81 Pages Posted: 3 Dec 2003
This paper develops a new theory of possibly frivolous litigation by focusing on a plaintiff's options to unilaterally abandon a lawsuit. Federal Rule of Civil Procedure 41(a)(1)(i) and its various state law counterparts permit, under certain circumstances, a plaintiff to voluntarily dismiss her lawsuit without prejudice. This paper's options approach to litigation, including quite possibly, frivolous litigation is placed in the context of the literature of economic models about litigation in general and frivolous litigation in particular. This paper demonstrates that possibly frivolous lawsuits will be filed and settled when the values of a plaintiff's options to unilaterally abandon litigation exceed the costs of purchasing those litigation-abandonment options by continuing the litigation. This paper also addresses some of the limitations of an abandonment options game-theoretic model of litigation. In particular, there is reason to believe that people have cognitive limitations in their abilities to reason backwards in sequential interactions. Empirical and experimental evidence also exists that indicates that emotions affect how people make decisions. Finally, recent psychological experiments indicate that decision makers often overvalue options and over-invest in keeping options alive, even if those options present little intrinsic value. This paper briefly explains how and why many laws and judicial doctrines effectively preclude specific legal options. Appendix A provides an accessible, non-technical, self-contained, and user-friendly primer about options for those unfamiliar with options. Appendix B contains a formal, mathematical game-theoretic analysis of a plaintiff's options to unilaterally abandon a lawsuit.
Keywords: Civil procedure, litigation, game-theoretic model, real options
JEL Classification: K41, C7, D81
Suggested Citation: Suggested Citation
Huang, Peter H., Lawsuit Abandonment Options in Possibly Frivolous Litigation Games. Review of Litigation, Vol. 23, January 2004. Available at SSRN: https://ssrn.com/abstract=474681 or http://dx.doi.org/10.2139/ssrn.474681