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The Lawsuit Market: A Reframe

As all dispute resolution practitioners know, a great deal depends on whose ox is gored. Parties to a dispute have little inclination or ability to “look at the case from the other person’s point of view” or to “look at the case objectively”. The other side, after all, is Evil Itself and looking at the matter from their point of view would be wrong. And besides, as we all know, my point of view is objective. I was there.

So I want to offer another approach. This one doesn’t require asking parties to step into anyone else’s shoes. They get to stay in their own shoes. They just have to imagine the existence of a lawsuit market.

To a plaintiff, a lawsuit is the right, under certain conditions, to take money from a defendant. To a defendant, a lawsuit is the obligation, under certain conditions, to pay money to a plaintiff. The conditions can get quite complicated. They involve whose witnesses are believed and which jurisdiction’s law applies and what the judge had for breakfast and so on. And each has a range and a probability distribution which may also be quite complicated. But if we strip all that away and look just at basic economic structure, a lawsuit involves an obligation to pay and a right to be paid.

Once we realize that, it is only a short step to imagine that there could be a market for lawsuits in which the right to sue and the obligation to be sued could be bought and sold. The reframing I propose comes about when we ask the parties to a dispute to think of themselves as investors in this market. We say to the Plaintiff:

Suppose you didn’t have this lawsuit, how much would you be willing to pay to get it?

In other words, we ask the plaintiff to put a value on the economic opportunity represented by his right to sue. But instead of thinking of it as a gain, we ask him to think of it as a loss – a cost.

And we say to the defendant:

Suppose you weren’t involved in this lawsuit, how much would someone have to pay you to endure it?

We ask the defendant to put a value on the economic cost represented by his obligation to be sued. But instead of thinking of it as a loss, we ask him to reframe it as a gain.

If the theorists are right about gain frames and loss frames and loss aversion and the rest, these reframed questions will generate a lower plaintiff’s number and a higher defendant’s number than we get when we ask the question in the customary way.

The next step is to persuade the parties that the answers they give to these questions are the valuations they themselves put on their role in their lawsuit. If you say, Mr. Plaintiff that you would pay only x dollars to acquire your lawsuit if you didn’t already have it, you are saying, are you not, that you think your lawsuit is worth x dollars.

If you say, Mr. Defendant, you would have to be paid y dollars in order to allow yourself to be sued in this case if you weren’t already in it, aren’t you saying you think this case is worth y dollars?

I haven’t tried this thought experiment in a real settlement negotiation yet. But I have tried it with a group of graduate students and a group of law students. Classes were told they represented one of the parties, given a fact pattern and asked to provide a settlement value for the case. Then they were asked to provide another evaluation thinking of themselves as buyers and sellers in the lawsuit market instead of parties. The results in both tests were as predicted. The evaluations changed substantially in the anticipated direction. So the (very preliminary) indication is that this technique can help counteract framing effects and help settle lawsuits.

But I am a practitioner, not a theoretician. I don’t know how to design a proper experiment to test the hypothesis and I certainly don’t know how to evaluate data. If the idea looks appealing to anyone out there who does have those skills, I’d be delighted to hear from you.

                        author

Barry Goldman

Barry Goldman is a Michigan-based arbitrator and mediator of workplace disputes. He is also an adjunct professor at Wayne State University Law School where he teaches courses in negotiation and ADR and the author of The Science of Settlement: Ideas for Negotiators, published by ALI-ABA in 2008. He can be reached… MORE >

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