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Danny Feldman
Danny Feldman
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Loser Pays – A Bad Idea

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When I was a law student at Vanderbilt, a contracts professor asked a question about whether the "loser" to a lawsuit should be required to pay the "foreseeable costs," ie. the winner’s attorney fees. I argued "yes" given that the costs were foreseeable. I was wrong.

This argument, loser pays, really is nothing more than a way for business, insurance companies etc. to shut the doors to the courthouse to the vast majority of Americans who could never be able to afford to pay the tens or thousands of dollars that the other side may incur in attorney fees. Indeed, the reason why contingency fee contracts are regularly employed when representing injured persons is that those persons can’t afford to pay their own lawyers an hourly rate. For example, a truck crashes into you, putting you in the hospital for months and causing you to lose your job and health insurance – how in the world will you be able to pay the other side’s legal fees if you end up losing the case – and it must be remembered, that even when you are rear-ended, juries can still return a verdict for defendant.

In Alabama, the scale already is tipped very unfairly in favor of defendants. Under ARCP 68 a defendant may file an "Offer of Judgment" which plaintiff has 10 days to accept. If plaintiff does not accept the offer and if at trial, plaintiff does not receive a verdict in excess of the offered amount than plaintiff is on the hook for defendant’s costs incurred after the Offer of Judgment was made. In other words, if defendant files an offer of judgment of $10,000 and the jury returns an award of $9,000 for plaintiff, the Court may tax costs (say $5,000) against plaintiff despite the fact that the jury returned a verdict in plaintiff’s favor. There is no similar provision in the law that allows plaintiff to make an offer of judgment whereby defendant is on the hook for plaintiff’s costs incurred if the jury returns a verdict for plaintiff in excess of what plaintiff offered to settle for. Nor does the rule allow plaintiff to collect costs against defendant if a jury returns a verdict in excess of what defendant offered. How’s that for fairness?

As a matter of practice, I would be very surprised if an Alabama judge would enforce Rule 68 as described above, although they could. In addition "costs" do not include attorney fees, but rather are limited to actual costs incurred, like deposition bills, mileage etc. Of course, even costs can run up into the thousands of dollars very quickly, and it is the client that is on the hook for costs. So, you’ve got to tell your client, not only can you lose, but you also can lose and owe the other side thousands of dollars.

There are several other reasons why "loser pays" is a bad idea – but shutting down the courthouses to the vast majority of Americans is enough.