In-House Counsel

The Real Reason Big Cases Don't Go To Trial

There are many reasons, but a big one is often overlooked.

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You’ve heard the many reasons why high-stakes cases no longer go to trial.

It’s the law firms’ fault! Law firms charge such exorbitant rates that clients can’t afford to try cases. The cost of defense may exceed the amount of any potential adverse judgment.

It’s outside counsels’ fault! Cases not going to trial creates a vicious circle:  Cases don’t get tried, so lawyers at big firms don’t get experience trying cases, so lawyers at big firms (who don’t try cases) are afraid of trying cases, so lawyers at big firms recommend settlement to avoid trial.

It’s the judges’ fault! Judges prefer settlements to trials (to save work and avoid the risk of reversal), so judges intentionally make it hard (and expensive) to try cases. Between the pretrial statements and the exchanges of materials and, in bench trials, the occasional submission of written direct testimony and the frequent preparation of proposed findings of fact and conclusions of law, judges increase the cost and effort of trying cases, so judges effectively coerce settlement.

It’s the fault of the law of big numbers! If a defendant is extremely likely to win a case — say, a 90 percent chance of winning — but the plaintiff’s demand at trial will be a billion dollars, then the settlement value of that case is 10 percent times a billion, or $100 million. No one can afford to try a case when a tiny chance of defeat would be a corporate life-threatening event.

Let me add a new reason to this mix. (I cheated in the headline to this piece.  This isn’t actually “the real reason” big cases don’t go to trial. But I do think it’s “one of the many reasons” big cases don’t go to trial, and I think people often overlook it.)

Personal self-defense: The personal risk of undervaluing a case (on the defense side) is much greater than the personal risk of overvaluing a case.

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Suppose a case is truly worth $3 million in settlement. Suppose the (outside or in-house) lawyer overvalues that case and mistakenly advises that it’s worth $4 million to settle. The defendant pays $4 million; the case goes away; nobody ever learns of the error in valuation; everyone keeps their job.

But suppose the (outside or in-house) lawyer undervalues a case. “We should not pay a penny more than $2 million to settle that case,” even though the case is really worth $3 million.

The case is then tried; the defendant loses $20 million or $30 million at trial; the lawyers’ undervaluing of the case is immediately evident to all. (Indeed, even a proper valuation of a case will look pretty bad in these circumstances.)

You might get away with doing this a few times during the course of a career, but you’d better not make a habit of undervaluing cases and then losing at trial. Do this two or three times in a single year, and I guarantee that the client will look askance at the outside law firm, or the CEO will look askance at the general counsel (who will in turn look askance at the head of litigation, who will in turn look askance at the line lawyer who handled the case, who will in turn look askance at outside counsel, who will in turn look askance at the dog, but that’s another story).

Why do big cases not go to trial?

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There are many reasons, but one of the reasons is personal self-defense: It’s easy to pay too much to settle cases. And, conversely, it can threaten one’s livelihood to run big risks.

What would any sentient person do?

Mark Herrmann spent 17 years as a partner at a leading international law firm and is now deputy general counsel at a large international company. He is the author of The Curmudgeon’s Guide to Practicing Law and Drug and Device Product Liability Litigation Strategy (affiliate links). You can reach him by email at inhouse@abovethelaw.com.

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