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January 7, 2004

Suggestions for the ABA Contingency Fee Task Force

Filed under: pre-06-2006 — David Giacalone @ 3:26 pm

A Task Force on the Future of the Contingent Fee has been formed by the ABA’s Tort Trial and Insurance Practice Section (TIPS), with a mandate to report back by the end of 2004, with what one member calls “a scholarly, well-reasoned piece of work that can be used by legislators, decision makers and the public.”  As of this morning, I can find no mention of the task force on the TIPS home page nor the broader ABA website.  However, it is described in this law firm press release (and discussed in this newspaper article (Miami Herald, Lawyers’ fees come under fire”, 01-04-04). (Thanks to MyShingle and How  Appealing for pointers to the article.)

The Task Force will be chaired by Becker &Poliakoff’s Steven B. Lesser, an expert on construction-related legal issues.   It’s clear that the “Early Offer” proposals by Common Good, with petitions filed in 13 states last Spring seeking to amend the rules of ethics relating to contingency fees, were a major impetus to formation of the Task Force.

update: According to the Steven Lesser’s Bio page at B&P:  “Mr. Lesser . . . led the task force’s review of the contingent fee system to evaluate the impact of future changes to this fee structure on attorneys and their clients. The Task Force published “Contingent Fees in Mass Tort Litigation” in the Tort Trial & Insurance Practice Law Journal, Fall 2006 and its earlier report entitled “Report on Contingent Fees in Class Action Litigation” was published in The Review Of Litigation, The University of Texas School of Law, Volume 25, No. 3, Summer 2006.”

$key neg This weblog has, of course, opined frequently on the ethics of contingency fees — especially on using a standard fee that does not take into account the risk undertaken by the lawyer in each particular case. (See our Fees resources page.)   I am not at all against the use of the contingency fee, but I do oppose its all-too-frequent use in a manner that unfairly over-compensates the lawyer at the expense of the client.   As attorney Rutledge R. Liles said while President, Florida State Bar:

“While it is easy to defend the philosophy of the contingent fee, it is impossible to defend its abuses. We must as professionals address these abuses and the process must start in our own individual practices. The contingent fee should be reasonable under the circumstances of the given case. The contracted fee should be a guide not a mandate.”    Professionalism and the Contingent Fee: When is Enough Enough?, for The Florda Bar Journal (Jan. 1989, at 5) (discussed here).
Since I’ve given a lot of thought to these issues, have no financial interests in the outcome and no ideological axe to grind (beyond believing that the client’s interests come first, even when it comes to fees), I hope Task Force members will keep in mind the following suggestions in the course of their work:

1)  Don’t let yourselves become the captive of any interest group, as clearly happened in the Ethics 2000 process.  As I have argued here, the changes made by the ABA and Ethics 2000 in Rule 1.5 of the Model Rules “make it clear that the ABA has capitulated to defenders of the ‘standard’ contingency fee. The approved Rule changes reverse recent attempts within the ABA, and by client advocates across the nation, to apply traditional ethical and fiduciary duties to the use of contingency fees.”
2)  Don’t confuse Reforming the Use and Ethics of Contingency Fees with Tort Reform.   As discussed here, p/i lawyers try to link the two in order to avoid the ethical problems inherent in the current contingency fee system.
3)  In looking at the overall situation to “find out if contingent fees are really out of control,”  keep in mind that the legal ethics of contingency fees concern the relationship between the individual client and his or her lawyer in each particular case, and not global numbers about supposed average earnings of plaintiff’s lawyers, nor the high profiles cases that involve billions of dollars in fees.  ABA Formal Ethics Opinion 389 (1994) recognized the basic proposition that reasonableness relates directly to risk in each given case — this principle has been ignored in practice by the adoption of standard contingency fee levels in each community. (See, e.g., this, this and that.)  When looking at the big picture, please don’t forget the average personal injury victim, who should pay a reasonable fee for legal serivces and not have to give the lawyer a large partnership interest in every injury claim.
4)  strike it rich An attorney cannot justify being overcompensasted in one case by claiming that doing so allows taking riskier clients in other cases.  Model Rule 1.5 does not include such subsidy notions in its consideration of reasonableness.  Nor does Canon 5 of the Lawyer’s Code of Professional Responsibility, which specifically states (emphasis added) that “Neither the lawyer’s personal interests, the interests of other clients, nor the desires of third persons should be permitted to dilute the lawyer’s loyalty to the client.”  This ethical and fiduciary loyalty applies to fees as well as to all other aspects of the lawyer-client relationship.  Furthermore, in a world where p/i lawyers carefully sort out and reject the riskier cases (and those where the damages are unlikely to be great), the existence of such charitable impulses is highly questionable.
5)  Be wary of statistics purporting to show how fair contingency fees are on average.   As argued here, the most widely quoted study on the issue (by Prof. Kritzer) is based on very faulty premises and numbers.
6)  Listen to advocates for legal consumers, such as HALT, who believe that clients deserve to be fully informed of their rights and options, and all relevant facts (such as the likelihood of winning) before entering into contingency fee arrangements.   Please recognize, on the other hand, that Public Citizen (a plaintiff in many major injury cases) has not acted as a consumer advocated, but has instead consistently taken the party line of p/i plaintiff’s lawyers, when it comes to contingency fees.  It has never attempted to fix the abuses in the system.  See this posting.
7)  Take a close look at the Florida experiment in contingency fee regulation, which has been in effect for several years and should yield important data and conclusions.

Under the Florida Bar Continency Fee Rules, clients entering into contingency fee arrangements have greater protection than in any other State, including a Statement of Client’s Rights for Contingency Fees (explaining, among other things, that there is no set percentage fee and that the client has the right to negotiate the fee level), a 3-day “cooling off” period to reconsider after signing an agreement, and step-down maximum fee levels as the amount awarded increases. (see Rule 4-1.5)
It would be very helpful to know whether these rights and rules have (a) replaced a standard fee percentage with fees tailored to the risk in each case; (b) empowered clients to negotiate fairer fees; (c) created open price competition among p/i lawyers; and [added 01-08-04] (d) resulted in an inadequate supply of competent lawyers willing to act as plaintiff’s counsel in p/i cases  If so, there may be no need for complicated and restrictive rules like those suggested by Common Good.
Similarly, check out the new Arizona rules, to see if they are improving  the use of contingency fees.

8)  Don’t be confused by those who shout that there really is no “standard contingency fee.”   An objective study on the topic might help clear the air.  See this.
9)  When those opposing contingency fee reform say things like ‘They don’t give a damn about the people they kill and maim. It has everything to do with stopping the filing of lawsuits. It has nothing to do with the victims’ receiving more money” (reprinted here, from the Miami Herald, Jan. 4, 2004), and tell you that contingency fee reform will prevent injured clients from finding “good” lawyers, ask them why “good” lawyers aren’t willing to take a contingency fee percentage that is in line with the risk presented by a particular case.  Ask them how the maximum fee allowed in each jurisdiction got to be the fee offered to each client as a fait accompli and why there is no mention of fee percentages in all those Yellow Page ads.

The following postings from this site are most relevant to the work of the Task Force:

I’m sure I’ll come up with a few more suggestions as 2004 progresses, but this should hold you for now.  Questions and comments are welcomed, as always.

Afterthoughts (01-08-04):  The Task Force will almost certainly hear a chorus that says “a contract is a contract” and contingency fees should never be reduced once the client agrees to a particular percentage rate or rate structure. That topic is discussed briefly here.  Courts have always asserted the right to decide at the conclusion of a matter whether a contingency fee is excessive.   Model Rule 1.5 says (emphasis added)  “A lawyer shall not make an agreement for, charge, or collect an unreasonable fee.”   This clearly suggests that a fee that seemed reasonable when the agreement is first made could be deemed excessive and unreasonable when billed or collected (if, for example, the matter is settled with far less attorney work or for a far great amount of damages than initially expected — as in the recent Massachsetts Tobacco Settlement fee dispute).  Of course, the more fully informed the client is when entering into the contingency fee arrangement [using the checklist and principles in ABA Formal Ethics Opinion 389 (1994), which are discussed here], the less likely that the results would be deemed to be unreasonable.

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