Better Court Structure, Better Judgments: Exploring the Impact of Term Limits, Court Specialization and Rule Clarity with a Diagnostic Model of Judging in Securities Class Action Litigation

Court structure can influence the quality of judicial decision making, and a combination of term limits and subjectmatter specialization in the federal bench could avoid hundreds of millions of dollars in settlements of non-meritorious securities class action litigation matters every year. Using a variety of data related to securities class action lawsuits, I employ a structural model of expert decision making to estimate federal judges' skill in appropriately identifying and dismissing non-meritorious strike suits and to examine how this skill increases with relevant experience and decreases with advanced age. In addition, I find that rule clarity plays a significant role in heightening the accuracy and predictability of judges' decisions. Finally, I model counterfactual scenarios to derive the optimal length of judicial term limits and caseload for specialized subject-matter courts. I estimate that, if enacted concurrently with the Private Securities Litigation Reform Act in 1995, court structure interventions at these optimal levels could have avoided over $17.2 billion in non-meritorious settlements and returned $4.5 billion to shareholders in suits that were erroneously dismissed.