The “American Rule”: The Rise of the Lawyer Class: Part II

As discussed in the previous post, the American colonies initially followed the English rule (i.e., loser pays), but gradually moved away during the nineteenth century. The question is, Why? Rutgers law professor John Leubsdorf emphatically rejects the notion that the change was prompted by class-based considerations, such as concerns regarding the English rule’s impact on poor litigants. Rather, the gradual shift away from loser pays was accompanied by several related developments: the repeal of fee regulation (set forth in the widely-followed Field Code in 1848), granting lawyers the right to sue clients to collect fees, and the acceptance of contingent fee arrangements (pursuant to which the attorney takes a financial interest in the outcome of his client’s lawsuit), which were once regarded as a form of champerty and until recently were banned in England.

Leubsdorf asks “Why were the lawyers able to demolish the regulatory barriers?”  He responds: “[T]he growing political influence of lawyers, a possible decline in the intensity of antilawyer feeling, and the desire of businessmen to retain the best lawyers…. Having established themselves as private businessmen, lawyers reaped the profits.” [1] Legal historian Morton Horowitz describes the ascendancy of the lawyer class in nineteenth century America as an “amazing rise” to a position of “political and intellectual domination.” [2] Once lawyers earned the right to negotiate free-market rates with clients, and then to sue to collect their fees, judicial supervision of attorneys’ fees became (from the perspective of lawyers) unnecessary—even undesirable.

Leubsdorf speculates (based on the scant historical record) that, absent a special interest group pressing for fee-shifting, the English rule simply became moribund in America: “[T]he lawyers were out to legitimize large fees paid to them by their clients, and were willing to let the legislature keep [statutorily-prescribed] costs awards down because they did not rely on them for their own payment.” [3] The commonly-accepted view was that “lawyers should be paid by their clients rather than by opposing parties.” [4] Once lawyers had the right to collect market-rate fees directly from clients, “the right to recover attorney fees from an opposing party became an unimportant vestige.” [5]

This transition coincided with a judicial attitude of laissez-faire.[6] (Other scholars, such as Albert Ehrenzweig, have suggested alternative explanations for America’s move away from the English rule in the nineteenth century, but only Leubsdorf accounts for the various concurrent developments referred to earlier.)

In other words, from a public choice perspective, the most intensely-interested faction—the legal profession—was more motivated to enrich itself than to protect clients from unmeritorious litigation. That many state legislatures were, in Leubsdorf’s colorful expression, “stuffed with lawyers” facilitated such favoritism. This is a trend that continues to this day. As Walter Olson has demonstrated, in The Litigation Explosion (1991) and other books, during the 20th century the legal profession hijacked the civil justice system and created a litigation model that primarily serves the interests of lawyers.

In the 20th century, when courts began to refer to the presumption that litigants would bear their own attorneys’ fees as the “American rule,” Leubsdorf states that “they spoke in the prevalent language of social engineering.” Numerous exceptions emerged, permitting plaintiffs in certain types of cases—usually individuals suing deep-pocketed institutions—to recover their attorneys’ fees if they prevailed.  The award of attorneys’ fees in litigation was explicitly based on progressive policy considerations.

Democracy in America, Tocqueville’s detailed survey of 19th century society in the U.S., is often touted as a prescient analysis of the emerging American republic, but some of his assessments have proven to be short-sighted. For example, Tocqueville exhibited a lawyer’s bias when he envisioned the legal profession (and the judiciary) as a counterweight to majoritarian tyranny. He correctly anticipated that “this particular class of men [i.e., lawyers] will play a prominent part in the political society that is soon to be created,” [7] but instead of being a moderating influence, lawyers in America became a powerful special interest group—exemplified by the left-leaning American Bar Association and a highly-politicized organized bar.  Far from elevating our democracy, the legal profession is a rent-seeking cartel—a guild—and nothing more.

Tocqueville’s prediction that the “general spirit” of the legal profession would be “eminently conservative” now seems as misguided as his concomitant enthusiasm for judicial review. Tocqueville assumed that judges would decide cases in a neutral and principled manner—enforcing the Constitution in the face of legislative encroachment. From that perspective, “the power vested in the American courts of justice of pronouncing a statute to be unconstitutional forms one of the most powerful barriers that have ever been devised against the tyranny of political assemblies.” [8] Tocqueville did not anticipate the phenomenon of agenda-driven judicial activism, which has weaponized judicial review and made federal courts a threat to representative self-government.

The American rule no longer requires each side to bear its own attorneys’ fees in litigation; hundreds of fee-shifting statutes—in civil rights, environmental, and similar laws—now allow a prevailing plaintiff to recover attorneys’ fees from a defendant while denying the reciprocal right to a prevailing defendant. The blog piece my friend objected to called one-sided loser pays “the worst of both worlds,” and indeed it is. As a practical matter, given the political strength and intense self-interest of the legal profession, it may be impossible to bring the U.S. into line with the rest of the world regarding loser pays. A bastardized, one-sided version—similar to current fee-shifting statutes—across the board would be worse than the status quo.

It is, of course, possible to oppose loser pays in good faith on various policy grounds—the potential for unfairness, the difficulty of determining which side “prevailed” in complex cases with multiple claims and parties, the creation of perverse incentives to over-litigate certain claims, and so forth. Some of these concerns can be ameliorated by judicial discretion whether (and in what amount) to award fees, the establishment of a market for “legal expenses insurance” (common in loser-pays jurisdictions), and fee-shifting based on rejection of pre-trial settlement offers (similar to offers of judgment under Rule 68 of the Federal Rules of Civil Procedure).

Implementing such a significant change raises complex issues, and presents challenges even for avid tort reformers. But the legitimate arguments against the English rule do not include the silly notion that the American rule liberated yeoman farmers from vestigial aspects of feudal oppression.

[1] John Leubsdorf, “Toward a History of the American Rule on Attorney Fee Recovery,” 47 Law & Contemporary Problems 9, 16-17 (1984).

[2] Morton Horowitz, The Transformation of American Law, 1780-1860 (1977) at 140.

[3] Leubsdorf, supra, at 20.

[4] Id. at 28.

[5] Id. at 9.

[6] E.g., Gulf, Colorado & Santa Fe Railway v. Ellis, 165 U.S. 150 (1897).

[7] 1 Alexis de Tocqueville, Democracy in America (Vintage Classics 1990) at 273.

[8] Id. at 103.