Settlement Tactics Series: Is the proposed settlement a good deal?

December 5, 2014

Settlement ADRLast week’s post covered how to determine your starting position going into settlement discussions.  Today, we’ll discuss how to figure out whether and when you should conclude your settlement efforts.

The first thing you should do before even setting foot into the conference room is to identify the interests of both sides.  Naturally, the easier interests to identify are those belonging to your own client.

Focusing on your client’s interests was touched on lightly last week, but it will be of central importance here.  Your client’s interests are what he or she hopes to achieve as part of the litigation.  Sometimes, this is explicitly stated in the complaint, but strategically, it’s wise to keep this value (numeric or otherwise) confidential.  The other party knowing what your client’s specific interests are provides them with a significant advantage in bargaining, since this figure reflects what you are hoping to settle for in most cases (meaning that you should ask for more than your client actually wants in your complaint).

The monetary calculation is the easiest:

  • Discuss with your client the lowest dollar amount he or she hopes to come away from the litigation with; make sure to cover the ranges of awards that are typically in the particular type of case that you are litigating, along with how strong your client’s own particular case is relative to other such cases;
  • Ensure that your client is fully aware of your attorney’s fees if you’re on a contingency fee basis; provide a net award amount after attorney’s fees and any applicable taxes;
  • Review your client’s expenses thus far with him or her, along with the expenses expected to be incurred if settlement is not reached at that particular point in time;
  • After you’ve reviewed all of these numbers, come up with a revised number with your client that he or she would be satisfied settling for.

Once you’ve discerned this figure, you’re prepared with your settlement floor – that is, the lowest number for which your client will settle.  If you’ve read last week’s article, you hopefully already have your opening proposal, which should be your ceiling in settlement (in other words, you always start with the highest you’re going to go).

But don’t be too eager to drop your proposal; a failure to hold your ground typically tells the opposing party that you’re so quick to move on your numbers because you have a lot of room to negotiate.  Naturally, the other side is going to push their proposals as low as your client is willing to go, so try to keep them believing that it’s higher than it actually is.

And while we’re on that topic, let’s jump to figuring out the interests of the other side.

If you’re the plaintiff, then you’ll be trying to discover both how much the other side is willing and able to pay.  This is an important distinction: just because the other side has more than enough money to pay the damages that you’re seeking doesn’t mean that they are even remotely willing to do so.  If it’s cheaper to pay your clients claims than proceed further in litigation, then your opposing party may be more willing to settle.

But there may be other reasons not directly related to money that may motivate your opposition to settle – which must be considered ahead of going into settlement:

  • Does the other party have anything to lose from the case going public?
  • Do they have something to gain from delaying the damages payout (particularly relevant in insurance cases)?
  • Is there something more intangible that is motivating the other party to settle or continue litigating?

These factors play a role in how aggressive or cautious you are in making your proposals as the plaintiff, but you also must be conscious that, as the defendant, your opposing party will likely be making similar examinations into your intangible motivators.  And while we’re discussing being the defendant, you can make a fairly accurate estimation of your opposing party’s (i.e. the plaintiff’s) settlement floor by looking at the factors discussed earlier in this post.

In some types of cases, most notably family law and criminal law, the monetary figure may be less important or altogether irrelevant.  If this is the case, then a different analysis is required:

  • Find out what is the most important takeaway from the case for your client; it may not be completely obvious to attorneys what the interest is in nonmonetary cases, and it may not be entirely rational to anyone but your client; nevertheless, it’s important to understand that this is very important to your client, and that whether he or she considers the case a success may depend on how well these interests can be achieved; it’s also important to note, however, that there may be multiple methods of achieving these goals, so these strategies should be explored.
  • How strong is your case?  Under relevant law, how likely is it that you would be successful if the case were fully litigated?  It’s important to keep in mind, though, that putting the fate of your case into the hands of the judge or jury is a gamble most of the time, since there’s really no way to tell with any level of certainty how the decision will come down.
  • Is it worth it to your client to continue to spend time and energy to litigate in the hopes to achieve more than what is being offered by the other party?  Although financial considerations aren’t at the forefront in these types of cases, they are an important consideration nonetheless, since most clients don’t want to spend more on litigation than they have to.
  • Is the other party playing the waiting game?  Is there something that they have to gain from delaying settlement?  It could be that they hope that your client will run out of money and be forced into settlement; it could be that the facts of the case are such that the longer the case plays out, the more it benefits their position; the other party could also be playing a game of chicken with you, hoping that you will lose your nerve and agree to terms that are less than ideal.
  • On the flip side, is there something to be gained from delaying settlement yourself?  The court process can often be pushed back if the judge is informed that the parties are still in the process of settling, and often, these delays can help your client’s position in any number of ways.

The cases where money isn’t the primary concern can be the most difficult to figure out when the time is right to settle.  It often requires experience in that particular practice area to know whether the proposed settlement terms are reasonable, and how well your case would fare if settlement efforts terminated and it proceeded to litigation.

But one important point to keep in mind, regardless of what kind of case you are practicing, is that settlement is the preferred route: courts want and expect it, it’s cheaper for your client, less work for you, and it gives the parties control over their own destiny, at least to a much larger extent than the courtroom.

But that doesn’t mean that you should take a bad deal just to settle a case.  It just means that you and your client must understand that, after all of the analyses and calculations have been performed, settlement is always the preferred option.

Your client may not be 100% satisfied with the proposed settlement terms, but unless it’s your WATNA (see the previous post for more) or close to it, that doesn’t necessarily make it a bad settlement.