Why Barring Settlement Bars Legitimate Suits: A Reply to Rosenberg and Shavell

Ted M. Sichelman, University of California, Berkeley, School of Law

Abstract

Professors David Rosenberg and Steven Shavell recently proposed granting defendants an "option to bar settlement" to discourage frivolous suits filed for a mere "nuisance-value" settlement. By exercising this option, a defendant could prevent judicial enforcement of any ensuing settlement agreement between the parties. Rosenberg and Shavell contend that if courts were to foreclose settlement, a plaintiff would drop its nuisance-value suit, because its costs of litigating to judgment would exceed its expected benefits. They conclude that because defendants would only exercise the option if faced with a nuisance-value suit, adopting it would be socially beneficial. Although an option to bar settlement is an innovative proposal and an important scholarly contribution, this Article shows that it could be highly problematic. First, a defendant would often exercise the option in small-stakes, high-cost, meritorious suits, which would decrease social welfare. Second, the option would fail to prevent many high-stakes, low-cost, frivolous suits. Finally, Rosenberg and Shavell’s analysis depends on a problematic definition of "nuisance suit," questionable simplifying assumptions, and speculative, empirical assertions. In sum, without additional investigation, it would be folly to adopt an option to bar settlement.