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A New Options Theory of Public Interest Lawsuits and Options-Based Risk Multipliers

Public interest lawsuits are ubiquitous and crucial to enforcing constitutional and statutory rights. A feature of such litigation is that plaintiffs' attorneys may not get paid unless they prevail. Courts responded to this by enhancing statutory attorneys fee awards with a multiplier reflecting the risk of losing. This Article provides five distinct contributions to the public interest literature. First, the Article applies to public interest litigation a new and very general technique of options analysis, which recognizes that a lawsuit consists of a sequence of options to continue instead of a once-and-for-all irreversible commitment. The Article demonstrates that an options theory of public interest lawsuits provides novel and central insights different from traditional analysis of plaintiffs' attorneys' incentives to accept cases. Third, the Article derives an options-based risk multiplier, in between the Supreme Court risk multiplier of one and the traditional risk multiplier. Fourth, the Article investigates plaintiffs' attorneys' incentives to settle lawsuits utilizing an options perspective. Finally, the paper utilizes options analysis to suggest reforming the statutory law or judicial doctrine of risk multipliers in order to compensate plaintiffs' attorneys for the risk of not getting paid if they lose.