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Wednesday, May 13, 2020

Proof Discontinuities and Civil Settlements (by Mark Spottswood)

Posted on behalf of Mark Spottswood as part of the Legal Discontinuities Online Symposium:

Few areas of the law involve more “bumpiness,” as Adam Kolber would put it, than traditional burden of proof rules.  Consider a jury that has heard enough evidence to think that a civil defendant is 49% likely to be guilty.  Under existing law, they are expected to award precisely $0 in damages to the plaintiff.  Add a tiny shred of additional evidence, which is just strong enough to push their confidence level in guilt up to 51%, and we instead expect them to award full damages.  The evidence in the two cases is nearly identical, but the result is radically different.

Many scholars have previously questioned the optimality of this arrangement, especially in comparison with what I have called a continuous burden of proof rule.  If we think of the traditional rule as a light switch, moving from 0 to full damages once its threshold point is reached, the continuous rule is instead like a dimmer switch.  As the jury’s level of belief in guilt rises from 0% confidence to 100% confidence, a continuous rule incrementally escalates the level of damages they should award from $0 to the full amount of damages suffered by a plaintiff.  Such rules have a number of attractive features.  First, they provide better deterrence in cases where parties can foresee, when acting, how likely a jury will be to find them liable.  Second, they spread expected outcome errors more evenly across parties, so that fewer innocent defendants pay the full amount of damages, and fewer deserving plaintiffs receive an award of $0.  Third, they reduce the impact that various biases and other sources of unfairness may have on the judicial process.  And finally, they may also reduce incentives that parties currently have to destroy evidence or intimidate witnesses into silence.  But these benefits come at a cost.  As David Kaye has shown, we should expect the traditional rule to produce a smaller amount of expected error at trial than the continuous rule, at least in single-defendant cases. 

Of course, the preceding discussion ignores an important means by which parties themselves may smooth the law’s bumpiness, which is by settling their cases for an agreed-upon sum.  Parties settle far more cases than they take to trial.  Moreover, parties typically take expected outcomes at trial into account when making settlement decisions.  As a result, if we seek to optimize expected trial outcomes in isolation, without attending to how our trial rules may alter settlement behavior, we may work unintended harm, either by undermining parties’ ability to avoid high litigation costs through settlement, or by incentivizing settlement amounts with higher rates of expected error.  Thus, for my contribution to the Legal Discontinuities conference, I attempted to take some initial steps towards understanding how parties’ might change their settlement behavior if we shift from our traditional burden of proof rule to a continuous alternative.

I started with a simple economic model of the decision to settle cases and modified it to account for the ways that parties’ outcome expectations might vary depending on the choice of a burden of proof rule at trial.  The main mechanism whereby different rules might affect the decision to settle, in this model, is by causing the parties to either reach more similar forecasts of their trial outcomes (in which settlement is likely) or to have more divergent expectations (which makes them more likely to take a case to trial).  As the article shows, neither rule creates a greater or lesser settlement incentive across all cases.  Instead, the traditional rule leads parties to have more similar outcome expectations in “easy” cases, in which an unbiased observer would expect a jury to find a probability of liability that was quite close to either 0% likely or 100% likely.  But in cases with less certain outcomes, the continuous burden rule has the advantage, leading to more settlements in cases that are moderate or “hard” (i.e., an expected level of confidence in guilt that is close to 50%).  Moreover, the continuous burden’s advantage in these cases is larger than the traditional rule’s advantage in easy cases.  As a result, shifting to the continuous burden of proof would create an incentive to settle slightly more cases than we see under the present rule.




The paper also considers the fairness of the settlements that each rule produces, measured as the expected amount of error that each settlement contains, relative to a baseline in which each party gets exactly what they deserve.  For reasons that are explored in the paper, the continuous burden produces settlements with a lower expected error rate than we see using the traditional rule.  Interestingly, this benefit is concentrated in cases with relatively small amounts in controversy, and in fact the traditional rule produces more accurate outcomes in cases with more than $100,000 at stake.  But since small cases vastly outnumber large cases in our actual legal system, we should expect a higher overall rate of error from the traditional rule. 

Thus, for those who find settlement of cases to be a generally attractive policy, the continuous burden of proof rule lets us both have our cake (in the form of a higher settlement rate) and eat it, too (in the form of more accurate settlements).  There is more in the paper (including analysis of a third kind of proof burden), but this blog post is already long enough.  My one concluding thought is a cautionary one.  This paper is meant to be a first step into understanding the role that continuous proof burdens can play in shaping settlement incentives.  Ambitious scholars who are willing will find that there are many ways in which the present project could be extended.  For myself, I am grateful to Adam and Talia for organizing a delightful conversation around legal discontinuities, which gave me the opportunity to shed at least a little light on some of these questions.

This post is adapted from a draft paper, Proof Discontinuities and Civil Settlements, to be published in a forthcoming symposium issue in Theoretical Inquiries in Law. The papers were part of the Legal Discontinuities conference held at Tel Aviv University Law School’s Cegla Center in December 2019.

Posted by Adam Kolber on May 13, 2020 at 12:01 PM in Symposium: Legal Discontinuities | Permalink


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