Quick Settlement; When and Why?

One of the themes we flesh out in our Legal Environment class is the characteristic of litigation as a "War of Attrition."  The quote comes from one of the lessons in The Moral Compass of the American Lawyer: Truth, Justice, Power, and Greed by Richard Zitrin and Carol Langford. I also like the image as it helps to bust the myth of the quick settlement.  The myth of the quick settlement is the second half of the myth of the frivolous lawsuit. The legend goes something like this:  In America, people regularly file frivolous lawsuits and businesses quickly pay off the plaintiffs with a lucrative settlement to avoid bad publicity.  The legend/myth/folklore makes no sense on so many levels. But here, I just focus on the quick settlement part.

Why would any business or insurance company pay a plaintiff who files a frivolous lawsuit and earn a reputation as a source of easy money? Why would businesses fear embarrassment from frivolous lawsuits that, by definition, have no merit and probably make the plaintiffs look stupid? Why would businesses worry about the costs of defending a lawsuit that is likely to be dismissed immediately upon filing of a motion? Doesn't it make more sense for a business/insurance company to vigorously defend a frivolous case?

So, when would we expect a quick settlement of a lawsuit?  How about when there is an absolutely bona fide case that has the capacity to embarrass a company to such a degree as to affect revenue?  Up until discovering the article below, the example that I used to use was the sexual harassment lawsuit filed against Fox News and Bill O'Reilly by one of O'Reilly's young female producers.

The Smoking Gun website has posted the complaint which is too sexually explicit to show in class, but which seems to include allegations just a bit too specific and unusual to be made up. O'Reilly and Fox initially denounced the suit as an extortion attempt and filed their own complaint against the plaintiff.  Yet, surprisingly, the case was settled in two weeks. Why? Apparently, the plaintiff had most of the alleged harassing comments recorded on her phone answering machine. So, far from being a frivolous lawsuit, it was a bona fide lawsuit with the unquestioned ability to cause significant damage to Fox and their standard-bearer, O'Reilly.

However, now there is new example that may be more appropriate for full disclosure in class.  Following the unfortunate death of Philip Seymour Hoffman, The National Enquirer published an article purportedly quoting David Bar Katz, Mr. Hoffman’s friend, as saying that he and Hoffman were lovers who free based cocaine the night before Hoffman’s death.  The problem, of course, was that the factual statements were completely false and the Enquirer apparently made no effort to determine if the person whom they quoted was actually David Bar Katz.

The ensuing lawsuit was settled within a few weeks with the creation of a foundation that will award an annual playwriting prize. Was the lawsuit settled so quickly because it was frivolous or because it was absolutely bona fide?