Locking The Courthouse Door

Big business and big government seek to deny consumers access to our courts by restricting contingent fees.

by Richard S. Plattner

Institutional defendants have spent millions of dollars to limit the right of individual Americans to get justice in court when they are maimed or killed by negligence or defective products. Government entities and large corporations can’t be rear-ended or otherwise physically harmed, but are often sued by those injured by corporate personnel or products. As a result, there is little corporate interest in preserving the right to bring injury and death claims, and much interest in limiting those rights.

By the same token, insurance company bottom lines are improved by limiting the obligation to pay claims, or by limiting the claimants’ ability to bring the claim in the first place.

The latest stratagem by institutional defendants to increase their profits at the expense of consumers is to attack the contingent fee. Republicans in Congress are once again pushing legislation to “regulate” contingent fees. They tried this a decade ago relying on a 1994 publication by the ultraconservative Manhattan Institute entitled “Rethinking Contingency Fees.”

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, Now they are working through another front group called “Common Good,” whose best known sponsor is Newt Gingrich.

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If these regulations become law the majority of cases in which injured consumers are compensated in the American civil justice system will disappear because consumers lack the funds to hire lawyers on any other basis. Corporate defendants, on the other hand, will continue to enjoy the freedom to spend whatever they like for defense counsel.

Who is calling for reform? Not the tens of thousands of Americans injured each year by defective products, medical malpractice, careless drivers or other negligence. Critics of contingent fees are bankrolled by big business and big government; institutions that are often named as defendants by injured consumers. The Manhattan Institute is funded by manufacturers and insurance companies; the “legal scholars” they quote are attorneys who represent big corporations and ultraconservative “think tanks” funded by them.

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The funding for Common Good is not listed on their website, but with Newt Gingrich front and center on their home page it is not hard to figure out whose interests they serve.

You can’t have a fair fight if one side has a hand tied behind its back. Proposals to limit contingent fees never impose limits on the amount a tort defendant may pay its lawyer. What kind of joke would our cherished due process become if defendants could fully defend but plaintiffs could only put on a discount case? Limiting claimants but not defendants demonstrates the true motivation of those who seek to limit contingent fees: to prevent as many claims as possible from ever being brought.

Without contingent fees, injured Americans would not have been able to force the redesign or recall of defectively designed vehicles, heart valves, flammable children’s clothes, dangerous toys — the list goes on and on. Gas tanks would still be exploding, untested drugs would still be causing birth defects, all at much greater frequency than in today’s America. Think of the cases which have improved all of our health and safety: virtually every one was brought by a claimant whose attorney worked on a contingent fee. Try to think of a case that could have been brought in the real world on any other basis. The real purpose of the attack on contingency fees is to shift the argument away from the victims and onto an easier target: their lawyers.

The so-called “reform” proposals all focus on plaintiffs, and leave defendants free to pay whatever they want to get the best chance of winning. This guarantees that in the majority of claims brought by injured consumers the defendants will be able to use their economic advantage to crush the plaintiffs, regardless of the merits of the case or the enormity of the injury.

Trust the free market to control fees. Although the contingent fee critics allege contingent fee lawyers get paid too much, there is a reason why more and more insurance carriers are entering contingent fee arrangements with defense counsel, and why the contingent fee has become increasingly popular with patent lawyers.

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The hourly fee has come under increasing criticism for rewarding inefficiency and encouraging frivolous litigation and discovery abuse.

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The ABA offers multiple publications and seminars on alternative billing arrangements.

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Look in the Yellow Pages: there is no shortage of personal injury attorneys, all presumably working on contingent fee arrangements. Competition alone can be counted on to moderate fees. The recent rise of advertised “discount” contingent fees proves that the market is working.

Additionally, when considering the size of a fee on any one case it must be remembered that fees received must also cover the overhead and provide the profit for those cases in which no fee, or an inadequate fee, was received.

If contingent fee practice really meant big bucks for little effort or risk, all lawyers would accept contingent fees. In reality, though, they don’t. Why not?

1.	Some contingent fee lawyers are going broke, faced with increasingly conservative juries, hard-nosed insurance carriers and the high price of experts and other case costs.

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Contingent fee lawyers must bankroll case costs, and risk non-payment and underpayment. They get no interest on costs advanced, and risk losing the principal as well. They get no tax deduction for costs advanced in the year these hard dollars are spent (although they may be written off if and when they ultimately prove to be uncollectible).

3.	Contingent fee lawyers pay more for malpractice insurance.

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Contingent fee lawyers are scorned by the public and by their colleagues. Their clients are usually one-time customers, which means the attorney lacks the security of an established relationship and must constantly hustle to bring in new business. Personal injury clients rarely are in a position to invite their lawyers to join their country club, participate in business or investment opportunities, or to expand the attorney’s social circle.

Attorneys willing to put up with these disadvantages can and should command a higher price in a free market system.

How else will we give citizens access to justice if not by the contingent fee? Shall we socialize lawyering? In England a citizen who feels deprived of any right, such as the denial or limitation of welfare payments or refusal for subsidized housing, is entitled to have an attorney on an hourly basis: paid for as a matter of right by the government.

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How much frivolous litigation will we have under such a system? Contingent fees, on the other hand, deter frivolous suits because an unworthy case leaves the lawyer with a payment of zero, minus the time and expense of the case. Hourly fee lawyers get paid win or lose; the more they fight the more they earn, no matter how frivolous their claim or defense. Why are we not hearing calls for laws limiting hourly fees?

Only claims by injured consumers are targeted for fee regulation. Big business uses contingent fee arrangements for debt collection, but complaints about the size of such fees have not been heard. Contingent fee critics do not object to the collection agent’s contingent fee; the calls for fee caps are aimed only at tort plaintiffs’ lawyers.

Could that be because the corporations which fund these calls for fee caps recognize that without the collector there is no money at all? Could it be that these corporations are happy to pay more when the collector is successful in order to avoid paying anything when unsuccessful? And why not give the same opportunity to ordinary people when they bring claims for injuries?

Where is the data to support the need for government regulation? There is none. Although unreasonable contingent fees have surely been charged in individual cases, hourly fee arrangements are no less prone to abuse. Simple logic indicates that hourly fees are more likely than contingent fees to foster unwarranted litigation or to unreasonably expand the scope of litigation.

In fact, the data supports the current contingent fee system:

A 1973 study by the federal government showed that in medical malpractice cases contingent fee attorneys are unlikely to take nonmeritorious claims.

8 A 1980 study by the RAND Corporation, funded by the federal government, stated that the idea that contingent fees increase the number of nonmeritorious case filings “has no basis in logic.”

9 In 1985 a task force of the American Medical Association (a group not renowned for their love of plaintiffs’ lawyers) concluded that regulating contingent fees “may not reduce the number or severity of suits.”

10 Even Professor Lester Brickman, a critic of contingency fees and Manhattan Institute author, concedes that competition for cases stemming from air crashes “has already cut the usual contingency fee in half.”

11 The American Bar Association has stated that “contingent fees provide access to the courts; and no justification exists for imposing special restrictions on contingent fees in medical malpractice actions.”

12 The Washington Supreme Court conducted a study and concluded “Contingency fees are a valuable feature of litigation in the US, and should be retained.”

13 Even Aetna, one of the largest property and casualty insurers in the US, has stated:. . . any abuses of the contingency fee system are best addressed through marketplace solutions (full disclosure to potential clients of the hours likely to be spent on the case, probability of success, probable recovery, and alternative fee arrangements) and when necessary, reduction of excessive fees by the courts. We do not support regulating fees.

14 CONCLUSION

More than 30 years ago, Judge Michael A. Musmanno said it best:

If it were not for contingent fees, indigent victims of tortious accidents would be subject to the unbridled, self-willed partisanship of their tortfeasors. The person who has, without fault on his part, been injured and who, because of his injury, is unable to work, and has a large family to support, and has no money to engage a lawyer, would be at the mercy of the person who disabled him because, being in a superior economic position, the injuring person could force on his victim, desperately in need of money to keep the candle of life burning in himself and his dependent ones, a wholly unconscionably meager sum in settlement, or even refuse to pay him anything at all.
Any society, and especially a democratic one, worthy of respect in the spectrum of civilization, should never tolerate such a victimization of the weak by the mighty.

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[Emphasis added.]

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1. For a discussion of the proposal, see Don Skypeck, “Is $1300 Per Hour a Reasonable Fee? Rethinking Contingency Fees with an Eye Toward Public Perception,” 5 Trial Practice Newsletter No. 3 (Fall 1994), p. 6. return

2. See http://cgood.org and click the “About Us” button.
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3. Barry Nace, Trial Magazine, April 1994, at 7.
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4. The Wall Street Journal, June 24, 1994, B1.
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5. ABA/BNA Lawyers’ Manual on Professional Conduct, 8 Cur. Reps. 286-87 (9/9/92); ABA/BNA Lawyers’ Manual on Professional Conduct, 9 Cur. Reps. 254-55 (9/8/93); Salop & Litan, More Value for the Legal Dollar: A New Look at Attorney Client Fees and Relationships (Brookings Institute 1992); ABA Ethics Opinion No. 93-379 (“Billing for Professional Fees, Disbursements and Other Expenses”).
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6. The law firm of Steptoe & Johnson in Phoenix was cited as a pioneer in alternative billing in the March 1994 ABA Journal article, “The Vanishing Hourly Fee.” A poll published in the same issue revealed increasing use of alternative arrangements: 24% had received a bonus for a positive result, 41% offered volume discounts, 80% offered flat fees for some services, and 31% charged a blended hourly rate.
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7. The one right the English citizen lacks is the right to hire a lawyer for a contingent fee, so the magnitude of the injustice (rather than a government fee schedule) can determine the scope of his representation.
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8. HEW, Report of the Secretary’s Commission on Medical Malpractice, 1973.
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9. “Contingent Fees for Personal Injury Litigation,” 43 RAND 1980.
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10. Medical Economics, October 21, 1985, “Do Contingency Fees Really Cause Malpractice Suits?”
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11. Brickman, “Contingent Fees Without Contingencies: Hamlet Without the Prince of Denmark?” 37 UCLA L. Rev. 29 (1989).
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12. American Bar Association, Blueprint for Improving the Civil Justice System (February 1992).
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13. The Novack Commission, Report of Findings and Recommendations, Washington State Supreme Court, December 1988, at 9.
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14. Judith W. Pendell, Vice President, Law and Regulatory Affairs, Aetna, Letter to the Editor, New York Times, March 11, 1994.
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15. Richette v. Solomon, 187 A.2d 910, 919 (Pa. 1963).
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