Cyrus Dugger

“Loser Pays” Doesn’t: When lawsuit losers are forced to pay the legal fees of winners, the cost of litigation for everyone goes up

In discussions about tort "reform," tort reformers often hail a "loser pays" system as a means to curb the would be wave of "frivolous lawsuits" which are "crippling" the American economy.

Here is an interesting and rather compelling critique of this tort "reform" "loser pays" pays narrative.

"Loser Pays" Doesn't

By Herbert M. Kritzer

NAOMI CAMPBELL, THE LITHESOME BRITISH SUPERMODEL, has long coveted public attention. She has been less than thrilled, however, with news reports about her substance abuse. In 2001, she filed an invasion of privacy suit against the Daily Mirror, an English newspaper that had published photos of her leaving a Narcotics Anonymous meeting. She won an award of 3,500 plus costs after an initial trial, had the award reversed as a result of an appeal by the Daily Mirror, and last year won reinstatement of the award after she appealed to England's highest court.

The cost of the litigation for both sides was well over 1 million. This is especially significant in England, because, like most other countries, it requires litigation losers to pay the legal fees and expenses of litigation winners. When Campbell won at trial, her lawyer said he would seek 250,000 in costs. When she lost on the Mirror's appeal, Campbell was ordered to pay the newspaper 350,000 in expenses. After ultimately succeeding, Campbell's lawyers this year claimed costs of almost 350,000.

Advocates for reducing litigation in America often tout "loser pays"—or the English rule, as it is sometimes called—as a way to discourage frivolous cases and make the civil justice system fairer and more efficient.

But Campbell's case, extreme as it may be, shows that loser pays can work in ways that its supporters do not intend. Rather than discourage the filing of lawsuits, the system allows plaintiffs like Campbell to press potentially strong cases involving trivial amounts without worrying about the expense. As a result, the policy has helped increase the cost of litigation in Britain and has added another layer—fee disputes—to the process. It has also discouraged settlements. In the United States, where each side typically pays its own costs, decisions about whether to proceed or settle are made in light of anticipated expenses. In a system where the loser pays, a party with a strong case has less incentive to compromise because costs are shifted to the other side. The defendant can no longer cut losses by convincing the plaintiff to weigh the costs of proceeding and accept a discounted settlement. (link to full article)

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Posted at 2:21 PM, Oct 02, 2006 in
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