A reader query on Michigan fee-shifting

Reader B.B., an attorney, writes:

In Michigan, the American Rule for paying attorney fees has been abolished in civil cases valued at more than $25,000 when filed. I am curious whether anyone has done an analysis to see if this has changed the cost of medical care in Michigan and states that have similarly adopted “loser pays” procedures. I often hear the argument that this is a needed reform, but I never hear an analysis of how this reform has worked where implemented.

In Michigan civil cases valued over $25,000 when filed are argued before a three-attorney panel during pre-trial proceedings. The panel then assigns a value to the case. If both parties accept that value, the case is settled. If either party rejects that value, that party must do 10% better than that value at trial, or they are deemed to have lost, and then they pay the other side’s attorney fees. A plaintiff could get a jury verdict of $100,000 and be deemed the loser if he rejected an award of $90,909.10 or more. This system can be far more punitive than the English Rule.

The problem with any system that shifts the burden of paying for attorney fees to the loser is that it disproportionately impacts the middle class. A poor person does not have to worry about becoming liable to pay the other side’s attorney fees because they don’t have it and the insurance company won’t pursue it. If the insurance company attempts to take what little assets they might have, they will just file for bankruptcy. The insurance company does not have to worry about becoming liable to pay attorney fees because it is a cost borne equally by all insurance companies that do business in Michigan. They just price that risk, like every other risk, into the insurance premium. Only a person who has assets that would not be protected in bankruptcy, and is not wealthy enough to risk paying the other side’s attorney fees, is impacted by a system that shifts the burden to the loser.

So those would be two interesting questions for anyone concerned about the issue to consider: Have “loser pays” systems actually changed medical costs in states that have adopted them, and can “loser pays” systems impact enough litigants to have any effect at all?

Reactions from readers knowledgeable about Michigan legal practice?

5 Comments

  • I do know there is some public knowledge that the middle class is the most disenfranchised from the court system under the English rule in the UK, particularly because the gov’t provides free legal representation for the poor and the litigation risk often propounds through fights over the attorney fees themselves.

  • If, on an attorney’s advice, a party rejects the settlement amount and is held liable for the other party’s reasonable attorneys’ fees, wouldn’t the liable party’s attorney be potentially liable under a negligent advice theory?

    • Except the advice may well not have been negligent. Competent attorneys discuss the likelihood of prevailing, and that likelihood may be very good given the witnesses, evidence and current state of the law. However, a jury sometimes does not accept objectively credible evidence, or accepts objectively unlikely evidence, and the law changes over the course of litigation. A client has to decide whether he wants to proceed given the ever present risk that he will lose, and it is knowledge of that risk that may deter those with some assets from taking legal action or presenting a vigorous defense.

  • I know nothing about Michigan laws. I am a bit confused, as there seems to be a middle ground here based upon my reading of what was posted..

    Say the panel comes out with $100,000. 10%, of course, is $10,000. So, if the result is $90,000 to $110,000, each pays the other’s fees. Under $90,000, and plaintiff pays for defendant’s fees. Over $110,000, and defendant pays for plantiff’s fees.

    Whatever the case, the ensuing fee litigation would seem to have the potential to overwhelm the actual litigated issue.

    • According to my math education, 10% of 90k is only 9k. Therefore, anything over $99,000.00 generates fees for the plaintif. It’s not 10% of the award after all, but 10% of the amount stated as being a fair settlement. Now, since we’re dealing with lawyers, simple math may be beyond them in some cases. After all, lawyers think a $5 coupon for me, and $5m for them is a “fair settlement”, showing that working with numbers is outside their wheelhouse. 😀
      Computer science is after all just a fancy form of math. 😀

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