The settle-or-litigate conundrum
A victory, in complex litigation, is sometimes difficult to distinguish from a Pyrrhic victory. King Pyrrhus won the battle, but his army suffered such heavy and irreplaceable losses that he was forced to abandon his campaign against the Romans. High stakes litigation can easily drag on and the accumulated attorney’s fees and discovery expenses can end up approaching or even exceeding an amount that might have resolved the dispute months or even years earlier.
There is no science of knowing when to litigate and when to settle. Every dispute presents its own difficulties and opportunities. Although we know almost all litigation settles before trial, there will always still be some cases with no workable path to compromise. Moreover, even when settlement is clearly in the cards, there is never a perfect time to settle.
The Courthouse Steps
A critical last-minute ruling from the court will sometimes push the parties toward a compromise they had avoided for years. However, such eve-of-trial settlements seldom survive the scrutiny of hindsight. After all, it takes a lot of time and money to reach those courthouse steps. Too often, parties realize that they failed to explore earlier opportunities to resolve the case. A useful way to approach the settle-or-litigate conundrum is to remain wary of any case snowballing all too predicably toward another and costly eve-of-trial settlement that might be resolved earlier and far more efficiently.
The Bigger Picture
Litigation does not take place in a vacuum. Decisions about courtroom tactics and settlement approaches need to be consistent with the near, and long term, goals of the company. Time spent dealing with a lawsuit can reduce the productivity of key employees. Litigation can impact business relationships, funding and investors, stock prices, insurability and more. Sometimes the need to settle is driven by a need to get back to business.
The Cost of Discovery
There are two sorts of costs to discovery during litigation. First, there is the money. Discovery is the most expensive aspect of litigation and, in many complex matters, can readily provide its own justification for pursuing settlement. Second, there is the disclosure aspect. Discovery often means sharing information a company would prefer not to share. There is no reason to actually incur all costs of discovery before including them in settle-or-litigate calculations.
Merits and Money
Don’t overemphasize the strength or weakness of an opponent’s legal position. Your perception of the merits of a case must always be weighed with not only the amount at stake but the cost of further litigation. It is often far better to pay a smaller amount to settle a case instead of spending a great deal of time and money just to “win.”
Creative Solutions and Litigation Insurance
An exorbitant demand for X and a stingy counteroffer for Y. There are more creative ways to get deals done. When deciding to settle or litigate, consider the availability and cost of litigation buyout insurance that can replace the uncertainty of litigation, long before any settlement is reached, with a known, fixed cost. In the class action context, remember that a claims-made settlement can be designed in any number of different ways. Work with class action experts and develop a settlement structure that makes the most sense for your organization. Keep in mind that insurance is available even after a settlement is reached to absorb the risk of a claims-made settlement.
If your company is facing uncertainty because of litigation and you would like to explore strategies to minimize that uncertainty, please contact us to discuss how we may be able to help.
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