The Federal Rules of Civil Settlement

The Federal Rules of Civil Procedure were originally based upon a straightforward model of adjudication: Resolve the merits of cases at trial and use pretrial procedures to facilitate accurate trial outcomes. Though appealing in principle, this model has little relevance today. As is now well known, the endpoint around which the Federal Rules were structured — trial — virtually never occurs. Today, the vast majority of civil cases terminate in settlement. This Article is the first to argue that the current litigation process needs a new regime of civil procedure for the world of settlement. This Article begins by providing a systemic analysis of why the Federal Rules inadequately prevent settlement outcomes from being distorted relative to the underlying merits — as defined by reference to substantive law — of a given dispute. It then explains how the Federal Rules can actually amplify these distortions. Indeed, notwithstanding the well-worn adage that settlement occurs in the “shadow of the law,” scholars have shown that non-merits factors exert significant influence on settlement outcomes. However, these insights have not been considered together and combined with a systemic focus on the ways in which the influence of these factors on settlement outcomes is actually a product of the basic structural features of the Federal Rules. This Article takes these next steps to explain that the “shadow of the law” that is cast on settlements is fading. Further, this Article discusses a new phenomenon in the current litigation environment — namely, that litigants’ increased reliance on prior settlements as “precedent” for future settlement decisions may move settlement even further out of the “shadow of the law” and into the “shadow of settlement” itself. This Article then traces these problems to three foundational assumptions underlying the Federal Rules of Civil Procedure, all of which have become outmoded in a world of settlement. In rethinking these assumptions, it provides a new conceptual account that contextualizes previously isolated procedural reform proposals as challenges to these foundational assumptions. It also explains how these reform efforts ought to be refined and extended with a specific view toward systematically redesigning the basic model and operation of the Federal Rules for a world of settlement. Lastly, it sets forth new proposals that seek to reorient current rules expressly toward the goal of aligning settlement outcomes with the merits of underlying claims. What emerges is a new vision of procedure — one in which the application of pretrial procedural rules do not merely facilitate trial but are designed to provide litigants with guidance regarding the merits of claims and are used to align settlement outcomes more meaningfully with the dictates of the substantive law. In describing this vision, this Article lays the groundwork for the design of a new Federal Rules of Civil Settlement.