Economics of the Law: Torts, Contracts, Property, Litigation

By Thomas J. Miceli | Go to book overview

NINE
THE ECONOMICS OF FRIVOLOUS
LITIGATION

It is a common perception that there are too many lawsuits filed in the United States. The available data on litigation rates provide some support for this perception. For example, figure 9.1 depicts the rapid growth in the number of civil cases filed in U.S. district courts beginning in the early 1970s, even after controlling for population growth. 1 A rising number of lawsuits, however, does not, by itself, indicate an increasing number of nonmeritorious, or "frivolous," suits; 2 perhaps some meritorious suits had previously been deterred. Since we saw in the last chapter that most suits end up either settling or being dropped before going to trial, 3 it is virtually impossible to offer data on the fraction of suits that are in fact frivolous. Thus, the question can be addressed only theoretically. In this chapter, I therefore survey various economic models of frivolous litigation that have been offered both to support the conjecture that some fraction of suits is frivolous, and to suggest remedies for this problem.

The literature on frivolous lawsuits generally defines them to be those cases that would not succeed if they went to trial. Thus, either the plaintiff sustained no actual damages (J =0), or if she did, the prevailing law does not entitle her to recover them against the defendant (P = 0). In either case, the suit is without merit (i.e., PJ = 0). According to a broader definition, it is possible that the case has some merit -- that is, PJ > 0 -- but the plaintiff's cost of pursuing the case to trial exceeds its expected value, PJ- Cp < 0. Although calling the latter type of case frivolous is more questionable, it turns out that the key feature of frivolous suits in the economic models presented below is that PJ-Cp < 0, whether PJ is positive or zero. 4 The reason is that PJ-Cp < 0 implies that the plaintiff would never rationally go to trial if the defendant refuses to settle. Given rational expectations, this raises the question of why plaintiffs ever file frivolous suits, and when they do, why defendants ever agree to settle them.

I will for the most part adopt this broader definition of frivolous suits in this chapter and propose several possible answers as to why frivolous suits can nevertheless succeed. I will also examine various procedural methods for reducing the incidence of frivolous litigation, including cost-shifting rules and court-imposed sanctions. I will conclude by asking whether contingent fees promote frivolous

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