What Is the American Rule?

The American Rule is a rule in the U.S. justice system that says two opposing sides in a legal matter must pay their own attorney fees, regardless of who wins the case. The rationale of the rule is that a plaintiff should not be deterred from bringing a case to court for fear of prohibitive costs. However, in countries that abide by English common law, the rule says the losing party must pay the legal fees of the winning party. 

Key Takeaways

  • The American Rule requires both sides—the plaintiff and the defendant—in a court case to pay their own legal fees, no matter who wins the case.
  • The rule was established to ensure no one would be hesitant to file a legitimate court case due to the fear of having to pay for legal fees on both sides.
  • English common law says the losing party must pay the legal fees of the winning party. 
  • A judge doesn’t have to abide by the American Rule if both parties have agreed in a contract that the rule won’t apply in their case.

Understanding the American Rule

The American Rule is in place so that people with a legitimate lawsuit will not be dissuaded from filing it because they may not have the money to pay the legal fees of both parties if they lose. The American rule has a reputation of being more plaintiff-friendly than English common law. Although it has its share of critics, the intent behind the American Rule was that the rule would be good for society. 

The thought process was that someone shouldn’t be unable to pursue redress in court because they were economically disadvantaged or fearful of having to pay for an unsuccessful court proceeding. Since the American rule isn’t unanimously popular, there have been multiple unsuccessful attempts to have the rule changed to English common law where the loser would pay all court costs for both parties.  

Exceptions to the American Rule

The American Rule is not set in stone, as there are exceptions to the standard depending on the state and the type of legal case. Some states, such as California and Nevada, allow certain exceptions to the American Rule. 

If a judge concludes that a losing party has been playing around with the seriousness of law or procedure, the judge could order the losing side to pay the fees of the winning side. Examples include bringing frivolous lawsuits, dragging out already lost cases in the appeals process, and not conducting a trial in a professional manner.

On a federal court level, there are significant exceptions to the rule as well. But first, generally speaking, if a pre-existing contract between parties stipulates that one side must pay legal fees for the other side in a dispute, a judge need not enforce the American Rule. In cases involving government entities, anti-discrimination laws, consumer protection cases, or the public interest, some states allow the reimbursement of the winning side's legal fees by the losing side. 

Plaintiffs in many of these types of cases are not as well-funded as private sector entities; moreover, these types of cases tend to address a societal good in the eyes of the justice system. 

Some federal statutes override the American Rule, such as the Magnuson-Moss Warranty Act. This act offers protection against deceptive practices toward consumers who buy products with warranties. 

Example of the American Rule

The state of California follows the American Rule, requiring both the winning and the losing party of a lawsuit to pay for their own legal fees in the absence of agreement or statute to the contrary. The American Rule in California is codified in the California Code of Civil Procedure § 1021:

“Except as attorney's fees are specifically provided for by statute, the measure and mode of compensation of attorneys and counselors at law is left to the agreement, express or implied, of the parties; but parties to actions or proceedings are entitled to their costs, as hereinafter provided.”