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The Trouble with All-or-Nothing Settlements

47 Pages Posted: 4 Nov 2009 Last revised: 13 May 2010

Howard M. Erichson

Fordham University School of Law

Date Written: May 13, 2010

Abstract

When defendants settle litigation involving multiple plaintiffs, they often insist that they will settle only if they obtain releases from all or nearly all of the plaintiffs in the group. Judges, lawyers, and academics largely accept the drive for comprehensive settlements as a given, and many embrace such settlements as a positive goal. All-or-nothing settlements, however, create uncommon pressures and opportunities for abuse. Exploring a number of recent mass settlements that have led to disciplinary proceedings, civil litigation, and criminal prosecutions, this article shows the pressures and opportunities that arise out of defendants' insistence on bringing all claimants into a deal.

The article describes seven types of ethical problems created by demands for fully inclusive settlements. First, all-or-nothing settlements create client-client and lawyer-client conflicts of interest. Second, such settlements exacerbate problems concerning the allocation of settlement funds, including incentives to misallocate. Third, they create a risk of strategic hold-outs as savvy clients may attempt to extort additional money by withholding consent. Fourth, they create an incentive for lawyers to keep settlement money in reserve as a slush fund to ensure full participation, leading to problems of misallocation and client deception. Fifth, they generate loyalty problems by pressuring lawyers to withdraw from representing non-settling clients. Sixth, they create special problems concerning clients’ informed consent to aggregate settlements. And seventh, they introduce a risk of collusion as the interest of plaintiffs’ counsel aligns with the defendant’s interest in getting every plaintiff to sign on to the deal. Although all-or-nothing settlements provide peace for defendants and value for claimants, the troubles they engender suggest that the current love affair with comprehensive settlements - evident in academic writings, judicial pronouncements, and defendant demands - should be tempered by a realistic appreciation of the ethical downside.

Keywords: aggregate settlement, mass settlement, global settlement, mass tort, fen-phen, Vioxx, Nextel, non-class aggregation, class action

JEL Classification: K41, K42

Suggested Citation

Erichson, Howard M., The Trouble with All-or-Nothing Settlements (May 13, 2010). Kansas Law Review, Vol. 58, No. 4, 2010; Fordham Law Legal Studies Research Paper No. 1499537. Available at SSRN: https://ssrn.com/abstract=1499537

Howard M. Erichson (Contact Author)

Fordham University School of Law ( email )

150 West 62nd Street
New York, NY 10023
United States
646-312-8233 (Phone)

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