Scholarship on Multiparty Litigation & Settlement

An article recently posted on SSRN by Andrew F. Daughtey and Jennifer F. Reinganum, entitled “A Dynamic Model of Lawsuit Joinder and Settlement” models strategies on both sides of multidistrict litigation. Here is the abstract:

In this paper we examine a dynamic model of the process by whichmultiple related lawsuits may be filed and combined; we also examineactions a defendant may employ that may disrupt the formation of ajoint suit. Our initial model involves two potential plaintiffs, withprivate information about the harm they have suffered, in amulti-period setting with positive costs of filing a suit. If twoplaintiffs file, they join their suits to obtain a lower per-plaintifftrial cost and a higher likelihood of prevailing against the defendant.We find that some plaintiff types never file, some wait to see ifanother victim files and only then file, some file early and then droptheir suits if not joined by another victim and, finally, some file andpursue their suits whether or not they are joined; thus, theequilibrium resembles a ‘bandwagon.’

We then consider the effect of allowing preemptive settlementoffers by the defendant aimed at discouraging follow-on suits.Preemptive settlement results in a ‘gold rush’ of cases into the firstperiod. In general, plaintiffs (ex ante) strictly prefer that suchpreemptive settlements not be allowed, and computational resultssuggest this may be broadly true for defendants as well; however, theinability of defendants to commit to such a policy results in anequilibrium with preemptive settlement. Finally, we consider partialunawareness of victims as to the source of harm; this provides a rolefor plaintiffs’ attorneys, who may seek additional victims to join acombined lawsuit. Confidential preemptive settlements in the case ofpartial unawareness restrict the plaintiff’s attorney from seekingadditional victims and therefore leads to higher preemptive settlementamounts. Moreover, the defendant strictly prefers to employ preemptivesettlement if the fraction of unaware victims is sufficiently high.

ADL