Most attorneys intuitively try to think about their case in a careful and systematic way. However, even the simplest case can easily lead to seemingly intractable complexity. The reason for this difficulty is that their instinct is to start with the details, from the bottom up. Consider a case with five causes of action and try to understand how to think about a motion to dismiss. The judge can dismiss, modify or let stand each cause. Even without considering the myriad possibilities of variations for each cause, we already have three alternative outcomes for five causes of action which yields 3 x 3 x 3 x 3 x 3 = 243 possible combinations at the first step of the problem. This appears at first glance to be futile and less than useful.
There is, however, a systematic way to approach any piece of litigation. The critical difference in the Litigation Risk Management approach is to start at the top instead of the bottom. The first question that needs to be asked is “Will we win or lose and what are the chances that that will happen?” The second question is “How much will we win or lose?” The next steps lead to understanding what issues, legal interpretations and other factors can impact either of these two questions. It turns out that you don’t have to get very far down into the details of the case before the answers stop changing very much. In other words, from an evaluative point of view, the depth of detail that you need to incorporate is less than you would intuitively think. We call this a Zero Base – Top Down Approach. We have analyzed thousands of cases, ranging from very simple to extremely complex — and it works!
The Process is The Product
Litigation Risk Management / Settlement Valuation is a disciplined, systematic, rational approach to managing litigation risk and valuing and managing settlement opportunities. It is a process that leads to both a better understanding of the critical issues and a comfort with the decisions you make. This is the real value of a structured process for evaluating the case.
Fundamental Concepts of LRMI Approach to Litigation Risk Management/Settlement Valuation
Decisions versus Outcomes
- A Decision is something over which you have control
- An Outcome is what happens
- You can influence Outcomes, but you cannot control them
- If you reward people for good outcomes They will make those decisions that have the least probability of a bad outcome, not those with the highest expected outcome
Expected value is the primary criterion for decision-making.If you could run the case 100 times, what you would end up with on average
- Probabilities Represent quantification of Knowledge, Judgment & Experience Two people can have a different opinion/probability from looking at the same legal issues and facts
- These opinions are stated as probabilities Unambiguous Can be combined to come up with overall conclusions when more than one uncertainty is involved
- Do not confuse probabilities / judgments with historical frequencies Some things have available historical frequencies Percent of times the American League team has won the World Series
- The probabilities represent a best judgment about the likelihood of a particular outcome that is useful in decision-making
- A probability cannot be wrong Unless it is 0 and the event happens or it is 1 and the event doesn’t happen
- Even if someone judges that there is only a 5% chance of an event taking place and it happens, the 5% judgment was not wrong!
Value of Information
- For most of the critical issues, there is not much information available
- You can calculate how much you would pay to reduce the uncertainty in the outcomes before you make a decision.
Value of Control
You can calculate how much you pay to increment the probabilities of good outcomes or to decrement the likelihood of bad outcomes. This is the best way to control the costs of litigation Counsels job is to improve the probability of a favorable outcome. You can make real decisions about how much should you pay to defend/pursue the case. (see Managing Litigation Cost article)