Saturday, December 23, 2006

Loser Pays?

The decision in the Enron Class Action, where Judge Harmon ordered a class action firm to pay Alliance's legal fees, is getting big play in the press. A Wall Street Journal editoral was unabashed in its praise:

One reason the tort bar files so many frivolous lawsuits is that there have been very few penalties for its legal abuses. So congratulations are due to a Texas judge who last week ordered class-action kingpin Bill Lerach to pay up for his latest wretched excess

"Wretched excess" is, at a minimum, hyperbole, but what is it that makes some commentators so crazy over a loser pays decision. Sure, the class action bar is currently the favored whipping-post for the press, and there certainly have been some excesses in that arena. But is loser pays really such a great idea?

As a defense lawyer, I should be in favor of loser pays, and there is a terrible temptation to endorse it. However, it is undoubtedly not good for society. Too many benefits have been derived from the little guy taking on the big guy. While loser pays is often proclaimed to be the savior of tort reform, it is the little guy who loses in loser pays. What individual plaintiff is going to sue corporate america if he runs the risk of paying the legal fees if he is not successful?

Plus, today's winner is often tomorrow's loser.

Update: Apparently that editorial is creating a storm of its own. Lerach, who is representing the shareholders, fired back with his own editorial, and while the WSJ printed his letter, it has apparently overlooked the fact that Alliance waived the award of legal fees in return for an agreement not to appeal the ruling.

The roundup is at the WSJ Blog, and thanks to 10b-5 Daily for alerting us to the posts.
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