In many countries, the loser pays principle governs legal fees, meaning that the losing party must compensate the winning party for their attorney’s costs. This system aims to deter frivolous lawsuits by making litigants think twice before bringing weak claims. However, in the United States, the American Rule applies instead, meaning each party generally pays their own lawyer, regardless of who wins or loses.

What Is the American Rule?

Under the American Rule, litigants are responsible for their own legal fees unless a statute, contract, or court ruling states otherwise. This principle is designed to ensure that individuals can bring legitimate claims without the fear of excessive financial risk.

For example, if you sue someone and win, you don’t automatically get reimbursed for what you paid your lawyer. Likewise, if you lose, you’re not automatically responsible for the other side’s attorney fees. This differs from the English Rule, which prevails in many other countries, where the losing party is required to cover the winner’s legal costs.

Exceptions to the American Rule

Although the American Rule is the default, there are several exceptions where the prevailing party may recover attorney’s fees:

Statutory Fee Shifting – Some federal and state laws allow fee recovery in specific types of cases. Examples include:

• • Lemon Laws: If you sue under consumer protection laws for a defective vehicle and win, the manufacturer may be required to pay your legal fees.
  • Civil Rights Cases: Under laws like 42 U.S.C. § 1988, plaintiffs who win civil rights lawsuits can recover attorney’s fees from the defendant.
  • Employment Discrimination Cases: Laws like Title VII of the Civil Rights Act allow fee-shifting in discrimination claims.

Contractual Agreements – If a contract states that the losing party must pay the prevailing party’s legal fees, courts will typically enforce it. Many business contracts, leases, and loan agreements include attorney’s fee clauses.

Bad Faith Litigation – Courts have discretion to award attorney’s fees if a party acts in bad faith, files a frivolous lawsuit, or abuses the legal process. This is rare but can happen if a lawsuit is clearly meritless and intended only to harass.

Class Actions & Contingency Cases – In class action lawsuits, attorney’s fees may be awarded from the settlement fund. Similarly, in contingency fee cases (such as personal injury lawsuits), the plaintiff’s attorney takes a percentage of the winnings, so the client doesn’t pay upfront legal costs.

How the American Rule Can Be Used Against Individuals

While the American Rule makes litigation more accessible, it also allows large corporations or wealthy litigants to overwhelm individuals with lawsuits, knowing that the smaller party must pay their own legal fees regardless of the case’s outcome.

• Strategic Lawsuits Against Public Participation (SLAPPs) – Companies or powerful individuals sometimes use SLAPP lawsuits to silence critics by forcing them into costly litigation, even if the claims are weak.
• Multiplying Lawsuits – A corporation with deep pockets can file multiple lawsuits against an individual, forcing them to spend money on multiple legal defenses while the company absorbs the cost as part of its legal budget.
• Settlements Out of Fear – Many individuals and small businesses settle lawsuits not because they are guilty, but because the cost of fighting a lawsuit is too high under the American Rule.

Why Does the U.S. Use the American Rule?

The American Rule is intended to encourage access to the courts. If losing a case meant automatically paying the other side’s legal fees, many people might be afraid to pursue valid claims. This rule ensures that litigation is not just a tool for the wealthy. However, critics argue that it allows frivolous lawsuits to flourish since plaintiffs do not face the risk of paying the defendant’s attorney’s fees if they lose.

At the same time, the rule can be weaponized against smaller individuals when large corporations or wealthy parties use litigation as a tool of intimidation. While some states have anti-SLAPP laws to protect individuals, the reality is that lawsuits remain a costly burden for those without deep financial resources.

Conclusion

The American Rule is a fundamental principle of U.S. litigation, ensuring that each party bears their own legal costs unless an exception applies. While this rule makes legal action more accessible, it also means that winning a lawsuit does not guarantee you’ll recover the money you spent on legal fees. Furthermore, wealthy litigants can exploit the system to drain opponents financially through prolonged or multiple lawsuits.

Would a loser-pays system improve justice in the U.S., or would it discourage rightful claims? Let me know your thoughts!