The Importance of Litigant Wealth

ing away from the example above, we can consider how parties' resources affect the various stages of litigation. When deciding whether to file a suit, a plaintiff is deciding whether to "invest" in litigation based on whether the expected net returns are positive. Existing models inform us that when net returns are negative (i.e., xp Cp < 0), then the plaintiff will not bring suit. Negative returns can reflect three different states of the plaintiff's case: (1) it is nonmeritorious or weak; (2) it is meritorious, but it requires more expenditures in legal representation than the case is worth; or (3) it is meritorious, but the plaintiff lacks the resources to bring suit. While it is difficult, if not impossible, to determine the distribution of prospective plaintiffs across these three categories, cost constraints prevent some plaintiffs from bringing meritorious suits (i.e., plaintiffs in State Two or Three). Conversely, plaintiffs without constraints on resources may bring nonmeritorious or weak suits (i.e., plaintiffs in State One). Of course, the example above does not capture the full effect of choices on litigation expenditures for settlement and trial. It assumes that a party's expected outcome depends only on her own expenditure level; in actual litigation, outcomes are likely jointly determined by both parties' choice of litigation expenditures. The degree to which parties can exploit their resources depends on the resources of their opponents. For example, all things equal, a party who can incur high litigation expenditures would fare better when her opponent can incur only low expenditures than when her opponent can also incur high expenditures. 71 In general, resource constraints may promote settlement to the extent to which they enable the plaintiff's expected net return (xp c%) to fall below the defendant's expected net return (xd + Cd). In so doing, these constraints may influence not simply the decision to settle or proceed to trial, but also the substantive terms within that decision. To the extent that higher litigation expenditures produce a higher net return-a reasonable assumption, given that parties would be acting irrationally to incur these expenditures otherwise-relative resource advantages skew the expected settlement or trial outcome in favor of the wealthier party. The normative implications are outside the scope of this Article; my point here is simply to show how resource disparities may affect outcomes in ways that are unobservable to those who are not personally involved in the litigation. Terms of settlements are typically non-public; trial outcomes, while public, do not reveal the 71. In addition, the model assumes binary expenditure levels, whereas actual litigation expenditures are a continuous variable. Vol. 59:649 2010] THE IMPORTANCE OF LITIGANT WEALTH 669 parties' relative resources or the degree to which they produced the observed outcome. While proponents of tort reform have argued that the current legal system makes wealthy individuals vulnerable to frivolous lawsuits, 72 this Article makes the opposite argument: the current system actually disfavors those with resource constraints. In litigation, prospective plaintiffs with resource constraints may elect not to bring suit. Plaintiffs who do bring suit may find that that wealthier defendants can exploit their resource advantage through various mechanisms-such as prolonged discovery-to prevail or resolve the dispute on favorable terms. Wealthier plaintiffs can use their resource advantage to achieve similarly favorable terms. VI. EXISTING MECHANISMS TO MITIGATE RESOURCE DISPARITY AND THEIR LIMITS Our legal system offers various mechanisms that directly or indirectly mitigate the consequences of parties' resource constraints. While certainly helpful to address substantive and procedural issues that arise in litigation, these mechanisms are limited in their ability to address the full consequence of resource constraints.