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Case Settlement or Trial?: The Risk/Reward of Litigation & The Myth of Tort Reform

I saw an interesting article in the New York Times about a study that confirms something that I have believed to be true for as long as I have been a plaintiff trial lawyer. The study found that plaintiffs, on average, receive far better litigation results by settling their case than they do by going to trial. The study was co-authored by Randall L. Kiser a principal analyst at DecisionSet, a litigation consulting firm. Kiser said: “The lesson for plaintiffs is, in the vast majority of cases, they are perceiving the defendant’s offer to be half a loaf when in fact it is an entire loaf or more.”

While many people believe that the system is broken and in need of reform (see previous post) and runaway juries are often giving out seven figure verdicts, the truth is, confirmed by the soon to be released study, that most plaintiffs get less money at trial than the settlement offer that was made prior to trial (so much for the “frivolousness” of litigation!) The study found that Defendants made the wrong decision to proceed to trial only 24% of the time, while plaintiff were wrong in 61% of the cases. In only 15% of the cases, both sides were correct in choosing a trial; in those case, defendant paid less than the amount plaintiff demanded, but plaintiff got more than defendant offered. The study, to be published in the September issue of the Journal of Empirical Legal Studies, was based on approximately 2000 cases over a three year period from 2002 to 2005.

The majority of cases settle; according to Kiser, some 80 to 92% of them, which runs contrary to conventional lay thinking that so-called greedy trial lawyers try cases in an effort to collect higher contingency fees. The truth is that the defendants, almost always, choose which cases are going to trial by the case appropriate or inappropriate offers they make. The study makes it quite clear that plaintiff lawyers do not have a significant financial interest in trying cases as opposed to settling them.

It is interesting to note that the study found that more-frequent plaintiff attorney mistakes in choosing trial over settlement were much less costly than less-frequent defense attorney mistakes. The average cost to plaintiff of an incorrect decision to go to trial was approximately $43,000; for defendants, it was a whopping $1.1 Million.

The authors of the study suggest that lawyers may not be properly explaining the odds to their clients. With all due respect to their opinion (this was not part of their official findings), my 30 plus years of experience tells me that the more significant issue is that some clients don’t listen to their experienced lawyers and force trials when they should settle. Those that ignore the advice of counsel often learn a hard lessen in the courtroom. The study also found that poor decisions choosing trial over settlement have risen over the last 40 years.

Trying to predict results or handicapping the outcome of litigation is very difficult; I know, I do it for a living. The very essence of a litigation funding professional like me, especially in my fiduciary capacity to investors, is to attempt to predict the litigation outcome. If I choose well, my legal finance company and its investors make a profit; if I choose poorly or some intervening event causes the litigation to fail, our lawsuit financing dollars are forfeited. Legal funding is an extremely risky business. Obviously, for the lawsuit finance professional, a value-appropriate settlement is preferred over a risky trial. This is a key reason why an ethical pre-settlement funding company will, by contract, relinquish any control in the litigation it funds.

I found it quite interesting that an economist and co-author of the study indicated that the study’s finding were consistent with prior research on human behavior and risk response. Martin A. Asher said that people are much less willing to risk expected gain and much more willing to risk that which they may lose. “If you approach [a group] and say, I’ll either write you a check for $200, or we can flip a coin and I will pay you nothing or $500, most students will take the $200 rather than risk getting nothing”, says Mr. Asher. If, however, you reverse the situation, where group members have to write the check, they will flip the coin, risking a bigger loss in the hope that they will pay nothing; there is more willingness to gamble in that situation.

Lawsuit Financial is one injury case funding company that is willing to take a huge gamble on litigation. The experienced law suit finance company has written checks to countless accident victims with only their personal injury cases or employment cases as potential collateral for repayment. Lawsuit Financial provides legal funding to seriously injured victims of negligence, whether injuries result from a defective product, or from an Automobile Accident, Slip & Fall, Medical Mistake, or other act of negligence by another.

If you have a pending personal injury case and require lawsuit funding visit our website at www.lawsuitfinancial.com or call us, toll free, at 1-877-377-SUIT (7848) for a free analysis of your case funding situation. The call to Lawsuit Financial is absolutely free; the advice is priceless.