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Loser-Pays makes lawsuits fairer in Europe. It could work here, too. (reason.com)
109 points by mhb on June 24, 2011 | hide | past | web | favorite | 52 comments

"The practical case for loser-pays is equally compelling. Litigants naturally think too well of their cases; loser-pays pushes them to size up their prospects more realistically. It also curbs the brand of extortion, so routine in American law as almost to have lost its ethical taint, by which lawyers use the costs of the process itself, or the risk of a fluke outcome found in any trial, to strong-arm their opponents into settlement."

I'm facing this very scenario right now. We're being sued by a lawyer who is working on contingency for a client who is so delusional it makes me sick to my stomach to think about it. The really ugly side of this is that lawyers of the ilk that are suing us find specific loopholes through which they can (or attempt to) attach you personally, even if you're incorporated. We're being strong-armed to settle, and will likely pay these jerks something, just to have it go away.

If "loser-pays" applied here, this lawsuit would have been wrapped up after the very first round of inquiry.

While 'loser pays' might benefit your particular case, it's easy to imagine an equal number of scenarios where a guilty corporate defendant uses the threat of running up huge legal fees to discourage valid lawsuits against it. The result is a windfall for corporations with no net improvement in actual justice. To put it another way, it decreases the likelihood of frivolous plaintiffs but increases the likelihood of frivolous defendants.

>To put it another way, it decreases the likelihood of frivolous plaintiffs but increases the likelihood of frivolous defendants.

An acceptable trade-off in my view. The defendant is by definition not the one starting the court case so its more difficult to abuse. e.g. I can go onto the street & hit 10 guys with a baseball bat. Compare that with waiting on the street to get punched in the face (unlikely to happen) & then hitting them back with a baseball bat. Both involve the possibility of someone getting hit with a baseball bat but the one is less likely to happen & more difficult to abuse.

If a corporation operates a big oil platform in a reckless manner and causes billions in damages, who is "starting the court case?" Corporations are far more likely than individuals to cause widespread harm, and they're also far more likely to use a cost/benefit analysis rather than morality to guide their decision-making. After all, contrary to the what the law says they're not people---individual responsibility is too dissipated in a big corporation for individual morality to influence behavior.

Such a corporation as you describe will act that way (recklessly) regardless of whether its loser pays or not. Besides, its unreasonable to expect such a mechanism (loser pays) to catch cases involving billions in damage & unethical corporations. i.e. Just because there are cases that loser pays will not prevent doesn't mean loser pays is a bad idea.

Don't guilty corporate clients already spend heavily to defend themselves necessitating a concomitant response by the righteous(?) plaintiff who can't afford it? At least with loser pays, the plaintiff has the option of finding a lawyer who will accept the case contingent on recouping his presumably huge legal fees.

That's why there are lawyers who take cases on contingency. And while some of them are quick-buck artists just looking for a quick settlement, most are looking for real cases with a high likelihood of success, with plaintiffs who simply couldn't afford to bring their solid case otherwise.

So what's your example of a scenario in which it's worth it for a corporate defendant to spend a lot on legal fees but in which a plaintiff can't find a lawyer who judges the chances of recovering his own fees acceptably likely to take the case?

"Loser pays" isn't aimed at changing lawyer behavior, it's aimed at changing plaintiffs' behavior. If the case is good the plaintiff will always find a lawyer, the question is whether the plaintiff can stomach the risk of loss even if he has a case that he's 90% sure of winning. Would you take a gamble where if you win you get $2M but if you lose you pay $100K, even if the chance of winning is 90%? It's not an easy decision if your net worth is less than that $100K.

If there's a 90% chance of winning, maybe the lawyer would be willing to pay the defendant's legal fees if he lost.

Maybe. How about a 65% chance? Should we discourage that plaintiff if his lawyer declines to back him financially? After all, lawyers are lawyers, not bankers.

If there's a 90% chance of winning, maybe the lawyer would be willing to pay the defendant's legal fees if he lost.

He almost certainly would. Many lawyers already work for contingency fees - this isn't much different, except the potential downside is slightly larger.

...except the potential downside is slightly larger.

That's quite an understatement. If the plaintiff's attorney spends half of what the defense spends, he's looking at tripling his exposure if he loses. That's an enormous difference.

According to TFA that's not how it works in Europe: if you deliberately run up costs, the court will not assign them to the loser. Only reasonable fees are passed on to the loser. And the loser can challenge.

A big corporation can run up an awful lot of perfectly legitimate legal fees. And the challenge remedy is not going to be much comfort to an indigent plaintiff as it's unlikely his lawyer is going to take that challenge on contingency.

At least in Germany, what is a reasonable fee is strictly regulated and tied to the total value disputed. At the very least, you'll know the cost (roughly) at the outset of the case.

Good luck trying that kind of regulation in the US.

@vannevar you have obviously never been sued or threatened on a meritless claim by a multi billion $ company. Loser pay is a significant equalizer because let's say the case is speech related, the ACLU will defend you all day long necuase their attorneys get paid in the end. I imagine other attorneys would take up your defense for similar reasons...

How often is an individual sued by a corporation on a free speech case, compared to the number of times individuals sue corporations because they've been harmed? I'd guess that ratio is something on the order of 1000 to 1 or more in favor of individuals suing corporations. Unless you're Oprah, it's pretty unlikely that a corporation is ever going to sue you for something you say.

Look through any local ACLU chapters' case list and you'll find plenty. Or read http://reason.com/blog/2008/12/10/slapp-silly -- that is an archetypal case. Environmental activists, whistleblowers, online reviewers. Lawsuits are the perfect way to shut them up, no matter how much of a effing farce they are. And for every 1 case that actually gets filed as a suit, my guess is there are hundreds of c&d letters sent.

Oh, I agree such suits exist, though SLAPP suits against individuals are still pretty rare. I'm just saying that I believe the ratio of ordinary suits by individuals against corporations is several orders of magnitude more common.

Good luck trying that kind of regulation in the US.

Indeed, it's about as likely as getting Germany's system of universal health care here. It just reinforces the fact that conservatives favor draconian government regulations when they benefit corporate interests but argue against those that benefit the public at large.

Not so sure about this:

"It also curbs the brand of extortion, so routine in American law as almost to have lost its ethical taint, by which lawyers use the costs of the process itself, or the risk of a fluke outcome found in any trial, to strong-arm their opponents into settlement."

There was a great interview on SGU with Simon Singh, the British writer who was sued for libel by the British Chiropractic Association. He talks about how they kept on inflating their costs during the lawsuit to try to force his hand, knowing that he'd have to pay an exorbitant amount if he lost.

Relevant links:



Libel laws are extremely strong in the UK; the closes thing we have here would be anti-trust laws.

As a fun historical example, Richard Branson felt BA was acting monopolistically in England; they both kept Virgin out of Heathrow for some time, and one of their senior execs badmouthed the airline in England.

Virgin took the court to New York State (since, you know, JFK Airport), won the anti-trust case there, then returned and won the libel case in the UK based on evidence in the US case. At least, that's how Branson tells it.

For frivolous litigation, the loser pays, but the standard for litigation being frivolous is pretty high. Maybe there could be a position in between loser always pays and loser almost never pays. Say, loser pays if there's no "reasonable" argument for his side of his case, analogous to how you only go to jail (in theory, anyway) if there's no reasonable doubt that you are innocent.

IANAL, but TFA states that this would also happen here in the USA because many states have a one-way loser-pays.

I just found this comment from Walter Bright on a previous thread on this topic. I think it's brilliant:

Loser pays can work when the amount the loser is liable for is the minimum of his legal fees or his opponent's legal fees. That puts the maximum he is liable for under his own control.

I love this idea, as it completely prevents the scenario where a well-financed plaintiff uses the most expensive lawyers and runs up a huge bill, just to add to the defendant's risk and encourage a premature settlement. Under this rule, if you want to spend a bunch of money on good lawyers to improve your chances of winning the case at all, go ahead, but you won't collect more in fees by doing it, unless your opponent does the same (as they presumably will if they can afford to).

This is an appealing idea at first glance, but it really doesn't accomplish anything for plaintiffs represented on contigency. They get charged nothing if you take the rule literally, and if you use the plaintiff's attorney's costs they could often be as high as the defense costs. The rule still punishes indigent plaintiffs who bring lawsuits in good faith to litigate genuine disputes.

I think powerful plaintiffs frivolously suing indigent ones is far more common than the other way around, and a much bigger problem. Without some kind of loser-pays it's always possible for wealthier individuals to sue poorer ones and win a war of attrition.

Artful trolling. Well played...


Extensive discussion last time this was posted: http://news.ycombinator.com/item?id=1792353

Comparison between the US and Europe in this area is close to meaningless, because of fundamental differences in how the two tend to view the roles of the judicial and executive branches of government in the enforcement of laws.

The US has a greater tendency, particularly in the areas of civil rights but also torts in general, of structuring the law so it gives the injured party a private right of action, which they enforce in courts, and leaving the executive out of it.

Europe has a greater tendency in these areas to have the executive branch deal with enforcement.

So you are saying the US gives even more power to the powerful and wealthy (e.g. corporations) and even less power to the poor regardless of who is right. One might argue that a court should exist for deciding about justice, not budget.

Look at who pays the bills at Reason. That's who would benefit from any policy recommendations they have. "Fair" has nothing to do with it.

If you want to make it "fair" then reform the rules to where no party to a case can spend more than the other. If I bet my friend that I and a friend could beat him and a friend a two-on-two basketball, and he shows up with Kobe Bryant, would that be fair? What if that bet stated that the loser pays the bills for dinner at the winner's choice of restaurant? Is that fair? Yes, it would be a stupid bet to make. But the proposed policy change makes that bet no longer a choice but a matter of law.

Quoth the article: «A common fear about loser-pays is that the side who loses a routine dispute will get handed a bill for 10,000 hours from Cravath, Swaine & Moore. But European courts are well aware of the danger that successful litigants will overinvest in their cases and gold-plate their fee requests. They carefully control the process to prevent that danger, giving the losing side a full chance to dispute a fee award, requiring that work be reasonable and necessary, providing that elite lawyer rates not be paid if a Main Street lawyer could have done the job, and so forth.»

They carefully control the process...

Meaning they heavily regulate what can be charged. Why is Reason so enthusiastic about regulating attorneys but screams bloody murder if the government tries to regulate doctors or the energy industry?

Compared to the US, loser-pays would also cut cown the number of lawsuits because plaintiffs would think twice or thrice before suing. That would definitely be a good thing: a court is an awfully frictional and expensive way to settle disputes and should rightly be reserved to the most pressing ones that seem to warrant the corresponding financial investments. Anything that can be settled outside of courts should be.

It seems like the real impetus for this kind of law (in the US) is that lawyers would oppose it. The article touches upon this at the very end.

This title could use a [1995] tag

Let's not forget that legal fees are not entirely the fault of the litigants. The burden of laws and rules is so great, you need expensive experts to navigate it. The weight of the laws themselves is promoting abuse and injustice.

Consider the analogy of a number of prisoners being forced to walk through a different minefield each day. Even if they are given a map to memorize the night before, it does not make the event fair.

Loser pays in Canada too. There's way less lawsuits but even if your in the right you might not sue, simply because you can't afford to lose.

Does Europe have punitive damages? Who gets them?

The US does and they go to the winning plaintiff, which is sort of odd. After all, if someone is fined for assulting me, I don't get that money.

Sweden (and by extension probably all of Scandinavia) doesn't do punitive or exemplary damages.

I find it bewildering that anything else is in use anyway.

in Italy the judge decides who has to pay the costs. Loser pays everything only if he loses badly, so to say.

Problem with it that even if you are right, you'll think twice about suing, so it works both ways.

Pretty much everything I've ever seen from "reason.com" is material promoting a libertarian viewpoint. Not that there's anything wrong with that, but it's pretty much just politics.

Probably because its the website for a libertarian magazine? They don't even pretend that's not the case, unlike something on Fox News...

From the about page:

Reason is the monthly print magazine of "free minds and free markets." It covers politics, culture, and ideas through a provocative mix of news, analysis, commentary, and reviews. Reason provides a refreshing alternative to right-wing and left-wing opinion magazines by making a principled case for liberty and individual choice in all areas of human activity.

The point being, for those who missed it that this site is not for the discussion of politics. There are plenty of other places to trot out the same old tired discussions.

"Loser pays" doesn't seem consistent with libertarian philosophy, in that it advocates government interference in what should be a private economic matter: how one pays for one's legal representation. It is consistent with corporatism, however, which I suspect is closer to Reason's true philosophy.

I've noticed that in most of the US, "Libertarian" means the opposite of what it does elsewhere. Aside from the Tea Party 2.0-esque "libertarians", most libertarian philosophy is consistent with preventing private corporations from being bullies.

It's a bit counter-intuitive, until you consider that there is no freedom if the rich man makes the rules.

Would the downvoters care to explain the glowing praise for European-style regulation in a publication supposedly devoted to libertarian ideals? What is the argument for consistency there?

Downvoting a legitimate argument (as opposed to say, an ad hominem attack) without supporting it with your own counter-argument is laziness.

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