Matthew J. Wilson, Failed Attempt to Undermine the Third Wave: Attorney Fee Shifting Movement in Japan

• Citation: Vol. 19 No. 3
• Publication year: 2005
• topic: Civil Procedure

FAILED ATTEMPT TO UNDERMINE THE THIRD WAVE: ATTORNEY FEE SHIFTING MOVEMENT IN JAPAN

Matthew J. Wilson

TABLE OF CONTENTS

I. AMERICAN EXPERIENCE IS HELPFUL TO ATTORNEY FEE SHIFTING

DEBATE IN JAPAN ............................................................................. 1462

II. THE JAPANESE DEBATE: WHETHER TO RESTRUCTURE THE

ATTORNEY FEE SYSTEM ................................................................... 1465

III. PROBLEMS WITH ADOPTING THE "LOSER PAYS" RULE IN JAPAN ..... 1469

A. Chilling Litigation and Discouraging Meritorious Claims ...... 1470

B. Reduced Access to the Court System for Weaker Parties ......... 1472

C. Significant Hidden Costs Generated by Fee Shifting ............... 1474

D. Unique Challenges Presented by the Japanese Litigation

System ....................................................................................... 1478

E. American Experimentation with Two-Way "Loser Pays" Attorney Fee Shifting Statutes Provides a Negative Outlook ... 1480

IV. ENCOURAGING ACCESS TO JUSTICE IN JAPAN: ONE-WAY

ATTORNEY'S FEES PROVISIONS ........................................................ 1481

V. TWO STEPS FORWARD, NO STEPS BACK: REJECTING "LOSER

PAYS" ............................................................................................... 1488

FAILED ATTEMPT TO UNDERMINE THE THIRD WAVE: ATTORNEY FEE SHIFTING MOVEMENT IN JAPAN

Matthew J. Wilson^*

Monumental judicial restructuring began sweeping across Japan in the late

1990s. Except for the Meiji Revolution (1868-1899) and Post-World War II (1945-1952) reconstruction eras,¹the Japanese legal system has never before seen this degree of extensive reform. A maturing Japanese economy combined with globalization and foreign pressure caused Japan to outgrow its traditional commercial dispute resolution system.²As a result, Japan initiated this "third wave" of modern judicial reform.³

While scholars have long debated the hesitancy of the Japanese to litigate, systematic barriers have historically played a substantial role in discouraging the use of the judiciary.⁴Institutional impediments to justice have included excessive litigation filing fees,⁵lengthy and non-congruous trials,⁶antiquated procedural rules,⁷lack of discovery,⁸low damages awards,⁹limited private causes of action,¹⁰and an insufficient number of judges¹¹and attorneys,¹²particularly outside of metropolitan regions. These obstacles have effectively reduced the number of lawsuits instituted each year in Japan.¹³

As part of its efforts to recover from the economic disappointments of the

1990s, Japan has taken monumental steps to remove or to alleviate many of these systematic barriers to justice.¹⁴In 1996, the Code of Civil Procedure was revised for the first time in seventy years to eliminate court procedures outdated for contemporary society and alleviate peoples' frustration with a litigation system characterized as too time-consuming, too costly, and too user- unfriendly.¹⁵In 1999, Japan established the Justice System Reform Council ("JSRC") to "consider fundamental measures necessary for justice reform and justice infrastructure arrangement by defining the role of the Japanese administration of justice in the twenty-first century."¹⁶The JSRC's agenda included "the realization of a more accessible and user-friendly justice system, public participation in the justice system, redefinition of the legal profession, and reinforcement of its function."¹⁷This agenda was supported by the theory that deregulation in Japan would reduce government intervention in many aspects of life; therefore, the public must be afforded better access to the judicial system and legal profession to ensure its protection.¹⁸

With these objectives in mind, the JSRC suggested, and the Diet of Japan¹⁹passed, monumental reforms to reduce or curb structural barriers to the courts. These reforms include creating a jury system for serious criminal trials, reducing litigation filing fees, taking steps to reduce extensive court delays, revolutionizing legal education with the creation of 68 professional law schools modeled after their U.S. counterparts,²⁰revising codes and court rules, further opening its legal market to foreign attorneys, and instituting many other systematic improvements.²¹The judicial reform movement has not stopped there. Politicians and citizens alike continue to engage in heated political debates about further revisions to the legal system, including the creation of constitutional courts.²²On their face, these reforms have generated considerable interest among the populous and ultimately should achieve greater access, awareness, and transparency to the judicial system. Satoru Shinomiya, a Waseda Law School professor, observed that although Japan is a democracy, the "Japanese have not been given the chance to participate in the justice system." These various legal reforms have finally put "the missing piece of the puzzle to Japanese democracy" in place.²³

Despite wide sweeping measures to open the judicial system and simplify court use, a major piece of proposed legislation was primed to undermine these reforms. For decades, Japanese litigants have shouldered their own attorney's fees. Generally, such a concept is based on the presumption that everyone should have equal access to the judicial system and the loser of a lawsuit should not be penalized or forced to pay the winner's attorney's fees.²⁴In

November 2000, the JSRC advocated restructuring the established attorney fee system by adopting a mandatory²⁵two-way "loser pays" attorney fee shifting mechanism, whereby the party losing a lawsuit would be forced to pay the prevailing party's attorney's fees as part of the final judgment.²⁶The potentially epic ramifications of this proposal ran counter to the philosophy underlying the "third wave" of judicial reform. After taking "three steps forward" towards improved access to the courts, the adoption of this measure would likely have set the process "two steps back."

This paper examines the debate surrounding the adoption of a two-way "loser pays" attorney fee shifting system in Japan. In the mid-1990s, this same debate flared up in the United States. Relying upon the U.S. experience and parallels between the U.S. and Japanese situations, this paper also provides a comparative examination of the dangers behind adopting a "loser pays" fee shifting system and the limitations that such a system would impose upon prospective litigants in Japan. Finally, this paper proposes a solution consistent with Japan's movement for improved court access and comprehensive use of the judicial system.²⁷

I. AMERICAN EXPERIENCE IS HELPFUL TO ATTORNEY FEE SHIFTING DEBATE IN JAPAN

The traditional judicial axiom whereby parties bear their own attorney's fees and litigation costs is commonly known as the "American Rule."²⁸

Absent a pre-dispute contractual agreement stipulating to attorney's fees or specific statutory authority allowing for fee shifting, each party pays its own attorney's fees pursuant to the American Rule.²⁹Because Japan and the United States are virtually alone among modern legal systems in not automatically holding losing litigants responsible for at least some portion of the winning party's attorney's fees, this rule might be referred to as the "American- Japanese Rule."³⁰Conversely, the judicial requirement mandating that an unsuccessful litigant pay its opponent's legal fees is commonly known as the

"English Rule," "loser pays" rule, or "two-way" rule.³¹Such fee shifting statutes may be designed to automatically penalize the loser of a suit or vest the courts with discretion to assess the penalty.³²

While the American Rule dates back to the eighteenth century, numerous exceptions to this rule started appearing in America around 1950 on both the federal and state levels.³³Except in the state of Alaska, these exceptions did not typically take the form of general "loser pays" liability for attorney's fees.³⁴Several minor exceptions to the general rule exist in Japan as well, but not to the extent seen in the United States.³⁵

Although the absoluteness of the American Rule has diminished over time, it still remains the benchmark of U.S. litigation.³⁶In 1967, the U.S. Supreme Court voiced its continuing support for the American Rule stating:

[S]ince litigation is at best uncertain one should not be penalized for merely defending or prosecuting a lawsuit, and . . . the poor might be unjustly discouraged from instituting actions to vindicate their rights if the penalty for losing included the fees of their opponents' counsel. . . . Also, the time, expense, and difficulties of proof inherent in litigating the question of what constitutes reasonable attorney's fees would pose substantial burdens for judicial administration.³⁷

Recognition of the American Rule continues to this day. Absent a binding agreement or statute to the contrary, litigants will bear their own fees and costs.³⁸

The "tort reform" and "competitiveness" movements in the United States during the 1980s and 1990s saw a new attack on the American Rule spearheaded by powerful business interests.³⁹This movement called on state and federal legislative bodies to replace it with the English "loser pays" rule.⁴⁰

In 1994, the Republicans swept the congressional elections based on their "Contract with America." ⁴¹One of the major planks of the Contract with America was abandonment of the American Rule in favor of the "loser pays" rule.⁴²The major impetus behind "loser pays" fee shifting was concern for excessive litigation and unfounded claims.⁴³The Contract with America promised to "stop excessive legal claims, frivolous lawsuits, and overzealous lawyers."⁴⁴

Several other grounds were raised in support of the "loser pays" rule.⁴⁵

First, using the assumption that litigants who are wronged always prevail in litigation, proponents advocated that two-way fee-shifting provisions would "fairly" award winners the expenses necessary to vindicate their...