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An Analysis of Fee Shifting Based on the Margin of Victory: On Frivolous Suits, Meritorious Suits, and the Role of Rule 11

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  • Bebchuk, Lucian Arye
  • Chang, Howard F

Abstract

When plaintiffs cannot predict the outcome of litigation with certainty, neither the American rule (each litigant bears its own litigation expenses) nor the British rule (the losing litigant pays the attorneys' fees of the winning litigant) would induce optimal decisions to bring suit. Plaintiffs may bring frivolous suits when litigation costs are small relative to the amount at stake; plaintiffs may not bring meritorious suits when litigation costs are large relative to this amount. More general fee-shifting rules are based not only on the identity of the winning party but also on how strong the court perceives the case to be at the end of the trial (the "margin of victory"). We analyze when such a rule can induce plaintiffs to sue if and only if they believe their cases are sufficiently strong. We explore the implications of our analysis for the use of Federal Rule of Civil Procedure 11. Copyright 1996 by the University of Chicago.

Suggested Citation

  • Bebchuk, Lucian Arye & Chang, Howard F, 1996. "An Analysis of Fee Shifting Based on the Margin of Victory: On Frivolous Suits, Meritorious Suits, and the Role of Rule 11," The Journal of Legal Studies, University of Chicago Press, vol. 25(2), pages 371-403, June.
    • Handle: RePEc:ucp:jlstud:v:25:y:1996:i:2:p:371-403
    DOI: 10.1086/467982
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    Cited by:

    1. Michael R. Baye & Dan Kovenock & Casper G. Vries, 2005. "Comparative Analysis of Litigation Systems: An Auction-Theoretic Approach," Economic Journal, Royal Economic Society, vol. 115(505), pages 583-601, July.
    2. Miceli, Thomas J. & Stone, Michael P., 2014. "“Piggyback” lawsuits and deterrence: Can frivolous litigation improve welfare?," International Review of Law and Economics, Elsevier, vol. 39(C), pages 49-57.
    3. Giorgio Rampa & Margherita Saraceno, 2023. "Conjectures and underpricing in repeated mass disputes with heterogeneous plaintiffs," Journal of Economics, Springer, vol. 139(1), pages 1-32, June.
    4. Daniel P. Kessler & Daniel L. Rubinfeld, 2004. "Empirical Study of the Civil Justice System," NBER Working Papers 10825, National Bureau of Economic Research, Inc.
    5. Margherita Saraceno, 2018. "Justice: Greater Access, Lower Costs," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 4(2), pages 283-312, July.
    6. Cedomir GLIGORIC & Milos PAVLOVIC & Jana CVIJIC RODIC & Sanja DONCIC & Nikola VUJANOVIC, 2023. "Some Aspects of Economic Analysis of Out-of-court Settlement in the Dispute of Negative Expected Value – Case of Republic of Serbia," Business & Management Compass, University of Economics Varna, issue 1, pages 80-95.
    7. Llobet, Gerard, 2003. "Patent litigation when innovation is cumulative," International Journal of Industrial Organization, Elsevier, vol. 21(8), pages 1135-1157, October.
    8. Suarez, Javier & Llobet, Gerard, 2005. "Financing and the Protection of Innovators," CEPR Discussion Papers 4944, C.E.P.R. Discussion Papers.
    9. Ben Chen & Jose A. Rodrigues Neto, 2017. "Emotions in Civil Litigation," ANU Working Papers in Economics and Econometrics 2017-653, Australian National University, College of Business and Economics, School of Economics.
    10. Schwab, Christian & Tang, Hin-Yue Benny, 2011. "Die Steuerungswirkungen unterschiedlicher Prozesskostenregelungen: Ein Überblick zum Stand von Theorie und Empirie [The economic effects of alternative fee shifting rules: A review of the theoretical and empirical literature]," MPRA Paper 32746, University Library of Munich, Germany.
    11. Kim, Iljoong & Kim, Jaehong, 2015. "Frivolous Suits In The Infinitely-Repeated Litigation Game With Uncertainty," Hitotsubashi Journal of Economics, Hitotsubashi University, vol. 56(1), pages 21-33, June.
    12. repec:hit:hitjcm:v:56:y:2015:i:1:p:21-33 is not listed on IDEAS
    13. Dari-Mattiacci, Giuseppe & Saraceno, Margherita, 2020. "Fee shifting and accuracy in adjudication," International Review of Law and Economics, Elsevier, vol. 63(C).
    14. Giorgio Rampa & Margherita Saraceno, 2018. "Accuracy and Costs of Dispute Resolution with Heterogeneous Consumers. A Conjectural Approach to Mass Litigation," DEM Working Papers Series 155, University of Pavia, Department of Economics and Management.
    15. Antill, Samuel & Grenadier, Steven R., 2023. "Financing the litigation arms race," Journal of Financial Economics, Elsevier, vol. 149(2), pages 218-234.
    16. Daniela Marchesi, 2007. "The Rule Incentives that Rule Civil Justice," ISAE Working Papers 85, ISTAT - Italian National Institute of Statistics - (Rome, ITALY).
    17. Cary Deck & Paul Pecorino & Michael Solomon, 2024. "Litigation with negative expected value suits: An experimental analysis," Journal of Empirical Legal Studies, John Wiley & Sons, vol. 21(2), pages 244-278, June.
    18. Llobet Gerard & Suarez Javier, 2012. "Patent Litigation and the Role of Enforcement Insurance," Review of Law & Economics, De Gruyter, vol. 8(3), pages 789-821, December.
    19. Douglas Cumming, 2001. "Settlement Disputes: Evidence from a Legal Practice Perspective," European Journal of Law and Economics, Springer, vol. 11(3), pages 249-280, May.

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