Balancing the Pleading Equation
U Illinois Law and Economics Research Paper Series No. LE08-018
100 Pages Posted: 11 Sep 2008
Date Written: September 10, 2008
Pleading standards present a tale of two asymmetries. The first is informational: Plaintiffs don't know as much as defendants about defendants' alleged wrongful behavior. Given that, a liberal pleading standard may be sensible; overly demanding pleading standards may ultimately deny justice to worthy plaintiffs who cannot know critical details of their claims before filing.
But informational asymmetry is sometimes counterbalanced by a competing cost asymmetry. In certain circumstances, the cost of litigation is radically different for plaintiffs and defendants. The primary driver of this disparity is liberal discovery; in certain kinds of cases - consumer antitrust cases, for example: defendants' discovery costs may be orders of magnitude higher than plaintiffs' discovery costs. These cost differences may justify stricter pleading standards because these asymmetries may lead to perverse economic incentives for litigating parties. At their worst, overly liberal pleading standards may induce the filing and inefficient settlement of frivolous claims.
Because the risks engendered by these asymmetries are negatively correlated - as the risk of wrongful dismissal goes up, the risk of strike suits goes down - pleading standards present an apparently insoluble problem. This problem is further magnified because the asymmetries themselves are generally positively correlated; claims where cost asymmetries are highest are often the same claims for which informational asymmetries are greatest.
This article explores the economics of pleading with an eye toward breaking the deadlock. It offers a simplified model of the civil litigation process, ultimately identifying a small subset of cases for which economic incentives create risk of abusive litigation. To mitigate this risk, the article proposes a heightened pleading standard for such cases, while preserving the plaintiff's right to opt out of the higher standard by posting a bond that would eliminate the perverse economic incentive to file frivolous claims.
Keywords: Pleading, Twombly, Civil Procedure, Economics, Discovery, Costs
JEL Classification: K41
Suggested Citation: Suggested Citation