Posts Tagged ‘loser pays’

For real liability reform, try freedom of contract

Six months ago the Delaware Supreme Court upheld the right of an enterprise to include a loser-pays provision in its bylaws, specifying that losing shareholder-litigants would have to contribute reasonable legal fees to compensate what would otherwise be loss to other owners. Since then there’s been a concerted campaign to overturn the ruling, either in the Delaware legislature or if necessary elsewhere. But as I argue in a new Cato post, allowing scope for freedom of contract of this sort is one of the best and most promising ways to avert an ever-rising toll of litigation. Contractually specified alternatives to courtroom wrangling have played a vital role, and are under attack for that very reason, in curbing litigation areas like workplace and consumer arbitration, shrinkwrap and click-through disclaimers of liability, and risk disclaimers at ballparks and elsewhere. (& Stephen Bainbridge).

To the extent America has made progress in recent years in rolling back the extreme litigiousness of earlier years, one main reason has been the courts’ increased willingness to respect the libertarian and classical liberal principle of freedom of contract. Most legal disputes arise between parties with prior dealings, and if they have been left free in those dealings to specify who bears the risks when things go wrong, the result will often be to cut off the need for expensive and open-ended litigation afterward.

More on the Delaware bylaw controversy: D & O Diary (scroll), Andrew Trask on state of the merger class action, WSJ Law Blog first and second, Daniel Fisher, and ABA Journal in June, Alison Frankel/Reuters (forum selection bylaws).

“Alabama man gets $1K in police settlement, his lawyers get $459K”

“An Alabama man who sued over being hit and kicked by police after leading them on a high-speed chase will get $1,000 in a settlement with the city of Birmingham, while his attorneys will take in $459,000, officials said Wednesday.” [Reuters/Yahoo] Readers may argue about whether this kind of outcome is fair, but note that it seems to happen more often, rather than less, in this country (with its putative “American Rule” that each side pays its own fees) than in other industrialized countries which tend more to follow “loser-pays” or “costs follow the event” fee principles. One reason for that is that the U.S. does not actually hew consistently to the so-called American Rule; across wide areas of litigation, including civil rights suits, it follows “one-way shift” principles in which prevailing plaintiffs but not prevailing defendants are entitled to fees, and whose encouragement to litigation is greater than either the American Rule or the loser-pays principle.

Related: The Pennsylvania legislature is moving to adopt a rule adopting one-way fees for some cases in which municipalities trample rights protected by the Bill of Rights’ Second Amendment, provoking peals of outrage (“dangerous,” “outrageous,” “threatens municipalities’ financial stability,” etc.) from elected officials few of whom seem to be on record objecting to one-way fee shifts when plaintiffs they like better are doing the suing. [Free Beacon]

Banking and finance roundup

  • SEC regs suppress small business capital formation and that’s a shame [Commissioner Daniel Gallagher via Bainbridge]
  • Federally sponsored gripe site for financial institutions not likely to end well [Hester Peirce and Vera Soliman, Mercatus via Kevin Funnell]
  • Alleged terror payments “routed through” sued bank also went through major New York banks, which shouldn’t be surprising [Fisher]
  • Did mid-level managers in securitized mortgage finance know they were in a housing bubble but cynically go ahead? Evidence against [Cheng et al., American Economic Review via MR]
  • Shareholder litigation: “New ‘loser pays’ standard could curb abusive lawsuits” [Examiner editorial] Delaware take note: corporate by-law changes that cut off fee-seeking opportunism deserve acclaim [Keith Paul Bishop via Bainbridge]
  • NYT was hot on “Goldman Sachs manipulated aluminum market” allegations but judge wasn’t [Reuters, July 2013 NYT]
  • CFPB might shrug off discrimination and retaliation charges, but many of the firms it regulates could not afford to [Hans Bader]

August 4 roundup

  • Administration tees up massively expensive regulation docket for after election [Sam Batkins, American Action Forum]
  • More on FedEx’s resistance to fed demands that it snoop in boxes [WSJ Law Blog, earlier]
  • Ethics war escalates between Cuomo and U.S. Attorney Preet Bharara, but is sniping in press suitable role for prosecutor? [New York Post, Ira Stoll]
  • “Mom Hires Craigslist Driver for 9-Year-Old Son, Gets Thrown in Jail” [Lenore Skenazy]
  • One-way fee shifts, available to prevailing plaintiffs but not defendants: why aren’t they more controversial? [New Jersey Lawsuit Reform Watch]
  • Water shutoff woes sprang from Detroit’s “pay-if-you-want culture” [Nolan Finley, Detroit News]
  • “CPSC Still Trying to Crush Small Round Magnet Toys; Last Surviving American Seller Zen Magnets Fights Back” [Brian Doherty]

Pastor uses copyright takedown against critics, told to pay fees

Ken at Popehat has the story on a court’s ruling for fees and costs in Ergun Caner v. Jonathan Autry, filed by a religious leader who had come under criticism for less-than-forthright descriptions of his own past. “The court ruled that Caner (1) pursued the case after Autry took the videos down, (2) demanded, as a condition of settlement, that Autry’s young children sign a non-disparagement agreement, (3) delayed the case, (4) failed to seek discovery, opposed the motion to dismiss on the grounds that he needed to take discovery, but could not articulate what discovery he needed, (5) contradicted himself, (6) made unreasonable legal arguments without any support (like the ‘you must be qualified to criticize’ argument), and most importantly (7) filed the case to silence criticism.” Under the prevailing “American Rule” on fees it’s extremely hard for the victim of a meritless suit to recover attorney’s costs, but this one was extreme enough to be an exception.

Intellectual property roundup

  • Supreme Court tackling patent law in several cases this term [Sartori and Aga, WLF; Richard Epstein; Kristen Osenga/Prawfs] New fee-shifting regime announced in Octane Fitness already bringing relief to litigants [Ars Technica on Lumen View/FindTheBest case]
  • Copyright claims on intrinsically newsworthy material: curious claim concerning suicide note [Eugene Volokh] “Is it copyright infringement to post a lawyer’s cease-and-desist letter?” Australian university seems to think so [same]
  • Fate of Prenda Law model spirals downward [Ars Technica, Volokh, EFF]
  • Comedian Adam Carolla has “decided to make himself the focus of the Personal Audio suit against podcasters.” [Steven Malanga]
  • Why, as a textbook author, Alex Tabarrok has concluded copyright law is out of control [Marginal Revolution]
  • Remembering when patent examiners were celebrities (in the 19th Century) [Slate]
  • Someone sends Jim Harper a dubious DMCA takedown notice, and this is his response [Cato]

“Don’t settle”

Newegg fights a patent assertion entity:

Most companies choose not to recover their legal fees in patent suits because prevailing defendants are required to demonstrate that a plaintiff acted in bad faith. This is extremely difficult to prove and it’s usually easier to just walk away and count your losses – unless your name is [Newegg chief legal officer] Lee Cheng…

Thanks to the efforts of Lee Cheng and his legal team, the Federal Circuit Court of Appeals ordered a trial court to reconsider its earlier denial of Newegg’s request for attorneys’ fees and costs in the patent infringement lawsuit brought on by SUS. Newegg pursued justice in the matter because it is consistent with our corporate mission of bringing the benefits of technology and technology products to our valued customers. And, when defendants settle these frivolous claims, it’s always the customer that ends up paying. We care too much about our loyal customers to subject them to paying these trolls.

Don’t settle.

Costs of criticizing a physician

The defendant in the Duluth doctor-rating defamation case that we recounted here and here “told the Star Tribune he spent the equivalent of two years’ income, some of which he had to borrow from relatives who supplied the money by raiding their retirement funds.” The Minnesota Supreme Court eventually ruled that his comments were protected opinion. The doctor/plaintiff, for his part, spent $60,000 pursuing the suit. [Twin Cities Business]

The same article, a “Lawsuits of the Year 2013″ feature, also recounts how a couple under the influence of “sovereign citizen” teachings “filed more than $250 billion in liens, and other claims, against those they considered the cause of their problems, including [Hennepin County Sheriff Rich] Stanek, county attorneys and other court officials. The liens were filed against vehicles, houses and even mineral rights.” When Stanek went to refinance his property, he discovered he had been hit with $25 million in liens which took “several years” to remove entirely. The husband of the couple was sent to prison.