Attorneys' fees in a loser-pays system.

• Author: Eisenberg, Theodore
• Position: Symposium: The Federal Rules of Civil Procedure at 75

Attorneys' fees fuel litigation, yet little is known about fees. Fee data are rarely available in the United States or in English rule, loser-pays jurisdictions. This Article analyzes fee awards in Israel, which vests judges with discretion to award fees, with loser pays operating as a norm. The 2641 cases studied constitute nearly all cases terminated by judgment in district courts in 2005, 2006, 2011, and 2012. Given many fee denials and fees that are well below client payments to attorneys when awarded, the Israeli fee system could reasonably be characterized as being more American than English. Moreover, judges use their discretion in a manner that reflects redistributive sensitivity. Fees were awarded to prevailing parties in 72.8% of cases. Judges often exercised their discretion to protect losing litigants, especially individuals, from having to pay fees. In tort cases won by individuals against corporate defendants, corporations paid their own fees plus plaintiffs' fees in 99% of the cases; corporate defendants that prevailed in such cases paid their own fees 48% of the time. Asymmetry between plaintiffs and defendants existed. In cases with fee awards, the mean and median fee paid to prevailing plaintiffs was 110,000 shekels (NIS) and 31,000 NIS, respectively; the mean and median fee paid to prevailing defendants was 49,000 NIS and 23,000 NIS, respectively. Plaintiffs prevailed in 34.8% of cases between individuals but received 90% of the fees. Expected award amounts varied by case category and party status. Fees were significantly correlated with damages recoveries in plaintiff victories and with time on the docket. In contract and property cases, but not in tort cases, fees declined as a percent of recovery as the recovery increased.

INTRODUCTION I. PRIOR LITERATURE AND HYPOTHESES A. Rates of Fee Denials to Prevailing Parties B. Levels of Fee Awards C. Fees as a Percent of Recovery II. BACKGROUND INFORMATION ABOUT ISRAEL'S LEGAL SYSTEM A. Israel's Trial Court System B. Israel's Law on Attorneys' Fees III. Data and Descriptive Statistics A. Data and Methodology B. Descriptive Statistics IV. RESULTS A. Denials of Fee Awards 1. Case Categories 2. Plaintiff-Defendant Combinations. 3. Districts B. Amount of Fee Awards 1. Case Categories. 2. Plaintiff-Defendant Combinations. 3. Districts C. Scale Effect V. DISCUSSION A. Loser Pays or Closer to the American Rule? B. Further Perspectives on the System's Operation CONCLUSION We are in deep mourning at the premature passing of Theodore Eisenberg, the Henry Allen Mark Professor of Law and Adjunct Professor of Statistical Sciences at Cornell University Law School, who died after this Article was sent to the press. Ted was an eminent scholar and our greatly admired colleague and friend. As the forefather of quantitative legal research and the founder of the Journal of Empirical Legal Studies, Ted changed legal discourse worldwide. In the last five years of his life, he devoted research efforts to the Israeli legal system, and his studies were welcomed by the Israeli legal community, including the Israeli Supreme Court. Ted became an academic leader in Israel, inspiring numerous academics and students to follow in his footsteps. We were very fortunate to be part of this endeavor and to co-author several articles with this brilliant scholar, prolific writer, and passionate intellectual. But what we learned from Ted extends far beyond legal research. Ted represented to us exactly how one ought to live life. We were astounded by Ted's extraordinary kindness, the way he touched the lives of people, his endless wisdom, great optimism, and enormous zest for life. In the midst of the terrible grief we are now experiencing, we also feel profoundly privileged to have wonderful memories of Ted. We feel incredibly lucky to have gotten to know a person as outstanding and kind as Ted in our lifetime. This article is dedicated to his memory and to Ted's wonderful family: Lisa, Kate, Aaron, Dylan, Ollie, Annie, and Tommy Eisenberg.

INTRODUCTION

On the seventy-fifth anniversary of the Federal Rules of Civil Procedure, it is appropriate to recall the core principle of these Rules "to secure the just, speedy, and inexpensive determination" of cases. (1) The litigation expense theme pervades the Rules, (2) and the key litigation expense item is attorneys' fees, although the Rules do not specify generally applicable fee rules. The Rules, like all of litigation, nevertheless operate in the shadow of methods for paying attorneys. However, except for isolated pockets of legal activity, (3) little systematic knowledge exists of the fee patterns in the United States or other countries. In the United States, this is in part because the default American rule is that each party pays its own fees and fee amounts usually remain private. Most other countries follow the English rule, under which the losing party pays its opponents fees. In these countries, little quantitative study of fees exists.

Despite this dearth of fee information, proposals to shift from the American rule to the English rule often emerge as a way to reduce expense and questionable litigation. (4) The implications of such a shift for the operation of the Rules, and the entire litigation process, are substantial. It is therefore helpful to examine fees in a legal system, such as Israel's, in which a loser-pays norm exists. The benefits of such an examination are at least fivefold. First, systematic knowledge about actual fee practices in any jurisdiction is rare despite fees' obvious importance. Second, information about a loser-pays system's operation informs the vast majority of countries since they use such systems. Third, since loser-pays proposals often are on the U.S. reform agenda, information from Israel can illuminate how such a system might operate in the United States. Fourth, within Israel, little systematic knowledge exists about how the attorneys' fee system operates. The Israeli bar and policymakers should have a direct interest in such a study. Fifth, in Israel, judges have full discretion with regard to fee awards and denials. This judge-centered allocation system can serve as an alternative to both the American and English rules. Interest in how a judge-centered system actually functions should transcend the countries using it. Its functioning should interest countries concerned about fees and how they might be reduced, made more certain or more flexible, or made fairer.

This Article reports the results of a study of four years of attorney fee awards for nearly all district court cases litigated on the merits in Israel, a total of 2641 cases. Three outcomes are of primary interest: the patterns of fee grants and denials to winning and losing parties, the amount of fees when awarded, and the relation between the awarded fee and the client recovery in cases when plaintiffs prevailed and fees were awarded.

To summarize our findings, Israeli judges often exercised their discretion in a way that protects losing litigants, especially individuals. Israeli judges denied fees to prevailing defendants in 29% of cases and to prevailing plaintiffs in 26% of cases. In cases in which individual defendants lost, fees were denied to successful plaintiffs 31% of the time, compared with 17% denials in cases lost by corporate defendants. The fee denial rate to winning plaintiffs was lowest in tort cases and was highest for winning defendants in tort cases. Protection of individuals was common in tort cases between individual plaintiffs and corporate defendants. In non-automobile accident tort cases brought and won by individual plaintiffs, corporations had to pay their own fees plus the plaintiffs' fees 99% of the time. In cases won by the corporate defendants, the defendants had to pay their own fees 48% of the time. In one judicial district, Nazareth, individual plaintiffs were denied fees in 82% of the property cases they won against individual defendants.

The mean fee award to winning plaintiffs was 113,000 shekels (NIS) (1 NIS equals approximately $0.27) compared to 49,000 NIS for winning defendants. The median fee award to winning plaintiffs was 35,000 NIS compared with 25,000 NIS for winning defendants. Excluding tort cases, in which contingency fees are the norm for plaintiffs, these differences decrease, with the winning plaintiff median equal to 26,000 NIS and the winning defendant median equal to 25,000 NIS. Fee amounts were significantly correlated with recovery amounts and with the time a case took to resolve.

Part I of this Article reviews relevant prior literature on fee rules and describes our expectations about the results. Part II provides background information about Israel's legal system and its rules governing fees. Part III describes our study's data and our research methodology. Part IV reports our results, which are discussed in Part V.

A preliminary word on terminology may be helpful. Legal systems sometimes have different rules for amounts paid to attorneys (fees) and for other litigation expenses, which are often referred to as costs. We use the term "fees" for convenience, but the amounts we report are for the combined amounts of fees and costs.

1. PRIOR LITERATURE AND HYPOTHESES

   The theoretical literature on attorneys' fees has been reviewed elsewhere. (5) That literature supplies few consistent predictions or prescriptions, (6) and we instead focus on prior empirical results.

   1. Rates of Fee Denials to Prevailing Parties

      With the exception of our prior work on a smaller two-year Israeli sample, (7) empirical literature does not addresses the quantitative pattern of fee awards and denials in the mass of civil cases. A core motivation behind allowing fee denials is the perceived negative effect of a loser-pays rule on potential litigants with lower incomes. (8) Litigants' status as individuals, corporations, public corporations, or governmental entities can be a rough proxy for...