Friday, May 02, 2008

MDK is Quite Right . . .However Tha Does Not Diminish the Value of the Formula

Thanks for your comments MDK, and you are quite right, the formula for in-house counsel does not have potential for the same rigor as E=MC2 in the real world.

It was not my intention to have in-house counsel taking out their slide-rulers (whoops, dated myself there) and make precise calculations. However, there are ways of estimating outcomes such as statistically sampling jury verdicts or using test juries to get a handle on the range of potential outcomes.

But even if you cannot measure DO precisely, the formula does tell you something very important about the consequences of high TCv values, they are more than just a high cost; they are a strategic disadvantage in the lawsuit suit. Unless you have some reasonable basis to believe that DO and TCv are dependent variables, that is that increasing your litigation costs will has a corresponding reduction in DO value, your opponent is going to ask a lot more from you to settle than if your TCv was lower.

In a later post, I will discuss some studies and work that suggest that TCv values and DO values do not negatively correlate (or correlate at all), that is that as TCv goes up DO goes down. (For those who do not get the math jargon, your higher legal expenses mean you are going to get a better result). And for those of you who are not sure if you are getting better outcomes for the higher cost, you can be sure that those costs are degrading your position in the resolution of the litigation.

A number of years ago I had the pleasure of addressing the presidents of the State Chambers of Commerce at their annual meeting that was being held that year at Pebble Beach. The impetus of being asked to speak was the victory we had in case I tried, PIRG v MEI, a case that had gained substantial visibility in environmental circles and whose later claim to fame was that the environmental community had adopted it as an example of Sam Alito’s, econ-unfriendliness, and therefore unsuitability for the Supreme Court.

My speech focused on other Clean Water Act cases that were being described in promotional literature for law firms by house counsel as great litigation results because the settlement saved them from large legal expenses. Although one could not, as MDK accurately stated, precisely measure outcomes a comparison of the DO of our case and the case that settled, it was clear that the DO value of the case that settled was far lower than ours—so why did they settle and we did not. Our TCv value was essentially zero because we tried our case in-house and their TCv value was very large, larger than their DO. Having TCv value that are large relative to your DO or larger than your DO value is a real problem because transaction costs rather than the merits of a legal position start to determine outcomes

What I told the presidents is that this was a huge problem for business because I learned in the MEI case that the environmental community was carefully controlling the cases they litigated to conclusion—they could select which case they chose to settle and which they did not and PRIG was working with the Sierra Club and other groups to insure that legal doctrine was being developed in the cases they selected.

Good fact cases for business were being settled because the TCv values of the company were forcing them to settle them rather than litigate to create better legal doctrine. I did not advocate in-house litigation as the solution; I suggested that the Chambers needed to devise a mechanism to identify cases that could create better law for the business community and devise a mechanism that accounted to the problem of high TCv values to insure these cases were litigated to conclusion.

In a future post I will describe how we did just that in the context distinct industry problem, once we recognized that high TCv costs could give legal reality to a scientifically fictitious disease if an industry wide response was not adopted.

- Larry Salibra
View Bio

No comments: