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Don't Tinker with the Contingent Fee System

Unfortunately, no one in the blogosphere has addressed the Manhattan Institute’s December 2008 report promoting a loser pays rule. Loser pays, you will recall, forces the losing party of a lawsuit to pay the legal fees of the winner. The Manhattan Institute report advances the traditional argument that society needs to deter frivolous suits. The contingent fee system, with its incentive to bring strong cases, itself deters meritless suits. Further, the system has safeguards in place to discipline attorneys who practice that way. To eliminate the small percentage of bad actors should not require throwing out the baby with the bathwater. Even the author of this study conceded that – most plaintiff’s lawyers decline most of the cases offered them.” Marie Gryphon, ” Greater Justice, Lower Cost: How a ‘Loser Pays’ Rule Would Improve the American Legal System – at footnote 32.

The author is indeed correct that critics of loser pay worry that its implementation would limit access to the courts. She is not correct when she adds, “the American Rule [whereby the loser need not pay the winner’s legal fee] essentially eliminates court access for small but strong claims of injury, unless the claims can be grouped into a class action.” I do not think this author has ever practiced personal injury law. The current system in the United States permits anyone with a meritorious claim for negligence to have his/her day in court.

The perception of many is that the average person has less access to the legal system than the wealthy. What will diminish that confidence even further is a system that forces plaintiffs to pay the legal fees of a corporation which prevailed at trial. The proponents of this harsh rule may say that’s what has to happen to someone who loses. I say: What about the chilling effect on litigants who have a meritorious claim but may be dissuaded from such a high risk gamble. In fact, the United States Supreme Court explicitly noted that if we were to adopt the English Rule of loser pays, the poor might be unjustly discouraged from vindicating their rights. Fleischmann Corp. v. Mairer Brewing, 386 U.S. 718 (1967). The Court also noted that there would be a burden on the court system to determine what the reasonable fees of the prevailing party were. Don’t be deceived as a new bureaucracy will come about. The proponents of loser pays foresee “a healthy litigation insurance market” to ensure access for plaintiffs with meritorious cases. Just what we need, a new kind of insurance on top of liability insurance. The fact is that the countries which have loser pays have safeguards in place which America does not have and does not need to have under the current system.

To the extent that this ill-conceived idea gains currency, I will be revisiting it in future blogs.

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