Congratulations! You May Already Be a Loser!

Recently, Governor Pence’s administration, through Senator Mike Delph (R – Carmel) proposed Senate Bill 88, which would make Indiana a “loser pays” state in civil courts.  If you haven’t heard the term before, a “loser pays” system is one in which attorney fees are paid by the side that loses.  Thus, the catchy title.

This would be a significant change.  Indiana, along with every other state, generally operates under the American Rule for attorney fees.  This system holds that everybody pays for his or her own attorney.  It tends to view attorney fees as part of the transactional cost of going to court, not as punishment.

Proponents of loser Pays argue that the plague of frivolous lawsuits would grind to a halt if sue-happy plaintiffs were at risk of paying the other side’s attorney fees.  Pro-business groups have lobbied for loser Pays as the nuclear option against ambulance chasers for years. But beyond a general sense that crazy lawsuits are crazy, and we all wish they would go away, even supporters haven’t pushed hard for a loser pays system recently.

Not surprisingly the Indiana Trial Lawyers Association (ITLA) is shocked – shocked I tell you – that the Pence administration would even consider such a law.  With a flare for overstatement worthy of Don King, the ITLA’s executive director linked a loser pays system with the American Revolution: “The trial lawyers support the ‘American Rule’, we won that fight in the 1700s.” While I don’t recall my history teacher linking the Battle of Bunker Hill to the issue of attorney fees in slip-and-fall cases, it is called the American Rule for a reason.  It is a key difference between English and American Courts.

Currently, Indiana law allows a judge to make any party bringing frivolous claims pay the other side’s attorney but does not generally require it.  SB 88 would require the assignment of attorney fees to the losing party in all civil matters.

While I agree that a loser pays structure would cut down on frivolous lawsuits, it would also eliminate many legitimate ones.  Suppose that my car is damaged in an accident.  The accident report is unclear as to who is at fault.  I have a witness who supports my case, and the other driver has a witness who tends to support his version of events.  While neither of us are dirty stinking liars, we both do remember the facts a little differently.  The other driver has only a small scratch on his vehicle, but my car is totaled. My insurance paid me what my car was worth, but I’m still out a $1,000 deductible.  I can’t get his insurance company to return my calls, so I decide to take him to small claims court for the cost of my deductible when I lost my precious 1972 Fiat Spyder (original orange).

I’m not one of those people who would file a frivolous lawsuit — but what if I lose?

The day of the hearing, the other driver comes in with a lawyer. After hearing both witnesses, the judge says: “I don’t think that anyone hit anyone intentionally, and it’s a difficult case to decide.”  But he rules against me.  I don’t get my $1,000 paid.

Under the current law, both sides would walk out of court and move on with their lives.  I am out a small filing fee and my time.  If SB 88 becomes law, the judge’s decision would be followed by: “Mr. Other Driver’s Lawyer, how much do you have in this case?”  At which point Mr. Other Driver’s Lawyer would hand the judge a statement charging $1,200 for his involvement in the case and his day in small claims court.  That $1,200 is mine to pay.  So even though the judge thought the evidence was close, and that it was a difficult case to decide, I not only don’t get my $1,000 deductible paid, I’m out another $1,200 bones.  By no reasonable person’s definition was my lawsuit “frivolous.”  I just didn’t win.

Behind the fog and fervor of the frivolous lawsuit label are many cases where the facts are cloudy and the law is difficult to apply.  Any attorney who has had to roll up his sleeves and fight back a stress headache to apply the square pegs of facts to the round holes of law knows this instinctively.  The troubling part of a loser pays system is this: it brands every lost case as a frivolous one.  No longer can two reasonable people agree to disagree and let the judge decide who’s right.  Under loser pays, one is labeled “unreasonable.”

Most civil cases aren’t groan-inducing personal injury anecdotes, or fodder for interesting water cooler urban legends.  Even the McDonald’s Coffee Lady’s legend is questionable.  Most are honest people unable to reach an agreement, who need a judge to step in and do it for them.  Most do their best to abide by the decisions they don’t agree with.

There are plenty of other unanswered questions about the implementation of SB 88 as well.  How would it apply in family law cases, like divorces?  How would it impact contract law? Would attorney fees for losing a lawsuit be dischargeable in bankruptcy?

First, I do not think that this bill will become law.  Because SB 88 is so short, and leaves so many of these questions unanswered, I believe it’s a thought experiment, not a serious attempt at legislation.  More like a flare sent up to garner public attention and promote discussion.

However, I expect that another bill, also in front of the General Assembly’s Senate Judiciary Committee, might just make the cut.  Senate Bill 178 doesn’t go quite as far as SB 88.  Instead of requiring attorney fees be paid by all losers in all cases, it only removes part of the court’s discretion, so that if a judge finds that a lawsuit is frivolous – or “unreasonable, vexatious, or groundless” – it must award attorney fees and other costs of litigation.  In my opinion, this is a far more balanced approach.  It still will make those pursuing questionable lawsuits think twice about the consequences, without penalizing everyone who is unsuccessful in court.