New report advocates 'Loser Pays' system

By Chris Dickerson | Dec 4, 2008

Hurney CHARLESTON -- Forcing losers in lawsuits to pay the winner would help stem the tide of frivolous lawsuits flooding many U.S. jurisdictions, a new report says.

Hurney

Karlin

Cohen

Gryphon

CHARLESTON -- Forcing losers in lawsuits to pay the winner would help stem the tide of frivolous lawsuits flooding many U.S. jurisdictions, a new report says.

The report released Dec. 2 by the Manhattan Institute -- "Greater Justice, Lower Cost: How a 'Loser Pays' Rule Would Improve the American Legal System" -- says making lawsuit losers pay the winner's legal expenses would add some equality to the U.S. legal landscape.

A so-called loser-pays system would reduce the number of low-merit lawsuits, encourage potential defendants to comply with the law and would deter "ordinary low-merit suits," the report said.

West Virginia reaction to the report was mixed.

The president of the Defense Trial Counsel of West Virginia said he doubts the idea would find support here.

"The membership of DTCWV is diverse, and it is therefore difficult to state we have a unanimous position on the issue of 'loser pays,'" said Thomas J. Hurney Jr., an attorney with Jackson Kelly in Charleston. "This being said, we do not believe a 'loser pays' system will gain any traction in the West Virginia Legislature.

"In 2003, when the Medical Professional Liability Act was substantially amended, a 'loser pays' provision was proposed at some point, but did not get reported out of committee. In addition, many of our members question whether such a system is fair to the average citizen or small business without the resources to repay attorney's fees and expenses in a losing case."

The president of the West Virginia Association for Justice said the idea is another effort by "big business" to make citizens think twice about filing lawsuits.

"This is just another attempt by billion-dollar corporations and their insurance companies to scare the victims of shoddy products, dangerous drugs, insurance scams and other wrongdoing out of pursuing valid claims," said Allan N. Karlin, a Morgantown attorney. "Big business and their allied insurance companies have deep pockets and hordes of lawyers to represent them.

"'Loser Pays' is a scheme for those companies to bully injured persons into dropping claims or accepting unfair settlements by threatening them with massive legal costs should they lose their case. 'Loser Pays' will deter some people from filing valid claims because the risk of losing is just too great. How many working families or small businesses are willing to risk their life savings, their homes or their children?s college funds to pursue a lawsuit?"

Karlin said the current system is just fine.

"Under the current system, everyone is responsible for their own legal fees, and this helps reduce litigation," he said. "Unlike corporations, most individuals and small businesses hire attorneys on a contingency fee basis -- attorneys get a percentage of whatever they recover for their clients. If the plaintiff loses the case, then the attorney not only gets nothing, but also winds up losing the costs that he paid for experts and other litigation expenses. Given those risks, attorneys cannot afford to file or pursue a frivolous case.

"This current system allows access to justice for those who need it -- regardless of their income -- while protecting against frivolous litigation. The attempt to modify that system by requiring injured parties to pay the expensive litigation fees of corporate attorneys may sound fair. However, its boosters know that the real goal of "loser pays" is the deterrence of worthy cases by scaring working people with the prospect of bankruptcy if they lose their case."

Stopping short of endorsing the idea, the executive director of West Virginia Citizens Against Lawsuit Abuse says there is a need to reduce excessive lawsuits.

"Shakedowns in our courts from greedy personal injury lawyers have led to proposing this reform," Steve Cohen said. "As Jonathan Wilson explains in 'Out of Balance: Prescriptions for Reforming the American Litigation System,' these lawyers 'pursue claims of little or no merit in the hopes of extorting a settlement.' The ultimate losers in this game of jackpot justice are the families affected by jobs lost as a result of these lawsuit industry tactics.
"As it is in the U.S. now, more than half of lawsuits result in no compensation for the plaintiff. But the per capita cost of our lawsuit system approaches $1,000 annually. WV CALA has not endorsed loser pays, but reducing excessive lawsuits is essential."

Hurney also noted that not all cases that are lost are "frivolous."

"Many cases reflect honest differences of opinion which a jury must resolve," he said. "Moreover, for defendants, 'loser pays' may be of little solace where the losing plaintiff does not have the resources to pay, while for a defendant, it can significantly increase the size of an adverse verdict and accordingly increase the amount of settlements.

"Whether an insurance industry would grow up around such a system, particularly in today's economy, is probably questionable. In total, while some of our members may very well favor such a system, as shown in our 2003 Civil Justice Report, there appear to be considerable arguments against such a system."

The Manhattan Institute Report also said that although the number of low-merit lawsuits would likely slide under a loser-pay scheme, low-merit class action filings likely would not fall because the risk of enormous losses is the primary source of pressure on defendants to settle.

"A loser pays system could be an important part of a larger effort to reduce litigation cost, discourage meritless lawsuits, and better align tort law with its goal of deterring socially harmful conduct. The rest of the world uses the loser pays or 'English rule' system," the report said. "It's time the United States adopts one as well."

The report -- written by Marie Gryphon, a senior fellow at the Manhattan Institute's Center for Legal Policy -- found that the costs of tort litigation reached $247 billion in 2006, which represents $825 per person in the United States, and that U.S. tort costs are double the costs in Germany and more than three times the cost in France or Britain.

"Thoughtful reforms in state and federal law can bring our civil justice system into sync with the rest of the world by replacing the American rule for attorneys' fees with a loser-pays system," the report said.

Alaska is the only state that has a loser-pays rule, which is credited for keeping tort claims in the state to just 5 percent of litigation there, or half the national average.

Florida, between 1980 and 1985, had a loser-pays rule that applied exclusively to medical-malpractice cases. That law was ultimately jettisoned amid criticism.

"The integrity of our legal system is under assault. Establishing loser-pays rules and other tort reforms can help restore citizens' faith in the bedrock of society -- justice, fairness and the rule of law," former New York Mayor Rudy Giuliani wrote in the report's forward.

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