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Is “Loser Pays” a Vestige of Oppression? Part I

In response to a recent post on my blog, Misrule of Law, regarding the award of attorneys’ fees in litigation, a friend of mine scolded me for criticizing the so-called “American rule,” pursuant to which each side generally bears its own attorneys’ fees in lawsuits (subject to contractual or statutory cost-shifting). In my blog piece, entitled “One-Sided Loser Pays is the Worst of Both Worlds,” I remarked that “the entire legal system incentivizes litigation, and nowhere is this more apparent than the treatment of attorneys’ fees. The United States, practically alone in the world, does not follow the so-called English rule—loser pays. The ‘American rule’ [means]…that a defendant who incurs a fortune defending a meritless lawsuit has no recourse against the unsuccessful plaintiff.”

Critics of the American rule tend to view the filing of a lawsuit as a form of economic aggression: The plaintiff’s commencement of litigation—invoking the coercive powers of the state—undeniably alters the status quo by requiring the defendant to incur substantial legal expenses to defend himself. If the defendant does nothing, he loses by default and is subject to government-enforced execution of the resulting judgment. In addition to imposing enormous expense, litigation also subjects a defendant to significant intrusion (such as through pretrial discovery), inconvenience, and aggravation. Although sometimes necessary to enforce contracts and property rights, litigation itself is not a form of “private ordering,” such as consensual exchanges in a free market.

If the lawsuit turns out to be unmeritorious, and the defendant prevails, he is nonetheless saddled with large—and wholly unnecessary—legal bills. Surely justice imposes some obligation on the unsuccessful plaintiff to compensate the defendant for his financial injury, caused by the commencement of an unmeritorious lawsuit. Moreover, failing to penalize plaintiffs for bringing unmeritorious lawsuits incentivizes predatory litigation by rigging the cost-benefit analysis in favor of pursuing marginal claims. If the plaintiff wins, he gets a judgment or settlement; if he loses, he walks away scot-free. Without the risk of adverse consequences, the rational plaintiff will err in favor of pursuing weak claims. Discouraging frivolous litigation is sound public policy.

My friend, who is a conservative (albeit libertarian-leaning) lawyer, found my position objectionable. He strongly favors the American rule, and is opposed to the concept of “loser pays” (which is followed, not just in England, but in most of the western world outside the U.S.), because, he contends, it is a relic of a class-stratified era, and was used by the upper class to suppress claims by small land owners and others who could be destroyed by an unjust fee award. (Based on that logic, the same charge of inherent class bias could be made against the entire body of English common law.) “In this country,” he admonished, “we did things differently for a very good reason.” My friend suggested, perhaps facetiously, that criticism of the American rule borders on being “un-American.”

As a right-of-center commentator, I am used to criticism from the Left, but not often from fellow conservatives, and certainly not on the issue of civil justice reform—a topic that generally receives broad support across the conservative-libertarian spectrum.  Had I overlooked something?  I revisited my research on loser pays (which was admittedly 20 years old), and found that loser pays is still favored by a sizable flotilla of scholars and advocates, including Walter Olson (of Cato Institute), the Manhattan Institute, the Heritage Foundation, George Mason law professor David Bernstein, Ted Frank (currently of the Competitive Enterprise Institute), John Stossel, Reason magazine, the Texas Public Policy Foundation, Texans for Lawsuit Reform, former House Speaker Newt Gingrich (who made it part of the Contract With America in 1995), and even some liberals, such as Michael Kinsley and Steven Brill.

What was the source of my friend’s belief that loser pays is an archaic vestige of feudal oppression, properly rejected by the more-egalitarian American legal system at the founding of the republic?  This thesis appears to be the Left’s narrative, espoused by some progressive historians and trotted out by the plaintiffs’ bar. The opponents of loser pays include the American Bar Association, ThinkProgress, the American Association for Justice, the Washington Post, and the New York Times, none of which is normally considered a bellwether of classical liberal thought. I cite these sources, pro and con, not to make an “appeal to authority,” but merely to delineate the nature of the dispute and the identity of the disputants. Let’s take a closer look at the issue.

Comparing legal rules across national borders can be difficult. There are many differences between England and the United States, aside from their treatment of attorneys’ fees in litigation. For one thing, England is more of a welfare state than is the U.S., with government-provided health care and other entitlements not generally available in America, including legal aid for indigents in civil cases. Britons are less litigious, and per capita have far fewer lawyers. Although American government and legal systems derive from a common Anglo-Saxon heritage, England has a much longer and more complicated history.

Despite their differences, however, America and England enjoy many similarities. Both are affluent, English-speaking western democracies governed by the rule of law. Yet, in comparison to England (or even Canada, our neighbor to the north), America’s legal system is extraordinarily costly.  According to critics of the U.S. civil justice system, some of these greater costs are due to American innovations not present in England: contingent fee arrangements, class actions, jury trials in civil cases, pretrial depositions, and frequent awards of punitive damages.

What is the historical origin of the English rule, and why was it not adopted (or retained) in America? There is no pat answer to this question; the evolution of the rules, on both sides of the Atlantic, occurred over the course of many centuries, for complex reasons that defy simplistic characterization. Legal rules tend to be dynamic, not static. Moreover, societal attitudes toward lawyers have changed dramatically over time; “presentism” impedes our ability to understand past customs and beliefs.

Here is a capsule summary: Historians trace the beginning of “loser pays” in England to the Statute of Gloucester of 1278, which gave plaintiffs a right to claim certain “costs” (including attorneys’ fees) in specific real property suits. Over the next several hundred years, the rule was gradually extended to encompass other claims and to make recovery available to prevailing defendants as well as plaintiffs. In 1875, the award of attorneys’ fees to the prevailing party was made discretionary rather than automatic—and so it remains today. The English rule rests on the principle that the prevailing party has a right to be made whole for all legal expenses incurred as a result of an unsuccessful lawsuit—not only court costs but also attorneys’ fees.

In England, and in early colonial America (throughout much of the 18th century), attorneys’ fees were regulated by statute, primarily to limit the amount a lawyer could charge his client. (Lawyers were unpopular, then as now. Some colonies attempted to ban lawyers altogether.)  Statutory regulation of fee recovery was just one aspect of a more comprehensive regulation of attorneys’ fees. The fees of lawyers, like those of a physician, were considered to be “honorary,” and payment by the client was considered to be a “mere gratuity” which a lawyer could not demand without harming his reputation. [1] A lawyer could not sue his client to compel the payment of his fee; courts could order the payment of attorneys’ fees only by a losing party to a prevailing party, pursuant to statute, as part of the recoverable costs.[2]

Colonial America followed the English rule well into the 1800s (admiralty cases were treated differently as early as 1796). [3] Under English law, distinctions were drawn between “advocates” and “solicitors,” various types of costs, and other arcane categories that were not germane to American practice. Gradually, these differences led American courts to deviate from English statutory and common law rules pertaining to attorneys’ fees.

Thus, the colonies initially adopted the English rule, but later went in a different direction. The shift away from the English rule did not coincide with the founding of the American republic, as my friend supposes, but with the rise of the legal profession and the development of a capitalist economy. The leading scholar on the development of the American rule is Rutgers law professor John Leubsdorf. According to Leubsdorf, American lawyers freed themselves from fee regulation in the early 19th century, and the move away from loser pays had nothing to do with concerns about the English rule deterring litigation by poor plaintiffs. [4] That explanation, Leubsdorf insists, is “a pure anachronism” because courts did not talk that way “before the twentieth century.” [5] Indeed, even the term “American rule” did not appear until the 20th century.

Part 2 of this post will delve further into the history of the American rule. Spoiler alert:  The American rule emerged at about the same time as Alexis de Tocqueville’s visit to America, during which he noted that lawyers had formed a distinct “privileged body” comparable to England’s aristocracy. [6] As an aristocrat trained in the law, Tocqueville had a keen eye for such matters. The American rule does not reflect a rejection of feudal hierarchies, but the triumph of the legal class.

[1] Law v. Ewell, 15 F. Cas. 14 (D.C. Cir. 1817) (quoting attorney Roger Brooke Taney).

[2] 3 William Blackstone, Commentaries on the Laws of England 399-401 (1768).

[3] See Arcambel v. Wiseman, 3 U.S. (3 Dall.) 306 (1796).

[4] John Leubsdorf, “Toward a History of the American Rule on Attorney Fee Recovery,” 47 Law & Contemporary Problems 9, 10 (1984).

[5] Id.

[6] 1 Alexis de Tocqueville, Democracy in America (Vintage Classics 1990) at 273.

Reader Discussion

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on May 24, 2018 at 09:45:44 am

Mark:

Excellent summary; thanks for the education on this!

"The American rule does not reflect a rejection of feudal hierarchies, but the triumph of the legal class."

Well, if anything, it would appear to indicate the reconstitution of a medieval guild!

BTW: The Chevron-Ecuador scam is once again in the news. Tidbit from this episode: Steven Donziger, attorney promoting the *shakedown* had been ordered by an american court to pay $1,000,000 in costs. How does this fit in with the overall American rule?

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Image of gabe
gabe
on May 24, 2018 at 10:11:05 am

Agree wholeheartedly with this assessment. The "legal class" is on display elsewhere as well, such as the recent article in this blog on the necessity of deferring to expert opinions (read: law professors) on the meaning of the Constitution. (Full disclosure: as a lawyer, I am nominally a member of this class).

Adopting loser pays and repealing sovereign immunity would go a long way toward delitigation of this country. The latter is also an import from English law; it seems the legal class is perfectly capable of retaining medieval holdovers it approves of even in our egalitarian land. Perhaps the latter act would compensate the plaintiff's bar for their losses stemming from the first.

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QET
on May 24, 2018 at 13:41:05 pm

Donziger was found to have engaged in egregious misconduct, amounting to fraud. But his tactics prove how corrupt the civil justice system has become, and why incentives are needed to keep litigants honest. https://www.forbes.com/sites/michaelkrauss/2018/03/14/the-ecuador-saga-contiues-steven-donziger-now-owes-chevron-more-than-800000/

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Image of Mark Pulliam
Mark Pulliam
on May 24, 2018 at 15:23:03 pm

[…] Read the complete article here: Is “Loser Pays” a Vestige of Oppression? Part I […]

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Image of CALACTX - Citizens Against Lawsuit Abuse of Central texas
CALACTX - Citizens Against Lawsuit Abuse of Central texas
on May 24, 2018 at 16:46:31 pm

I think there are many good reasons to go to either system. The benifit of the american rule is that it encurages settlement, reduces the number cases that are not very important, and encurages fighting against precedent. It encurages settlement by making both sides realize that there will be a large transaction cost (regardless of the outcome) to continuing litigation. Both sides have a large reason to settle at what they think the result will be aproximately, which means it is the parties agreeing on what the outcome will be (less potential long term conflict and more win-win outcomes). It discurages suits over things like the failure to properly warn customers their coffee is hot (because the outcome is likely to be smaller than the cost of the lawyers, but reducing such litigation doesn’t eliminate it). Lastly it encurages fighting minority precedent by reducing the costs of likely loss. If I think a Supreme Court rule is incorrect, I can file a suit and appeal that to the Supreme Court while reducing my litigation costs to very low (in the lower courts) given the high likelyhood of loss, but I cant force the other side to do the same. This encurages people to challenge precedent more often than the English rule by reducing the downside.

There are also advantages for the English rule. But lately I tend to perfer a hybrid system that also reduces the power of judges. Instead of the current “summary judgment” system where the question is whether a “reasonable” jury could find one way. I would change that to not be an abosute win, but allow the side that would otherwise win in summary judgment to instead change to an English Rule system with a bond that needs to be posted by both sides. This would keep the American rule for close factual cases, but switch to the English rule for lopsided cases where one side is likely to win. But the judge would also no longer decide what a “reasonable” jury could believe, instead if you think the judge is wrong, you would have the right to force a jury trial (while paying all the costs of both parties if you lose). That would get most of the beifits of the English rule, while keeping a lot of the benifits of the American rule, and reducing the power of judges to decide questions of fact.

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Devin Watkins
on May 24, 2018 at 17:17:50 pm

I respect Mark Pulliam and appreciate his contributions, but I strongly disagree with the rule of "Loser Pays" because it (1) is outdated, (2) is premised on the frequently disproved notion of judicial integrity/impartiality, and (3) wrongfully connotes that, if there's an unmeritorious party, it's got to be the plaintiff. In practice, "Loser Pays" leads to many absurdities. As can be foreseen, I speak from the perspective of a plaintiff who has been defrauded by corrupt judiciary.

I. "Loser Pays" Is Outdated.
Except for instances of mental incompetence and repeated, extreme misconduct in court, the decision whether or not to retain an attorney in a lawsuit is entirely at the party's discretion. The need for a lawyer might be justified back in the day when illiteracy was more common, but the latter has been largely eradicated in the U.S. in the course of the XXth century.

Moreover, thanks to the Internet, nowadays the vast majority of potential parties to a case (in the U.S.) has free and instantaneous access to the statutes, procedural law, and case law, all of which are written in plain English. The availability of all this information has at least three implications:
1. The discretionary aspect of retaining an attorney becomes more obvious, whence the party decreed as "loser" should not be ordered to reimburse attorney fees;
2. Free access to the laws creates a moral obligation to become familiarize oneself with the rules of our "democratic" and "advanced" civilization, so that wrongdoers should be informed and think twice before acting unlawfully; and
3. Overdue knowledge of the laws would raise civil awareness so as to demand legislators to fix a loophole, to realize when the judge commits fraud, and to remove either when they don't do their job.

II. Vexatious Lawyers and the Lack of Judicial Integrity.
As I have explained elsewhere, the judge in trial court dismissed both of my lawsuits. Later on, I learned that both of my cases had been presided by a felon. Yes, a felon: judge Carol Kuhnke was busted for illegal possession of narcotics in the midst of another tragedy that further reveals her severely poor "judgment" [1] and hence her unfitness for judicial office.

In my initial experience as litigant (at all times pro se), defense counsel pretended to be illiterate about my complaint. He, Daniel P. Finley (P-65454) subsequently filed a fraudulent motion asking for an award of $1,500 under the false allegation that I didn't serve court papers on him. I hired a transcriber & communications expert to assess the intelligibility of my complaint. Indeed, the expert confirmed the intelligibility of my complaint. I also disproved lawyer Finley's fraudulent allegations by presenting the USPS receipt with his signature on it [2]. Did felon Kuhnke remedy Finley's fraudulent acts? No. Instead, this rotten judge reprimanded me for filing my motion for sanctions against the crooked attorney [2]. If it were for the rule of "Loser Pays", I would be forced to pay attorney fees even for these fraudulent and vexatious acts attorney Daniel Finley committed in court.

In my lawsuit against the intermediary from India, the same judge lectured me to "stay out of the way" because Michigan "loves anybody who's powerful" [3] (see transcript of hearing on August 17, 2016, page 21, lines 7-13) . When judges like felon Kuhnke flagrantly depart from the constitutional mandate of Equal Protection of The Laws, the matter of awarding attorney fees amounts to [judicially] organized crime.

The Michigan Court of Appeals continued the pattern of judicial fraud by falsely denying, inter alia, that I pleaded defamation per se in one of my complaints. I disprove this matter and have given further details elsewhere [4]. I brought both cases to the Michigan Supreme Court.

In the Michigan Supreme Court, the intermediary's attorneys were granted a motion to extend the deadline for appellee's brief because they needed additional time to do "legal research". These attorneys ended up filing a brief with copy-paste of large chunks from briefs filed in trial court. And, instead of the allegedly additional "legal research", this team of lawyers made the mediocre and bare allegation (in their brief) that case law from other jurisdictions "is not necessarily the same as that in Michigan". Would copy/paste truthfully merit attorney fees in these circumstances?

For another absurdity, consider the matter of Lisa Gorcyca, the judge who jailed three siblings for seventeen days essentially because they refused to have lunch (and the judge couldn't enforce a "normal" relation) with their father [5]. This was one of the rare instances where the Judicial Tenure Commission proceeded against an unfit judge. The Michigan Supreme Court eventually favored judge Gorcyca ... unless we're willing to believe that a "public reprimand" is sufficient sanction for Gorcyca's judicial brutality toward three frightened and innocent kids. According to "Loser Pays", the Judicial Tenure Commission would have to reimburse this judge's attorney fees for a process that culminated in the Michigan Supreme Circus.

III. Losing a Lawsuit Does Not Mean That The Plaintiff's Claims Are Meritless.
Besides the monumental corruption of various courts, the injured plaintiff endures great impediments in his quest for evidence. One significant impediment is precisely the attorney-client privilege, which often takes the form of abetting and/or covering up of fraud/crimes. In fact, contrary to the author's proposition, the attorney-client privilege encourages vexatious litigation in that an attorney's effectiveness correlates with his ability to impair the ascertainment of the truth.

Another obstacle stems from collusion by non-parties where the matter would unveil unconscionable conduct by that non-party. In my two cases, one such non-party is the University of Michigan, an institution known for paying one or more judges/attorneys very dearly in the form of employment.

Lastly, many of us have seen cases where a represented plaintiff's day in court is wasted because of his attorney's ineptitude. Also here the rule of "Loser Pays" leads to an absurd result: an injured plaintiff being further harmed by his lawyer's incompetence and having to pay extra attorney fees.

[1] http://www.oneclubofjusticides.com/2018/04/felon-carol-kuhnke-seeks-reelection-as.html
[2] https://www.youtube.com/watch?v=stsM9hNO6ao&t=260s
[3] http://www.oneclubofjusticides.com/p/viggers-v-pacha_74.html
[4] https://www.youtube.com/watch?v=7jB4zS3rFrY
[5] https://www.leagle.com/decision/inmico20170731193

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Image of Iñaki Viggers
Iñaki Viggers
on May 24, 2018 at 20:34:02 pm

Boy, that would be a doozy to implement - BUT I like it.
Can we rely upon anyone to determine which case would require the British rule or the american rule.

Once again, we place our fate in the hands of the Black Robes - unless, of course, you want me an nobody to determine who is subject to which rule.

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Image of gabe
gabe
on May 25, 2018 at 12:46:18 pm

While it is true that the American Rule, each side bearing its own attorneys’ fees, encourages settlement, it also encourages strike suits, especially in areas like class action consumer claims and class action security fraud claims. Because the costs of defending these kinds of actions can be huge, and the American Rule guarantees that a prevailing defendant can never recover those costs, even if the probability of losing on the merits is very low, a defendant has a strong incentive to pay a “cost of defense” settlement for even borderline frivolous claims. Those strike suit settlements drive up the costs of doing business and are imposed on both consumers and investors. The only beneficiaries are the plaintiff’s lawyers. Which, of course, is why the ABA so strongly supports the American Rule (which is one of the reasons, among many, that I have refused to belong to the ABA since about 1988).

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Daniel Artz
on May 25, 2018 at 12:58:27 pm

There are any number of objections which I have to your comment, but one jumps out at me immediately - your claim that the retention of counsel is “discretionary”. That is ONLY true for individuals, who always have the right to represent themselves in court. It is decidedly NOT true for corporations, partnerships, limited liability companies, trusts, or any other type of artificial “person.” In Texas, as I believe is the case in every other state in the union, no such entity may appear in court EXCEPT through counsel licensed to practice law by the relevant jurisdiction. If a corporation or LLC is sued in Texas (and, to my knowledge, in every other state), and a non-lawyer officer of the corporation shows up to try to mount a defense, his pleasings will be stricken by the court and he might well be admonished by the judge about the penalties for the unauthorized practice of law. Now, whether or not the practice of law SHOULD be subject to such stringent vocational licensing schemes is a separate issue. But the fact remains that the retention of counsel is NOT discretionary for any corporate, partnership, LLC, Trust, or other artificial person that is sued in the U.S., unless by “discretionary” you mean that they can simply allow a default judgment to be entered against them.

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Daniel Artz
on May 25, 2018 at 13:45:37 pm

You're totally right. I forgot about corporations, LLCs, and the like.

In that case, removing/modifying the restriction you point out is far more appropriate than subjecting meritorious plaintiffs to an increased risk where the judiciary is corrupt. If I understand correctly your allusion to "stringent vocational licensing schemes", you seem to agree (?) that removal of the restriction on 'who' may represent an institution/entity deserves consideration.

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Image of Iñaki Viggers
Iñaki Viggers
on May 25, 2018 at 17:17:01 pm

You are quite right. Strike suits are a major problem for the American rule (I was just going through what I saw as the major advantages, there are problems too). Ideally, under my proposed system, such suits would quickly be transitoned into a loser pays rule (with a bond required to continue).

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Image of Devin Watkins
Devin Watkins
on May 25, 2018 at 17:48:21 pm

You are right (I was only focusing on the benifits not the costs of the amerivan rule). But ideally under my proposed system, strike suits would quickly be transitioned to a loser pays rule.

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Image of Devin Watkins
Devin Watkins
on June 06, 2018 at 00:37:04 am

[…] to its different legal fee rule in order to help the poor [Mark Pulliam at Law and Liberty, parts one and two, and thanks for […]

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Image of Mark Pulliam on the origins of loser-pays – John Culbreath
Mark Pulliam on the origins of loser-pays – John Culbreath
on June 29, 2019 at 15:17:15 pm

What needs to be reformed or changed is attorney's fees and billing practices, including engagement letters. There needs to be limits on how much an atty. can charge a client and have set charges depending on the task they are doing for the client! Lawyers fees and pay agreements have gotten way out of hand and outrageous!

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Image of Russell Howell
Russell Howell
on December 29, 2019 at 15:39:11 pm

[…] to Mark Pulliam, a contributing editor of Law and Liberty. The opponents of “losers pay” include, […]

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Image of Richard Jewell, loser pays (and government should too)
Richard Jewell, loser pays (and government should too)
Trackbacks
on April 24, 2020 at 10:57:07 am

[…] contingent fee arrangements, litigants’ recovery of attorneys’ fees  (the so-called “American rule” versus loser-pays), pre-trial discovery, junk science, punitive damages, the economics of […]

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