Tort Reform

Loser-pays is winning at the state level.

Although Congress failed to pass loser-pays tort reform designed to reduce the number of frivolous lawsuits, similar legislation is going ahead at the state level. Oklahoma passed a loser-pays measure in late May, and Oregon followed suit in July. Delaware and New Jersey are considering similar legislation.

The Oregon bill—which makes summary judgment easier and requires loser-pays in the instance of litigant misconduct—will become law in September. (See "Civil Suits," June.)

The Oklahoma law makes the party who refuses a reasonable settlement liable for the court costs and attorney fees of the prevailing side in a civil case. It also caps punitive damages by limiting awards to $100,000 when the defendant is found guilty of acting with reckless disregard and $500,000 when acting with malice.

Although Oklahoma is not the first state to pass loser-pays—Alaska has had the system for decades—the state's geographic centrality and relatively high level of litigation make it the first significant loser-pays system in America, says Walter Olson, author of The Litigation Explosion and a proponent of loser-pays. The Oregon law, while not as wide in scope as Oklahoma's, is also an important experiment, says Olson.

The Delaware bill would award the prevailing party in all civil actions reasonable attorney fees, while the New Jersey bill would do the same for suits declared frivolous by the court. Sponsors of the Delaware and New Jersey legislation say those bills will come up for votes in 1996.

The loser-pays momentum is likely to continue. For instance, the Alliance to Revitalize California—a consortium of consumer and business leaders—is campaigning to place an initiative for a loser-pays system in securities class-action suits on the state ballot there next March.