1. Agenda for 24th Class Name plates out Subject matter jurisdiction
Federal Question Jurisdiction
Settlement
Next Class -- Settlement
Settlement Handout
Writing Assignment (Group 2)
Suit & Settlement Problems
NOT Fee Shifting Problems
New writing assignment policy
If have written 2 pages, can stop and get full credit
Single-spaced, 12 pt font, reasonable margins

2. Last Class – 1391 Ambiguities I
Def1 is a corporation which is headquartered in SDNY and incorporated in Delaware
Def2 is individual domiciled in New York City (SDNY)
Is venue proper in Delaware?
Literal reading of statute would say “yes,” but not consistent with purpose
1391(b)(3)
Def1 resides in SDNY; Def2 resides in ED Cal
All events relevant to suit took place in Canada
Is venue proper in EDNY? Is venue proper in ND Cal?

3. Last Class – 1391 Ambiguities II
Def resides in LA on student visa. Def is domiciled in Canada.
Is venue proper in LA under 1391(c)(1)
Literal reading would say, “no,” because not domiciled in LA
Is venue proper anywhere in the in the US under 1391(c)(3)
Literal reading would say, “no,” because that section only applies to a person “not resident in the U.S.”
Perhaps venue is proper anywhere in the US, because under 139a(c)(1), D is “deemed to reside” in Canada (because domiciled there), so really D is “not resident in the U.S.”

4. Federal Question Jurisdiction
US Constitution, Article II, section 2. “The Judicial Power shall extend to all Cases, in Law and Equity, arising under this Constitution, the Laws of the United States, and Treaties….”
28 USC 1331 “The district courts shall have original jurisdiction of all civil actions arising under the Constitution, laws or treaties of the United States.”
Same words “arising under … Constitution, laws….” interpreted differently
In interpreting 28 USC 1331, the words mean federal law is part of a “well pleaded complaint” (e.g. it’s part of the plaintiff’s cause of action)
As a matter of constitutional interpretation, those words mean any case in which federal law affects the outcome (even if federal law is defense)
That’s how the US Supreme Court can hear appeals from state supreme courts when federal issue was a defense
It’s how Mottley eventually got to the Supreme Court
It’s how most First Amendment cases get to the US Supreme Court.
Public official sues reporter for defamation in state court. Reporter claims protection of 1st Amendment. Case goes to state supreme court and then US Supreme Court

5. Federal Q J Qs Summarize Louisville.
Your summary should include the answer to Yeazell. P. 199 Q1
Under the FRCP as it exists today
If plaintiff had drafted a “well pleaded complaint,” what would have been the key allegations of that complaint?
If plaintiff had drafted a well-pleaded complaint, what paper would defendant have filed in response? What would have been the key elements of that paper?
How would plaintiff have raised the unconstitutionality the Act of Congress which the defendant alleges prohibited giving the passes that the railroad gave the Mottleys?
If defendant’s answer had admitted that it had given passes to the Mottleys, but argued that they were invalid, what motion would the plaintiff have had to make in order to get the Court to grant the Mottleys the relief they requested without discovery or trial?
Yeazell pp. 199ff Qs 2, 3, 4b,
Under 28 USC 1441(a) & (b), if plaintiff had brought the two cases at issue in Yeazell p. 199 Q2 in state court, which of the two cases could defendant remove to federal district court?

6. Settlement I
A settlement is a contract between the plaintiff and the defendant
Usually the defendant promises money or other relief to the plaintiff
The plaintiff promises to drop the case and/or not to bring related cases
Usually involves compromise
Extremely common
Roughly 2/3rds of cases settle
A quarter are resolved by motions to dismiss and summary judgment
Only about 5% go to trial
Usually negotiated by lawyers
Sometimes assisted by judge --- Settlement conference
Sometimes assisted by mediator
Mediation is sometimes required by courts
Mediation is sometimes completely voluntary
Settlement can occur at any time
Before filing of suit; before, during, or after discovery; during trial; while case is on appeal…
Often settlement happens after discovery is complete and after summary judgment

7. Settlement II Advantages Saves litigation costs for parties and courts
Reduces uncertainty
Can provide relief that courts cannot or would not order
Apology, continuing business relationship, etc.
Can preserve secrecy/confidentiality
If part of settlement agreement
Disadvantages
No precedent
Usually provides less than full relief
Secrecy means public may never learn about wrongdoing
Judicial policy is to encourage settlement
Buffalo Creek, Part III provides good description of settlement negotiation
Harr, A Civil Action, provides even better description

8. Economic Model of Settlement I
Economic models are simplifications of reality
But can provide insight into real world
There are many more complicated models of settlement that take into account informational asymmetries, the multi-stage nature of litigation, multiple parties, and other complications not included in the model you read
Plaintiff determines minimum settlement amount it will accept
= expected recovery if goes to trial
= (Estimated probability of prevailing x damages if prevails) – litigation costs
Litigation costs here are additional costs incurred if case does not settle
Cost already incurred are sunk costs, which should not effect negotiations
Irrational to settle for less than expected value of going to trial
at least if plaintiff is risk neutral

9. Economic Model of Settlement II
Defendant determines maximum settlement amount it will accept
= expected liability if goes to trial
= (Estimated probability of plaintiff prevailing x damages if prevails) + litigation costs
irrational to settle for more than expected liability if goes to trial
at least if defendant is risk neutral
Litigation costs, as above, are additional costs incurred if case does not settle
Note that litigation costs are ADDED to expected liability for defendant, but SUBTRACTED from expected recovery of plaintiff

10. Economic Model of Settlement III
Plaintiff’s estimate of its probability of prevailing may differ from defendant’s estimate of plaintiff’s probability of prevailing
If plaintiff’s estimate is higher, then parties are optimistic relative to each other
e.g. plaintiff thinks it has a 70% of prevailing, but defendant thinks plaintiff has a 40% chance of prevailing
Or plaintiff thinks it has a 30% chance of prevailing, but defendant thinks plaintiff has a 20% chance of prevailing
If plaintiff’s estimate is lower, then parties are pessimistic relative to each other
If plaintiff’s minimum acceptable offer is higher than defendant’s maximum offer, then settlement is impossible
If plaintiff’s minimum acceptable offer is lower than defendant’s maximum offer, then settlement is possible
But still might not happen, if parties engage in strategic behavior and fail to reach agreement an exact settlement amount

11. Economic Model of Settlement IV
Factors encouraging settlement
Mutual pessimism
High litigation costs
Risk aversion
All lower plaintiff’s minimum acceptable offer and increases defendants maximum offer
Factor discouraging settlement
Mutual optimism