Study Finds Settling Lawsuits Often More Cost Effective Than Litigating Them Through Trial

A 2008 study by the Journal of Empirical Legal Studies, as reported last year in a New York Times article, Study Finds Settling Is Better Than Going to Trial, found that -

.... most of the plaintiffs who decided to pass up a settlement offer and went to trial ended up getting less money than if they had taken that offer.

"The lesson for plaintiffs is, in the vast majority of cases, they are perceiving the defendant’s offer to be half a loaf when in fact it is an entire loaf or more," said Randall L. Kiser, a co-author of the study and principal analyst at DecisionSet, a consulting firm that advises clients on litigation decisions.

Defendants made the wrong decision by proceeding to trial far less often, in 24 percent of cases, according to the study; plaintiffs were wrong in 61 percent of cases. In just 15 percent of cases, both sides were right to go to trial — meaning that the defendant paid less than the plaintiff had wanted but the plaintiff got more than the defendant had offered.

The vast majority of cases do settle — from 80 to 92 percent by some estimates, Mr. Kiser said — and there is no way to know whether either side in those cases could have done better at trial. But the findings, based on a study of 2,054 cases that went to trial from 2002 to 2005, raise provocative questions about how lawyers and clients make decisions, the quality of legal advice and lawyers' motives....

A modest proposal or Why still Mark-to-Market????

I know I am not alone here, but since we are still in the grips of a credit crunch and economic downturn, I would like to make a proposal (or at least a post hock observation).

First a recap...

Way back in 2007, we began to have a freeze in the subprime mortgage markets and some writers began to foretell the economic turmoil that could ensue. (See -The Panic of 2007 - No Buyers at any Price) Since then, we have discovered that many Alt-A and subprime loan portfolios have much higher potential default rates on mortgages than at first expected, coupled with a realization that Moody's and S&P did a collective hatchet job in rating many mortgage backed securities, not just Alt-A and subprime. These deficiencies have lead quickly to a wholesale run on the overall mortgage backed securities ("MBS") market. Unfortunately for everyone, due to existing GAAP and mark-to-market requirements, our public institutions have been required to severely devalue balance sheets during the market freeze which has lead to a massive credit crunch, has left our venerable financial institutions either in ruins or gasping for air and threatens to crash the overall bricks and mortar economy.

So......what could or can we do about it?

Well, we could inject billions of dollars directly into financial institutions in order to re inflate balance sheets and make up for the massive write downs in securities portfolios due to the market freeze (See - TARP) and hope that financial institutions will go back to normal policy and not horde the injections in fear of further write downs due to continued market declines. ***this is apparently where we are

Or.....

We could recognize that real economic fundamentals are better than the markets are crediting, due to the widespread loss of confidence in rating agencies' scores as an effective measure of MBS safety. Meanwhile, mortgage defaults are still only about 3% and even those still have significant asset coverage, thus leading to sometimes staggering disconnects between market values and "intrinsic value" of many MBS. However, this disconnect creates some interesting options.

One, instead of replacing the lost balance sheet value with US government capital (see - TARP), the SEC and FASB could simply require companies to value portfolio at "expected realizable value" thus allowing them to adjust for short term market irregularities, so long as a given asset is not expected to be sold in that time frame. (See - Suspend Mark-to-Market Now, Gingrich 2008)

Second, the US government could create a "FDIC-like" insurance for the underlying obligations (ie - individual mortgages; See - Governmental "PMI") on selected classes of perceived at-risk MBS, whereby bond holders (or trustees) could petition the insurance for uncovered losses on defaulted mortgages. This should cure the default risk problems caused by the ratings agency malfunctions and thus re inflate the overall security values, while minimizing actual governmental capital outlays to situations of actual loss.

Humbly offered....

How to Avoid an IRS Tax Audit: Incorporate Your Small Business

One tip for Dodging a Tax Audit, per the Wall Street Journal's reporting: Incorporate. The WSJ reports that the IRS continues to target Schedule C filers for tax audits and additionally notes that the IRS will sometimes act on an anoymous tip regarding a taxpayer's non-compliance with U.S. tax law.

[T]he overall audit rate this year is likely to remain about the same as last year, says Linda Stiff, IRS deputy commissioner for services and enforcement. But officials are likely to continue their emphasis on high-income taxpayers. Your chances of getting audited are especially high if you work for yourself, file what's known as a Schedule C form for sole proprietors and deal in large amounts of cash. IRS research has shown especially large amounts of noncompliance among this group.

"Like Willie Sutton said about banks, the IRS is looking at high-income, self-employed Schedule C filers because that's where the money is," says Martin Laffer, a certified public accountant at Laffer & Gottlieb in Beverly Hills, Calif. For example, he says one of his clients being audited owns several retail stores and also is a consultant.

See also:

Time to Incorporate?
California incorporation

Some Californians Flee State for Greener Pastures

Go East, young man? Californians look for the exit, Associated Press, January 12, 2009:

The number of people leaving California for another state outstripped the number moving in from another state during the year ending on July 1, 2008. California lost a net total of 144,000 people during that period — more than any other state, according to census estimates. That is about equal to the population of Syracuse, N.Y.

The state with the next-highest net loss through migration between states was New York, which lost just over 126,000 residents.

California's loss is extremely small in a state of 38 million. And, in fact, the state's population continues to increase overall because of births and immigration, legal and illegal. But it is the fourth consecutive year that more residents decamped from California for other states than arrived here from within the U.S.

A losing streak that long hasn't happened in California since the recession of the early 1990s, when departures outstripped arrivals from other states by 362,000 in 1994 alone.

In part because of the boom in population in other Western states, California could lose a congressional seat for the first time in its history.

Why are so many looking for an exit?

Among other things: California's unemployment rate hit 8.4 percent in November, the third-highest in the nation, and it is expected to get worse. A record 236,000 foreclosures are projected for 2008, more than the prior nine years combined, according to research firm MDA DataQuick. Personal income was about flat last year.

With state government facing a $41.6 billion budget hole over 18 months, residents are bracing for higher taxes, cuts in education and postponed tax rebates....

March 2009 update:

Related: Corporate oil booms in low-tax Switzerland, Reuters, March 12, 2009 ("[A] wave of energy companies has in the last few months announced plans to move to Switzerland -- mainly for its appeal as a low-tax corporate domicile that looks relatively likely to stay out of reach of Barack Obama's tax-seeking administration.") and California Scheming: What One-Party Rule Is Doing To Once-Golden State

California Secretary of State and FTB To Introduce LLC Suspension Program in 2009

Happy new year. And with the new year comes changes to various state and federal laws. Among others:

The new cell phone law prohibits text messaging or reading or writing emails while driving.

Covered employers will be affected by changes to the federal Family and Medical Leave Act (FMLA) and should have their employee manuals reviewed and revised accordingly. A new workplace poster is available here: 2009 FMLA poster

The definition of a disability under the Americans with Disability Act (ADA) has been broadened.

The time limits for filing a discrimination claim under the Civil Rights Act of 1964 and the Age Discrimination in Employment Act were extended.

In 2009, the California Franchise Tax Board (FTB) and Secretary of State (SOS) will be allowed to suspend limited liability companies (LLCs) that do not comply with various FTB and SOS filing and tax payment requirements. The FTB and SOS already do this for corporations, but up until now, the law had prohibited them from doing so with LLCs. This changes makes proper business entity maintenance, already crucial for ensuring maximum tax and limited liability advantages, all the more important. LLCs that are not being used should be dissolved while still in active status.

See also: 2009, Time To Incorporate?

818 Area Code Overlay with 747 Area Code Begins in 2009

The California Public Utilities Commission (CPUC) has forecasted that the 818 area code (San Fernando Valley, California) will run out of telephone numbers in the third quarter of 2009 and has therefore announced an overlay with new area code 747; that is, as is the case with the old 310 and new 424 area codes, both area codes will exist in a single geographic area, with most new telephone numbers assigned receiving the new 747 area code.

Because an 818 and a 747 telephone number may therefore be in the same house or office building, ten-digit dialing (dialing the area code plus the number) will become mandatory in the 818 area code, effective April 18, 2009. The advantage of an overlay rather than a split is that any person or business with an 818 number will be able to keep that number, and no decision has to be made as to what geographic are retains the 818 area code and what area must adapt the new area code. Public hearings showed the public favored the overlay solution.

Cities in area code 818 include Agoura, Agoura Hills, Arleta, Calabasas, Canoga Park, Chatsworth, Encino, Glendale, Granada Hills, Hidden Hills, La Cañada Flintridge, Lake View Terrace, Mission Hills, North Hills, North Hollywood, Northridge, Pacoima, Panorama City, Reseda, San Fernando, Sherman Oaks, Studio City, Sunland, Sun Valley, Sylmar, Tarzana, Toluca Lake, Topanga, Tujunga, Universal City, Valley Village, Van Nuys, West Hills, Westlake Village, Winnetka, Woodland Hills, and of course "Media Capital of the World" Burbank.

More information: CPUC 818 Area Code Change Information

California Scheming: What One-Party Rule Is Doing To Once-Golden State

California Scheming: What One-Party Rule Is Doing To Once-Golden State, Investor's Business Daily editorial, December 22, 2008:

.... As the financial crisis in California gets worse, it's pretty clear the real problem isn't the budget at all, but a political system that has resulted in a dysfunctional one-party state. ....

A reasonable response from a mature group of individuals might be to cut spending — especially since polls show that most Californians don't believe their taxes should be raised. Instead, they've chosen to thumb their noses at the people's will. It shows the danger of what is in effect California's one-party rule. .... Frustrated with their inability to raise taxes, Democrats got creative: They decided they could declare outright hikes in taxes to be "fee increases." This would let them pass a massive $9.3 billion in tax hikes without consulting Republicans in the legislature, in direct violation of state law. ....

California is already the most costly place in America to do business, according to the Milken Institute's business cost index. Its business costs in 2006 were 23% higher than the average for the rest of the states, and well above those of its neighboring states.

Worse, energy costs are already 35% higher than the national average. With California's costly new CO2 mandates about to kick in, the economy could well grind to a halt.

Such business mainstays as Intel, Exxel Outdoors, Toyota and Tesla have already left California. Intel is a particularly alarming example: The world leader in chip technology started in Silicon Valley but no longer makes anything in California.

Since 2001, according to the California Manufacturers and Technology Association, the state has lost 440,000 high-wage jobs. Today, the state's jobless rate of 8.4% is third-highest in the nation.

Even Hollywood feels the pinch. In 2003, 66% of Hollywood's feature films were made in-state; today, it's down to 31%. Increasingly, Hollywood is a state of mind — not a place to do business.

Things are so bad that, just last week, 25 business groups wrote an open letter to the state's legislature begging it to think about the role businesses play in the economy.

We wish them luck. Unfortunately, instead of aggressively addressing these competitiveness problems, California's Democrats think they can simply tax their way back to prosperity. They can't.

California's tax base is so narrow — 1% of the population pay 50% of income taxes — that you can't "tax the rich" and get more revenue, a long-held Democratic fantasy. California individuals today bear the sixth-highest tax burden in the nation. Raising taxes won't do anything but drive off productive workers and kill the economy.

It's already happening. Tired with having their voices ignored and faced with soaring taxes, high housing costs and state fiscal chaos, Californians are leaving in droves. They're voting with their feet.

Last year, 135,173 more people left California than moved in, the fourth straight year of net out-migration. As the Los Angeles Times accurately noted, "the trend remains significant because such declines usually occur when working Californians decide better opportunities lie elsewhere."

Members of California's one-party ruling class better start listening to their businesses and productive, overburdened taxpayers, or pretty soon they won't have an economy to fund their government. ....

See also:

Gas Buddy USA Temperature Map

California Legislature Plans To Increase Taxes Amid Recession

Study: Los Angeles, Santa Monica Among 10 Most Expensive Places to Do Business in United States