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Study Finds Settling Is Better Than Going to Trial

Tuesday, 11th November 2008

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Commentary to the article was provided by Rex Bush, webmaster of this blog’s affiliated website: Utah-Personal-Injury-Attorney.com. Click here Utah Injury Attorney to visit our home page and access other relevant articles on Utah injury law.

Here is discussion of a very important study that has implications for Utah attorneys and their clients.

This recent study has shown that, for plaintiffs i.e. the person who files the claim, settling is better than going to trial.

Here are excerpts from an article by Jonathan Glater in the August 8, 2008 edition of the New York Times which discusses this groundbreaking study.

“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,” said Randall L. Kiser, a co-author of the study and principal analyst at DecisionSet, a consulting firm that advises clients on litigation decisions.

That is the clear lesson of a a recently released study of civil lawsuits has found that 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.

According to the study; plaintiffs were wrong in 61 percent of cases. Defendants made the wrong decision by proceeding to trial far less often, in 24 percent of cases.  In just 15 percent of cases, both sides were right to go to trial — meaning that the defendant paid less than the plaintiff had wanted but the plaintiff got more than the defendant had offered.

(Blogger’s note:  Utah attorneys who have practiced for some time will likely concur anecdotally with these findings.   We’ve all seen cases where the plaintiff should have settled but did not and ended up worse at trial.  It’s like the Kenny Rogers song:  “you have to know when to hold them, when to fold them, when to walk away and when to run.”)

The vast majority of cases do settle — from 80 to 92 percent by some estimates, Mr. Kiser said — and there is no way to know whether either side in those cases could have done better at trial. But the findings, based on a study of 2,054 cases that went to trial from 2002 to 2005, raise provocative questions about how lawyers and clients make decisions, the quality of legal advice and lawyers’ motives.

Critics of the profession have long argued that lawyers have an incentive to try to collect fees that are contingent on winning in court or simply to bill for all the hours required to prepare and go to trial.

“What I would want them to look at was whether or not the lawyers had a strong financial incentive to go to trial,” said Cristina C. Arguedas, a criminal defense lawyer in Berkeley, Calif., when told of the study. “I’m not suggesting the answer, because I don’t know, but that would be my question.”

The study, which was published in the September issue of the Journal of Empirical Legal Studies, does not directly answer Ms. Arguedas, but it does find that the mistakes were made more often in cases in which lawyers are typically paid a share of whatever is won at trial.

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.

(Blogger’s note:  As a Utah attorney, I can say that these numbers are probably high when compared to Utah verdicts as our juries number among some of the more conservative in the country.)

“Most of the time, one of the parties has made some kind of miscalculation or mistake,” said Jeffrey J. Rachlinski, a law professor at Cornell who has studied how lawyers and clients decide to go to trial and who is co-editor of the journal. “The interesting thing about it is the errors the defendants make are much more costly.”

The study’s authors have analyzed some data from New York and, after a review of 554 state court trials in 2005, have found parties to lawsuits making the wrong decision at comparable rates.

The findings suggest that lawyers may not be explaining the odds to their clients — or that clients are not listening to their lawyers.

“It’s entirely possible that the attorneys are not giving adequate advice,” said Mr. Kiser, who is also a lawyer but is not practicing. “An attorney could advise a client that they have a strong defense to enforcement of a contract, but that is not the same thing as forecasting what the likely outcome at trial would be.”

As part of the study, which is the biggest of its kind to date, the authors surveyed trial outcomes over 40 years until 2004. They found that over time, poor decisions to go to trial have actually become more frequent.

“It’s peculiar if any field is not improving its performance over a 40-year period,” Mr. Kiser said. “That’s a troubling finding.”

Law schools do not teach how to handicap trials, nor do they help develop the important skill of telling a client that a case is not a winner. Clients do not like to hear such news.

“Most clients think they are completely right,” Michael Shepard, a lawyer at Heller Ehrman in San Francisco. A good lawyer has to be able to tell clients that a judge or jury might see them differently, he continued. “Part of it is judgment and part of it is diplomacy.”

(Blogger’s note:  As a Utah attorney I can say that it is true that most clients do think they are right however most clients are also open to the sound advice from an experienced attorney about what is likely to take place at trial.)

Several lawyers were dismissive of the study, noting that the statistics mean nothing when contemplating a particular case, with its specific facts and legal issues, before a specific judge. They stressed the importance of a lawyer’s experience.

But the study tried to account for that possibility and found that factors like the years of experience, rank of a lawyer’s law school and the size of a law firm were less helpful in predicting the decision to go to trial. More significant was the type of case.

For example, poor decisions by plaintiffs to go to trial “are associated with cases in which contingency fee arrangements are common,” according to the report. “On the defense side, high error rates are noted in cases where insurance coverage is generally unavailable.”

The findings are consistent with research on human behavior and responses to risk, said Martin A. Asher, an economist at the University of Pennsylvania and a co-author. For example, psychologists have found that people are more averse to taking a risk when they are expecting to gain something, and more willing to take a risk when they have something to lose.

“If you approach a class of students 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, Mr. Asher said.

But reverse the situation, so that students have to write the check, and they will choose to flip the coin, risking a bigger loss because they hope to pay nothing at all, he continued. “They’ll take the gamble.”

The third co-author of the study was Blakeley B. McShane, a graduate student at the Wharton School of the University of Pennsylvania.

(Blogger’s note:  Practicing for 20 years here in Utah I’ve found that the following technique aids greatly to assist the client to make the right decision about whether to settle or try the case.  I ask the client to imagine being a juror along with seven others from the county where the accident took place.  The jurors are representative of registered voters in the county.  The jurors are deciding a personal injury case much like the client’s.  The injuries are the same, as is the treatment, the amount of the medical bills and the lost income.  What would he and the other juries award that person.  I’ve found the client will almost always come up with a number that is close to my valuation of the case.

2 Comments to 'Study Finds Settling Is Better Than Going to Trial'

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  1. liger said:

    hey…

    Not enought information…

    Thu 1st January, 2009 at 2:19 pm
  2. Utah-Per said:

    To Liger, Thanks for stopping by. What information do you feel is lacking?

    Mon 26th January, 2009 at 7:44 pm
 
 
 

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