John Steele Gordon offered a Hillsdale College audience earlier this year some economic history lessons, as captured in the latest Imprimis. One of those lessons helps explains a key problem with the American legal system.
[I]f Jefferson’s decimal coinage concept was a good idea that quickly spread around the world, another idea that developed here at that time was lousy: the so-called American Rule, whereby each side in a civil legal case pays its own court costs regardless of outcome. This was different from the English system where the loser has to pay the court costs of both sides.
The American Rule came about as what might be called a deadbeat’s relief act. The Treaty of Paris (which ended the American Revolution) stipulated that British creditors could sue in American courts in order to collect debts owed them by people who were now American citizens. To make it less likely that they would do so, state legislatures passed the American Rule. With the British merchant stuck paying his own court costs, he had little incentive to go to court unless the debt was considerable.
The American Rule was a relatively minor anomaly in our legal system until the mid-20th century. But since then, as lawyers’ ethics changed and they became much more active in seeking cases, the American Rule has proved an engine of litigation. For every malpractice case filed in 1960, for instance, 300 are filed today. In practice, the American Rule has become an open invitation, frequently accepted, to legal extortion: “Pay us $25,000 to go away or spend $250,000 to defend yourself successfully in court. Your choice.”
Trial lawyers defend the American Rule fiercely. They also make more political contributions, mostly to Democrats, than any other set of donors except labor unions. One of their main arguments for the status quo is that the vast number of lawsuits from which they profit so handsomely force doctors, manufacturers, and others to be more careful than they otherwise might be. Private lawsuits, these lawyers maintain, police the public marketplace by going after bad guys so the government doesn’t have to—a curious assertion, given that policing the marketplace has long been considered a quintessential function of government.