Law Commons^™

Mutual Optimism And Risk Preferences In Litigation, Keith N. Hylton

Faculty Scholarship

Why do some legal disputes fail to settle? From a bird’s eye view, the literature offers two categories of reasons. One consists of arguments based on informational disparities. The other consists of psychological arguments. This paper explores the psychological theory. It presents a model of litigation driven by risk preferences and examines the model’s implications for trials and settlements. The model suggests a foundation in Prospect Theory for the Mutual Optimism model of litigation. The model’s implications for plaintiff win rates, settlement patterns, and informational asymmetry with respect to the degree of risk aversion are examined.

Information Costs And The Civil Justice System, Keith N. Hylton

Faculty Scholarship

Litigation is costly because information is not free. Given that information is costly and perfect information prohibitively costly, courts will occasionally err. Finally, the fact that information is costly implies an unavoidable degree of informational asymmetry between disputants. This paper presents a model of the civil justice system that incorporates these features and probes its implications for compliance with the law, efficiency of law, accuracy in adjudication, trial outcome statistics, and the evolution of legal standards. The model’s claims are applied to and tested against the relevant empirical and legal literature. (JEL: D74, K10, K13, K41)

Trial Selection And Estimating Damages Equations, Keith N. Hylton

Faculty Scholarship

Many studies have employed regression analysis with data drawn from court opinions. For example, an analyst might use regression analysis to determine the factors that explain the size of damages awards or the factors that determine the probability that the plaintiff will prevail at trial or on appeal. However, the full potential of multiple regression analysis in legal research has not been realized, largely because of the sample selection problem. We propose a method for controlling for sample selection bias using data from court opinions.

The Partnership Mystique: Law Firm Finance And Governance For The 21st Century American Law Firm, Maya Steinitz

Faculty Scholarship

This Article identifies and analyzes the de facto and de jure end of lawyers' exclusivity over the practice of law in the United States. This development will have profound implications for the legal profession, the careers of individual lawyers, and the justice system as a whole.

First, the Article argues that various financial products that have recently flooded the legal market are functionally equivalent to investing in and owning law firms and create all the same governance challenges as allowing nonlawyers to directly own stock in law firms.

Second, the Article analyzes Arizona's groundbreaking legalization of nonlawyer participation in law …

Ethical Duties Of Class Counsel Also Representing Class Representatives, Nancy J. Moore

Faculty Scholarship

In their excellent article entitled May Class Counsel Also Represent Lead Plaintiffs?,¹ Professors Bruce Green and Andrew Kent explore a particular aspect of two broader questions I have also addressed: (1) who should regulate class action lawyers;² and (2) who will regulate class action lawyers?³ I, too, focused on lawyers' conflicts of interest; however, Professors Green and Kent focus even more specifically on conflicts arising from class counsel's simultaneous representation of both the class and individual clients who are serving or will serve as class representatives. Their concern is with three particular scenarios in which the class …

Civil Rights Catch 22s, Jonathan Feingold

Faculty Scholarship

Civil rights advocates have long viewed litigation as a vital path to social change. In many ways, it is. But in key respects that remain underexplored in legal scholarship, even successful litigation can hinder remedial projects. This perverse effect stems from civil rights doctrines that incentivize litigants (or their attorneys) to foreground community plight—such as academic underachievement or overincarceration. Rational plaintiffs, responding in kind, deploy legal narratives that tend to track racial stereotypes and regressive theories of inequality. When this occurs, even successful lawsuits can harden the structural and behavioral forces that produce and perpetuate racial inequality.

I refer to …

Global Laboratories Of Third-Party Funding Regulation, Victoria Sahani

Faculty Scholarship

Third-party funding, also known as "dispute finance," is a controversial, dynamic, and evolving arrangement whereby an outside entity ("the funder") finances the legal representation of a party involved in litigation or arbitration, whether domestically or internationally, on a non-recourse basis, meaning that the funder is not entitled to receive any money from the funded party if the case is unsuccessful.' It has been documented in more than sixty countries on six continents worldwide-including in many of the jurisdictions highlighted in this symposium that are experimenting with other aspects of international commercial dispute resolution. Indeed, funding greases the wheels of this …

Rethinking The Impact Of Third-Party Funding On Access To Civil Justice, Victoria Sahani

Faculty Scholarship

Third-party funding indisputably puts a gold-weighted thumb on the scales of justice in favor of funded parties for two main reasons: (1) funded cases already tend to be calculable winners on the merits, and (2) third-party funders seeking a profit generally do not fund cases that are demonstrably likely to lose on the merits. Thus, we are left with both the promising potential for winners to be more likely to win with third-party funding and the alarming realization that not all winners are offered this same chance. This provokes a larger, fundamental question: If funders are picking winners among the …

Follow The Money? A Proposed Approach For Disclosure Of Litigation Finance Agreements, Maya Steinitz

Faculty Scholarship

Litigation finance is the new and fast-growing practice by which a non-party funds a plaintiff’s litigation either for-profit or for some other motivation. Some estimates placed the size of the litigation finance market at 50–100 billion dollars. Both proponents and opponents of this newly -emergent phenomenon are in agreement that the it is the most important development in civil justice of this era. Litigation finance is already transforming civil litigation at the level of the single case as well as, incrementally, at the level of the civil justice system as a whole. It is also beginning to transform the way …

Oligopoly Pricing And Richard Posner, Keith N. Hylton

Faculty Scholarship

Over a span of nearly 50 years Richard Posner’s voice has loomed large over the subject of oligopoly pricingand antitrust. The span begins in 1969 with Posner’s publication of “Oligopoly and the Antitrust Laws: A Suggested Approach,” which argues for more aggressive enforcement of Section 1 in cases involving circumstantial evidence of conspiracy. The span ends with Posner’s opinion in In re Text Messaging Antitrust Litigation, in 2015. The two writings, the first an academic article published early in Posner’s career and the second a judicial opinion published near the end of his time on the bench, suggest very different …

Letter To The Hon. Sen. Orrt (Nys Senate) Regarding Litigation Finance (Lawsuit Lending) (2018), Maya Steinitz

Faculty Scholarship

Following testimony to the New York State Senate's Standing Committee on Consumer Protection (available on SSRN and YouTube), Professor Steinitz was asked to elaborate on her recommendation for a statutory minimum recovery requirement to protect consumers of litigation financing. Enclosed is her response to this inquiry.

Testimony On Third Party Financing Of Lawsuits, Maya Steinitz

Faculty Scholarship

In this written testimony, Professor Steinitz addresses bills pending in the New York State Senate and Assembly relating to consumer litigation finance. Among other things, she suggests (1) establishing a “Minimum Payment” for plaintiffs, instead of (or in addition to) flat rates or interest caps; and (2) defining the scope of application by applying an “Unsophisticated Plaintiff” test rather than by focusing on the financing amount. She also addresses other matters implicated by the bills such as whether lawyers should be permitted to provide financial advice, prohibition of prepayment penalties, registration requirements, and right of rescission in the context of …

Adr And Access To Justice: Current Perspectives, Rory Van Loo, Ellen E. Deason, Michael Z. Green, Donna Shestowsky, Ellen Waldman

Faculty Scholarship

Access to justice is a broad topic, and we cannot cover everything. You will notice a few major omissions. Most notably, we are not going to emphasize consumer pre-dispute arbitration agreements. This is not because they are not important, but because much has been written and said on this topic, and it could easily swallow the whole discussion. Also, we are probably not going to say very much about restorative justice, and I am sure you will notice some other holes. We invite you to raise missing issues in your comments.

Let me start with a few opening remarks. We …

Reshaping Third-Party Funding, Victoria Sahani

Faculty Scholarship

Third-party funding is a controversial business arrangement whereby an outside entity—called a third-party funder—finances the legal representation of a party involved in litigation or arbitration or finances a law firm’s portfolio of cases in return for a profit. Attorney ethics regulations and other laws permit nonlawyers to become partial owners of law firms in the District of Columbia, England and Wales, Scotland, Australia, two provinces in Canada, Germany, the Netherlands, New Zealand, and other jurisdictions around the world. Recently, a U.S.-based third-party funder that is publicly traded in England started its own law firm in England. In addition, some U.S. …

Transnational Litigation As A Prisoner's Dilemma, Maya Steinitz, Paul Gowder

Faculty Scholarship

In this Article we use game theory to argue that perceptions of widespread corruption in the judicial processes in developing countries create ex ante incentives to act corruptly. It is rational (though not moral) to preemptively act corruptly when litigating in the courts of many developing nations. The upshot of this analysis is to highlight that, contrary to judicial narratives in individual cases — such as the (in)famous Chevron–Ecuador dispute used herein as an illustration — the problem of corruption in transnational litigation is structural and as such calls for structural solutions. The article offers one such solution: the establishment …

Judging Third-Party Funding, Victoria Sahani

Faculty Scholarship

Third-party funding is an arrangement whereby an outside entity finances the legal representation of a party involved in litigation or arbitration. The outside entity—called a “third-party funder”—could be a bank, hedge fund, insurance company, or some other entity or individual that finances the party’s legal representation in return for a profit. Third-party funding is a controversial, dynamic, and evolving phenomenon. The practice has attracted national headlines and the attention of the Advisory Committee on the Federal Rules of Civil Procedure (Advisory Committee). The Advisory Committee stated in a recent report that “judges currently have the power to obtain information about …

Panel 2: Types Of Litigation Funding, Geoffrey P. Miller, Maya Steinitz, Joshua Schwadron, Bradley Wendel, Michael Faure, Jef De Mot, Travis Lenkner

Faculty Scholarship

This is a transcript from the second panel of the 2015 NYU School of Law conference: Litigation Funding: The Basics and Beyond.

Panel Two

The second panel will build on the basics. Participants will explain and discuss different subcategories of funding, each of which may raise different conceptual, practical and/or regulatory concerns.

Panelists:

• Geoffrey Miller, New York University School of Law (Moderator)
• Maya Steinitz, University of Iowa College of Law
• Joshua Schwadron, Founder and CEO, Mighty
• Bradley Wendel, Cornell Law School
• Michael G. Faure, Maastricht University & Rotterdam University, the Netherlands
• Jef De Mot, Ghent University
• Travis Lenkner, Gerchen Keller …

Back To Basics: Public Adjudication Of Corporate Atrocities Torts, Maya Steinitz

Faculty Scholarship

The editors of this online symposium invited me to contribute to the subject of an argument I have recently advanced. This argument is that the world needs a permanent International Court of Civil Justice (ICCJ) to adjudicate cross-border mass torts. A common reaction to this proposal has been to suggest that the function of such an international court be assumed by one of the existing arbitration institutions or filled by a new one. I’d like to take this opportunity to argue against that idea.

Corporate atrocities, which are the symposium’s focus, may be crimes, but they also have a tort …

Harmonizing Third-Party Litigation Funding Regulation, Victoria Sahani

Faculty Scholarship

Third-party litigation funding is no longer a new phenomenon, but rather is a mainstay in global commerce and dispute resolution. Yet many observers still consider the third-party litigation funding industry as a “wild west” due to a lack of regulation in many countries. Some of the countries that have regulations suffer from a lack of uniformity and an array of conflicting laws at the sub-national level (i.e., the laws of states, provinces, territories, etc.). For example, the United States has a confusing patchwork of state laws on third-party litigation funding. This Article proposes harmonizing the regulatory framework for third-party litigation …

Incorporating Legal Claims, Maya Steinitz

Faculty Scholarship

Recent years have seen an explosion of interest in commercial litigation funding. Whereas the judicial, legislative, and scholarly treatment of litigation finance has regarded litigation finance first and foremost as a form of champerty and sought to regulate it through rules of legal professional responsibility (hereinafter, the "legal ethics paradigm"), this Article suggests that the problems created by litigation finance are all facets of the classic problems created by "the separation of ownership and control" that have been a focus of business law since the advent of the corporate form. Therefore, an "incorporation paradigm," offered here, is more appropriate. "Incorporating …

Does The Quality Of The Plaintiffs' Law Firm Matter In Deal Litigation?, David H. Webber, Adam B. Badawi

Faculty Scholarship

This Article examines how the stock market reacts to the filing of lawsuits against mergers and acquisitions targets as the quality of the plaintiffs’ law firm varies. Our primary dataset includes all cases of this type filed in the Delaware Chancery Court from November 2003–September 2008. We group the law firms that file these suits into higher and lower quality categories using several quantitative and qualitative measures. We hypothesize that target firm share value should reflect the likelihood that litigation will result in an increase in merger consideration. This effect is likely to depend, at least in part, on law …

The Case For An International Court Of Civil Justice, Maya Steinitz

Faculty Scholarship

We live in a world in which the victims of cross-border mass torts de facto (not de jure) have no court to turn to in order to pursue legal action against American multinational corporations when they are responsible for disasters. 1 The only way to provide a fair and legitimate process for both victims and corporations is to create an International Court of Civil Justice (ICCJ). This Essay seeks to start a conversation about this novel institutional solution. It lays out both a justice case, from the plaintiffs' viewpoint, and an efficiency case, from a corporate defendant's viewpoint, for why …

Third-Party Litigation Funding And The Dodd-Frank Act, Victoria Sahani

Faculty Scholarship

This article questions whether the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) should apply to the growing phenomenon of third-party litigation funding, in which outside entities invest in litigation or arbitration for profit. Currently, the United States, Australia, and the United Kingdom lightly regulate third-party litigation funding, but the majority of the day-to-day oversight comes through voluntary funder self-regulation. Most third-party funders of commercial disputes are private hedge funds that are subject to the securities regulations of the jurisdictions in which they operate. The Dodd-Frank Act is a relatively new statute in the United States that regulates …

Brief Of Amici Curiae Law, Business, And Economics Scholars In Alice Corp. V. Cls Bank, No. 13-298, Jason Schultz, Brian Love, James Bessen, Michael J. Meurer

Faculty Scholarship

The Federal Circuit’s expansion of patentable subject matter in the 1990s led to a threefold increase in software patents, many of which contain abstract ideas merely tethered to a general-purpose computer. There is little evidence, however, to suggest this expansion has produced an increase in software innovation. The software industry was highly innovative in the decade immediately prior to this expansion, when the viability of software patentability was unclear and software patents were few. When surveyed, most software developers oppose software patenting, and, in practice, software innovators tend to rely on other tools to capture market share such as first-mover …

Private Policing Of Mergers & Acquisitions: An Empirical Assessment Of Institutional Lead Plaintiffs In Transactional Class And Derivative Actions, David H. Webber

Faculty Scholarship

Transactional class and derivative actions have long been controversial in both the popular and the academic literatures. Yet, the debate over such litigation has thus far neglected to consider a change in legal technology, adopted in Delaware a dozen years ago, favoring selection of institutional investors as lead plaintiffs in these cases. This Article fills that gap, offering new insights into the utility of mergers and acquisitions litigation. Based on a hand-collected dataset of all Delaware class and derivative actions filed from November 1, 2003 to December 31, 2009, I find that institutional investors play as large of a role …

Toward A Regulatory Framework For Third-Party Funding Of Litigation, Keith N. Hylton

Faculty Scholarship

Because third-party funding and sales of legal rights are equivalent in terms of their economics, I examine arrangements in which third-party sales of legal rights are permitted today; those arrangements include waiver, subrogation, and settlement agreements. These existing arrangements provide valuable lessons for the appropriate regulatory approach to third-party financing of litigation.

A Model Litigation Finance Contract, Maya Steinitz, Abigail Field

Faculty Scholarship

Litigation financing is nonrecourse funding of litigation by a non-party for a profit. It is a burgeoning and controversial phenomenon that has penetrated the Unites States in recent years. Since "most of the important phenomena of modern litigation are best understood as results of changes in the financing and capitalization of the bar," it is not surprising that litigation financing has been dubbed by RAND as one of the "biggest and most influential trends in civil justice" and by the Chamber of Commerce "a clear and present danger to the impartial and efficient administration of civil justice in the United …

How Much Is That Lawsuit In The Window; Pricing Legal Claims, Maya Steinitz

Faculty Scholarship

This article poses the question: How should parties to litigation finance agreements – third party funding or contingency fees – deal with the inherent difficulty in pricing legal claims? It answers that a practical solution would be to use staged funding. Staged funding side-step the impossibility of accurately pricing litigation ex ante by allowing re-pricing and exit that are pegged to information disclosure. Done right, staging allows all parties to minimize the effects of uncertainty, better price their bargain, optimize the distribution of the proceeds of litigation between its different investors – far beyond practices common today. Staged funding also …

Injunctive And Reverse Settlements In Competition-Blocking Litigation, Keith N. Hylton, Sungjoon Cho

Faculty Scholarship

We distinguish standard settlements, in which the status quo is preserved, and injunctive settlements, which prohibit the defendant's activity. The reverse (payment) settlement is a special type of injunctive settlement. We examine the divergence between private and social incentives to settle and policies that would minimize socially undesirable injunctive and reverse settlements (e.g., banning reverse settlements). The results are applied to competition-blocking litigation, such as patent infringement and antidumping.

Recent Developments In Third-Party Funding, Victoria Sahani

Faculty Scholarship

This article addresses recent developments in third-party funding that occurred during late 2012 and early 2013 in the three leading jurisdictions: Australia, the United Kingdom and the United States. The most important developments are the following. On 22 April 2013, the Australian Securities and Investment Commission (ASIC) issued regulatory guidelines clarifying the status of funders with respect to ASIC’s regulations and detailing how funders should manage conflicts of interest and handle certain provisions of their funding arrangements. In the United Kingdom, the Jackson Reforms took effect on 1 April 2013, bringing sweeping changes to the allowable fee agreements, discovery rules …