Abstract
The American Rule, creating a presumption against attorney-fee awards, is axiomatic in litigation in United States’ courts. Established by the very early U.S. Supreme Court case of Arcambel v. Wiseman in 1796, the rule rejected the British tradition of a “loser-pays” system, in which the losing party pays all parties’ attorney fees and litigation costs. While the Court’s reasoning for the rules creation is murky, later decisions have justified it on various grounds. Critics of the American Rule argue that the rule encourages the assertion of unmeritorious claims and defenses and fails to sufficiently encourage the settlement of those that are meritorious. The rationale notwithstanding, several long-established exceptions to the American Rule are generally accepted: attorney fees are generally awarded when allocated by contract or when expressly authorized by statute or common law.
In the last few decades, however, states and administrative agencies have made additional modifications to the American Rule, sometimes expanding its scope and other times limiting it. Several of these modifications are of particular note for businesses. This article examines the legacy and creation of the American Rule, as well as its established historical exceptions, and then examines and critiques recent innovations affecting the American Rule in modern litigation.
First, governmental agencies are empowering private litigants and attorneys to enforce regulations against businesses by using the lure of attorney fees to shift the legal costs to the private sector. Second, contractual provisions notwithstanding, states are limiting the scope of attorney-fee awards. Third, many courts have liberalized the award of “actual” attorney fees in lieu of requiring a showing of “reasonableness.”
The endless tinkering with the American Rule evidences a broad dissatisfaction with the rule itself, the policies it promotes and its capricious results. The questions asked about the rule should be welcome, but the recent deviations from the rule affecting businesses may result in imbalances that must be rectified.