The Value of Uncertainty

Abstract

In recent years, federal courts have heard, without clear subject matter jurisdiction, contract disputes involving billions of dollars worth of securitized financial instruments (SFIs). These SFI disputes are litigated in federal court under the federal interpleader statute, which specifies that a federal court has subject matter jurisdiction over these cases only when parties deposit the disputed amount with the court. SFI litigants have ignored this requirement, so courts have, at best, uncertain jurisdiction over these cases. Why have no parties raised the jurisdictional defect, even though some would stand to gain from raising it? This Essay advances game theoretical explanations for litigants’ puzzling silence in these major post-financial crisis cases, and argues that parties may strategically value litigating in federal court under jurisdictional uncertainty over other alternatives.

Keywords: securitized financial instruments (SFI), SFI disputes, post financial crisis cases

JEL Classification: K00, K22