The False Allure of Settlement Pressure
55 Pages Posted: 23 Mar 2017 Last revised: 3 Jun 2018
Date Written: March 4, 2017
The threat of “blackmail” or “in terrorem” settlements has shaped the law, leading courts to conclude that if the plaintiff does not appear likely to win the case, then the litigation should be halted at an early stage. This Article questions the established logic of settlement pressure. After clarifying the concept and presenting the strongest case for it, I show that it cannot serve as the basis for wide-ranging civil procedure doctrines. Doing so has perverse results, such as privileging the defendant’s idiosyncratic tastes and helping corporate managers hide important facts from their shareholders. In addition, settlement pressure is not the serious problem that it has been characterized as: rather than being blackmail, it is more analogous to litigation insurance or hiring expensive attorneys. The doctrines based on settlement pressure, therefore, lack a sound foundation, and the phenomenon itself is not a dire threat that the law must step in to counteract. Even in the context of class actions, the most favorable case for settlement pressure arguments, an unlikely case should be allowed to proceed, provided it sets out a coherent, bona fide class claim. A number of prominent decisions, such as Wal-Mart Stores, Inc. v. Dukes, ultimately depend on settlement pressure, and ought to be reconsidered.
Keywords: class actions, agency problems, Wal-Mart v. Dukes, settlement pressure, corporate behavior, law and economics
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