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

44 Pages Posted: 24 Nov 2000 Last revised: 23 Sep 2004

See all articles by Lucian A. Bebchuk

Lucian A. Bebchuk

Harvard Law School; European Corporate Governance Institute (ECGI); National Bureau of Economic Research (NBER)

Howard F. Chang

University of Pennsylvania Law School

Multiple version iconThere are 3 versions of this paper

Date Written: May 1994

Abstract

We show that, when plaintiffs cannot predict the outcome of litigation with certainty, neither the American rule of litigation cost allocation (under which each litigant bears its own expenses) nor the British rule (under which the losing litigant pays the attorneys' fees of the winning litigant) would induce plaintiffs to make optimal decisions to bring suit. In particular, plaintiffs may bring frivolous suits when litigation costs are sufficiently small relative to the amount at stake, and plaintiffs may not bring some meritorious suits when litigation costs are sufficiently large relative to the amount at stake. We analyze the effect of more general fee-shifting rules that are based not only upon the identity of the winning party but also on how strong the court perceives the case to be at the end of the trial -- that is, the 'margin of victory.' In particular, we explore how and when one can design such a rule to induce plaintiffs to sue if and only if they believe their cases are sufficiently strong. Our analysis suggests some considerations to guide the interpretation of Federal Rule of Civil Procedure 11.

Suggested Citation

Bebchuk, Lucian A. and Chang, Howard F., An Analysis of Fee-Shifting Based on the Margin of Victory: On Frivoloussuits, Meritorious Suits and the Role of Rule 11 (May 1994). NBER Working Paper No. w4731. Available at SSRN: https://ssrn.com/abstract=250343

Lucian A. Bebchuk (Contact Author)

Harvard Law School ( email )

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National Bureau of Economic Research (NBER) ( email )

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Howard F. Chang

University of Pennsylvania Law School ( email )

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