Jackpot Justice: The Value of Inefficient Litigation

Litigation seems to be a Pareto-ineffcient outcome of pretrial bargaining; however, this paper shows that litigation can be the outcome of rational behavior by a litigant and her attorney. If the attorney has more information than his client concerning the characteristics of the lawsuit, the client can use litigation as a way of extracting information. I show that, counterintuitively, litigation will occur only when the plaintiff is pessimistic about her prospects at trial. Even if the plaintiff could obtain a higher payoff from bargaining than from litigation-without-bargaining, bargaining may not occur in equilibrium. The plaintiff is more likely to sue if she is more pessimistic about winning damage in court and if litigation is more risky. Litigation is less likely to occur if the plaintiff receives third party financing for litigation

A Survey of Litigation in Corporate Finance

Purpose The purpose of this paper is to review research on litigation in corporate finance. Design/methodology/approach This paper surveys studies on the estimation of litigation risk, litigation costs, stock reaction to lawsuit announcement, and the effect of litigation on corporate financial policies and outcomes. Findings The first section presents a survey of studies that estimate litigation risk. The authors then discuss a set of studies that focus on the various costs associated with litigation. The third area of review is about studies which estimate the market reaction to a lawsuit announcement. The next section surveys studies that examine the relation between litigation and a variety of corporate policies, behaviors, and outcomes. The authors then discuss the emerging literature on how corporate political connections can influence the outcome of litigation. The survey concludes with a brief summary and a discussion of suggestions for future research involving corporate litigation. Originality/value By providing an extensive review of the literature on litigation in corporate finance, this survey can help researchers to identify recent trends in litigation research and select promising new avenues of investigation in the field

Sequential trials and the English rule

The allocation of trial costs and the way a trial progresses are two important issues in civil procedure. The combination of these two elements has received relatively little attention in the law and economics literature. The prior literature has only compared unitary litigation (e.g. liability and damage issues are litigated, after which the court decides on both issues) under the American rule with sequential litigation (e.g. the parties first litigate the liability issue after which the court makes a decision, and then if still necessary the parties litigate the damages issue) under the American rule. In this article, I examine the influence of sequential litigation when the loser at trial pays all the litigation costs and compare the results with (a) the situation in which litigation is unitary and the loser pays all the litigation costs and (b) the situation in which litigation is sequential and each party bears her own costs. I focus on the incentive to sue, the incentive to settle (or to litigate) and on the settlement amount. Some interesting differences with the previous literature are discussed in detail

Seeking Rights, Not Rent: How Litigation Finance Can Help Break Music Copyright\u27s Precedent Gridlock

Since its inception, litigation finance has steadily grown in prevalence and popularity in the United States. While many scholars have examined its merits, few have considered litigation finance specifically in the context of copyright law. This is most unfortunate, for there, a vicious cycle has taken hold: high litigation costs discourage many market participants from taking cases to trial or summary judgment in order to vindicate their legal rights, even when they have strong cases. Thus, parties settle almost every case, which in turn prevents resolution of longstanding precedential questions in critical areas of copyright law. The legal uncertainty resulting from this precedential gridlock generates higher avoidance costs and poses more financial risks for market participants, particularly less-heeled or less-established parties. This Note proposes one way in which litigation finance could help break that cycle. Specifically, rights holders and defendants alike can use litigation finance to fund strategic-litigation campaigns to pressure the development of precedent. To illustrate how this might work, this Note examines litigation finance in the narrow context of music copyright, an area that perfectly illustrates the problems besetting copyright law writ large. In doing so, this Note flips a popular criticism of litigation finance on its head: while some scholars argue that litigation finance can distort litigation strategy by encouraging litigants to reject mutually beneficial settlements, it is normatively desirable to do so given the unsettled state of music copyright law

Privatizing Public Litigation

Government litigators increasingly use private resources—human and financial—to support their efforts in court. In some cases, government entities hire private lawyers to perform legal work on behalf of the government; in others, they draw on private donations to fund litigation; and in some cases they do both, relying on privately funded private lawyers to litigate cases in the government’s name. These mergers of public and private can be understood as part of broader trends toward the privatization of government services. This Article uses lessons from the privatization debates to illuminate the likely costs and benefits of bringing private actors into government litigation. It shows that privatization, often touted as a means of improving the efficiency of government services, may have the opposite effect in the context of litigation. Contracting with private lawyers may be more expensive than keeping the work in-house, and accepting private financing may encourage excessive, duplicative government litigation. Even where the advantages of privatization are most pronounced, significant costs remain. Private attorneys and financiers inject private interests and incentives into government litigation, transforming both the ends sought and the means used to achieve them. One cost of privatization, then, is that it can skew government litigation away from the public interest. That consequence is important in its own right, but it also suggests some of the longer-term risks of privatizing government litigation. Our law reflects the view that government litigation is—and should be—different from private litigation. In various ways, some subtle and others more overt, we privilege government litigation over equivalent suits by private parties. Privatization subverts those practices, allowing private attorneys and interest groups to take advantage of benefits typically reserved for government. While it empowers private interests, privatization simultaneously weakens government litigation, dulling its distinctive features and undermining the justifications for treating it differently. The stronger the resemblance between public and private actions, the harder it becomes to defend preferential treatment for government

Environmental Organizations’ Litigation Communication in the Polarized U.S. Political Landscape

This study analyzes environmental litigation communication in an increasingly polarized political context. Specifically, this project analyzes environmental organizations’ communication strategies and messages related to their litigation efforts in order to better understand how environmental nonprofits frame environmental litigation within the current U. S. political landscape. Multiple data sources (e.g., website content, tweets, and interviews) triangulate the study by providing varying strategic perspectives on organizations’ environmental litigation communication efforts. Results show that nonprofit organizations like the National Resources Defense Council and Sierra Club use a variety of frames that portray litigation as a righteous action used to hold those in power to account, targeting not only large, polluting corporations but also the U.S. Environmental Protection Agency currently run by the Trump Administration

Litigation Risk and Abnormal Accruals

In this paper, we examine the relation between auditor litigation risk and abnormal accruals over the 1989-2007 time period. We address potential endogeneity in prior studies by jointly modeling abnormal accruals and litigation risk in a simultaneous equation system. Our findings suggest that client-specific litigation risk affects auditor incentives to acquiesce to client demands for earnings management, i.e., the higher the risk of auditor litigation, the greater the auditor’s restraining influence on the abnormal accruals reported by the client. We also find evidence that abnormal accruals increase the likelihood of auditor litigation. We also document that the 1995 Public Securities Litigation Reform Act (PSLRA) lowered the client-specific risk of auditor litigation. Litigation reform remains a topic of ongoing interest. Our findings contribute to a better understanding of the effects of litigation reform (and related changes in legal exposure) on auditor incentives and earnings management.: Litigation risk, abnormal accruals, auditor incentives

State Public-Law Litigation in an Age of Polarization

Public-law litigation by state governments plays an increasingly prominent role in American governance. Although public lawsuits by state governments designed to challenge the validity or shape the content of national policy are not new, such suits have increased in number and salience over the last few decades — especially since the tobacco litigation of the late 1990s. Under the Obama and Trump Administrations, such suits have taken on a particularly partisan cast; “red” states have challenged the Affordable Care Act and President Obama’s immigration orders, for example, and “blue” states have challenged President Trump’s travel bans and attempts to roll back prior environmental policies. As a result, longstanding concerns about state litigation as a form of national policymaking that circumvents ordinary lawmaking processes have been joined by new concerns that state litigation reflects and aggravates partisan polarization. This Article explores the relationship between state litigation and the polarization of American politics. As we explain, our federal system can mitigate the effects of partisan polarization by taking some divisive issues off the national agenda, leaving them to be solved in state jurisdictions where consensus may be more attainable — both because polarization appears to be dampened at the state level, and because political preferences are unevenly distributed geographically. State litigation can both help and hinder this dynamic. The available evidence suggests that state attorneys general (who handle the lion’s share of state litigation) are themselves fairly polarized, as are certain categories of state litigation. We map out the different ways states can use litigation to shape national policy, linking each to concerns about polarization. We thus distinguish between “vertical” conflicts, in which states sue to preserve their autonomy to go their own way on divisive issues, and “horizontal” conflicts, in which different groups of states vie for control of national policy. The latter, we think, will tend to aggravate polarization. But we concede — and illustrate — that it will often be difficult to separate out the vertical and horizontal aspects of particular disputes, and that in some horizontal disputes the polarization costs of state litigation may be worth paying. We argue, moreover, that state litigation cannot be understood in a vacuum, but must be assessed as part of a broader phenomenon in American law: our reliance on entrepreneurial litigation to develop and enforce public norms. In this context, state attorneys general often play roles similar to “private attorneys general” such as class action lawyers or public interest organizations. And states, with their built-in systems of democratic accountability and internal checks and balances, compare well with other entrepreneurial enforcement vehicles in a number of respects. Nevertheless, state litigation efforts may not always account well for divergent preferences and interests within the broad publics that the states represent, and this deficiency becomes particularly important in politically polarized times. Although our account of state litigation is, on the whole, a positive one, we caution that state attorneys general face a significant risk of backlash by other political actors, and by courts, if state litigation is (or is perceived to be) a bitterly partisan affair

The Effects of Securities Class Action Litigation on Corporate Liquidity and Investment Policy

The risk of securities class action litigation alters corporate savings and investment policy. Firms with greater exposure to securities litigation hold significantly more cash in anticipation of future settlements and other related costs. The result is due to firms accumulating cash in anticipation of lawsuits and not a consequence of plaintiffs targeting firms with high cash levels. The market value of cash is significantly lower for firms exposed to litigation risk. Corporate investment decisions are also affected by litigation risk, as firms reduce capital expenditures in response. Our results are robust to endogeneity concerns and possible spurious temporal effects

International Conference on Litigation Funding

The aim of the research is to examine the potential for third party litigation funding as a tool to increase access to justice and overcome some of the obstacles faced by some plaintiffs due to the high costs of litigation. The research is empirical in nature and will examine the practical, ethical and regulatory issues relating to third party litigation funding