ContractsProf Blog

Editor: Jeremy Telman
Oklahoma City University
School of Law

Monday, December 6, 2021

Sid DeLong, Against Settlement

AGAINST SETTLEMENT? CHOPPING THE POT, SPLITTING THE GOLD, AND OTHER GENTLEMEN’S AGREEMENTS
Sidney W. DeLong

Our society is ambivalent about competition and cooperation, and that ambivalence is reflected in the law. In some domains, such as antitrust, competition is a virtue, and cooperation (e.g., price-fixing) is a vice. In other domains, such as labor law, anti-competitive agreements (collective bargaining) are encouraged, and free-market competition (strike-breaking) is a sin. Contractual agreements between competitors may be conciliatory or collusive.

The sports world too reflects ambivalence about cooperation and competition, which is perhaps more relevant now that professional sports is in many ways just another commercial activity. And as usual, sports can reveal much about law.

Olympic_rings_without_rims.svgIt is the finals of the Olympics men’s high jump on August 1, 2021. At the end of the competition, Tamberi of Italy and Barshim of Qatar are tied on height and on misses. An official makes them an offer: Either a jump-off with one winning first (gold) and the other second (silver) or an agreement to share (two golds). Both athletes had to agree to the share option. The exact opposite of a prisoner’s dilemma! Of course, they voted to share. Two gold medals were awarded for the first time in the Olympic high jump. On T.V., their deal induced an explosion of Italian joy, no detectable expostulations from Qatar, and widespread encomiums to sportsmanship.

Was this Olympic moment What Sports is All About? The lion lying down with the lamb in a paradise of alternative dispute resolution? Or was it a betrayal of the Holy Spirit of Competition, a cowardly concession motivated by risk-aversion and satisficing and collectivist thinking?

Contrast the high jump ruling with the disqualification of eight badminton players from the 2012 Olympics after it was discovered that they intentionally lost matches so that they could face weaker opponents in the second round of a multi-round elimination tournament. While the spectacle of a player trying to lose a match makes a mockery of the sport, strategic losing was at least a tactic rationally aimed at winning overall. The disgrace belongs not with the players but with the organizers of the event, for devising a competition in which dumping was a rational strategy.

Bridge_declarerThe problem of dumping is not unique to badminton. International contract bridge competitions have also been afflicted with identical problems because of the design of multi-round, elimination tournaments in which second round matches are determined by first round results. It is easier to conceal an intentional loss in bridge than in badminton. In an earlier time, Bobby Fischer famously accused Soviet chess players of intentionally losing or drawing games with each other in order to give one of them a record that would defeat Fischer in international chess tournaments.

But deliberately losing is not the same as deliberately tying. Unlike the rules of Olympic jumping events, most sports rules do not permit the splitting of the top prize if the players are tied. In the Masters golf tournament as in Highlander: “There can be only One” and playoff holes will decide the winner if two or more players are tied after 72 holes.  

And this accords with the spirit of sport, in which the public rarely applauds a collusive tie. The spectacle of two gasping palookas waltzing through the closing rounds of a bout on the undercard, serenaded by the catcalls and whistles of angry bettors and bloodthirsty ticketholders is not only a trope of 1930’s cinema but a prototype of competitive shame.

But professional athletes have a time-honored if unpublicized practice of blunting the edges of winner-take-all. In his work on the history of distance running, Five Kings of Distance, Peter Lovesey reports on the practice known as a “penny all around” in which professional runners in 19th Century England would agree before their races to split the prize money so that no one went unpaid.

But the timing of the deal is critical. An agreement to share a prize after the competition has stalled is one thing; an ex-ante agreement to make the competition a sham is quite another.

James_Garner_Bret_Maverick_Jack_Kelly_Bart_MaverickWhich brings us to tournament poker and the practice of chopping the pot. Consider the following (very common) situation. It is the final table at the World Series of Poker. Several thousand players have bet $10,000 each to play a multi-day, freeze-out tournament of Hold’em Poker. The winner, the player who ends up with all the chips, wins 10 million dollars (aptly known in the trade as “life-changing money.”) Second place gets 6 million (Also L.C.M), Third gets $4 million etc.

After several days of competition, only four players are left. They all meet in a hotel room the evening before the final day. They have chip stacks that give each of them theoretical odds of winning that are roughly proportional to the sizes of their stacks. (Vegas is booking bets on each of them.) But tomorrow could bring any outcome. Luck plays a big role in Hold’em: In an “all-in” hand, any two cards can win all the chips.[1] The four competitors, risk-averse as are we all in the presence of such large amounts of money, have a friendly, familiar discussion: they agree that regardless of the final day’s outcome (regardless of who wins all the chips, who is the last remaining opponent, who finishes third, etc.) they will split the chips according to an agreed formula that is more equitable that that contained in the contest rules. Pushing “all-in” is less risky than it seems when the pusher has financial security.

Suppose you are a poker fan: would learning of this deal distress you? Make you cynical? Make you demand your money back if you paid to watch the event?

Rich_Uncle_1946_CoverIn response to early antitrust challenges to contracts between competitors, the tycoons running the colluding businesses often referred to “gentlemen’s agreements”, by which they presumably meant that properly brought-up aristocrats would (true to the ethic of their class) agree amongst themselves not to compete in the seamy struggle over price and instead to divide the spoils of their commerce in a reasonable way, incidentally extracting more money from the hoi polloi who purchased their goods. Richards v Nielsen Freight Lines, 810 F.2d 898 (9th Cir. 1987) suggests that unenforceable gentlemen’s agreements are still in use. Thanks to the antitrust law’s enshrinement of the ideal of competition, we should be above all that now, or at least we should express our illegal contracts, combinations, and conspiracies in a gender-neutral way.

But competition can be a hard ideal. In the economic blood sport known as civil litigation, the temptation to settle, to avoid the risk of loss and split the spoils, is powerful. In earlier days, litigation was a blood sport. When trial by combat was used to determine title to land, the champion who, instead of fighting to the death, resigned from the fight by shouting the word “Craven!” was despised and outlawed. 3 Blackstone Commentaries on the Laws of England (1765) 340.

Today, in less sanguinary times, attorneys usually advise their clients take half a loaf or a bird in the hand rather than to roll the dice. But is it always the right thing to do? In Against Settlement, Owen W. Fiss rejected settlements of public interest class action litigation. He argued that settlement of civil rights class actions deprived the public of a definitive adjudication of important legal issues. The informational value of victory and defeat are public goods extinguished by private settlement.

Of course, Against Settlement appeared at a time when its author could expect the judicial resolution to favor civil rights. Today, given the radical re-shaping of the federal courts, authoritative adjudications about civil rights are likely to be the last thing their proponents would seek.

Even in civil litigation that has no public interest dimension, a settlement agreement may not always be the ethical thing to do. At the mundane level of the everyday lawsuit, the prospect of an early settlement of a civil claim can expose structural conflicts of interest inherent in all attorney-client fee agreements. Because of the different kinds of risk that attorneys bear under different agreements, for example, it may be that hourly-rate attorneys have a financial interest in prolonging the litigation (when it should settle) while contingency fee attorneys often have a financial interest in a quick settlement (when they should hold out for more). Neither may be incentivized to obtain the best client outcome.

Nevertheless, we seem to have arrived at a consensus that most civil litigation should settle promptly. Today, Fiss’s concern, the informational value of adjudication lost by settlement, has become trivial because the public information goods resulting from litigation have been largely erased by arbitration, a process does not yield opinions from which the public can discern the shape of contemporary law or from which it can obtain precedent for future guidance.

[1] It is a cliché’ in Hold’em that “Any two cards can win.” The theoretically-weakest Hold-em hand, 7-2 off-suit will beat the theoretically-strongest Hold’em hand, A-A about 15% of the time if both players stay to the river. For example, 7-2 will beat Aces if the flop is 777Q and the next two cards are not aces. There are many others. Don’t bet your life on the aces, especially if your opponent has a pointed tail.

https://lawprofessors.typepad.com/contractsprof_blog/2021/12/against-settlement-chopping-the-pot-splitting-the-gold-and-other-gentlemens-agreementssidney-w-delong-our-society-is.html

Commentary, Sports | Permalink

Comments

I know that it's just a passing reference in your thought-provoking post, but should we accept that collective bargaining is anti-competitive, or does it simply level the playing field so that labor and management can bargain meaningfully, competing with the relatively equally powerful threats of strike or lock-out? Also, although striking workers will hope to dissuade strike-breakers with picketing, I'm not sure labor law views strike-breaking as a sin, because it permits employers to permanently replace employees who are on an economic strike. With collective bargaining, each side retains some powerful weapons, making for some meaningful competition in my view.

Posted by: Charles Calleros | Dec 8, 2021 12:34:23 PM

Charles, I had reference to the view of a labor union as its earliest opponents did, as a restraint of trade, a horizontal agreement among workers in the labor markets not to compete with each other over jobs and wages. It took the Clayton Act to immunize labor unions from antitrust liability under the Sherman Act. Just as the labor union is “anti-competitive” from the perspective of the labor market, the strike-breaker offers competition against the unionized workers that they view as a sin against solidarity and the collective good. Of course, to view workers as individual entrepreneurs engaged in a competitive market for the sale of their labor and potential employers as entitled to enjoy the economic benefit of their competition begs the only important question.

Posted by: Sidney DeLong | Dec 8, 2021 4:17:57 PM

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