A Reminder: Why “User Pays” Is Unethical

The View

[Back in 2007, a ridiculous lawsuit spawned an even more ridiculous pronouncement from “The View’s” Rosie O’Donnell, which prompted the following post (originally titled “The Pants, the Judge, and Rosie’s Mouth”)  on this blog’s predecessor,  The Ethics Scoreboard.The two law-related issues that the public has the most difficult time grasping are why lawyers defend guilty people, and this one: the contingent fee system for civil plaintiffs.  While I was pre-occupied the last couple of days by two challenging ethics programs and 10 hours of driving back and forth into West Virginia to deliver one of them, I missed the outbreak of another “loser pays” discussion in one of the comment threads. It’s clearly time to run this one again (I last put it on Ethics Alarms in 2010), with a few tweaks.]

The tale of Roy Pearson, the infamous Washington, DC administrative law judge who is suing his dry cleaner for damages of $65.5 million for a lost pair of pants, would normally warrant scant comment beyond this obvious one: Pierson is a bully, his lawsuit is unreasonable and unethical, and he deserves whatever sanctions the legal system can devise. A Washington Post editorial suggested that the lawsuit, which Pierson says is justified by his inconvenience, court costs, and the mental anguish caused by the loss of his beloved pants, is proof enough of bad character and terrible judgement that he should not be reappointed to another ten-year term.  [ Update: He wasn’t.] That would normally end the issue, freeing me to move on to more important matters, like global warming and American Idol.

And then Rosie O’Donnell opened her big mouth.

Chatting about this idiotic case in her waning days on “The View,” Rosie opined that it shows how our justice system needs a little tweak…

ROSIE O’DONNELL: You know, what’s great in England, if you bring a lawsuit and the other person wins, you have to pay their legal fees. I think we should institute that in America.

JOY BEHAR: That is a good idea.

ELIZABETH HASSELBECK: That is a great idea.

O’DONNELL: That is a great idea! So let’s say you get sued– this guy sues and he ends up losing the $67 million for a pair of pants and, shocking, maybe he’ll lose, then he has to pay the legal fees of the people he sued. I think that would be great.

[Audience Applause]

HASSELBECK: Why don’t we have that?

O’DONNELL: We don’t have that because lawyers have a big lobby in America in the political system.

For those of you who don’t watch ABC’s “The View,” Behar is a former  stand-up comic, Hasselbeck is a “TV personality” whose primary assets are nice abs and the fact that her husband is an NFL quarterback, and Rosie is the current American queen of the vociferous uninformed opinion. [ UPDATE: All three of these opinionated, under-informed and vapid women have, thankfully, left the show, though what remains is hardly an improvement.] These three intellectuals managed to reduce the unique American civil justice system that has protected the innocent, powerless and victimized superbly to a stupid lawsuit over a pair of pants, and misinformed millions of Americans while doing it.

“Why don’t we have that?” That is, why don’t we have the British system that turns every lawsuit into a major financial risk to the plaintiff? We don’t have “that” because it would effectively cut off anyone without millions of dollars to burn from redress and damages as a result of major injuries caused by large and wealthy organizations. America has a contingent fee system in personal injury cases, which means that lawyers get paid only if a case prevails. It also has a system of court-ordered punishments, including court costs and fines, for plaintiffs and lawyers who bring absurd lawsuits like “The Case of the Vanishing Pants.”  But Rosie’s brilliant solution would discourage even the most deserving plaintiffs from suing corporations that sold them deadly cars, bad drugs, fatal toys and other defective products. It would make it harder for working parents to sue negligent hospitals that left their child blind and brain-damaged, and careless surgeons who amputate wrong legs or miss obvious tumors while examining patients. The Catholic Church would have loved Rosie’s system when it was being brought to court for allowing sexual predators to serially molest young boys.

America leads the world in product safety because victims of negligence and callousness can sue without fear of being clobbered by companies that can spend, or threaten to spend, millions in their defense. The big pay-off from contingent fees, some of which are certainly excessive, provides incentive for plaintiff’s attorneys to sink millions of dollars of their own assets into legitimate cases, allowing them to be tried.

Rosie to the contrary, the fact that a litigant loses does not mean that it was a frivolous suit. Her system would be a gift to every manufacturer of a dangerous product, every designer who paid more attention to aesthetics than safety, every bad doctor, every careless driver, every dishonest insurance company, and every shoddy construction company. And you would still get occasional jerks like Pierson filing lawsuits for lost pants.

Good plan, ladies.

Let’s talk about a lawsuit for the tort of talk show malpractice.

And yes, the trial lawyers* have a very effective lobby, and it has helped keep various state reforms of the tort system from tilting so much to the benefit of business and away from individuals that consumer safety in America would be just a memory. Certainly there is self-interest in this, for the contingent fee system has made many of them very rich. It has also saved millions of American lives and prevented untold misery. And the wealth of those lawyers allows them to take litigation risks that their clients never could afford.

During her long and annoying career, Rosie O’Donnell’s ignorant and badly-reasoned rants have been, by turns, amusing,  ridiculous, appalling and funny. This one, however, was irresponsible, because it misled the public about one of the best features of the American justice system, the fact that any citizen can seek redress from injury without having to fear terrible financial consequences if he or she loses. That wouldn’t occur to Rosie O’Donnell, of course, since her mouth has made her millions of dollars and, despite its heavy mileage, will probably make her many more.

It may be too much to ask someone like Rosie to do some research and make critical distinctions, but even  someone of her  limitations should be able to avoid confusing unethical lawyers like Pierson with true champions of the powerless, like Ralph Nader and the thousands of other dedicated trial lawyers who care about lives, not pants.

 Addendum: I worked for the Association of Trial Lawyers of America (now inexplicably calling themselves the American Association for Justice) from 1987 to 1994. My job responsibilities involved publishing, meetings and research, not legislation. I have been critical of the association  from time to time, but I also worked closely enough with its members to appreciate that their dedication to obtaining justice for the injured is at least as fervent as their enjoyment of the income they derive from their efforts. I got to know well many of the prominent members of the association in my time there. Some of them were among the most dedicated champions of the poor and exploited that have ever lived, and for all these, the contingent see system was an indispensable tool. One of these lawyers was Ron Motley, who was instrumental in holding the asbestos and tobacco industries to account for their deadly products: you can read about his remarkable accomplishments in his recent obituary, here.  Another was the late Harry Philo, whom I write about, with awe, here.

 

 

 

30 thoughts on “A Reminder: Why “User Pays” Is Unethical

  1. Jack, I think you make a good argument for protecting the contingent fee system. You’re an attorney (with the trial lawyer’s background cited) and I’m not. But a someone who was once heavily involved in risk management, the problem I see with the current system isn’t the occasional jackpot payout but rather the billions upon billions companies and individuals pay out every year on the smaller stuff.

    I can’t count the number of cases of which I have personal knowledge in which insurance companies and defense attorneys settled merit-less cases because the cost of defending them was more than the settlement cost. Trial lawyers are well aware that a few nasty letters and some posturing can return a very nice hourly rate, when there was never an intent (or belief) in bringing the suit all the way forward. It’s a shakedown racket.

    A few years back, I read a fascinating article suggesting a mechanism by which contingency fees AND loser pays could co-exist (wish I could remember the source). It essentially boiled down to bonding; the plaintiff (or, more likely, the plaintiff’s attorney) would purchase a bond in order to bring a case forward. The bond would essentially be an insurance policy; if the plaintiff prevails the plaintiff’s lawyer pays for the bond out of the contingency fee. If the defense prevails, the bonding service pays the defense for costs (to the limit of the bond). The plaintiff’s counsel is out the cost of the bond, but as you’ve noted, they spend money (in the form of time, experts fees etc.) prepping cases now in the hopes of a contingent payoff.

    The fee itself would be actuarially determined – in other words, the insurance markets offering said bonds would review the plaintiff’s case and determine its own level of exposure to a payout. If the case is viewed to have a low likelihood of success, the cost of the bond premium is high; if it’s believed the plaintiff has a good shot at a win, the premium is low. As a side benefit, a given case would effectively be weighed by the free market prior to entering the legal system, potentially reducing direct impacts on the courts.

    It struck me as an interesting proposal, and I’d be intrigued to hear your take on it.

    • My main problem with the proposal is the pre-review of the case. The major advances in tort law, like product liability and punitive damages, all arose out of long-shots that nobody gave a prayer to. I think the system described would just throw enough extra hurdles and risks in front of legitimate plaintiffs to paralyze the process of fair compensation.

      The culprits you describe are gutless corporate defendants willing to encourage baseless suits by making them profitable, and unethical lawyers, which the profession could and should discourage. Corporations can afford to fight the little suits, and counter sue the lawyers for harassing them. They don’t on the basis of flawed cost-benefit analysis, and ethics be damned. If you want to stop unethical law suits, stop making them profitable by settling them out.

      • “The culprits you describe are gutless corporate defendants willing to encourage baseless suits by making them profitable, and unethical lawyers, which the profession could and should discourage. Corporations can afford to fight the little suits, and counter sue the lawyers for harassing them. They don’t on the basis of flawed cost-benefit analysis, and ethics be damned. If you want to stop unethical law suits, stop making them profitable by settling them out.”

        While I appreciate your expansion in the larger comment, the excerpt strikes me as containing several examples of wishful thinking. Some lawyers won’t stop being unethical, and the “gutless corporations” are generally insurance companies; its a rare company that actually self-insures against lawsuits.

        Now, arguments could certainly be made that insurance companies are occasionally both unethical AND gutless, but there are also some cold realities to face. Say that an insurance company determines that a rock solid defense in a given case is likely to cost them $20K and they can make the thing go away for $5K (with defense costs in the run-up generally falling under the client’s deductible).

        Now, you and I would probably agree that the moral (and possibly ethical) thing to do is to defend. But it seems to me that we now run into two additional ethical considerations:

        1) Which course of action is in the best interests of their shareholders?

        2) Which course of action is in the best interests of their customers, whose premiums are based on loss history and the insurance company’s own costs of doing business?

        I’d also point out that in the industry sectors with which I’m most closely involved, the insurance companies do far more to protect consumers than regulations and plaintiffs attorneys ever will – though I’ll certainly concede that the THREAT from those agents is one of the reasons that insurance companies are so proactive in helping clients contain risk.

  2. Let’s look for the perspective of the little guy. Let’s say the quick oil-change place drains my transmission fluid and then adds 5 quarts to the crankcase, overfilling it. That destroys my engine and transmission quickly and the repairs come to $7500. What are my options?

    If we have loser pays, I have no chance. The quick-change place will have a team of high-paid lawyers. If I somehow lose, I would be on the hook for millions the way they calculate their legal fees. If I win, they appeal and I have to pay filing fees that exceed $7500 before everything is done.

    If I have user pay, I have to pay an attorney a $1000 or more, and go to trial. If I win, the company will appeal the decision, resulting in filing fees, attorney’s fees, etc. There is no way that I come out ahead in this scenario.

    If I have our current system, when I used the quick-change oil place, I unknowingly agreed to an arbitration agreement because the US legal system no longer protects people like me. I have to fly to Washington D.C. or New York City for 4 days to meet with the company’s arbitrators (that they hired and pay) to decide if they should make their clients pay out money. They don’t and then I am out all the travel expenses.

    These are the options for the little guy. When does the revolution begin?

  3. I apologize for only skimming before asking, but I have a little break about to begin: Am I to supposed to glean from what you are saying that you are “anti-anti-SLAPP?”

  4. Which reminds me of an old joke: “What do you call a luxury cruise of trial lawyers which sinks off the Bahamas drowning all participants?” “A good start!”

      • Didn’t read about Ron and Harry when I thought of the joke. Yes, there are some ethical lawyers. Then I think of Bill and Hillary who are lawyers and the joke feels right 😉

        • Bill and Hillary are unethical people who happen to have been lawyers once. The legal profession properly rejected Bill when Arkansas made him give up his law license. (Get a Clinton apologist to explain some time why the ethical standards should be more lenient for Presidents than lawyers. It’s fun.) Hillary’s sleazy legal practices are excellent measures of her character ( as the enthusiastic support of her election to be the next President is an excellent measure of the supporter’s character). The problem with the joke is that getting rid of the unethical lawyers would not benefit society as much as losing the good ones would harm it—as Shakespeare recognized.

  5. I agree with you on most points pertaining to the contingency fee system we have currently. Loser pays will only serve to protect the big guy.

    I do wish there was a way to financially punish people who bring suits that shouldn’t be brought, but not at the expense of losing the benefits of the current system AND gaining the problems that come with the proposed system.

  6. If “loser pays” was reciprocal, then manufacturers of bad products, bad doctors, etc. would not be better off because when they lose their lawsuits, they will have to pay the expenses of the plaintiff.

    Also, I think the English Rule is more fair. Without the English Rule, winning litigants will bear the costs of their litigation. These winning litigants will in effect be subsidizing the expense of trials brought by or defended by losing litigants. Even if we agree that people who lose lawsuits bring some benefits to society (both by setting precedents and by acting as a threat against actual wrongdoers), I don’t see why winning litigants should be the ones to bear the costs of these benefits.

    • The manufacturers, bad doctors, etc. would absolutely be better off because the plaintiffs, who cannot afford the risk of losing, would not bring the case. The risk for the plaintiffs would be much higher, because they would hire an attorney who works at a minimal fee compared to the team of attorneys the defendants will throw at them. The cost of paying the plaintiff’s costs in losing trials would be much lower than the benefit they reap by the deterrent effect of the system.

      I don’t see how the winning litigants are subsidizing losing trials. Even in the current system, plaintiffs who lose pay their own court costs. Only the plaintiff’s attorney works on a contingent fee, not the trial court.

      • Wouldn’t the expected value to a plaintiff of bringing a trial or to a defendant for defending a trial depend on the merits of the case? If the plaintiff has a winning case, then it wouldn’t matter how much the defence spends on lawyers, the plaintiff will be indemnified for his or her losses and for his or her lawyers’ fees.

        Here is what I mean in terms of subsidy. A trial involves certain costs which must be incurred to resolve legal dispute (these include fees for counsel, court filing fees, etc). Under the English Rule, these costs are borne by the losing party (and possibly by broader society as well, if filing fees do not cover the full cost of court. Without the English Rule, the costs are shared between the winner and the loser. In effect, the winner must pay some of the cost of a legal dispute that the loser should not have brought against him or her in the first place (if the defendant wins, the plaintiff should not have brought the trial; if the plaintiff wins, the defendant should have settled). You could argue (and, in some cases, I would agree with you), that sometimes a litigant brings broader benefits to society by bringing a case, even if they lose. In this case, it is still not clear why the winning party should bear the costs of creating these benefits.

        • Your argument relies on the assumption that because a plaintiff loses a case the case should not have been brought to trial. There are numerous reasons a case, which “should win” (assuming you mean the case is meritorious) could lose, among them being strategic mistakes, financial advantages of the defendant, and decisions that are simply wrong. A losing case is not necessarily a frivolous one.

          The English Rule will always favor the wealthier party, because they will be the one most capable of bearing the risk.

          • If a litigant brings a dispute to trial and loses (or wins, but gets less or pays more than was offered in settlement), then they should generally have not have gone to trial because doing so left them no better off than they would have been had the trial not occurred and they incurred costs in the form of legal fees, court administration fees, etc. There may be times when it was still in the litigant’s interest to have gone to trial because the potential award multiplied by their chance of winning minus their costs was positive, but then why should the winning party bear the cost of their risk-taking? If they lost due to bad strategy on their part, they should bear the cost of their decisions. If they lost due to judicial error, then society should bear the cost, not the winning party.

            As I stated before, there may be times when it is in the societal interest that cases be brought to trial. In these cases, the winning party should still not have to subsidize part of the cost of holding the trial. Since society as a whole benefits from such trials, society should bear the costs. This is why I would support legal aid or administrative agencies bearing the plaintiff’s costs (including any costs the plaintiff must pay if he or she loses) for some civil trials. Alternatively, litigants could decide to spread the cost of indemnifying the winning party more widely by purchasing litigation insurance.

            Finally, I don’t understand why someone should be expected to bear part of the cost of a lawsuit which they win simply because they are wealthier and can afford to do so.

            • “If a litigant brings a dispute to trial and loses (or wins, but gets less or pays more than was offered in settlement), then they should generally have not have gone to trial because doing so left them no better off than they would have been had the trial not occurred and they incurred costs in the form of legal fees, court administration fees, etc.”

              You say they should generally have not…but in order for them to make this assessment they must have the benefit of reaching the decision, which requires litigating. Not all cases which should be won are won. There is a reason no attorney can ever definitively state what the outcome of a case will be, and that’s because the results are unpredictable. Even a case which seems open and shut can turn on something that happens late in the litigation.

              Finally, I don’t understand why someone should be expected to bear part of the cost of a lawsuit which they win simply because they are wealthier and can afford to do so.

              It is not simply because they are wealthier. This is not what I said. The English Rule allows for too much abuse by the wealthier party, whether it is a Defendant or a Plaintiff, because whichever one is wealthier will be able to bear the most risk. This rule not only discourages wronged plaintiffs who cannot afford to bear the costs of litigating but also encourages vexatious litigation by more affluent plaintiffs.

            • I don’t understand this statement at all—“If a litigant brings a dispute to trial and loses (or wins, but gets less or pays more than was offered in settlement), then they should generally have not have gone to trial because doing so left them no better off than they would have been had the trial not occurred and they incurred costs in the form of legal fees, court administration fees, etc.”

              That’s hindsight bias and consequentialism. A case isn’t a frivolous one because it loses, and if a frivolous case wins, by definition it isn’t frivolous. How is a litigant supposed to know whether the litigation will make them whole or not? The lawyer gives the best advice he or she can, and is obligated to give competent advice. If it’s a good faith case, that’s enough.

              • I am saying that the litigant (and sometimes society) are made worse off when they incur the expense of a court case and lose. Generally people should not do things that make themselves and others worse off. I addressed the fact that, ex ante, the results of a trial are not known (“There may be times when it was still in the litigant’s interest to have gone to trial because the potential award multiplied by their chance of winning minus their costs was positive”). In this case, I do not understand why the winning party should bear some of the costs the losing party incurred by taking the risk of going to trial.

  7. I favor a limited loser pays.

    A plaintiff in a lawsuit should be required, and only be required, to pay the defense’s legal costs under the following circumstances.

    *if the plaintiff’s allegations, taken as true and and inferences interpreted in the light most favorable to the plaintiff, does not entitle the plaintiff to all relief sought in the complaint.
    * If the plaintiff is shown to have defrauded the court.

    This will allay any fears that legitimate lawsuits would be deterred.

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