Should Larry Junior Go to Court or Settle?

In the mid-1990s, DHL was the world's largest shipping company, with $5.7 billion in revenue and 60,000 employees. Larry Hillblom was the "H" in DHL and founder of the company. DHL started on a shoestring budget in 1969 with a business plan to deliver shipping documents by air courier to ports of call days before cargo ships arrived, so that vessels could be unloaded quickly upon arrival and be on their way. The company grew into an international air courier, making Hillblom a millionaire before he turned 30. While not as famous in the United States as Federal Express, overseas DHL is so ubiquitous that its name is synonymous with next-day-air shipping in the same man­ner that the word "Coke" is used to mean "soft drink."

To avoid U.S. income taxes, Hillblom moved from the San Francisco Bay area to Saipan, a tropical tax haven a thousand miles off the southeast coast of Japan. He became a Micronesian kingpin, launching dozens of businesses and financing land development projects in the Philippines, Hawaii, and Vietnam. He owned European castles and hotels, a Chinese jet, an airline called Continental Micronesia and, in addi­tion to his mansion in Saipan, maintained residences in Manila, Hawaii, and Half Moon Bay. His hobbies included high-end stereo equipment, boats, airplanes, fancy cars and, reportedly, illicit relationships with young Asian girls.

On May 21, 1995, Hillblom and two business associates took off for Saipan in Hill­blom's twin-engine seaplane from nearby Pagan Island for a short business trip. Bad weather turned the travelers back and, soon thereafter, dispatchers lost track of the plane. The next morning a search party located parts of the plane and the sodden bod­ies of Hillblom's companions. Hillblom's body was never found.

Larry Hillblom never married and had no legitimate children. Unfortunately for the Hillblom estate, his will did not contain a clause disinheriting any illegitimate children. Under the prevailing laws, he could have written his children out of the will, but since he didn't, anyone who could prove to be his child would be entitled to an inheritance. Shortly after Hillblom's death one such child, Larry Junior (age 12), filed suit claiming a share of the estate. (Months after Hillblom's death, several young women emerged from Vietnam, the Philippines, and the Islands of Micronesia claiming that Hillblom had taken up with them briefly and left them with children. See http://dna-view.com /sfstory.htm for additional sordid details.)

Several possible impediments stood in the way of Larry Junior's claim to the Hillb­lom estate. First, Larry Junior and his attorneys must await the outcome of a proposed law (known as the Hillblom Law) written under serious financial pressure from attor­neys for the Hillblom estate. If passed by the legislature and signed by the governor, the proposed law would retroactively invalidate the claims of illegitimate heirs not spe­cifically mentioned in a will. Larry Junior's advisers estimate a 0.60 probability of the proposed law passing. If the law passes, Larry Junior's attorneys plan to challenge its constitutionality and assign a 0.7 probability to this challenge being successful.

If the Hillblom Law does not pass (or passes and is later deemed unconstitutional), Larry Junior will still have to present evidence that he is the son of the deceased Larry Hillblom. Such claims of paternity are routinely proven or disproven using DNA matching. However, Hillblom disappeared without leaving a physical trace. (Twelve gallons of muriatic acid were delivered to Hillblom's house shortly after his death, and by the time Larry Junior's attorney's got there, the house was antiseptically clean.) However, during facial reconstruction surgery following another plane crash that Larry Hillblom had been in and survived, a mole was removed from his face. That mole could be used for DNA testing if Larry Junior's attorneys can gain access to it. But the mole is in possession of a medical center that is the primary beneficiary of the estate under the contested will. Without DNA evidence, the case cannot go forward. Larry Junior's attorneys estimate a 0.8 probability of being able to obtain appropriate DNA evidence in one way or another. If they are able to obtain a DNA sample, the attorneys estimate a 0.7 probability of it proving a biological relation between Larry Junior and the decedent.

If DNA proof of Larry Junior's claimed parentage is established, his attorney's believe the Hillblom estate will offer a settlement of approximately $40 million to avoid going to court. If this settlement offer is rejected, Larry Junior's legal team faces an uncertain outcome in court. His attorney's believe there is a 0.20 chance that their claim could be dismissed by the court (in which case Larry Junior would receive SO).

However, even if they are successful in court, the amount of the award to Larry Junior would depend on how many other illegitimate children make successful claims against the estate. Larry Junior's advisors estimate a 0.04 probability that he would win $338 million, a 0.16 probability that he would receive $68 million, a 0.40 probability that he would receive $34 million, and a 0.20 probability that he would receive $17 million. While vehemently denying that Larry Junior was Mr. Hillblom's son, in early 1996 (and prior to the outcome of the Hillblom Law) the trustees of the Hillblom estate offered Larry Junior a settlement worth approximately $12 million if he would relinquish all his claims to the Hillblom estate. So Larry Junior and his attorneys face a difficult decision. Do they accept the estate's settlement offer or hope the Hillblom Law doesn't pass and that DNA evidence will establish Larry Junior's rightful claim to the Hillblom estate?

1. Create a decision tree for this problem.

2. What decision should Larry Junior make according to the EMV criterion?

3. What is the minimum settlement offer Larry Junior should accept according to the EMV criterion?

4. What would you do if you were Larry Junior?

5. If you were advising Larry Junior, what other issues might you want to consider in making this decision?