Alaska racks up a long list of unique features in comparison with the other 49 states: bigger, farther north, farther west, more time zones. And in the legal world, Alaska has a way of paying attorneys in civil litigation that is closer to the rest of the English-speaking world than it is to anything found elsewhere in the United States. As the country struggles with ever-more lawsuits and tries to find ways both to discourage suits and to encourage settlements short of a full-fledged trial, more and more experts are taking a second look at what happens in Alaska.
What happens in Alaska, simply, is that the loser is made to pick up part of the legal expenses of the winner. In the rest of the country -- except in specific kinds of suits where a statute says otherwise -- each party pays his or her own lawyer.
Before the Alaska fee-shifting rule can click into place, one of the parties to the suit has to make a settlement offer. If the other side rejects the offer and later comes out ahead -- either through a trial verdict or a later settlement -- he wins not only the higher award, but also extra money toward his attorney fees. But if the final resolution is less favorable than the offer, the person who rejected the offer has to pay toward the other side's legal bills. "The economic effect is like doubling the stakes in a poker game," says Fairbanks lawyer Andrew J. Kleinfeld, a participant in a recent debate on the merits of the plan conducted in the pages of the quarterly Judges Journal.
Say the dispute is between two companies over $75,000 that one insists is due on a contract and the other argues is not owed because of shoddy work or late delivery. The supplier sues to collect the debt, and, after some initial maneuvering, the customer makes a formal offer to settle the whole matter for $25,000.
The supplier refuses the offer and goes to trial, where a jury decides that a fair settlement would be $50,000. The plaintiff company gets not only the $50,000, but also interest from the time the payment was first due and, using a formula spelled out in court rules, about $6,000 toward its legal bills. Had the jury returned a judgment of only $20,000, however, the supplier would have gotten that amount plus interest, and would have had to pay some portion -- set by the judge -- of the costs run up by the defendant after he made the original settlement offer.
The Alaska rule originally was instituted by the judges in the state court system. But it has since been adopted by the U.S. District Court in Alaska. And the state legislature recently has shown its endorsement of the loser-pays approach by adding its own twist: the interest rates are adjusted to benefit the winner. That means that if the plaintiff gets more than the offer, the interest is figured at 12 1/2 percent, but if the final judgment is for less than the offer, interest is computed at only 8 1/2 percent.
Lawyers in Alaska have different views on whether or not the fee-shifting rule is a good idea, but they all seem to agree that the threat of extra costs encourages persons to settle disputes rather than litigate them. "I have not found anything more difficult to explain to a client, or more helpful in making an otherwise unreasonable client recognize the true value of his case," the late H. Bixler Whiting of Fairbanks wrote. He found the rule "definitely forces sobering reality on both parties when evaluating settlement."
The truth is that most litigation over money damages is not about whether money is owed, but over how much. The battle is not over whether the person was injured when sideswiped by a car, but over how big a payment is just compensation for that injury. Each side is guessing what a jury will say, and the Alaska system, by upping the cost of guessing wrong, seems to make litigants less willing to let the controversy get to the jury.
The Alaska scheme seems to have its biggest impact on relatively small, garden variety claims. James A. Parrish, a Fairbanks plaintiff's lawyer, notes that, "It is simply impossible, even with a clear liability and clear damage case, in the $10,000 to $20,000 range, to make a profit against an obstructive defense in the absence of an attorneys' fees rule. Even simple contract cases can be forced to take 10 days actual trial time without regard to the amount at issue." The Alaska system discourages such delaying techniques, he finds.
Encouraging settlements may not, however, always be a way to achieve justice. Plaintiffs in personal injury and product liability cases usually can get an attorney to work for a contingent percentage -- typically one-third -- of the final amount won. But under the Alaska rule, there is a danger that if a final award is less than the settlement offer, the plaintiff will have to pay so much in legal defense fees that he will end up in the hole. That's a bigger threat to litigants with slim resources than to those who are well off.
Kleinfeld argues that such a possibility means plaintiffs often are forced by economic circumstances to accept the kind of low offers that would be rejected in the other 49 states. "As a practical matter, if the defendant makes an offer of judgment early in the litigation at the low end of the likely value of the case," he says, "the plaintiff takes an imprudent and unaffordable risk if he rejects it."