An End Around “The American Rule”?

Update (October 6, 2017): We did not exactly predict that Associated Bank would lose its bid for its attorneys’ fees in the original post, below, but we came pretty close.

The Bank’s attempted “end-around” the American Rule through a clever use of a request to admit failed this week. The maneuver works like this (1) Seek an admission: “Admit that you are going to lose this lawsuit,” (which will obviously be denied by the adversary) and then, having won the case on a motion for summary judgment; (2) Seek attorneys’ fees under Fed. R. Civ. P. 37(c)(2) (providing the possibility for award of attorneys’ fees for the “untrue denial”)).

The analysis is set out in a well-reasoned order by U.S. Mag. Judge Steven E. Rau (D. Minn.).

Original post (August 5, 2017): In our legal system, as all lawyers know, the so-called “American Rule,” generally applies. The American Rule is that each litigant pays for its own lawyers. This contrasts with “the English Rule” in which “loser pays,” also called “fee shifting.”

The implication infuriates many Americans. We can be sued, can be blameless, can defend the case at great expense, can win, but the other side does not have to pay our lawyers’ bills?

As a general matter, like it or not, this is how our system normally works.

We recently noted a motion for award of attorneys’ fees (that is, fee-shifting) that attempts to back into “the English Rule” in a clever (though maybe too clever) way.

As receiver seeking to recover money for fraud victims, R.J. Zayed sued Associated Bank, seeking to place liability on the bank for its role as the banker for convicted Ponzi scheme swindlers. After a few years of costly litigation (up to the U.S. Court of Appeals and back down), Associated Bank won the case on a motion for summary judgment.

How, you might ask, could Associated Bank recover the attorneys’ fees that it had to pay for its sweet but dreadfully expensive vindication? This would run contrary to the American Rule.

Here’s what the bank did: Associated Bank served “Requests to Admit” to its adversary during discovery, in effect saying, “Admit that Associated Bank is not liable.”

Needless to say, the receiver denied these requests.

Rule 37(c)(2) of the federal rules of civil procedure provides:

If a party fails to admit what is requested under Rule 36 and if the requesting party later proves…the matter true, the requesting party may move that the party who failed to admit pay the reasonable expenses, including attorney’s fees, incurred in making that proof.

Thus, after winning on summary judgment, Associated Bank suggests that it “prove[d] the matter true,” one might say, (that is, proved it was not liable) and, based on that, has asked the Court to force the plaintiff to pay the defendant’s legal fees defending the case as a discovery sanction.

The response of the receiver Zayed’s lawyers is predictably apoplectic, asking the Court to sanction Associated Bank instead.

Associated Bank is overreaching in our view. Clearly, a vindicated litigant wants the other side to pay its fees, but that just isn’t how our legal system is supposed to work.

If Associated Bank wins this motion (the Court has not yet issued its decision (the motion is pending before U.S. Mag. Judge Steven E. Rau (D. Minn.)), we can predict early requests to admit in litigation in every case, not used to authenticate documents or clarify what facts are not actually in dispute (as requests to admit normally are used). They will be planted as landmines to be detonated down the road if the plaintiffs fail to win their cases.