Fee-Shifting Statutes and Compensation for Risk
55 Pages Posted: 15 Jun 2020 Last revised: 9 Jun 2021
Date Written: June 3, 2020
A law firm that enters into a contingency arrangement provides the client with more than just its attorneys’ labor. It also provides a form of financing, because the firm will be paid (if at all) only after the litigation ends; and insurance, because if the litigation results in a low recovery (or no recovery at all), the firm will absorb the direct and indirect costs of the litigation. Courts and markets routinely pay for these types of risk-bearing services through a range of mechanisms, including state fee-shifting statutes, contingent percentage fees, common-fund awards, alternative fee arrangements, and third-party litigation funding.
This Article mines those risk-compensation mechanisms for lessons about the proper interpretation of federal fee-shifting statutes. Those statutes encourage private plaintiffs to enforce a limited set of laws, including civil rights statutes, by authorizing the court to award a reasonable attorney’s fee to the prevailing party. Although a law firm cannot receive a court ordered fee shift unless its client prevails, current doctrine prohibits compensation for risk in federal fee-shifting awards. This Article argues that this prohibition should be eliminated, and to that end, it evaluates specific methods of including compensation for risk in federal fee-shifting awards.
Keywords: civil procedure, federal courts, access to justice, class actions, litigation finance
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