Victor Schwartz Partner Shook, Hardy & Bacon L.L.P.

Posted August 19, 2008, 9:20am

The so-called English Rule was tried in the US in certain counties in Florida and Alaska. What occurred is very instructive and from my view quite predictable. It explained in part why the English Rule, as a practical matter, cannot work in the US. Whenever it might be implemented, as a matter of practical politics, the judge will be given discretion not to apply it in cases of hardship and to "do justice" (or some similar palliative). With that in place, most American judges are likely to engage (and have) in one-way fee shifting. Defendants pay when they lose, but plaintiffs do not.

Samuel Issacharoff Reiss Professor of Constitutional Law New York University School of Law

Posted August 19, 2008, 9:45am

The Florida experience also shows that changing the fee rules is a significant alteration of the incentive structure in litigation. There is no doubt that some cases will be deterred as the potential plaintiff will be made more risk-averse by the prospect of having to pay for the defendants' fees (assuming, contra Victor, that courts will come to assess these fees). But some will be incentivized. Consider for example defamation cases in Britain. It is true that the substantive law is more favorable to plaintiffs there. But the cases have value (and tremendous potential chilling effect) because a liability judgment will be overwhelming.

But more significant is the effect on parties once they are in litigation. For those cases that do get brought and not settled immediately, the escalation of costs can be staggering. There is an economic model for this, but the simple version is as follows. If you assume a 50% chance of each side winning, then every marginal expenditure costs you half. So, to the extent that parties resist an escalation of litigation costs because they have to internalize the risk/reward ratio, that is altered in a loser pays setting. Every time I spend a dollar, there is a 50% chance that you will pay for it, so its discounted cost to me is 50 cents. Further, since I cannot control what you are spending, there is the risk that you may be spending me into oblivion—another incentive to escalate.

The great difficulty is with cases that are worth little in terms of damages, but where liability is pretty certain. Then there is no internal cost constraint on what the plaintiff might spend. This is more of a problem on the plaintiff's side because the defendant is not the first mover in litigation. There are some pretty notorious British cases on point.

E. Donald Elliott Professor of Law Yale Law School

Posted August 19, 2008, 9:57am

I agree with Victor that many judges view plaintiffs as a class as impoverished and defendants as a class as wealthy, so they are uncomfortable with a rigid "loser pays" rule. Going back to Rebecca's definitions, part of the problem is the concept of a "party"—which elides the distinction between the client and the lawyer and puts them together in one unit. In many types of cases, the actual decision-maker re: whether to bring a claim or defense is the lawyer, not the client. That is why some statutes (such as the federal one on frivolous or dilatory litigation, 28 USC 1927) allow for cost-shifting to the lawyer instead of, or in addition to, the client. Plaintiff's lawyers are typically a lot wealthier than their clients—at least in mass torts cases—and plaintiff's lawyers are the ones who actually decide whether or not to bring claims. So a rule that creates economic incentives that affect the client but not the lawyer will not get at the actual decision-maker in that situation.

Walter Olson Senior Fellow Manhattan Institute

Posted August 19, 2008, 10:03am

Most decision-makers in our present legal system, on both plaintiffs' and defendants' sides, oppose loser-pays. A cynical view is that compensating the victims of litigation would likely put many of them out of work by curbing the volume of such litigation. A less cynical view is that they’ve grown up with this system and can't readily imagine one so different.

Organized big business is almost as uniformly opposed to loser-pays, thinking that our lawyers and judges would rig the implementation to their disfavor. As for "public interest lawyers", they’ve carved out their own peculiarly favorable "one-way" fee shift regime: why level the playing field?

Someone out there, though, recognizes the idea’s essential fairness: the loser-pays idea polls very well with the public. And more and more Americans have spent time living in other advanced countries. They’re hard to scare with the bogey stories about the supposedly terrorizing effects.

James Zirin Partner Sidley Austin LLP

Posted August 19, 2008, 10:11am

Loser pays is undesirable because it is simply un-American and is certainly in many cases unfair. It is perhaps much better suited to societies such as England or the civil law countries on the Continent which inherited the system along with wigs and robes. The courts in this country have traditionally been the place where injured parties "get even," that is to say, obtain some measure of justice. Many of these parties are seeking to enforce fundamental rights given them by Congress such as workplace, labor or civil rights which they often test in court proceedings. The burden of loser pays will obviously fall on disappointed plaintiffs. There seems to be a built-in assumption that such parties have brought "frivolous" or "meritless" claims and should be punished as they are an excrescence on the legal system. Many non-prevailing plaintiffs, however, have indeed brought meritorious claims brought in good faith. They may lose their cases for a host of reasons unrelated to the merits such as judicial error, refusal or inability of witnesses to testify, novel interpretations in he law or the vagaries of jury verdicts. Often, it is difficult to determine which party really prevailed. Suppose a suit is brought for an injunction and is dismissed as moot because the defendant in response to the suit changed its illegal practices. Suppose a corporation and its directors who were sued in a derivative action rescinded a questionable transaction and the suit was dismissed? Suppose there is law office failure: a lawyer failed to make a demand or meet a deadline required by law, but the claim is meritorious nonetheless? Should the litigant be compelled to pay the other side's legal fees? One would think not. Loser pays, it is true, may deter some suits that shouldn't be brought. There are however, sufficient penalties in place under the present system for bringing vexatious or frivolous litigation. The cost of litigation is too high as it is, with associates' salaries in large law firms exceeding the salary we pay to the Chief Justice of the United States. We should not add to that burden by imposing an additional economic tax on the litigant who thought she had a good case, but, in an adversary system that inherently advantages those with money anyway, wound up on the losing side.

John Fabian Witt George Welwood Murray Professor of Legal History Columbia University

Posted August 19, 2008, 10:16am

In answer to Rebecca's question, the history here is instructive—and it suggests a different answer from the one offered in Victor Schwartz's interesting post.

The origin of the so-called American rule lies in the transformation of the legal profession in the Age of Jackson. Lawyers in the first half of the nineteenth century started making side-deals with their clients for fees greater than the court-regulated fees. Some clients were willing to make these deals to get better representation; others no doubt felt they had little choice in the matter. But either way, side deals started getting struck. And some of these fees were contingent on a successful outcome—the now familiar contingency fee.

Here's the key part: Courts were willing to uphold these side deals, including the contingent fees. But courts were not willing to treat them as part of the costs that losers paid to winners at the end of a case (as far as I know, no lawyer ever actually had the chutzpah to ask for their side deal to be passed on to the other side). The American rule thus gets its beginning in a classically American moment of privatization. It happens under the regulatory radar. And it sticks because it is under the regulatory radar. The bar as a whole (not just the plaintiffs' bar) has an interest in keeping its fees deregulated and private. The American rule leaves the lawyer's fee to the free bargaining of the lawyer and client. But as soon as you adopt the English rule of loser-pays, then courts will have to monitor and rule on the reasonableness of those fees.

I should add a second historical reason why the American rule has stuck since its beginnings in the Age of Jackson. No one can really tell whose ox would be gored by a switch to the English rule. Some of my colleagues on the panel will know more about the game theory and the empirical evidence, but a vast literature on this question concludes that it is not at all clear that the English rule would reduce so-called frivolous lawsuits. Look at it this way: a plaintiff with a taste for risk, or the judgment-proof plaintiff mentioned by Victor Schwartz, will be more likely to sue under the English rule because it expands the size of the available winnings. The risk-loving plaintiff won't care that much that her downside risk has increased. And the judgment proof plaintiff won't have any added downside risk at all. If you think about it this way, the history of the American rule may be, well . . . accidental. But it's not at all clear that it's worth the candle to change it.

Marie Gryphon Senior Fellow Center for Legal Policy, Manhattan Institute

Posted August 19, 2008, 10:21am

Samuel worries that a loser-pays rule will cause litigation expenses to escalate because each party gets all of the benefit of their own additional spending while a portion of that cost is borne by the opposing party. This worry would be well-founded if additional spending always improved a party's chances of success at a set rate and if the expenditures were not what economist Avery Katz calls "provocative"—that is, did not inspire the opposing party to also spend additional funds.

But neither of these things seems to be true of actual litigation. First, the law of diminishing returns seems to apply to additional spending. Second, as our fellow panelist Herbert Kritzer has found, spending in litigation is largely driven by the number of litigation "events," such as motions and hearings, that occur. Spending more money by filing an additional motion is a classic "provocative" expenditure: the opposing party will have to spend more money as well. Even Katz agrees that provocative spending doesn't trigger the kind of escalation that Samuel worries about.

Anthony Sebok Professor of Law Cardozo School of Law

Posted August 19, 2008, 10:30am

I am glad that Sam brought up the example of defamation in Britain, which is a good example of the toxic effects of loser-pays combined with a set of rules that seem biased towards plaintiffs—the result, predictably, is to exponentially increase the risk-adjusted cost of liability for defendants.

Transnational comparisons can be tricky, but they are probably as useful in the formation of policy as formal theory (that is, both are modestly useful). Consider the following: The U.K. has loser-pays and the contingency fee and Germany has loser-pay and no contingency fee. The U.S., U.K. and Germany have some of the highest litigation rates among developed nations (the U.S. and U.K. are at the very top—along with Israel—and Germany is just below).

I have spoken to many German lawyers who have told me that their client's decision whether or not to sue depends entirely on whether they have "legal insurance" which is pre-event insurance to cover the cost of bringing a suit; and in the U.K., of course, there is a healthy market in "post-event" insurance that covers the risk of paying one's opponents costs if one sues and loses.

This suggests to me that even if we change the loser-pay rules, litigation rates may stay high if alternate funding mechanisms are developed. The incentive to "load up" on costs is present in the U.K. and Germany under their different systems. What keeps the costs down in Germany, I think, are their rules of civil procedure, not their loser-pay rule.

Walter Olson Senior Fellow Manhattan Institute

Posted August 19, 2008, 10:35am

Loser-pays does tend to do better at vindicating strong small claims, which of course is a feature rather than a bug. But all non-U.S. systems I know about incorporate safeguards against the tendency to overinvest in the lawyering done on behalf of such claims. Either they try carefully to scrutinize whether the outlays by the winning side were truly reasonable and necessary (a job for the U.K.'s "taxing masters") or they low-ball the recoverable costs, leaving some of them to lie where they fall, or both.

Pace my friend Victor Schwartz, the Alaska and Florida experiences are as different from each other as can be. Alaska has retained its loser-pays principles for these many decades because they work well (they include "low-balling", in the form of assigning only a percentage of incurred costs). Florida's med-mal experiment was a sad botch that illustrates the observation (hardly unique to this topic) that poorly drafted legislation administered by those unsympathetic to it can abound with unintended consequences.

Robert S. Peck President Center for Constitutional Litigation, P.C.

Posted August 19, 2008, 10:42am

Losing a case does not mean that the plaintiff brought a frivolous lawsuit or that that the defendant mounted a frivolous defense. Much of the discussion of “loser pays” mistakenly assumes otherwise, but the revolutionaries who founded this nation complained that Mother England had taxed away our ability to go to court. That is what the Stamp Act controversy was about and why the Declaration of Independence scored the King for denying us trial by jury. Instead, we have made a constitutional commitment that Americans should have their day in court. An interest in deterring frivolous lawsuits—and which cases qualify is often in the eye of the beholder—cannot outweigh our imperative to have disputes resolved in a impartial tribunal when no other means is available. Any other rule would artificially and improperly curtail access to the courts by all but the well-heeled. “Loser pays” looks too much like that Stamp Act tax.

Marie Gryphon Senior Fellow Center for Legal Policy, Manhattan Institute

Posted August 19, 2008, 10:47am

I agree with Victor that Florida's experiment with loser pays for medical malpractice cases from 1980 to 1985 is instructive, but I disagree with his conclusion that loser pays is unworkable in the U.S. The Florida rule was in many ways a misunderstood success, though it took a couple of good economists several years to figure this out. Edward A. Snyder and James W. Hughes analyzed a large database of Florida malpractice cases before, during, and after the loser pays period. They concluded that loser pays caused plaintiffs with weak claims to drop their suits far more often, leaving courts to focus on more meritorious claims. While spending per litigated case went up, so did the average stakes per litigated case—the average stakes were higher under loser pays because the really weak cases had already been weeded out. As a function of stakes, spending per case changed very little. Snyder and Hughes also learned that loser pays meant fewer cases went to trial: only 6% of Florida medical malpractice cases were actually tried under loser pays compared with 11% of cases under the American rule.

Marie Gryphon Senior Fellow Center for Legal Policy, Manhattan Institute

Posted August 19, 2008, 10:53am

I'm glad that Anthony raised the important issue of litigation expense insurance, which is very common in loser-pays jurisdictions, but I disagree with his suggestion that insurance undermines the effects of loser pays. After-the-event insurance in particular introduces beneficial underwriting into the case selection process. Under loser pays, insurance companies have a strong interest in separating good claims from bad before any complaint is filed, and they have more expertise to make this assessment that the average plaintiff. Bad cases in the UK are not insurable.

Rebecca Love Kourlis Executive Director Institute for the Advancement of the American Legal System

Posted August 19, 2008, 11:01am

We all have to acknowledge that there is at least the perception that litigation is too easily brought, and very expensive to defend. There is also a perception that those of us who are lawyers have a vested interest in the system, and are unwilling to look at the flaws of that system. I return to my original question, with a twist: what are we trying to accomplish with our American civil justice system? Do we want a system that provides a just, speedy and inexpensive determination of every dispute? (That language, of course, comes right out of Rule 1 of the Federal Rules of Civil Procedure.) Do we want a system that permits people to resolve differences—large or small—in court? If so, do we have that kind of a system? I suggest not. Maybe what we should all try to do is define the problem. Is the problem too much litigation, or is the problem that the cost of litigation—to litigants and society—is generally too high?

Taysen Van Itallie Associate General Counsel Johnson & Johnson

Posted August 19, 2008, 11:06am

Loser pays is a very blunt instrument to discourage “frivolous lawsuits.” First I think the real issue is abusive litigation, rather than frivolous cases, by which I mean cases that may have some merit but which are freighted with abusive discovery and satellite litigation in an effort to make them more valuable then the merits would support.

One thing to think about is having a loser pays approach follow some sort of merits screening process as some states use for malpractice cases, so that the loser pays approach would kick in if such a screening panel found no basis for the claim.

The other variant on loser pays that presents a real opportunity is offer of judgment rules. Not Federal Rule 68 which just shifts costs rather than fees, but rules like we have in New Jersey, where the failure to recover in excess of the offered amount will shift fees, although there are various court-made complexities.

Stuart Taylor Columnist National Journal

Posted August 19, 2008, 11:12am

I believe (in part based on personal experience) that our system allows and encourages litigants and lawyers to take clearly unreasonable (if not "frivolous") claims or defenses to court because there is very little risk of being sanctioned for doing so. At the same time, I am impressed with the already-stated concerns that a broad loser-pays regime might be a cure worse than the disease or be undermined by judicial reluctance to require losing plaintiffs—even those who have brought vexatious claims—to pay defendants' fees.

I wonder whether more narrowly drafted fee-shifting rules, such as those contingent on early offers or offers of judgment, might produce more social benefits and fewer social costs than a broad loser-pays regime.

I also wonder whether judges might be more willing to enforce such rules even-handedly if the rules specified that in contingent-fee cases, any fee-shifting in favor of defendants must come at the expense of the lawyers who bring losing claims rather than the plaintiffs themselves. This would also be in keeping with the fact that, as others have pointed out, the lawyers are usually the real decision-makers in such cases.

Robert S. Peck President Center for Constitutional Litigation, P.C.

Posted August 19, 2008, 11:24am

I would dispute the notion that litigation is too easily brought. The contingency fee system by which plaintiffs pay lawyers means that a premium is placed on investigating claims, getting expert evaluations, and determining whether the risks and rewards are sufficient to support the case. The time and money that goes into cases is significant. When the plaintiff loses the case, the lawyer is not only out of a fee, but out of significant expenses. This operates, without loser pays or without any form of sanctions, as a significant barrier to filing a case from the outset.

E. Donald Elliott Professor of Law Yale Law School

Posted August 19, 2008, 11:34am

I agree with Robert (and others previously) that the fact that a lawsuit is lost does not necessarily mean that it was "frivolous" ex ante.

But that raises an interesting issue for me: what do we really mean by "frivolous"? Would we want to deter only "frivolous" lawsuits, or also perhaps some of those that are not "frivolous" but were just very unlikely to succeed? For example, if an attorney could predict in advance that a given lawsuit (or defense) had far less than a 50% chance of success (or 10% or 1%), would we want to deter it from being brought? Perhaps there is a social value to some lawsuits (or defenses) being brought even though they only have a very small chance of success? But is that necessarily true for all lawsuits that have only a very small predicted chance of success? Why should the defendant pay "his" costs of defense where the lawsuit was very unlikely to succeed? Is giving a plaintiff a "day in court" so valuable that the defendant should subsidize whatever it costs, even if the chances of success were very low?

In short, are there ever any cases that could be brought but should not be brought? Or do we (and I note that most of us are lawyers) think that all possible cases that can be brought, always should be brought, even if the chances of success are very low and that the defendants should pay "their" costs? Wouldn't a policy that encourages low probability of success cases create powerful incentives to bring a lot of such cases with no real hope of success merely in order to create settlement value in terms of the costs of defense avoided for defendants?

Samuel Issacharoff Reiss Professor of Constitutional Law New York University School of Law

Posted August 19, 2008, 12:01pm

The British example also shows what happens when those costs are not internalized. It is not just the question of bringing suit or not, but how much to invest in a case. Under the American system, no case with potential damages of $100,000 will prompt a plaintiff (or plaintiff's lawyer) to invest more than that amount (and likely considerably less) since the recovery is capped by the amount in controversy. Under fee-shifting, however, costs are not internalized and there is no natural limit to the amount a party with a strong hand is likely to spend. This puts a great deal of pressure on what the British term the “taxing judges.” But even in Britain, costs routinely exceed the amount in controversy. The defamation cases are a good example of this.

Stuart Taylor Columnist National Journal

Posted August 19, 2008, 12:14pm

I agree with the thrust of Don's comments/questions. In particular, I am convinced that the social costs of giving every potential plaintiff his or her "day in court" often exceed the social benefits.

To pick one example, our one-way fee-shifting rules in federal civil rights litigation encourage a lot of employees who are legitimately dismissed for underperformance to bring bogus or unreasonable discrimination claims based on race, disability, age, or gender discrimination. A strong case can be (and has been) made that this is bad not only for wrongly accused employers but also for the valuable employees (and potential employees) whom the civil rights laws are supposed to benefit.

Because unwarranted wrongful dismissal lawsuits are so much more common than failure-to-hire lawsuits, employers know that new hires who do not perform well will be far more difficult or expensive to dismiss if they are members of protected minorities. One employer told me privately that 20 percent of his company's new hires don't work out, and that the company is routinely sued when it dismisses those who are members of protected minorities. This creates a major disincentive to hiring protected minorities, especially when they are competing with equally qualified applicants who cannot claim protected-minority status.

The same rules that encourage unwarranted claims thus discourage employers from hiring protected minorities who (in most cases) could turn out to be excellent employees. Saying that all civil rights lawsuits are good and should be encouraged by (among other things) one-way fee-shifting rules does not make it so.

James Zirin Partner Sidley Austin LLP

Posted August 19, 2008, 12:29pm

Samuel's observation about the British system is spot-on. When Grand Prix race car czar Max Mosley recently sued Rupert Murdoch's News of the World in the London High Court for invasion of privacy related to the tabloid's secret videotaping of Mosley engaged in a sadomasochistic orgy, he was awarded roughly $120,000 in damages. But the publication also had to pay Mosley's legal fees, estimated at $900,000 as well as its own fees, which were reported to come to $800,000. It is possible that in America, the Mosley case, which was more about prurient than legal interests, would never have been brought. For further information about the issues involved in the Mosley suit, see my column in the New York Sun  of August 12.

Victor Schwartz Partner Shook, Hardy & Bacon L.L.P.

Posted August 19, 2008, 12:39pm

Ahh, Mr. Peck is right that the contingent fee system is a good cipher to prevent personal injury lawyers from bringing cases that are assured "loser". But a significant part of the real world, as I am sure Mr. Peck knows, is left out of this picture. Just ask any small business person, school district or other potential defendant that is subject to smaller claims. A real example: A plaintiff’s lawyer sued someone who owned a restaurant and bar. The plaintiff claimed that he was served liquor when he was inebriated and then had an accident. He sued for $200,000. He said this was in violation of the State's Dram Shop Law (it was). Only problem: when the plaintiff told police where he drank on his binge, he did not mention the bar. Good reason: he was never there. But his lawyer offered to settle for $10,000, under the cost of defense. The Restaurant's insurer wanted to settle. From a pure economic point of view, the insurer was correct. The state's frivolous claim rule (just like Fed. R. Civ. Pro 11) was weak and useless. Bottom line is that "bottom feeder" plaintiff lawyers beat the contingent fee system. Stronger rules to sanction frivolous claims MAY help.

Rebecca Love Kourlis Executive Director Institute for the Advancement of the American Legal System

Posted August 19, 2008, 12:43pm

Let’s break down the discussion a bit. Assume that a ‘frivolous’ lawsuit is one that is lacking in legal and factual merit and brought only for settlement value. Without addressing the question of how many of those lawsuits are actually brought in a given year, can we agree that they should be deterred, and if so, how?

Anthony Sebok Professor of Law Cardozo School of Law

Posted August 19, 2008, 12:48pm

Let me approach the question of loser-pays from a normative perspective. Let’s assume that the adoption of loser-pays would not make a significant difference to the rate of frivolous or long-shot litigation, and it would not reduce the cost of litigation. Is there non-consequentialist argument for the English (and European rule)?

It seems to me that argument for the American rule is that no one should be “punished” for exercising her rights. But this seems like a weak argument to me. To ask someone who initiates a process which dragoons others into responding to pay for the costs of that process is not unfair—after all, they are the one who chose to initiate the cost-creating activity. Of course, one might say that the “initiator” (i.e. plaintiff) is not acting voluntarily when she files a tort suit. No one (other than fraudsters) wants to be a plaintiff in a personal injury; they are there because they have been compelled by the acts of the person whom they are suing (i.e. the defendant).

But the defender of the American rule has to be careful here: they can’t assume that the defendant’s compulsion of the plaintiff’s suit is wrongful. After all, the defendant may have caused the plaintiff’s injury without fault, or the defendant may not have caused the plaintiff’s injury at all (the plaintiff may have a reasonable but false belief about the defendant’s culpability). So the real question is, who is responsible for the “secondary costs” (to use Calabresi’s phrase) of an accident which was not wrongfully caused?

The analysis above suggests to me that, assuming no provable immediate consequential difference between the choice of rules, supporters of strict liability in tort (and there are some on both sides of the political spectrum) should support the American rule while supporters of corrective justice (and there are some on both sides of the political spectrum) should lean towards the English rule.

E. Donald Elliott Professor of Law Yale Law School

Posted August 19, 2008, 12:56pm

I agree with Taysen that merits screening processes make good sense (and am currently working on an academic piece re same). Among other reasons, it is the power of the state that compels the defendant to appear in court and to incur costs to respond. I don't feel that the state may constitutionally compel someone to appear and respond without first satisfying itself that there is a reasonable basis for a lawsuit that justifies requiring the defendant to answer it.

In a sense, "loser pays" attempts to use economic incentives to make the initiating party (e.g. plaintiffs' lawyer considering whether to file a suit) into the "merits screener." The hope is that the risk of losing and paying the other side's costs will result in better decisions about which cases to pursue (and as Sam rightly points out, also how much to invest in them). But there are lots of reasons in behavioral economics (as well as our own experience) to believe that people are not necessarily objective or particularly good at making rational decisions about projects in which they are themselves involved. So a third party may be in a better position to act as a "merits screener" than a litigant or her lawyer. Although perhaps there is some value to having both consider whether a case should be brought (and how much process costs to invest in same).

Philip Howard Chair Common Good

Posted August 19, 2008, 1:06pm

The first goal, I suppose, is to identify whether there's a problem with litigation in this country that fee-shifting might address. My experience as a practicing lawyer is that claims and defenses have gotten more extreme—claimants sue for the moon, and defendants make up all kinds of excuses to drag things out. There is no disincentive to making extreme arguments. This doesn't mean that they ultimately prevail—judges and juries are generally sensible—but it does reduce the level of trust in justice. A Harris poll found that only 16% of Americans would trust justice if someone brought a baseless claim. Ask any teacher, or manager, or doctor, and you will hear stories of legal threats. This undercurrent of legal fear skews sensible judgments and erodes the authority needed to run classrooms, to make sensible healthcare decisions, and to interact honestly in society. It's not just the fear of losing, but the fear of being dragged over the coals at the whim of some angry person. So I believe there's a problem, caused in part by the perception that justice doesn’t aspire to keep claims and defenses reasonable.

The main solution, as I've argued elsewhere, is for judges to take the responsibility to draw boundaries of reasonable claims. But I also think there should be a disincentive for making arguments that are remote or extreme. What about a rule that requires judges to make a factual finding at the end of each case as to whether there was a reasonable basis for the losing claim or defense? If there was not, then the judge could shift fees for that portion of the claim or defense. If judges did this every once in a while, that alone might be sufficient to drive litigants back towards reasonableness.

John Fabian Witt George Welwood Murray Professor of Legal History Columbia University

Posted August 19, 2008, 1:12pm

It seems to me that the debate needs to get beyond the vague generalities of the “day in court” tradition, on the one hand, and "frivolous lawsuits," on the other.

There are at least two things we know about fee-shifting. The first is that it would require substantial new mechanisms for regulating the fees that could be passed on to the loser (thus the deregulatory history of the American rule). The second thing we know is that fee-shifting rules send a shock of altered incentives coursing through the highly decentralized American litigation system. The effects of these altered incentives might be good, they might be bad, but they would be just as complicated as the labyrinthine system into which they would flow.

As far as I can tell, we don't right now know how such a change would ripple through the interactive behavior of plaintiffs, plaintiffs' lawyers, defendants, defense lawyers, and insurers. We've got a little bit of theory and some isolated empirics, but we're basically in the dark. One suspects that the effects would vary widely by litigation context -- defamation will be different from auto cases, which will be different from med mal and products cases, etc. Each will turn on a highly local political economy of lawyers, clients, and insurers. If that's right, then generalities about loser pays in the abstract will not be all that useful.

Herbert Kritzer Professor of Law William Mitchell College of Law

Posted August 19, 2008, 1:16pm

Thank you, Rebecca, for finally raising this issue. Anecdotes abound, but I know of no systematic research showing that frivolous lawsuits occur as a significant proportion of cases (or claims) that are brought. I am not saying that there are no such claims or cases, only that no one has been able to document that they constitute a significant proportion of what is out there. In the course of research on insurance defense practice, I asked lawyers if this was a significant problem in the cases they defended. The general response was that such cases were rare when a lawyer was on the other side; if there was a problem, it involved pro se claimants.

On another thread, if we were to move to some sort of large-scale fee shifting system, we would need to create an reasonable structure/system for determining what should be shifted. This is not something our judges find interesting. Would we want to create a set of "costs judges" (as they are now called in England)? Are we prepared for the extensive satellite litigation that would ensue over fees?

Finally, research in Alaska, the one jurisdiction with a routinized fee shifting regime, provides no evidence that "frivolous" cases are deterred. When Alaskan defense lawyers were asked about the impacts of the state's lower pays rule, the primary effect they described was that it increased the value of plaintiffs' cases.

Alan Morrison Special Counsel for Administrative Reform and Litigation Fair Elections Legal Network

Posted August 19, 2008, 1:36pm

I doubt that any lawyer or client would admit to bringing a lawsuit "lacking in legal or factual merit" unless that means that the plaintiff has a less than 50-50 chance on the merits, which could mean every lawsuit. The Rule 11 that was put in place in 1983 and removed less than a decade later is an example of post-hoc judging of the validity of claims, that hit at both lawyers and clients and was often used as a threat to drop viable cases. No one thought it worked well and that is why it had such a short, but destructive, life.

I doubt that any major change in the American rule is likely to occur, nor should it; if there are problems, they are centered on certain kinds of claims or conduct, and we should focus on drafting sensible and narrow rules to deal with them. As for the comment made earlier by Walter Olson that loser pays polls well, this issue is much too complicated to be determined by polls of people who have almost certainly never given the issue a moment's thought—unless they would have benefited from the English rule.

Robert S. Peck President Center for Constitutional Litigation, P.C.

Posted August 19, 2008, 1:45pm

There is a deeper difficulty here because no one will defend a lawsuit totally lacking in legal and factual merit. However, there are two types of lawsuits that some might place in that category, but do not belong there. First is the type of lawsuit that requires a certain amount of experience losing before it succeeds. In this category, we might place pioneering cases, whether they were the types of civil rights cases designed to overcome adverse precedents step-by-step, or cases like those brought against the tobacco industry, which boasted a spotless record for so long. As for the latter, it would not have been hard to expect that the tobacco companies would have pointed to that record and claimed the lawsuits were frivolous, lacking both legal and factual merit. In fact, it was not until the documents hidden from normal discovery came out that some of these misrepresentation cases succeeded for the very short window that the statute of limitations allowed. The second category, perhaps related, constitutes those cases that cannot be made without discovery. Given our system’s heavy dependence on mandatory discovery to make or break a case, it seems that it will often be difficult to know whether the client’s version of the facts holds up or not. So, to tell Stuart Taylor’s proper employment discrimination claimant from one that has no grounds is often impossible until the case is filed. Still, there is a social benefit from allowing the filing. Those who were discriminated against will not simply see the system tilted in favor of protecting the discriminators, but instead will find the system capable of making judgments. Perhaps this is what Daniel Webster meant in arguing the Dartmouth College case when he said that the “law of the land” is “law which hears before it condemns; which proceeds upon inquiry, and renders judgment only after trial.”

James Zirin Partner Sidley Austin LLP

Posted August 19, 2008, 1:49pm

Would the advocates of loser pays dock the "plaintiff loser" of a non-frivolous lawsuit with the defendant "winner's" legal fees in the following circumstances:
1. An action for divorce (where the husband may bear the wife's legal fees anyway) where the wife claims cruelty, the husband does not contest the allegations, but the Court finds the alleged misconduct insufficient to grant the divorce.
2. An action for personal injuries brought by a guardian ad litem where the guardian may feel she has a fiduciary duty to bring the claim, and be subject to serious criticism and even litigation if she doesn't.
3. An action by a widow against her stepchildren so that certain personal property of the decedent will not be taken from the marital household.
4. An action by a Presidential candidate for a recount of the voting in certain counties where the winner of the lawsuit will become the President.
5. An action for child custody where the father is found to be the better parent.
6. An action under the civil rights law where a homeless man is beaten by a police officer.

Rebecca Love Kourlis Executive Director Institute for the Advancement of the American Legal System

Posted August 19, 2008, 2:07pm

Let’s talk about Alaska for a moment. There, it was found that the people most affected by the fee-shifting rule were people of modest means (but not poor people), who were dissuaded from filing if there were weakness in the case—but overall, few attorneys said the rule affected their decision to file or not to file. Hence, the system weeds out marginal but not necessarily frivolous cases—but there is an overall decrease in lawsuits per person in Alaska compared to other states.

Is that really an objective in and of itself? I would suggest not.

We must also remember the declining rate of trials in the United States, and the fact that very few lawsuits actually result in jury verdicts or judgments and published case law. We have already constructed a system where settlement is almost mandatory. Would loser-pays change that dynamic and encourage more cases to go to trial?

Taysen Van Itallie Associate General Counsel Johnson & Johnson

Posted August 19, 2008, 2:55pm

Going back to question that Philip raised: Is there something wrong with litigation in the US and will loser pay fix or help fix it? I would say there is something terribly wrong with litigation, but that an overall loser pays rule will not likely help much. And that’s for all the reasons stated: the cultural unwillingness to actually enforce such a rule against individuals trying to obtain redress for perceived wrongs, and the complexity in the B to B context of figuring out who won what and what costs and fees are properly attributable to the part won.

Putting aggregated claims aside for the moment, which creates its own set of problems, one key thing that is clearly wrong is the enormous expense and delay of the litigation process and the ability it provides participants to harass and oppress their opponents far beyond any reasonable measure. The expense and delay results from open-ended discovery and the unwillingness of the system to resolve some or all of the claim before the completion of discovery.

This suggests we should be crafting “loser pay” rules toward the discovery process, for example, taxing the costs of discovery that did not yield evidence used at trial or on a dispositive motion. Somehow we need to provide some disincentive for the punishing leave-no-stone-unturned discovery model that is actively encouraged today. That’s what I would take from our European colleagues, not loser pays, but their aversion to endless, disproportional discovery.

Herbert Kritzer Professor of Law William Mitchell College of Law

Posted August 19, 2008, 3:12pm

A brief story in response to Taysen:

I just got back from a trip to Australian National University. I was joined in Canberra by Deborah Hensler, now of Stanford Law School, and previously the director of the RAND Institute of Civil Justice. She told of making a presentation about the supposed "discovery problem" to a some members of the Civil Rules Committee. When she was done, several people expressed surprise at the data because nowhere did they see "their" cases. Deborah's response:  “Your cases are off the map.”

Are there cases in which discovery is huge, excessive, and burdensome? Of course there are. Does this constitute a significant proportion of the cases in either state or federal courts? Almost certainly not. Do these cases capture the attention of judges, lawyers, and the media? Yes, because they are big, unusual, complex, and often innovative (and they are the cases that take significant amounts of judges' time).

The challenge: to the degree that there is a problem, how does one craft a solution that does not create more problems for the cases where this is not an issue?

Side note: the one consistent pattern in research on increasing judicial management of litigation is that it increases costs for many more cases than it decreases costs (it may speed up the process, but at a real monetary cost to the parties).

Marie Gryphon Senior Fellow Center for Legal Policy, Manhattan Institute

Posted August 19, 2008, 3:15pm

Herbert and Rebecca each cite portions of the same Alaska survey finding 1) that loser pays did not deter "frivolous suits" and also 2) that loser pays did deter low-probability-of-success lawsuits involving non-indigent plaintiffs.  Alaska attorneys could agree with both of these statements because they regarded only lawsuits filed by completely irrational actors as "frivolous."  Changing people's financial incentives obviously will not affect the behavior of a small minority who make wholly irrational decisions.  Rather, the goal of loser pays is to discourage low probability-of-success lawsuits filed by rational actors in order to extract nuisance settlements from defendants.

Robert argues that plaintiff's lawyers have an adequate incentive to refuse to file such suits under our contingent-fee system, but Lucian Bebchuk and others have shown that negative-expected value lawsuits (those that would lose money if tried to a verdict) can be filed and settled for sums that make them worthwhile to lawyers and clients.  Highly capable plaintiff's lawyers do indeed reject lousy cases, but Herbert's research has also identified a subset of less elite plaintiff's lawyers who take many small and uncertain cases on the assumption that most will settle.  Low-merit cases can settle under the American rule because plaintiff's lawyers (this part is me, not Herbert) exploit a sort of collective action dilemma faced by defendants:  the trial lawyer has a portfolio of suits against different defendants, some of which will certainly settle and keep the lawyer in business even if you don't.  The right move, then, is to settle as well, since doing so is cheaper than going to trial.  Loser pays is a good idea because it makes it far less profitable to be a "nuisance lawyer:" a less-successful member of the trial bar who files primarily low-probability-of-success suits.

Robert S. Peck President Center for Constitutional Litigation, P.C.

Posted August 19, 2008, 3:24pm

Certainly fishing expeditions as a discovery strategy are easily condemned, but all too often discovery fights are about trying to ferret out damaging information purposefully and carefully hidden. In a case in which the Supreme Court denied certiorari at the end of the term, the defendants sought review of the judgment against it despite a massive trial record that described a defense strategy of denial, deception, and subterfuge. Documents were withheld from discovery that demonstrated the defendants’ bad faith and that supported a specific jury finding that the defendants intended harm to the plaintiffs. Some of these documents were discovered only after the trial, causing the 11th Circuit to note on appeal that the defendants’ contemptuous abuse of discovery “prejudiced plaintiffs in their presentation of evidence to the jury, and on appeal.” A system that attempts to dispose of issues quickly without permitting discovery runs a substantial risk that such behavior will become standard practice.

James Zirin Partner Sidley Austin LLP

Posted August 19, 2008, 3:36pm

But, Taysen, discovery is highly regulated. Depositions are generally limited to one day per witness. Parties routinely seek protective orders where discovery becomes too burdensome or too intrusive. Cost shifting, and sometimes fee shifting, in discovery have been sewn into the fabric of the system for years. Sure, there may be "unproductive" discovery because the standard is not what is admissible, but what is reasonably calculated to lead to admissible evidence. Nonetheless, discovery saves time later, avoids surprise ("trial by ambush"),enables the parties to narrow the issues, creates a blueprint for trial and streamlines trial preparation. Most importantly, it often leads to settlement. As for the "law's delay," that's been around since Hamlet.

Philip Howard Chair Common Good

Posted August 19, 2008, 3:40pm

Perhaps there is little abusive discovery in personal injury litigation, but in the subset of corporate and securities litigation, discovery requests are themselves a bludgeon for settlement. I had one case last year, involving a separation of two partners, that had over a million documents produced. It wasn't useful—just very, very expensive.

Rebecca Love Kourlis Executive Director Institute for the Advancement of the American Legal System

Posted August 19, 2008, 3:42pm

I fear I step out of my moderator’s role, but I cannot constrain myself. Indeed, our research indicates that broad discovery occurs in a significant portion of American civil cases, and that such discovery drives up the costs of litigation significantly. Those costs are being compounded by the advent of e-discovery. I fully agree with Taysen that we can productively focus our discussion on how to control abusive discovery (propounded both by plaintiffs and defendants) without eliminating the discovery to which Bob Peck refers—and that if we could get that problem under control, we would go a long ways toward balancing the costs of litigation more fairly.

I also must add that our data suggest that when judges manage cases appropriately, the delays are minimized and time does mean money. I would be interested in hearing more from Bert about his contention that real costs actually increase when a judge controls the litigation closely. Certainly, there are techniques that have resulted in increased costs without commensurate benefits (various pretrial filings may fall in that category), but overall, the benefits of case management appear clear.

Herbert Kritzer Professor of Law William Mitchell College of Law

Posted August 19, 2008, 3:47pm

Marie Gryphon does not accurately describe my research. I do find that lawyers take many cases that would not be "profitable" to litigate on the expectation that they will settle. Importantly, where there is uncertainty about the outcome of the case, that uncertainty does not typically reflect issues of negligence but issues of (a) value, and (b) causation of specific injuries (did the accident aggravate an existing back injury or does the current condition simply reflect a normal progression?).

One must ask who would be most impacted by loser pays? The answer is that it hits the middle class (particularly the upper middle class) the hardest because they do have assets (homes, retirement funds, college savings for children, etc.) that might be lost in an adverse outcome. Persons of low or modest means would be "judgment proof" and those with substantial income/assets could afford to spin the dice.

John Fabian Witt George Welwood Murray Professor of Legal History Columbia University

Posted August 19, 2008, 4:01pm

We've got a number of different balls in the air right now, but let me ask: Why does Marie Gryphon think that zero-value suits become positive value suits as the result of defendant-side collective action problems? There are lots of different kinds of cases we could be talking about, but in tort and accident cases the defendants are often not disaggregated individuals subject to collective action problems, but deep-pocket repeat players, insurance companies or large self-insuring firms. As for those defendants who are one-shot players, liability insurance allows them to substitute a repeat player as the real party in interest. If all that is right, then defendants actually seem to be in a pretty good position to exploit economies of scale and develop long-term value maximizing settlement strategies.

A young scholar named Nora Freeman Engstrom has an excellent paper in draft with a much better account of how plaintiffs'-side settlement mills turn zero-value cases into positive-value settlements. The answer Freeman Engstrom gives is that the settlement mills and the insurers essentially collude, agreeing to a pattern of settlements that raises the value of the low-value claims in return for discounts on the settlement of claims that would have positive value if brought on their own. This is not necessarily a pretty picture of the lowest rungs of the tort system—one class of plaintiffs with relatively greater injuries is subsidizing another class of plaintiffs with relatively lesser injuries. But as a descriptive matter, the story Freeman Engstrom tells seems to me to make a good deal more sense of what's going on at the bottom end of the market than the defense-side collective action problem. And as far as I can tell, fee shifting might not change the conduct of these settlements at all.

Herbert Kritzer Professor of Law William Mitchell College of Law

Posted August 19, 2008, 4:05pm

I would be curious to know what constitutes (a) broad discovery, (b) a significant portion of American cases, and (c) what American cases are being referred to?

There almost certainly is more discovery in federal cases and the CJRA evaluation did not find large amounts of discovery in more than a relatively small portion of the federal cases it studied.

Regarding judicial management increasing costs, it reflects the lawyers' need to be responsive to the demands of the judge. In a big, complex case this may reduce time and costs. In more modest cases it adds costs. This is not unique to the U.S.; it is also one of the impact of the Wolff reforms in England.

Randall Shepard Chief Justice Indiana Supreme Court

Posted August 19, 2008, 4:10pm

The potential for stark change in American practice being pretty modest, discussion about the effects of various alternative versions of Loser Pays runs some risk of violating the maxim that the perfect is the enemy of the good. If there are actions taken in the litigation system that unjustly impose costs on persons who did no or very little wrong (and it seems we mostly agree that this does happen), the productive questions are what might be done to ferret these out and deter them. Perhaps this is another version of a question Rebecca Kourlis recently asked.

It is certainly right that the tools of deterrence presently placed in the hands of judges do not get deployed often enough to make much difference. Bob Peck and James Zirin are correct to say that the notion of citizen access to an independent judiciary is as old as the Republic, and judges as a class take this access as part of their mission. One of the reasons why judges may overcompensate in vindicating this right of Americans is that judges know very little about how high the cost of litigation really is. Courts work to isolate themselves from discovery disputes (one reason why we deal with discovery through "regulation"), and by the time you take out the nuisance settlements and general settlements, judges don't learn much about how much all this actually cost. A regime that somehow informed judges about this aspect of American justice would probably make a difference.

Working in the realm of the possible, the mention today of screening processes, fees assessed to lawyers, and focus on less global solutions seem most likely to be useful.

Marie Gryphon Senior Fellow Center for Legal Policy, Manhattan Institute

Posted August 19, 2008, 4:48pm

I agree with John that many nuisance suits feature repeat-player corporate defendants who are pursuing maximizing strategies over their entire case portfolios. The reason that they nonetheless face a collective action problem in the context of small, traditional tort suits featuring individual fact patterns (slip-and-fall cases are good examples) is that they are being sued by many different trial lawyers (each of whom may only have one case pending against a particular defendant at one time) who are themselves each suing many different corporate defendants. It is true that this analysis does not apply to mass torts or similarly related claims. The forthcoming Engstrom paper sounds exactly right to me as an account of what happens in the context of mass torts, and I look forward to reading it. Coincidentally, I offered the same thesis—that trial lawyers and defendants collude in order to impose settlement agreements that transfer value from high-expected value cases to low ones—as a critique of the ethics of the Vioxx mass tort settlement in a short article in January.

E. Donald Elliott Professor of Law Yale Law School

Posted August 19, 2008, 5:42pm

Re Bert Kritzer's point (quoting Deborah Hensler) I'm not sure I see why it really matters if cases with abusive discovery are only a small percentage of the total federal caseload. The problem is real even if it is localized to a small percentage of cases. The observation does perhaps raise the issue of whether a single set of rules can realistically handle a very diffuse set of cases. But we're really way past that: "judicial management" can be understood as tailoring or custom designing a set of procedures to a particular case.

Rebecca Love Kourlis Executive Director Institute for the Advancement of the American Legal System

Posted August 19, 2008, 6:00pm

Sewing up this discussion with the thread common to most, if not all, of the posts today, it appears unlikely that the U.S. will be implementing a “loser-pays” model of fee-shifting on a national or other broad scale any time soon. There are too many uncertainties as to whether it would, in fact, remedy real or perceived problems—or whether it would, instead, cause scores of new problems. Our system of justice may be too different from those countries that do enforce the loser-pays model to accommodate such a sweeping change.

However, there does appear to be a consensus that we have abuses in our system, and that there are some potential solutions that would target those abuses, as summarized by Chief Justice Shepard. Tomorrow, I hope we turn our attention to that part of the discussion.
Thank you for your lively participation, and I look forward to our ongoing conversation.

Philip Howard Chair Common Good

Posted August 19, 2008, 6:09pm

With respect, I think there's a bigger point here. The metaphorical image of justice holds scales in balance. Instead justice careens here and there, tolerating wild claims and remote defenses in t