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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

University of Southern California Law Center Working Paper 94-3

Posted: 7 Jul 1999  

Lucian A. Bebchuk

Harvard Law School; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR) and European Corporate Governance Institute (ECGI)

Howard F. Chang

University of Pennsylvania Law School

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Abstract

This paper shows 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. This paper analyzes 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, this paper explores 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. The analysis suggests some considerations to guide the interpretation of Federal Rule of Civil Procedure 11.

JEL Classification: K4, K0

Suggested Citation

Bebchuk, Lucian A. and Chang, Howard F., An Analysis of Fee-Shifting Based on the Margin of Victory: On Frivolous Suits, Meritorious Suits, and the Role of Rule 11. University of Southern California Law Center Working Paper 94-3. Available at SSRN: https://ssrn.com/abstract=5852

Lucian A. Bebchuk

Harvard Law School ( email )

Cambridge, MA 02138
United States
617-495-3138 (Phone)
617-812-0554 (Fax)

HOME PAGE: http://www.law.harvard.edu/faculty/bebchuk/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR) and European Corporate Governance Institute (ECGI)

Howard F. Chang (Contact Author)

University of Pennsylvania Law School ( email )

3501 Sansom Street
Philadelphia, PA 19104
United States
215-573-8296 (Phone)
215-573-2025 (Fax)

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