In a previous post, we saw that litigation can be a risky proposition. It is also a costly one. Under the American rule, each party to a case is responsible for his or her own legal costs. Thus, going to trial is not only uncertain; it is also costly for both parties to a lawsuit. As such, we can compare the decision of going to trial to the act of placing a bet. In order to place a bet, you will have to risk something. The outcome of the bet may depend on external factors outside of your control or on factors within your control or both. In short, you may win or lose if you decide to place a bet or take your case to trial, but in order to go to trial in the first place, you will have to incur costly legal fees and other related trial expenses. Furthermore, because going to trial is both a risky and a costly proposition, the choice between litigation and settlement opens up the possibility of strategic behavior by both parties. We will offer some examples of strategic behavior in litigation is a future post.
In a previous post, we noted that going to trial can be like rolling dice. Because litigation is risky, this might be why so many lawsuits (even non-frivolous ones) often end up settling out of court. To see this, imagine you are a plaintiff suing someone for damages. If you decide to settle out of court instead of going to trial, you may receive an amount less than what you think your case is worth. If you decide to go to trial, however, you may get nothing at all. In other words, you could win it big if you take your case to trial, but there is always a risk of recovering nothing if you do go to trial. Now, imagine that you are the defendant, that you are the one being sued for damages. To settle out of court, you may have to pay the plaintiff more than what you think is fair, but if you go to trial, you might get hit with an even larger judgment against you. But going to trial is not only a risky proposition; it is also a costly one. We will explore this aspect of litigation in a future blog post.
Via BloombergBusiness, here is a pdf copy of the 166-page federal criminal indictment against fourteen high-level officials of FIFA, the world soccer federation. If you were to place a bet on this case (with your own money, of course), how many of these FIFA defendants will plea bargain? How many will go to trial? (Bonus Question: does a federal (U.S.) court located in New York City have jurisdiction over the FIFA defendants? Check out one legal scholar’s thoughts (the excellent David Post) on this jurisdictional question here.)
In the dramatic courtroom thriller “A Few Good Men,” two Marines are charged with killing a fellow soldier, Private William Santiago. An inexperienced U.S. Navy lawyer, Lieutenant Daniel Kaffee (played by Tom Cruise), is assigned their defense. At first, Lt. Kaffee wants to arrange a plea bargain for his clients, but he ends up going to trial when he suspects that it was their commanding officer, Colonel Nathan Jessep (played by Jack Nicholson), who authorized the killing of Private Santiago. As he prepares for trial, Lt. Kaffee interviews Col. Jessep and asks him if he ordered a “Code Red” in violation of military rules. Col. Jessep resents this line of questioning and replies: “You want to investigate me, roll the dice and take your chances.” This exchange between Lt. Kaffee and Col. Jessep illustrates an important aspect of litigation: going to trial can often be uncertain and risky. We will explore why litigation is so risky in a future post.