THE OTHER SIDE OF THE COIN

One final thought before plunging into the actual mechanisms of fee shifting….. Fee shifting is not necessarily a good thing. In many countries it is automatic—the losing side pays the winning side’s costs. In many of those countries there is a lot less litigation than in the United States. Your knee jerk reaction might be that less litigation is a good thing, but is it? If you are a large corporation, it may be. Especially if you’re a large corporation subject to lots of lawsuits by smaller plaintiffs that think of you as a target for big game hunting. If the plaintiff will have to pay your legal costs if they loose, it is likely that they will give serious consideration to the strength of their case before dragging you into court. That will lead to a reduction of cases where plaintiffs take long shots of dubious merit because their attorneys have time on their hands and the cases are relatively inexpensive to pursue (and might be prosecuted on a contingency basis), and where the potential long shot award is very sizeable. On the other hand, fee shifting provisions can be abused by the side with the resources to hugely outspend its opponent. Parties with good (but less than certain) cases might not be able to risk asserting their rights in court primarily because they cannot afford the risk of paying the disproportionate cost of the mega firm attorneys (and consultants and experts) that their opponents will bring to bear against them. In short, there will be cases where fee shifting exacerbates the very problem it was intended to solve. Fortunately, the potential for this undesirable result has not been lost on the courts or the legislatures. As we will see, many fee shifting mechanisms address the issue to one extent or another.



The information contained in this blog is not legal advice and should not be relied on as such. For legal advice or for answers to specific questions, please contact the blog's author.

Contract v. Tort and Statutory Law v. Common Law (basic concepts)

Here are a few basic terms that I’ll use throughout this Blog. I apologize if they are too basic, but I don’t want to lose non-lawyers by assuming that these terms are commonly understood.

Cases “brought in contract” involve a plaintiff asserting a right that would not exist without a contract between the parties. For example, a plaintiff cannot assert that I should have painted its warehouse unless we had a contract in which I promised to paint it.

Cases “brought in tort,” are based on violations of duties imposed by society. For example, if you leave a banana peal on your shop floor and someone slips on it, you could be liable for a tort called negligence because you failed to meet your societal duty to keep your floor safe.

Statutory law is law created through the legislative process. Statutes can apply to both tort and contract actions. For example, in a case brought because the defendant did not accept the delivery of goods purchased from the plaintiff, the available remedies may be dictated by statute. Statutory law is sometimes referred to as “code.” (For example, the UCC or Uniform Commercial Code, is a collection of model laws, dealing with commercial issues, that states have modified and incorporated into their statutes. In Pennsylvania, the collection of statutes based on the UCC is sometimes referred to as the “Pennsylvania Uniform Commercial Code.”)

Common law refers to laws created by the written opinions of judges, in the absence of statutory laws. Our common law system was inherited from England during colonial times and has evolved since then. Like statutory law, common law can apply to both tort and contract actions. Every court system in the country (50 state systems plus the federal system) has a hierarchy where its lower courts must follow the common law created by its higher courts. This helps make the common law uniform within each system. Common law may be displaced by statutory law.



The information contained in this blog is not legal advice and should not be relied on as such. For legal advice or for answers to specific questions, please contact the blog's author.

Contingent Fees v. Fee Shifting

Fee shifting mechanisms can lift the burden of litigation costs if you win. Contingent fee agreements lift the burden of litigation costs if you lose, and limit the size of the litigation costs if you win so as to greatly increase your chances of a net positive recovery on the litigation. Such a comparison, at the cursory level, seems to make the contingency fee arrangement very attractive. A more nuanced comparison, however, shows that a straight fee arrangement can be better, even without fee shifting.

Typically, a contingency fee agreement provides that the attorneys for the plaintiffs will not collect a fee unless the plaintiffs win. If the plaintiffs win, their attorneys will take a percent of the recovery. It will be a big percent—typically between a third and just less than half. The attorneys will also take out the costs they advanced for copying, postage, filing fees, etc. and for third party litigation support (expert fees, for example). Whether they take those costs out of the amount recovered before or after they take their percent of the recovery depends on the deal they struck with the client. That is the cost of litigation where all the risk in bourn by your attorneys.

Clearly, if the client has no money to pay for an attorney, the contingent fee route is a lot better than walking away from a meritorious claim. However, clients that can pay a straight hourly fee may be better off doing just that. It all depends on the chances of winning, the likely size of their attorney’s bill, and whether they will be able to avail themselves of a fee shifting mechanism if they win. For example a $1,000,000 dispute in a very strong case with $100,000 in estimated attorney fees might be better litigated on a traditional hourly basis than on a contingency basis. Keeping everything else the same, if potential litigation costs on an hourly basis are $500,000, a contingency fee arrangement (if available) might be more attractive than paying the hourly rate—and the less strong the chances of winning, the more attractive it will be. Now, add in the availability of a fee shifting mechanism, so that if you win those attorney fees are added to your damages. If you can afford the hourly rate, the hourly fee option may have become the better choice.

These are some of the options and scenarios a client may want to discuss with their attorney before their case gets started.




The information contained in this blog is not legal advice and should not be relied on as such. For legal advice or for answers to specific questions, please contact the blog's author.

The American Rule and General Categories for its Exceptions

“The American Rule” is the common name given for the principle that, in America, each party is generally responsible for paying its own attorney fees regardless of whether it wins or loses. There are typically mechanisms for assessing the more minor litigation costs, such as the court’s filing fees, to the losing party. The burden of each party’s attorney fees (and other professional fees such as expert witnesses and non-testifying experts), however, typically stay with each party. Exceptions to the American Rule whereby the losing party is made to pay the litigation expenses of the winning party are called “fee shifting” mechanisms. Fee shifting mechanisms are typically either contractual provisions or provisions embedded in statutes.


One other mechanism that offers relief, and which will be discussed in this blog, is punitive damages. Punitive damages are not technically “fee shifting” because they are not driven by the amount of fees the winning party incurred. Rather, they are assessed to punish the losing party for especially bad behavior and to discourage others from engaging in similar behavior. Sometimes punitive damages are part of a common law tradition for certain causes of action; sometimes they are provided for expressly by statute. They could be open ended (whatever the jury or court wants to give—within limits) or very specific (e.g. three times actual damages). Either way, if considerable, they can mitigate or wipe out the winning side’s cost of litigation.

Aside from fee shifting mechanisms and punitive damages, the problem of litigation costs can be addressed through contingency fee arrangements. The next blog entry will address some of the advantages and limitations of those arrangements.


The information contained in this blog is not legal advice and should not be relied on as such. For legal advice or for answers to specific questions, please contact the blog's author.

What This Blog is About

We would like to think that businesses or people that have been wronged and cannot work out their differences can, as a rule, seek redress in the courts and be made whole. We would also like to think that, if a business finds that someone is coming after it in court based on a claim that has no merit, it can defend itself and expect meaningful vindication.

The cost of litigation often puts a party or potential party in a position where even a win is an economic loss. This can lead you to just absorb expensive losses instead of going to court, or to settle meritorious claims for too little—all based on the economics that come into play because of the cost of litigation.

The problem is exasperated when litigation costs are used as a weapon by the better healed party against a party less able to absorb them. How long can a business with revenues of $10 million a year pursue a contract case for $200,000 against a company ten times its size that is willing to fight a war of attrition?

Many people have thought long and hard about this question for many years. This blog sets out snippets of what attorneys and potential litigants may want to consider when trying to solve the problem of litigation costs. It will be weighted toward mechanisms by which the prevailing litigant can recover litigation costs, so as to make prevailing worth the cost.


The information contained in this blog is not legal advice and should not be relied on as such. For legal advice or answers to specific questions, please contact the blog's author.