Litigation Settlement Research Articles

The Costs of Corporate Litigation in Australia

This paper presents the results of a study that measures the costs associated with litigation for plaintiff and defendant companies for a sample of companies listed on the Australian Securities Exchange. The study uses event study methodology to examine the effects of litigation initiation announcements, settlement announcements and judgment announcements. The study also examines whether the impact of an announcement is related to the type of plaintiff (such as corporate plaintiff or a government plaintiff) and whether the impact differs according to the type of legal claim (such a breach of contract, a trade practices matter, an intellectual property infringement or securities fraud).

Red Flag or Red Herring? Reverse Payments and the Settlement of Pharmaceutical Patent Litigation

(2008). Red Flag or Red Herring? Reverse Payments and the Settlement of Pharmaceutical Patent Litigation. European Competition Journal: Vol. 4, No. 2, pp. 541-560.

Litigation Settlements, Market Expectations, and Financial Distress Costs

This study examines stock returns around announcements of litigation settlements to investigate the market expectations of corporate litigation outcomes and the importance of financial distress costs. Prior research regards a settlement as an exogenous shock; however, this study draws from analytical models in the economics literature to analyze how the market forms expectations prior to settlements and how these expectations affect market reactions after the announcement of a settlement. Consistent with the implications of these models, we find that returns around settlements are more positive when higher-stakes lawsuits are settled. We also find evidence of the existence of financial distress costs, although our results contradict a conclusion drawn in prior research — that the primary benefit of litigation settlements is the unexpected relief from financial distress.

Litigation Risk and Executive Compensation

Standard principal-agent theory predicts that the pay-performance sensitivity (PPS) decreases in the risk of the firm. An alternative literature argues that entrenched executives as in weak governance firms use compensation contract to extract the rent, which renders risk irrelevant. This paper uses event study approach to test both principal-agent model and CEO power theory by examining how litigation events affect executive compensation. We examine how the litigation event affects both executive compensation incentive (PPS) and the compensation composition (equity pay versus cash pay). Consistent with principal-agent model prediction, we find that, after the initiation of litigation, PPS drops, performance-invariant component of the compensation (cash) increases and performance sensitivity component compensation (equity) decreases. Complementing analysis using litigation settlement as risk decreasing event provides further evidence that PPS increases after settlement and compensation shifts from cash back to equity. To test CEO power theory, we partition the event firms into firms with good and bad corporate governance. We find that the PPS in firms with bad corporate governance increases after lawsuit and decreases after the settlement, consistent with the story that litigation brings the bad compensation practice of poorly governed firms under the and forces firms to discipline their CEOs more during the litigation period. Overall, our empirical evidence shows that for the overall sample and particularly for the subsample of firms with good corporate governance, compensation pattern changes around corporate litigation are consistent with the predictions of standard principal agent theory. That being said, CEO power does seem to also play a role, as firms with bad corporate governance exhibit a pattern that is more consistent with a limelight effect around the litigation events.

What the Multidistrict Litigation Settlements Mean to Your Practice.

What the Multidistrict Litigation Settlements Mean to Your Practice.

The Market for Bad Legal Advice: Academic Professional Responsibility Consulting as an Example

Clients demand bad legal advice when legal advice can favorably influence third-party conduct or attitudes even when it is wrong. Lawyers supply bad legal advice most readily when they are substantially immunized from accountability to the people it is intended to influence. Both demand and supply conditions for a flourishing market are in place in several quarters of the legal system. The resulting practices, however, are in tension with basic professional and academic values. I demonstrate these tensions through critiques of the work of academic professional responsibility consultants in such matters as Enron, Lincoln Savings & Loan, and a heretofore undiscussed aggregate litigation settlement. I also suggest reforms to reduce the incentives and pressures for bad advice that now prevail.

Judicial Review of Class Action Settlements

Judicial Review of Class Action Settlements

Drug Patent Settlements Between Rivals: A Survey

This survey provides a detailed account of patent settlements reached between brand-name drug companies and their generic rivals over the past fourteen years, and the antitrust suits and investigations initiated in response. Thirty settlements of patent litigation involving twenty drugs fall within the scope of the study. Three patterns emerge from the data. First, antitrust activity in this area has continued to expand, including more than a dozen pending antitrust suits and agency investigations. Second, repeat players have emerged. Third, settlements have grown more sophisticated, particularly through the emergence of a second wave of settlements that avoids the mistakes of the first wave.For an updated analysis based upon this survey, drawing upon a new dataset of 143 brand-generic settlements, see An Aggregate Approach to Antitrust: Using New Data and Rulemaking to Preserve Drug Competition, Columbia Law Review (2009), http://ssrn.com/abstract=1356530.

Practice Management Tip: Multi-district Litigation Settlements

Multi-district litigation settlements

D&O Update Litigation: Be careful what you wish for: The unintended effects of the Private Securities Litigation Reform Act of 1995

Corporations lobbied for the passage of the Private Securities Litigation Reform Act of 1995 (PSLRA) to limit private enforcement of the US securities laws. While the PSLRA has achieved this goal to a certain extent, it has also impacted securities litigation, and related Employee Retirement Income Security Act (ERISA) and derivative litigation, in ways that its proponents never intended. This paper discusses the impact of institutional investor participation in securities litigation, which increased significantly as a result of lead plaintiff provisions in the PSLRA that evince an intent to have institutional investors play a larger role in securities cases. Specifically, the paper focuses on the ability of institutional investors to obtain corporate governance reforms and the contribution of personal funds by outside directors, as components of securities litigation settlements. The paper also provides an overview of ERISA actions that are often litigated in parallel with securities fraud actions. While these actions concern different legal theories, pleading standards and damages formulations to those of securities actions, there is an interplay between the two types of actions in at least two major areas — settlement and discovery. Indeed, the presence of parallel ERISA litigation in several high-profile securities actions has enabled the securities plaintiffs to obtain relief from the PSLRA's discovery stay allowing them to have early access to any materials that have been produced to the ERISA plaintiffs.

Andrx v Elan: The Eleventh Circuit Applies its Schering-Plough v FTC Decision

Keywords antitrust, Sherman Act, Noerr–Pennington doctrine, Schering-Plough Corp v FTC,, ANDA litigation settlement agreements

Leading Horses to Water: The Impact of an ADR “Confer and Report” Rule

This study examines the effects of a rule requiring lawyers to confer with opposing counsel regarding settlement and ADR early in litigation and to report the results of that discussion to the court. A comparison of civil litigators' practices before and after the rule was adopted showed no apparent increase in early discussions or in early settlements, the rule's ultimate goal. Enforcing the requirement to report to the court did not seem to affect whether lawyers held early discussions, but did seem to increase the likelihood that lawyers filed that report. The article concludes by exploring what the findings of this and other studies suggest about the potential effectiveness of “confer and report” rules as well as other means of facilitating earlier discussions and settlements.

Managerial Opportunism During Corporate Litigation

Using a large sample of litigation events involving publicly listed defendants, we document a surprising fact. The resolution of litigation through a court's decision dominates settlement of litigation from the shareholders point of view; even when the firm loses. We develop a model using agency costs within the firm to explain why the market views settlement as a negative outcome on average, and find empirical evidence supporting the implications of the model. Specifically, firms with weak corporate governance settle litigation more quickly, and the market reacts more negatively to settlements involving firms with higher agency costs.

Managerial Opportunism during Corporate Litigation

ABSTRACTUsing a large sample of litigation events involving publicly listed defendants, we document a surprising fact. The resolution of litigation through a court's decision dominates settlement of litigation from the shareholders' point of view, even when the firm loses. We develop a model using agency costs within the firm to explain why the market views settlement as a negative outcome on average and find empirical evidence supporting the implications of the model. Specifically, firms with weak corporate governance settle litigation more quickly, and the market reacts more negatively to settlements involving firms with higher agency costs.

Protecting the innocent outside director after Enron and WorldCom

In the USA independent directors are being forced to contribute from their personal assets to settle out of securities claims brought against public corporations. In the context of the Enron and WorldCom securities litigation settlements, this paper reviews current trends in securities claims including: claim severity and frequency, accounting issues, increased government activity and regulation, and institutional investors as lead plaintiffs. The paper examines how D&O insurance could be used to maximise protection for independent directors and discusses: entity coverage, co-insurance, final adjudication language, arbitration clauses, and policies for individuals. This paper emphasises the importance of financially secure insurance carriers.

Changing Conclusions on Secondhand Smoke in a Sudden Infant Death Syndrome Review Funded by the Tobacco Industry

Changing Conclusions on Secondhand Smoke in a Sudden Infant Death Syndrome Review Funded by the Tobacco Industry

Lasofoxifene

Lasofoxifene

A Typology of Aggregate Settlements

Large-scale multiparty litigation often settles in clusters rather than one claim at a time. With or without the judicial imprimatur of class certification - indeed, with or without formal judicial aggregation of any sort - lawyers negotiate settlements of sizable portfolios of claims. Such settlements, in which multiple plaintiffs' claims against a common defendant are resolved together, are what lawyers variously call settlements, group settlements, block settlements, or similar terms that emphasize the collectiveness of the deals. The literature on settlements, however, is lacking any clear definition or articulation of what makes such settlements meaningfully collective. Group settlements in multiparty litigation vary significantly, and they vary in ways that make it difficult to determine whether certain deals ought to be understood as collective settlements or simply as groups of individual settlements bundled together. This article develops a typology of settlements. By defining settlements in terms of their essential attributes, it is possible to understand and describe multiplaintiff settlements with greater precision, and to develop a sounder approach to applying the special ethical duties that attend settlements. Under the settlement rule, some version of which is in effect in every state, a lawyer may not make an settlement unless the lawyer obtains each client's informed consent after disclosing the full scope of the deal. The rule does not define aggregate settlement. Cases, ethics opinions, and other authorities do not define the term with any precision, but some of them contain statements to the effect that an settlement is one in which a defendant pays an amount to settle an entire group of claims. They describe, in other words, a lump sum package deal, which is the most obvious form of settlement, but they do not consider what makes such a deal aggregate. Closer inspection reveals that a lump sum package deal has two key attributes, each of which independently would suffice to make the deal collective. The attributes that combine to form such a deal are collective allocation and collective conditionality. Allocation refers to how settlement amounts are determined and allocated, the method for determining who gets how much. Conditionality refers to what conditions must be met for the settlement to stick, particularly the extent to which settlements are voidable by defendants for failure to obtain releases from all the plaintiffs. When authorities depict a deal in which the defendant pays an amount of money in exchange for releases of an entire group of claims, the allocation can be described as lump sum, and the conditionality can be described as all-or-nothing. When the lump sum package deal is understood as a combination of allocation and conditionality attributes, and when that understanding is combined with an awareness of the settlement structures actually in use in multiparty litigation, it becomes evident that each of these attributes appears in forms that range from purely collective to purely independent. Allocation and conditionality can be spread along two axes to form a grid of settlement structures. The resulting typology, by disaggregating the attributes of collective settlements, helps define which settlement structures should trigger the disclosure and informed consent requirements of the ethics rule, and offers an approach to describing both non-class settlements and class action settlements with greater precision.

BOG miniseminar: Otolaryngology managed care symposium

This miniseminar will present all sides of the issues with the proposed panel being comprised of both leading physicians and managed care executives. The audience will participate with interactive responses and active discussions from the floor. The panelist will review (1) the historical background of the health care industry; (2) a market analysis of the current state of managed care; (3) topics such as coding, timely claims payments, and bundling; (4) how decisions are made on new drug costs and technologies; (5) modification of coverage policies and carriers’ administrative costs; (6) partnering with carriers to decrease medical errors; (7) increases in MD reimbursements. A recent AMA study reported that last year there were growing concerns about the 11% increase in health insurance premiums. This fifth year of consecutive increases has outpaced both medical and overall inflation. Profit margins of health insurers have also been steadily rising despite a slowdown in the general economy. According to the 2001 Weiss Ratings, insurers experienced a 25% increase in profits between 2000 and 2001. In contrast, the role that physicians play in patient care, including legal and ethical obligations, is being undermined by having little leverage in negotiating contracts with health insurers. These contracts affect every aspect of the patient-physician relationship, including diminished revenues. Some of the proposed multi-district litigation settlements with managed care are unreasonable, benefiting mostly the attorneys, in comparison to the minimal financial benefit to class members. Given the scientific advances of modern medicine and the inequities of our health care delivery system, today’s physicians confront pressing challenges including providing appropriate care, rationing of expensive medical technologies, addressing potential financial conflicts of interest, and disclosing medical errors. At the same time, managed care utilization reports raised concerns about some physicians’ over utilization of services, unnecessary surgical recommendations, and inappropriate over coding. We are at a critical crossroad: a time when open dialogue between both sides could help define the future of medicine. By airing our concerns and coming up with workable solutions we would be taking a crucial step toward the common good.

Justice Delayed? Litigation and Dispute Settlement in Fifteenth-Century Hungary

Justice Delayed? Litigation and Dispute Settlement in Fifteenth-Century Hungary