How Settlement Culture is Hurting Us All

September 21, 2013

In late August, one week before the 2013 season kickoff, the National Football League reached a tentative settlement in concussion-related litigation with former players. After months of court-ordered mediation, the league agreed to distribute $765 million among thousands of retired players who claimed that it encouraged them to incur repeated head injuries and intentionally concealed the risk of long-term neurological consequences. It is not surprising that those involved found the settlement attractive: it offers immediate relief to ailing former players, it permits the NFL to continue to keep its concussion-related records out of the public eye, and it clears from Judge Anita Brody’s docket a case that could have dragged on for years. But anyone interested in definitively knowing whether the NFL knew that its practices emulsified players’ brains at all levels of the game is out of luck. Under other circumstances, the truth may set you free, but usually all you need to get out of potentially embarrassing litigation is a fat wad of cash and a carefully worded press release. Settlements, whether by sidestepping discovery NFL-style, or binding a plaintiff into silence through a gag order, co-opt the courts into suppressing truth rather than seeking it – yet they are exactly what that the modern American legal system has been engineered to produce.

In settlement, the parties to litigation agree to resolve the case privately instead of subjecting it to a judge or jury’s decision. Only under certain circumstances, including class action litigation and cases involving minor children, must a judge approve the settlement agreement. The notion that settlement allocates resources more efficiently than trial has been enshrined in our civil procedure. Accepted wisdom tell us that settlement is cheaper for the litigants, who otherwise would divert time and money from more productive enterprises to trial, and that it’s cheaper for the public, who pay to keep the lights on in the courtroom. But there are hidden costs to settlement, and the public bears them. Conflict resolution may be a private matter, but the law is a public good. Settlements resolve conflicts, but they usually lock the public out of the process.

It wasn’t always this way. By the late 1970s, civil dockets had exploded with complex cases that took longer and longer to resolve. Prominent lawyers began agitating against the “excessive litigiousness” and “litigation neuroses” of the American public. (How prominent? Among them was Warren Burger, then Chief Justice of the Supreme Court.) Subsequent research revealed that the cases gumming up the works tended to be business disputes rather than the mass tort, products liability, personal injury, employment, and civil rights matters typically associated with the red-blooded American plaintiff, but never mind that. Instead of arguing in favor of more courtrooms, more judges, and more trial resources, Burger championed a shadow legal system: settlement mediation and private arbitration in lieu of trial. He argued in a 1982 article published by the American Bar Association that “[t]he law is a tool, not an end in itself.” If the parties can work it out without getting a taxpayer-financed court involved, with all its messy rules and evidence and procedures and appeals, why should we stop them? (Paradoxically, Burger also argued that resolving cases out-of-court somehow would increase access to the courts: “All litigants standing in line behind a single protracted case – whether it is a one month, a three month, or a longer case – are denied access to that court.” That’s true Chief, but so are litigants who get funneled into settlement negotiations or arbitration proceedings.)

The Chief soon got what he wanted. In 1981, the Supreme Court held for the first time in Delta Airlines, Inc. v. August that “the purpose” of the previously obscure Rule 68 of the Federal Rules of Civil Procedure was “to encourage the settlement of litigation.” Rule 68 punishes plaintiffs who refuse offers of judgment, which are similar to settlement offers. If a trial judgment fails to exceed a defendant’s offer, the Rule requires the plaintiff to pay all court costs incurred by the defendant after the offer was rejected. In 1983, a slew of other rules were amended to discourage trial, including increased sanctions for frivolous litigation, a requirement that judges use pretrial conferences to facilitate settlement, and an opportunity for judges to limit the defendant’s discovery obligations based on a cost-benefit analysis. (Limitations on discovery tend to favor defendants over plaintiffs, because discovery provides the information plaintiffs usually need to meet their burden of proof.) In 1985, the Supreme Court revisited rule 68. In Marek v. Chesny, the Court held that victorious civil rights plaintiffs, who usually are awarded attorneys’ fees by a federal law designed to encourage meritorious cases, would not be able to recover attorneys’ fees if they had rejected an offer that exceeded the final judgment. Litigation was already a gamble, and Marek v. Chesny raised the stakes for civil rights plaintiffs.

Settlement is now an end in itself. Judges operate under the assumption that “a bad settlement is almost always better than a good trial.” This cannot be, because a bad settlement costs far more to society than a trial ever could. Settlements commonly employ confidentiality agreements known as “gag orders,” which condition payment on the parties’ silence. A party that violates a gag order can be forced to return any money or benefits received in the settlement. Gag orders range in severity, but have been used to silence female employees allegedly harassed by New York State Assemblyman Vito Lopezsurvivors of car crashes involving Ford Explorers with Firestone tires, and victims of sex abuse by priests in the Archdiocese of Boston. In theory, this means a sex abuse victim can use settlement money to pay for therapy, but can’t discuss sex abuse with the therapist.

It also means we live in a legal regime that values avoiding trial more than protecting speech. Although some state legislatures have placed restrictions or outright bans on confidential settlements, they persist at the federal level. Proponents argue that if gag orders were removed from the bargaining table, parties would enter fewer settlements. We should be perfectly comfortable with that outcome. The social cost of shielding information about dangers like systemic sex abuse and deadly product defects from potential future victims is far greater than the cost of a trial. Confidential settlements put gags on plaintiffs and blindfolds on the rest of us – so we can’t see that the car we’re driving is about to explode.

Gag orders also have troubling implications for political speech. Earlier this year, a Pennsylvania judge unsealed a now infamous 2011 confidential settlement between the Hallowich family and drilling companies they claimed polluted their property. The family alleged that chemicals released by hydraulic fracturing (commonly known as “fracking”) contaminated their well and made family members sick. The settlement included a gag order prohibiting the entire family – including their seven and ten-year-old children –from discussing fracking in any context. Ever. Setting aside the ridiculous prospect of enforcing a court sanctioned vocabulary restriction on a seven-year-old, widespread use of gag orders like the Hallowich’s could seriously alter the political landscape. Fracking is a politically charged issue in Pennsylvania. It is divisive and regularly debated at the state and local level. If everyone who settles a lawsuit related to fracking is forever forbidden from talking about it, one can imagine an eerie silence on one side of the aisle.

In a sense, defendants pay for silence in public settlements, too. Public settlements allow defendants to avoid discovery, which would expose them to public scrutiny. In the concussion settlement, for example, plaintiffs may speak freely about their injuries. We know former NFL players face increased risks of degenerative brain disease. We know the NFL studied the neurological risks of repeated concussions, and that its conclusions often conflicted with those of independent scientists. But without discovery (or Congressional intervention), no one can require that the NFL reveal whether it intentionally maintained policies that made the game riskier than anyone knew. Future NFL players – and NCAA players, and high school players, and peewee players – have a stake in that information. Everyone who contributes to the billions of dollars in profits NFL will post next year has a stake in that information. Without disclosures from the NFL, no one else knows exactly what kind of game football is: in the press release, the NFL explicitly refuses to admit “that plaintiffs’ injuries were caused by football.” And the NFL has no obligation to admit to anything – or to change anything.

Even the most transparent, fairly bargained settlements still leave something to be desired: legal precedent. For example Bank of America recently settled two cases claiming racial and gender discrimination among Merrill Lynch brokers. (Merrill Lynch is now a division of Bank of America.) As far as settlements go, these look pretty good: they are public, they institute specific new policies to prevent future discrimination, they appoints monitors to make sure the changes work, and they compensate plaintiffs for the wage losses they suffered as a result of discrimination. But Merrill Lynch has been making similar commitments to resolve race and gender discrimination claims out of court for the past forty years. Instead of bringing its policies to a full legal reckoning at trial, the bank has entered serial, one-off, private agreements. We don’t know whether Bank of America and Merrill Lynch, or other companies with similar policies, were discriminating unlawfully when they first began settling large-scale civil rights cases in the 1970s. We don’t know whether they are discriminating unlawfully now.

This is important, because our entire civil legal system is based on open trials, published decisions, and stare decisis, which means that judges look to previous decisions in similar cases to understand how the law should be interpreted in the dispute at hand. According to Alexander Hamilton, robust legal precedent was the cornerstone of a fair civil legal system:

“To avoid an arbitrary discretion in the courts, it is indispensable that they should be bound down by strict rules and precedents, which serve to define and point out their duty in every particular case that comes before them; and it will readily be conceived from the variety of controversies which grow out of the folly and wickedness of mankind, that the records of those precedents must unavoidably swell to a very considerable bulk, and must demand long and laborious study to acquire a competent knowledge of them.”

In that sense, law is an end in itself. Trials result in judicial decisions that give us a better understanding of the laws that we have to follow. When we allow settlement to privatize dispute resolution, we forfeit the public benefit of well-developed, consistently applied case law.

Law is not necessarily the deciding factor in settlement negotiations. In any nonfrivolous lawsuit, the plaintiff has sustained an injury or some kind of harm, or is facing imminent injury or harm. If he weren’t, he would have no reason to sue. This power imbalance informs the parties’ negotiating positions: an injured party is seeking relief from the party that he thinks injured him. In settlement negotiations, law is nothing more than leverage. Money is leverage. Time is leverage. The threat of discovery is leverage. So is the threat of untreated injury. In the case of concussion litigation, ESPN reported that “[p]art of the NFL’s strategy to bring the players’ monetary demands down included pointing out that years of litigation would have the effect of denying the players – many of who needed medical and financial assistance – the help they needed.” Even when a plaintiff has a strong legal claim, the prospect of delay and continued suffering paired with the risk of ending up with a less lucrative judgment after trial (remember Rule 68?) offers a strong incentive to settle. Settlement is a business negotiation where everyone one side of the table is bleeding and the other side has all the bandaids.

This power imbalance means that, at least in theory, cases involving plaintiffs with the most serious injuries and the most promising legal claims are the least likely to go to trial. Plaintiffs have an incentive to resolve the matter quickly. Defendants have an incentive to avoid reputation damaging discovery and an adverse judgment at trial. New York City’s policy toward settling civil rights claims illustrates this incentive: earlier this year, the Bloomberg administration publicized a strategic decision to choose trial over settlement, but only in frivolous cases. The administration continued to vigorously pursue settlement for any claims it felt had merit – that is, claims in which a judge or jury would likely find that a city employee unlawfully discriminated against the plaintiff. Similarly, when asked about swelling cost of police misconduct settlements last year, an attorney for the city explained that a decision to settle is not an admission of wrongdoing,  “it is a complex business judgment based on, among other things, the inherent riskiness of litigation.” The “inherent riskiness of litigation” is a euphemism for the strength of the plaintiff’s claims. A prevalence of “risky” civil rights claims against a city means a prevalence of civil rights violations by the city. Settlement means the public may never hear about it.

Bree Bernwanger is a lawyer and writer based in New York. She holds degrees from the University of Texas and Georgetown Law.