Evaluating Settlement Options

Recently a client asked me a question I get with some regularity. Her case is in the middle of the discovery phase right now – we know more about the case than we did when we were figuring out how to answer the lawsuit, but we’re not exactly ready for trial yet. This is usually a good time to start thinking about what a negotiated settlement might look like. Her question, then, was this:

What are your thoughts about suggesting an offer? And how much is a good offer from your perspective?

It’s a good question, a predictable question … and a tough question to answer. Answering it gave me a chance to showcase how I take what amounts to guesswork and at least put some thought and planning into it. (Note: this is from a response email; I have edited slightly to eliminate privileged matters.)

Here’s how I look at these things:

Plaintiff’s “home run theory” apparently has him getting around $8k-$10k, including the $6k he asked for in his complaint, plus interest and attorney’s fees. Let’s arbitrarily assign this a value of -$9,000.00 (negative number to indicate we lose).

Our “home run theory” is probably a few thousand dollars for your counterclaim, reimbursement of your security deposit and the $6k payment, plus attorney’s fees. You are very lucky not to have had a much better case (i.e., your injuries were comparatively minor). Let’s arbitrarily assign this a value of +$18,000.00 (positive number to indicate we win).

Based on the above, we’re $27k or so apart. As a threshold matter, that’s enough money to justify spending money on attorney’s fees, if we can’t reach a deal. You always want to consider the benefit of saving on those fees if you can.

I like our chances a whole lot more than Plaintiff’s, but there is a good chance a jury sends us all home with a zero-zero verdict. So maybe our chances of each result look something like this:

10% chance of Plaintiff victory

45% chance of victory for us

45% chance of walk-away

Again, all of these are totally arbitrary values. I always assign the best and worst case scenarios at least 10% just to account for the possibility that they happen, even if I think they’re not at all realistic. After that, it’s a total crapshoot, but the point is to try and come up with a settlement value that’s based on more than pure guesswork.

Based on the above, I think our expected value is (10% * -$9,000) + (45% * +$18,000) + (45% * $0) = $7,200. Again, change any of the inputs, you change this settlement value; for instance, if you think we have a 20% chance of winning and a 70% chance of walk-away, that gives us an expected value of $2,700.

Settlement value, of course, is generally going to be less than the case’s expected value, for two reasons. First, there is a value to having certainty and avoiding the potential downside of leaving the decision to someone else. Second, as mentioned, you save money on legal fees. I don’t know what legal fees will look like in this case, but I would say once they answer our discovery, I’m happy to try the case. The Court will likely send us to mediation first. A trial would be fairly straightforward and can probably be done in a day. If it’s a bench trial, your total legal fees from this point forward would probably be $5k-$6k; if it’s a jury trial, probably more like $8k-$10k (there’s more work to prepare, and the trial itself will take longer).

All that is to say, if it were me, I would probably offer something like $3k-$5k and see what they say. If they come back with an offer of something like a walk-away, I think you have to seriously consider taking it – you will be out what you have paid me so far, and you won’t get back what you already paid him, but you will end the litigation, and that has a lot of value.

Could I be wrong? Of course. And time will tell. But for my money, this kind of analysis is probably about the best we can do.

If you’d like help evaluating your case, feel free to call 770.628.7330 or email mdunham@dunhamlegalgroup.com and we’ll be glad to discuss!