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Six Factors to Consider for a Successful Settlement Strategy

Anthony Baish


  • The vast majority of civil lawsuits are settled before trial. What does this mean for the client? 
  • Whether your client initiates a lawsuit or is served with one, you and your client should plan as much for success at settlement as for success at trial. 
  • Here are a few things to keep in mind when devising a strategy.
Six Factors to Consider for a Successful Settlement Strategy
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“Most of our cases settle before trial!” proclaims the lawyer on the TV. (Cue video of insurance company executive writing check.) That’s a truly amazing track record of success . . . isn’t it? Is it “success” at all?

Whether a law firm’s high settlement rate is considered “success,” it most certainly is not amazing. One fact is inescapable: The vast majority of civil lawsuits are settled before trial. What does this mean for the client? Whether your client initiates a lawsuit or is served with one, you and your client should plan as much for success at settlement as for success at trial. Here are a few things to keep in mind when devising a strategy.

1. Define Success

Lawyers tend to analyze cases by their effect on the proverbial “bottom line,” and, of course, money often is the most important consideration. Other concerns, however, sometimes overshadow mere cash. Your client might be concerned about adverse publicity from a lawsuit. Your client might be worried about setting bad precedent with employees if it settles with a disgruntled former employee. Your client might be more intent on maintaining good relations with customers and suppliers (who might be necessary witnesses) than on getting a judgment against a competitor. Keeping a lid on marketing strategies or on the recipe for an award-winning pizza sauce could far outweigh the cost of paying off an opponent. The important thing is that you and your client discuss what your client wants to achieve—or to avoid—in the lawsuit.

You and your client first should discuss the litigation process and focus specifically on the lawsuit. What documents will you get to see from the opponent, and vice versa? Is the client’s best customer likely to be dragged into the suit as a witness? You should be able to give the client some idea of what to expect as the lawsuit unfolds. Armed with that information, you and your client should sit down and think through the suit’s implications for your client’s business. You can help with this, but the client knows his or her business better than anyone and will be in the best position to identify hidden opportunities and pitfalls. Once you understand your client’s goals for litigation and settlement, then you can come up with a plan for achieving them.

2. Set Aside Emotions

People sometimes litigate out of anger. I’ve personally heard clients say that their only goal is to “crush” their opponents. Because lawyers are bound by ethical obligations, there are very real constraints on a client’s ability to do much crushing. No doubt, though, litigation can inflict pain. The problem is that the pain goes both ways. Filing a lawsuit in order to “get even” is almost never worth the price. Litigation is a clumsy tool for revenge. It is a long process, inevitably taking more than a year—and more likely several years—to reach trial. A client’s anger will have long ago dissipated by the time of trial, and it will be replaced by frustration with the process and you the lawyer. The client is not likely to get much visceral satisfaction, anyway. Even if your client wins, the jury’s verdict probably won’t proclaim that the opponent is a villain who deserves the stockade, making the verdict feel somewhat anticlimactic to the client. And, of course, your client might lose.

A similar phenomenon is litigation on “principle.” Lawsuits do implicate principles, and principles matter. As time drags on, though, your client may be dreading opening the mail for fear of seeing your next bill and might begin to question whether it’s worth the price to “make a point.” After all, the business’s bottom line is important too. If your client makes litigation or settlement decisions based on “principle,” let me offer two suggestions: First, advise the client to think carefully about what he or she is really doing. Is the client acting out of principle or out of anger? Second, advise the client to consider the dispute from the opponent’s perspective. Even if your client is right, does the opponent have a legitimate reason to oppose your client? If the answer is “yes,” settlement will be easier on your client’s conscience.

Settlement can be a bitter pill for your client to swallow, but remember that the statistics say your client is going to do it anyway. It is best that your client set emotions aside and make decisions in a frame of mind that will better protect his or her interests.

3. Know the Limits of Litigation

Someone once said to me, “Anything legal can be achieved through settlement.” This statement is true, but it’s not very realistic. It is theoretically possible that your client’s competitor will pay $5 billion and agree to close its doors, but it is not actually possible. When you help set your client’s goals for settlement, they should be attainable.

What is achievable through settlement sometimes will be dictated by what is achievable through litigation. If you have no real hope of obtaining a certain result at trial, it is unlikely that your opponent will agree to give you that result in settlement. A common mistake in this regard involves the recovery of attorney fees. Many litigants increase their monetary demands during settlement discussions in an effort to recoup the money they’ve spent on their lawyers. In most circumstances, though, your client cannot recover attorney fees at trial. In those rare instances when a statute or a contract permits recovery of attorney fees, the judge will award only those fees that are—in the judge’s eyes—“reasonable.” (And judges sometimes act as if having the authority to reduce an award of fees means they must use that authority.) The lesson? The client should not count on recovering attorney fees at trial, nor, therefore, in settlement.

The same is true of punitive damages. We’ve all seen newspaper articles telling of enormous punitive damage awards. They do happen, but they are extremely rare. I once heard a story of a former judge in Illinois who worked as a mediator after retirement. During one mediation, the plaintiff resisted settlement because he felt that the opponent’s offer did not account for punitive damages. The former judge finally set the plaintiff straight, explaining that in more than 20 years on the bench, he’d seen one and only one award of punitive damages—for $5,000. If your client has asked for punitive damages, your client is generally better advised to put that claim out of his or her mind when setting settlement goals.

None of this is meant to stifle imagination in negotiations or to limit what you should ask for in settlement. Good settlements frequently arrive at resolutions that could not be obtained at trial, such as a new business venture between the two litigants. And negotiations often involve requesting more than you think you ultimately will get. When your client defines “success” in his or her own mind, however, the client should be aware of the limitations of litigation.

4. Understand Why Cases Settle

Two factors drive settlement. The first is uncertainty of outcome. If the results of a trial were certain, there probably would be no lawsuit in the first place. But the results are not certain. Rather, lawyers and litigants predict outcomes along a range of probabilities that always must acknowledge the possibility, however remote, of a total loss. Settlement, then, can be thought of as “buying certainty.” Generally speaking (and assuming rational behavior by both sides), a case will not settle only if the parties have sufficiently different predictions of the likely trial outcome or if one side cannot afford to settle because the financial stakes are too high—a so-called “bet the company” case.

The second factor driving settlement is pressure or, in the hands of one litigant against another, leverage. Both sides usually feel financial pressure in the form of mounting attorney fees, expert witness fees, and other expenses. There are other kinds of pressure too, such as negative publicity or the basic inconvenience of litigation.

When you are plotting your litigation strategy, you need to talk with your client about these factors as they specifically bear on the case. Assessing uncertainty is not so difficult. Once you are armed with the relevant facts, you can (perhaps after some initial research) estimate the probabilities of various outcomes. And you can help the client evaluate the financial pressure by preparing a cost estimate (though much of your costs will be in your opponent’s control). The client will need to help account for other kinds of pressure, however. Does this lawsuit threaten an unrelated, valuable business relationship? Is the client afraid of public speaking, to the point that he or she will do almost anything to avoid taking the witness stand? You should communicate openly about such issues. You as the lawyer might be able to alleviate the pressure and improve the settlement posture.

Judging the pressure on the opponent is much more difficult. Sometimes it is easy to see that there is no leverage at all, as, for example, when your client is sued by an insolvent person representing himself. That person has nothing to lose, and your client must pay up or go to trial. Usually, though, the factors affecting the pressure on the opponent are not so obvious. How much is he paying in attorney fees? Is his lawyer on a contingent fee? Is he afraid of public speaking? The client might be in the best position to evaluate business pressures on the opponent, such as how publicity might affect the opponent. You as lawyer, on the other hand, are in the best position to evaluate likely litigation costs. Although you will never be able to fix the pressure on the opponent with certainty, you should try to evaluate the financial, business, and emotional or psychological factors that will affect the other side’s settlement position.

A final note on pressure. Your client controls, in large measure, the pressure that the opponent will feel. The best way to apply pressure that will lead to a successful settlement is to prepare for a successful trial. If the opponent senses that you and your client are just marching in place and waiting for a settlement, you will lose much of your leverage. But if you litigate aggressively, the opponent will see the odds of a successful trial go down, while the cost of getting there goes up.

5. Be Firm, But Flexible

Once you have set goals for litigation and considered a strategy for achieving them, stick to them. One of my mentors once told me, “You don’t put money in someone’s hand just because he’s holding it out.” If you have concluded that a plaintiff’s case is worth $200,000, there’s no reason to pay $250,000 just because the plaintiff asks for it.

At the same time, you must be flexible. Litigation is fluid. The other side might discover a harmful email that undermines your position. Your star witness might get struck by lightning and develop amnesia. The judge might schedule a three-week trial in the middle of your client’s busiest sales cycle. Whatever the circumstances, you and your client need to continually reevaluate the goals. If the goals remain realistic and attainable, stick to them. If not, adjust them accordingly.

Even if circumstances do not change dramatically, it is best to advise your client not to be overly rigid. Settlement necessarily involves compromise. If a particular compromise is in your client’s best interest, your client should take it. If there is an opportunity to settle by paying $210,000, your client should consider settling even if he or she thinks the case is “worth” only $200,000. Your client’s estimate of the value of the plaintiff’s case is just that—an estimate. Is there $10,000 worth of wiggle room in that estimate? Probably. And if the extra $10,000 allows you to forgo a series of depositions in Juneau, Alaska, next week, it might make sense for your client to swallow hard and write the check.

6. Don’t Be Too Hasty

If your client has a firm goal for settlement—a dollar figure, for example—your client should understand that it might not be possible to reach that goal until at least part of the litigation process has played out. You know that your client didn’t steal your competitor’s trade secrets, but the other side might need to take a few depositions or review some documents to reach that conclusion. Until you and the other side are on somewhat equal footing in terms of knowledge about the case, your evaluations of the case might be so different that a successful settlement is impossible. (This is not to say that you should educate the other side. To the contrary, possessing superior knowledge gives you a distinct advantage in both litigation and settlement.) Moreover, you can use the litigation process to your advantage. For example, motions can be expensive, but you might be surprised at how much your opponent’s settlement position changes when the weaknesses in his case are written out and dropped on the judge’s desk. Your client might recoup in settlement much more than the expense of preparing the motion.

So when should you stop litigating and start settling? There’s no definite answer, but here’s a rule of thumb: Settlement should occur when the cost of going forward with litigation exceeds the value of the settlement advantage to be gained by going forward.

Your client needs to understand that while litigation is a reality, but so is settlement. If you get embroiled in litigation, you should understand that the dispute most likely will be resolved by negotiated agreement. You and your client want the upper hand in those negotiations, and you should prepare your strategy accordingly.