Loser pays

Some notes from Sasha Volokh:

The Manhattan Institute has released Greater Justice, Lower Cost: How a "Loser Pays" Rule Would Improve the American Legal System, by my friend Marie Gryphon. From the executive summary:

Effects of Loser Pays

This paper infers from its examination of the scholarly literature how loser pays would affect the American legal system:

• Almost every economist who has studied loser pays predicts that it would, if adopted, reduce the number of low-merit lawsuits.
• A loser-pays rule would encourage business owners and other potential defendants to try harder to comply with the law. Doing so should produce fewer injuries.
• Loser pays would deter ordinary low-merit suits, but it would not discourage low-merit class actions to the same extent because the risk of enormous losses, rather than the costs of legal defense, is the primary source of pressure on defendants to settle. . . .

Litigation Insurance

This paper provides an overview of how litigation insurance would ensure access to justice for poor and middle-class plaintiffs under an American loser-pays system:

• In loser-pays jurisdictions, insurance covering the legal costs of the plaintiff can be purchased at the same time that a lawsuit is filed for a reasonable premium advanced by a plaintiffs' attorney as part of the ordinary costs of litigation.
• After recently scaling down its legal aid services, which were funding civil litigation for poor plaintiffs, England witnessed massive growth in its litigation insurance market; the same thing is likely to happen in the United States if it adopts a loser-pays rule.

To be successful in the United States, a loser-pays reform must be designed to reduce the number of nuisance lawsuits, control overall litigation costs, promote settlement, and ensure access to justice for plaintiffs with strong legal claims. To achieve these disparate goals within the existing American legal system, this new Manhattan Institute proposal incorporates a modified offer-of-judgment rule, which ties the amount of any fee award to the size of the parties' settlement offers, and advocates the removal of legal barriers to the establishment of a robust litigation insurance industry in new loser-pays jurisdictions.