Settlement and Trial Go Hand-In-Hand

Posted By Jonathan Kendrick, Dec 18, 2012

In 1984, swimming against the rising tide of alternative dispute resolution (“ADR”), Owen Fiss published “Against Settlement” in the Yale Law Journal.  His article drew attention to the shortcomings of settlement as compared to trial in producing optimal dispute resolution outcomes.  The article provoked a flood of articles either in support of, or against, his position.  Many of those works suggested that the choice was a binary one:  “settlement” or “trial.”  The theoretical advantages and disadvantages of the two approaches to dispute resolution were hashed out in law journals across the country.  In the meantime, the real world moved on. Today, the idea that settlement and trial are functionally interdependent is, for the most part, a noncontroversial notion.  The specter of looming trial impacts settlement behaviors and outcomes; rules of civil procedure are structured to facilitate on-going settlement dialog between litigants as they move towards trial.

While settlement and trial reinforce each other, they are fundamentally different.  To understand how these processes complement each other, it is useful to examine their advantages and disadvantages.  The chart below, drawn from concepts explored by Michael Moffit in his article “ Three Things to be Against (‘Settlement’ Not Included),” illustrates those advantages and disadvantages.

 

 

Settlement

Trial

“For”

Docket Clearance - Frees up judicial resources by reducing courts' caseloads.

Law articulation - Clarifies legal rules for similarly situated future disputants

Value Creation - Settlement can produce dispute resolution outcomes that create value for all involved parties by converting disputes into opportunities.

Enforcement - Courts have the ability to enforce their decisions and ensure implementation.

Ability to Address Non-Legal Issues - Non-legal issues, such as emotional concerns or relationship interests, can be as important to disputants as legal interests. Settlement provides an opportunity to address those issues that trial does not.

Judicial Scrutiny - Shapes the behavior of disputants by providing a check on fraud and coercion.

Customizable - Allows disputants to structure dispute resolution to meet their own needs

Societal Impact - Cases such as Brown v. Board of Education affect our notions of social justice and how we structure our communities and institutions.

 

“Against”

Filtering effect – Some cases that settle would have been more useful to society had the case undergone trial to set precedent or clarify the law.

State of Judicial Babel - The sheer volume of written judicial opinions make it difficult to define clear boundaries to the law. It can be difficult to navigate this prodigious output and sometimes contradictory propositions can find ample support in case law.

Information Gaps - Without a formal discovery process parties have to make assumptions about the strengths and weaknesses of the opposing party's cases.

Lack of Value Creation - Courts approach disputes in a zero-sum manner. However, there are often opportunities for settlement outcomes that could make both parties better off.

Interests of Nonparticipants - Settlement only binds or impacts the immediate disputants and generally does not protect the interests of nonparticipants.

Narrowly Defined Issues / Participants - Limits issues and disputants through controversy and standing requirements.

 

Through those differences between settlement and trial, we can actually see how they are complementary processes. Settlement relies on trial courts to clarify the law, enforce agreements, and to provide judicial scrutiny. Written legal opinions clarify the legal rules that shape settlement talks. They define the legal issues at stake and influence parties’ perceptions of the strengths and weaknesses of their cases. For example, a court decision that no property damage is necessary for a commercial fisherman to have a negligence cause of action against an oil company for polluting waters might cause another oil company to come more eagerly to the settlement table following a blow-out at an off-shore oil rig. Trial also strengthens settlement by providing a mechanism to enforce settlement agreements. If one of the parties does not comply, the other party can seek a court order compelling compliance with the terms of the agreement. Finally, the prospect of judicial scrutiny places a check on bad behavior during settlement. Parties are less likely to engage in fraud, coercion or other dishonest behavior knowing that a court has the ability to rescind the resultant agreement or impose sanctions. The existence of trial courts strengthens the settlement process.

The trial process, in turn, is strengthened by the existence of settlement. Modern rules of civil procedure encourage settlement efforts throughout the litigation process. Some courts require that some form of ADR be attempted.  When cases settle, they drop off the court docket and reduce the strain on judicial resources. Settlement also removes disputes that are not well-suited to resolution through trial by offering the prospect of addressing emotional and relational interests.  For example, while courts frequently decide custody disputes, settlement allows parties to shape custody in ways that address their emotional and relational interests in the long run.

In today’s world, it does not make sense to be “against settlement” or “against trial.” Both approaches to dispute resolution have advantages and disadvantages.  It is important to recognize the ways in which they can succeed or fail in producing desirable outcomes.  The reality is that our legal system needs both settlement and trial to function properly and to produce ideal outcomes.

For a more detailed look at how trial and settlement intersect in modern practice, as well as analysis on how trial and settlement can be affected by power imbalances, agency costs and meaningful access to courts, see Michael Moffit’s article “Three Things to be Against (“Settlement” Not Included)” in the December 2009 Fordham Law Review.