Loser Pays: A commentary by Mark Wolfe

The Alabama legislature is considering passing a law that will require the loser in all civil actions to pay the other side's attorney fees. (SB 1 126852-1). I am an attorney who handles civil litigation claims for individuals and small businesses against insurance companies. I am also a small business owner who pays my fair share in taxes and insurance premiums. Maybe to the surprise of many, I have been a proponent of a loser pay concept for many years. We win many more cases than we lose and conceptually many of my clients would benefit from such a law. Such a law would also make it much more economical for many of my clients with smaller claims or cases to pursue the matter through Court if they could recover the attorney fees. For example, day in and day out I have insurance adjusters say something like, "Well yes Mark, the property damage claim is probably really worth $15,000 but your client will have to pay you and the expenses of Court, so we’re only going to offer $9,000." This common occurrence economically forces many insurance claimants to have to settle for less than they truly deserve because the attorney fees and court costs to battle the insurance company will financially eviscerate their victory. For this reason, I think a well conceived loser pay bill could be beneficial for individuals and small businesses in Alabama.

However, the current proposed bill as has too many problems and issues. As the bill is currently written, it will not achieve its desired effect to curtail frivolous lawsuits, but rather I believe it will result in even more litigation and further burden our all ready strained judicial system. However, before addressing why I think that will happen, I want to point out that we already have several laws in place that help prevent frivolous litigation in Alabama. Alabama Rule of Civil Procedure 11 allows for sanctions and the award of attorney fees for pleadings or motions filed without "good ground[s] to support it." Alabama Rule of Civil procedure 37(a)(1)(4) and 37(c) provide an avenue to recover expenses and attorney fees to parties for the opposition’s inappropriate pleadings or motions. Alabama Rule of Civil Procedure 68 allows a party to a civil lawsuit to shift the costs of litigation to the opposing party via a pleading known as an Offer of Judgment. In addition, to help curb frivolous medical malpractice actions we have Ala Code § 6-5-551, which is specifically intended to thwart the filing of an unsubstantiated medical malpractice case. We also have in place various evidentiary laws that make it difficult, if not impossible, to file a frivolous products liability lawsuit. So we do already have in place laws and procedures to prevent frivolous lawsuits. The other thing to keep in mind is that most civil cases end up in Court because there is a legitimate dispute between the parties that requires the assistance of a jury to resolve. In our office it is very rare for us to just "up and file a lawsuit" without at least exploring and discussing a pre-litigation resolution. However, sometimes parties have a differing view of "facts." Or, in a contract dispute matter or a case involving insurance polices, the parties have a differing view of the legal application of sometimes very complex terms to a particular fact situation. (Have you tried to read a copy of any of your insurance policies!) For example, in a homeowner claim, the insurance company may believe the "mold" pre-dated a water leak and therefore they believe the claim is excluded under the "mold exclusion" portion of the policy. The homeowner may believe the mold is a result of a water leak and therefore it should be covered. I.e, a legitimate dispute that may need the help of a jury to resolve. If a case is a "close call" do we really want to penalize the loser? What do you think will happen to our insurance premiums if insurance companies lose too many cases and have to pay attorney fees in all those cases?

The current proposed "Loser Pay" bill as written is too broad and open to way too many subsequent secondary issues that will simply create too many secondary issues which will require protracted litigation. Also, it will lend itself to some very outrageous and unfair results. The current bill reads in part as follows: [I]n all civil actions, the court shall award attorney’s fees as a part of the cost to the prevailing party; and to provide that a prevailing party may bring an action against another party for abuse of process arising in any part on the same facts in the action in which the attorney’s fees were awarded; however, the prevailing party may not recover the same attorney’s fees twice." OK, this sounds and easy on a first read, but let’s look at this closely. What does it mean by "prevailing party?" Are we simply looking at "winning or losing?" (Emphasis added) If so, how are we going to define a win or a loss? I sue a deadbeat Dad for a client for back child support claiming he owes $4,750 in back child support, at the trial he produces a check receipt for a $250.00 payment that my client either didn’t receive or forgot she received. The judge enters an award for my client in the amount of $4,500.00. Who has "prevailed?" If we go by a simple "win or loss" scenario then my client "won." But deadbeat Dad’s attorney will say no he "prevailed" because we did not "win" everything that was claimed. Now we have lawyers fighting over their fees and we all can imagine how litigious that situation may be. An attorney for a landlord goes to an eviction hearing but forgets to bring a properly authenticated lease for admission into evidence at the trial. Case dismissed with leave to re-file. Can the tenet’s attorney now recover attorney fees against the landlord because she "prevailed." What if the tenet’s lawyer was a quasi-government attorney provided free through Legal Services Corporation? A garnishment action is a "civil action." Will companies who are trying to secure a judgment repayment through a garnishment action now have to pay if the subject debtor of the garnishment action is no longer an employee of the garnishee? The dispute scenarios surrounding just the "prevailing party" language in this proposed bill are endless. Every dispute will require further litigation ad nauseam as attorneys argue about who really prevailed in a civil action.

Now let’s look at "attorney’s fees." Note this bill does not say "reasonable attorney’s fees" rather just "attorney’s fees." What if my fee contract for my client on an insurance claim is based upon a contingency fee? We win, should the other side now have to pay the full amount of my contingency fee? I guarantee the first time the insurance company has to pay the other side’s attorney the full amount of the contingency fee they are going to screaming bloody murder. OK., let’s say we agree to a "reasonable attorney fee standard." Now we’re going to have all kinds of disputes as to "what is a reasonable fee" for the legal services provided? If I’m the attorney for the "prevailing party" you darn well know I’m going to be arguing that my fees were reasonable while the attorney for the opponent is going to be screaming that my fees were outrageous and unconscionable! Here we go, more disputes more protracted litigation.

Now let’s add one more layer of complexity to this issue. Let’s suppose we can come to some meaningful and workable concepts regarding "prevailing party" and "attorney’s fees." What happens to the rules and laws mentioned above that we already have in place to stop and prohibit frivolous lawsuits and that already exist to help shift the burden of litigation costs in favor of the prevailing party? If I’m the attorney who has lost and the other side did not utilize or avail themselves of those other rules, I’m now going to be arguing that my client should not to have pay the full measure of the claimed legal fees from the other side because they could have mitigated there fees by using those other rules. More complexities, more issues and more litigation.

Finally, this proposal as written will immediately result in an untold number of lawsuits being filed that may not need to be filed. As mentioned above, in almost all civil matters lawyers try to resolve a matter with the other party before filing a lawsuit. We tell all of our clients, that lawsuits are like surgery, you really don’t want to do it unless it’s absolutely necessary. The simple fact is a fair pre-litigation resolution of a civil matter is in everyone’s best interest. The proposed bill says, "This act shall become effective on the first day of the third month following its passage and approval by the Governor, or its otherwise becoming law." Again, very poorly written and conceived. I assume that it would not apply to those civil cases already pending but only those civil lawsuits filed after the law is enacted. To try and have it apply to those cases already pending would open up all kinds of legal challenges to its validity because it would just not be fair or constitutional, to change the rules "in the middle of the game." So here I am as an attorney with hundreds of claims pending for insurance claimants or businesses that we are trying to resolve without need of litigation and now I’m told this law will be effective three months after enacted. Based upon 24 years of experience I know the vast majority of these matters will resolve without having to file a lawsuit, but now with the "Loser Pay" staring my clients in the face, I’m going to have to move these claims into litigation in advance of the "Loser Pay" deadline. I’m just one attorney, can you imagine the nightmare for our Court system if 10,000 lawyers have to do the same thing. In a three month period, our Courts could be swamped with well over 100,000 lawsuits! The majority of which may never have needed to be filed but for the enactment of this law.

In closing, let me again say, conceptually I am not opposed to a "loser pay" law. Other States have adopted this concept but have taken the time to work through the myriad of secondary issues discussed above. It is clear that the intent of this lawsuit is to stop frivolous lawsuits and that is a good goal. But has anyone asked the Judges in our State Courts if we have a real problem in this State with frivolous lawsuits? I think their answer would be "no" because we already have in place effective rules and regulations to deter the filing of frivolous lawsuits. So if we don’t have a problem with frivolous lawsuits, then why is our legislature in such a rush to pound us with a poorly conceived and unworkable law? Let’s take a deep breath and really think about how we can enact a truly meaningful "Loser Pay" law that does not end up punishing those who need our Courts for the resolution of legitimate dispute.

Mark Wolfe, Advocate for Insurance Claimants

mark@bfw-lawyers.com