Posts Tagged ‘trial is a risk’

Mediation Message No. 79

MICHAEL D. MARCUS’S MEDIATION MESSAGE NO. 79

SETTLING RATHER THAN GOING TO TRIAL MAKES STATISTICAL SENSE, PART II

In Mediation Message No. 70 (July 2011), I discussed a 2008 empirical study of 2,054 California trials between 2002 and 2005 which concluded there is a high incidence of decision-making error by both plaintiffs and defendants in rejecting settlement proposals and going to trial or arbitration. 61 % 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 % 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 wide variation between $43,100 and $1,140,000 led to the conclusion that plaintiffs are more risk averse than defendants.

Since that Message, I have learned that the study has been expanded to 2,754, cases, and includes reported matters through 2007. The updated results, however, are substantially the same as those originally reported in 2008. Plaintiff decision error in California changed from 61% to 60%, and defense error changed from 24% to 25%.  In only 15% of the cases did both parties obtain a superior financial result by rejecting each other’s settlement proposal and proceeding to trial. The average cost of error increased for both plaintiffs and defendants, although the asymmetry in plaintiff and defendant costs of error remained constant.  Plaintiff average cost of error rose from $43,100 to $73,400, and defendant average cost of error increased from $1,140,000 to $1,403,654.

An analysis of New York cases in the expanded study replicates the California results. Plaintiffs’ decision error rate in New York was slightly lower than in California (56% vs. 60%), but the New York defendants’ error rate was slightly higher than the California defendants’ error rate (29% vs. 25%). Due to these offsetting decreases and increases in error rates, the 15% incidence of “no decision error” is the same for both the New York and California databases.  Plaintiffs’ mean cost of error in New York is $52,183, compared to defendants’ mean cost of error of $920,874, roughly 18 times the cost of plaintiffs’ error.  (In California, defendants’ mean cost of error was 19 times the mean amount of plaintiffs’ decision error.)

The above updated data and conclusions are reported in Beyond Right and Wrong: The Power of Effective Decision Making for Attorneys and Clients (R. Kiser, Springer Science + Business Media, 2010).

Judge Michael D. Marcus (Ret.)

ADR Services, Inc.

1900 Avenue of the Stars, Suite 250

Los Angeles, California 90067

(310) 201-0010

Copyright Michael D. Marcus, September 2012

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.

Mediation Message No. 71

MICHAEL MARCUS’S MEDIATION MESSAGE NO. 71

THE LOCATION OF THE TRIAL, SECTION 998 OFFERS AND DAMAGES

Last month, I discussed a study in the Journal of Empirical Legal Studies which found 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. Other interesting findings in that study are the impact of the type of trial and statutory C.C.P. sec. 998 offers on decision-making error and the tendency of juries to more likely award present rather than future and punitive damages.
Jury trials, court trials and arbitrations: Defendants committed substantially less decision error in jury trials than in court trials (22.1 v. 42.6 percent) whereas plaintiff error was considerably higher in jury trials than court trials (64.0 v. 42.6 percent). Thus, the chance of a plaintiff obtaining a higher award from a jury is offset by the risk that the jury will find for the defendant. Surprisingly, plaintiffs were much better off arbitrating their cases than trying them to a jury or judge (compare the 28.9 percent arbitration rate to that of 42.6 and 64.0 percent for court and jury trials) whereas defendants were slightly better off trying their cases before a court as opposed to an arbitrator (45.4 v. 42.6 percent for court trials).
Section 998 offers: The study found that the existence of a statutory offer by either side reduced decision error and the mean cost of error for the party making the offer but increased the error and costs for the recipient party. The study also found slight decreases in error and costs for plaintiffs when both sides served 998 offers but a substantial decrease in mean cost ($294,500 as compared to $1,299,400) for defendants when joint offers had been made. Although the purpose of 998 offers is to encourage settlements by imposing financial penalties on parties who take unreasonable settlement positions, the study thought that such offers may actually induce risk taking. The authors acknowledged that their findings are somewhat skewed because the data did not show how many cases settled because of 998 offers.
Damages: The study confirmed the anecdotal view that jurors and judges are reluctant to award both damages actually incurred and those yet to be sustained. Plaintiffs seeking only future damages faired poorly, recovering a net award 32.4 percent of the time. In contrast, they prevailed 45.2 percent when seeking only current damages. Plaintiffs seeking both present and future damages recovered a net award 47.9 percent of the time. Punitive damages claims also had an impact with juries less likely to award general or special damages when a punitive damages claim had been made.

Judge Michael D. Marcus (Ret.)
ADR Services, Inc.
1900 Avenue of the Stars, Suite 250
Los Angeles, California 90067
(310) 201-0010

Copyright Michael D. Marcus, August 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.

Mediation Message No. 70

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

(310) 201-0010

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.