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The Mediator's Crystal Ball

How does a Mediator predict Litigated Outcomes?

In my case, my objective case analysis is based upon applicable jury verdicts, published cases and thirty years of jury trial, arbitration and construction industry experience. I survey the likely range of monetary damages, as well as contract rights, surety and insurance recoveries, and reflect upon their impact on the parties’ personal and business affairs.

I also estimate the likely Attorney’s Fees, Court Costs, Experts, Staff and Executive time, Opportunity Costs and Loss of Employment and Business Relationships (so called “ACESOR” impacts). The risk of ACESOR costs and expenses can be doubled by the existence of an attorney’s fee provision.

However, the range of awards and fee estimates are only a fraction of the story. Every party has a unique, highly subjective attitude towards litigation risk. They often have an inflated view of a litigated result or what it will cost in time or treasure.

In any case, you might ask yourself, which of these outcomes is most likely:

Advantageous Business Outcome: An aspirational party may see this figure as the ticket to their future business or personal success, such as a favorable outcome on a patent or copyright issue or a large award that may enable revenue expansion.

Best Possible Outcome: An exemplary award with low-end ACESOR expenses.

Client Credibility: An Outcome that affirms a client’s sense of esteem, integrity and credibility. This result may be very costly for the winning party.

Contained Loss: An Outcome where liability is likely, but the award of damages is limited by pretrial motions or factual victories.

Expected Value Analysis: A careful assessment of each issue in the case and its relative probability of success or failure. These individual outcomes are weighted by probability and severity to develop an expected value tree that is used to predict an average expected outcome. This technique can also be used to assess ACESOR exposure and the prevailing party issue. The methodology must be mathematically rigorous in complex cases.

Expected Value Outcome: The average value of expected Outcomes calculated using an expected value tree. This average assumes a normal bell curve of recoveries. Where outcomes are bimodal or multimodal, the “expected value” can be an outcome that will never occur.

Expert Witness Gambit: The Outcome that will result from the parties’ expert(s) either “selling” or “losing” their central theory. This is a common tipping point in project delay cases.

Insolvency Outcome: The set of adverse Outcomes and ACESOR expenses that will result in the insolvency or bankruptcy of a party, its management or its ownership.

Key Issue Result: The Outcome(s) that will result from “winning” or “losing” a Key Issue.

Typical Key Issues are whether a design professional met the standard of care, the enforceability of a liquidated damages provision or a consequential damage waiver.

Maximum Insured Recovery: The largest sum collectable from insurance coverage. In contrast with the policy limits, this analysis focuses on the likelihood of establishing liability on covered issues.

Maximum Uninsured Loss: The maximum uninsured amount of an adverse award plus ACESOR.

Maximum Surety Recovery: The largest sum recoverable from a surety (this might be the Penal Sum, minus any previous surety payments).

Median Result: The Outcome at the center of a number of potential outcomes. There will be an equal number of outcomes above and below this figure.

Mock Juries & Surrogates: Parties may produce the results of mock juries, surrogate panels or focus groups as a predictor of a likely outcome. The mediator will inquire on panel selection, the scope and breadth of factual and legal presentations and the analytical rigor of the group.

Nightmare Business Outcome. Any result that puts a party in a business tailspin, such as, an unfavorable outcome on a patent or copyright issue or an adverse monetary award.

Optimal Economic Result: The best case Outcome on solely economic factors.

Prevailing Party Analysis: An analysis of which party is likely to prevail. This involves the operative contract language, indemnity clauses and statutes, the relative offers made to date, and who may be the prevailing party on any non-monetary issues.

Settlement Valuation: A figure that reflects the monetary value of settling a case prior to trial. It takes into account the economic value of reducing or eliminating uncertainty, as well as the elimination of ACESOR from the time of settlement forward.

Simulation Method Valuation: An Outcome based upon several hundred, or even thousands, of runs of a simulation computer program with imbedded logic that reflects the case facts and issues. Such programs attempt to mimic real time decision-making by arbitrators, judges and juries.

Sunk Fees: The minimum Outcome that reimburses the party’s accumulated ACESOR.

Vindication: The Outcome that resolves who was morally right or wrong. This is the opposite of a purely economic analysis. Examples are suits for paternity, slander, wrongful death, recall or an apology.

Witness Credibility: An Outcome driven by the credibility of key witnesses.

Worst Credible Outcome: A credible negative Outcome with the assessment of both parties’ ACESOR.

Zero Exposure: A party may be so convinced they have zero liability exposure, they are incapable of assessing the other components of the case, such as causation, potential monetary damages or the likely prevailing party. This is common in cases involving wage and hour law, market share or strict liability and environmental regulation.

A credible theory of liability and an understanding of the underlying policy for assessing such liability must precede any rational analysis of outcomes.

Over many years, statistical studies have shown that plaintiff’s counsel overestimate their chances of establishing liability, even in tough cases. When defense counsel errors, it is grossly undervaluing the size of the award that a jury or tribunal may issue. (See: Randall Kiser, Beyond Right and Wrong: The Power of Effective Decision Making for Attorneys and Clients, Springer, 2010.)

In order to overcome these subjective biases, a skillful mediator will explore a range of credible outcomes to illustrate their practical impacts and illuminate the value of a thoughtful and carefully structured settlement.

Ernest C. Brown, Esq., PE

Mediator/Arbitrator

San Francisco, CA

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