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To Know Whether You Have a Case, You Have to Understand This
Clarksville, TN – When I first started practicing law, my father gave me a lot of advice. He still does, and that makes me very fortunate. Among the pearls of wisdom he shared was this: “Never tell [a prospective client] they don’t have a case.”
His rationale for this rule, as I recall, was something like this: Even lawsuits with very little merit are often brought by unscrupulous plaintiffs, and their even less scrupulous counsel; but even these dubious claims can result in settlements–sometimes big settlements. This creates the illusion that the plaintiff’s claim had merit.As an lawyer, one does not want to say to a prospective client, “You don’t have a case, because X, Y, and Z,” and then have another lawyer pick up that client and negotiate a settlement on their behalf. That makes you look like you don’t know what you’re talking about.
What is often lost on the client, in these kinds of circumstances, is the fact that, their claim actually may have had little or no legal merit! That is, if the plaintiff’s claim had gone to trial on the merits of the case, obtaining a judgment in their favor would have been nearly impossible. Fortunately or unfortunately, depending on which end of the settlement you’re on, legal merit is not required for settlement of a lawsuit.
Here is the anatomy of a settlement in broad strokes.
A person (let’s call her Diane) has a grievance against another person (let’s call him Jack). Now, these two American kids growin’ up in the heartland have had some kind of relationship–personal, business, whatever–but it has soured. Now, Diane wants to sue Jack.
Now, say that Diane says her damages ought to be $15,000. To keep things simple, let’s be generous and say that Jack would not have any dispute about the amount of money Diane’s grievance is worth, but that he believes he is not the proximate cause of her loss. Now, at according to a 10-year-old government survey, there is an approximately 97% chance this case will settle.
The question is: How much will Diane get out of Jack to make this headache go away? Because that’s what this is really about, isn’t it? Diane may have absolutely no case whatsoever. Her claim could be totally frivolous, but, in America, because you can sue just about anyone for nearly anything, her frivolous lawsuit likely would not be the only one on the Court’s docket.
How do you figure out what that settlement’s worth, though? The calculation might look something like this:
Net Benefit To Diane: V = P (D – L)
Net Cost To Jack: V = P (D + L)
In the above formula, “V” represents the value of the settlement. “P” represents the probability that Diane’s case will succeed in court. “D” represents Diane’s damages, and “L” represents Diane’s legal expenses (assuming, under the American Rule, that she’s responsible for paying her own legal fees).
Let’s say that the parties agree on the amount of damages, though that rarely happens. The damages, then, are $15,000.00. It is not unusual for attorneys’ fees, for each party, to be a percentage of the damages–often 33% or thereabouts. So, let’s say that each party’s attorney’s fees are $5,000. So, plugging these numbers in to the above formulae, now we can partially see the Net Benefit to Diane and Net Cost to Jack.
Net Benefit To Diane: V = P ($15,000 – $5,000)
Net Cost To Jack: V = P ($15,000 + $5,000)
Here’s the rub, though. What if both parties have a different estimate of Diane’s chances to succeed on the merits of her claim in court? What if Diane is very confident she will win and Jack is very confident he will win? Let’s say that Jack estimates Diane’s chances of winning at 20%, and Diane estimates her chances of winning at 80%. Then the formulae look like this:
Net Benefit To Diane: $8,000 = 0.8 ($15,000 – $5,000)
Net Cost To Jack: $4,000 = 0.2 ($15,000 + $5,000)
If Jack thinks the value for the settlement is $4,000, and Diane thinks it’s $8,000, you can imagine they’re probably headed for some heated negotiations at the settlement table. We can look at these numbers under other circumstances, too. For example, what if Jack is very confident he’ll win, and Diane is not confident she’ll win?
Net Benefit To Diane: $2,000 = 0.2 ($15,000 – $5,000)
Net Cost To Jack: $4,000 = 0.2 ($15,000 + $5,000)
Doesn’t that seem weird–that Jack, though he is more confident, is actually likely to pay more than Diane thinks her case is probably worth? But the numbers don’t lie. What if Jack is very unconfident he’ll win and Diane is very confident she’ll win?
Net Benefit To Diane: $8,000 = 0.8 ($15,000 – $5,000)
Net Cost To Jack: $16,000 = 0.8 ($15,000 + $5,000)
In each of the above sets of formulae, adjusting the value of “P” has a dramatic effect on the amount each party could reasonably believe the case to be worth.
We can do all kinds of things with these numbers. For example, if we take the median value of the two values for “V” from the formula set in which both parties are very confident they will win ($6,000), and we average it against the median value of the two values for “V” from the formula set in which one party is very confident, and the other is not ($12,000), we will end up with an average of around $9,000.00. What does that mean? Absolutely nothing. Diane’s case may still be garbage!
All we’re doing is playing with the numbers and trying to estimate a settlement value between the perceived net benefit to Diane of proceeding with litigation and the perceived net cost to Jack of doing so. Any number in that range will be a reasonable settlement offer. Also, don’t forget that, at the end of the day, you’re going to have to subtract “L” from “V” and pay your attorney.
Okay, I Get It. So, Do I Have a Case Or Not?
There are really two ways to answer this question:
It’s hard to gauge the confidence an opposing party might have in litigation, especially if they have already lawyered-up. In cases where, at first blush, the merits of the claim appear to be dubious or difficult to prove, uncertainty can make settlement negotiations time-consuming and expensive, and litigation exponentially more so. Because of that, unless you start off with a very high damages case, you probably don’t have a good case unless you are willing to bring your claim pro se in small claims court (in Tennessee, this is General Sessions Court); absorb the Opportunity Costs and the Court Costs & Fees; and run the risk the opposing party is going to hire a lawyer, in which case, you’re going to need a lawyer.
Of course, if you clearly have a case because you are almost certain to win on the merits at trial, congratulations; you probably have a case!
The question prospective clients should ask their attorney is not, “Do you think I have a case,” but, “What is the likelihood I could win this case on the merits,” and then follow-up with, “If so, how much do you think a Court would award us on the claim?” Let’s examine one final example.
Let’s pretend Diane comes into my office with a claim for Assault against Jack, her multi-millionaire boyfriend. Diane tells me, six months ago, she and Jack, both legal residents of Tennessee, were at a party in Tennessee, together, and she was chatting and laughing with one of her friends, a man, when Jack experienced a psychotic break. Before at least a dozen witnesses, in a fit of psychotic rage, Jack grabbed a bottle of whiskey by the neck, smashed it over the head of Diane’s friend, and then stabbed her in the stomach with the broken bottle shard.
In an ambulance, Diane was rushed to the hospital, where she underwent emergency surgery to repair her very serious injuries. Her recovery took months, and she lost her job. Obamacare notwithstanding, Diane’s health insurance didn’t cover all her medical expenses. Also, she has been seeing a therapist for the last few months, for what her psychiatrist has diagnosed as Post-Traumatic Stress Disorder (PTSD).
Diane has approximately $75,000 of unreimbursed medical expenses, including psychotherapy expenses, she also has lost $30,000 in wages and benefits she would have been paid if she hadn’t lost her job. Also, she has experienced substantial pain and suffering–both physical and mental, and both kinds have been well-documented by a licensed medical practitioner.
I do a quick burst of mental arithmetic, and calculate Diane’s actual damages to be, at least, $105,000.00. Now, if Diane’s punitive damages were capped under Tennessee Code Annotated § 29-39-104 (TN Tort Reform bill of 2011), her punitive damages would be capped at around $210,000, but, because, in this case, there are several applicable exceptions to the statutory punitive damages cap, we don’t have to worry about that.
Let’s say we’re asking for nine times the compensatory damages in punitive damages. That gets us to $945,000.00 in compensatory and punitive damages. If I agree to accept a fee equal to 33% of the compensatory damages, that means my fee is going to be $311,650. We’ll say, too, that Court Costs & Fees, Depositions, Expert Witnesses, etc., etc. could cost as much as $50,000.00. So, here’s our formula.
Net Benefit To Diane: V = P [($105,000 + $945,000 + $50,000) – $311,650]
Notice, here, we are assuming, despite the nature of the complaint, the Court
Net Cost to Jack: V = P ($105,000 + $945,000 + $150,000 + $50,000)
Notice, too, that Jack is above to hire a defense attorney for $150,000. Again,
This is a drastic over-simplification of the calculations involved, but such is necessary to keep this discussion manageable in the context of a blog post. Looking at the above example, we can see that, based on the merits, Diane has a case! Through no fault of her own, Jack stabbed her.
Jack may not be found criminally liable, due to his temporary insanity under the effects of a psychotic break, but he is almost certainly going to be found civilly liable. Still, let’s say there is a 5% chance Diane could lose, just because there is always uncertainty in the litigation process.
Net Benefit To Diane: $788,350 = .95 [($105,000 + $945,000 + $50,000) – $311,650]
Net Cost to Jack: $1,250,000 = .95 ($105,000 + $945,000 + $150,000 + $50,000)
So, we can see a reasonable settlement amount, for this case, would be anywhere in the range of $788,350.00 – $1.25 million. Of course, a lawyer might say, “Hogwash! That’s a multi-million dollar case, right there!” It might be. With the right jury, nearly anything is possible. You could get millions of dollars in punitive damages.
Lawyers should not be in the business, however, of playing the litigation lottery with their clients’ money. What a good lawyer will focus on is obtaining a result for his client that will reasonably compensate them for their loss, and restore them, to the extent reasonably possible, to the condition they were in before they suffered the harm or loss.
It might be that your compensatory damages are tiny–under $1,000, say. In that case, even if you’re absolutely certain you could win, and maybe the other guy is on the fence–say 50/50–about his chances in Court, your case is only going to be worth… well, not enough to make it worth it to most people, even if you’re pro se.
Net Benefit to Plaintiff: $1,162.8 = 0.95 ($999 + $225*)
*Filing Fees, Court Costs, Service of Process
Net Cost to Defendant: $612 = 0.59 ($999 + $225)
If you’re likely to settle in the neighborhood of $887.40 (Net) for a $999.00 claim, why bother? I’d suggest asking your accountant about taking the loss as a tax deduction, if possible, and moving on with your life. It’s hardly worth anyone’s time–certainly not a lawyer’s time–to get embroiled in litigation over such a pittance. So, even if you have a strong case on the merits, if the damages are absurdly low, you still may not “have a case” [that is worth anyone’s time].
A Few Concluding Thoughts
The formula I am using in this article is, again, a drastic over-simplification of the calculations involved in reaching a well-crafted settlement. What I am really trying to accomplish with this formula is to get you, my dear reader, to start thinking like a lawyer about the considerations involved in settlement. Not only does one need to weigh the likely measurable costs and benefits of litigation, but the shrewd litigant will also weigh considerations such as the degree to which the other party might be reasonably confident about their success at trial.
There is no magic formula, no “right answer,” to satisfactorily addressing the question, “Do I have a case,” with respect to all prospective plaintiffs in all circumstances. My father was wise to counsel me, as he did, to never tell a prospective client they don’t have a case. Instead, I have elected to give you a framework for thinking through that question on your own, and reaching, at least, a tentative conclusion. If you follow the guidelines I have provided, above, for thinking through the question, “Do I have a case,” and you believe you do, that’s when you should call a lawyer and make an appointment. Just, please… don’t spring that question on him at a cocktail party.
Noel R. Bagwell, III, Esq. is an attorney and the founder of ExecutiveLP® a business law firm for start-ups and small-to-medium businesses (SMBs). Noel is also the National Center of Preventive Law‘s Leader for Start-Ups and Small Businesses.
A graduate of Cumberland School of Law at Samford University in Birmingham, AL, Noel distinguished himself by earning the 2010 Scholar of Merit award for his academic performance in Economic Analysis of Law. He has since won multiple awards for pro bono legal service, much of which has been provided to veteran entrepreneurs in Middle Tennessee and beyond. He also has extensive experience as a public speaker and Continuing Legal Education (CLE) instructor.
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This article was written by Noel Bagwell for ClarksvilleOnline.com, and is intended only to inform the general public of the author’s opinion. The opinions expressed in this article are those of the author, and not of any government agency, company, corporation, or individual.
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