Volume 73, Number 6

December 1998

A New Options Theory for Risk Multipliers of Attorney’s Fees in Federal Civil Rights Litigation

Peter H. Huang

Given the importance of private enforcement of federal civil rights laws, Congress and the courts have attempted to encourage plaintiffs’ attorneys to accept meritorious civil rights cases through fee shifting and risk multipliers. Recently, however, the Supreme Court has essentially prohibited the use of risk multipliers, thus undercompensating attorneys for the risk of losing civil rights actions and discouraging the filing of such cases. In this Article, Professor Huang develops a new options-based theory of calculating attorney’s fees. Professor Huang argues that a lawsuit consists of a sequence of options to continue with the case rather than a once-and-for-all irreversible commitment thus allowing an attorney to assess the plaintiffs probability of prevailing at trial at different stages in a lawsuit. His proposal is for courts to recognize this option feature of lawsuits and adjust the risk multiplier accordingly. Consequently, the size of the risk multiplier would more accurately reflect the risk of losing, thus providing attorneys with better incentives to bring meritorious civil rights actions. In developing his theory, Professor Huang surveys the history and caselaw on risk multipliers, applies a simple options approach to lawsuits, and discusses the effect of an options-based approach on attorneys’ incentives to bring and settle civil rights actions. A mathematical Appendix formally models Professor Huang’s options-based approach.