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Trial or Settlement

A new study, reported in the New York Times today, suggests that most of the people who choose to take a case to trial rather than settle are making a mistake, since in most cases, the amount they would have received (or would have had to pay) in settlement is more favorable than what they obtained at trial. The article suggests that perhaps attorneys, who have a financial interest in continuing the case to trial, do not sufficiently encourage their clients to consider settlement rather than trial. I believe this does happen sometimes.

I have seen cases where a client rejected a settlement offer and obtained a less favorable result at trial, particularly when the costs of trial are taken into account. Since that is such a painful experience for clients, I try to advise clients as fully as possible of the costs and risks of trial versus the amount of the settlement offer. My feeling is that it is much better from a client relations point of view to be as realistic as possible about the costs and risks of trial. Being overly optimistic does not serve the client’s interests, and ultimately does not serve my interests, because the client is not going to be happy about an outcome at trial that is worse than the client expects. Whether to accept a settlement offer should therefore be the client’s decision, aided by his lawyer’s best assessment of the amount of the proposed settlement as opposed to the costs, risks, and possible upside of trial.

There is a moment in most cases, or perhaps several moments, when the client has to choose between two problematic alternatives. At some point the plaintiff will usually be offered the choice of accepting a settlement that is less than he believes he is entitled to, or of taking a case to trial and receiving an unknown amount, perhaps nothing. From the defendant’s point of view, the choice is between paying more than the defendant feels it should, or taking the risk at trial that the defendant will still have to pay more than it should, plus accumulating costs and attorneys’ fees. You will never know if you have made the right choice unless you take the case all the way to trial, and in most cases you do not want to do that, because you will find out that settlement was a better alternative.

This study suggests that most people are smart to settle cases, and the vast majority of cases do settle. But I would not be so hasty to accept the conclusion that most of the people who take their cases to trial are foolish. It is only because some people are risk-averse enough to try their cases that we have enough information to value settlements for the rest of the cases.

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