Worth a read: Is “Loser Pays” a Vestige of Oppression?

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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.

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