Settlement Negotiations Research Articles

Bad Debt Loss Insurance in Settlement and Litigation

We analyze the impact of Bad Debt Loss Insurance on settlement outcomes. A success in a settlement or trial can turn into a disaster when the defendant goes bankrupt before paying the plaintiff's claim. The starting point of our paper is a simple trial and litigation model with perfect and complete information. We add the possibility of a defendants bankruptcy, and of buying Bad Debt Loss Insurance for both the settlement and the trial stage. We demonstrate that trial insurance and settlement insurance have different impacts on the predicted outcome of settlement negotiations. Trial insurance tends to increase the settlement result; therefore, it generates a contract rent for the insurer and the insured. Settlement insurance, however, has the opposite effect, as it decreases the settlement result.

Tempering expectations: EU involvement with the Transdniestrian conflict

AbstractOften portrayed as one of the most resolvable conflicts, home to hundreds of peacekeepers and various reported human rights abuses, the Transdniestrian conflict (just 100 kilometers from the EU's external border) is an interesting case for those interested in European security. For many years, negotiations for a political settlement have taken place under the OSCE's auspices. In recent years, however, the EU has emerged as a central actor in this process and seems to have taken a leadrole. This gives rise to the question of whether an effective EU strategy to this conflict is in place and, in light of discussions of civilian or normative power, if this demonstrates a distinct European approach to conflict management. Based on a qualitative research in which the author analyzed the EU's relevant policies with his findings on the ground in both Moldova and Transdniestria, it is argued that the EU has a huge potential to thaw this conflict. Yet, where OSCE diplomacy or (unilateral) Russian intervention have all failed thus far, also the EU is increasingly having difficulty to navigate its way on the patchy road to conflict settlement for Transdniestria. This study not only implies that geopolitical interests remain dominant for Transdniestria, but also asserts that the scope or use of normative power should be reconsidered in such, more antagonistic, environments.

The Unexpected Effects of Caps on Non-Economic Damages

This paper focuses on the economic and legal implications of the enactment of caps on non-economic damages on conflicting parties who know that state supreme courts may strike down the caps as unconstitutional within a few years of enactment. We develop a simple screening model where parties have symmetric expectations regarding the probability of a strike down and asymmetric information regarding plaintiff’s non-economic harm. Our model makes the following predictions: First, caps may increase the length required to resolve disputes if the caps are low enough or the probability of a strike down is large enough. Second, although caps always increase the percentage of disputes that are settled out of courts, they do not necessarily save litigation expenses. Third, when caps increase the length of dispute resolution, they also increase litigation expenses if and only if the settlement negotiation costs are neither too small nor too large. Fourth, while caps always reduce the recoveries of plaintiffs with large claims, caps may increase recoveries of plaintiffs with low claims compared to their recoveries in states with no caps. We end by discussing the robustness of the results.

Applying Litigation Economics to Patent Settlements: Why Reverse Payments Should be Per Se Illegal

One of the most pressing issues in antitrust law is how to assess settlements of patent disputes that involve payments from brand name to generic drug manufacturers. At stake are billions of dollars, both in inflated prices to consumers attempting to meet their medical needs and in exposure to liability for drug manufacturers. This Article applies the economics of dispute resolution to clarify the costs and benefits of various approaches to assessing patent settlements in the context of the Hatch-Waxman Act. It concludes that reverse payments should be banned under a per se rule, unless and until courts are presented with evidence that brand name drug manufacturers are at some sort of systematic disadvantage in their settlement negotiations with generic drug manufacturers, an unlikely possibility.

Negotiating in the Shadow of 'Bad Faith' Refusal to Settle: A Game Theory Model of Medical Malpractice Pre-Trial Settlements and Insurance Limits

Recent empirical studies of Texas data by Hyman et al, Zeiler et al, and Silver et al suggest that insurance limits affect settlements of medical malpractice cases. Writing separately, Silver argues that insurance limits act as a de facto cap on malpractice payouts, that plaintiffs are being underpaid as a result, and that therefore legislative caps on damages are unnecessary. But this hypothesis is inconsistent with the data, which indicates that forty-seven percent of cases in which plaintiffs obtain verdicts above policy limits are subsequently settled above policy limits. We propose to reconcile the data by accounting for the effects that third-party causes of action for alleged bad-faith refusal to settle — known in Texas as a Stowers action — have on pretrial settlement negotiations. If an insurer in Texas is presented with a settlement offer within insurance limits, refuses to settle, and the plaintiff wins an award greater than insurance limits, the plaintiff is entitled to sue the insurer for the full damages amount, plus punitive damages, for refusal to settle. In this paper, we explore the game theory of medical malpractice settlement negotiations in the shadow of Stowers.Using a Monte Carlo simulation of the “game,” we find: (1) plaintiffs have an incentive to make, and defendants have an incentive to accept, settlement offers at insurance limits; (2) a settlement at insurance limits may therefore sometimes reflect something other than the quality of the underlying medical malpractice case; (3) the possibility of Stowers awards increases expected returns to plaintiffs and disproportionately increases the settlement value of low-merit cases; (4) plaintiffs with weak cases are systematically overcompensated, while plaintiffs with strong cases are systematically under compensated; and (5) non-economics damages caps have the greatest effect on low-merit cases by reducing overcompensation, without affecting the highest-merit cases.

Trial and settlement negotiations between asymmetrically skilled parties

Parties engaged in a litigation generally enter the discovery process with different informations regarding their case and/or an unequal endowment in terms of skill and ability to predict the outcome at trial. This results in different legal costs to assess the plaintiff’s win rate. The paper analyses pretrial negotiations and revisits the selection hypothesis in the case where these legal expenditures are private information. Our general result is that pretrial negotiations select cases with the smallest legal expenditures as those going to trial, while cases with largest costs prefer to settle. Under the one-sided asymmetric information assumption, we find in contrast to the usual finding of the literature, that the American rule yields more trials and higher aggregate legal expenditures than the French and British rules. The two-sided case leads to a higher rate of trials, but in contrast provides less clear-cut predictions regarding the influence of fee-shifting.

Estimating a Model of Settlement Bargaining in the World Trade Organization

Small and large countries show divergent behavior in the dispute settlement process of the WTO. Disputes that involve larger economies are more likely to result in litigation. Moreover, in a dispute between a large country and a small country, litigation is more likely if the small country is the complaining party. I modify canonical models of settlement bargaining under asymmetric information (namely, Bebchuk 1984, and Reinganum and Wilde 1986) by assuming that governments are restricted to use policy adjustment, rather than cash payments, as a means of compensation in their settlement negotiations. A key theoretical prediction of the modified models is that the likelihood of settlement is more sensitive to the defendant's litigation costs than to the complainant's litigation costs. This theoretical prediction combined with the assumption that smaller countries face higher costs of litigation explains the divergent behavior of small and large countries in the dispute settlement process.

Prosecutorial Discretion in Mutual Fund Settlement Negotiations, 2003-7

Abstract This paper examines the negotiated settlements of 20 market timing and late trading cases, comparing the restitution obtained for shareholders with an estimate of shareholder dilution. This restitution ratio varies from 0.04 to 5, or from 0.1 to 10 if penalties are included. While some of this variation is explained by differences in the defendants' conduct, controlling for this, settlement negotiations that involved New York as well as the Security and Exchange Commission (SEC) resulted in restitution ratios that were higher by a factor of 5-10. An analysis that uses the firms' headquarters location and customers' state of residence as instruments for New York's involvement suggests that this difference is causal, and not the result of New York involving itself in cases likely to lead to large settlements. Given the much larger staff and institutional expertise of the SEC, it is likely that these differences in outcomes are due to differences in effective aggressiveness, not prosecutorial resources. Differences in aggressiveness are consistent with popular conceptions of the regulators' career concerns, as well as with theories of industry focus and regulatory capture.

Sustainable Legal Aid and Access to Justice: A Supply Chain Approach

Many countries struggle to maintain an affordable and sustainable legal aid system. This paper describes an interactive consultation process that was organized to develop proposals for increasing access to justice while limiting costs for governments as well as for users of the legal system. During the process, some strategies were identified that are unlikely to be effective in increasing access to justice and limiting costs. The more promising strategies tend to focus on improving the entire supply chain of fair solutions for legal needs, from legal advice to settlement negotiations and court interventions. These strategies can indeed lead to savings on the legal aid budget and can improve access to justice at the same time. However, the ensuing policies are not easy to implement, because they require a form of coordination that is new for the legal sector.

Who Wins in Settlement Negotiations?

When lawsuits are resolved out of court, what determines the settlement price? This article uses a laboratory simulation and path analysis to estimate the relative importance of measurable variables in determining who wins the battle for the cooperative surplus. In the simulated negotiation conditions, seven variables explained more than half of the variation in settlement outcomes achieved by participants, with negotiators� predictions of their opponent's reservation prices the most important, followed by negotiator gender and amount of first offer. Although the specific context of this article is settlement, the insights generated are applicable to any two-party, distributive negotiation.

Carrots, Sticks, and the Multiplication Effect

Although a punishment can be applied only once, the threat to punish can be repeated several times. This is possible because when parties comply, the punishment is not applied and can thus be used to support a new threat. We refer to this feature of sticks as the effect. The same is not possible with promises to reward since carrots are used up every time a party complies; hence, at each round a new reward is needed. We show that the multiplication effect of sticks has pervasive consequences in economics and law and provides a unified explanation for seemingly unrelated phenomena such as comparative negligence, legal aid, the dynamics of riots and revolutions, the use of property rules, the commons problem, and the most-favored-nation clause in settlement negotiations. (JEL K14, K42)

Life with Hoyt: Avoiding Misrepresentation Claims in Negotiating Settlement Agreements

In 2007, the Minnesota Supreme Court decided Hoyt Properties, Inc. v. Production Resource Group, L.L.C. (Hoyt II), holding that factual statements made by attorneys in settlement negotiations are actionable if reasonably relied on by their clients' adversaries. Some in the legal community fear this holding puts undue constraints on settlement negotiations, while creating potential liability for an attorney's representation to their client's adversary. This article addresses these fears. Hoyt is about merely telling the truth and carefully drafting settlement agreements. Part II examines the factual background and procedural history of Hoyt and presents a discussion of the Supreme Court's analysis. Part III introduces the basic contractual nature of settlement agreements, covering issues of capacity, authority, formation, defense, fraud and misrepresentation, and the requirement of a writing. Part IV examines the duties owed by attorneys to their clients' adversaries, emphasizing the difference between affirmative representations and non-disclosures. Finally, Part V presents a solution to those fearful of Hoyt - careful drafting of settlement agreements. Use of integration and representation clauses should reduce the risk that extra-contractual statements, like those at issue in Hoyt, will survive to form the basis for a rescission of a settlement agreement. Thus, although some in the legal community fear negative repercussions from Hoyt, in reality, it does not announce any fundamental change to the law. Rather, Hoyt simply underscores the need for well-considered statements in settlement negotiations and careful drafting of settlement agreements.

Desperately Seeking Sanity: What Prospects for a New Beginning in Zimbabwe?

In Zimbabwe's Harmonised Elections on 29 March 2008 the ruling party ZANU-PF suffered defeat in the parliamentary elections for the first time since 1980. Robert Mugabe also lost the first round of the presidential elections, indicating that both he and his party were facing the prospect of losing state power. The lack of an outright presidential winner in the first round of the elections necessitated a runoff election at the end of June 2008. Whereas the period preceding the March elections was relatively peaceful, the horrendous violence that marred the period leading up to the June runoff completely undermined the conditions for a free and fair runoff. With little pretence at creating the political climate for a democratic election, Mugabe's ZANU-PF rolled out a campaign of violence, the levels of which have not been witnessed in the country since the Gukurahundi massacres in Matabeleland and the Midlands in the mid-1980s. Through a combination of extra-judicial executions, systematic use of torture, widespread population displacements, and a general campaign of terror, the Zimbabwean state targeted the structures and supporters of the opposition Movement for Democratic Change (MDC). As the electoral crisis deepened, the broader regional and international complexity of the Zimbabwean impasse imposed its imperatives on the unfolding crisis. Even as the Mugabe regime evoked more critical voices from within the Southern African Development Community (SADC) and the African Union (AU), long-standing divisions between the West and Africa on the Zimbabwe problem reasserted themselves. On 21 July 2008 the major political parties in Zimbabwe signed a Memorandum of Understanding (MoU) to begin negotiations for a political settlement under the auspices of the Mbeki-led SADC mediation begun in 2007. It remains to be seen whether the South African President can bring a positive conclusion to his much criticized policy of ‘quiet diplomacy’.

Let's Not Make a Deal: An Empirical Study of Decision Making in Unsuccessful Settlement Negotiations

This study quantitatively evaluates the incidence and magnitude of errors made by attorneys and their clients in unsuccessful settlement negotiations. The primary study analyzes 2,054 contested litigation cases in which the plaintiffs and defendants conducted settlement negotiations, decided to reject the adverse party's settlement proposal, and proceeded to arbitration or trial. The parties' settlement positions are compared with the ultimate award or verdict, revealing a high incidence of decision‐making error by both plaintiffs and defendants. This study updates and enhances three prior studies of attorney/litigant decision making, increasing the number of cases in the primary data sets more than threefold, adding 72 explanatory variables from 19 classes, applying a multivariate analysis, presenting an historical review of error rates during the 1964–2004 period, and comparing the primary study error rates with error rates in cases where the parties are represented by attorney‐mediators. Notwithstanding these enhancements, the incidence and relative cost of the decision‐making errors in this study are generally consistent with the three prior empirical studies, demonstrating the robustness of the earlier works by Samuel Gross and Kent Syverud, and Jeffrey Rachlinski. The multivariate analysis, moreover, shows that the incidence of decision‐making error is more significantly affected by “context” variables (e.g., case type and forum) than by “actor” variables (e.g., attorney gender and experience level).

Tax Shelter Malpractice Cases and Their Implications for Tax Compliance

In malpractice lawsuits, taxpayers prevailed in courtrooms, around arbitration tables, and in settlement negotiations against peddlers of abusive tax shelters. This analysis illustrates how the tax shelter malpractice experience embodies many virtues that yield tax compliance. From these virtues emerge several important lessons on how to curb aggressive tax planning. Evident from these virtues and lessons is that malpractice litigation is a powerful tool in the sphere of tax compliance, and, where possible, reforms should be instituted to further promote its use.

Apologies and Settlement Levers

This study uses experimental methods to explore the role of apologies in legal settlement negotiation. Specifically, the study examines the influences of apologies on disputants' perceptions, and the effects of apologies on a number of judgments that influence negotiation outcomes -- settlement levers such as reservation prices, aspirations, and judgments of fair settlement amounts. Five-hundred fifty-six participants were asked to take the role of potential plaintiffs, to provide their reactions to an experimental scenario, and to indicate the values they would set for each settlement lever. The nature of the communication with the offender and the description of the evidentiary rule governing the admissibility of the offender's statement were manipulated. The data suggest that apologies can promote settlement by altering the injured parties' perceptions of the situation and the offender so as to make them more amenable to settlement discussions and by altering the values of the injured parties' settlement levers in ways that are likely to increase the chances of settlement. The results suggest further, however, that the nature of the apology itself as well as the factural circumstances surrounding the incident may play important roles in how apologies are understood.

The Settlement Privilege: A General Principle of International ADR Law

IT HAS been said that the settlement of a dispute dirough agreement of the parties ‘is of the essence of the spirit of arbitration’.1 Sometimes, however, these settlement talks, conducted prior to or during the arbitration with or without the assistance of a third neutral, fail for whatever reasons and the arbitration commences or continues. In such a scenario, a party may feel inclined to introduce into the subsequent arbitration procedure views, admissions, proposals, suggestions, indications of readiness to accept a certain proposal for settlement, made in writing or orally by the other side during the settlement negotiations. That side will object to such an undertaking. It will argue that its statements made during settlement negotiations or ADR proceedings to bring about a settlement agreement between the parties to the dispute should not be admitted as evidence in the subsequent arbitration because they are privileged. The party’s position that the tribunal must reject the motion to produce such evidence will be based on article 9(2)(b) of the IBA Rules2 which provides that the tribunal shall exclude evidence if it is privileged ‘under the legal or ethical rules determined by the Arbitral Tribunal to be applicable’. While in many cases, the law applicable to such a privilege objection must be determined by classical conflict of laws analysis,3 the situation is different with respect to the settlement privilege. Here, a transnational privilege exists which protects settlement negotiations both with and without the presence of a third neutral. ### (a) The Transnational Rule There is a unanimous view today in international ADR and arbitration practice that a general mediation privilege exists which renders all evidence, whether written or oral, stemming from mediation, conciliation and similar ADR processes between the parties inadmissible as evidence in subsequent arbitration proceedings.4 The privilege follows from the notion of …

Elite migrations in modern Italy: patterns of settlement, integration and identity negotiation

Italy has been always considered a country of emigrants. During the nineteenth and twentieth century, millions of people left Italy in different waves and settled in the USA, Latin America or vario...

An Eliot Effect? Prosecutorial Discretion in Mutual Fund Settlement Negotiations, 2003-7

This paper examines the negotiated settlements of 20 market timing and late trading cases, comparing the restitution obtained for shareholders with an estimate of shareholder dilution. This restitution ratio varies from 0.04 to 5, or from 0.1 to 10 if penalties are included. While some of this variation is explained by differences in the defendants' conduct, controlling for this, settlement negotiations that involved New York as well as the Security and Exchange Commission (SEC) resulted in restitution ratios that were higher by a factor of 5-10. An analysis that uses the firms' headquarters location and customers' state of residence as an instrument for New York's involvement suggests that this difference is causal, and not the result of New York involving itself in cases likely to lead to large settlements. Given the much larger staff and institutional expertise of the SEC, it is likely that these differences in outcomes are due to differences in aggressiveness, not prosecutorial resources. Differences in aggressiveness are consistent with popular conceptions of the regulators' career concerns, as well as with theories of industry focus and regulatory capture.

“Mea culpa” in the courtroom: Juror perceptions of defendant apology at trial

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