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.
The Art Newspaper takes up a trend we’ve noted before in this space:
In New York, the art lawyer Ronald Spencer, of Carter, Ledyard and Milburn, agrees with Sanig. “This is a very serious problem. Specialists are often academics earning $100,000 [or less] a year and they can’t afford litigation they are fearful of being a defendant in a lawsuit, even if they should win.” He admits that there are more of these cases in the US: “It’s a cliché, but we are more litigious here.” He says that the US system, whereby the plaintiff does not have to pay the legal fees of the successful defendant, encourages this.
After we passed along a recent report that Beaumont, Texas lawyers had filed 59 lawsuits the day before the state’s new “loser-pays” package of litigation reforms was to take effect, Texas attorney Brooks Schuelke responded on Twitter as follows (re-formatted and edited for clarity), saying that the issue wasn’t the loser-pays provision, but a separate “responsible third party” provision that set a malpractice trap for lawyers that delayed: “The responsible third party provisions allowed a defendant to name a party, and then plaintiff could join them even if the statute of limitations had expired. The law was changed to remove the ability to sue regardless of the statute of limitations. But defendant can’t name a party not disclosed in discovery. The amendment means we have to file suit long before the statute of limitations expires to send discovery asking defendant to name who it might name. So many cases nearing the statute of limitations had to be filed before the effective date of the change or else they could be victim to the amendment.”
I’m on record as noting that the Texas bill labeled as “loser pays” doesn’t do nearly as much to revamp litigation incentives as its name implies, but if lawyers rushed to beat the deadlines on its provisions, they must be expecting it to make at least some difference. [Chamber-affiliated Southeast Texas Record]
More: Texas attorney Brooks Schuelke offers a different explanation for the last-minute rush.
Loser-pays in ancient Greece. [Pero]
It’s a welcome development, but as I told Reuters, by the time it got through the legislative process there was less there than the name had promised. More at Cato. [Reuters link keeps changing, fixed for the moment]
Loser-pays, long the law in Alaska, is stirring significant interest in Texas these days. Ryan Brennan of TPPF makes a case for the reform [PDF] and discusses some of the choices involved in structuring it.
P.S. Tracking for S.B. 13 and H.B. 274. And more on pending Texas omnibus liability reform legislation from Texans for Lawsuit Reform and its Balance Texas Courts project.