How U.S. Procedure Skews Tort Law Incentives

Indiana Law Journal

Volumn 73, Issue 1, 1997, Pages 59-116

  Molot, Jonathan T ^a,b,c  

^a YALE UNIVERSITY   (United States)

^b HARVARD LAW SCHOOL   (United States)

^c Kellogg Huber Hansen Todd Evans   (United States)

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[No Author keywords available]

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EID: 0031324650     PISSN: 00196665     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Article

References (266)

1. See generally Joseph R. Biden, Jr., Congress and the Courts: Our Mutual Obligation, 46 STAN. L. REV. 1285, 1286 (1994) ("[E]conomic concerns rather than the merits of a case too often govern the decision to file a civil suit."); Terence Dunworth & James S. Kakalik, Preliminary Observations on Implementation of the Pilot Program of the Civil Justice Reform Act of 1990, 46 STAN. L. REV. 1303, 1303 (1994) ("[According to the oft-heard indictment of the civil justice system, . . . American businesses face difficulty competing with foreign adversaries."); Marc Galanter, Reading the Landscape of Disputes: What We Know and Don't Know (and Think We Know) About our Allegedly Contentious and Litigious Society, 31 UCLA L. REV. 4, 6-11 (1983) (describing public perceptions of litigiousness); Linda S. Mullenix, Discovery in Disarray: The Pervasive Myth of Pervasive Discovery Abuse and the Consequences for Unfounded Rulemaking, 46 STAN. L. REV. 1393, 1395-96 (1994) (blaming media for public perceptions that we are exceedingly litigious, that plaintiffs file frivolous lawsuits, and that greedy lawyers typically engage in discovery abuse); Dan Quayle, Civil Justice Reform, 41 AM. U. L. REV. 559 (1992).
2. See generally Joseph R. Biden, Jr., Congress and the Courts: Our Mutual Obligation, 46 STAN. L. REV. 1285, 1286 (1994) ("[E]conomic concerns rather than the merits of a case too often govern the decision to file a civil suit."); Terence Dunworth & James S. Kakalik, Preliminary Observations on Implementation of the Pilot Program of the Civil Justice Reform Act of 1990, 46 STAN. L. REV. 1303, 1303 (1994) ("[According to the oft-heard indictment of the civil justice system, . . . American businesses face difficulty competing with foreign adversaries."); Marc Galanter, Reading the Landscape of Disputes: What We Know and Don't Know (and Think We Know) About our Allegedly Contentious and Litigious Society, 31 UCLA L. REV. 4, 6-11 (1983) (describing public perceptions of litigiousness); Linda S. Mullenix, Discovery in Disarray: The Pervasive Myth of Pervasive Discovery Abuse and the Consequences for Unfounded Rulemaking, 46 STAN. L. REV. 1393, 1395-96 (1994) (blaming media for public perceptions that we are exceedingly litigious, that plaintiffs file frivolous lawsuits, and that greedy lawyers typically engage in discovery abuse); Dan Quayle, Civil Justice Reform, 41 AM. U. L. REV. 559 (1992).
3. See generally Joseph R. Biden, Jr., Congress and the Courts: Our Mutual Obligation, 46 STAN. L. REV. 1285, 1286 (1994) ("[E]conomic concerns rather than the merits of a case too often govern the decision to file a civil suit."); Terence Dunworth & James S. Kakalik, Preliminary Observations on Implementation of the Pilot Program of the Civil Justice Reform Act of 1990, 46 STAN. L. REV. 1303, 1303 (1994) ("[According to the oft-heard indictment of the civil justice system, . . . American businesses face difficulty competing with foreign adversaries."); Marc Galanter, Reading the Landscape of Disputes: What We Know and Don't Know (and Think We Know) About our Allegedly Contentious and Litigious Society, 31 UCLA L. REV. 4, 6-11 (1983) (describing public perceptions of litigiousness); Linda S. Mullenix, Discovery in Disarray: The Pervasive Myth of Pervasive Discovery Abuse and the Consequences for Unfounded Rulemaking, 46 STAN. L. REV. 1393, 1395-96 (1994) (blaming media for public perceptions that we are exceedingly litigious, that plaintiffs file frivolous lawsuits, and that greedy lawyers typically engage in discovery abuse); Dan Quayle, Civil Justice Reform, 41 AM. U. L. REV. 559 (1992).
4. See generally Joseph R. Biden, Jr., Congress and the Courts: Our Mutual Obligation, 46 STAN. L. REV. 1285, 1286 (1994) ("[E]conomic concerns rather than the merits of a case too often govern the decision to file a civil suit."); Terence Dunworth & James S. Kakalik, Preliminary Observations on Implementation of the Pilot Program of the Civil Justice Reform Act of 1990, 46 STAN. L. REV. 1303, 1303 (1994) ("[According to the oft-heard indictment of the civil justice system, . . . American businesses face difficulty competing with foreign adversaries."); Marc Galanter, Reading the Landscape of Disputes: What We Know and Don't Know (and Think We Know) About our Allegedly Contentious and Litigious Society, 31 UCLA L. REV. 4, 6-11 (1983) (describing public perceptions of litigiousness); Linda S. Mullenix, Discovery in Disarray: The Pervasive Myth of Pervasive Discovery Abuse and the Consequences for Unfounded Rulemaking, 46 STAN. L. REV. 1393, 1395-96 (1994) (blaming media for public perceptions that we are exceedingly litigious, that plaintiffs file frivolous lawsuits, and that greedy lawyers typically engage in discovery abuse); Dan Quayle, Civil Justice Reform, 41 AM. U. L. REV. 559 (1992).
5. See generally Joseph R. Biden, Jr., Congress and the Courts: Our Mutual Obligation, 46 STAN. L. REV. 1285, 1286 (1994) ("[E]conomic concerns rather than the merits of a case too often govern the decision to file a civil suit."); Terence Dunworth & James S. Kakalik, Preliminary Observations on Implementation of the Pilot Program of the Civil Justice Reform Act of 1990, 46 STAN. L. REV. 1303, 1303 (1994) ("[According to the oft-heard indictment of the civil justice system, . . . American businesses face difficulty competing with foreign adversaries."); Marc Galanter, Reading the Landscape of Disputes: What We Know and Don't Know (and Think We Know) About our Allegedly Contentious and Litigious Society, 31 UCLA L. REV. 4, 6-11 (1983) (describing public perceptions of litigiousness); Linda S. Mullenix, Discovery in Disarray: The Pervasive Myth of Pervasive Discovery Abuse and the Consequences for Unfounded Rulemaking, 46 STAN. L. REV. 1393, 1395-96 (1994) (blaming media for public perceptions that we are exceedingly litigious, that plaintiffs file frivolous lawsuits, and that greedy lawyers typically engage in discovery abuse); Dan Quayle, Civil Justice Reform, 41 AM. U. L. REV. 559 (1992).
6. See, e.g., Galanter, supra note 1, at 11 (questioning the productivity of our present adversary system); Mullenix, supra note 1, at 1395-96 (describing myth of widespread discovery abuse).
7. One exception worth noting is J. Robert S. Pritchard, A Systemic Approach to Comparative Law: The Effect of Cost, Fee and Financing Rules on the Development of Substantive Law, 17 J. LEGAL STUD. 451 (1988) (arguing that different litigation rules may alter the evolution of substantive rules across legal systems).
8. Some scholars have questioned whether tort law actually achieves the deterrence that tort theory envisions. See John E. Calfee & Richard Craswell, Some Effects of Uncertainty on Compliance with Legal Standards, 70 VA. L. REV. 965, 966-67 (1984) (explaining how uncertainty over a legal rule's likely application may result in undercompliance or overcompliance); Gary T. Schwartz, Reality in the Economic Analysis of Tort Law: Does Tort Law Really Deter?, 42 UCLA L. REV. 377, 381-87 (1994) (summarizing claims that tort law is either superfluous or futile). Others have addressed procedural issues tangentially, for example, by comparing the administrative costs of a strict liability regime with those of a fault-based one. See infra notes 23-24 and accompanying text. But none has looked to procedural rules to explain tort law's actual deterrent effect.
9. Some scholars have questioned whether tort law actually achieves the deterrence that tort theory envisions. See John E. Calfee & Richard Craswell, Some Effects of Uncertainty on Compliance with Legal Standards, 70 VA. L. REV. 965, 966-67 (1984) (explaining how uncertainty over a legal rule's likely application may result in undercompliance or overcompliance); Gary T. Schwartz, Reality in the Economic Analysis of Tort Law: Does Tort Law Really Deter?, 42 UCLA L. REV. 377, 381-87 (1994) (summarizing claims that tort law is either superfluous or futile). Others have addressed procedural issues tangentially, for example, by comparing the administrative costs of a strict liability regime with those of a fault-based one. See infra notes 23-24 and accompanying text. But none has looked to procedural rules to explain tort law's actual deterrent effect.
10. Scholars have considered the combined effect of several procedural rules on the quantity and expense of cases filed, without distinguishing meritorious cases from meritless ones or examining their effect on deterrence. See, e.g., Arthur R. Miller, The Adversary System: Dinosaur or Phoenix, 69 MINN. L. REV. 1, 8-11 (1984); Thomas D. Rowe, Jr., American Law Institute Study on Paths to a "Better Way": Litigation, Alternatives, and Accommodation, 1989 DUKE L.J. 824, 851-55. Law and economics scholars have made great progress in understanding the dynamics of litigation and settlement. They have explored settlement theory in depth, and have addressed the ways in which different procedural rules may alter settlement dynamics. See Robert D. Cooler & Daniel L. Rubinfeld, Economic Analysis of Legal Disputes and Their Resolution, 27 J. ECON. LITERATURE 1067 (1989) (reviewing the literature). But, this improved understanding of litigation generally has taken the form of isolated studies of isolated procedural issues. The effect of a particular rule on settlement dynamics is sufficiently complicated that scholars are understandably hesitant to consider the combined effect of several procedural rules at once, let alone the effect of an entire procedural system, on the substantive law. See id. at 1085. This Article's analysis of litigation rules accordingly does not rely exclusively upon law and economics theory - which often rests upon restrictive assumptions that hinder extrapolation - but rather refers, in addition, to empirical studies and other traditional legal scholarship. See, e.g., Galanter, supra note 1; Mullenix, supra note 1; David M. Trubek et al., The Costs of Ordinary Litigation, 31 UCLA L. REV. 72 (1983). This Article further attempts to avoid the pitfalls of such a broad inquiry by narrowing the goal: it seeks to determine only the effect of litigation rules on a defendant's pocketbook (which is crucial to deterrence) and avoids further conclusions about the effects on court congestion or attorneys' profits.
11. Scholars have considered the combined effect of several procedural rules on the quantity and expense of cases filed, without distinguishing meritorious cases from meritless ones or examining their effect on deterrence. See, e.g., Arthur R. Miller, The Adversary System: Dinosaur or Phoenix, 69 MINN. L. REV. 1, 8-11 (1984); Thomas D. Rowe, Jr., American Law Institute Study on Paths to a "Better Way": Litigation, Alternatives, and Accommodation, 1989 DUKE L.J. 824, 851-55. Law and economics scholars have made great progress in understanding the dynamics of litigation and settlement. They have explored settlement theory in depth, and have addressed the ways in which different procedural rules may alter settlement dynamics. See Robert D. Cooler & Daniel L. Rubinfeld, Economic Analysis of Legal Disputes and Their Resolution, 27 J. ECON. LITERATURE 1067 (1989) (reviewing the literature). But, this improved understanding of litigation generally has taken the form of isolated studies of isolated procedural issues. The effect of a particular rule on settlement dynamics is sufficiently complicated that scholars are understandably hesitant to consider the combined effect of several procedural rules at once, let alone the effect of an entire procedural system, on the substantive law. See id. at 1085. This Article's analysis of litigation rules accordingly does not rely exclusively upon law and economics theory - which often rests upon restrictive assumptions that hinder extrapolation - but rather refers, in addition, to empirical studies and other traditional legal scholarship. See, e.g., Galanter, supra note 1; Mullenix, supra note 1; David M. Trubek et al., The Costs of Ordinary Litigation, 31 UCLA L. REV. 72 (1983). This Article further attempts to avoid the pitfalls of such a broad inquiry by narrowing the goal: it seeks to determine only the effect of litigation rules on a defendant's pocketbook (which is crucial to deterrence) and avoids further conclusions about the effects on court congestion or attorneys' profits.
12. Scholars have considered the combined effect of several procedural rules on the quantity and expense of cases filed, without distinguishing meritorious cases from meritless ones or examining their effect on deterrence. See, e.g., Arthur R. Miller, The Adversary System: Dinosaur or Phoenix, 69 MINN. L. REV. 1, 8-11 (1984); Thomas D. Rowe, Jr., American Law Institute Study on Paths to a "Better Way": Litigation, Alternatives, and Accommodation, 1989 DUKE L.J. 824, 851-55. Law and economics scholars have made great progress in understanding the dynamics of litigation and settlement. They have explored settlement theory in depth, and have addressed the ways in which different procedural rules may alter settlement dynamics. See Robert D. Cooler & Daniel L. Rubinfeld, Economic Analysis of Legal Disputes and Their Resolution, 27 J. ECON. LITERATURE 1067 (1989) (reviewing the literature). But, this improved understanding of litigation generally has taken the form of isolated studies of isolated procedural issues. The effect of a particular rule on settlement dynamics is sufficiently complicated that scholars are understandably hesitant to consider the combined effect of several procedural rules at once, let alone the effect of an entire procedural system, on the substantive law. See id. at 1085. This Article's analysis of litigation rules accordingly does not rely exclusively upon law and economics theory - which often rests upon restrictive assumptions that hinder extrapolation - but rather refers, in addition, to empirical studies and other traditional legal scholarship. See, e.g., Galanter, supra note 1; Mullenix, supra note 1; David M. Trubek et al., The Costs of Ordinary Litigation, 31 UCLA L. REV. 72 (1983). This Article further attempts to avoid the pitfalls of such a broad inquiry by narrowing the goal: it seeks to determine only the effect of litigation rules on a defendant's pocketbook (which is crucial to deterrence) and avoids further conclusions about the effects on court congestion or attorneys' profits.
13. Scholars have considered the combined effect of several procedural rules on the quantity and expense of cases filed, without distinguishing meritorious cases from meritless ones or examining their effect on deterrence. See, e.g., Arthur R. Miller, The Adversary System: Dinosaur or Phoenix, 69 MINN. L. REV. 1, 8-11 (1984); Thomas D. Rowe, Jr., American Law Institute Study on Paths to a "Better Way": Litigation, Alternatives, and Accommodation, 1989 DUKE L.J. 824, 851-55. Law and economics scholars have made great progress in understanding the dynamics of litigation and settlement. They have explored settlement theory in depth, and have addressed the ways in which different procedural rules may alter settlement dynamics. See Robert D. Cooler & Daniel L. Rubinfeld, Economic Analysis of Legal Disputes and Their Resolution, 27 J. ECON. LITERATURE 1067 (1989) (reviewing the literature). But, this improved understanding of litigation generally has taken the form of isolated studies of isolated procedural issues. The effect of a particular rule on settlement dynamics is sufficiently complicated that scholars are understandably hesitant to consider the combined effect of several procedural rules at once, let alone the effect of an entire procedural system, on the substantive law. See id. at 1085. This Article's analysis of litigation rules accordingly does not rely exclusively upon law and economics theory - which often rests upon restrictive assumptions that hinder extrapolation - but rather refers, in addition, to empirical studies and other traditional legal scholarship. See, e.g., Galanter, supra note 1; Mullenix, supra note 1; David M. Trubek et al., The Costs of Ordinary Litigation, 31 UCLA L. REV. 72 (1983). This Article further attempts to avoid the pitfalls of such a broad inquiry by narrowing the goal: it seeks to determine only the effect of litigation rules on a defendant's pocketbook (which is crucial to deterrence) and avoids further conclusions about the effects on court congestion or attorneys' profits.
14. GUIDO CALABRESI, THE COST OF ACCIDENTS 254 (1970).
15. See W. PAGE KEETON ET AL., PROSSER AND KEETON ON THE LAW OF TORTS § 30, AT 165 & n.5 (5th ed. 1984). This Article does not specifically address intangible offenses, such as slander, where no proof of damage is required. See id. § 112, at 788 (explaining that proof of the defamation itself is considered to establish the existence of some damages, and that the jury is permitted to estimate their amount without other evidence).
16. Cf. W. PAGE KEETON ET AL., TORT AND ACCIDENT LAW 875-82 (1983) (describing broad New Zealand no-fault scheme in which funding for accidents comes from an employment fund, a motor vehicle fund, and a supplementary catch-all fund) (citing TERENCE G. ISON, ACCIDENT COMPENSATION: A COMMENTARY ON THE NEW ZEALAND SCHEME (1980)).
17. Cf. W. PAGE KEETON ET AL., TORT AND ACCIDENT LAW 875-82 (1983) (describing broad New Zealand no-fault scheme in which funding for accidents comes from an employment fund, a motor vehicle fund, and a supplementary catch-all fund) (citing TERENCE G. ISON, ACCIDENT COMPENSATION: A COMMENTARY ON THE NEW ZEALAND SCHEME (1980)).
18. As this Article's goal is simply to demonstrate how procedural rules can vary the deterrent and compensatory effects of a substantive law regime, and not to debate which substantive law regime is best, a full-blown discussion of the various theoretical debates in tort scholarship would be extraneous.
19. See KEETON ET AL., supra note 7, § 31, at 170 ("Nearly all human acts, of course, carry some recognizable but remote possibility of harm to another. No person so much as rides a horse without some chance of a runaway, or drives a car without the risk of a broken steering gear or a heart attack. But these are not unreasonable risks.").
20. See United States v. Carroll Towing Co., 159 F.2d 169, 173 (2d Cir. 1947) (weighing the probability ("P") that an accident will occur and the likely loss ("L") if an accident does occur against the burden ("B") of taking "adequate preparations" to prevent the accident).
21. Of course, a utilitarian might defend the negligence standard's morality precisely because it promotes efficiency.
22. See Richard A. Posner, The Concept of Corrective Justice in Recent Theories of Tort Law, 10 J. LEGAL STUD. 187, 200 (1981) ("[C]orrective justice requires annulling a departure from the preexisting distribution of money or honors in accordance with merit, but only when the departure is the result of an act of injustice, causing injury.") (emphasis in original); Glanville Williams, The Aims of the Law of Tort, 4 CURRENT LEGAL PROBS. 137, 151 (1951).
23. See Richard A. Posner, The Concept of Corrective Justice in Recent Theories of Tort Law, 10 J. LEGAL STUD. 187, 200 (1981) ("[C]orrective justice requires annulling a departure from the preexisting distribution of money or honors in accordance with merit, but only when the departure is the result of an act of injustice, causing injury.") (emphasis in original); Glanville Williams, The Aims of the Law of Tort, 4 CURRENT LEGAL PROBS. 137, 151 (1951).
24. The economic and moral arguments for strict (or faultless) liability are perhaps even more fully developed than those for fault-based liability. Guido Calabresi is generally credited with the economic analysis of strict liability. See CALABRESI, supra note 6; Guido Calabresi & Jon T. Hirschoff, Toward a Test for Strict Liability in Torts, 81 YALE L.J. 1055 (1972). Jules Coleman, Richard Epstein, George Fletcher, and Ernest Weinrib are among those who have discussed strict liability's ethical underpinnings. See JULES L. COLEMAN, RISKS AND WRONGS (1992); Richard A. Epstein, A Theory of Strict Liability, 2 J. LEGAL STUD. 151, 168-69 (1973); George P. Fletcher, Fairness and Utility in Tort Theory, 85 HARV. L. REV. 537 (1972); Ernest J. Weinrib, Legal Formalism: On the Immanent Rationality of Law, 97 YALE L.J. 949 (1988).
25. The economic and moral arguments for strict (or faultless) liability are perhaps even more fully developed than those for fault-based liability. Guido Calabresi is generally credited with the economic analysis of strict liability. See CALABRESI, supra note 6; Guido Calabresi & Jon T. Hirschoff, Toward a Test for Strict Liability in Torts, 81 YALE L.J. 1055 (1972). Jules Coleman, Richard Epstein, George Fletcher, and Ernest Weinrib are among those who have discussed strict liability's ethical underpinnings. See JULES L. COLEMAN, RISKS AND WRONGS (1992); Richard A. Epstein, A Theory of Strict Liability, 2 J. LEGAL STUD. 151, 168-69 (1973); George P. Fletcher, Fairness and Utility in Tort Theory, 85 HARV. L. REV. 537 (1972); Ernest J. Weinrib, Legal Formalism: On the Immanent Rationality of Law, 97 YALE L.J. 949 (1988).
26. The economic and moral arguments for strict (or faultless) liability are perhaps even more fully developed than those for fault-based liability. Guido Calabresi is generally credited with the economic analysis of strict liability. See CALABRESI, supra note 6; Guido Calabresi & Jon T. Hirschoff, Toward a Test for Strict Liability in Torts, 81 YALE L.J. 1055 (1972). Jules Coleman, Richard Epstein, George Fletcher, and Ernest Weinrib are among those who have discussed strict liability's ethical underpinnings. See JULES L. COLEMAN, RISKS AND WRONGS (1992); Richard A. Epstein, A Theory of Strict Liability, 2 J. LEGAL STUD. 151, 168-69 (1973); George P. Fletcher, Fairness and Utility in Tort Theory, 85 HARV. L. REV. 537 (1972); Ernest J. Weinrib, Legal Formalism: On the Immanent Rationality of Law, 97 YALE L.J. 949 (1988).
27. The economic and moral arguments for strict (or faultless) liability are perhaps even more fully developed than those for fault-based liability. Guido Calabresi is generally credited with the economic analysis of strict liability. See CALABRESI, supra note 6; Guido Calabresi & Jon T. Hirschoff, Toward a Test for Strict Liability in Torts, 81 YALE L.J. 1055 (1972). Jules Coleman, Richard Epstein, George Fletcher, and Ernest Weinrib are among those who have discussed strict liability's ethical underpinnings. See JULES L. COLEMAN, RISKS AND WRONGS (1992); Richard A. Epstein, A Theory of Strict Liability, 2 J. LEGAL STUD. 151, 168-69 (1973); George P. Fletcher, Fairness and Utility in Tort Theory, 85 HARV. L. REV. 537 (1972); Ernest J. Weinrib, Legal Formalism: On the Immanent Rationality of Law, 97 YALE L.J. 949 (1988).
28. The economic and moral arguments for strict (or faultless) liability are perhaps even more fully developed than those for fault-based liability. Guido Calabresi is generally credited with the economic analysis of strict liability. See CALABRESI, supra note 6; Guido Calabresi & Jon T. Hirschoff, Toward a Test for Strict Liability in Torts, 81 YALE L.J. 1055 (1972). Jules Coleman, Richard Epstein, George Fletcher, and Ernest Weinrib are among those who have discussed strict liability's ethical underpinnings. See JULES L. COLEMAN, RISKS AND WRONGS (1992); Richard A. Epstein, A Theory of Strict Liability, 2 J. LEGAL STUD. 151, 168-69 (1973); George P. Fletcher, Fairness and Utility in Tort Theory, 85 HARV. L. REV. 537 (1972); Ernest J. Weinrib, Legal Formalism: On the Immanent Rationality of Law, 97 YALE L.J. 949 (1988).
29. See CALABRESI, supra note 6, at 69 ("[N]o one knows what is best for individuals better than they themselves do."); Calabresi & Hirschoff, supra note 14, at 1060.
30. See CALABRESI, supra note 6, at 73.
31. See Calabresi & Hirschoff, supra note 14, at 1060.
32. See CALABRESI, supra note 6, at 73.
33. A negligence standard does not encourage such cross-industry comparisons, but rather asks whether a particular defendant in the particular circumstances made a reasonable choice (often measured by reference to industry standards). Cf. id. at 68-69 (describing "general" versus "specific" deterrence).
34. See id. at 27-28; KEETON ET AL., supra note 7, § 98, at 692-93.
35. See CALABRESI, supra note 6, at 51.
36. Calabresi summarizes: The advantages of interpersonal loss spreading would probably be stated as a pair of propositions: (1) taking a large sum of money from one person is more likely to result in economic dislocation, and therefore in secondary or avoidable losses, than taking a series of small sums from many people; (2) even if the total economic dislocation were the same, many small losses would be preferable to one large one simply because people feel less pain if 10,000 of them lose one dollar apiece than if one person loses $10,000. Id. at 39 (footnote omitted). For a more in-depth discussion of how loss spreading may reduce secondary accident costs, see id. at 39-67.
37. See id. at 28.
38. See id. at 251 ("The most expensive aspect of the fault system is its case-by-case jury determination of who should bear losses."); KEETON ET AL., supra note 7, § 98, at 693 (arguing that proof of the existence of fault or negligence should no longer be required).
39. See generally COLEMAN, supra note 14; Epstein, supra note 14; Fletcher, supra note 14; Weinrib, supra note 14.
40. See generally Fletcher, supra note 14 (introducing "reciprocity" paradigm as substitute for traditional "reasonableness" paradigm in tort law).
41. Cf. MORTON J. HORWITZ, THE TRANSFORMATION OF AMERICAN LAW, 1780-1860, at 97-101 (1977) (describing rise of negligence standard as a subsidy to "those who undertook schemes of economic development").
42. See RESTATEMENT (SECOND) OF TORTS § 520 (1977); KEETON ET AL., supra note 7, § 78, at 545-59.
43. For a moral defense of liability based upon causation alone, see Epstein, supra note 14, at 168-69 & n.49.
44. 131 N.W.2d 765 (Iowa 1964).
45. The Supreme Court of Iowa in Lubin summarized risk cost allocation as follows: The risks from such a method of operation should be borne by the water supplier who is in a position to spread the cost among the consumers who are in fact the true beneficiaries of this practice and of the resulting savings in inspection and maintenance costs. When the expected and inevitable occurs, they should bear the loss and not the unfortunate individual whose property is damaged without fault of his own. Id. at 770; see also Recent Development, 104 HARV. L. REV. 1723, 1728-30 (1991) (suggesting "benefit-burden fairness" as a justification for tobacco company liability); cf. JOHN RAWLS, A THEORY OF JUSTICE 28 (1971) ("Justice denies that the loss of freedom for some is made right by a greater good shared by others."). But cf. Jules L. Coleman, Corrective Justice and Wrongful Gain, 11 J. LEGAL STUD. 421, 423-25 (1982), reprinted in JULES L. COLEMAN, MARKETS, MORALS AND THE LAW 184, 185-87 (1988) (noting disparity between losses to victim and gains to tortfeasor as problematic for moral defenses of strict liability); Nancy A. Weston, The Metaphysics of Modern Tort Theory, 28 VAL. U. L. REV. 919, 977-86 (1994) (summarizing Coleman's work).
46. The Supreme Court of Iowa in Lubin summarized risk cost allocation as follows: The risks from such a method of operation should be borne by the water supplier who is in a position to spread the cost among the consumers who are in fact the true beneficiaries of this practice and of the resulting savings in inspection and maintenance costs. When the expected and inevitable occurs, they should bear the loss and not the unfortunate individual whose property is damaged without fault of his own. Id. at 770; see also Recent Development, 104 HARV. L. REV. 1723, 1728-30 (1991) (suggesting "benefit-burden fairness" as a justification for tobacco company liability); cf. JOHN RAWLS, A THEORY OF JUSTICE 28 (1971) ("Justice denies that the loss of freedom for some is made right by a greater good shared by others."). But cf. Jules L. Coleman, Corrective Justice and Wrongful Gain, 11 J. LEGAL STUD. 421, 423-25 (1982), reprinted in JULES L. COLEMAN, MARKETS, MORALS AND THE LAW 184, 185-87 (1988) (noting disparity between losses to victim and gains to tortfeasor as problematic for moral defenses of strict liability); Nancy A. Weston, The Metaphysics of Modern Tort Theory, 28 VAL. U. L. REV. 919, 977-86 (1994) (summarizing Coleman's work).
47. The Supreme Court of Iowa in Lubin summarized risk cost allocation as follows: The risks from such a method of operation should be borne by the water supplier who is in a position to spread the cost among the consumers who are in fact the true beneficiaries of this practice and of the resulting savings in inspection and maintenance costs. When the expected and inevitable occurs, they should bear the loss and not the unfortunate individual whose property is damaged without fault of his own. Id. at 770; see also Recent Development, 104 HARV. L. REV. 1723, 1728-30 (1991) (suggesting "benefit-burden fairness" as a justification for tobacco company liability); cf. JOHN RAWLS, A THEORY OF JUSTICE 28 (1971) ("Justice denies that the loss of freedom for some is made right by a greater good shared by others."). But cf. Jules L. Coleman, Corrective Justice and Wrongful Gain, 11 J. LEGAL STUD. 421, 423-25 (1982), reprinted in JULES L. COLEMAN, MARKETS, MORALS AND THE LAW 184, 185-87 (1988) (noting disparity between losses to victim and gains to tortfeasor as problematic for moral defenses of strict liability); Nancy A. Weston, The Metaphysics of Modern Tort Theory, 28 VAL. U. L. REV. 919, 977-86 (1994) (summarizing Coleman's work).
48. The Supreme Court of Iowa in Lubin summarized risk cost allocation as follows: The risks from such a method of operation should be borne by the water supplier who is in a position to spread the cost among the consumers who are in fact the true beneficiaries of this practice and of the resulting savings in inspection and maintenance costs. When the expected and inevitable occurs, they should bear the loss and not the unfortunate individual whose property is damaged without fault of his own. Id. at 770; see also Recent Development, 104 HARV. L. REV. 1723, 1728-30 (1991) (suggesting "benefit-burden fairness" as a justification for tobacco company liability); cf. JOHN RAWLS, A THEORY OF JUSTICE 28 (1971) ("Justice denies that the loss of freedom for some is made right by a greater good shared by others."). But cf. Jules L. Coleman, Corrective Justice and Wrongful Gain, 11 J. LEGAL STUD. 421, 423-25 (1982), reprinted in JULES L. COLEMAN, MARKETS, MORALS AND THE LAW 184, 185-87 (1988) (noting disparity between losses to victim and gains to tortfeasor as problematic for moral defenses of strict liability); Nancy A. Weston, The Metaphysics of Modern Tort Theory, 28 VAL. U. L. REV. 919, 977-86 (1994) (summarizing Coleman's work).
49. The Supreme Court of Iowa in Lubin summarized risk cost allocation as follows: The risks from such a method of operation should be borne by the water supplier who is in a position to spread the cost among the consumers who are in fact the true beneficiaries of this practice and of the resulting savings in inspection and maintenance costs. When the expected and inevitable occurs, they should bear the loss and not the unfortunate individual whose property is damaged without fault of his own. Id. at 770; see also Recent Development, 104 HARV. L. REV. 1723, 1728-30 (1991) (suggesting "benefit-burden fairness" as a justification for tobacco company liability); cf. JOHN RAWLS, A THEORY OF JUSTICE 28 (1971) ("Justice denies that the loss of freedom for some is made right by a greater good shared by others."). But cf. Jules L. Coleman, Corrective Justice and Wrongful Gain, 11 J. LEGAL STUD. 421, 423-25 (1982), reprinted in JULES L. COLEMAN, MARKETS, MORALS AND THE LAW 184, 185-87 (1988) (noting disparity between losses to victim and gains to tortfeasor as problematic for moral defenses of strict liability); Nancy A. Weston, The Metaphysics of Modern Tort Theory, 28 VAL. U. L. REV. 919, 977-86 (1994) (summarizing Coleman's work).
50. This requirement of a proven connection between the defendant's conduct and the plaintiffs injury - that is, causation - is found in other tort doctrines as well. In the context of an intentional tort, such as battery, a plaintiff should have little difficulty proving that the defendant's act "cause[d] an unpermitted contact." KEETON ET AL., supra note 7, § 9, at 41. Under the negligence-related evidentiary doctrine of res ipsa loquitur, the plaintiff must show that the defendant had exclusive control over the instrumentality of the accident, and that this kind of accident does not ordinarily occur in the absence of negligence. See id. § 39, at 244. Just as under negligence and strict liability, then, under the tort doctrines of battery and res ipsa loquitur there must always be a proven connection between the defendant's activity and the actual harm suffered by the plaintiff. Under res ipsa loquitur doctrine, this connection may be established by proving that the defendant controlled the instrumentality of the accident, rather than that he caused the accident; in either case, the effect is similar.
51. This is not to say that scholarship has completely ignored the effect of factors other than substantive law on deterrence. For example, scholars have long recognized the most obvious way in which procedural reality may affect real-world deterrence: a tortfeasor may hope that he will not be caught. See, e.g., Calfee & Craswell, supra note 4, at 979. Scholars have gone beyond this basic uncertainty about detection and prosecution to consider the effect of other sorts of uncertainty upon the incentives created by a rule of substantive law. See id. at 974-84, 986-89 (describing the effect on deterrence of uncertainty regarding a court's views on duty of care and damages); Mark F. Grady, A New Positive Economic Theory of Negligence, 92 YALE L.J. 799, 805-06 (1983) (discussing the effect on deterrence of uncertainty over the precaution level that courts will require). Also, scholarship has considered the effects of inaccurate-versus-accurate litigation upon deterrence incentives. See Louis Kaplow, The Value of Accuracy in Adjudication: An Economic Analysis, 23 J. LEGAL STUD. 307 (1994); discussion infra Part IV.A. Moreover, Calabresi has recognized that there may be more to the relationship between primary and tertiary accident costs than he had explored, implicitly suggesting that transaction costs may influence deterrence. See CALABRESI, supra note 6, at 29-30 (noting that differences between the three sets of accident costs may be unclear, and that the three subgoals of cost reduction may conflict, but arguing nevertheless that the division of accident costs is "useful for analytical purposes"). The scholarship has not, however, considered the effect of litigation rules on deterrence incentives in a systematic way.
52. This is not to say that scholarship has completely ignored the effect of factors other than substantive law on deterrence. For example, scholars have long recognized the most obvious way in which procedural reality may affect real-world deterrence: a tortfeasor may hope that he will not be caught. See, e.g., Calfee & Craswell, supra note 4, at 979. Scholars have gone beyond this basic uncertainty about detection and prosecution to consider the effect of other sorts of uncertainty upon the incentives created by a rule of substantive law. See id. at 974-84, 986-89 (describing the effect on deterrence of uncertainty regarding a court's views on duty of care and damages); Mark F. Grady, A New Positive Economic Theory of Negligence, 92 YALE L.J. 799, 805-06 (1983) (discussing the effect on deterrence of uncertainty over the precaution level that courts will require). Also, scholarship has considered the effects of inaccurate-versus-accurate litigation upon deterrence incentives. See Louis Kaplow, The Value of Accuracy in Adjudication: An Economic Analysis, 23 J. LEGAL STUD. 307 (1994); discussion infra Part IV.A. Moreover, Calabresi has recognized that there may be more to the relationship between primary and tertiary accident costs than he had explored, implicitly suggesting that transaction costs may influence deterrence. See CALABRESI, supra note 6, at 29-30 (noting that differences between the three sets of accident costs may be unclear, and that the three subgoals of cost reduction may conflict, but arguing nevertheless that the division of accident costs is "useful for analytical purposes"). The scholarship has not, however, considered the effect of litigation rules on deterrence incentives in a systematic way.
53. Procedural rules regarding the choice of forum and factfinder also affect the value of lawsuits by altering the likelihood of prevailing at trial. This Article leaves those procedural rules for another day and confines its analysis to rules that influence deterrence through their effect on costs. This Article also leaves unaddressed the many other variables that might alter a lawsuit's value, such as the ancillary effects of a pending lawsuit on a defendant's reputation.
54. See Trubek et al., supra note 5, at 111 ("[Seventy-one percent] of plaintiffs in our sample were represented by lawyers paid on a contingency basis.").
55. Even where the plaintiff's attorney charges by the hour, the fees typically exceed 20% of the plaintiff's recovery. See id. (noting that the recovery-to-fee ratio in the case of contingent-fee attorneys averages 3 to 1, while in the case of hourly-fee attorneys it averages 3.65 to 1 in federal courts and 4.94 to 1 in state courts).
56. See id. at 90, 102, 104 (noting the events of a case as being the most important variable affecting a lawyer's time, and finding that each side's lawyers spent an average of 30.4 hours per case, and that a trial adds, on average, 6.7 hours).
57. On average, if a defendant pays less than $10,000 to a plaintiff, he will have to pay an additional one-third (if in state court) or 85% (if in federal court) to compensate his own lawyers. See id. at 121 n.85.
58. The theoretical question of whether litigation expenses should be internalized along with the costs of accidents is addressed infra in Part IV.D.
59. See, e.g., Murray L. Schwartz & Daniel J.B. Mitchell, An Economic Analysis of the Contingent Fee in Personal-Injury Litigation, 22 STAN. L. REV. 1125, 1125-26 (1970). Sociological factors may nevertheless affect a plaintiff's decision to sue. See Galanter, supra note 1, at 14 ("[H]igher income and white households perceive more problems with the goods they buy and complain more both to sellers and to third parties than do poor or black households."). The desire to maintain good continuing relations with a potential defendant may also affect an injured person's (or business's) decision to sue.
60. See Galanter, supra note 1, at 11-32. Although only about five percent of federal cases reach trial, another quarter are disposed of by pretrial motions. See Stephen C. Yeazell, The Misunderstood Consequences of Modern Civil Process, 1994 WIS. L. REV. 631, 636-37 & n.19 ("[J]udges are finally disposing of about a third of their civil cases.") (citing DIVISION OF ANALYSIS AND REPORTS, ADMIN. OFFICE OF THE U.S. COURTS, SUMMARY OF CIVIL CASES TERMINATED FROM JULY 1, 1989 TO JUNE 30, 1990).
61. Cf. A. Mitchell Polinsky & Daniel L. Rubinfeld, The Deterrent Effects of Settlements and Trials, 8 INT'L REV. L. & ECON. 109, 110 (1988) (arguing that settlements and trials have different deterrent effects because defendants pay less for settlements).
62. See, e.g., George L. Priest & Benjamin Klein, The Selection of Disputes for Litigation, 13 J. LEGAL STUD. 1 (1984); Steven Shavell, Suit, Settlement and Trial: A Theoretical Analysis Under Alternative Methods for Allocation of Legal Costs, 11 J. LEGAL STUD. 55 (1982); see also William M. Landes, An Economic Analysis of the Courts, 14 J.L. & ECON. 61 (1971) (discussing settlement dynamics in criminal law).
63. See, e.g., George L. Priest & Benjamin Klein, The Selection of Disputes for Litigation, 13 J. LEGAL STUD. 1 (1984); Steven Shavell, Suit, Settlement and Trial: A Theoretical Analysis Under Alternative Methods for Allocation of Legal Costs, 11 J. LEGAL STUD. 55 (1982); see also William M. Landes, An Economic Analysis of the Courts, 14 J.L. & ECON. 61 (1971) (discussing settlement dynamics in criminal law).
64. See, e.g., George L. Priest & Benjamin Klein, The Selection of Disputes for Litigation, 13 J. LEGAL STUD. 1 (1984); Steven Shavell, Suit, Settlement and Trial: A Theoretical Analysis Under Alternative Methods for Allocation of Legal Costs, 11 J. LEGAL STUD. 55 (1982); see also William M. Landes, An Economic Analysis of the Courts, 14 J.L. & ECON. 61 (1971) (discussing settlement dynamics in criminal law).
65. The effect of contingent fees on this analysis is reserved for Part III.
66. The analysis changes when one considers the reality that most tort plaintiffs pay their lawyers a contingent fee, and that it is these attorneys, rather than the plaintiffs themselves, who bear the additional costs of going to trial if a case is not settled. See, e.g., Geoffrey P. Miller, Some Agency Problems in Settlement, 16 J. LEGAL STUD. 189 (1987).
67. See infra Part III.D for a detailed analysis of a plaintiff's incentive to file and a defendant's incentive to settle a meritless lawsuit.
68. See Trubek et al., supra note 5, at 121 n.85. Presumably, a large portion of these cases were ones where the potential damage award was much larger than the ultimate settlement amount, but where the plaintiff was likely to lose. The "amount in controversy" requirement for diversity jurisdiction (more than $10,000 when Trubek's article was written) suggests that, at least in the diversity cases, the original complaints sought more than the amount ($10,000 or less) that was ultimately recovered. See 28 U.S.C. § 1332 (1988) (current version at 28 U.S.C.A. § 1332 (West Supp. 1997)).
69. See Trubek et al., supra note 5, at 121 n.85.
70. Part III.B discusses how contingent-fee arrangements may cause future litigation expenses to have different effects on plaintiffs' and defendants' settlement incentives.
71. See, e.g., Galanter, supra note 1, at 10-11 & nn.30-37 (citing media reports of meritless law suits). Part III.D discusses in greater detail plaintiffs' incentives to file (or forego) and defendants' incentives to settle (or litigate) meritless lawsuits.
72. See supra Part I.
73. See Trubek et al., supra note 5, at 91 (reporting that "[p]ayments to lawyers constitute[] 99% of out-of-pocket litigation expenses for individual clients and 98% for organizations").
74. Higher legal fees in federal court may be attributable, in part, to: (1) the "amount in controversy" requirement for diversity actions, see 28 U.S.C. § 1332 (1994), which may lead to higher average damages demands in federal court, (2) the time spent litigating federal court jurisdiction (removal and remand), and (3) the extra time required to fulfill the potentially higher expectations of federal judges.
75. See Trubek et al., supra note 5, at 102.
76. A plaintiff can always avoid removal on diversity grounds, however, by filing a suit in the defendant's home state. See 28 U.S.C § 1441(b) (1994). Of course, the choice of federal or state court, and of the locality of the suit, may bear upon the finder of fact's likely verdict, as well as upon the costs of litigation. Parties may therefore choose fora in the hope that the choice of a particular forum will improve their chances of winning.
77. It should be noted that contingent-fee plaintiffs' attorneys reported allocating their time based upon (1) the events of the case, and (2) the case's characteristics. See Trubek et al., supra note 5, at 104, 108. To the extent that the defendant's attorney's fees will depend upon the time spent by the plaintiff's lawyers (in filing motions and discovery requests), the case's characteristics ultimately will have a greater impact upon the defense lawyer's time than is reflected in its ranking of fifth.
78. But cf. George Loewenstein et al., Self-Serving Assessments of Fairness and Pretrial Bargaining, 22 J. LEGAL STUD. 135, 158-59 (1993) (noting that the psychological tendency to view information with a self-serving bias may undermine discovery's effectiveness as a tool to promote settlement).
79. Less attention has been devoted to the parties' respective abilities to inflict legal costs on one another through motion practice, and in particular, to the unequal time it may take to respond to an opponent's motion. One study has found, however, that while all attorneys spend time responding to their opponent's briefs, contingent-fee attorneys (predominately for plaintiffs) spend half as much time as do hourly attorneys (typically their opponents). See Herbert M. Kritzer et al., The Impact of Fee Arrangement on Lawyer Effort, L. & SOC'Y REV. 251, 271 (1985). As this difference between plaintiffs' and defendants' attorneys is largely attributable to contingent fees, it is reserved for discussion infra in Part III.
80. See sources cited supra note 2. Discovery is one of the more important factors affecting legal costs. See Carl Tobias, Executive Branch Civil Justice Reform, 42 AM. U. L. REV. 1521, 1544 (1993) (quoting Chief Judge Robert Parker, the Chair of the Judicial Conference Committee on Court Administration and Case Management, who claimed that excessive discovery was the single greatest factor contributing to unacceptable cost); Trubek et al., supra note 5, at 91 (indicating that lawyers on average spend 16.7% of their time on discovery, a percentage greater than that spent on any other single activity).
81. See, e.g., Robert D. Cooler & Daniel L. Rubinfeld, An Economic Model of Legal Discovery, 23 J. LEGAL STUD. 435 (1994); Bruce L. Hay, Civil Discovery: Its Effects and Optimal Scope, 23 J. LEGAL STUD. 481 (1994); Note, Discovery Abuse Under the Federal Rules: Causes and Cures, 92 YALE L.J. 352 (1982).
82. See, e.g., Robert D. Cooler & Daniel L. Rubinfeld, An Economic Model of Legal Discovery, 23 J. LEGAL STUD. 435 (1994); Bruce L. Hay, Civil Discovery: Its Effects and Optimal Scope, 23 J. LEGAL STUD. 481 (1994); Note, Discovery Abuse Under the Federal Rules: Causes and Cures, 92 YALE L.J. 352 (1982).
83. See, e.g., Robert D. Cooler & Daniel L. Rubinfeld, An Economic Model of Legal Discovery, 23 J. LEGAL STUD. 435 (1994); Bruce L. Hay, Civil Discovery: Its Effects and Optimal Scope, 23 J. LEGAL STUD. 481 (1994); Note, Discovery Abuse Under the Federal Rules: Causes and Cures, 92 YALE L.J. 352 (1982).
84. See supra Part II.A.
85. This is true of document productions and interrogatories. On the other hand, a lawyer taking a deposition may spend more time preparing than does the lawyer defending it. Also, if the deposed witness is an employee of one of the parties, the employee's time must be included in the costs of compliance.
86. See generally FED. R. CIV. P. 26-37 (discovery rules); Edward F. Sherman, A Process Model and Agenda for Civil Justice Reforms in the States, 46 STAN. L. REV. 1553, 1566-70 (1994) (comparing reform possibilities for discovery in state and federal courts).
87. Bruce Hay points out that private incentives and social incentives may differ, and that even if a discovery request does not increase the value of the requesting party's claim sufficiently to justify its cost, the request may nevertheless be socially efficient if it induces defendants to take precautions against inflicting harm. See Hay, supra note 60, at 483. Hay goes on to explain, however, that fine-tuning discovery rules in order to achieve a socially optimal level of discovery is quite difficult: "A rule allowing an apparently ideal amount of discovery may backfire if it leads the parties to settle without undertaking discovery." Id. at 514.
88. Cooter and Rubinfeld distinguish between discovery "misuse," which occurs "when compliance costs more than the expected increase in the value of the requesting party's claim," and "abuse," which they define as knowing "misuse." Cooter & Rubinfeld, supra note 60, at 437.
89. Surveys have found widespread dissatisfaction with the costs of discovery. See, e.g., Louis HARRIS & ASSOCS., INC., PROCEDURAL REFORM OF THE CIVIL JUSTICE SYSTEM at iv (1989). However, several scholars have questioned the accuracy of the belief shared by politicians, corporations, the media, the public, and even lawyers and judges that discovery abuse pervades our system of litigation. See, e.g., Mullenix, supra note 1, at 1396; Paul R. Sugarman & Marc G. Perlin, Proposed Changes to Discovery Rules in Aid of "Tort Reform": Has the Case Been Made?, 42 AM. U. L. REV. 1465, 1469 (1993). For purposes of this Article, it is unimportant whether parties are purposely abusing discovery in order to improve their settlement positions, or are innocently engaging in excessive discovery because the rules provide inadequate economic incentives for them to refrain from doing so. The Article's aim is simply to discuss how discovery rules may affect the amount that potential defendants expect to pay for their conduct (i.e., by influencing the rate at which plaintiffs file and litigate lawsuits, and the amount it costs defendants to defend and settle them).
90. Surveys have found widespread dissatisfaction with the costs of discovery. See, e.g., Louis HARRIS & ASSOCS., INC., PROCEDURAL REFORM OF THE CIVIL JUSTICE SYSTEM at iv (1989). However, several scholars have questioned the accuracy of the belief shared by politicians, corporations, the media, the public, and even lawyers and judges that discovery abuse pervades our system of litigation. See, e.g., Mullenix, supra note 1, at 1396; Paul R. Sugarman & Marc G. Perlin, Proposed Changes to Discovery Rules in Aid of "Tort Reform": Has the Case Been Made?, 42 AM. U. L. REV. 1465, 1469 (1993). For purposes of this Article, it is unimportant whether parties are purposely abusing discovery in order to improve their settlement positions, or are innocently engaging in excessive discovery because the rules provide inadequate economic incentives for them to refrain from doing so. The Article's aim is simply to discuss how discovery rules may affect the amount that potential defendants expect to pay for their conduct (i.e., by influencing the rate at which plaintiffs file and litigate lawsuits, and the amount it costs defendants to defend and settle them).
91. Federal Rule of Civil Procedure 26(g)(2)(C) provides that requests not be "unreasonable or unduly burdensome or expensive, given the needs of the case, the discovery already had in the case, and the amount in controversy, and the importance of issues at stake in the litigation." FED. R. CIV. P. 26(g)(2)(C). In practice, however, this rule is rarely enforced, particularly in cases where the requesting party honestly intends to obtain information, and merely neglects to consider the costs that will be borne by his opponent. See C. RONALD ELLINGTON, A STUDY OF SANCTIONS FOR DISCOVERY ABUSE 96-102 (1978); 8 CHARLES ALAN WRIGHT ET AL., FEDERAL PRACTICE & PROCEDURE, § 2052, at 630 (2d ed. 1994); Wayne D. Brazil, Views from the Front Lines: Observations by Chicago Lawyers About the System of Civil Discovery, 1980 AM. B. FOUND. RES. J. 217, 245. To succeed in reducing substantially the costs of litigation, one must identify the practices and rules that encourage discovery abuse, and modify them to encourage responsibly limited discovery. Well-intentioned directives, threats of punishment, and calls for less adversary behavior can have no significant effect upon the underlying causes of discovery abuse. Abraham D. Sofaer, Sanctioning Attorneys for Discovery Abuse Under the New Federal Rules: On the Limited utility of Punishment, 57 ST. JOHN'S L. REV. 680, 720 (1983).
92. Federal Rule of Civil Procedure 26(g)(2)(C) provides that requests not be "unreasonable or unduly burdensome or expensive, given the needs of the case, the discovery already had in the case, and the amount in controversy, and the importance of issues at stake in the litigation." FED. R. CIV. P. 26(g)(2)(C). In practice, however, this rule is rarely enforced, particularly in cases where the requesting party honestly intends to obtain information, and merely neglects to consider the costs that will be borne by his opponent. See C. RONALD ELLINGTON, A STUDY OF SANCTIONS FOR DISCOVERY ABUSE 96-102 (1978); 8 CHARLES ALAN WRIGHT ET AL., FEDERAL PRACTICE & PROCEDURE, § 2052, at 630 (2d ed. 1994); Wayne D. Brazil, Views from the Front Lines: Observations by Chicago Lawyers About the System of Civil Discovery, 1980 AM. B. FOUND. RES. J. 217, 245. To succeed in reducing substantially the costs of litigation, one must identify the practices and rules that encourage discovery abuse, and modify them to encourage responsibly limited discovery. Well-intentioned directives, threats of punishment, and calls for less adversary behavior can have no significant effect upon the underlying causes of discovery abuse. Abraham D. Sofaer, Sanctioning Attorneys for Discovery Abuse Under the New Federal Rules: On the Limited utility of Punishment, 57 ST. JOHN'S L. REV. 680, 720 (1983).
93. Federal Rule of Civil Procedure 26(g)(2)(C) provides that requests not be "unreasonable or unduly burdensome or expensive, given the needs of the case, the discovery already had in the case, and the amount in controversy, and the importance of issues at stake in the litigation." FED. R. CIV. P. 26(g)(2)(C). In practice, however, this rule is rarely enforced, particularly in cases where the requesting party honestly intends to obtain information, and merely neglects to consider the costs that will be borne by his opponent. See C. RONALD ELLINGTON, A STUDY OF SANCTIONS FOR DISCOVERY ABUSE 96-102 (1978); 8 CHARLES ALAN WRIGHT ET AL., FEDERAL PRACTICE & PROCEDURE, § 2052, at 630 (2d ed. 1994); Wayne D. Brazil, Views from the Front Lines: Observations by Chicago Lawyers About the System of Civil Discovery, 1980 AM. B. FOUND. RES. J. 217, 245. To succeed in reducing substantially the costs of litigation, one must identify the practices and rules that encourage discovery abuse, and modify them to encourage responsibly limited discovery. Well-intentioned directives, threats of punishment, and calls for less adversary behavior can have no significant effect upon the underlying causes of discovery abuse. Abraham D. Sofaer, Sanctioning Attorneys for Discovery Abuse Under the New Federal Rules: On the Limited utility of Punishment, 57 ST. JOHN'S L. REV. 680, 720 (1983).
94. Federal Rule of Civil Procedure 26(g)(2)(C) provides that requests not be "unreasonable or unduly burdensome or expensive, given the needs of the case, the discovery already had in the case, and the amount in controversy, and the importance of issues at stake in the litigation." FED. R. CIV. P. 26(g)(2)(C). In practice, however, this rule is rarely enforced, particularly in cases where the requesting party honestly intends to obtain information, and merely neglects to consider the costs that will be borne by his opponent. See C. RONALD ELLINGTON, A STUDY OF SANCTIONS FOR DISCOVERY ABUSE 96-102 (1978); 8 CHARLES ALAN WRIGHT ET AL., FEDERAL PRACTICE & PROCEDURE, § 2052, at 630 (2d ed. 1994); Wayne D. Brazil, Views from the Front Lines: Observations by Chicago Lawyers About the System of Civil Discovery, 1980 AM. B. FOUND. RES. J. 217, 245. To succeed in reducing substantially the costs of litigation, one must identify the practices and rules that encourage discovery abuse, and modify them to encourage responsibly limited discovery. Well-intentioned directives, threats of punishment, and calls for less adversary behavior can have no significant effect upon the underlying causes of discovery abuse. Abraham D. Sofaer, Sanctioning Attorneys for Discovery Abuse Under the New Federal Rules: On the Limited utility of Punishment, 57 ST. JOHN'S L. REV. 680, 720 (1983).
95. The 1993 amendments to the Federal Rules of Civil Procedure discarded the provision, previously contained in Federal Rule of Civil Procedure 26(f), that upon either party's motion, the judge must schedule a conference and issue a discovery plan "setting limitations on discovery, if any." FED. R. CIV. P. 26(f) (prior to 1993 amendment).
96. The 1993 amendments to the Federal Rules of Civil Procedure included significant amendments to the rules governing discovery. See generally DONNA STEINSTRA, FEDERAL JUDICIAL CTR., IMPLEMENTATION OF DISCLOSURE IN FEDERAL DISTRICT COURTS, WITH SPECIFIC ATTENTION TO COURTS' RESPONSES TO SELECTED AMENDMENTS IN FEDERAL RULE OF CIVIL PROCEDURE 26 (1994). First, "[e]xcept to the extent otherwise stipulated or directed by order or local rule," the rules now require automatic disclosure of discoverable information "relevant to disputed facts alleged with particularity in the pleadings." FED. R. CIV. P. 26(a)(1). Second, the new rules set presumptive limits on the numbers of depositions (10) and interrogatories (25) that a party may request without leave of the court. See FED. R. CIV. P. 30(a)(2)(A), 31(a)(2)(A), 33(a). However, about half of the federal districts have opted out of these new rules under Rule 26(b)(2). See Mullenix, supra note 1, at 1444 (observing that 48 out of 94 districts have opted out) (citing New Discovery Rules, 62 U.S.L.W. 2449, 2450 (Jan. 25, 1994)). Moreover, the new rules do not limit requests for document production, a discovery device that can be quite costly.
97. The 1993 amendments to the Federal Rules of Civil Procedure included significant amendments to the rules governing discovery. See generally DONNA STEINSTRA, FEDERAL JUDICIAL CTR., IMPLEMENTATION OF DISCLOSURE IN FEDERAL DISTRICT COURTS, WITH SPECIFIC ATTENTION TO COURTS' RESPONSES TO SELECTED AMENDMENTS IN FEDERAL RULE OF CIVIL PROCEDURE 26 (1994). First, "[e]xcept to the extent otherwise stipulated or directed by order or local rule," the
98. See Hay, supra note 60, at 510.
99. It is worth noting that where a case does not settle, the costs of pretrial activities, such as discovery and settlement negotiations, generally exceed the costs of trial. See Trubek et al., supra note 5, at 91, 104 (noting that in cases that proceed to trial, attorneys spend less than 10% of their time preparing for and attending the trial). Accordingly, even if liberal discovery is credited with increasing settlement rates, it is unlikely that the saved trial expenses would exceed the unreasonably high costs of discovery described in the text above.
100. True, the prospect of settling a case for a profit, albeit for less than it is worth, should not inhibit plaintiffs from filing lawsuits. However, in deciding whether to file a lawsuit, plaintiffs must weigh the likelihood of several different possible outcomes, including winning or losing a jury verdict, or obtaining a large or small settlement. To the extent that plaintiffs expect the prospect of high litigation costs to force them to accept lower settlements, this may alter their calculus and lead them to forego some meritorious lawsuits, which will ultimately allow some liable defendants to escape responsibility. Of course the availability of contingent-fee arrangements discussed in Part II will affect this analysis.
101. Of course, lawyers working for a contingent fee still get paid. See discussion infra Part III (addressing the effect of contingent-fee arrangements, which typically provide for a percentage of the plaintiff's recovery regardless of when the case settles, on the parties' behavior).
102. See Brazil, supra note 67, at 225 (noting empirical evidence that "the projected expense of responding to and conducting discovery more than occasionally pressured [attorneys] to advise a client to accept a settlement even though they knew the case was underdeveloped and even though they suspected that an opponent possessed relevant information that they had not yet discovered").
103. Some statutory exceptions to this rule are designed to encourage the filing of lawsuits. See, e.g., 42 U.S.C. § 1988(b) (1994) (providing for one-way fee shifting in favor of prevailing civil rights plaintiffs); CAL. CIV. PROC. CODE § 1021.5 (1980) (same).
104. See, e.g., John C. Hause, Indemnity, Settlement, and Litigation, or I'll Be Suing You, 18 J. LEGAL STUD. 157 (1989); Avery Katz, Measuring the Demand for Litigation: Is the English Rule Really Cheaper?, 3 J.L. ECON. & ORG. 143 (1987); Shavell, supra note 43; Bradley L. Smith, Note, Three Attorney Fee-Shifting Rules and Contingency Fees: Their Impact on Settlement Incentives, 90 MICH. L. REV. 2154 (1992). This latter note deals with two of the three cost-related procedures addressed by this Article. For general discussions of the English and American rules, see, for example, Thomas D. Rowe, Jr., Predicting the Effects of Attorney Fee Shifting, LAW & CONTEMP. PROBS., Winter 1984, at 139 [hereinafter Predicting the Effects] (summarizing major likely effects of fee shifting); Thomas D. Rowe, Jr., The Legal Theory of Attorney Fee Shifting: A Critical Overview, 1982 DUKE L.J. 651 ; Murray L. Schwartz, Foreword, LAW & CONTEMP. PROBS., Winter 1984, at 1 (introducing symposium on fee shifting that includes articles on the history of the American rule, on comparisons to Canadian and European systems, and on the effects of fee shifting on litigants' incentives); John F. Vargo, The American Rule on Attorney Fee Allocation: The Injured Person's Access to Justice, 42 AM. U. L. REV. 1567 (1993). For a discussion of a fee-shifting rule based upon the strength of a claim, rather than simply upon whether it prevails, see Lucian Arye Bebchuk & Howard F. Chang, An Analysis of Fee Shifting Based on the Margin of Victory: On Frivolous Suits, Meritorious Suits, and the Role of Rule 11, 25 J. LEGAL STUD. 371 (1996). Bebchuk and Chang's article is discussed infra in Part V.
105. See, e.g., John C. Hause, Indemnity, Settlement, and Litigation, or I'll Be Suing You, 18 J. LEGAL STUD. 157 (1989); Avery Katz, Measuring the Demand for Litigation: Is the English Rule Really Cheaper?, 3 J.L. ECON. & ORG. 143 (1987); Shavell, supra note 43; Bradley L. Smith, Note, Three Attorney Fee-Shifting Rules and Contingency Fees: Their Impact on Settlement Incentives, 90 MICH. L. REV. 2154 (1992). This latter note deals with two of the three cost-related procedures addressed by this Article. For general discussions of the English and American rules, see, for example, Thomas D. Rowe, Jr., Predicting the Effects of Attorney Fee Shifting, LAW & CONTEMP. PROBS., Winter 1984, at 139 [hereinafter Predicting the Effects] (summarizing major likely effects of fee shifting); Thomas D. Rowe, Jr., The Legal Theory of Attorney Fee Shifting: A Critical Overview, 1982 DUKE L.J. 651 ; Murray L. Schwartz, Foreword, LAW & CONTEMP. PROBS., Winter 1984, at 1 (introducing symposium on fee shifting that includes articles on the history of the American rule, on comparisons to Canadian and European systems, and on the effects of fee shifting on litigants' incentives); John F. Vargo, The American Rule on Attorney Fee Allocation: The Injured Person's Access to Justice, 42 AM. U. L. REV. 1567 (1993). For a discussion of a fee-shifting rule based upon the strength of a claim, rather than simply upon whether it prevails, see Lucian Arye Bebchuk & Howard F. Chang, An Analysis of Fee Shifting Based on the Margin of Victory: On Frivolous Suits, Meritorious Suits, and the Role of Rule 11, 25 J. LEGAL STUD. 371 (1996). Bebchuk and Chang's article is discussed infra in Part V.
106. See, e.g., John C. Hause, Indemnity, Settlement, and Litigation, or I'll Be Suing You, 18 J. LEGAL STUD. 157 (1989); Avery Katz, Measuring the Demand for Litigation: Is the English Rule Really Cheaper?, 3 J.L. ECON. & ORG. 143 (1987); Shavell, supra note 43; Bradley L. Smith, Note, Three Attorney Fee-Shifting Rules and Contingency Fees: Their Impact on Settlement Incentives, 90 MICH. L. REV. 2154 (1992). This latter note deals with two of the three cost-related procedures addressed by this Article. For general discussions of the English and American rules, see, for example, Thomas D. Rowe, Jr., Predicting the Effects of Attorney Fee Shifting, LAW & CONTEMP. PROBS., Winter 1984, at 139 [hereinafter Predicting the Effects] (summarizing major likely effects of fee shifting); Thomas D. Rowe, Jr., The Legal Theory of Attorney Fee Shifting: A Critical Overview, 1982 DUKE L.J. 651 ; Murray L. Schwartz, Foreword, LAW & CONTEMP. PROBS., Winter 1984, at 1 (introducing symposium on fee shifting that includes articles on the history of the American rule, on comparisons to Canadian and European systems, and on the effects of fee shifting on litigants' incentives); John F. Vargo, The American Rule on Attorney Fee Allocation: The Injured Person's Access to Justice, 42 AM. U. L. REV. 1567 (1993). For a discussion of a fee-shifting rule based upon the strength of a claim, rather than simply upon whether it prevails, see Lucian Arye Bebchuk & Howard F. Chang, An Analysis of Fee Shifting Based on the Margin of Victory: On Frivolous Suits, Meritorious Suits, and the Role of Rule 11, 25 J. LEGAL STUD. 371 (1996). Bebchuk and Chang's article is discussed infra in Part V.
107. See, e.g., John C. Hause, Indemnity, Settlement, and Litigation, or I'll Be Suing You, 18 J. LEGAL STUD. 157 (1989); Avery Katz, Measuring the Demand for Litigation: Is the English Rule Really Cheaper?, 3 J.L. ECON. & ORG. 143 (1987); Shavell, supra note 43; Bradley L. Smith, Note, Three Attorney Fee-Shifting Rules and Contingency Fees: Their Impact on Settlement Incentives, 90 MICH. L. REV. 2154 (1992). This latter note deals with two of the three cost-related procedures addressed by this Article. For general discussions of the English and American rules, see, for example, Thomas D. Rowe, Jr., Predicting the Effects of Attorney Fee Shifting, LAW & CONTEMP. PROBS., Winter 1984, at 139 [hereinafter Predicting the Effects] (summarizing major likely effects of fee shifting); Thomas D. Rowe, Jr., The Legal Theory of Attorney Fee Shifting: A Critical Overview, 1982 DUKE L.J. 651 ; Murray L. Schwartz, Foreword, LAW & CONTEMP. PROBS., Winter 1984, at 1 (introducing symposium on fee shifting that includes articles on the history of the American rule, on comparisons to Canadian and European systems, and on the effects of fee shifting on litigants' incentives); John F. Vargo, The American Rule on Attorney Fee Allocation: The Injured Person's Access to Justice, 42 AM. U. L. REV. 1567 (1993). For a discussion of a fee-shifting rule based upon the strength of a claim, rather than simply upon whether it prevails, see Lucian Arye Bebchuk & Howard F. Chang, An Analysis of Fee Shifting Based on the Margin of Victory: On Frivolous Suits, Meritorious Suits, and the Role of Rule 11, 25 J. LEGAL STUD. 371 (1996). Bebchuk and Chang's article is discussed infra in Part V.
108. See, e.g., John C. Hause, Indemnity, Settlement, and Litigation, or I'll Be Suing You, 18 J. LEGAL STUD. 157 (1989); Avery Katz, Measuring the Demand for Litigation: Is the English Rule Really Cheaper?, 3 J.L. ECON. & ORG. 143 (1987); Shavell, supra note 43; Bradley L. Smith, Note, Three Attorney Fee-Shifting Rules and Contingency Fees: Their Impact on Settlement Incentives, 90 MICH. L. REV. 2154 (1992). This latter note deals with two of the three cost-related procedures addressed by this Article. For general discussions of the English and American rules, see, for example, Thomas D. Rowe, Jr., Predicting the Effects of Attorney Fee Shifting, LAW & CONTEMP. PROBS., Winter 1984, at 139 [hereinafter Predicting the Effects] (summarizing major likely effects of fee shifting); Thomas D. Rowe, Jr., The Legal Theory of Attorney Fee Shifting: A Critical Overview, 1982 DUKE L.J. 651 ; Murray L. Schwartz, Foreword, LAW & CONTEMP. PROBS., Winter 1984, at 1 (introducing symposium on fee shifting that includes articles on the history of the American rule, on comparisons to Canadian and European systems, and on the effects of fee shifting on litigants' incentives); John F. Vargo, The American Rule on Attorney Fee Allocation: The Injured Person's Access to Justice, 42 AM. U. L. REV. 1567 (1993). For a discussion of a fee-shifting rule based upon the strength of a claim, rather than simply upon whether it prevails, see Lucian Arye Bebchuk & Howard F. Chang, An Analysis of Fee Shifting Based on the Margin of Victory: On Frivolous Suits, Meritorious Suits, and the Role of Rule 11, 25 J. LEGAL STUD. 371 (1996). Bebchuk and Chang's article is discussed infra in Part V.
109. See, e.g., John C. Hause, Indemnity, Settlement, and Litigation, or I'll Be Suing You, 18 J. LEGAL STUD. 157 (1989); Avery Katz, Measuring the Demand for Litigation: Is the English Rule Really Cheaper?, 3 J.L. ECON. & ORG. 143 (1987); Shavell, supra note 43; Bradley L. Smith, Note, Three Attorney Fee-Shifting Rules and Contingency Fees: Their Impact on Settlement Incentives, 90 MICH. L. REV. 2154 (1992). This latter note deals with two of the three cost-related procedures addressed by this Article. For general discussions of the English and American rules, see, for example, Thomas D. Rowe, Jr., Predicting the Effects of Attorney Fee Shifting, LAW & CONTEMP. PROBS., Winter 1984, at 139 [hereinafter Predicting the Effects] (summarizing major likely effects of fee shifting); Thomas D. Rowe, Jr., The Legal Theory of Attorney Fee Shifting: A Critical Overview, 1982 DUKE L.J. 651 ; Murray L. Schwartz, Foreword, LAW & CONTEMP. PROBS., Winter 1984, at 1 (introducing symposium on fee shifting that includes articles on the history of the American rule, on comparisons to Canadian and European systems, and on the effects of fee shifting on litigants' incentives); John F. Vargo, The American Rule on Attorney Fee Allocation: The Injured Person's Access to Justice, 42 AM. U. L. REV. 1567 (1993). For a discussion of a fee-shifting rule based upon the strength of a claim, rather than simply upon whether it prevails, see Lucian Arye Bebchuk & Howard F. Chang, An Analysis of Fee Shifting Based on the Margin of Victory: On Frivolous Suits, Meritorious Suits, and the Role of Rule 11, 25 J. LEGAL STUD. 371 (1996). Bebchuk and Chang's article is discussed infra in Part V.
110. See, e.g., John C. Hause, Indemnity, Settlement, and Litigation, or I'll Be Suing You, 18 J. LEGAL STUD. 157 (1989); Avery Katz, Measuring the Demand for Litigation: Is the English Rule Really Cheaper?, 3 J.L. ECON. & ORG. 143 (1987); Shavell, supra note 43; Bradley L. Smith, Note, Three Attorney Fee-Shifting Rules and Contingency Fees: Their Impact on Settlement Incentives, 90 MICH. L. REV. 2154 (1992). This latter note deals with two of the three cost-related procedures addressed by this Article. For general discussions of the English and American rules, see, for example, Thomas D. Rowe, Jr., Predicting the Effects of Attorney Fee Shifting, LAW & CONTEMP. PROBS., Winter 1984, at 139 [hereinafter Predicting the Effects] (summarizing major likely effects of fee shifting); Thomas D. Rowe, Jr., The Legal Theory of Attorney Fee Shifting: A Critical Overview, 1982 DUKE L.J. 651 ; Murray L. Schwartz, Foreword, LAW & CONTEMP. PROBS., Winter 1984, at 1 (introducing symposium on fee shifting that includes articles on the history of the American rule, on comparisons to Canadian and European systems, and on the effects of fee shifting on litigants' incentives); John F. Vargo, The American Rule on Attorney Fee Allocation: The Injured Person's Access to Justice, 42 AM. U. L. REV. 1567 (1993). For a discussion of a fee-shifting rule based upon the strength of a claim, rather than simply upon whether it prevails, see Lucian Arye Bebchuk & Howard F. Chang, An Analysis of Fee Shifting Based on the Margin of Victory: On Frivolous Suits, Meritorious Suits, and the Role of Rule 11, 25 J. LEGAL STUD. 371 (1996). Bebchuk and Chang's article is discussed infra in Part V.
111. See, e.g., John C. Hause, Indemnity, Settlement, and Litigation, or I'll Be Suing You, 18 J. LEGAL STUD. 157 (1989); Avery Katz, Measuring the Demand for Litigation: Is the English Rule Really Cheaper?, 3 J.L. ECON. & ORG. 143 (1987); Shavell, supra note 43; Bradley L. Smith, Note, Three Attorney Fee-Shifting Rules and Contingency Fees: Their Impact on Settlement Incentives, 90 MICH. L. REV. 2154 (1992). This latter note deals with two of the three cost-related procedures addressed by this Article. For general discussions of the English and American rules, see, for example, Thomas D. Rowe, Jr., Predicting the Effects of Attorney Fee Shifting, LAW & CONTEMP. PROBS., Winter 1984, at 139 [hereinafter Predicting the Effects] (summarizing major likely effects of fee shifting); Thomas D. Rowe, Jr., The Legal Theory of Attorney Fee Shifting: A Critical Overview, 1982 DUKE L.J. 651 ; Murray L. Schwartz, Foreword, LAW & CONTEMP. PROBS., Winter 1984, at 1 (introducing symposium on fee shifting that includes articles on the history of the American rule, on comparisons to Canadian and European systems, and on the effects of fee shifting on litigants' incentives); John F. Vargo, The American Rule on Attorney Fee Allocation: The Injured Person's Access to Justice, 42 AM. U. L. REV. 1567 (1993). For a discussion of a fee-shifting rule based upon the strength of a claim, rather than simply upon whether it prevails, see Lucian Arye Bebchuk & Howard F. Chang, An Analysis of Fee Shifting Based on the Margin of Victory: On Frivolous Suits, Meritorious Suits, and the Role of Rule 11, 25 J. LEGAL STUD. 371 (1996). Bebchuk and Chang's article is discussed infra in Part V.
112. See discussion supra Part II.A.
113. See Shavell, supra note 43, at 64-65.
114. For simplicity, consider a lawsuit in which the amount of the victim's damages (say, $10,000) is clear and the only disagreement is over liability. Further assume that each party believes that it has a 60% chance of prevailing (i.e., the plaintiff believes there is a 60% chance, and the defendant believes there is a 40% chance, that the plaintiff will prevail). If the plaintiff's and the defendant's expected costs of going to trial are $1200 each, then in the American system the parties should settle, since the saved costs of going to trial ($1200 + $1200 = $2400), would exceed the $2000 difference in their expected jury verdicts (60% of $10,000, or $6000, versus 40% of $10,000, or $4000). Looking at each side individually, the plaintiff would be willing to settle for an amount exceeding $4800 (his $6000 expected verdict minus $1200 saved legal costs) and the defendant would be willing to settle for up to $5200 (his $4000 expected verdict plus $1200 saved legal costs). Under the English system, however, the plaintiff would expect to receive $10,000 and pay nothing if he wins (an outcome that he expects is 60% likely) and to receive nothing and pay both parties' legal costs of $2400 if he loses (an outcome that he expects is 40% likely). Accordingly, the plaintiffs expected gain from going to trial would be $6000 (60% of $10,000) minus $960 (40% of $2400), or $5040. The defendant would expect to pay nothing if he wins (which he views as 60% likely), and to pay a $10,000 verdict plus both parties' legal costs of $2400 if he loses (which he views as 40% likely). Accordingly, the defendant's expected loss from going to trial is $4960 (40% of $12,400). In theory, then, the parties will not settle, as the lowest amount the plaintiff would be willing to accept ($5040) is greater than the highest amount that the defendant would be willing to pay ($4960) to avoid trial.
115. Because the English fee-shifting rule increases the stakes of winning or losing a lawsuit, it will encourage both parties to spend more money trying to win a case, and will especially encourage the party with the stronger case to spend more (in the hope of winning reimbursement from his opponent). See Hause, supra note 76, at 158, 167-68; Katz, supra note 76, at 144; Smith, supra note 76, at 2155. This additional spending, by increasing the costs of not settling, may actually make settlement more likely under the English rule than under the American rule, even though the English rule otherwise tends to widen the gap between the parties' settlement positions. See Hause, supra note 76, at 172; Katz, supra note 76, at 144; Smith, supra note 76, at 2155.
116. See Rowe, Predicting the Effects, supra note 76, at 152; Shavell, supra note 43, at 59. Moreover, a plaintiff deciding whether to file a weak lawsuit will know not only that he must bear the defendant's legal costs if he loses, but also that the defendant will spend more to defend the case. The defendant's increased efforts may further hurt the plaintiff's (already weak) chances of winning, in addition to increasing the plaintiff's likely expenses if he ultimately does lose. See Hause, supra note 76, at 168.
117. Risk aversion, however, may complicate the above analysis, changing the rate at which plaintiffs file meritorious and meritless lawsuits under the English fee-shifting rule. See Shavell, supra note 43, at 62; cf. Bebchuk & Chang, supra note 76, at 378-80 (discussing effect of uncertainty on plaintiff's incentives under American and English rules). While risk aversion may lead plaintiffs to forego meritorious lawsuits even under an American rule, the English fee-shifting rule aggravates this problem. By guaranteeing the prevailing plaintiff a higher recovery, and the losing plaintiff a greater loss, the English fee-shifting rule increases the stakes of litigation. The fear of paying their opponents' legal fees, in addition to their own, may lead risk-averse plaintiffs to forego suits they would otherwise file under the American system. Because contingent-fee arrangements help plaintiffs to manage litigation risk, a more complete discussion of the effects of risk aversion is reserved for Part III, infra.
118. A defendant need only pay in to the court the amount it is offering in settlement. See HAZEL GENN, HARD BARGAINING 111 (1987); Vargo, supra note 76, at 1611. Regarding proposals to apply a similar rule to settlement offers in the United States, see infra Part V (discussing David A. Anderson, Improving Settlement Devices: Rule 68 and Beyond, 23 J. LEGAL STUD. 225 (1994), and Geoffrey P. Miller, An Economic Analysis of Rule 68, 15 J. LEGAL STUD. 93 (1986)).
119. A defendant need only pay in to the court the amount it is offering in settlement. See HAZEL GENN, HARD BARGAINING 111 (1987); Vargo, supra note 76, at 1611. Regarding proposals to apply a similar rule to settlement offers in the United States, see infra Part V (discussing David A. Anderson, Improving Settlement Devices: Rule 68 and Beyond, 23 J. LEGAL STUD. 225 (1994), and Geoffrey P. Miller, An Economic Analysis of Rule 68, 15 J. LEGAL STUD. 93 (1986)).
120. A defendant need only pay in to the court the amount it is offering in settlement. See HAZEL GENN, HARD BARGAINING 111 (1987); Vargo, supra note 76, at 1611. Regarding proposals to apply a similar rule to settlement offers in the United States, see infra Part V (discussing David A. Anderson, Improving Settlement Devices: Rule 68 and Beyond, 23 J. LEGAL STUD. 225 (1994), and Geoffrey P. Miller, An Economic Analysis of Rule 68, 15 J. LEGAL STUD. 93 (1986)).
121. See Polinsky & Rubinfeld, supra note 42, at 112 ("Because litigation is costly, not every individual who suffers harm will bring suit."). Under Polinsky and Rubenfeld's model, settlements result in underdeterrence if litigation expenses lead plaintiffs to forego meritorious suits and/or defendants pay less than victims' injuries. See id. at 109-10. The analysis in Part III infra of the combined effect of discovery rules, non-fee-shifting, and contingent-fee arrangements essentially explains why these assumptions do not hold true: contingent-fee attorneys do accept and litigate even small cases where the costs of litigating to trial outweigh the expected verdict, see infra Part III.A, and plaintiffs' bargaining power is sufficiently strong to ensure that defendants' settlement payments together with their presettlement litigation expenses do not generally fall short of plaintiffs' injuries, see infra Part III.B-C.
122. For an argument that contingent fees should be calculated differently, see Lester Brickman, Contingent Fees Without Contingencies: Hamlet Without the Prince of Denmark?, 37 UCLA L. REV. 29, 34 (1989) (advocating fee based on "lawyer's anticipated effort; estimated risk of nonrecovery; settlement value of the case; and the risk premium to be added to the lawyer's opportunity cost, to compensate for the risk the lawyer undertakes").
123. See, e.g., Thomas J. Miceli & Kathleen Segerson, Contingent Fees for Lawyers: The Impact on Litigation and Accident Prevention, 20 J. LEGAL STUD. 381, 388 (1991); Miller, supra note 5, at 10-11; Vargo, supra note 76, at 1617-19.
124. See, e.g., Miceli & Segerson, supra note 86, at 388; Vargo, supra note 76, at 1618.
125. See Samuel R. Gross & Kent D. Syverud, Getting to No: A Study of Settlement Negotiations and the Selection of Cases for Trial, 90 MICH. L. REV. 319, 349 (1991).
126. Cf. Thomas J. Miceli, Do Contingent Fees Promote Excessive Litigation?, 23 J. LEGAL STUD. 211, 223-24 (1994) (suggesting that "it might be accurate to say that hourly fees result in too little litigation, rather than to say that contingent fees result in too much litigation"); Rowe, Predicting the Effects, supra note 76, at 153.
127. Cf. Thomas J. Miceli, Do Contingent Fees Promote Excessive Litigation?, 23 J. LEGAL STUD. 211, 223-24 (1994) (suggesting that "it might be accurate to say that hourly fees result in too little litigation, rather than to say that contingent fees result in too much litigation"); Rowe, Predicting the Effects, supra note 76, at 153.
128. For a discussion of a system that provides both for fee shifting and contingent-fee arrangements, see Smith, supra note 76.
129. See Vargo, supra note 76, at 1609-13 (citing GENN, supra note 83, at 98-113, 167-69). In practice, about 99% of English lawsuits are settled before trial. See id. at 1612. In America, the settlement rate is thought to be a bit lower. See, e.g., Galanter, supra note 1, at 21 (7% of surveyed cases went to trial); Trubek et al., supra note 5, at 89 (less than 8% of sample went to trial); see also W. Kip Viscusi, The Determinants of the Disposition of Product Liability Claims and Compensation for Bodily Injury, 15 J. LEGAL STUD. 321, 329 (1986) (95% of 10,000 products liability suits settled).
130. See, e.g., Gross & Syverud, supra, note 88, at 349, 384; Vargo, supra note 76, at 1594.
131. Litigation expenses may be paid out of the plaintiff's award either before or after the attorney's one-third fee is calculated. See Kevin M. Clermont & John D. Currivan, Improving on the Contingent Fee, 63 CORNELL L. REV. 529, 532 n.3 (1978). Even if it is agreed that expenses are to be borne by the client (and to come out of the client's share of the award in case of victory), as a practical matter, attorneys do not seek reimbursement of expenses where the plaintiff receives nothing. See id.
132. See Lucian Arye Bebchuk, Suing Solely to Extract a Settlement Offer, 17 J. LEGAL STUD. 437, 438 (1988).
133. See Lucian Arye Bebchuk, A New Theory Concerning the Credibility and Success of Threats to Sue, 25 J. LEGAL STUD. 1 (1996). Bebchuk considers plaintiffs' incentives to file, and defendants' incentives to settle, "negative-expected-value" ("NEV") suits (i.e., suits with expected returns to plaintiffs that are lower than the expected costs of litigation). Although the text focuses on small cases, a lawsuit may have a NEV despite large potential damages, if the likelihood of winning is slim and the costs of litigation are high. See id. at 1.
134. But cf. infra Part III.D.3 (discussing attorneys' inability to withdraw where client wishes to proceed).
135. See Bebchuk, supra note 95, at 4.
136. Indeed, Bebchuk's article focuses on plaintiffs' incentives, rather than those of their attorneys. See id.
137. See sources cited supra notes 86-87 and accompanying text.
138. The fear of paying legal fees, in addition to a judgment, might also lead a risk-averse defendant to settle a case for more than it is worth, but institutional defendants are generally better able to manage risk than are individual plaintiffs. Insurance companies and large corporations that are repeat players can spread the risk of any single lawsuit over the pool of lawsuits to which they are parties. They may be willing to assume the risk of losing some trials, even if that means paying prevailing plaintiffs' attorneys fees, in the hope that they will win some, and achieve advantageous settlements in others. The risk neutrality of a repeat defendant provides it with a bargaining advantage over a plaintiff that is risk averse. See Marc Galanter, Why the "Haves " Come Out Ahead: Speculations on the Limits of Legal Change, 9 L. & SOC'Y REV. 95, 98-102 (1974) (noting imbalance of power between one-shot claimants and repeat defendants, but also that "personal injury cases . . . are distinctive in that free entry to the arena is provided by the contingent fee"); Samuel R. Gross & Kent D. Syverud, Don't Try: Civil Jury Verdicts in a System Geared to Settlement, 44 UCLA L. REV. 1, 38 (1996) ("Insurance companies, government, and big business - the true defendants in almost all cases - are repeat players."); Vargo, supra note 76, at 1609 (citing GENN, supra note 83, at 98-109); cf. John C. Coffee, Jr., Rescuing the Private Attorney General: Why the Model of the Lawyer as Bounty Hunter is Not Working, 42 MD. L. REV. 215, 231 (1983) (noting that "[a]lthough defendants also may be risk averse, their greater size, financial resources, and ability to insure or seek indemnification creates an imbalance - which predictably tilts the bargaining power in their favor").
139. The fear of paying legal fees, in addition to a judgment, might also lead a risk-averse defendant to settle a case for more than it is worth, but institutional defendants are generally better able to manage risk than are individual plaintiffs. Insurance companies and large corporations that are repeat players can spread the risk of any single lawsuit over the pool of lawsuits to which they are parties. They may be willing to assume the risk of losing some trials, even if that means paying prevailing plaintiffs' attorneys fees, in the hope that they will win some, and achieve advantageous settlements in others. The risk neutrality of a repeat defendant provides it with a bargaining advantage over a plaintiff that is risk averse. See Marc Galanter, Why the "Haves " Come Out Ahead: Speculations on the Limits of Legal Change, 9 L. & SOC'Y REV. 95, 98-102 (1974) (noting imbalance of power between one-shot claimants and repeat defendants, but also that "personal injury cases . . . are distinctive in that free entry to the arena is provided by the contingent fee"); Samuel R. Gross & Kent D. Syverud, Don't Try: Civil Jury Verdicts in a System Geared to Settlement, 44 UCLA L. REV. 1, 38 (1996) ("Insurance companies, government, and big business - the true defendants in almost all cases - are repeat players."); Vargo, supra note 76, at 1609 (citing GENN, supra note 83, at 98-109); cf. John C. Coffee, Jr., Rescuing the Private Attorney General: Why the Model of the Lawyer as Bounty Hunter is Not Working, 42 MD. L. REV. 215, 231 (1983) (noting that "[a]lthough defendants also may be risk averse, their greater size, financial resources, and ability to insure or seek indemnification creates an imbalance - which predictably tilts the bargaining power in their favor").
140. The fear of paying legal fees, in addition to a judgment, might also lead a risk-averse defendant to settle a case for more than it is worth, but institutional defendants are generally better able to manage risk than are individual plaintiffs. Insurance companies and large corporations that are repeat players can spread the risk of any single lawsuit over the pool of lawsuits to which they are parties. They may be willing to assume the risk of losing some trials, even if that means paying prevailing plaintiffs' attorneys fees, in the hope that they will win some, and achieve advantageous settlements in others. The risk neutrality of a repeat defendant provides it with a bargaining advantage over a plaintiff that is risk averse. See Marc Galanter, Why the "Haves " Come Out Ahead: Speculations on the Limits of Legal Change, 9 L. & SOC'Y REV. 95, 98-102 (1974) (noting imbalance of power between one-shot claimants and repeat defendants, but also that "personal injury cases . . . are distinctive in that free entry to the arena is provided by the contingent fee"); Samuel R. Gross & Kent D. Syverud, Don't Try: Civil Jury Verdicts in a System Geared to Settlement, 44 UCLA L. REV. 1, 38 (1996) ("Insurance companies, government, and big business - the true defendants in almost all cases - are repeat players."); Vargo, supra note 76, at 1609 (citing GENN, supra note 83, at 98-109); cf. John C. Coffee, Jr., Rescuing the Private Attorney General: Why the Model of the Lawyer as Bounty Hunter is Not Working, 42 MD. L. REV. 215, 231 (1983) (noting that "[a]lthough defendants also may be risk averse, their greater size, financial resources, and ability to insure or seek indemnification creates an imbalance - which predictably tilts the bargaining power in their favor").
141. See Trubek et al., supra note 5, at 94 (stating the authors' study found that 71% of plaintiffs' attorneys, but only 41% of all attorneys, were paid on a contingent-fee basis); Vargo, supra note 76, at 1618 (noting that 97% of personal injury plaintiffs utilize contingent-fee arrangements); Smith, supra note 76, at 2162 n.31 (stating that 97% of lawyers accept personal injury cases only on a contingent-fee basis).
142. See, e.g., Gross & Syverud, supra note 88, at 349-50.
143. Recall that 97% of personal injury plaintiffs hire their lawyers on a contingent-fee basis. See Vargo, supra note 76, at 1618.
144. Many have questioned whether contingent-fee arrangements align clients and lawyers' interests better than do hourly-fee arrangements. See Terry Thomason, Are Attorneys Paid What They're Worth? Contingent Fees and the Settlement Process, 20 J. LEGAL STUD. 187, 187-90 (1993) (discussing Patricia Munch Danzon, Contingent Fees for Personal Injury Litigation, 14 BELL J. ECON. 213 (1983); Kritzer et al., supra note 58; Schwartz & Mitchell, supra note 40). Conflicts of interest between lawyers and clients that agree to contingent-fee arrangements are addressed below. See discussion infra Part III.B.3.
145. Many have questioned whether contingent-fee arrangements align clients and lawyers' interests better than do hourly-fee arrangements. See Terry Thomason, Are Attorneys Paid What They're Worth? Contingent Fees and the Settlement Process, 20 J. LEGAL STUD. 187, 187-90 (1993) (discussing Patricia Munch Danzon, Contingent Fees for Personal Injury Litigation, 14 BELL J. ECON. 213 (1983); Kritzer et al., supra note 58; Schwartz & Mitchell, supra note 40). Conflicts of interest between lawyers and clients that agree to contingent-fee arrangements are addressed below. See discussion infra Part III.B.3.
146. See supra note 58 and accompanying text; see also Lawrence C. Marshall et al., The Use and Impact of Rule 11, 86 NW. U. L. REV. 943, 964 (1992) ("'most lawyers will prefer to leave no stone unturned, provided, of course, they can charge by the stone'") (quoting Deborah L. Rhode, Ethical Perspectives on Legal Practice, 37 STAN. L. REV. 589, 635 (1985)).
147. See supra note 58 and accompanying text; see also Lawrence C. Marshall et al., The Use and Impact of Rule 11, 86 NW. U. L. REV. 943, 964 (1992) ("'most lawyers will prefer to leave no stone unturned, provided, of course, they can charge by the stone'") (quoting Deborah L. Rhode, Ethical Perspectives on Legal Practice, 37 STAN. L. REV. 589, 635 (1985)).
148. See supra Part II.B (discussing incentive to impose high litigation costs on one's opponent in order to improve one's own settlement prospects).
149. Then again, to the extent that escalation delays any payment by the defendant, the defendant may save the time value of money. See, e.g., Albert Alschuler, Mediation with a Mugger: The Shortage of Adjudicative Services and the Need for a Two-Tier Trial System in Civil Cases, 99 HARV. L. REV. 1808, 1823 (1986) (advocating inclusion of prejudgment interest in money judgments).
150. See, e.g., DOUGLAS ROSENTHAL, LAWYER AND CLIENT 109-12 (1974); Miller, supra note 45, at 199; Schwartz & Mitchell, supra note 40, at 1126; see also Bruce L. Hay, Contingent Fees and Agency Costs, 25 J. LEGAL STUD. 503, 513-14 (1996) (focusing on lawyer effort generally, rather than on settlement dynamics).
151. See, e.g., DOUGLAS ROSENTHAL, LAWYER AND CLIENT 109-12 (1974); Miller, supra note 45, at 199; Schwartz & Mitchell, supra note 40, at 1126; see also Bruce L. Hay, Contingent Fees and Agency Costs, 25 J. LEGAL STUD. 503, 513-14 (1996) (focusing on lawyer effort generally, rather than on settlement dynamics).
152. A client's risk aversion, however, might lead him to accept a lower settlement early in a case in order to eliminate the possibility of losing or receiving a low verdict.
153. See Miller, supra note 45, at 199. This analysis ignores litigation expenses other than the opportunity cost of the lawyer's time, which may, depending upon the nature of the contingent-fee agreement, be paid out of the verdict or settlement before the attorney's one-third share is calculated. See supra note 93.
154. See Miller, supra note 45, at 200-02; Smith, supra note 76, at 2173.
155. See Kritzer et al., supra note 58, at 271.
156. See Sofaer, supra note 67, at 723 (noting that "[discovery is . . . made costly" because "plaintiffs [may] file complaints in which they need do little more than allege an injury that is believed to have resulted from some dangerous instrumentality or activity, and this will generally entitle them to search for an explanation through discovery"); cf. Janet Cooper Alexander, Do the Merits Matter? A Study of Settlements in Securities Class Actions, 43 STAN. L. REV. 497, 548-49 (1991) (noting that securities litigation is more expensive for defendants than plaintiffs, in part because discovery is virtually one-sided).
157. See Brazil, supra note 67, at 226 (discussing delays in discovery scheduling).
158. See Alschuler, supra note 107, at 1823.
159. See Marshall et al., supra note 105, at 963-64 (citing Rhode, supra note 105, at 635); Coffee, supra note 100, at 247 (noting defense attorneys' incentive to maximize hours).
160. See MODEL RULES OF PROFESSIONAL CONDUCT Rule 1.5 cmt. 3 (1995) ("An agreement may not be made whose terms might induce the lawyer improperly to curtail services for the client or perform them in a way contrary to the client's interest."); id. Rule 1.7 cmt. 6 ("The lawyer's own interests should not be permitted to have an adverse effect on representation of a client."); MODEL CODE OF PROFESSIONAL RESPONSIBILITY EC 5-7 (1980) ("The possibility of an adverse effect upon the exercise of free judgment by a lawyer on behalf of his client during litigation generally makes it undesirable for the lawyer to acquire a proprietary interest in the cause of his client or otherwise to become financially interested in the outcome of the litigation."); id. ("[A] lawyer, because he is in a better position to evaluate a cause of action, should enter into a contingent fee arrangement only in those instances where the arrangement will be beneficial to the client."); ROSENTHAL, supra note 108, at 110 ("In a few instances, cooling out the client is a breach of legal ethics.").
161. Compare this with Clermont & Currivan, supra note 93, who state that: [W]e propose that the lawyer and the client are rational, economic beings who tend to act in accordance with their own direct economic best interests. Morality, professional ethics, or even self-interested concern for indirect benefits such as a good reputation might, of course, cause the lawyer or the client to act in a contrary way. Or, one party to the lawyer-client relationship might have sufficient power to force the other to act contrary to the latter's direct economic best interests. For example, an occasional, sophisticated client might be able to control the lawyer so that he serves the client's interest more perfectly. Nevertheless, we focus on direct economic interests because our aim is to see how the unrestrained economic animal will act, and then to change the economic environment so that the same animal would be inclined to act in a socially more desirable manner. With such change, society could lessen its reliance on those noneconomic or indirect restraints currently used to bring about socially desirable behavior. Id. at 534 (footnote omitted).
162. See Gross & Syverud, supra note 88, at 355 (noting that in a large subset of cases studied, where trials produced recoveries only slightly larger than settlement offers, "the attorneys would predictably have done better to settle, and knew it, but their clients reasonably preferred to go to court"); see also Gross & Syverud, supra note 100, at 42 (confirming after studying additional trial data that plaintiffs who proceed to trial generally would have done better by settling).
163. See Clermont & Currivan, supra note 93, at 534.
164. See Gross & Syverud, supra note 88, at 350-51.
165. Id. at 360.
166. See id. at 349 n.71 ; cf. ROSENTHAL, supra note 108, at 112 (stating that one "option for resolving the conflict between the lawyer's and client's interests is to bring the specific conflict issues up for discussion"); Bruce L. Hay, Optimal Contingent Fees in a World of Settlement, 26 J. LEGAL STUD. 259 (1997) (advocating a fee structure in which attorneys receive a larger portion of a recovery in the event of a trial). In theory, rather than simply using the pretrial conference as a dividing line, the fee arrangement could be scaled to reflect the attorney's added effort throughout the course of the litigation. In practice, however, it might be difficult both to agree upon these terms in advance, and to monitor when the attorney has exceeded a certain level of effort and therefore is entitled to a higher fee. Such an arrangement might result in the same costly ex ante and ex post negotiations over fees in which hourly attorneys and their clients often engage. In addition, even if a graduated fee scale were so precise as to give the attorney the same return from settlement at any point in the lawsuit, there is no guarantee that the settlement figure that the attorney would accept would give the client a return equal to the client's return from trial. Miller, supra note 45, at 201-02.
167. Thus, while Polinsky and Rubenfeld hypothesize that settlements may result in underdeterrence because plaintiffs forego some meritorious claims and defendants pay less than their victims' injuries, for others these assumptions do not hold true. See supra note 84. Gross and Syverud offer another reason why defendants may be willing to pay more than plaintiffs ask in settlement negotiations. See Gross & Syverud, supra note 100, at 37-38. Because a large portion of total tort awards is awarded in a handful of cases, while half of tried cases result in zero recoveries for the plaintiff, the difference between mean and median jury awards can be quite large. See id. "For a plaintiff," they explain, "a mean so heavily influenced by rare large verdicts is an inflated estimate of the value of a claim." Id. at 37. Yet, for a repeat defendant, "the mean expected judgment is an excellent estimate of the cost of a case." Id. at 38. Accordingly, [i]f the risk . . . to the [repeat] defendant is measured by the mean judgment for similar cases, but the value to the [one-shot] plaintiff is much lower - in the range between the median and the median of nonzero awards-then there is a large range of possible settlements between what the plaintiff expects to get and what the defendant fears losing. Id.
168. See supra Part II.B.
169. See supra Part II.B.
170. See supra Part II.B.
171. See supra Part III.B.
172. Cf. Robert G. Bone, Modeling Frivolous Suits, 145 U. PA. L. REV. 519, 552 (1997) ("Defendants want plaintiffs to know the truth when their suit is meritless, but not when their suit is meritorious.").
173. See supra Part II.B. Of course, included within these costs are the costs of settlement negotiations themselves - that is, the time it takes defense lawyers to negotiate settlements. See Galanter, supra, note 1, at 28.
174. See Trubek et al., supra note 5, at 90, 104 (noting that trial on average will add less than 10% to the time an attorney devotes to a case); supra note 71. But cf. Gross & Syverud, supra note 100, at 33 (noting that the average personal injury trial lasts eight days).
175. To the extent that litigation is not only expensive, but also prolonged, defendants' legal fees may be offset partially by the time value of money. See, e.g., Alschuler, supra note 107, at 1823.
176. Avery Kate's and Lucian Bebchuk's models help to explain plaintiffs' incentives to file and defendants' incentives to settle suits that only plaintiffs know to be meritless. See Bebchuck, supra note 94, at 439 (noting that the success of "negative-economic value" suits may be explained "by defendant uncertainty as to whether or not the suit is an NEV one"); Avery Katz, The Effect of Frivolous Lawsuits on the Settlement of Litigation, 10 INT'L REV. L. & ECON. 3, 4 (1990) ("The main reason that frivolous suits are not always met with a blanket denial and refusal to negotiate, of course, is that the defendant rarely knows the merits of the claim with certainty."). Robert Bone has discussed Katz's model of "informed-plaintiff information asymmetries and has modeled as well asymmetries in which defendants are aware of a suit's flaws but plaintiffs are uninformed. See Bone, supra note 129, at 524 ("Frivolous litigation is most likely to occur under conditions of asymmetric information."). David Rosenberg and Steven Shavell have modeled "nuisance value" suits that both parties view to be meritless, but which may nonetheless profit plaintiffs because the timing and extent of litigation effort favors them. See David Rosenberg & Steven Shavell, A Model in Which Suits are Brought for Their Nuisance Value, 5 INT'L REV. L. & ECON. 3 (1985).
177. Avery Kate's and Lucian Bebchuk's models help to explain plaintiffs' incentives to file and defendants' incentives to settle suits that only plaintiffs know to be meritless. See Bebchuck, supra note 94, at 439 (noting that the success of "negative-economic value" suits may be explained "by defendant uncertainty as to whether or not the suit is an NEV one"); Avery Katz, The Effect of Frivolous Lawsuits on the Settlement of Litigation, 10 INT'L REV. L. & ECON. 3, 4 (1990) ("The main reason that frivolous suits are not always met with a blanket denial and refusal to negotiate, of course, is that the defendant rarely knows the merits of the claim with certainty."). Robert Bone has discussed Katz's model of "informed-plaintiff information asymmetries and has modeled as well asymmetries in which defendants are aware of a suit's flaws but plaintiffs are uninformed. See Bone, supra note 129, at 524 ("Frivolous litigation is most likely to occur under conditions of asymmetric information."). David Rosenberg and Steven Shavell have modeled "nuisance value" suits that both parties view to be meritless, but which may nonetheless profit plaintiffs because the timing and extent of litigation effort favors them. See David Rosenberg & Steven Shavell, A Model in Which Suits are Brought for Their Nuisance Value, 5 INT'L REV. L. & ECON. 3 (1985).
178. See Bebchuk, supra note 94, at 439; Katz, supra note 133, at 4.
179. See Brazil, supra note 67, at 225 (noting that because discovery is so expensive, attorneys often advise clients to forego discovery and settle, even where they suspect that opponents may be hiding information). If defendants fear that settling when they are uninformed will invite more meritless suits and ultimately cost them more than their saved litigation costs, then defendants will refuse to settle and meritless filings will cause harm not by transferring wealth unjustly from defendants to plaintiffs, but rather principally because of the extra litigation costs defendants will incur to defend both meritorious and meritless cases. See Bebchuck, supra note 94, at 441; Bone, supra note 129, at 549. Only if defendants consistently refused to settle where they are uninformed would plaintiffs be discouraged from knowingly filing meritless cases in the first place. However, Katz has demonstrated that the greater the defendants' litigation costs, the more likely it is that plaintiffs will file meritless suits (because defendants will be willing to settle a greater percentage of them). See Katz, supra note 133, at 14. The unreasonably high costs of litigation outlined in Part II, and plaintiffs' power to inflict litigation costs on defendants through discovery, thus support the intuition that plaintiffs sometimes knowingly file and profit from meritless cases.
180. Indeed, the scholarship cited in the preceding and succeeding footnotes discusses the relevant issues from the perspective of plaintiffs who pay hourly fees, rather than that of plaintiffs' attorneys deciding whether to work for a contingent fee.
181. Robert Bone analyzes an uninformed plaintiff's decision either to investigate a claim before filing or else to file a potentially meritless claim and bear the risk of litigating a case that might lose. See Bone, supra note 129, at 559-63. He identifies three different equilibria: (1) an "investigation equilibrium" in which plaintiffs always investigate because investigation costs are low relative to discovery costs; (2) a "filing equilibrium" in which plaintiffs always file without investigating because investigation costs are high relative to discovery costs; or (3) a "mixed equilibrium" in which plaintiffs investigate sometimes and file sometimes, based on more closely aligned investigation and discovery costs. See id. Under the filing and mixed equilibria, Bone explains, defendants incur greater litigation costs than they would if plaintiffs were to investigate before filing, because defendants have to incur expense defending some meritless cases (although under the mixed equilibrium defendants may recoup some of that expense by inducing uninformed plaintiffs to drop some meritorious cases). See id. Because of the discovery and non-fee-shifting rules outlined in Part II, cases at the "investigation equilibrium" may be much fewer than Bone envisions and cases at the socially costly "filing equilibrium" much more numerous. Bone fails to take into account that even where prefiling investigation costs are quite small (and plaintiffs expect defendants to refuse to settle meritless claims), plaintiffs might still file claims without any investigation in order to shift investigation costs (via discovery) to defendants. In a system of litigation in which the opponent bears the costs of investigation once a complaint is filed, it may be cheaper for plaintiffs to file than to investigate. See Alexander, supra note 113, at 548-49 (discussing plaintiffs' ability to take advantage of one-sided discovery); Sofaer, supra note 67, at 723 (same).
182. See Clermont & Currivan, supra note 93, at 571-72; Rowe, Predicting the Effects, supra note 76, at 152.
183. See Clermont & Currivan, supra note 93, at 571-72; Rowe, Predicting the Effects, supra note 76, at 152.
184. See Brazil, supra note 67, at 226.
185. Plaintiffs who pay their attorneys an hourly fee have neither the close control over their own expenditures, nor the multitude of available lawsuits, to make this strategy profitable.
186. Rosenberg and Shavell's article provides an economic analysis of why plaintiffs may file suits that both sides know to be meritless from the outset. See Rosenberg & Shavell, supra note 133, at 3.
187. In his attempt to avoid devoting too many resources to these cases at the outset, the plaintiffs' attorney would have to be careful not to file suits that are so patently frivolous as to invite sanctions under Federal Rule of Civil Procedure 11 or the state law equivalent. See FED. R. CIV. P. 11; cf. infra Part V (discussing modifications of the Rule 11 standard that could discourage meritless filings).
188. See supra Part III.C.
189. See Kritzer et al., supra note 58, at 271; supra Part III.B.2.
190. See Alexander, supra note 113, at 548-49; Sofaer, supra note 67, at 723.
191. See Gross & Syverud, supra note 88, at 350-51 (noting that obligation may stem from ethics rules or simply from a wish to preserve the attorney's reputation among potential clients).
192. See supra Part I.
193. See Kaplow, supra note 33, at 309 (noting that "greater accuracy [in adjudication] is valuable only to the extent it involves dimensions about which individuals are informed at the time they act").
194. Of course an actor may alter his actions based upon the fear that a certain rule will apply even if he does not know for sure that it will apply. The text does not equate foreseeability with certainty. For an in-depth analysis of the effects of uncertainty on deterrence incentives, see generally Calfee & Craswell, supra note 4. See also Grady, supra note 33, at 806 (criticizing conventional negligence theory's "assumption that injurers can always identify with perfect certainty the precaution level that courts will determine to be" reasonable). For a discussion of the effects of uncertainty on a plaintiffs decision to sue, see Bebchuk & Chang, supra note 76, at 373 (discussing effects of different fee-shifting regimes where the "outcome of trial is unlikely to be certain to the plaintiff when it decides whether to sue").
195. Alaska, however, has a modified version of the English fee-shifting rule. See ALASKA R. CIV. P. 82 (setting forth schedule of fees that may be awarded to a successful plaintiff, but leaving judge to decide on fees to be awarded to a successful defendant).
196. Or it may obey the law for other reasons, such as a sense of doing the right thing or avoiding damage to its reputation.
197. See STEPHEN G. BREYER, BREAKING THE VICIOUS CIRCLE 16, 33 (1993) (noting the difficulty we have with managing very small risks and the psychological desire to assign blame to a definite cause). Unfortunately, not only these potential plaintiffs, but also juries, judges, and society generally, may have difficulty weighing scientific evidence to determine what actually caused these ailments.
198. In addition, the company will take into account that other drug makers have been held liable for medical ailments where the evidence of causation was quite weak. See PETER W. HUBER, GALILEO'S REVENGE: JUNK SCIENCE IN THE COURTROOM 1-2 (1991) (noting instances in which legal causation has been found despite strong scientific evidence to the contrary).
199. See supra Part I.B.
200. See supra Part I.B.
201. Even if a company cannot disprove causation simply by pointing to its safety precautions, its ability to point to these precautions may nevertheless improve its posture before a jury and lessen the verdict against it, for example, by eliminating punitive damages. See Calfee & Craswell, supra note 4, at 987.
202. See CALABRESI, supra note 6, at 50-54 (distinguishing two arguments in favor of enterprise liability: (1) "plac[ing] losses on those categories of people who are most likely to insure," and (2) "placing losses on those who are in a position to pass part of the loss on to purchasers of their products or to factors employed in the production of their products").
203. Tort law does, however, provide more extensive compensation than private insurance. If someone wanted more complete coverage, he or she could, in theory, purchase an insurance policy that would cover such items as pain and suffering. However, such an option is not typically available in practice. On the other shortcomings of private insurance as compared to tort liability, see id. at 55-64.
204. See supra Part I.A.
205. See supra Part I.B.
206. When we are confronted with a calamity, our desire to understand the cause is strong. See BREYER, supra note 152, at 16, 33. Nevertheless, it is unfair to lay blame prematurely, without sufficient evidence, simply in order to satisfy this psychological need for definite answers.
207. See generally KEETON ET AL., supra note 7, §62, at 432-33 (noting that a general negligence standard has replaced the traditional varying degrees of care owed to entrants upon land).
208. Indeed, the construction company would factor anticipated litigation and settlement costs (if it self-insures) or the liability insurance premiums that cover these costs (if it purchases insurance) into its construction bids.
209. True, if defendants have difficulty distinguishing between meritless and meritorious cases, this might lead defendants not only to offer too much for meritless cases, but also to offer less for meritorious cases than it otherwise would - that is, to reduce settlement offers in those cases where they truly were negligent. See Bebchuk, supra note 93, at 441. However, this would not decrease the total amount that defendants ultimately have to pay, but rather would simply increase the rate at which meritorious cases go to trial. See id.
210. See Viscusi, supra note 91, at 327-28.
211. See supra Part LC (noting the similarities between negligence and strict liability regimes).
212. Nor will a repeat defendant avoid the extra cost of litigating fault simply by ignoring the negligence standard and paying settlements as if it were operating in a strict liability regime. As discussed earlier, a defendant who adopts such a strategy of settling without regard to the merits would invite plaintiffs to file more weak and meritless cases. See supra Part III.C.
213. See HORWITZ, supra note 27, at 97-101 (explaining how a negligence standard historically has subsidized "those who undertook schemes of economic development").
214. Indeed, although he does not focus upon it, Calabresi recognizes the connection: "The differences between primary and secondary accident costs are not fixed nor are they always clear. . . . The same is true with respect to tertiary accident costs." CALABRESI, supra note 6, at 29.
215. Put another way, a portion of accident costs are never transferred to the entity best able to spread those costs over the relevant activity's beneficiary (the defendant), but instead remain with the plaintiff.
216. The English requirement that the losing tortfeasor pay his victim's attorney's fees is consistent with this sentiment. For a discussion of the
217. See CALABRESI, supra note 6, at 26; Calabresi & Hirschoff, supra note 14, at 1060. General insurance, after all, can compensate individual tort victims and thereby spread accident costs.
218. In fact, if the costs of litigation were factored into the Hand Formula for negligence, some otherwise nonnegligent conduct would become actionable under a negligence standard. See supra note 11 (explaining the Hand formula).
219. In contract law, by contrast, contracting parties can minimize the litigation costs of a subsequent breach by including an arbitration clause in the contract. Cf. Weston, supra note 31, at 930 (describing the effect of Coase's analysis on tort theory and noting that because in the field of tort law "Coasian ex ante bargaining . . . is foreclosed in practice by transaction costs, the role of the court is to approximate, through its liability rules, the bargain that those parties would have reached").
220. See generally KEETON ET AL., supra note 7, § 99, at 699-700 (describing the risk-utility test for products liability).
221. See supra Part II.B.
222. And, even if it opts for the greatest safety possible, it may still face a weak lawsuit from someone who has misused the saw in such an unforeseeable way as to preclude a valid claim, see KEETON ET AL., supra note 7, § 102, at 712, but who nevertheless hopes to obtain some settlement from the toolmaker.
223. This is not to say that under our system of litigation a defendant's litigation expenses necessarily will exceed what both parties' lawyers and the judiciary would cost in an efficient system. If that were so, then even if defendants paid nothing for meritless cases, litigation costs in meritorious cases (i.e., where causation is established) alone would produce overdeterrence. Rather, the argument here is that some litigation expense might reasonably be treated not as part of the costs of accidents, but rather as costs of rules that govern discovery, fee shifting, and contingent fees. The costs of these rules should, together, be weighed against their collective benefits (e.g., an injured person's access to justice). To the extent that some of these "external" costs are, instead, simply imposed upon defendants, they lead to overdeterrence.
224. It is also unfair to plaintiffs. To the extent that our litigation rules preclude plaintiffs from paying reasonable attorneys' fees on an hourly basis, and lead them instead to hire contingency attorneys, these rules unfairly deprive plaintiffs of much of the compensation to which they are entitled.
225. See supra notes 25-31 and accompanying text.
226. See KEETON ET AL., supra note 7, §9, at 40 (stating that "it is better for unexpected losses to fall upon the intentional wrongdoer than upon the innocent victim").
227. See id, §43, at 280 (describing "two basic, fundamental, opposing and irreconcilable views").
228. Such a principle is embodied in the tort doctrines of contributory or comparative negligence, as well as in the contract doctrine of the duty to mitigate one's damages.
229. See supra Part II.A-B. Of course, it is equally unfair for defendants to inflict such unreasonably high litigation expenses on plaintiffs.
230. See sources cited supra note 1.
231. See generally sources cited supra note 1.
232. To evaluate the procedural system's overall impact on defendants' pocketbooks, one would have to examine also the procedural rules that affect settlement amounts by affecting the likely verdict, such as rules governing selection of forum and fact finder - that is, jurisdiction and venue, the right to ajury trial, and jury selection. Although these rules influence settlement amounts as much as the rules addressed by this Article, their effect on settlement often depends upon the facts of particular cases. For example, estimating the effect of a jury versus a bench trial, or ajury pooled from one locality versus another, may often be a matter of speculation about the likely attitude of a particular fact finder toward particular parties and facts. Nonetheless, if a securities dealer or drug company does business throughout the country and anticipates complicated financial or science-based causes of action, then it will expect long-arm statutes and jury trials to increase its liability. Lawyers generally predict that jurors are more sympathetic to individuals than to large institutions, more sympathetic to locals with similar racial or ethnic backgrounds or with whom they can otherwise identify, and have greater difficulty than judges in evaluating complex commercial or scientific evidence. See, e.g., WALTER F. ABBOTT ET AL., JURY RESEARCH § 4.08, at 22 (1993) ("It is conventional wisdom among attorneys that similarity between client and juror is desirable on the grounds that this similarity encourages identification of the juror with the client."); id. § 7.03(d), at 65-66 (summarizing sources on jurors' ability to evaluate complex evidence); Neil Vidmar, Empirical Evidence on the Deep Pockets Hypothesis: Jury Awards for Pain and Suffering in Medical Malpractice Cases, 43 DUKE L.J. 217, 218 (1993) ("Physicians, liability insurers, and commentators critical of the American tort system frequently raise the argument that juries are biased against doctors and hospitals."). Although there is debate over the accuracy of many lawyers' assumptions about juries, such as the ones noted above, see, e.g., Kenneth J. Chesebro, Galileo 's Retort: Peter Huber 's Junk Scholarship, 42 AM. U. L. REV. 1637, 1700 & n.293 (1993) (citing sources), the prevalence of these attitudes can affect settlement amounts regardless of whether they are accurate.
233. To evaluate the procedural system's overall impact on defendants' pocketbooks, one would have to examine also the procedural rules that affect settlement amounts by affecting the likely verdict, such as rules governing selection of forum and fact finder - that is, jurisdiction and venue, the right to ajury trial, and jury selection. Although these rules influence settlement amounts as much as the rules addressed by this Article, their effect on settlement often depends upon the facts of particular cases. For example, estimating the effect of a jury versus a bench trial, or ajury pooled from one locality versus another, may often be a matter of speculation about the likely attitude of a particular fact finder toward particular parties and facts. Nonetheless, if a securities dealer or drug company does business throughout the country and anticipates complicated financial or science-based causes of action, then it will expect long-arm statutes and jury trials to increase its liability. Lawyers generally predict that jurors are more sympathetic to individuals than to large institutions, more sympathetic to locals with similar racial or ethnic backgrounds or with whom they can otherwise identify, and have greater difficulty than judges in evaluating complex commercial or scientific evidence. See, e.g., WALTER F. ABBOTT ET AL., JURY RESEARCH § 4.08, at 22 (1993) ("It is conventional wisdom among attorneys that similarity between client and juror is desirable on the grounds that this similarity encourages identification of the juror with the client."); id. § 7.03(d), at 65-66 (summarizing sources on jurors' ability to evaluate complex evidence); Neil Vidmar, Empirical Evidence on the Deep Pockets Hypothesis: Jury Awards for Pain and Suffering in Medical Malpractice Cases, 43 DUKE L.J. 217, 218 (1993) ("Physicians, liability insurers, and commentators critical of the American tort system frequently raise the argument that juries are biased against doctors and hospitals."). Although there is debate over the accuracy of many lawyers' assumptions about juries, such as the ones noted above, see, e.g., Kenneth J. Chesebro, Galileo 's Retort: Peter Huber 's Junk Scholarship, 42 AM. U. L. REV. 1637, 1700 & n.293 (1993) (citing sources), the prevalence of these attitudes can affect settlement amounts regardless of whether they are accurate.
234. To evaluate the procedural system's overall impact on defendants' pocketbooks, one would have to examine also the procedural rules that affect settlement amounts by affecting the likely verdict, such as rules governing selection of forum and fact finder - that is, jurisdiction and venue, the right to ajury trial, and jury selection. Although these rules influence settlement amounts as much as the rules addressed by this Article, their effect on settlement often depends upon the facts of particular cases. For example, estimating the effect of a jury versus a bench trial, or ajury pooled from one locality versus another, may often be a matter of speculation about the likely attitude of a particular fact finder toward particular parties and facts. Nonetheless, if a securities dealer or drug company does business throughout the country and anticipates complicated financial or science-based causes of action, then it will expect long-arm statutes and jury trials to increase its liability. Lawyers generally predict that jurors are more sympathetic to individuals than to large institutions, more sympathetic to locals with similar racial or ethnic backgrounds or with whom they can otherwise identify, and have greater difficulty than judges in evaluating complex commercial or scientific evidence. See, e.g., WALTER F. ABBOTT ET AL., JURY RESEARCH § 4.08, at 22 (1993) ("It is conventional wisdom among attorneys that similarity between client and juror is desirable on the grounds that this similarity encourages identification of the juror with the client."); id. § 7.03(d), at 65-66 (summarizing sources on jurors' ability to evaluate complex evidence); Neil Vidmar, Empirical Evidence on the Deep Pockets Hypothesis: Jury Awards for Pain and Suffering in Medical Malpractice Cases, 43 DUKE L.J. 217, 218 (1993) ("Physicians, liability insurers, and commentators critical of the American tort system frequently raise the argument that juries are biased against doctors and hospitals."). Although there is debate over the accuracy of many lawyers' assumptions about juries, such as the ones noted above, see, e.g., Kenneth J. Chesebro, Galileo 's Retort: Peter Huber 's Junk Scholarship, 42 AM. U. L. REV. 1637, 1700 & n.293 (1993) (citing sources), the prevalence of these attitudes can affect settlement amounts regardless of whether they are accurate.
235. See supra Part III.A-B.
236. More efficient litigation rules also might help to ensure that plaintiffs' recoveries are more complete: if litigation were less expensive, some plaintiffs' attorneys might be willing to lower their contingent fees. Moreover, even if attorneys did not lower their fees, they would be willing to accept smaller cases for the same percentage fee. As a result, plaintiffs would be able to buy more effective representation for their money (and plaintiffs with the smallest of cases would have an easier time finding counsel who are willing to represent them).
237. See supra Part II.B (noting that if it were not misused, discovery would promote accurate settlement).
238. See supra Part III. A (noting the effect of fee shifting on risk-averse plaintiffs). If a fee-shifting regime were structured so that a losing contingent-fee plaintiff's attorney, rather than the plaintiff himself, were forced to bear the prevailing defendant's legal fees, this would alleviate, but not eliminate, the problem. See Smith, supra note 76, at 2167 ("The risk of indemnification will undoubtedly deter some plaintiffs from pursuing borderline claims, but attorneys burdened with indemnification would reject many such claims anyway.").
239. See supra Part III.A.
240. In England, a member of a family earning as much as $45,000 can qualify for legal aid, while in America, a member of a family of four must earn less than $14,562 (or less than $7212 if living alone) in order to qualify. See Vargo, supra note 76, at 1607 (citing Marianne W. Young, Note, The Need for Legal Aid Reform: A Comparison of English and American Legal Aid, 24 CORNELL INT'L L.J. 379,396 (1991)).
241. See id.
242. See id. Even if he does not qualify for legal aid, a plaintiff may qualify for trade-union funding, in which case the plaintiff is insulated from all legal fees whether he wins or loses, but the trade union must pay the defendant's legal fees if the plaintiff loses. See id. at 1608.
243. See id. at 1607.
244. Compare Conditions and Fees, 143 NEW L.J. 1665 (1993) (noting the potential problems of conditional-fee arrangements, including, inter alia, denigration of the legal profession's image, and litigants' loss of significant amounts of money), with David Bedingfield, The Contingency Fee System in America, 143 NEW L.J. 1670 (1993) (stating that contingency and conditional-fee arrangements open the courthouse door and give injured parties their day in court in as cheap a manner as possible). It is also worth noting that the English fee shift is not a complete fee shift. The courts distinguish between "solicitor-client" costs - the amount the client agrees to pay his attorney - and "party-party" costs - the amount that the court deems necessary to litigate the case. Party-party costs average about two-thirds of solicitor-client costs. See Vargo, supra note 76, at 1606 (citing GENN, supra note 83, at 34). The fact that only party-party costs are shifted decreases somewhat the hardship of losing at trial because the loser need not pay unnecessary fees. Australia's system represents another hybrid. While Australia has adopted the English fee-shifting rule, Australia moderates this rule by allowing solicitors to accept cases on a "spec" basis, under which they will receive an amount higher than their usual rate if they win (though not a percentage of the amount of the judgment). Moreover, although clients must remain responsible for out-of-pocket legal expenses, solicitors may loan plaintiffs the expenses necessary to pursue their claims. Legal aid, however, is largely unavailable. See id. at 1613-17.
245. Compare Conditions and Fees, 143 NEW L.J. 1665 (1993) (noting the potential problems of conditional-fee arrangements, including, inter alia, denigration of the legal profession's image, and litigants' loss of significant amounts of money), with David Bedingfield, The Contingency Fee System in America, 143 NEW L.J. 1670 (1993) (stating that contingency and conditional-fee arrangements open the courthouse door and give injured parties their day in court in as cheap a manner as possible). It is also worth noting that the English fee shift is not a complete fee shift. The courts distinguish between "solicitor-client" costs - the amount the client agrees to pay his attorney - and "party-party" costs - the amount that the court deems necessary to litigate the case. Party-party costs average about two-thirds of solicitor-client costs. See Vargo, supra note 76, at 1606 (citing GENN, supra note 83, at 34). The fact that only party-party costs are shifted decreases somewhat the hardship of losing at trial because the loser need not pay unnecessary fees. Australia's system represents another hybrid. While Australia has adopted the English fee-shifting rule, Australia moderates this rule by allowing solicitors to accept cases on a "spec" basis, under which they will receive an amount higher than their usual rate if they win (though not a percentage of the amount of the judgment). Moreover, although clients must remain responsible for out-of-pocket legal expenses, solicitors may loan plaintiffs the expenses necessary to pursue their claims. Legal aid, however, is largely unavailable. See id. at 1613-17.
246. See FED. R. CIV. P. 68.
247. See COMMITTEE ON RULES OF PRACTICE AND PROCEDURE, ADMIN. OFFICE OF THE U.S. COURTS, PRELIMINARY DRAFT OF PROPOSED AMENDMENTS TO THE FEDERAL RULES OF CIVIL PROCEDURE (1983), reprinted in 98 F.R.D. 337, 361-63 (1983) (proposing amendments to Federal Rule of Civil Procedure 68); Rowe, supra note 5, at 895-96; Mary A. Hackett et al., Note, Rule 68: An Offer You Can't Afford to Refuse, 37 RUTGERS L. REV. 373, 379-82 (1985) (comparing the federal rule with N.J. CT. R. 4:58). Geoffrey Miller and David Anderson have provided an economic analysis of such a modified Rule 68. See Anderson, supra note 83, at 236-40; Miller, supra note 83, at 117-25. Although economic modeling casts doubt upon the ability of Rule 68, and its various permutations, to encourage settlement where parties otherwise would not settle, see Anderson, supra note 83, at 240, this Article endorses amendments to Rule 68, not in order to encourage additional settlements (which are sufficiently prevalent), but rather to promote more accurate deterrence. A modified Rule 68 could contribute to this goal by assuring defendants ex ante that their tort-related payments ex post will depend upon the merits of cases, rather than upon the expense of litigation.
248. It is true that under a modified Rule 68, defendants would structure their behavior ex ante based not only on the likelihood of winning lawsuits (which would be a positive development) but also on the likelihood that they will be able to make accurate settlement offers in meritorious cases and thereby evade much of litigations's expense. See generally Calfee & Craswell, supra note 4 (describing effects of uncertainty on compliance levels of potential defendants). But if defendants are at all able to predict the likely costs and benefits of their actions ex ante (as our tort system assumes they can) then defendants should have some confidence in their ability to estimate a victim's injuries (and the jury's likely verdict) once those injuries have occurred. But cf. Gross & Syverud, supra note 100, at 46-50 (seeking to explain why trial outcomes generally do not strike a compromise between parties' settlement positions).
249. Cf. Miller, supra note 83, at 123-25. Plaintiffs and their attorneys would be free to work out for themselves who would bear defendants' postoffer fees in case of a loss, and to adjust their fee arrangement accordingly.
250. See Hackett et al., supra note 199, at 399.
251. Although parties would retain the right to proceed to trial, the judge would essentially decide that if they do so and do not improve their position, they should bear the full costs of their decision to proceed. Cf. Alschuler, supra note 107 (proposing a two-tier trial system in which a magistrate or master would conduct an abbreviated trial and parties would have the right to pursue fuller discovery and a jury trial, but the parties would also be required to bear the government's costs of trial if they did not improve their position). Permitting judges to weigh evidence would not be unprecedented, as judges have long been empowered to weigh evidence when setting aside verdicts and granting new trials. See Young B. Smith, The Power of the Judge to Direct a Verdict: Section 457-a of the New York Civil Practice Act, 24 COLUM. L. REV. 111, 116-17 (1924) (chronicling the history of new trials and directed verdicts and discussing a New York rule that would allow judges to weigh evidence even when directing a verdict).
252. If, for example, a defendant were to offer one dollar to settle a meritorious, but close, case, this would not entitle him to all postoffer legal fees if he wins.
253. See Cooter & Rubinfeld, supra note 60, at 455-57.
254. In the law and economics literature Bebchuk and Chang, and Polinsky and Rubenfeld have modeled various forms of sanctions for frivolous litigation and Marshall, Kritzer, and Zemans provide empirical background confirming the effectiveness of Rule 11. See Bebchuk & Chang, supra note 76; Marshall et al., supra note 105; A. Mitchell Polinsky & Daniel L. Rubenfeld, Sanctioning Frivolous Suits: An Economic Analysis, 82 GEO. L.J. 397 (1993). In order to provide plaintiffs with appropriate incentives to bring meritorious but not meritless suits, Bebchuk and Chang advocate a Rule 11 regime that takes into account not only the strength or weakness of a claim, but a plaintiff's incentive to bring the claim in the first place; sanctions thus would be imposed less frequently for categories of lawsuits that are socially useful but expensive for plaintiffs to pursue. See Bebchuk & Chang, supra note 76, at 394-402. Polinsky and Rubenfeld propose a regime of "decoupled" sanctions in which the moving party receives a portion of any sanction imposed upon his opponent, and the judicial system receives the remainder; this would provide parties with incentives to bring bad acts to the court's attention and thus achieve efficient deterrence of frivolous suits, but would avoid inducing parties to devote too much effort to satellite Rule 11 litigation. See Polinsky & Rubenfeld, supra, at 417-19. Marshall, Kritzer, and Zemans conducted lawyer surveys revealing that in practice Rule 11 does not give rise to inordinately expensive satellite litigation and thus is an efficient way to deter frivolous claims and defenses. See Marshall et al., supra note 105, at 958-60, 985. Indeed 60% of attorneys reported that in the preceding year thay had altered their behavior (e.g., by foregoing a claim or defense or conducting additional review) because of the threat of sanctions posed by Rule 11. See id. at 960-61.
255. The willingness of judges to impose Rule 11 sanctions (and parties to move for them) varies from district to district. See Marshall et al., supra note 105, at 976-79. Rule 11 sanctions are imposed more frequently in metropolitan areas than in nonurban or mid-sized urban districts. See id. This may be due to the differences in attorney conduct and corresponding differences in the need for Rule 11 sanctions, or else to different thresholds before Rule 11 sanctions will be imposed. Although the survey suggests that "a good degree of lawyerly reaction to Rule 11 is not tailored to the actual risk that lawyers face but is based more on general reaction to the rhetoric about the threats that the Rule creates," id. at 978-79, this Article proposes a Rule 11 standard that may contribute to a more uniform application of the Rule throughout the nation.
256. FED. R. CIV. P. 11.
257. See 2 JAMES WM. MOORE ET AL., MOORE'S FEDERAL PRACTICE § 11App.101[2] (3d ed. 1997) (explaining how the 1983 amendment changed the standard of conduct an attorney must follow from subjective good faith to an objective standard of conduct).
258. Committee on Rules of Practice and Procedure, Attachment B to Letter from Sam C. Pointer, Jr., Chairman, Advisory Committee of Civil Rules, to Hon. Robert E. Keeton, Chairman, Standing Committee on Rules of Practice and Procedure (May 1, 1992), reprinted in SUPREME COURT OF THE U.S., AMENDMENTS TO FEDERAL RULES OF CIVIL PROCEDURE AND FORMS, H.R. DOC. NO. 103-74 (1993), reprinted in 146 F.R.D. 401, 522-25 (1993).
259. Id. at 524 (offering notes regarding proposed amendments to Federal Rule of Civil Procedure 11).
260. But see AMENDMENTS TO THE FEDERAL RULES OF CIVIL PROCEDURE (Scalia, J., dissenting) (criticizing safe harbor), in SUPREME COURT OF THE U.S., supra note 211, reprinted in 146 F.R.D. at 507-08.
261. Survey evidence reveals that the threat of Rule 11 sanctions led 32.3% of plaintiffs' attorneys to conduct "extra prefiling review of pleadings, motions or other documents subject to Rule 11," as compared to 39.6% of defendants' attorneys (who have incentives in any event to work additional hours where they are paid by the hour). Marshall et al., supra note 105, at 962-64 (emphasis in original). Although Rule 11 as currently applied thus has a significant effect on attorney behavior, this Article's proposed increase in emphasis on profiling investigation might lead plaintiffs' attorneys even more often to avoid filing potentially meritless lawsuits without learning enough first to know whether discovery is reasonably likely to reveal supporting evidence.
262. In contrast, defendants themselves bear responsibility for meritorious suits.
263. See supra note 137 (describing uninformed plaintiffs' incentives to shift investigation costs to defendants by filing lawsuits and thereby becoming entitled to discovery).
264. See Bebchuk & Chang, supra note 76, at 394-402 (suggesting that Rule 11 analysis consider a plaintiff's initial incentives to file or forego different types of legal claims, so that sanctions discourage abusive suits without inhibiting desirable, though perhaps novel or expensive, claims); see also Hay, supra note 60, at 483 (noting that private incentives and social incentives may differ, and that even if a discovery request does not increase the value of the requesting party's claim sufficiently to justify its cost, the request may nevertheless be socially efficient if it induces defendants to take precautions against inflicting harm); cf. Bone, supra note 129, at 591-92 (noting that in the informed-defendant model, only a modest penalty is needed to deter frivolous suits, and that excessive penalties might inhibit weak but meritorious claims).
265. See Sofaer, supra note 67, at 723 (noting that "[d]iscovery is . . . made costly because of the legal theories on which courts have permitted suits to proceed" and because "plaintiffs [may] file complaints in which they need do little more than allege an injury that is believed to have resulted from some dangerous instrumentality or activity, . . . [a practice which] will generally entitle them to search for an explanation through discovery").
266. But cf. Sugarman & Perlin, supra note 66, at 1482 (criticizing the Council on Competitiveness's recommendation tying discovery requests to pleadings, and calling it "a rule departing from notice pleading and renewing reliance on factual allegations").