Law in the Shadow of Bargaining : The Feedback Effect of Civil Settlements

Lawmakers, courts, and legal scholars often express concern that settlement agreements withhold important information from the public. This Essay identifies, to the contrary, problematic issues involving the availability of information on non-representative settlements. The theoretical and empirical evidence presented in this Essay demonstrates that, despite the widespread use of nondisclosure agreements, information on settlements is distributed both inside and outside legal communities, reaching actors through various channels including the oral culture in legal communities, specialized reporters, professional interest organizations, and media coverage. Moreover, information on private settlement agreements circulates more widely if the agreed compensation in a given settlement exceeds the expected value of the claim at trial. For example, professional organizations highlight novel settlements that are strategically important to lawyers, and special interest groups bring attention to extravagant settlements that are most likely to induce legislative action. The selective availability of information on outlier settlements increases the potential impact of settlement agreements. For instance, in tort disputes, individual settlement concessions make it harder for similarly situated defendants to deflect forthcoming claims. Ambitious trial lawyers will use prior settlements as minimum bargaining thresholds. Plaintiffs in future cases become more demanding and more reluctant to accept settlements below what others have agreed to in prior, analogous settlements. Moreover, due to their noncoercive nature, settlements may frame the normative outlook on particular claims or disputes. Consequently, settlement trends may become normative benchmarks to judges and juries that seek to reinforce such valuations in settlement conferences or trials. The settlement dynamics identified in this Essay provide a novel inroad for possible research on the evolution of remedies and damages in various areas of law