Modeling frivolous suits.

• Author: Bone, Robert G.

INTRODUCTION

1. THE VALUE OF MODELS

   1. Modeling in General

   2. Modeling Frivolous Litigation

2. DEFINING "FRIVOLOUS SUITS"

3. POSITIVE EXPECTED VALUE MODELS

4. NEGATIVE EXPECTED VALUE Models: COMPLETE INFORMATION

5. NEGATIVE EXPECTED VALUE Models: ASYMMETRIC INFORMATION

   1. The Informed-Plaintiff Model

      1. A Simple Narrative: John v. Mary

      2. The Formal Model and Its Predictions

   2. The Informed-Defendant Model

      1. A Simple Narrative: Paul V. Susan

         1. Scenario #1--Investigation Costs $100

         2. Scenario #2--Investigation Costs $5000

         3. Scenario #3--Investigation Costs $2000

      2. The Formal Model and Its Predictions

      3. Defining a "Reasonable" Prefiling Investigation

   3. Reliability of the Asymmetric Information Models

      1. Internal Assumptions

      2. External Factors

   4. Summary

6. REGULATORY IMPLICATIONS

   1. Is Any Public Regulation Desirable?

      1. The Seriousness of the Problem

      2. The Need for a General Norm

   2. Targeted Versus Uniform Enforcement

   3. The Selection of an Enforcement Device

      1. Strict Pleading

      2. Penalties

      3. A More Promising Approach: Judicial Screening

      CONCLUSION

      APPENDIX

      INTRODUCTION

      We know remarkably little about frivolous litigation. Reliable empirical data is extremely limited, and casual anecdotal evidence highly unreliable. We have no clear explanation of why frivolous suits are filed or even common agreement on what constitutes a "frivolous suit."

      Nevertheless, there is widespread belief that frivolous litigation is out of control.(1) Many people cite frivolous suits as the cause of the litigation system's most serious ills--huge case backlogs, long delays and high trial costs.(2) Americans are simply too litigious, the critics say, and all too fond of filing meritless suits.(3)

      Indeed, concern about frivolous litigation has inspired some of the most significant procedural developments of the past two decades. During the 1980s, for example, federal courts tightened pleading requirements in areas such as civil rights, antitrust and shareholder derivative litigation in an effort to screen out frivolous suits.(4) In 1983, the Advisory Committee on Civil Rules overhauled Rule 11 of the Federal Rules of Civil Procedure to strengthen sanctions for frivolous filings.(5) And in a trilogy of cases decided during the 1985 term, the supreme Court broadened the availability of summary judgment in part to weed out frivolous cases before trial.(6)

      More recently, during the 1994 campaign, Republican candidates for Congress highlighted abusive litigation in their "Contract With America."(7) After the election, the Republican Congress entertained several bills designed to deter frivolous suits.(8) In December 1995, one of those bills, the Private Securities Litigation Reform Act of 1995,(9) became law over Presidential veto. Later, in April 1996, the Prison Litigation Reform Act of 1995,(10) designed to deter frivolous prisoner suits, also became law.(11)

      This combination of informational deficit and regulatory zeal is fraught with obvious danger. We cannot make sound policy on the basis of anecdote and conjecture. We need a much more reliable basis for predicting costs and benefits. And for this, we need a positive theory of frivolous litigation. To be useful, however, such a theory must answer an apparently simple, yet surprisingly difficult, question: Why would anyone ever file a frivolous suit? If a suit lacks merit and has very little chance of trial success, no rational person would spend thousands of dollars to try the case. To be sure, a plaintiff might sue if he thought he could obtain an early settlement. But this raises another, equally vexing question: Why would a defendant ever settle if he knows the plaintiff would never litigate; why not simply call the plaintiff's bluff instead?

      This Article constructs a positive theory of frivolous litigation capable of answering these questions, and then examines the policy implications for regulating frivolous suits.(12) Because reliable data is scarce and obstacles to empirical work severe, I focus on a body of work by law-and-economics scholars that uses game-theoretic models to study the frivolous suit problem. I translate this work for a nontechnical audience and show how its insights can be useful in shaping regulatory policy.

      In addition, I present a new model that fills a gap in the literature. Most work to date focuses on so-called "strike suits"--cases in which a plaintiff files knowing her suit is frivolous. No one has yet developed a model that shows what happens when a plaintiff files suit ignorant of the merits because she has not investigated.(13) This is a significant omission, since cases of this sort comprise much of what people consider frivolous. Indeed, the most important innovation of the 1983 version of Rule 11, carried forward in the 1993 revision,(14) requires parties to conduct a reasonable prefiling inquiry.(15) My new) model explains why plaintiffs might not investigate before filing even when investigation is feasible, and this explanation provides a framework for the later policy analysis.

      At the most general level, this Article aims to bridge the wide gap between lawyer-economists who use game-theoretic techniques to model procedural rules, and mainstream proceduralists, lawyers and judges who make, apply and critique those rules.(16) Game theory is extremely useful to procedural analysis because it is the best, and perhaps the only, systematic way to analyze strategic interaction essential to predicting litigation behavior.(17) Fortunately, the basic insights of game theory do not require technical sophistication, and this Article avoids mathematical technicality by explaining the models with simple expository narratives that show how strategically motivated parties might think through their choices and decide what to do. The Appendix summarizes the mathematical results for interested readers.

      The main body of this Article is divided into six parts. Part I briefly examines the importance of formal modeling to procedural analysis in general and to the regulation of frivolous suits in particular. Part II explores the difficulties in defining a "frivolous suit" and proposes a working definition for the remainder of the Article.

      Part III reviews standard models of frivolous litigation that assume frivolous suits have positive expected value and argues that none is robust enough to predict a serious frivolous suit problem. Parts IV and V then examine a more promising class of models: those that suppose frivolous suits have negative expected value. One type, which is discussed in Part IV, assumes complete information--both parties know whether a suit lacks merit. The other type, which is discussed in Part V, assumes asymmetric information--one party knows but the other does not.

      As it turns out, complete information models provide only a weak explanation of frivolous suits. Frivolous litigation is most likely to occur under conditions of asymmetric information. Part V examines two different asymmetric information models. It first describes current models that assume the plaintiff knows her suit is frivolous and the defendant does not, and then turns to my new model, which explains frivolous filings when the asymmetry runs in the opposite direction--defendant knows and plaintiff does not unless she investigates. In this new model, plaintiffs sometimes sue without investigating even when they have ample time, the cost is moderate, and they know that frivolous suits always lose at trial and never receive a positive settlement offer.

      Both of the asymmetric information models discussed in Part V are capable of explaining a potentially large number of frivolous filings. However, these models point to a different sort of problem than commonly supposed. The most serious effect of frivolous litigation is not the cost of actually litigating frivolous suits, but instead the adverse impact on settlement of legitimate suits.

      Part VI turns from prediction to policy prescription. I draw on the formal analysis to outline a general approach to regulating frivolous suits. In particular, I propose a way to determine whether suits are frivolous based on a failure to investigate. Moreover, I argue against uniform enforcement of a prohibition on frivolous suits and in favor of a more targeted approach that varies with the litigation context. Finally, I examine three enforcement alternatives and conclude that the more popular devices may not be as promising as generally believed and that a relatively neglected approach, judicial screening, deserves more attention than it has received.

1. THE VALUE OF MODELS

   1. Modeling in General

      We rely on models all the time. By abstracting from the seemingly chaotic details of real life, models make it possible to perceive patterns otherwise hidden from view.(18) Even when one does something as routine as changing lanes on a highway, one implicitly relies on an abstract model of human behavior to anticipate the reactions of other drivers. This model assumes, for instance, that other drivers care about avoiding accidents, and that they can and will observe one's behavior and respond rationally to it.(19) As in this driver example, most models are not rigorously specified or technically precise like the formal models I discuss in this Article. Still, informal models are just like formal ones in the respect that makes modeling most valuable: they abstract from reality to render complex problems in a more tractable form.

      Procedural analysis involves predicting the actions of parties in highly complex litigation settings. Not surprisingly then, proceduralists use models all the time, whether they are aware of it or not. Sometimes the use is explicit, as with the models discussed in this Article. More often, however, it is implicit, as it is for our hypothetical driver. For example, the seemingly straightforward prediction that increasing the number of judges will reduce case backlog relies on a simple model of the litigation process...