Loser-pays-all rule in criminal cases could work for wealthy defendants

November 05, 2012

CHAMPAIGN, Ill. -- Adopting a loser-pays-all rule for criminal litigation would likely be feasible only if the rule applied to defendants who are wealthy, says a study from a University of Illinois law professor.

Nuno Garoupa, the H. Ross and Helen Workman Research Scholar in the College of Law, says a loser-pays-all rule could deter some crime when it's applied to either a corporation or an individual with deep pockets. But when defendants are not wealthy, such cost-shifting would be "wholly inappropriate," he says.

"On the defendant's side, the problem is that a significant percentage of the accused in the U.S. are poor, and they might not have the financial resources to repay the prosecutor's costs, should they be found guilty," Garoupa said. "So that might explain why this is not an issue we hear about too often in the U.S. But with the increase in financial crimes of the past decade, you could argue that there is an entire subsection of cases where you have corporate defendants, or very wealthy individuals as defendants, for whom money is not an issue."

For that minority of cases, having a loser-pays-all rule in place could lead to greater criminal deterrence as well as a reduction in legal errors, the paper says.

"People might think twice if they know they'll have to pay back the costs of their prosecution," he said.

According to Garoupa, a co-director of the Illinois Program on Law, Behavior and Social Science, unlike in the U.S., where each party pays its own costs, many common law legal systems use loser-pay-all rules in civil litigation, with the losing party paying for the legal fees and costs incurred by the winning party.

"There has been a lot of discussion about cost-shifting rules in civil litigation, and in that respect, the U.S. is an exception in that most other countries tend to use those types of rules very frequently," he said. "The question is, why don't we see the same type of discussion in criminal litigation. And what we argue in the paper is that there are specific issues in criminal litigation that might explain why a loser-pays-all rule would be more problematic in the U.S."

In criminal litigation, the prosecutor is a public agency funded by taxpayer dollars, not a private party.

"There might be some issues of where the money goes if the prosecutor prevails," he said. "There also might be other complications. If you force companies to pay for the prosecutor's legal costs, they might be less likely to settle, or more likely to invest more money on criminal litigation, so the probability of losing goes down."

It's also possible that prosecutors would go after higher profile cases in search of a big financial payday, which would leech away resources from pursuing less wealthy criminals.

"In practice, apart from some big headline cases, things in the U.S. tend to go into plea-bargaining," Garoupa said. "It's unclear that a loser-pays-all rule would actually help or force more plea-bargaining. One of the explanations for why we see so much plea-bargaining is that prosecutors do not have enough resources or are afraid of over-spending their budget. But if you have a rule that says if you win the case in court, the other side pays for your budget, then you might say, 'I don't need to go to plea-bargaining so often.' "

Whether that would be good or bad depends on the view one has about the role of plea-bargaining in American criminal procedure, Garoupa says.

"Some legal experts think plea-bargaining is great while others think it's a not-so-great aspect of the American judicial system," he said. "So a rule that changes this one way or the other would get into this division of views that already exists."

Another example of an unintended consequence of implementing such a rule: If a prosecutor goes after a client with deep pockets and loses, would taxpayers be on the hook for the (presumably) exorbitant legal defense fees?

"That's one possibility, but you could also argue that prosecutors might also be more careful," Garoupa says. "The other aspect is the fact that prosecutors wouldn't pay this out of their own money. Many foreign countries have passed laws regarding the extra-contractual liabilities of prosecutors and judges. This is essentially where legal systems allow you to sue prosecutors or judges because you think they were negligent in the way they performed their job. So rather than relying on the system we have in the U.S. of impeaching judges or firing prosecutors, it allows you to directly file a lawsuit against them. And this is a big deal, because if they lose, it's not the taxpayers' money that is on the line, but the personal fortune of the prosecutor or judge."

Garoupa says the paper is not a mere thought experiment, since such a rule could have significant implications for anti-racketeering prosecutions and the financing of law enforcement activities.

"The policy implications are clear: There is probably a good idea as to why this would be less popular in criminal litigation than in civil litigation, and why this could be a good idea in the criminal litigation of a corporate or wealthy defendants," he said. "But we would have to think how to minimize the harm to the wealth-constrained, which is something that policymakers haven't been too worried about. You also have to think about how this would affect the strategy of the prosecution and the defendants.

"When you take into account all of the complexities, it's unclear if that's a good or bad idea. We argue in the paper that people tend to see the positive side, and that they're not looking at the other side, which is that it would likely make criminal litigation more expensive, and it would also probably force prosecutors to spend more money on litigation."
-end-
The paper, co-written by Luciana Echazu, of Clarkson University, will appear in the International Review of Law and Economics.

Editor's notes: To contact Nuno Garoupa, call 217-333-2502; email ngaroupa@illinois.edu.

The article, "Why Not Adopt a Loser-pays-all Rule in Criminal Litigation?" is available online.

University of Illinois at Urbana-Champaign

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