Mediation: When a Settlement Is a Better Alternative to Trial

Scott H. Harris
Director, Litigation Department
Published: New Hampshire Bar News
October 22, 2019

It is often said that a good mediation is one that results in both sides being equally unhappy with the outcome.  While it may be true that parties often emerge from mediation equally unhappy, that is a poor way to define success—especially where mediation occupies such a central role in resolving most civil litigation.  It also suggests a misconception of the role of mediation.  In particular, mediation is not an end in itself, but rather is an alternative to trial.

Viewing mediation an alternative and not an end game, no party should settle unless they conclude that settlement is a better option than would be a trial.  In order to discern which of the two options one should prefer, the trial attorney has to assess the likely costs associated with, and likely outcome of, trial.

In essence, the trial attorney should apply the principles of game theory to the facts of the case.  In broad strokes, game theory calls upon the trial lawyer to evaluate the likely outcomes at the various inflection points along the path to trial, assessing the likelihood the plaintiff will succeed at each critical juncture.

No matter whether the case is a personal injury matter or a commercial one, case valuation begins with the plaintiff’s best possible outcome.  The plaintiff’s best-case scenario assumes that all the disputed rulings go the plaintiff’s way, the jury or judge understands and is favorably disposed to the plaintiff’s case and the defendant(s) have the ability to pay whatever verdict the court or the jury deliver.  That number then gets whittled away to reflect the risk that any of these factors might turn against the plaintiff.

In a commercial case, assessing best case scenarios is somewhat easier because the subject matter is, mostly, dollars and cents.  It’s a little tougher to evaluate the marketplace for pain and suffering and loss of enjoyment of life.

Valuing pain and suffering and the other intangible harms and losses requires the attorney to assemble data from as many sources as possible.  That compilation begins with each trial lawyer’s individual experience.  Another source is the published verdicts gathered from around the country.  Most trial lawyer organizations report verdicts and settlements, and there are several such commercial compilations.  You can ask other lawyers and community members to give you their estimates of likely outcome (mindful, of course, that what you say to others is not privileged).  All of this data has to be evaluated based upon its source, similarity to the case at hand, when the verdict was entered, the venue involved and a host of other factors that allow the data received to be reconciled to equate to the case at hand.

The Plaintiff’s risk associated with collecting any verdict is an obvious factor to consider. If, for instance, the insurance and assets cover only 50% of the plaintiff’s highest possible likely verdict, the case is worth only half what it might otherwise have been.

One must therefore discern the available insurance and/or any assets that can be liquidated and applied to satisfy any uninsured portion of the verdict.  Assessing collectability can require a specialized understanding of bankruptcy, creditor’s rights and insurance law and not having that expertise can result in a significant error in judgment.

Collectability in a multi-defendant personal injury case is influenced by how fault is allocated among the defendants.  Is there a significant chance that the party with the ability to pay will own 51% of the fault?  Is it possible that a financially well off defendant acted as part of a common plan or design with an impecunious defendant such that the financially well-off defendant will be responsible for their combined share of fault?

Each case will have a further string of decision points on the continuum to trial with every inflection serving potentially to reduce the plaintiff’s likely verdict.  For instance, in a garden variety personal injury claim, the plaintiff has to establish each of the elements of liability before he or she can recover a dime.  A 100% chance of proving a defendant’s failure to meet the standard of care, but a 10% chance of establishing that the resulting injuries were caused by that failure, suggests the potential for a plaintiff’s verdict is limited and that therefore plaintiff should prefer even a small settlement to the result after trial.

The extent to which the client will incur costs and fees in the lead up to trial is another component to factor in.  A plaintiff who receives a $500,000 verdict, but incurs $425,000 in fees and costs would have been better off to have settled for $50,000 for a risk-free result that cost little or nothing to achieve.

The rigorous strategic thinking inherent in game theory should lead parties to better understand whether a settlement is a better alternative.  Engaging the client in this rigorous thinking so that they choose their best possible course should produce a mediation that succeeds because the parties are equally pleased with the results, not because they are equally unhappy.