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Fee-Shifting and the American Rule

February 3, 2015
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3min read

IIn general, litigants in U.S. courts pay for their own attorneys’ fees and costs, regardless of the outcome of the case. In other words, if Joe sues Betty for breach of contract, Joe pays his attorney and Betty pays her attorney, regardless of who wins. This is known as the “American Rule”.

An exception to this American Rule is fee-shifting. Parties to a contract could have a fee-shifting provision in an agreement, and certain statutes contain fee-shifting provisions. There are over 200 federal statutes, and nearly 2,000 state statutes that include fee-shifting provisions. While some of these statutes are true fee-shifting statute, where the loser pays, many only allow for plaintiffs who prevail to recover attorneys’ fees.

The Fair Labor Standards Act is one federal statute that contains a fee-shifting provision which provides, “the court in [an FLSA] action shall, in addition to any judgment awarded to the plaintiff or plaintiffs, allow a reasonable attorney’s fee to be paid by the defendant….” Like other statutes with similar fee-shifting provisions, Congress’ intent was to encourage attorneys to take meritorious cases for plaintiffs with limited economic means. By including a fee-shifting provision, individuals who have legal claims but cannot afford to pay an attorney’s hourly fees are not foreclosed from accessing the justice system based on a lack of resources.

Likewise, attorneys are provided with an incentive to take on cases for plaintiffs with limited means because they can request that the defendants pay their attorneys’ fees. However, because cases can take years to wind their way through the court system, attorneys who litigate these types of matters must have adequate economic resources in order to keep the lights on and pay support staff until the court awards attorneys’ fees. In circumstances where this is not the case, plaintiff financing may provide attorneys with the means to see the case to the end.

Fee-shifting statutes may also provide an incentive for defendants to settle meritorious claims quickly to avoid paying extra in plaintiff’s attorneys’ fees, an argument for judicial economy in courts that are clogged with claims.

Critics of fee-shifting statutes argue that these provisions actually lead to an increase in spurious claims because plaintiffs who are not paying hourly fees have little to lose in a lawsuit. This argument is somewhat tempered by the idea that a plaintiff’s attorney is unlikely to bring a meritless case, since fees are only awarded in the event the plaintiff prevails.

Cases brought under fee-shifting statutes can produce strange results. For example, a 2014 case in which an Alabama man received $1,000 to settle his excessive force case against five police officers received media attention for the $459,000 of attorneys’ fees and costs that his attorneys received in the settlement. While cases like this may have precedential value and support public policy goals, cases like this may not do much for public perception of attorneys and the balance of justice.

Photo credit: Nicholas_T

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