Right now, if someone were to sue you, the bottom line is that it would cost you money. It wouldn’t matter if you were innocent – the case could be groundless or even ridiculous – it would still cost you money. On the other hand, it cost nothing for the average person to threaten a lawsuit or for a lawyer to pursue a lawsuit if they have extra time on their hands. Because of what is called the American Rule upon which our legal system is based, those engaged in lawsuits pay their own expenses. In other words, even if you win, you still have to pay the lawyer.
Because it costs nothing to threaten a lawsuit, this results in a kind of legalized extortion. An example might help to illustrate the point: imagine some person A who threatens to file a lawsuit against person B unless he gets $1,000 from person B. Person B is faced with a choice: will their lawyer charge them more than a $1,000 to defend them. If they choose to go to court and lose, they are out of pocket $1,000 plus their lawyer fees, but even if they win, they still have to pay the lawyer’s fees which are likely to amount to much more than $1,000. The choice is really no choice at all. It is in B’s best interest to pay the $1,000, and it is in person A’s best interest to keep bringing threats and lawsuits against other people given that each one earns him some cash.
What the American Rule encourages is bullying. These frivolous lawsuits have forced American companies to spend time and money which might otherwise have gone towards increasing productivity. Instead, these companies are forced to pay handouts to people so as to keep from having to hire out lawyers who will cost more than the settlement.
The solution to this dilemma is simple: the loser pays their legal expenses + reasonable legal expenses for the winner. This would discourage people from suing unless they were sure that they would win, and would make sure that those falsely accused are not punished even after they have cleared their name. We urge congress to enact legislation to this effect.
Some people might suggest that our proposal will make it more expensive for the poor to file lawsuits. Our answer is that our proposal will make it more expensive for everyone who loses a lawsuit and less expensive for everyone who wins. At the end of the day, there are legal costs involved in a lawsuit and we reject the idea that the loser and the winner should share these costs. In addition, if a person with a low-income has a strong case, our solution provides an additional financial incentive for all of these trial lawyers that have ads on TV to represent the poor on a pro bono basis.