Why Did I Settle?

January 8, 2019

It’s economics. The expected marginal gains from winning a trial don’t justify the capital outlay or risk of a trial.  

 

Injury lawsuits (or any kind of contingent fee - no win no pay - structure) puts you in a business partnership with you lawyer. If you feel shortchanged, you may not have understood your respective roles. 

 

Recently, a contact on Instagram wrote me the following scenario, "Accident in a Restaurant, 3+ years to get to mediation, during the 3 years an expert gives his opinion on what he feels your accident was worth, at mediation your lawyer and the mediator tell you to settle for much less knowing you deserve more or lose at trial. Why?”

 

In most of those cases you’re in a partnership with your attorney. (Not saying there’s anything wrong with that, but the fact is that your attorney's compensation is tied to yours.) That can work for you because it gives her an incentive to get you as much as possible.

 

But that’s just one side of the partnership profit/loss statement. Think of it through the lens of a business deal. You own the ‘claim’ or ‘asset’ that can produce revenue, but the lawyer is supplying all the ‘capital’ to get the asset producing.

 

The lawyer's capital is her time and costs (like experts) throughout the 3+ years in litigation, and in the case of trial, a huge outlay of expense and time. When we’re estimating costs for folks in non-contingent cases (in mid-size town, Oklahoma), I’d say that basic pretrial litigation is between $5-10k, while basic trial is probably another $10-20k. And it goes up from there as things get more complicated (experts, number of witnesses, everything needed to tell your story in a way that a jury will understand, etc.)


So, then you go to mediation. You (and your business partner/lawyer) are then faced with an offer to end the case and receive a set amount. "But," you say, "this is much less than what you (or an expert/friend/family member) said my case was worth!" What your lawyer thinks, and should tell you, is that you're not evaluating the value of your case at this point.

 

Basic economics kick in. Do we double down on the investment (or double/triple the investment or real dollars) for the possibility of getting more (and the possibility of getting nothing)? If we settle we know we get x. We think your case is worth y. We have a n% chance of winning and getting y. It will cost t to go to trial. So, is our expected return worth the risk of trial? That is, is y*n%>x? And if so, does the cost of t justify taking that risk? Most of the time - no. 

 

So how can we improve on this problem? You shouldn't be left with buyer's remorse. It starts with breaking down the gatekeeper mentality, and demanding more candid conversations. At the end of the day, this is YOUR case, not your attorney's case. The gatekeeper model is based in fear. You blindly follow your lawyer because you're afraid of what might happen if you don't.


Instead, embrace the business-partner mentality and demand access to information. I believe economics can facilitate this. What if instead of either a "pay-for-input" model (time billing), or "pay-for-output" model (contingency), we have an honest evaluation about what we're getting into. Lay out the risks. Lay out the possible outcomes. Lay out the costs. Then fairly negotiate what you're each willing to put up to get there. Then share all the information.

 

Imagine a scenario: You were injured in a restaurant and I think theres a 60% chance that it's the restaurant's fault. I explain that talking to insurance, possibly filing a lawsuit, etc., will take at least 2-3 years. I explain that my time in the case will get into the range of 200-300 hours. I explain that the hard costs of mailing, copies, experts, witness fees, depositions, and all the things that go into a case will be at least $5,000. All the while you're incurring additional medical expenses, or interest on unpaid bills, or you're losing income keeping up with the bills you've incurred. You're still in pain, but the doctor says that the best we can do to get your recovered. And you're waiting, and waiting, and waiting. There is no scenario that can make you whole. But, every step of the way, you're at the table. You're privy to "how the game is played" by both the insurance company and the defense attorney.

 

We sit down and calculate a fee structure like business partners. What do we stand to gain? What do we expect to gain, taking into consideration all the factors? Looking at our hard costs, do we expect to make a profit? If so, we keep going. What do we think is a fair initial division of the expected profit? Who should pay for the hard costs? Should that person be reimbursed from the profit on top of the split, or take a higher share of profit? What if we lose, and have losses? Do we share the hard costs? And on and on. Negotiate as equals. You bring an invaluable asset to the table - without your case, there is no "deal." The lawyer brings invaluable skill and experience (sweat equity), and potentially capital (if she is paying for the case). So make a plan, then go execute with eyes open.


I'm not suggesting there is a one-size-fits-all model. But the repetition of this story and low client satisfaction throughout the legal industry tells us enough - what we're doing now isn't sustainable. Technology - access to information, automation, and artificial intelligence will balance the power dynamic between lawyers and clients (and possibly shift it in favor of the client) in the next decade. Lawyers cannot continue to demand payment simply for being the gatekeeper to the legal system. As an industry, we've got to do better. Forget about what BigLaw says, or how you've always done business. Begin with brutally honest empathy for your client, and together, make decisions as a partnership. While BigLaw has a lot of machinery and legacy to overcome, forward-thinking small and solo firms will be able to reshape how legal service is provided. Technology can either drive us apart through artificial interaction, or it can pave the way back to in-depth customer-centered personal service. I'll be working to move the needle toward the latter.

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