GUEST BLOGGER: Sergei Lemberg from on the "Loser Pays" system and why it hurts consumers

THE COMPLEX LITIGATOR:  As a new feature of this blog, I am hoping to provide regular visitors with some added variety through guest authors that cover topics related to, but outside the scope of, this blog. 

Sergei Lemberg, an attorney who practices lemon law and blogs at is sitting in the guest blogger’s chair today.

“Loser Pays” and Its Impact on Consumers

Every state has a Lemon Law, which requires a manufacturer to give you a refund or a replacement vehicle if they can’t fix a new car’s defect within a certain number of attempts. As we all know, car manufacturers will try to do whatever they can to get out of compensating a consumer who has a lemon. So, when a manufacturer refuses, it’s up to the consumer to file a Lemon Law claim.

A number of states require that the consumer enter an arbitration program run by either the manufacturer or the state. The rationale is that, if the two parties’ differences can be smoothed out, it won’t burden the court system. In practice, however, car manufacturers have legal teams that fight Lemon Law claims – whether in arbitration or in the court system. It’s much more likely that consumers will have positive outcomes and get the compensation they deserve when they hire a Lemon Law attorney. This is because most state laws say that, if the consumer wins the case, the manufacturer has to pay the consumer’s attorney’s fees. Therefore, manufacturers need to weigh the cost of fighting the claim (that is, the cost of their legal team plus the consumer’s lawyer) against agreeing to a buyback or replacement vehicle. If the consumer has a lawyer and a good case, chances are that the manufacturer will back down and pay up.

England and many other European countries have what’s termed a “loser pays” policy, whereby whomever is on the losing side of a legal action has to pay the legal fees of the prevailing party. While this might seem fair on the face of it, loser pays undermines the foundation of Lemon Laws and other laws that include what’s termed “fee-shifting.” Think about it. The average consumer simply doesn’t have the resources to risk filing a Lemon Law claim and having to pay GM’s or Chrysler’s legal bills. No one in their right mind would take a car manufacturer to court – even if they had a solid case.

Lemon Laws certainly don’t provide consumers with an unfair advantage; if anything, they make it difficult to get relief by imposing stringent requirements on consumers. Awarding attorneys’ fees in a successful Lemon Law claim puts the onus where it belongs: squarely on the shoulders of the car manufacturer who made and sold a defective product.

It goes without saying, however, that there are two sides to every story. There are some who think that attorney’s fees are causing the legal system to run amok, and who propose reforms that would make it harder for wronged consumers to fight back.

The problem with this position is twofold. First, consumers are regularly abused by big car companies, who have bottomless pockets with which to fight claims against them. Second, because Lemon Law claims result in relatively low dollar amount settlements (thousands of dollars instead of hundreds of thousands or millions of dollars) it’s impossible for attorneys to bring cases without also being awarded fees.