MICHAEL MARCUS’S MEDIATION MESSAGE NO. 70
SETTLING RATHER THAN GOING TO TRIAL MAKES STATISTICAL SENSE
A study (“Let’s Not Make a Deal: An Empirical Study of Decision Making in Unsuccessful Settlement Negotiations”) in the Journal of Empirical Legal Studies, vol. 5, issue 3, pages 551-591 (2008), which analyzed 2,054 California trials between November 2002 and December 2005, involving 5,116 attorneys, concluded that there is a high incidence of decision-making error by both plaintiffs and defendants in rejecting settlement proposals and going to trial or arbitration. The 2,054 cases were obtained from Verdict Search California and limited to those in which the parties had been engaged in unsuccessful settlement negotiations and the ultimate outcome was decided by a judge, jury or arbitrator. (Interestingly, the study noted that the parties’ participation in alternative dispute resolution processes was underreported. It did not opine why the parties had not provided this particular information, as contrasted with non-mediation related negotiations, but I submit that the underreporting could reflect the parties’ respect and honor for the confidentiality of the mediation process.)
The study posited that “decision error” occurred when either a plaintiff or defendant rejected an adversary’s settlement offer, went to trial or arbitration and the subsequent financial result was the same or worse than the rejected offer. The incidence of decision error for plaintiffs was higher than for defendants but the cost of those errors was higher for defendants. Thus, 61.2 percent of the time plaintiffs received less or equal at adjudication than offered by the defense at the last settlement offer whereas the defense decision error took place only 24.3 percent of the time. However, when defense error occurred, it resulted in a mean cost of $1,140,000 while the plaintiffs’ mean error was only $43,100. The study’s authors concluded from the wide variation between $43,100 and $1,140,000 that plaintiffs are more risk averse than defendants. The study’s authors reported that their findings updated and evaluated the continued validity of three earlier studies by others that had arrived at essentially the same results.
“Let’s Not Make a Deal” also analyzed the impact of the forum of the trial (i.e., jury trial, court trial or arbitration); the types of cases tried (e.g., personal injury v. contract); the nature of the monetary demand (e.g., past damages v. future damages); the existence or non-existence of statutory C.C.P. section 998 offers and the experience of the trial lawyer on whether plaintiffs and defendants did better or worse at trial after rejecting a settlement offer. I shall discuss these interesting findings in future Mediation Messages. For the moment, however, the general lesson from the study is that lawyers should think twice, maybe thrice, before rejecting a settlement offer and proceeding to trial or arbitration.
Judge Michael D. Marcus (Ret.)
ADR Services, Inc.
1900 Avenue of the Stars, Suite 250
Los Angeles, California 90067
Copyright Michael D. Marcus, July 2011
Please visit my website at www.marcusmediation.com for information about my mediation and arbitration background and experience. Copies of my previous Mediation Messages and Arbitration Insights are available by going to the articles link on the website.