Utopia, you are standing in it!

A lawsuit with a low probability of success at trial, brought even though the plaintiff knows that his probability of prevailing would not justify his costs if the judicial process were to be completed instantly.

Eric Rasmusen

There are a range reasons why plaintiffs bring suits with little or no chance of success; some of these reasons include extracting a small cash settlement from a respondent who is too busy to spend time in court, and preparing for court. In the area of intellectual property law, nuisance suits are sometimes called patent trolls. Patent trolls are a real problem with major corporations spending large sums of money to defend these suits.

Courts are increasingly used as a high-cost, last-resort venue of business negotiation for parties who are unable to negotiate more economically.

It is costly to respond to the plaintiff’s nuisance suit and failure to respond will lead to a default judgment against the defendant. The defendant will settle with a plaintiff for any amount less than the cost of responding to the plaintiff’s complaint even if the suit is wholly meritless.

The source of nuisance suits is the ability of the plaintiff cheaply to place the defendant in a position where he would lose unless he engaged in a relatively costly defence.

Nuisance suits actually have quite a simple solution in the case of plaintiffs who really don’t want to go to court even in the American system where each party pays their own legal fees.

That solution is to call their bluff by tying your own hands in terms of offering a settlement out of court. Introduce a legal rule that gives defendants the right to have courts declare that settlement agreements will not be enforced. Defendants can simply waive their right to settle out of court and have any such settlements enforced in courts.

This burning of the bridges by the defendant on any option of settlement puts the vexatious litigant in the position of having to go to court even though they don’t want to incur those expenses.

The vexatious litigant will drop the case because they have nothing to gain, and something to lose by going to court, especially in the English system where the losing party pays part of the other side’s costs. Anticipating that the defendant would elect to prevent court enforcement of any settlement, the plaintiff would not bring his nuisance suit in the first place.

The optional for going the right to settle out of court will not deter all nuisance suits.

• The suits might be a a grudge suit or official vindication of one’s cause.
• The plaintiff may value the publicity as is commonly suspected of public prosecutors who bring sensational but legally dubious civil or criminal suits.
• The plaintiff may value the delay that litigation brings. If the suit includes a preliminary injunction, or if the plaintiff can win with a biased lower court even if he knows he will lose on appeal, he is able to delay something costly to them. The defendants may be able to delay yielding up property or complying with rules. Also, especially in land-use disputes, delay may enable a litigant to lobby to change the relevant law to his advantage.

There are limited versions of this prevention of the enforcement of offers of settlement through payment into court and Calderbank offers of settlement without prejudice save as to costs.

Under each of these litigation cost rules, if an offer of settlement is made without prejudice save as to costs, if the plaintiff does no better in court than he does under a prior settlement offer made without prejudice save as to costs, he is not entitled to recover costs of litigation beyond the point where the settlement offer was made.

The issue with which of the American and English system of liability for costs deters low value litigation is for another blog. As a hint, the English system where the losing party pays a substantial part of the winning party’s costs, makes strong cases stronger and weak cases weaker. Strong cases are more likely to go to trial because they also get the costs back.

A loser-pays rule for legal fees doesn’t work if the nuisance suit is filed with the intention of never ending up in court, but rather to waste the time of defendant, and that time is sufficiently valued by the defendant that it will pay a small cash sum for the suit to go away.

Nuisance suits are different to suits that profit from errors of law by the courts.  Many suits that appear ridiculous win. Their problem is not procedure, but substance.

The proper derogatory term is court error and unjust law, depending on whether other courts would replicate the same bad result. Such suits may make up the bulk of what the public complains of as nuisance suits, but are hard to remedy by procedural reform.

HT: Eric Rasmusen