Loser-pays Can Win in America?
June 24, 2011
In America, if someone sues you, you pay for a lawyer. Even if you ultimately win the lawsuit and aren’t held liable for any damages at all, you’ve still lost thousands of dollars in attorneys’ fees (not to mention the time taken out of your life, which you can never get back). A lot of the theory behind tort law revolves around making people “whole” for the wrongs they’ve suffered. Who will make you whole?
Globally speaking, this is an unusual system. In England and many other countries, if someone sues you and loses, he has to pay your attorneys’ fees. In fact, one writer says that “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.”
Our system may be bad not only in terms of abstract theory about justice but also in economic terms. In what sounds like an excellent study by the Manhattan Institute (I read only the executive summary), the author says (with appropriate footnotes),
The United States struggles with a uniquely costly civil justice system. The direct costs of tort litigation, in particular, reached $247 billion in 2006, or $825 per person in the United States. Moreover, tort costs in the U.S. as a percentage of gross domestic product are far higher than those in the rest of the developed world—double the cost in Germany and more than three times the cost in France or the United Kingdom.
The author also notes,
Almost every economist who has studied loser pays predicts that it would, if adopted, reduce the number of low-merit lawsuits.
In Alaska, which has always had a loser-pays rule, tort suits constitute only 5 percent of all civil legal matters—half the national average.
Yet I thought that the United States was unlikely ever to change its system—it’s costlier for all the rest of us, perhaps, but better for the lawyers, who have a strong vested interest in maintaining the status quo. (Fewer lawsuits would mean less work for lawyers.)
So I’m pleased and surprised to learn that I was wrong; Texas adopted a loser-pays system earlier this year. I can’t tell you how encouraging I think this is. According to that item in the Corner, at least five other current governors “ran and won while proposing similar legal-reform ideas”, which is also encouraging.
Other than Alaska, Governor Rick Perry’s Texas is basically the first state ever to do this. Get this man a nomination!
Update (July 22nd, 2011): For a little more information on the Texas law in particular, see also “More on Texas’s New Loser-pays Law”.