Legal Standpoint: Why Do So Many Lawsuits End in Settlement? Check Your E-mail.

By Lawrence White    //    Volume 19,  Number 5   //    September/October 2011

According to the U. S. Justice Department, only a miniscule portion—less than 3 percent—of all civil-action lawsuits result in formal judgments or verdicts. The vast majority of litigated cases end in negotiated settlements. The same is true for lawsuits filed against higher-education institutions and officials. A report prepared in 2003 by United Educators, an industry-leading risk management and insurance company, found that only 3.5 percent of higher-education lawsuits last all the way to the trial stage, with most settled by the parties prior to trial.

Typically, when institutions are named as defendants in lawsuits, administrators—and the lawyers who represent them—don’t want to concede error and want to be vindicated in court. What dynamic, then, explains the propensity of colleges to settle rather than litigate?

The cost of litigation is the driving factor. Extrapolating from figures supplied by United Educators in its report, attorneys’ fees and court expenses per litigated case for higher-education institutions total about a quarter of a million dollars today. Those costs are soaring due to the relatively new phenomenon of electronic discovery, or “e-discovery” in lawyer parlance. At the outset of most lawsuits, each party files court papers requiring the other side to produce documents that may bear on the subject matter of the litigation. Today most of those documents take the form of e-mail messages and computer files.

A survey conducted for a recent Duke University School of Law symposium on litigation costs found that the typical institutional defendant produces five million electronic documents in response to e-discovery requests during an average civil lawsuit. That is the equivalent, in round terms, of one terabyte—one thousand gigabytes—of e-data. The cost of e-discovery averages about $1,000 per gigabyte—meaning, as horrifying as it sounds, that comprehensive e-discovery conducted in a case that goes all the way to trial may add as much as $1 million to the cost of litigation. That expense is for attorney review time (imagine how many billable hours would be consumed as your lawyer reviews five million documents before turning them over to opposing counsel) and service fees charged by companies that specialize in reproducing and indexing e-documents.

Two considerations make e-discovery costs especially problematic for colleges. First, there is no symmetry between the cost to the plaintiff of initiating e-discovery (typically no more than running a preprogrammed macro in a word-processing program and generating a standard document production request, which costs a bare minimum in legal fees) and the defendant’s multimillion dollar cost to comply with an e-discovery request. Second, colleges tend to have large, decentralized computer systems. Hundreds of faculty members and administrators may have pertinent documents in their possession, adding effort and expense to the task of collecting and reviewing them.

When, as will inevitably happen, your institution is named as the defendant in a civil lawsuit, your lawyer may be required to perform a delicate calculation. The lawyer knows from experience how much it will cost to mount a vigorous defense to the suit. He or she can estimate—by looking at the money demand in the complaint, gauging the institution’s likely exposure in light of similar cases, and discussing the claim with the institution’s insurer—how much the plaintiff may be willing to accept in settlement. A good lawyer knows when institutional interests militate against settlement. But defending against a lawsuit comes at a cost that may be an order of magnitude greater than negotiating a settlement.

Board members, when conferring with legal counsel about cases on their institution’s litigation docket, should bear in mind that the vast majority of cases settle. That’s not because clients engage in culpable conduct. It’s because our judicial system is biased toward settlement and creates powerful financial incentives for litigants to settle. There is nothing unusual about settling cases and no stigma in settling. As respected U.S. District Judge John F. Keenan observed in a widely cited opinion (In re Warner Communications Securities Litigation, 1985), “a bad settlement is almost always better than a good trial.”

The owner of this website has made a commitment to accessibility and inclusion, please report any problems that you encounter using the contact form on this website. This site uses the WP ADA Compliance Check plugin to enhance accessibility.