Posts Tagged ‘loser pays’

April 10 roundup

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?

Lawyers milk Florida accident-bill law for one-way fee entitlements

A Florida law allows persons who have undergone treatment after auto mishaps to sign over to the medical provider their right to sue their insurer under so-called PIP (personal injury protection) auto coverage. Under the provisions of this assignment of benefits (AOB) law, when the medical provider sues, it is entitled to one-way attorney’s fees (payable if it prevails, but not if it loses). These attorneys’ fees can dwarf the underlying sums being sued over — amounting to about $40,000 following a $790 win in one extreme case.

Now Florida attorneys are rolling out tens of thousands of AOB suits, many of small enough quantum that they can be filed in small claims court, even if the fee entitlement thereby triggered is not so small. In Volusia County, where small claims filings more than doubled to over 12,000 cases in 2017, “a single local law firm accounted for all of that increase — and then some — by filing 8,400 cases that year…. In one example, Advantacare of Florida, represented by Kimberly Simoes, filed a lawsuit against State Farm saying the company had not paid it for services it rendered to Stephen Smith. Advantacare was awarded $789.62 according to court files. Simoes was awarded $39,985 in attorney’s fees. Attorney Mark Cederberg was awarded $3,500 for his expert testimony regarding whether Simoes’ fees were reasonable. About a month after the attorney’s fees were awarded, Advantacare dismissed the lawsuit.” [Frank Fernandez, Daytona Beach News-Journal; earlier here and here]

As I have written elsewhere, the true two-way loser-pays systems that operate in most other legal systems take care to avoid the fee-escalation incentives that typify many one-way fee entitlement laws in the U.S. In particular, they tend to hold fee recoveries below actual outlays, and often decline to reimburse fees unnecessarily expended.

February 14 roundup

  • “One-Sided Loser Pays Is the Worst of Both Worlds” [Mark Pulliam at his new blog Misrule of Law, and thanks for mention]
  • My first piece for Quillette debunks claims of jump in rate at which gay men are being murdered in U.S.;
  • Welcome news: Department of Justice memo advises DoJ attorneys to seek dismissal of meritless False Claims Act suits [Reuters, Federalist Society teleforum with Brandon Moss, Greg Herbers/WLF, Michael Granston memo]
  • Empirical evidence on factors that lead to approval of low-quality patents [Timothy Lee, ArsTechnica, noting ideas for improving patent review process: (1) eliminate issuance fees, (2) limit re-applications, (3) give senior examiners more time per patent]
  • “Will we see tort reform in the midterms?” [Joseph Cotto interview with me for San Francisco Review of Books, YouTube audio, 33:51]
  • FSMA will drive many smaller farmers/foodmakers out of business, only question is how many [Baylen Linnekin, our earlier]

Oklahoma enacts loser-pays — by mistake

Is that good news, or not? My new post at Cato at Liberty:

According to news reports last week, the legislature in Oklahoma passed, and Gov. Mary Fallin then signed, a bill whose wording directs judges to award reasonable attorneys’ fees and costs in cases of civil litigation. The provision was part of a bill on certain child abuse lawsuits, and its Senate sponsor said it was believed that the fee provision applied only to those cases until on a closer reading “it seems evident that it makes all civil cases … loser pays,” said Sen. David Holt. “But nobody caught that.”

As someone who has been writing in favor of the loser-pays principle since my first book, The Litigation Explosion, you might expect my reaction to this news (once I stopped laughing) to be positive. After all, there’s nothing wrong with a legislature enacting good policies through inadvertence. (For some legislatures, that seems to be the only way they do enact good policies.)

Sober second thoughts, however, will be less cheerful….

Whole thing here. More: Lowering the Bar.

Judge in Ireland rules on playground fall

A child hurt herself falling on a playground in Dublin, Ireland, and this is what Mr. Justice Raymond Groarke of the Circuit Civil Court wrote:

She was engaged in a game of chase pure and simple and, while it is most regrettable that she became unbalanced and fell, this was simply an old fashioned accident and I fail to see any liability on the part of the school for that accident.

Lenore Skenazy comments:

Score one for those of us who understand that there is NO activity, even climbing out of bed, that is always 100% safe. So if we start outlawing activities that are generally, but not 100% completely safe, we will end up outlawing any movement whatsoever.

The judge also seems to realize that something is LOST even if a modicum of safety could be gained. Are kids really safer if they do NOT run around, use their bodies, burn calories, learn to play, deal with disappointment, organize their friends, and create something out of nothing — a game?

Nope. Kids need to play.

Reports The Independent: “The school did not seek an order for costs against the girl’s mother.”

Making Clean Water Act legal fees two-way

The Clean Water Act, like many federal statutes, currently contains a nominally neutral attorneys’-fee award provision which is commonly read to call for an award of attorneys’ fees to plaintiffs who prevail, but not to defendants who prevail. H.R. 1179, introduced by Rep. Tom Rice (R-S.C.) with 59 co-sponsors, would move to full two-way loser-pays by prescribing that fees ordinarily be paid. One possible impact would be to help clear infrastructure legal logjams [Charmaine Little, Legal Newsline, thanks for quote]

Advancing toward a loser-pays rule in Idaho

The so-called English Rule on legal fees, better termed the rest-of-the-world rule, requires the losing party in a lawsuit to compensate the prevailing party for some of the costs it has laid out having to prove that it was in the legal right. Over centuries around the globe the rule has shown itself consistent with the interests of justice (since it helps to make whole parties whose actions and legal claims were vindicated) and has generally improved incentives in litigation by discouraging speculative claims and defenses, narrowing issues, and promoting settlement.

The organized lawyers of one nation, however, have remained stubbornly resistant to loser-pays: those in the United States. There are, to be sure, some notable exceptions: Alaska has practiced a form of the rule since its days as a territory, and “offer of settlement” variants, invoked after litigants turn down an offer and then do less well at trial, have made some headway lately. Since legislators in several states, especially out West, have shown an interest in promoting the loser-pays principle, you’d think there would be faster progress. Yet such legislative declarations are often foiled when court systems interpret guidance language narrowly or unsympathetically so as to restrict fee shifts to a relatively few outrageous or abusive cases.

That was the situation in Idaho until this fall. Since 1979 the Idaho Supreme Court had followed a rule directing courts to deny fee awards except in cases that were “brought, pursued or defended frivolously, unreasonably or without foundation.” Eight years later, in a 1987 enactment, the state’s legislature declared its intent that “winners in civil cases have ‘the right to be made whole for attorney’s fees and costs when justice so requires,” on the face of it a broader standard. A lot of good that did: for nearly 30 years, the high court in Boise refused to take the hint and stuck with its old standard.

Until now. On September 28, in the case of Hoffer v. Shappard, the Idaho Supreme Court announced that it would at last yield to “the clear intention of the legislature” and adopt, for cases pending as of next March 1, a more generous fee standard. It will recognize that “prevailing parties in civil litigation have the right to be made whole for attorney fees they have incurred ‘when justice so requires’?” and will accord “broad authority to judges overseeing civil actions to award reasonable attorney fees.”

Critics, as well as dissenters in the 3-2 ruling, are predicting the worst. Their concerns are summed up in Betsy Russell’s report in the Spokane Spokesman-Review (which also generously quotes me). As I note, there are genuine risks ahead: experience suggests that courts in a fee-shift system must be on guard to check lawyers’ temptation to gold-plate fee requests, and the high court or legislature should step in to cabin discretion if lower court judges head off in such different directions that fee outcomes start to vary arbitrarily from one courtroom to the next. Loser-pays systems typically develop mechanisms to handle cases of split or partial victories, and Idaho should be prepared to do so as well.

Those important points aside, I’m rooting for the Court’s new approach to succeed, and hoping that Idaho legislators, trial judges, and lawyers will cooperate in coming months to help make that happen.

[cross-posted from Cato at Liberty]