A better 'loser-pays'?
One legal reform that's been kicked around for a long time in the United States is 'loser pays', a system where the loser of a civil action would be required to reimburse the winner for legal expenses sustained during the trial. This system is in place in most countries throughout the world, but not in the US. In extreme cases of frivolous suits, the defendant's legal costs can be awarded as damages, but in practice this almost never happens.
The standard argument in favor of 'loser pays' goes something like this: Lawsuits are expensive. Even for an individual, successfully defending against one can cost thousands of dollars. For a corporation, those prices can go far higher. A good strategy to extract cash from a business (or an individual) is to threaten to sue for some barely-plausible reason, and then offer to settle for less than the cost of a lawsuit. While a lot of people and businesses won't accept such extortion on principle, many will. A loser-pays system that required the loser of a lawsuit to compensate the winner would remove most of the financial incentive to settle early, and thus reduce or eliminate this extortion.
However, loser-pays has potential problems, too. The standard argument against it goes something like this: The courts are (or at least, are supposed to be) the great equalizer in America. If Globex Megacorp commits a wrong against me, I can bring Globex to court and have the situation made right. If loser-pays were implemented, then Globex could discourage lawsuits by threatening to run up enormous legal bills during one. A few corporate attorneys, working for a few hundred dollars per hour each, will rapidly result in a potential liability to the plaintiff that is far beyond the ability of a typical plaintiff to pay. I might be willing to accept the $1000 tort rather than take even a tiny risk of having to pay them tens or hundreds of thousands of dollars in legal fees. This would allow large corporations to commit anything other than the clearest, bright-line torts with impunity.
These are both good arguments, and I think that given the choice, most Americans would rather hose the big, evil corporations than the 'little guy', and that's the direction that our justice system has gone.
However, there is another way. What if we could eliminate the incentive to settle early, while at the same time enabling small plaintiffs to file suits against large defendants without having to worry that a loss would mean bankrupcy? I believe that we can.
Rather than implementing a pure loser-pays, I propose this rule: During the lawsuit, before the verdict, both parties will report their costs to the court. When the winner is announced, the loser will pay the winner the lower of the two reported values.
This neatly solves the problems with both the current system and a standard loser-pays arrangement. Frivolous lawsuits become more expensive to file, but you can safely pursue a suit against a much larger opponent without fear of a catastrophic loss.
There are lots of areas that need to be fleshed out for this proposal to work. For example, how and when would the costs be reported? At every major stage of the suit? Every Friday? Every day? How would costs for things like corporate salaried lawyers be figured? Would there be limits to how much an attorney could charge? A minimum floor for costs, might prevent itemizations that look like this:
How would a private party, filing or defending a pro-se suit, be compensated? Would there be a standard hourly fee for non-attorney work like that?
Would the reported costs be secret? If each party could see the other's reported costs every week, it might allow them to learn information that might better be kept secret. On the other hand, it might be useful to know how much you can spend and get compensated for it if / when you win.
Would the costs be reported, or bonded? What if each party had to post cash every week along with reporting their costs? This would help keep costs down, and ensure that the final payment was made.
This proposal also has the useful side effect of discouraging expensive lawsuits -- whoever spends more on the suit winds up spending that last bit out of his own pocket, leading to each party trying to keep their expenses below the other's.
While there are lots of things to work out with this proposal, I believe that as a starting point, it could lead to positive reform in the legal system.
The standard argument in favor of 'loser pays' goes something like this: Lawsuits are expensive. Even for an individual, successfully defending against one can cost thousands of dollars. For a corporation, those prices can go far higher. A good strategy to extract cash from a business (or an individual) is to threaten to sue for some barely-plausible reason, and then offer to settle for less than the cost of a lawsuit. While a lot of people and businesses won't accept such extortion on principle, many will. A loser-pays system that required the loser of a lawsuit to compensate the winner would remove most of the financial incentive to settle early, and thus reduce or eliminate this extortion.
However, loser-pays has potential problems, too. The standard argument against it goes something like this: The courts are (or at least, are supposed to be) the great equalizer in America. If Globex Megacorp commits a wrong against me, I can bring Globex to court and have the situation made right. If loser-pays were implemented, then Globex could discourage lawsuits by threatening to run up enormous legal bills during one. A few corporate attorneys, working for a few hundred dollars per hour each, will rapidly result in a potential liability to the plaintiff that is far beyond the ability of a typical plaintiff to pay. I might be willing to accept the $1000 tort rather than take even a tiny risk of having to pay them tens or hundreds of thousands of dollars in legal fees. This would allow large corporations to commit anything other than the clearest, bright-line torts with impunity.
These are both good arguments, and I think that given the choice, most Americans would rather hose the big, evil corporations than the 'little guy', and that's the direction that our justice system has gone.
However, there is another way. What if we could eliminate the incentive to settle early, while at the same time enabling small plaintiffs to file suits against large defendants without having to worry that a loss would mean bankrupcy? I believe that we can.
Rather than implementing a pure loser-pays, I propose this rule: During the lawsuit, before the verdict, both parties will report their costs to the court. When the winner is announced, the loser will pay the winner the lower of the two reported values.
This neatly solves the problems with both the current system and a standard loser-pays arrangement. Frivolous lawsuits become more expensive to file, but you can safely pursue a suit against a much larger opponent without fear of a catastrophic loss.
There are lots of areas that need to be fleshed out for this proposal to work. For example, how and when would the costs be reported? At every major stage of the suit? Every Friday? Every day? How would costs for things like corporate salaried lawyers be figured? Would there be limits to how much an attorney could charge? A minimum floor for costs, might prevent itemizations that look like this:
- $10 Cut-and-paste defendant's name into my standard ADA complaint suit
- $5 Send paralegal down to courthouse to file suit
How would a private party, filing or defending a pro-se suit, be compensated? Would there be a standard hourly fee for non-attorney work like that?
Would the reported costs be secret? If each party could see the other's reported costs every week, it might allow them to learn information that might better be kept secret. On the other hand, it might be useful to know how much you can spend and get compensated for it if / when you win.
Would the costs be reported, or bonded? What if each party had to post cash every week along with reporting their costs? This would help keep costs down, and ensure that the final payment was made.
This proposal also has the useful side effect of discouraging expensive lawsuits -- whoever spends more on the suit winds up spending that last bit out of his own pocket, leading to each party trying to keep their expenses below the other's.
While there are lots of things to work out with this proposal, I believe that as a starting point, it could lead to positive reform in the legal system.
posted by Aric at 9:34 AM
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