Loser-Pays makes lawsuits fairer in Europe. It could work in US, too
reason.com
reason.com
Fee awards can be devastating to a middle-class person. I once had a case come to me after some homeowners had lost at trial in a dispute with their mortgage lender over some technical provisions of their mortgage. The amount at stake was perhaps a couple of hundred thousand dollars. However, on losing, the court awarded the lender almost $400K in fees (it did so under a contract provision providing that the prevailing party in any dispute would receive an award of such fees). It seemed pretty clear that the court had rendered some doubtful rulings in the case and that the case would likely be reversed on appeal. However, in order to get to an appeal, the losing parties needed to get a stay on execution of the judgment. To get the stay, they had to post a bond in an amount equal to no less than one and one-half times the amount of the judgment. Since this was beyond the financial means of the losing plaintiffs, they found themselves being subjected to liens, attachments, garnishments, and the like in ways that basically ruined their day-to-day lives long before they could await the outcome of any appeal. As a result, though they were probably right on the merits, all it took was the harsh acts of one judge to render them helpless in asserting their rights by being able to pursue their case to its proper outcome. They had scraped to pay their own attorneys to prosecute the case but they were overwhelmed by the attorney-fee award that crippled their case midstream.
That example involved, not poor people, but those who had homes and jobs and who felt they needed to try to undo a wrong that had been inflicted on them by a lender. The result was that they folded their case, borrowed from wherever they could to pay the lender's fees, and dropped their appeal, walking away licking some pretty heavy wounds.
Based on many such situations, I would say that a loser-pays rule could easily work hardship on average people seeking access to the courts. I will grant that such a rule sounds attractive in principle and our courts are full of abusive litigation that needs to be curbed. But I'm just not sure that this is the right approach to reforming the problems.
If the US became a less litigious country as a result of loser-pay, then the system would be a benefit, IMO. The legal tax required to do business in the US is too high.
Considering someone did just tell the anecdote, I'd say this is anecdotal at the very least. I've read about various abuses revolving around the Texas court system requireing the bond-posting Grellas mentioned.
But I'm too tired to google-up any link, so I've leave it "anecdotal" too.
The "legal tax" in the US is high but lowering it is hard when so many parties want to spin an advantage out of said lowering.
You don't even have to assume malice, "It is difficult to get a man to understand something, when his salary depends upon his not understanding it!"
To put it the other way around: Loser-Pay makes it easier for companies to screw people over. Which is exactly what happens here in Germany, where companies can pull shady tricks without fear of getting sued - the risk of having to pay all the fees is too high for the everyman.
Loser-pay sounds good in theory, but sucks in practice.
And this is not the case now?
"Ok so some courts in europe use this procedure. I could talk about it, explain how it's viewed and how it works in those societies, perhaps elucidate on the differences in legal systems and social contract between the US and europe... orrrrrrrrr I could note some liberal nobody's heard of supported it once and call current day liberals hypocrites even though most of them have never even put thought into this concept. Oh, and beefeaters! Good old England."
The problem here wasn't the fact that the loser wound up paying the court fees.
The real problems started with hearing the case on a planet where FOUR HUNDRED THOUSAND DOLLARS in legal fees was considered reasonable for any court case, and where apparently a contract provision stating this was considered enforceable rather than struck down as manifestly unreasonable.
This was compounded by hearing the case in a region on that planet where the appeals system comes with a price tag of several years' salary.
Costs are supposed to be just that: the cost of bringing a case to court. That means things like paying to build courthouses and paying a salary to those who run the courts (from the judges to the janitors) and, yes, even paying a reasonable rate to the lawyers. If your courts are ever awarding more than that in costs, no matter what the outcome of the case, then your legal system is broken.
So if you have loser pays, and you're a megacorp, spending 6-figures defending every lawsuit becomes a great move. Enhances your chances of winning since you're pitting a department of lawyers against whoever the plaintiff could retain, and then assuming your department of lawyers wins, you don't even have to pay for them. Totally broken economics which incentivize overdefending with a huge team of lawyers on every single case.
I realise that it's the big organisation fees we're talking about, but please understand that even here in the UK, it is not automatic that the loser pays, it is just the default result most of the time. Please see my other post.
> So if you have loser pays, and you're a megacorp, spending 6-figures defending every lawsuit becomes a great move.
Only if you permit unlimited and arbitrarily disproportionate costs. No-one says you have to do that, even if you require or default to the loser paying.
I'd just like to note that.
Further, good luck getting any consumer protection aspects through congress. The only way this happens is as a giveaway to large corporations.
Edit: also as an equalizer we could say that no matter what, the loser cannot pay to the winner more than she paid to her own lawyer. That way if I bring my discout yellow pages lawyer and you hire the best firm in town, well you get to pay for the luxury.
I don't think you can have a rule that potentially awards fees to one side but not the other without creating the potential for great unfairness.
This item is of course anecdotal, as noted by others, but it is typical of cases I have been involved with in a career in which (apart from my transactional work with startups) many of the litigation cases I undertook involved commercial matters where the "little guy" had been, in effect, stabbed and left for dead by others, often a larger company. These cases are incredibly difficult to prosecute, in part because the client is often left with few resources with which to fight (for example, in one such case, which went for three years before reaching trial, a founder had his company stolen by disloyal board members who granted themselves, in serial votes aimed at avoiding any formal "conflicts," large amounts of stock so as to gain control of the company, who then proceeded to terminate the founder's employment, and who then used the company's cash flow to fight his attempts to challenge the things they had personally done wrong - I took that one on hourly but wound up $400K into it before we won at trial and got the client restored). In these sorts of cases, the fight is tough enough and, if a client of this type also faces the prospect of paying the other side's fees on losing, the burden can become crushing.
All that said, I will grant that this is a difficult issue and, unlike many members of my profession, I do believe that major components of the litigation world are abusive and desperately in need of reform. My reason for highlighting a couple of examples showing the real-world impact of the loser-pay rule is not to say that it might not be a good reform but to underscore that a blanket shift away from the current rule might have unintended consequences that need to be considered carefully. After all, the ultimate goal of a court system is justice and not any ideological aim of helping anyone arbitrarily at the cost of fairness, whether it be big companies or the "little guy," institutional defendants or consumers, or any other class of claimant or defendant.
That ought to be the guiding principle. Well said.
But can't this be (mostly) solved by having the lawyers take on the risk?
Already, lawyers will offer to work for free unless the plaintiff wins. ("You pay nothing unless we recover on your behalf.") That is, they risk their own time--but will do so only if they think there is a good case. This makes sense because it is the lawyers, not the plaintiffs, who are best able to assess the likelihood of winning.
So then couldn't lawyers also take on the risk of paying fees if the litigation is unsuccessful? Is this legal in the US or elsewhere? Is it done?
(Also, I think I heard somewhere about a guy who couldn't afford to sue a large company which stole his invention. Apparently, he had an IPO to offer stock in the lawsuit. He won, and both he and his investors were paid. Anyone remember this or have a link?)
Suing a council/schoolboard/hospital - likely to win (they don't defend strongly) and likely to be a big pay out (it's not their money).
Suing a large corporation with their own expensive laywers = not worth the risk.
In the US, yes. Not in Europe. Here in the Netherlands, it's actually prohibited by the rules of the (loosely translated) National Bar Association to take a case on a 'no cure, no pay' basis.
This article is misinformed and misleading. The legal culture is very different between the US and mainland Europe. The claims that are being made in the article are largely misrepresentations of what actually happens; for example, her in the Netherlands the amount a judge can (but doesn't have to, and often does only in part) award the loser to pay for the legal costs of the winner is based on a quotum, i.e. not on the real costs, but on a fictitious per-hour amount, which is lower than actual commercial rates (one notable exception is for IP infringements, where the full cost can be claimed).
Before suing a local council or the NHS was a guaranteed win, often out of court - so the lawyer couldn't lose and it was worth taking a no-win no-fee. Now that they go to court a lot of them are demanding the client pay a hefty insurance premium up front - of course that's not a 'fee'.
That is very unlikely. Courts are not generally required to award costs to the winner of a case here in England, it is more of a default in most cases instead of adopting "everyone pays their own costs" as in the US.
I am not a legal expert, but I doubt a court would award crippling costs to a little guy who brought a case with genuine merit against a big guy but lost, where the little guy incurred only modest costs but the big guy brought the whole legal team to bear.
Likewise, I doubt a big guy bringing a punitive law suit against a little guy and incurring lots of costs when they could have settled things in another less expensive way would get much sympathy, which is why the US seems to have certain Big Media organisings effectively extorting settlements from innocent people for thousands of dollars, while such behaviour is unheard of in this country.
> Already, lawyers will offer to work for free unless the plaintiff wins.
I guess you're referring to so-called "no win, no fee" agreements? If so, it's not quite as simple as that (the lawyers also stand to gain more if they win than they would in a regular case), but your general argument still works.
Thanks, I didn't know this. I'm still not convinced that the threat of legal fees wouldn't convince a non-insignificant fraction of poor plaintiffs not to sue.
> I guess you're referring to so-called "no win, no fee" agreements? If so, it's not quite as simple as that (the lawyers also stand to gain more if they win than they would in a regular case)...
I know. In effect, the lawyer is selling insurance to the client. The client will get less in case of a win both because (a) he bought insurance, which brings his variance down (and so, his total payout in case of a win is lower) and (b) the lawyer collects a premium for absorbing the risk.
That's a whole lot of conditionals. In places where the judiciary is thoroughly corrupted by electioneering (coal interests in West Virginia, for instance), relying on judges to respond non-punitively can be an unsafe assumption already. A libertarian loser-pays movement only slants that further.
As far as I know, in the UK and most of Europe, and definitely here in Canada, Judges are appointed by judicial commissions on the basis of strength of legal scholarship, not picked in a popular election based on who can raise the most money and pander to the right interest groups.
See also Matt Yglesias: http://yglesias.thinkprogress.org/2008/12/loser_pays/
The legal system should normally be the last resort, but you seem to be suggesting that we have some sort of universal alternative to try first. There may be other options in specific contexts, for example disputes with service providers in regulated industries where there is some sort of ombudsman scheme, but it is not the case in general.
You mean de-democratize the entire branch of government?
If your judges are appointed permanently by some sort of panel, drawn from some level of politicians, who are themselves elected via a system that is open to trivial interference by well-funded special interest groups, then your judiciary isn't even close to democratic.
It's not democratic - but neither is the process of selecting senior doctors from the ranks of junior doctors.
Isn't your comment a general indictment of American democracy in general? Why have an elected congress making policies then?
I would suggest however that in theory, the politicians sell their policies, rather than themselves per se, although they do sell a bit of themselves also. But the way our system works is, you have a philosophy of governance which is conservative, low taxes, traditional values, screw the poor, and the democrats, sort of distribute wealth, keep the companies in check, tax the rich higher, etc. Any one politician in this scheme is not an individual, but rather a representative of a philosophy, or even ideology. So, it is right that the public decides which they prefer at any given time.
However, it would be quite savagery for the public to decide as to who should be guilty of murder, or rape, or conspiracy, or robbery, or the thousands of cases that go through the court. It too would be idiotic for the lay public, with very limited knowledge of the law, to decide as to who should be a judge, a job which requires high intelligence, but also common sense, a sort of moral structure, so taught through law school. Same as it would be idiotic for the public to decide who should be a doctor.
That said, this isn't really a hypothetical issue. Our courts function in this way every day. Please understand that to those of us on this side of the Atlantic, everything you are describing just sounds weird. "Judiciary corrupted by electioneering"? Judges responding "non-punitively"? Our judiciary in the UK has a long and honourable tradition of being the standard-bearers of justice that one would hope they would be, and of resisting politicisation far more effectively than the other major branches of government (to the extent that we have them; our system doesn't treat US-style separation of powers as sacrosanct either).
Having been in a court on a couple of occasions, although never as a plaintiff or defendant, I have always been impressed by the way the officials conducted themselves. IMHO, our legal system does have its problems when it comes to handling relatively low-value cases, but those are more due to the time and effort required to figure out how the system works and complete all the paperwork than because the legal fees are prohibitive.
One injustice I have personally witnessed happened when someone was cleared of a motoring offence, on the second hearing since the first was aborted when courtroom time ran out for that day. That person lost had two days of their life attending court, and presumably also spent considerable time planning their defence (as they were not legally represented). They must also have had the stress and uncertainty from waiting nearly a year to hear the verdict, and presumably lost out on some income that would have been earned on those days they were in court, because even though they were cleared of all charges, defendants do not even seem to get the same expense refunds that witnesses do. I find the fact that someone deemed not guilty in court should still be harmed even to that extent to be unfair. I simply do not understand how any system where someone innocent might wind up paying out hundreds or thousands in a settlement because the danger of having to pay for their own defence in court would be even more could possibly be in the interests of justice.
With correct insurance/lawyer-agreements, the poor can set it up so that they have no chance of paying anything. In effect, they sell part of the expected value of their suit to decrease their variance to the point that they do not pay money in any circumstance.
>I think the 'English rule' would encourage many poor people to litigate if they believed their case was strong.
Well, to be precise, it would encourage many poor people to litigate if their lawyer (or their insurance company) believed their case was strong. And isn't this exactly what we want? That justice is pursued?
It's not obvious that loser-pays would prevent them from setting it up as well.
Believe me, they do not have any capital to invest to indemnifying their client against a judgment. None.
The possibilities of losing a fair amount of money in case of this sort would essentially write the police a blank check to engage in whatever without threat of lawsuit.
1. We're talking about changing laws, so it would affect all lawyers pretty much equally.
2. I don't think any supposed '"We don't get paid unless we get money for you" ambulance chasers' have a lot of cash either.
Can you elaborate on this point? I don't see how a change in laws must affect all lawyers pretty much equally at all.
2. I don't think any supposed '"We don't get paid unless we get money for you" ambulance chasers' have a lot of cash either.
Seems like they have enough cash to take out huge adverts on TV and in phone books.
Now suppose you are up against a bank that can run up $10M in fees (or claim their in-house lawyers cost that) - now to be $1000 at risk you need a case that is 99.999% sure before the lawyer's insurance company will let them take it.
The majority of cases where the litigant is "poor" involve contingency fees (the lawyer gets nothing unless they win), and contingency fees are considered unethical (to the point you'll get disbarred) in most European countries. I would add the issue where if contingency fees are any part of the lawyer's payment scheme, the lawyer would also be jointly and severally liable for the legal fees of the winning party.
I see three possibilities for this outcome - every case gets settled on the courthouse steps (as opposed to about half these days) or the lawyers fight everything to the bitter end (and there will be no more settling on the courthouse), and finally, much less litigation.
At the moment, the "rediculous" judgements that people complain about (one poster child is the McDonald's coffee case) are acting as a subsidy for lawyers. Without this subsidy, far less cases will be filed
I've strongly considered running with this idea as a ballot initiative in my state.
That doesn't necessarily mean the outcome was justified, but it certainly wasn't a frivolous case.
I suppose the stereotype of the trial lawyer as some deep-pocketed capitalist still prevails up to the present day. It's not so anymore. There's been a lawyer glut for some time and the lawyer who makes their living suing for the "little guy" or even the medium-sized-guy has no extra equity to invest in extra risk taking, they're mostly barely earning a living.
" That is, they risk their own time--but will do so only if they think there is a good case." Perhaps you could think about this - lawyers risk their own time because ... they have it, not necessarily having a whole lot of the business. A similar lawyer won't risk their own money because ... they have children to feed as well as offices to rent, etc...
The US approach tends toward creating a civil cause of action for civil rights violations, and then leaving it up to the victim to enforce the law via a lawsuit.
Most of the rest of the world tends toward having the government deal with civil rights enforcement. Your employer denies you a promotion because of your race, sex, or religion? Complain to the appropriate government agency and they deal with the problem. Landlord won't rent to your kind? Take it to the bureaucrats.
Lawsuits are almost always risky, even if you have a pretty good case. If we had a loser pays system, that would greatly discourage the poor (and probably much of the middle class) from pursuing litigation when their civil rights have been violated. The potential monetary losses are just too great.
A lower pays system might work, if coupled with a rewrite of all the laws that were written to rely on private enforcement were revisited and revised appropriately to ensure that those who are not wealthy would still be protected in fact, rather than just in theory.
Or get rid of civil rights laws. "Reason" is a libertarian publication, so that would probably be their solution.
>Most of the rest of the world tends toward having the government deal with civil rights enforcement. Your employer denies you a promotion because of your race, sex, or religion? Complain to the appropriate government agency and they deal with the problem
Maybe I'm reading this wrong, but I think this exactly what you do in the US. See http://www.eeoc.gov/facts/qanda.html . From that link:
> V. Who Can File a Charge of Discrimination?
> * Any individual who believes that his or her employment rights have been violated may file a charge of discrimination with EEOC.
> * In addition, an individual, organization, or agency may file a charge on behalf of another person in order to protect the aggrieved person's identity.
> VI. How Is a Charge of Discrimination Filed?
> * A charge may be filed by mail or in person at the nearest EEOC office
This is in addition to the ability to sue the employer without penalty (unless your litigation is "abusive", which is very rare).
"One way Europeans have adapted to the residual risks of loser-pays has been through personal legal expense insurance, which covers a variety of legal risks including that of finding oneself a plaintiff in a lawsuit. The aggrieved party takes his case to his insurer, which, if it finds the case strong, provides a lawyer and absorbs the risk of owing the opponent a fee....If the insurer screens cases carefully, it will collect more in fees for its lawyer than it will pay to winning opponents."
I don't know if these claims are true, having no experience with European legal systems. If true, they would appear to address your criticisms.
Now for your second point: all-purpose legal insurance doesn't seem like something that the poor are going to have bought. Even if the poor were rational and outrageously well-informed, the chance that any given person will be subject to discrimination is so low as to probably make the administrative costs of such insurance too large. However, if you could buy insurance after been discriminated against, then this could solve the problem. It's basically what I suggested in my top-level comment (http://news.ycombinator.com/item?id=1792791), only it's an outside agency rather than the plantiff's lawyer which takes on the risk. It's not clear to me which format the economic frictions will favor.
Do you know if this kind of case-specific insurance is available in countries with the loser-pays rule?
0.9 x 40% x $110,000 + 0.1 x (-$10,000 - $10,000 (his own opportunity cost)) = +$37,600 expected gain
Of course, if the case were a lot weaker, it wouldn't help. As for your question regarding insurance, I know nothing about the European legal system besides what I learned from this article.
If I'm understanding you correctly, you're suggesting something like a fire insurance that you can buy when your house has already burnt down? If so, no I know of no companies who offer such a thing, and I would be quite surprised if they existed.
This sort of legal cost insurance works the same way as other insurances. The one I took out a few years ago stipulated that it didn't cover any existing disputes, not disputes that would arise in the (I think) 3 first months of the insurance; just like some insurances don't cover existing problems.
This sort of insurance is also not as common as the article makes it appear, and it was even quite rare when the article was written (1995). In 2008, under 50% of Dutch households had a legal assistance insurance of some form (I think this number includes the optional parts of car insurances where you are insured against claims arising from accidents, but I'm not sure on this; I suspect the majority of insurances to be in this area, and thus the amount of insurances against civil cases to be lower). The last 10 years there have been double-digit increases in the amount of people who have such insurances, so it's really something of the last decade.
No, it would be like buying fire insurance during a small fire that would only payout if your house burned down completely. The insurance guy would arrive, examine the fire, and determine that it had a 90% of being stopped with most of the house intact, and a 10% chance of destroying everything. Then, he would calculated how much you would need to replace your house in the case of complete destruction, and model the premiums accordingly.
>The last 10 years there have been double-digit increases in the amount of people who have such insurances, so it's really something of the last decade.
But the poor are going to be the last people to get such insurance.
Are you saying that this is worse than the existing system or worse than a theoretical system in which poor people can somehow initiate a suit with no money?
And since it never went to trial they can of course sue him again and cost him (or anyone else) the same amount next time he writes anything.
But the biggest difference is that our society simply isn't litigious and I don't know which is the cause and which is the effect.
If you're claiming that it works like this in Europe, no it doesn't (with exceptions here and there, and I only know about Dutch and a bit about Belgian law, but I can draw broad parallels to other systems, too). You still have to bring suit yourself. The government agencies can also sue and/or sanction the involved party, but in a separate procedure (well actually if the government sues, in some cases you can get 'attached' to the case as a person who has an interest in the outcome of the case, but it's a bit of a mixture between penal/administrative/civil procedures that mostly exists to make the system more efficient, and not so much to favor the party being wronged). The basic rule is that a civil party brings suit itself.
I agree with the rest of your post, but this is not accurate in the slightest. You might as well write "liberals want tax cuts for people making >$200k," and "conservatives love social security."
The obvious problem with our system is that the party with the deepest pockets can drag a case out until the opposing party cries uncle and gives up.
There's a simple solution that seems fair; both sides pay into a pool for legal representation and the pool is divided equally. So if Megacorp wants to sue Joe's Startup, Joe can afford the same representation that Megacorp can.
I'm sure there are downsides to that system that I'm not thinking about, but it seems like it would be pretty fair.
Of course, the smart company has a defense against this tactic: only use the funds provided by the opponent. This would eventually bankrupt the frivolous lawsuit trolls, since it would cost them real money to continue the case at the risk of losing it all while costing the defendant nothing.
The more I think about it, the more this seems like a system that provides an incentive to only sue when you have a legitimate claim. Anything else wouldn't be worth the risk for either side.
On the other hand BigCorp which stands to lose a claimed $10m in the unlikely event of losing the suit needs to retain the services of a lawyer, which will probably not be a cheap one as they have a lot more at stake.
So BigCorp will certainly need to put enough money into the pot to cover their own expenses, and the troll will pocket half of that even if the case gets thrown out.
A solvable problem, I think. If I have to pay myself $50 an hour to represent my cause, it only hurts me if my cause isn't legitimate.
Or maybe set some threshold for legal expenses; the system could work as it does now up to a maximum, then a pay pool is implemented.
In principle, awarding costs is 'fair': if Party A has caused Party B to incur legal costs in enforcing their legal rights then it's only fair for Party A to compensate Party B for their legal costs. A positive consequence of 'loser pays' is that there is far less litigation - and certainly less spurious litigation - in Australia than there might otherwise be.
On the other hand, while the practice seems fair in principle it can be very unfair - and financially crippling - in practice. You can imagine a situation where Party A is actually in the right, tries to appeal the judge's decision, but can't do so because they are financially in the hole because of having costs awarded against them!
So, while I still favour the idea of awarding costs, other mechanisms are needed to account for situations where parties are appealing decisions and the like.
Wait, what?
Oh, it's from 1995. I guess I should have seen it in the URL if I'd parsed it out, but isn't there a convention around here to post the year in the HN title for older articles like this?
EDIT: Um, or the subhed right up at the top of the article. Sheesh. I claim... banner blindness?
One of the simplest reforms would be to limit lawyer's cut of lawsuit rewards to keep them actually about the damaged parties. Look at the recent case where the school spied on the students. The lawyers got well in excess of their clients. Making it less attractive to take a chance on suing is good, but the focus should be on what will keep companies from screwing people and what will keep costs to innocent / small mistake companies down.
People can bring great stress and costs using the legal system. Its not just a tool for justice, whether it is used by the rich or by the poor.
Everybody that uses the legal system should think twice about whether their suit is truly warranted.
Of course, there should be standards by which this is judged.
And damages should not ruin those bringing suits. Its not even necessary to me that all costs be covered, but that some real cost be felt by those bringing the suit. 5 or 10% of one's annual income seems not unreasonable.
s/the government/a big corporation/ and it's the same thing. Really, it's bad both ways. Legitimate lawsuits should be free.
Apart from that, as a European, I know how I and the people I know think. It's simple. Never sue a financially stronger opponent and when you're sued, give up immediately unless you have insurance. The risks are very uneven. One side risks their entire existence. For the other side it's just a blip in their legal budget.
Civil law in Europe is a farce. It's an exclusive playground for the rich and for large corporations.
(I don't know the specifics of what an "abusive case" is)