Under the English Rule, the prevailing party is entitled to recover its legal fees from its adversary. In

contrast, under the American Rule, each party generally bears its own legal fees, win or lose. This is the

rule in New York. The question thus posed is what impact these rules regarding recovery of legal fees

have upon the mediation and settlement of commercial litigation and contract disputes.

Economic theory suggests that the English rule discourages weaker claims, lowers the likelihood of

settlement, and increases litigation costs because cases that are tried entail greater legal fees. But

theory often does not translate into fact, and the precise impact of the prevailing party rule remains

subject to debate.

Most studies have focused upon what occurred in the State of Florida between 1980 and 1985, when

the English Rule was adopted solely in medical malpractice cases. Hughes and Snyder (1990 and 1995)

concluded that under a fee-shifting regime, plaintiffs were more likely to win at trial, recover higher

judgments, and secure larger settlements. They also opined that the English Rule decreased the

likelihood of settlement, and increased the likelihood of trial.

Coincidentally, the Florida experiment in fee-shifting was prompted by the medical profession, but five

years later, it was the same Florida Medical Association that pressed for its repeal, citing the substantial

rise in legal expenditures that had occurred between 1980 and 1985.

In a more recent analysis by Holland and Yoon (2/11/15), the conclusions initially reported by Hughes

and Snyder appear to be more nuanced. For example, settlement amounts do increase under the fee-

shifting rule, especially settlements at the higher range. However, it was inconclusive whether either

the size of judgments or the amount of legal fees increased. Even these conclusions remain debatable,

because of the short time period the Florida fee-shifting rule was in effect, and because of sample

solution issues inherent in the analysis. It is also questionable how the Florida experience would

translate to different jurisdictions and different types of cases. For example, a commercial litigation

involving a contract dispute pending in the metropolitan New York area, is significantly different than a

medical malpractice case pending in Tallahassee, Florida.

Nonetheless, the fee-shifting rule is clearly relevant to the successful mediation and settlement of

commercial litigation cases in which the underlying contract contains a provision entitling the prevailing

party to recover its legal fees. The same is true of cases based on a statute which permits a prevailing

plaintiff to recover its counsel fees. Both the client decision-maker and the mediator in such cases must

take the fee-shifting provision into account, and engage in a deliberative process that breaks down such

a case into its two components parts – liability on the merits, and the legal fees necessary to litigate the

merits to a conclusion.