Settling > Trial

The New York Times is reporting that it's better to make a deal than to sue. Jonathan Glater writes that a study to be published in next month's Journal of Empirical Legal Studies offers staggering statistics.

• Defendants who proceed to trial, instead of settling, were wrong 24% of the time;
• Plaintiffs who proceed to trial, instead of settling, were wrong 61% of the time;
• Only in 15% of the cases were both sides right in proceeding to trial: that is, the defendant paid less than the plaintiff had wanted, but the plaintiff got more than the defendant offered;
• When plaintiffs got it wrong, it cost them $43,000 on average; and
• When defendants got it wrong, it cost them $1.1 million on average.

The study claims to control for factors such as an attorney's experience, rank of the attorney's law school, and size of law firm. None of those factors were as important in making a decision to go to trial than the type of case. On the plaintiff's side, error is higher in contingency fee cases; on the defense side error is higher where there is no insurance coverage.

Obviously the study's methodology needs to be closely examined. But the central tenant that parties do better by settlement than by taking the case to trial is consistent with the anecdotal comments made by practitioners.

Why are parties so wrong so often? The authors provide several possible answers (none of which can be quantified). The possible explanations are:

• Attorneys giving poor advice to the client; and
• Clients thinking they have a slam-dunk case.

Does the financial system for the attorney/firm provide incentives to go to trial? In other words, is a case more likely to go to trial because of the attorney's financial stake in the outcome, rather than likelihood of success (however that word is defined)?