Judicial Review of Settlements and Consent Decrees: An Economic Analysis

It is a well-known fact that most litigation, civil and criminal, ends in settlement rather than trial. Somewhat less attention is paid to the rules that govern the process of settlement. This should not be too surprising, given that the general rule is that there are no rules: parties to a lawsuit are free to settle without obtaining the court's approval. But there are several exceptions, areas where the parties must seek and obtain judicial approval of their settlement. Judicial review of settlements rests on the notion that the parties to the settlement have neglected to take into account the interests of others who may be adversely affected by the settlement. While judicial review is one response to such inadequate-representation problems at the settlement stage, it is not without its costs. This article outlines those costs and compares them to the benefits of judicial review of settlements. Then the cost-benefit framework is applied to five areas in which judicial review of settlements is currently in place: settlements involving a party who is a minor, settlements of a disputed claim within a bankruptcy proceeding, settlements of a class action, criminal plea agreements, and antitrust consent decrees. These applications of the model reveal that judicial review should be--and to some extent already is--employed in a discriminating manner, with sensitivity to its costs, which vary somewhat from one context to another. Copyright 1999 by the University of Chicago.