Seventh Circuit Judge Richard Posner likes to riff on things that tickle his fancy. He does it a lot in his legal writing, of which he does a great deal. Just this week he wrote about how to tell if you should take an offer to settle:
Determining the reasonableness of a settlement requires comparing the amount of the settlement to the net expected gain of seeking a litigated judgment. The "expected gain" is the gain if the judgment is favorable, discounted (that is, multiplied) by the probability of a favorable judgment. The qualification "net" signals the need to subtract the cost of pressing ahead to judgment in order to estimate the value of litigating to judgment rather than of settling. Suppose the setttlement is $1 million, and a litigated judgment favorable to the plaintiff would be $4 million but the probability of obtaining the judgment would have been only 10 percent and the cost of obtaining it (the litigation cost) $100,000. Then the net expected gain from litigating to judgment would have been only $300,000 ($4 million x .10 = $400,000; $400,000 - $100,000 = $300,000) -- much lower than the $1 million settlement. And so the settlement would be reasonable.
In re Fort Wayne Telsat, Inc., No. 11-2112, slip op. at 7-8 (7th Cir. Nov. 23, 2011) (affirming bankruptcy judge's okay of trustee's settling of claim by debtor).
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