fedLabs 101: some losers oughta pay

Where does your State stand on the issue of Loser Pays?  A local newspaper article on New Year's Day got me wishing New York State had some form of Loser Pays system, to help defendants who are the victims of meritless lawsuits -- i.e., when plaintiffs continue a case even after discovery shows it is very weak.  (Schenectady (NY) Daily Gazette, "Jury clears Mayfield driver of responsibility for pedestrian's death," Jan. 1, 2005, B1, $ubscpt.)

The case in question is fairly typical: the estate of a pedestrian killed in an auto accident sues the driver for wrongful death.  But, here, there was no indication that the driver, Daniel F. Post was at fault. An article from the time of the accident in 2002 noted that Donald H. Colby was walking in the middle of a rural road late at night when struck.  Post was not charged in the incident.  Nonetheless, Colby's estate sued Post for $1 million.  Despite discovery that apparently yielded no evidence of negligence on Post's part, there was a two-day trial in November, and the Fulton County Supreme Court jury cleared the defendant.

• What did the Estate's lawyer, Anthony Casale, of the Abdella Law Offices in Goversville, NY, have to say about his losing case?   The reporter noted that Casale [using some of my least favorite phrases] "is reluctant to discuss the details of the case because the Colby family 'is looking for closure on the matter'."  "There were a lot of unanswered questions," Casale said of the accident -- "but at the end of the day there wasn't enough evidence" to substantiate the claims in the lawsuit.   So, that's it.  Unless defendant Post risks the additional expense of a frivolousness motion (which has a maximum award of $10,000), his "closure" will have to await payment of hefty legal fees.

Overlawyered.com's editor Walter Olson has written extensively on the topic of loser pays.  (this essay gives a good summary of his arguments).  Walter points out:

"America differs from all other Western democracies (indeed, from virtually all nations of any sort) in its refusal to recognize the principle that the losing side in litigation should contribute toward "making whole" its prevailing opponent.  It's long past time this country joined the world in adopting that principle; unfortunately, any steps toward doing so must contend with deeply entrenched resistance from the organized bar, which likes the system the way it is."

Like Olson's Essay, a 1997 law review article co-authored by Olson and Prof. David Bernstein (of the Volokh Conspiracy)  notes the de mimimis use of loser pays in the United States (modest programs in Alaska, Oklahoma and Oregon).  The article ended with a prediction that further experiments with loser-pays are likely in the near future, but that optimism has so far proven to be unwarranted.  For, example, Ohio's recent "tort reform" efforts failed to include loser pays (see Toledo Blade editorial, Dec. 14, 2004), and efforts in South Carolina were also unsuccessful.

• I'm afraid that Loser Pays, like calls to protect clients from unethical and excessive contingency fees, has been swept aside by the tort reform tidal wave.  Both efforts could help average folk and businesses get a fair break from our justice system, and both offer politicians the opportunity for bipartisan cooperation in the public interest. However, Democrats are under the sway of trial lawyers and Republicans under the thumb of big business, and they're all too busy fighting the bigger tort reform war.  In addition, the legal profession in general, I believe, fears that Loser Pays will result in less work for lawyers.

Opponents of Loser Pays say such legislation would limit access to justice -- that ordinary people might be dissuaded from filing non-frivolous lawsuits for fear of paying court costs if their case loses.  I have no interest in chilling plaintiffs who have valid claims, but lawsuits like Colby vs. Post are often no more than fishing expeditions and treasure hunts.  Defendants are not just deep-pocketed villains. Meritless lawsuits cause very palpable harm that also needs to be taken into account.

Why aren't we seeing an explosion of experimentation in our great Federalist Laboratory?  With so many variations and pilot programs possible, and so much experience in other countries to use as guides, the Olson & Bernstein prediction of bountiful experimentation seemed like a very good bet in 1997.  I'd like to hear what is happening in individual states now:

1. have Loser Pays programs been established in your state?  if so how are they working?
2. are there proposals pending in your legislatures, or were there recently?  if so, what are the party and ideology of the sponsors?
3. has your local bar been working on the issue of Loser Pays?  studying it? supporting or opposing pilot programs or sweeping reforms?
is anyone at your law school working on these issues?

If ever a topic deserved a weblog of its own -- or a corner in an existing blawg -- this is it. If ever a topic were ripe for 50-state, federalist incubation, this is it. So, come on Federalists, show us your stuff. 

Comments

[Aaron]

Modified "loser pays" has long been part of Michigan practice. In most civil cases not subject to case evaluation, a party may at any time make an "offer of judgment", and based upon the other party's response (or non-response) and the outcome of the litigation may be able to collect attorney fees from that point forward. (This rule does not apply to property settlements in divorce, although some attorneys believe it should.)

For cases that are subject to case evaluation, the parties undergo a review of their case by a panel of three attorneys who, based upon their own practices, are respectively a plaintiff's practitioner, a "neutral" practitioner, and a defense practitioner. After reviewing summaries (similar to what one would submit to a facilitation or arbitration) and hearing argument, and reviewing any evidence the parties choose to submit, the evaluators make a recommendation as to the resolution of the case. They are empowered to declare a case frivolous. If all parties accept the case evaluation recommendation, settlement follows in that amount. If all parties reject or case evaluation is not unanimous, no sanctions can follow from the recommendation. If one party accepts and another (or others) reject, the rejecting parties must improve their outcome over the case evaluation in an amount defined by court rule, or they are liable for the other side's attorney fees from that point forward.

Nobody seems to object to this system, although I don't think it has much impact. The typical tort plaintiff doesn't have assets against which an insurance company can collect, so there's little upside for an insurance company which scores an award of sanctions against the unsuccessful plaintiff. (The biggest reward for an insurance company typically comes when they accept the case evaluation recommendation and lose the case, but the rejecting plaintiff recovers less at trial than the case evalutors recommended and sanctions are recouped from the verdict.)

Meanwhile, save for under extraordinary circumstances (they can, after all, go bankrupt) insurance companies can always afford to pay sanctions and seem to have little interest in strengthening these "loser pays" rules. As in other states, their primary focus seems to be on limiting the damages available to severely injured plaintiffs without regard for the merits of a case - something they seem to believe to be much more important to the bottom line than "loser pays".

[David Giacalone]

Thanks Aaron, this is helpful and informative. I do wonder about your assumption that "The typical tort plaintiff doesn't have assets against which an insurance company can collect, so there's little upside for an insurance company which scores an award of sanctions against the unsuccessful plaintiff." Even if Michigan might not be the richest State in the Union, it surely has a large body of middle-classs-and-higher citizens with something to lose (like a house and more) if they face sanctions for bringing a meritless suit. If lawyers are explaining the ramifications to such people before litigation is started, or after case evaluation, it is hard to believe that there isn't a meaningful deterrent to pursuing palpably weak cases.

Do you have a feel for how loser pays works when both parties are individuals?

[Aaron]

David, perhaps I would have been more accurate had I referenced plaintiffs against whom sanctions are likely to be granted. In my experience, middle class people with assets don't have any general interest in trying to press a frivolous claim, and have little interest in turning down a case evaluation which is reasonable. Many of the remaining plaintiffs have few or no assets, or would be sufficiently protected by the exemptions in bankruptcy, such that collection efforts would be largely futile. Granted, I'm speaking from my own experience, not from any empirical study of plaintiff behavior.

Beyond that, all hype and hyperbole aside, truly frivolous suits are a rare creature in Michigan. Are things different in your neck of the woods?

[Gene]

David, while I too agree that frivolous lawsuits are a problem (and we have our fair share of them in California), "loser pays" cure is probably at least as bad as the disease. In your post, you acknowledge the need not to discourage non-frivolous lawsuits, but that is what you' re going to get with the "loser pays" system.

California has a statute, CCP sec. 998 (there is also a federal equivalent), which allows the defense to put pressure on the plaintiff by making a pre-trial statutory offer to settle. If the plaintiff rejects it and does not beat that offer at trial, he would have to pay the defendant's post-offer costs and, at the court's discretion, the defendant's expert fees. In practice, this statute is often used to put pressure on the plaintiff to realistically assess his or her case before it goes to trial.

I think that solution works towards reducing frivolous lawsuits without the harnshness of the all-or-nothing "loser pays" solution.

[David Giacalone]

Thanks for your additional comments, Aaron, and your contribution, Gene. I believe that "truly frivolous" lawsuits are also rare here in New York. However, the "frivolous" standard is too low for the threshhold, I believe, when it comes to making a defendant whole in the context of Loser Pays. The customary frivolousness standard is "without basis in law or fact," and allows good faith argument for an extension, modification or reversal of existing law. See Model Rule 3.1, and the definition at law.com. A court can conclude that a claim is "without merit" based on it having only met 49% of its evidentiary burden. Somewhere between 49% and 0% there is a level of probable victory so weak it should only be pursued at plaintiff's peril.

Your point is a good one, Gene, and underscores my belief that states can learn a lot by seeing what other states are doing and what works -- whether various forms or gradations of "loser pays" (between none and absolute) achieve the desired goals. If meritorious suits are chilled or there is no deterrent effect on anyone matters.

It's interesting to me that the California high court did not make it clear until Zamos v. Stroud, 04-19-04 (see f/k/a ) that "an attorney may be held liable for malicious prosecution when he commences a lawsuit properly but then continues to prosecute it after learning it is not supported by probable cause."

[Mackenzie]

Forgive me if I'm being somewhat naive, but doesn't some of the blame for this incident fall on the trial judge? It seems that if this case is really that clear-cut, it should never have gotten to the jury. Are there any issues relating to encouraging judges to properly dismiss meritless cases?

[David Giacalone]

Mackenzie, this is a good point. Judges need to be part of the solution. I'm not sure, though, if a summary judgment motion would have worked here, nor that it would be appropriate for the judge to urge defendant to file such a motion or a frivolousness claim prior to trial. And, unlike situations where the judge is facing a very long trial, it may be very impractical for a judge to spend significant time in chambers with counsel trying to avoid a two-day trial. The fact is that it is plaintiff and plaintiff's counsel who know best how weak their case is, and they must be the primary focus in finding a solution for cases that look a lot weaker after discovery than before.

[Rick Rotunde]

I think Anthony Casale blew the case but that's just my opinion.