The Case for Settlement

I settled a case last week and thought I would explain “settlement” to you.

Most cases are settled. The vast majority of cases settle at some point prior to trial, often “on the courthouse steps”. That being the case, it is essential for clients to know about how and why cases settle and the pros and cons of settlement.

Settlement necessarily involves compromise. So why settle cases? For one, it is certainty. There is no more risk of losing at trial. That’s worth something. It’s like buying insurance. We are prepared to throw away certain money to eliminate the risks of certain losses which may occur, but may not.

Settlement is finality. No more sleepless nights worrying about the outcome of the litigation. Settlement also means money in hand, not some judgment that may be worthless.

The particular case I was on was scheduled to go to arbitration. We were seeking $100,000; the other side claimed we were entitled to nothing. It was an all-or-nothing case. If we won, we got $100,000; zilch if we lost.

The other side requested a mediation, instead of arbitration. That’s good, as it meant that they were prepared to write a cheque. One would not go to mediation and expect the other side to fold.

As it turns out, our case was going to be won or lost on credibility. Both key witnesses had entirely different stories, both of which were believable on their own, but which were utterly irreconcilable. Our odds were going to be 50/50 at arbitration.

The other side eventually put $50,000 on the table, as a final offer. I did not try to sell it to the client, but I explained it to him this way:

If you made a bet on a coin toss and then the losing party offers to go “double or nothing” on a second toss of the coin, how risky is that second bet? If you won $50,000 on the first toss, would you go double or nothing, or is that too much risk for you?

It turns out that it was too much risk and the client took the $50,000. He’s not happy. The guy that is paying the $50,000 isn’t very happy either. However, both sides are satisfied with the process and the final deal.

I always tell clients that if you settle an action and both sides walk away equally pissed off, then you have probably made the right deal. (Pardon the language, but it is the expression that I actually use and it is the word that best describes clients’ feelings in that situation.)

When assessing settlement, look at your best and worst-case scenarios. Settlement should find you somewhere between those extremes. How far way from the mid-point will be determined by an examination of the weaknesses and strengths of your respective positions.

Finally, when deciding whether you settle, what is your best alternative to a negotiated agreement? You had better be prepared to accept the consequences of not settling.