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.