By Hugh Stowe -
Snapshot
- When negotiating a settlement, the question of when to walk away (and when to accept the offer) is critical yet incredibly difficult to answer.
- This article explains how lawyers can move past intuition and apply a rigorous three-step process to compare settlement offers against the true value of litigating.
- It discusses how to factor in not only monetary claims, but also ancillary consequences and risk adjustments to reveal a client’s real bottom line. Finally, it demonstrates how this methodology defines the bargaining range and helps determine what is a ‘fair’ offer.
After a long mediation, your opponent says ‘$500,000 is my client’s final offer. Take it or leave it’. How does your client decide whether or not to accept that offer? How do you assist your client to make that decision?
The simple answer is that your client should accept the final offer if (but only if) settlement on those terms generates more value for the client than the alternative of litigation. But that equation is hollow in conventional litigation practice because there are no conventionally used methodologies for quantifying the value of the litigation alternative. The value comparison between settlement and litigation often involves a mystical exercise of lawyerly intuition, based on a generally unarticulated and possibly unconscious calculus of factors. The façade of professional rigour is typically illusory.
This article proposes a more rigorous methodology for determining whether or not a client should accept an offer. It is based on a three-step valuation process to quantify and aggregate the three distinct bundles of value associated with the conduct of litigation: monetary claims and exposures; non-monetary ancillary consequences of litigation; and risk (together, the ‘Value of Litigating’).
- First, assess the ‘expected value’ (or probability-weighted value) of a party’s monetary claims and exposures.
- Secondly, adjust the expected value for the notional monetary value of the ancillary advantages and disadvantages associated with the conduct of litigation.
- Thirdly, make a further adjustment for the value of risk associated with the litigation.
