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Why Settle? The Twenty Percent Rule

10/15/2010

 
Sometimes, litigants ask why they should consider compromising a claim. They may express supreme confidence in the case, stating that "there is no way we can lose," and expressing extreme reluctance to take anything less than one hundred percent of what they want.

Litigants need to remember the "twenty percent rule." The "twenty percent rule" is not an original idea of mine; it was mentioned in a discussion I had a couple of years ago with a very experienced and somewhat crusty old litigator who did a very able job mediating a case for me. The rule does, however, encompass thoughts I have had for many years. The twenty percent rule just puts these thoughts and concepts in a much more compact and easily understood package.

The twenty percent rule is this: No matter how good you think your case is, no matter how good your lawyer is, and no matter how obvious you think the result should be, there is always a twenty percent chance you will lose in litigation.

Why is the twenty percent rule true? Because unforeseeable things happen in litigation. Star witnesses blow up in depositions or on the witness stand, even if they are well prepared. There may be a document or email out there that you (and your lawyer) did not know about when the case was filed.

But, most importantly, cases are resolved by judges and juries. Judges and juries are human beings, and, given that fact, may not see things your way. Judges and juries may seize upon facts and issues that you know are irrelevant to the dispute, but which become highly relevant, because they get to decide the case, not you.

Judges and juries may simply like the other side better than you. Maybe your confidence will be perceived as arrogance. Maybe the other side has an explanation that resonates. If you do not think these factors are important, you should know that, in large cases, parties hire psychologists and sociologists as jury consultants. Jury consultants can provide tremendous insight into how jurors from the area will look at a case, and their research often reveals surprises.

Judges can also be a factor. In a couple of recent important cases, I have actually seen judges simply ignore key legal issues that were potentially dispositive, and that were thoroughly briefed and presented to them. Why? I do not know, but can only assume that addressing the issues would have made it more difficult for them to reach the result they had decided to reach. Intellectually defensible? Of course not, but this stuff happens in the real world.

I am not suggesting that the civil litigation system is irrational. I am not suggesting that you should evaluate a case with the assumption that an irrational result will be reached. Most of the time, the system works and reaches a rational result. Usually, the party wins that should win. But the twenty percent rule does come into effect. And if you are considering a settlement, you should keep the twenty percent rule in mind in your analysis.

What does this mean for mediation? Well, first, it means that mediation is a process parties should definitely consider. Second, it means that parties should have a little flexibility in mediation and with regard to settling. The system is not perfect, and will not always reach the result you believe it should. The old saw that "a bird in the hand is worth two in the bush" may be something you should consider.

Victoria Pynchon link
10/17/2010 05:24:56 am

Thanks for sharing this. I give this same advice to litigants as the 30% rule. Anything and everything can and will happen. When I was practicing, I'd tell anyone with a case worth less than $100,000 to take the likely legal fees s/he'd pay, got to Vegas and put it on red. After 25 years of commercial litigation practice, despite my own estimation of my pretty high competence as a litigator, I'd say the chances were always 50-50. As Voltaire said, "I was ruined twice. Once when I lost a lawsuit and once when I won it."

paramjit Dhillon
10/17/2010 11:18:06 am

I am in total agreement with you John. Having been a litigator for a big part of my 18 year career and having spent the rest of my career as a Legal Advisor overseeing litigation, 20% is about right. My advise has always been to try to come to a reasonable settlement on the basis of who has a stronger case in the interest of time and money spent on litigation. Very often the parties may have future dealings and a settlement is the win-win solution for both sides.

M.javaid janjua link
10/17/2010 06:35:56 pm

Thank you for starting this wonderful discussion I agree with you and of the opine that rule twenty twenty mut be considered in any litigation in order to achieve a reasonable settlement on the basis of stronger position but in the interest of time and money spent on litigation. My 20 plus years experience in career as legal advisor in a big international organization by overseeing litigations around the globe right form north America to south east Asia looks true.

John Watkins link
10/20/2010 12:18:21 am

Thanks for the great comments. Based on these comments and some other comments in forums on LinkedIn, I want to add a clarification: The twenty percent rule applies to the hypothetical perfect case. Most cases have obvious issues, so in most cases, the risk is higher than 20 percent.

Amy
11/9/2010 01:58:36 pm

As a general rule, who does the 20% rule apply to? The plaintiff, or the defendant?

John Watkins link
11/13/2010 11:16:43 am

Amy:

Thanks for the question. In my view, the rule applies pretty equally to both parties.

John

Jamie
11/25/2010 03:41:08 am

Good Point. I am a Labor/Management Mediator with 20 years experience. I perform Grievance Mediation on a regular basis. I always explain to the party that is reluctant to settle, that you have a 50/50 shot in Arbitration or a Judicial proceeding, because of the reasons you listed. I also ask if they have any idea what their Legal expense's are and the time it will take to actual litigate their case? The answer is usually no, and I outline the detours and roadblocks as well as possible. I usually leave my telephone number and ask for a call if they have questions, if it is not settled the same day, I usually get a call with questions and offer of settlement within a week. I am often told that most of the time they have discussed the case with their attorney or someone to verify if I am correct.

Jamie


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    John L. Watkins is a business litigation and business attorney and a registered mediator from Atlanta, Georgia. He will be blogging here from time to time regarding mediation and dispute resolution.

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