AN ANALYSIS OF FEE SHIFTING BASED ON THE MARGIN OF VICTORY - ON FRIVOLOUS SUITS, MERITORIOUS SUITS, AND THE ROLE OF RULE-11

When plaintiffs cannot predict the outcome of litigation with certaint y, neither the American rule (each litigant bears its own litigation e xpenses) nor the British rule (the losing litigant pays the attorneys' fees of the winning litigant) would induce optimal decisions to bring suit. Plaintiffs may bring frivolous suits when litigation costs are small relative to the amount at stake; plaintiffs may not bring merito rious suits when litigation costs are large relative to this amount. M ore general fee-shifting rules are based not only on the identity of t he winning party but also on how strong the court perceives the case t o be at the end of the trial (the ''margin of victory''), We analyze w hen such a rule can induce plaintiffs to sue if and only if they belie ve their cases are sufficiently strong. We explore the implications of our analysis for the use of Federal Rule of Civil Procedure 11.