Generally, each party to a dispute must bear his, her or its own litigation expenses. In other words, each party pays his or her own attorneys’ and expert witness fees, and the other costs of a lawsuit. The winner does not get to recover those fees from the loser. This system is known as the “American Rule.” There are two exceptions to the American Rule. A party can recover litigation expenses to the extent:
- Permitted by a contract signed by a party against whom litigation expenses might be awarded.
- Permitted by a statute.
In both cases, it is usually the “prevailing party” to the lawsuit who can recover litigation expenses. In other words, it is the loser who pays the winner. This “Prevailing Party Rule” results in fewer bad cases being filed and fewer “bad” defenses being asserted. In other words, the Prevailing Party Rule discourages plaintiffs from filing marginal claims and encourages defendants to settle cases that they cannot win in court.
Often, a case settles with one party paying to the other an amount equal to the anticipated litigation expenses. For example, a plaintiff might sue a defendant, forcing the defendant either to pay an attorney to defend the claims in court or pay the plaintiff in settlement. Often, it is advisable for a defendant to pay an amount equal to the anticipated defense attorneys’ fees to the plaintiff, rather than pay the defense attorneys’ fees and risk a bad decision in court. We call such settlements “Costs of Defense” settlements, because the defendant pays to the plaintiff an amount equal the expenses of defending the claims.
But what if the plaintiff has filed a frivolous lawsuit?
The American Rule discourages lawsuits where the plaintiff has a very weak case or the likely recovery is small. However, the American Rule also encourages many additional lawsuits against defendants with “deep pockets,” even where the results of a lawsuit are unpredictable. Large corporate employers and professionals with insurance are favorite targets of plaintiffs’ lawyers. Most plaintiffs can easily find a lawyer who will file a marginal case in an effort to force a settlement payment based on the “Costs of Defense.” Our courts are now full of marginal and even frivolous lawsuits, all because plaintiffs’ lawyers routinely seek settlements based on the “Costs of Defense.”
Fortunately, the United States Supreme Court recently made it easier for employers and other defendants in civil lawsuits to recover their attorney fees. In a case called Fox v. Vice, the Supreme Court held that a defendant who had defended against both frivolous and non-frivolous claims could recover that portion of its attorneys’ fees incurred in defeating the frivolous claims. Before the decision in Fox v. Vice, the federal courts had created a rule that all, not just some, of a plaintiff’s claims had to be declared frivolous before the courts would award litigation costs to the defendant.
The decision in Fox v. Vice is likely to be applied in a wide range of federal civil and discrimination rights claims. Additionally, there are other powers granted to both state and federal courts that permit the courts to sanction, fine and award fees to a party who has had to defend against frivolous, unreasonable or wanton claims. Indiana, for example, has a state statute and a trial rule on the matter.
For many years, our courts have been quite reluctant to award litigation costs against a party who has filed a frivolous claim. Our hope at the GRIFFITH LAW GROUP is that state and federal courts will take a closer look at the rationale behind the Supreme Court’s decision in Fox v. Vice, and start to weed-out the frivolous lawsuits and defenses that unfairly take from us the limited judicial resources we have to resolve legitimate disputes.