{"id":641,"date":"2010-07-29T10:04:32","date_gmt":"2010-07-29T14:04:32","guid":{"rendered":"http:\/\/businessconflictmanagement.com\/blog\/?p=641"},"modified":"2010-07-29T10:04:32","modified_gmt":"2010-07-29T14:04:32","slug":"simple-methods-to-determine-the-value-of-claims","status":"publish","type":"post","link":"http:\/\/www.businessconflictmanagement.com\/blog\/2010\/07\/simple-methods-to-determine-the-value-of-claims\/","title":{"rendered":"Simple Methods to Determine the Value of Claims"},"content":{"rendered":"

Many parties in mediation — and many of their counsel — consider that a “win” is a deal that gets them the number they asked for, or close to it.\u00a0 In fact that’s not so, and a mediator provides important value to disputants by assisting them to determine, in a claim\u00a0that will go to trial in two years and subsequent appeal, \u00a0what the “right” number is today.<\/p>\n

Here are\u00a0three easy steps towards assisting parties to value their claims.<\/p>\n

\"Go<\/a><\/p>\n

Step One<\/strong>: Discount Transaction Costs<\/em>.\u00a0 Every good lawyer will advise the client of the litigation budget in the event that the mediation is unsuccessful.\u00a0 A business-oriented claimant understands that transaction costs diminish the “real” return.\u00a0 A claim for $100,000 that costs $30,000 to get to verdict and another $10,000 to defend on appeal will net the claimant $60,000.\u00a0 (Statutory claims that provide for fee-shifting are exempt from this step, but\u00a0most business-related claimants must bear their own costs.)\u00a0 So accepting\u00a0$60,000 today is the same as a complete win at the conclusion of the litigation.<\/p>\n

Step Two<\/strong>:\u00a0 Discount for Likelihood of Success on the Merits<\/em>.\u00a0 No lawyer ever counsels a client that the claim is certain to prevail at trial.\u00a0\u00a0An experienced trial lawyer once told me that, in any trial,\u00a0there’s a 10% chance that an elephant will walk into the room and take the oath as a witness.\u00a0\u00a0<\/p>\n

\"Go<\/a><\/p>\n

An aggressive counsel might advise 80% likelihood of success; most advise more like 70% or 60%.\u00a0 If there is a 75% chance of success at trial (which is to say, a very good chance indeed), then reduce the $60,000 (see Step One<\/strong>) by the 25% chance of losing, and you come\u00a0up with\u00a0$45,000.\u00a0 That’s the number that accurately reflects the value of the claim if you were to wrap it up today and end any uncertainty about the outcome.<\/p>\n

Step Three<\/strong>: Determine the Present Value of the Recovery<\/em>.\u00a0 Remember that the $45,000 net recovery (reflecting uncertainty)\u00a0won’t be in the cash till for another three years or more.\u00a0 At 4% interest, compounding daily, $45,000 in three years is equal to $39,911.68 today.\u00a0 (A handy-dandy present value calculator is available at http:\/\/www.uic.edu\/classes\/actg\/actg500\/pfvatutor.htm<\/a>.)\u00a0<\/p>\n

\"Go<\/a><\/p>\n

All we’re trying to do in a mediation is to help the claimant and the defendant to get out of the lawsuit: to\u00a0eliminate uncertainty, shut off the costs of the legal action, monetize the claim, release the reserves against the liability, and\u00a0redirect their resources back to support for their core business.\u00a0 The three steps outlined above help in this effort.\u00a0 In this hypothetical, a claimant receiving $40,000 on the day of the mediation is getting one hundred cents on the dollar of her $100,000 claim.\u00a0 That’s a helpful fact for a claimant to have in her pocket before negotiation begins.\u00a0<\/p>\n

Who knows?\u00a0 The defendant’s opening offer might be close to that number, thinking\u00a0it would represent a 60% “haircut.”\u00a0 And if\u00a0that’s the bid, I hope the claimant recognizes\u00a0its value.<\/p>\n","protected":false},"excerpt":{"rendered":"

A few straightforward tools can assist negotiating parties to consider what the “right” number is, if a claim were settled today.<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11,37],"tags":[29,31],"class_list":["post-641","post","type-post","status-publish","format-standard","hentry","category-conflict-resolution","category-negotiation","tag-add-new-tag","tag-negotiation"],"aioseo_notices":[],"_links":{"self":[{"href":"http:\/\/www.businessconflictmanagement.com\/blog\/wp-json\/wp\/v2\/posts\/641","targetHints":{"allow":["GET"]}}],"collection":[{"href":"http:\/\/www.businessconflictmanagement.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/www.businessconflictmanagement.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/www.businessconflictmanagement.com\/blog\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"http:\/\/www.businessconflictmanagement.com\/blog\/wp-json\/wp\/v2\/comments?post=641"}],"version-history":[{"count":0,"href":"http:\/\/www.businessconflictmanagement.com\/blog\/wp-json\/wp\/v2\/posts\/641\/revisions"}],"wp:attachment":[{"href":"http:\/\/www.businessconflictmanagement.com\/blog\/wp-json\/wp\/v2\/media?parent=641"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/www.businessconflictmanagement.com\/blog\/wp-json\/wp\/v2\/categories?post=641"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/www.businessconflictmanagement.com\/blog\/wp-json\/wp\/v2\/tags?post=641"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}