Precedent Lost: Why Encourage Settlement, and Why Permit Non-Party Involvement in Settlements?

50 Pages Posted: 9 Aug 1999 Last revised: 11 Dec 2013

See all articles by Leandra Lederman

Leandra Lederman

Indiana University Maurer School of Law

Date Written: 1999


Settlement and precedent conflict because a settlement precludes a potential precedent. Precedent is the foundation of our common law system, but settlement is the usual outcome of any dispute. Even considering only cases actually docketed in court, approximately 90 percent settle; many additional disputes settle before docketing. Given the fact that the overwhelming majority of cases settle, and given the public value of precedent, one might seek to encourage trials, at least in cases that stand to resolve controversial issues. Instead, courts, commentators, and federal policy, seem to favor settlement, with little attention given to precedent that may be lost in the process.

The favoritism of settlement is consistent with the view that litigation serves as a dispute-resolution mechanism. Under this view, bringing peace to the parties is paramount, and precedent created through court decisions is a "mere byproduct" of the dispute-resolution process. The dispute-resolution model fits well with the perspective of litigants, who control most aspects of litigation, including whether and when they settle. Litigants, both actual and prospective, have strong incentives to settle because the costs of litigation so outweigh the costs of settlement. In addition, because of the justiciability constraints in Article III courts, cases in those courts fit the dispute-resolution model of litigation well. That is, in courts created under the authority of Article III of the Constitution, evolution of the law occurs only in actual disputes that arise between adverse parties. And in justiciability doctrine, as predicted by the dispute resolution model, third-party concerns about precedent play no role.

As this approach to precedent reveals, the dispute-resolution model of litigation focuses on the private costs and benefits of litigation or settlement. Owen Fiss, by contrast, views courts as institutions that help illuminate public values. He therefore purports to be "against" settlement. Of course, each of these views only explains a part of the litigation process, and both are right in the sense that all litigation includes both private and public aspects. An appropriate model of the litigation process should balance both private and public roles in litigation, to illuminate the roles of both precedent and settlement.

Part I of the article develops a basic model of the prototypical litigation, in which the parties are the ones who bargain over settlement, and non-parties are not involved. It explores how even in this simple scenario, private and public concerns over settlement and precedent conflict. It also examines how settlement nonrandomly affects the substantive content of precedent, as well as the path-dependence of precedent.

Part II complicates the model. It considers the question of the proper role of settlement and precedent in litigation influenced by third-party interest groups. This Part considers the effect of third-party maneuvering in both Article III cases, using the controversial settlement in Piscataway Township Board of Ed. v. Taxman, as an example, and in Article I cases, using as an example Smith v. Commissioner, a tax shelter case involving an unsucessful third-party attempt to engineer a settlement. Part III of the article draws on the expanded model to gain insights into the public and private factors in litigation and settlement in Article I courts and in Article III courts. In part, Part III looks at judges' own incentives to encourage settlement as one source of the general favoritism of settlement, as well as the extent to which encouraging settlement is efficient. It also considers the consequences of settlements obtained through third-party "engineering" of a settlement to avoid unfavorable precedent, concluding that these settlements should not be treated differently from other settlements simply because a third party funded the settlement.

Suggested Citation

Lederman, Leandra, Precedent Lost: Why Encourage Settlement, and Why Permit Non-Party Involvement in Settlements? (1999). George Mason Law & Economics Research Paper No. 00-21, Indiana Legal Studies Research Paper No. 275, Available at SSRN: or

Leandra Lederman (Contact Author)

Indiana University Maurer School of Law ( email )

211 S. Indiana Avenue
Bloomington, IN 47405
United States
(812) 855-6149 (Phone)
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