Loser-Pays: Or Whose "Fault" Is It Anyway: A Response to Hensler-Rowe's "Beyond 'It Just Ain't Worth It'"

Abstract

MARC I. GROSS [*] I INTRODUCTION While acknowledging the benefits of class actions, Professors Hensler and Rowe propose a fundamental change that would sound their death knell. [1] The authors urge consideration of a loser-pays provision modified from the English rule in two fundamental ways. First, a loser-pays rule would apply only to certified class actions. [2] Second, while defendants would be personally liable for any attorney fees and costs if they lost the litigation, only plaintiffs' counsel would be liable if plaintiffs lost. [3] In effect, the would eliminate consideration of whether a claim was brought in good faith, imposing instead a no-fault rule on unsuccessful counsel. The Hensler-Rowe proposal is unwise for many reasons. First, it is premised on an assumption that or nuisance class actions are widespread. The authors, however, cite no empirical support for this assumption. They rely only on anecdotal evidence provided mostly by corporate counsel. [4] In addition, the Hensler-Rowe proposal incorrectly projects that a loser-pays rule would only modestly increase costs for prosecution of any class action. [5] The authors ignore the substantial costs that counsel for both sides already must incur to prepare any complex case for trial and the adverse impact that doubling those costs would have on counsel's decision to pursue a claim. The authors also presume a high degree of prescience on the part of plaintiffs' counsel, particularly regarding uncertain areas of the law. Federal circuit courts often disagree on applicable legal standards, and along with the United States Supreme Court often issue split decisions, yet the Hensler-Rowe proposal would automatically penalize counsel even if several members of a court may have agreed with their position. Similarly, the Hensler-Rowe proposal ignores the uncertain nature of litigation, where jury verdicts for plaintiffs may be reversed on motions for judgment notwithstanding the verdict and appeals. The automatic costs-follow-the-event-rule [6] proposed by Professors Hensler and Rowe fails to account for unsuccessful cases with significant merit. In fact, if the Hensler-Rowe proposal were adopted, a substantial number of potentially meritorious claims would not be pursued at all. Moreover, attorneys who file class actions would face enormous pressure to settle prematurely rather than risk aut omatic sanctions, effectively placing counsel in conflict with the class they represent. Hensler and Rowe discuss at length alternative solutions to the perceived problem of abusive class action suits. [7] The alternatives, which involve greater judicial scrutiny of settlements and fee awards, are well-considered and warrant further consideration. Another potential solution not addressed by Hensler and Rowe is mandatory consideration of Rule 11 sanctions at the conclusion of any class action, a remedy Congress imposed on securities fraud cases in the Private Securities Litigation Reform Act of 1995 (PSLRA). [8] As discussed below, Congress, when considering the PSLRA, wrestled with the same issues considered by the authors, and reached a far less draconian resolution. Rather than radically change the landscape of class action litigation, as suggested by Hensler and Rowe, the courts should instead apply heightened standards of scrutiny for settlements and fee awards. [9] II DISCOURAGING MERITORIOUS CASES The fundamental problem with a loser-pays proposal is that it would chill counsel from pursuing cases involving potentially legitimate claims where success is uncertain. For example, the facts of a case may satisfy the legal standard of one jurisdiction, though not a second jurisdiction; in a third jurisdiction, the standard may be undecided. The Hensler-Rowe proposal also presumes that counsel can gauge accurately the strength or weakness of a claim at an early stage of the litigation without access to all of the discoverable facts. …