Nuisance Suits

William Hubbard

Abstract

This paper develops a simple but general model of negative-expected-value (NEV) suit and settlement given symmetric information. It accounts for the roles of the merits, litigation costs, and bargaining power; incorporates complaints and answers for which parties' investments in pleading detail are endogenously determined; permits strategic default by the defendant; and nests several existing models of NEV litigation as special cases. It generates testable, counterintuitive, empirical predictions and facilitates normative analysis. For example, the model predicts that plausibility pleading standards will have modest effects in deterring low-merit suits but may be harmful to plaintiffs and defendants settling stronger cases.