Tort “Reform”: Does Governor Perry Not Understand “Loser Pays” Or Is He Trying To Defraud Texans? Part Two

Yesterday, I had a post about Governor Perry’s fraudulent attempt to sell his one way “plaintiff pays” tort reform idea as a “loser pays” system.

In that post, I talked about how the Governor’s attempt was not only fraudulent and unfair, but it also loses most of the benefits of a “loser pays” system that conservatives have been touting for years.

One of the more widely-cited studies of a “loser pays” system by conservatives is a 2008 article by Marie Gryphon of the conservative Manhattan Institute (and I’m not trying to categorize them as conservative, the first sentence in their Wikipedia page calls them conservative).

Perry’s one-sided proposal misses many of the benefits of a true “loser pays” system cited by Gryphon. In her paper, she says that we should all agree that a civil justice system have four goals:

What can we all agree that we want from our system of justice? The following four goals reflect widely shared values about how procedural rules of law should function, regardless of the underlying substantive law. This paper will evaluate the American rule and the alternatives to it on the basis of how well they serve these four very general and widely endorsed criteria. If a loser-pays reform proposal is superior to the American rule on those grounds, it should command broad support.

Compliance with the Law

 

Procedural reforms should have the effect of promoting compliance with the law. Although the merits of specific substantive legal rules might be debatable, if a body of law is generally just, the premise that procedural rules ought to promote legal compliance should be uncontroversial.

Compensation for Victims

 

All else being equal, a legal procedure is preferable to the extent that wrongfully injured victims are returned as nearly as possible to their uninjured states at the expense of the injurer. We may disagree about how costly such reparation must be before it becomes unduly punitive, but this paper will assume that full compensation for wrongful injuries is generally a desirable goal of procedural reform.

Low Transaction Costs

 

If a given procedure can uphold the law and compensate victims as well as or better than a different procedure, and do so at less cost, then it should be adopted and the alternative rejected.

Equitable Distribution of Costs

 

In general, a system that imposes heavy costs on a defendant who is not liable is inferior to one that does not do so. By the same token, a system that imposes heavy costs on a deserving plaintiff is inferior to a system that does not. Costs are equitably distributed, in this view, if they are borne by the wrongful parties or, to the extent that they are not, if they are shared by the society that benefits from the existence of a system of civil justice.

In arguing for “loser pays”, Gryphon looks at the goals and other policies and identifies five main benefits of a “loser pays” system:

1. Compliance With The Law:  Gryphon argues that a “loser pays”  system  encourage defendants to comply with the law because wrongdoers face additional exposure for their wrongs in the form of having to pay the plaintiff’s attorneys’ fees and costs.
2. Compensation For Victims:  A “loser pays” system obviously pushes us toward the goal of fully compensating victims by compensating victims for the attorneys’ fees and costs incurred in pursuing their rights.  As it stands, injured victims now are not fully compensated because they have to bear their own costs and fees.
3. Equitable Distribution Of Costs:  Again, a “loser pays” system satisfies this goal for Gryphon because attorneys’ fees and costs would be paid by the losing party instead of by wrongfully accused defendants or wrongfully injured plaintiffs.
4. Discourage Frivolous/Nuisance Lawsuits:  Gryphon argues that the tort system is burdened by nuisance lawsuits — those lawsuits where there isn’t really a case, but the plaintiff sues on the theory of “why not?” because there is a chance at winning and no disincentive to stop them from suing.  A “loser pays” system will provide some disincentive for these types of suits and limit the number of frivolous/nuisance suits being filed.
5. Encourage Meritorious Smaller Claims:  Gryphon argues that another benefit of “loser pays” is that it would encourage meritorious, smaller claims.  Under the current system, most plaintiffs simply can’t afford to litigate small cases because attorneys’ fees would exceed the amount of the case. But allowing a plaintiff to recover costs and attorneys’ fees would provide a way for plaintiffs and attorneys to prosecute these claims.  (As a parenthetical, we see this all the time in auto accident property damage cases.  When cars are totaled, insurance companies seem to routinely make offers a couple of hundred dollars less than the fair value of the cars because they know plaintiffs can’t afford to sue for the difference.  A “loser pays” system might allow victims to pursue those rights and, at the same time, encourage insurance companies to pay full value of the claims.)

Unfortunately, Governor Perry’s “plaintiffs pay” proposal misses out on almost all of these  “loser pays” benefits cited by Ms. Gryphon, one of the right’s leading spokespersons on “loser pays.”  The only thing it helps is benefit number four, discouraging frivolous/nuisance lawsuits  (and that’s a benefit that doesn’t even fit under Ms. Gryphon’s four widely-held goals of a justice system).

Perry’s “plaintiff pays” system doesn’t get any of the other benefits of a “loser pays” system as outlined by Ms. Gryphon.  In fact, Governor Perry’s proposal makes each of those worse.  A “plaintiff pay” system will undoubtedly have a chilling effect on legitimate claims.  As a result, it removes some of the incentive for businesses to compy with the law.  It also doesn’t meet the goal of fully compensating victims or equalizing distribution of costs because plaintiffs can’t recover their fees and expenses.  And finally, it doesn’t provide any way to prosecute smaller, meritorious claims.

So even judging it by the conservatives’ standards, Perry’s “plaintiff pays” proposal is a loser.