June 15, 2013

Winner Stays, Loser Pays: Developments in Fee Shifting

Judge Nancy Gertner

Professor of Practice, Harvard Law School; former Judge, U.S. District Court for the District of Massachusetts; Member, ACS Board of Directors
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Harry P. Susman

Partner, Susman Godfrey LLP
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John R. Bowman

Director of Federal and State Relations, American Association for Justice
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Patti Goldman

Vice President for Litigation, Earthjustice
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Adam T. Klein

Partner, Outten & Golden LLP
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Texas most recently deviated from the traditional American rule that both parties pay for their own litigation costs in 2011 when it enacted legislation that allows prevailing parties to recover litigation expenses in cases deemed frivolous. Historically, in the United States, fee shifting has only been allowed in situations where litigation is encouraged as a matter of public policy, such as civil rights and consumer protection cases. While Alaska is the only other state that has a loser pays system, the concept has been championed by tort reformers, and publicly supported by several elected officials. The Supreme Court even weighed in, recently reaffirming the authority of district courts to shift costs under the Federal Rules of Civil Procedure in Marx v. General Revenue Corp. Do we have evidence that a loser pays system actually reduces litigation costs by encouraging parties to settle out of court? Does it do justice a disservice by discouraging plaintiffs from filing suit? Has there been innovation in litigation funding that provides individuals with incentives to bring their cases to court? Given the longstanding tradition that litigants pay their own costs, what is the justification for fee shifting in areas of the law where the public interest seeks to encourage litigation, like civil rights?