Returning from the ABA Meeting today, there were two stories over the last couple of days that have received some press. Taken together, they show the difficulties that companies and individuals have in predicting both the outcome of lawsuits and the costs of them.
First, the stories:
- The Financial Accounting Standards Board (FASB) is proposing new rules that would require companies to disclose the estimated cost of all continuing litigation. Currently, companies only need to disclose estimated costs when they believe it’s probable that they will lose the case. On Tuesday, the WSJ reported several companies, including Connecticut-based Pfizer, told FASB that that estimating the costs of continuing litigation is “highly subjective, subject to huge swings as underlying assumptions change, and unlikely to provide financial statement users with meaningful or reliable information.”
- On Monday,the New York Times reported on a new study that showed that most Plaintiffs who reject settlement do worse at trial. And while Defendants were wrong in just 24 percent of the cases, the cost of the decision was much more. The ABA Journal has a brief recap:
The gamble of going to trial doesn’t pay off for most plaintiffs, according to a study of more than 2,000 civil suits from 2002 to 2005.
Sixty-one percent of plaintiffs who turned down settlement offers ended up faring worse at trial, according to a New York Times story on the study. The average settlement offer was $48,700 and the average award at trial was $43,000, a difference of $5,700.
Defendants were wrong in just 24 percent of the cases, but for them the cost of a bad gamble was must larger. The average plaintiff’s settlement demand in those cases was $770,900 and the average verdict was $1.9 million, a difference of more than $1.1 million.
The conclusion to draw from both these stories is that litigation is tough. It’s tough on plaintiffs and tough on defendants as well. Each side may have difficulty understanding the value of a case and have difficulty predicting what will happen.
I’m sometimes asked at the very beginning of a case to present a "budget" and a estimated settlement value. While it’s not an impossible task, the fact is there are so many variables to a typical employment case. Will discovery be intensive? Will witnesses be cooperative? Will there be lots of motions filed? And is the Plaintiff a "rational" player? In other words, will the plaintiff actually take a reasonable settlement offer? Each of these factors play an important rule in predicting the outcome and determining the best settlement "value".
Quite simply: Employment litigation is unpredictable. And for both employees and companies, settling a case on their own terms may be the best way to avoid uncertain costs and guarantee the best outcome.