The Effects of Judically Imposed Restriction of Settlements to Compensatory Damages

Abstract

Courts have traditionally limited judicially approved settlements to compensatory or single damages even in class actions based in Federal civil antitrust law where trebling of damages is mandatory upon a finding of liability. This paper analyzes the effects of such settlement caps for both single and multiple defendants and shows such caps: (1) reduce settlement and (2) introduce additional conflicts of interest between plaintiff and defendant or defendants. The multi-defendant analysis is done both for defendants whose outcomes are perfectly correlated and independent. In a second part, the paper provides an empirical analysis of the Auction Houses case showing the effects of the limitation in actual practice and demonstrate how the model might be used by decision makers to assess the fairness of actual settlements

Keywords: Settlement cap, joint and several liability, antitrust

JEL Classification: K13, K21, K41