The American Rule versus the English Rule is the choice every legal system makes about who pays the lawyers. Under the American Rule, which governs federal litigation in the United States, each side pays its own attorney fees no matter who wins. Under the English Rule, followed in England, Canada, Australia, and most of continental Europe, the losing party reimburses the winner’s reasonable legal expenses. The Supreme Court reaffirmed the American Rule in 1975, holding that federal courts cannot shift attorney fees to the loser unless a statute or contract says otherwise.1Justia Law. Alyeska Pipeline Svc. Co. v. Wilderness Society, 421 U.S. 240 (1975) Those exceptions have grown numerous enough that the winner does recover fees in a surprising share of American cases.
What the American Rule Actually Says
Win or lose, you pay your own lawyer. A plaintiff who secures a favorable verdict still absorbs the cost of the attorneys who got it. A defendant who defeats a claim walks away without reimbursement for the defense. The Supreme Court has described this as a long-standing principle, noting that “attorney’s fees are not ordinarily recoverable in the absence of a statute or enforceable contract providing therefor.”2Justia Law. Fleischmann Distilling Corp. v. Maier Brewing Co., 386 U.S. 714 (1968)
The policy reason is access to court. Without this protection, a middle-income person suing a large corporation would have to weigh not just whether they might lose their own case, but whether they could afford to pay the corporation’s legal department if they did. That risk would deter legitimate claims far more often than frivolous ones, because people with strong but uncertain cases are exactly the ones who get scared off. The rule benefits defendants too: their worst-case exposure stays bounded by the damages claimed, not an unpredictable pile of the plaintiff’s legal bills on top.
Fees Are Not the Same as Costs
The American Rule applies specifically to attorney fees, not to every litigation expense. Federal law draws a sharp line between “fees,” meaning what you pay your lawyer, and “costs,” a defined list of case-related expenses the winning side can recover. Taxable costs include clerk and marshal fees, transcript fees, witness fees, copying costs, docket fees, and compensation for court-appointed experts and interpreters.3Office of the Law Revision Counsel. 28 U.S. Code 1920 – Taxation of Costs These are usually modest compared to attorney fees, but they shift to the losing side as a matter of course in federal cases. When people talk about the American Rule, they mean the much larger category of attorney fees stays where it falls.
How the English Rule Works
Loser-pays systems treat the fee question as restorative. If you were in the right, you shouldn’t walk away poorer because someone dragged you into court. If you were in the wrong, the full cost of the dispute belongs on your ledger. Judges don’t rubber-stamp whatever the winner spent. They review billing to decide whether the legal work was proportionate to the complexity of the case, and they commonly reduce the award if the winner’s lawyers billed for unnecessary work or excessive hours. The prospect of paying both sides’ fees creates strong pressure to settle early and to avoid tactics that run up costs without advancing the merits.
The tradeoff is that loser-pays discourages not just weak claims but also strong claims brought by risk-averse people. A plaintiff with an 80 percent chance of winning still faces a 20 percent chance of paying two legal bills. That calculus hits hardest when the parties have unequal resources, which is a large part of why the United States developed differently.
When the American Rule Flips
The default is “each side pays,” but the exceptions matter enough to study. Four of them account for most fee-shifting in American federal practice.
Statutes That Shift Fees
Congress has carved out over 200 federal statutes that override the American Rule in specific categories, usually in areas where the damages alone wouldn’t be large enough to attract a lawyer. The most prominent is 42 U.S.C. § 1988, which gives courts discretion to award reasonable attorney fees to a prevailing party in civil rights cases, including claims for equal protection, employment discrimination, and housing discrimination.4Office of the Law Revision Counsel. 42 U.S.C. 1988 – Proceedings in Vindication of Civil Rights Many discrimination cases involve modest monetary damages, and without fee-shifting, few attorneys could afford to take them.
The civil rights exception is deliberately asymmetric. A prevailing plaintiff is entitled to fees in all but special circumstances. A prevailing defendant can recover fees only if the court finds the plaintiff’s case was “frivolous, unreasonable, or without foundation.”5Legal Information Institute. Christiansburg Garment Co. v. EEOC, 434 U.S. 412 (1978) Congress wanted to encourage discrimination victims to come forward, not to create a risk that would scare them into silence.
Other statutes make fee-shifting mandatory. A successful antitrust plaintiff recovers triple damages plus reasonable attorney fees.6Office of the Law Revision Counsel. 15 U.S.C. 15 – Suits by Persons Injured The Fair Debt Collection Practices Act awards fees to any person who successfully sues a debt collector, and allows a fee award to the defendant if the plaintiff sued in bad faith.7Office of the Law Revision Counsel. 15 U.S.C. 1692k – Civil Liability The Fair Labor Standards Act, the Truth in Lending Act, and the Americans with Disabilities Act follow similar patterns. A separate statute, the Equal Access to Justice Act, lets individuals and small businesses recover fees when they beat the federal government, unless the government’s position was “substantially justified.”8Office of the Law Revision Counsel. 28 U.S.C. 2412 – Costs and Fees
Contract Clauses
Parties can opt out of the American Rule before any dispute arises by writing a fee-shifting clause into their contract. These provisions typically award reasonable attorney fees to the “prevailing party” in any litigation over the agreement. You’ll find them in commercial leases, business purchase agreements, construction contracts, and lending documents. Courts generally enforce them so long as both parties agreed and the clause doesn’t violate public policy, and recovery is capped at a reasonable amount so one side can’t inflate its bill and pass it through. Several states impose reciprocity by law: if a contract gives only one party the right to recover fees, the state extends that right to the other party as well, on the theory that the drafter shouldn’t get a one-way weapon.
Rule 68 Offers of Judgment
Federal Rule of Civil Procedure 68 creates a fee-shifting trigger that catches many plaintiffs off guard. At least 14 days before trial, a defendant can serve a formal offer of judgment for a specific amount. If the plaintiff turns it down and then wins less than the offer at trial, the plaintiff must pay the defendant’s costs incurred after the date of the offer. The Supreme Court held that when the underlying statute defines “costs” to include attorney fees, those fees sweep into Rule 68 as well.9Legal Information Institute. Marek v. Chesny, 473 U.S. 1 (1985) In civil rights cases, where § 1988 treats fees as costs, a plaintiff who rejects a reasonable settlement under § 1983 and doesn’t beat it at trial can end up owing the defendant’s post-offer legal bills. That pressure to take settlement offers seriously is the whole point of the rule.
Bad-Faith Conduct
Even without a statute or contract, courts can shift fees as a sanction when a party abuses the process. Rule 11 lets a court order the offending party to pay the other side’s reasonable expenses, including attorney fees, when a filing is presented for an improper purpose or without legal foundation.10Legal Information Institute. Federal Rules of Civil Procedure Rule 11 A separate statute, 28 U.S.C. § 1927, holds attorneys personally liable for the excess costs and fees caused when they unreasonably and vexatiously multiply proceedings.11Office of the Law Revision Counsel. 28 U.S.C. 1927 – Counsels Liability for Excessive Costs And federal courts retain inherent authority, confirmed by the Supreme Court in Chambers v. NASCO, Inc. (1991), to shift fees in cases of fraud on the court or conduct too egregious for the standard tools.
How Much the Winner Gets
When a court decides fees should shift, the next question is how much. Federal courts use the lodestar: the number of hours reasonably spent on the case multiplied by a reasonable hourly rate.12Legal Information Institute. Hensley v. Eckerhart, 461 U.S. 424 (1983) The Supreme Court called this “the most useful starting point,” and most federal courts treat it as a strong presumption.
Both inputs invite dispute. Defendants challenge the hours as excessive and the rate as above-market. Courts review billing records line by line, cutting time spent on clerical tasks, duplicative work between multiple attorneys, and hours devoted to claims where the plaintiff lost. If the plaintiff achieved only limited success compared to what was sought, the award drops to reflect the actual results obtained.12Legal Information Institute. Hensley v. Eckerhart, 461 U.S. 424 (1983) Some courts adjust the lodestar up or down for complexity, risk of nonpayment, or quality of result, but upward adjustments are rare because the lodestar itself is presumed reasonable.
You Have to Actually Prevail
Fee-shifting statutes typically require the person seeking fees to be a “prevailing party,” and that phrase has produced heavy litigation. The Supreme Court drew a clear line: you prevail when there is a “judicially sanctioned material alteration of the legal relationship of the parties.” An enforceable judgment on the merits counts. A court-approved consent decree counts. A voluntary change in the defendant’s behavior, prompted by the lawsuit but not memorialized in a court order, does not.13Legal Information Institute. Buckhannon Board and Care Home, Inc. v. West Virginia DHHR (2001) That kills the “catalyst theory” in federal court, though some states still allow catalyst recovery under their own fee statutes.
Deadlines Are Strict
A motion for attorney fees in federal court must be filed no later than 14 days after entry of judgment, unless a statute or court order sets a different deadline.14Legal Information Institute. Rule 54 – Judgment; Costs The Equal Access to Justice Act sets its own 30-day window for fee applications in cases against the government.8Office of the Law Revision Counsel. 28 U.S.C. 2412 – Costs and Fees Courts regularly deny fee requests that arrive even a day late, no matter how strong the underlying entitlement. If you’re entitled to fees, calendar the deadline the day the judgment is entered.
Taxes on a Fee Award
A fee award that shifts money from one party to the other creates a tax trap most people don’t anticipate. When attorney fees are paid as part of a settlement or judgment that is includable in the plaintiff’s income, the IRS treats the fees as income to the plaintiff even if the money goes directly to the attorney.15Internal Revenue Service. Tax Implications of Settlements and Judgments Without a deduction, the plaintiff would pay tax on money they never received.
Congress fixed this for certain categories of cases. Plaintiffs in discrimination and whistleblower actions can take an above-the-line deduction for attorney fees and court costs, preventing the fee award from inflating adjusted gross income. The deduction covers claims under a broad list of federal statutes including the Civil Rights Act, the Fair Labor Standards Act, the Americans with Disabilities Act, the Age Discrimination in Employment Act, and federal whistleblower protections.16Office of the Law Revision Counsel. 26 U.S. Code 62 – Adjusted Gross Income Defined The deduction is capped at the amount of the award included in income for that tax year. For plaintiffs in cases that fall outside these categories, the tax hit on fees paid directly to counsel is a real planning issue worth raising with a tax professional before signing a settlement.