Cathy Gellis, guesting at Popehat, has a long post on the latest in the Prenda Law saga. A relevant paragraph:
The default rule in American litigation is that everyone pays for their own lawyers. But some laws, the Copyright Act being one of them, have provisions so that the loser pays for both sides’ lawyers. … But just because a judge may grant an award of attorney fees doesn’t mean the money will ever be recovered; enforcing a judgment often presents its own expensive challenges, meaning a wronged defendant can still be saddled with the costs of his own defense. However the California Code of Civil Procedure has a provision, § 1030, to help mitigate that financial risk by allowing defendants in similar positions as Mr. Navasca [a man seeking fee recovery from Prenda Law over a questionable copyright action] to require plaintiffs to make an “undertaking;” that is, to post a bond that would guarantee, when the defendant inevitably wins his fees, that he would actually get the money.
Both provisions could prove important in bringing the rogue legal enterprise to heel. If only other areas of law besides copyright had loser-pays, and other states besides California emulated the “undertaking” idea. Earlier on Prenda Law here and here.
Scott Greenfield, contra Radley Balko, believes the idea would prove “problematic, if not disastrous,” in real life, especially if enacted in the form of two-way fee-shifting (as distinct from a one-way fee payable only to defendants). It is worth noting that although legal systems around the world predominantly embrace loser-pays principles in civil litigation between private parties, they more or less uniformly decline to carry a similar principle over to criminal prosecution.
According to a press release from Feld Entertainment, which owns the Ringling Bros.-Barnum & Bailey circus, the American Society for the Prevention of Cruelty to Animals (ASPCA) has agreed to pay $9.3 million to settle racketeering and other charges arising from alleged litigation abuse in lawsuits beginning in 2000 over elephant welfare. Feld says ASPCA and others paid a plaintiff and fact witness in the case whose testimony a judge described as not credible. It says it intends to continue suing other animal-welfare groups that it has named in connection with the episode, including the Humane Society of the United States, and Fund for Animals, as well as attorneys. [more on circus's side of dispute; earlier here, here, here, here] More: John Steele, Legal Ethics Forum.
His speech is titled “Economic Lessons from American History,” (printable PDF version) and one of the lessons has to do with loser-pays:
…if Jefferson’s decimal coinage concept was a good idea that quickly spread around the world, another idea that developed here at that time was lousy: the so-called American Rule, whereby each side in a civil legal case pays its own court costs regardless of outcome. This was different from the English system where the loser has to pay the court costs of both sides.
The American Rule came about as what might be called a deadbeat’s relief act. The Treaty of Paris (which ended the American Revolution) stipulated that British creditors could sue in American courts in order to collect debts owed them by people who were now American citizens. To make it less likely that they would do so, state legislatures passed the American Rule. With the British merchant stuck paying his own court costs, he had little incentive to go to court unless the debt was considerable.
The American Rule was a relatively minor anomaly in our legal system until the mid-20th century. But since then, as lawyers’ ethics changed and they became much more active in seeking cases, the American Rule has proved an engine of litigation. For every malpractice case filed in 1960, for instance, 300 are filed today. In practice, the American Rule has become an open invitation, frequently accepted, to legal extortion: “Pay us $25,000 to go away or spend $250,000 to defend yourself successfully in court. Your choice.” …
…policing the marketplace has long been considered a quintessential function of government. The reason for this is that when policing has been in private hands, self-interest and the public interest inevitably conflicted. The private armies of the Middle Ages all too often turned into bands of brigands or rebels. The naval privateers who flourished in the 16th to 18th centuries were also private citizens pursuing private gain while performing a public service by raiding an enemy’s commerce during wartime. In the War of 1812, for instance, American privateers pushed British insurance rates up to 30 percent of the value of ship and cargo. But when a war ended, privateers had a bad habit of turning into pirates or, after the War of 1812, into slavers.
Predictably, the American Rule has spread exactly nowhere since its inception at the same time as the decimal coinage system. There is not another country in the common-law world that uses it. … Few things would help the American economy more than ending the American Rule.
“After achieving a university entry rank of 99.95, winning fifth place in the state for chemistry and a place at the University of Sydney studying medicine, the former Abbotsleigh student Sarah Hui Xin Wong believed she could have done better in the [Higher School Certificate].” A New South Wales administrative tribunal has now turned down her complaint that she suffered disability discrimination by not being allowed further accommodations on the test, specifically a computer and extra time. But Australia does have loser-pays: “Ms. Wong has been ordered to pay some of the Board of Studies’ costs, including a proportion of the fees of the leading Sydney barrister Chris Ronalds, SC.” [Sydney Morning Herald]
In other Australia schools litigation news, a “former student who is suing Geelong Grammar School says she decided to seek damages after she failed to qualify for her preferred university course. Rose Ashton-Weir, 18, alleges Geelong Grammar gave her inadequate academic support, particularly in maths.” [Melbourne Age] More in update at The Age (“was perpetually disorganised and failed to attend classes, a tribunal has heard.”)
Now posted: a recent Federalist Society podcast of a discussion that includes me, Texas attorney E. Lee Parsley, Texas lawprof Ronen Avraham, Judge Dennis Jacobs as moderator and Dean Reuter of the Federalist Society introducing. Running time is an hour and you can listen directly here. More from me on the new Texas law here.
Overriding a veto from Gov. John Lynch, the New Hampshire legislature on June 27 enacted SB 406, establishing the nation’s first “early offer” system for medical malpractice claims. The law establishes incentives for defendants to make offers early in the litigation process that cover plaintiff’s economic losses such as medical bills and lost wages. The early-offer process is at claimants’ option only; claimants are free not to request such an offer. [Kevin Pho; supportive website; trial lawyers' opposition website]
Importantly, the new procedure also contains pioneering elements of loser-pays in both directions. If a claimant chooses to accept a defendant’s early offer of economic-loss expenses, the defendant will pay an additional sum to reflect a scheduled assessment of pain and suffering, plus the reasonable costs of attorney representation. However, if the claimant invokes the early-offer process but then turns down the offer as inadequate, there is a real risk of a fee shift in the opposite direction:
XII. A claimant who rejects an early offer and who does not prevail in an action for medical injury against the medical care provider by being awarded at least 125 percent of the early offer amount, shall be responsible for paying the medical care provider’s reasonable attorney’s fees and costs incurred in the proceedings under this chapter. The claimant shall certify to the court that bond or other suitable security for payment of the medical care provider’s reasonable attorney’s fees and costs has been posted before the court shall consider the case.
At TortsProf, Christopher Robinette explains in some detail (contrary to an error-filled screed in a Litigation Lobby outlet) why this adds up to a generally good deal for claimants (who, of course, are free not to trigger the process if they disagree) as well as making the system fairer. “Early-offer” proposals have been championed over the years by Jeffrey O’Connell, the distinguished University of Virginia torts scholar, and by Philip K. Howard of Common Good, among others. More on loser-pays here.
[Research assistance: Cato Institute intern Byron Crowe; cross-posted at Cato at Liberty]
More from John Steele Gordon at Commentary: “This looks like a big step in the right direction.”
Competition through patent suits, circa 1857: I’ve got a new post at Cato on how loser-pays works to improve the general fairness of an inevitably imperfect litigation system.
Veoh, like YouTube, pioneered the idea of enabling users to self-post video to the Internet. Then Universal, the entertainment company and owner of many copyrights, began a particularly aggressive campaign of litigation against it. Though Veoh Networks won a judicial decision in its favor, Universal appealed, having also taken the unusual step of suing three Veoh investors personally. In December the Ninth Circuit reaffirmed Veoh’s victory, but in the mean time Veoh had declared bankruptcy. Company founder Dmitry Shapiro recalls:
As you can imagine the lawsuit dramatically impacted our ability to operate the company. The financial drain of millions of dollars going to litigation took away our power to compete, countless hours of executive’s time was spent in dealing with various responsibilities of litigation, and employee morale was deeply impacted with a constant threat of shutdown. Trying to convince new employees to join the company in spite of this was extremely challenging.
By the end, “The company that we had built, that was once valued at over $130 million was gone,” writes Shapiro. Ron Coleman writes:
Under the American Rule, the cost of maintaining a meritorious defense to relentless litigation is prohibitive and what fee-shifting is available favors is applied with sickening asymmetry, virtually always favoring the party to which legal fees mean the least.
According to Eric Goldman, “This case’s real result is that Veoh is legal, but Veoh is dead – killed by rightsowner lawfare that bled it dry.” Mike Masnick points out that Universal is still pursuing its action.
In a new Cato post, I explain why I wish such an organization existed.