluded I left.
James’s response is typical of litigation — disclose little, and get angry. Was I intimidated? I sure was! But was I convinced?
No. Like advertising, James had presented an incomplete and exaggerated version of the truth. He withheld key information. This left me with no reliable data to value the case (how did I know if the hole was a tiny crack or gaping crater), and it didn’t settle. How could it?
What would work
Honesty. Misinformation and partial disclosure is common in litigation. But as valuation requires complete information, this frustrates settlement.
To sell the house, you must allow a full inspection. Candour is mandatory. You must disclose all you know. And be entitled to the same in return.
This can be pushed too far. We must not trample the needs of confidentiality and privilege. And disclosing everything can be expensive. But equally we must not be held hostage to these ideas — the more information we supress, the less likely the case is to settle.
Mindset
So we know how to value, and know we must be candid with our opponents. But that’s not enough. Accurate valuation also requires candour with ourselves.
This is harder than it sounds. Advocates often get overconfident in litigation. In our utmost effort to craft winning arguments, we can be trapped into believing in the total merit of the case. In our divine favour. That our arguments must inevitably prevail. But this is not the mindset to value accurately. If we are passionately in love with our car, house or case, will will probably overvalue it.
Being fair, our approach is partially defensible. A common prerequisite for compelling advocacy is belief. Absent believing in your client’s cause, being hired is unlikely, and a lacklustre presentation to the decision maker assured. Clients want, and society expects, us to be fierce advocate, not an academically dry one.
But we must not get carried away. We must not be seduced by our own cleverness. We must have the professional integrity to, from time to time, stand back and think. How strong is our case — really? The ideal litigator can change speed between fierce advocacy and quiet reflection (or get someone else to). Only then can we (or they) fairly value the case.
The alternative is each lawyer, in their passion, overestimates the chance of victory. Only at the door of court, or after the case starts and the fantasy unravels, does reality strike. “The case is not as strong as we thought. We are vulnerable. We have to settle!” But the light should have dawned earlier.
What would work instead
Objectivity. While some belief is necessary for good advocacy, and confidence is reassuring for the client, the client is not otherwise served by unsupportable proclamations of surety. If both generals are equally optimistic there will be no peace.
The client is not served by unsupportable proclamations of surety.
We must balance reassuring optimism with clear-eyed realism. Only then can we accurately value the case, and have the right mindset to settle.
The final factor
Settlement only happens in cases about divisible things. Money? Fine. Family law parenting disputes? Impossible (we can’t, unlike King Solomon, cut the child in half). The all or nothing nature of the dispute leaves litigants unable to accept some in settlement of all.
Upset clients
Accurate valuation is the first step. But there is a second. The client must want to settle.
This is also a common hurdle. Litigation can make people emotional. Upset. Angry even. And in this state, rather than recognising all litigation has a price, it becomes a crusade, where anything less than total victory is unacceptable capitulation. For this reason, embroiled clients often resist settlement efforts (even good deals). Emotion clouds judgement.
Also, sometimes it’s not about the money. A client’s motivation may not be primarily economic. It’s for the principle. We want to create a new law. I’ve come too far to settle now. Such mindsets may be noble, but are a menace to settlement efforts. If it’s not about the money, how does offering cash entice you to quit?
What would work instead
Anger management. It is good advice to count to ten before losing your temper, and similarly prudent for clients not to make settlement decisions when upset.
Lawyers have an important, almost paternal, role to play here. We must help the client see litigation through a dispassionate lens. A lens where dollars and sense drive decisions, not hurt feelings.
Personal injury litigation provides a good example of neutralising unhelpful emotion. The “no win, no fee” arrangement takes the settlement decision from the (emotional) client, and bestows it, paternalistically, on the (unemotional) lawyer. Settlement rates in these disputes are very high.
Conversely, in family law matters, clients are often very upset, but retain their hands on the wheel of the settlement decision — settlement is far rarer. Anger clouds the sensible way.
Conclusion
Whether it’s a car or a company, transactions generates net wealth for society. Deals are a good thing. Settlement is no different.
But we do not achieve deals by simply imploring litigants and lawyers to “try and settle”. Nor should cases be settled out of fear, fatigue or finger in the air assessments of case value. No less than other areas of the economy, a sale requires a scientific valuations, plenty of information and a cool head — not coercion or exhaustion.
No less than other areas of the economy, a sale requires a scientific valuations, plenty of information and a cool head — not coercion or exhaustion.
Of course, we may not want the case to settle. Or we may think the new skills, cultural shift and increased candour is too high a price to pay for increasing settlement rates. This is a legitimate perspective.
But we cannot have our cake and eat it too. If we want more cases to settle, and live up to Mr Lincoln’s timeless mandate, this is the unavoidable cost.
About the author
Samuel J Woff is a leading commercial construction law and construction litigation specialist, advising on complex and high-stakes project and major infrastructure disputes.
Prior to launching his solo (but national) consulting practice, Samuel had more than ten years experience working in private practice at some of Australia’s largest law firms.
Copyright 2023 Samuel J Woff
