{"id":4040,"date":"2005-08-26T20:38:13","date_gmt":"2005-08-27T00:38:13","guid":{"rendered":"http:\/\/blogs.law.harvard.edu\/formerlyknownas\/2005\/08\/26\/fees-of-the-assumption\/"},"modified":"2011-08-05T14:57:28","modified_gmt":"2011-08-05T18:57:28","slug":"fees-of-the-assumption","status":"publish","type":"post","link":"https:\/\/archive.blogs.harvard.edu\/ethicalesq\/2005\/08\/26\/fees-of-the-assumption\/","title":{"rendered":"fees of the assumption"},"content":{"rendered":"

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It is only fitting that AEI’s Liability Project<\/FONT><\/A> has released Two Cheers for Contingent Fees<\/A><\/EM> to <\/FONT><\/DIV>
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coincide with the Catholic <\/FONT>Feast of the Assumption<\/FONT><\/A> of the Blessed Virgin Mary (which celebrates <\/FONT><\/DIV>
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Mary’s having been “taken up body and soul into heaven upon her death”).  Two Cheers<\/EM> is a <\/FONT><\/DIV>
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42-page monograph by Alex Tabarrok and Eric Helland (available <\/FONT>here<\/FONT><\/A> in pdf format), which <\/FONT><\/DIV>
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concludes that limiting the contractual rights of plaintiffs and their lawyers, by restricting the <\/FONT><\/DIV>
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size of contingency fees, “is an unattractive and likely ineffective method of achieving” the goal <\/FONT><\/DIV>
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of tort reform. (via <\/FONT>Ted Frank<\/FONT><\/A>) <\/FONT><\/DIV>
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 <\/DIV>
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Like the Catholic who believes in Mary’s “corporeal assumption” based on faith and dogma (with <\/FONT><\/DIV>
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no empirical evidence), Tabarrok and Helland base their conclusions on assumptions that appear grounded on little more than faith, orthodoxy and wishful thinking.  For example, as Walter Olson argues at <\/FONT>Point of Law<\/FONT><\/EM><\/A>: <\/FONT><\/FONT><\/DIV>
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I also very much doubt that further empirical investigation will bear out their claim  \"trashman<\/FONT><\/DIV>
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that contingency fees “do not cause higher awards” or that “contingent-fee limits <\/FONT><\/DIV>
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are unlikely to reduce lawyers’ income very much, since they will simply switch <\/FONT><\/DIV>
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to hourly fees”. In fact, I feel confident that most contingency-fee lawyers themselves, <\/FONT><\/DIV>
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seeing their practice from the inside, would part company from Tabarrok and Helland <\/FONT><\/DIV>
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on key points in this analysis.   <\/FONT><\/DIV><\/BLOCKQUOTE>
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T&H’s primary assumption is the shakiest:  They say [at 5]:<\/FONT><\/DIV>
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“Contingent-fee arrangements are contracts<\/I>, and along with the vast majority <\/FONT><\/DIV>
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of economists, we start with the presumption that self-interest pushes private <\/FONT><\/DIV>
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bargains toward efficiency.”  . . .<\/FONT><\/DIV>
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<\/FONT> <\/DIV>
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“In short, our skepticism with respect to the tort system and our defense of <\/FONT><\/DIV>
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contingent fees rest on the same general presumption in favor of contract. <\/FONT><\/DIV>
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Restrictions on contingent fees are restrictions on the freedom to contract <\/FONT><\/DIV>
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and, as such, must clear a high hurdle to be justified. The presumption for c<\/FONT><\/DIV>
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ontracts can be rebutted. But in examining well-accepted contractual practices, <\/FONT><\/DIV>
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one ought to start with the premise of efficiency even when neither the theorists <\/FONT><\/DIV>
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nor, for that matter, market participants themselves can conclusively explain <\/FONT><\/DIV>
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why <\/I>the arrangements are efficient.”<\/FONT><\/FONT><\/DIV><\/BLOCKQUOTE>
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This assumption of efficiency has no basis in fact when applied to the contingency fee<\/FONT><\/DIV>
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arrangement between lawyer and client.  In the vast majority of cases, the lawyer presents <\/FONT><\/DIV>
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the client with a contract that reflects the standard or “prevailing” fee in their locality; the <\/FONT><\/DIV>
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client has no idea that he or she has the right to negotiate the percentage level, and has <\/FONT><\/DIV>
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no information that would allow for intelligent bargaining — e.g<\/EM>., the likelihood of success, <\/FONT><\/DIV>
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how much work is involved, or how much the award is likely to be. (see <\/FONT>our post<\/FONT><\/A> “it’s not <\/FONT><\/DIV>
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unusual (to charge one-third”)<\/FONT><\/DIV>
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<\/FONT> <\/DIV>
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\"TwoCheersFees\"  I don’t know why the cover of Two Cheers<\/EM> depicts the U.S. Supreme Court <\/FONT><\/DIV>
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building (lack of an art budget? of imagination?).  However, I’m glad they reminded me of the <\/FONT><\/DIV>
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Supreme Court and its opinion in <\/FONT>Gisbrecht v. Barnhart<\/FONT><\/EM><\/A>, 535 U.S. 789 (2002). Gisbrecht<\/EM> dealt <\/FONT><\/DIV>
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with the use of contingency fees in Social Security disability cases, where the fees are capped <\/FONT><\/DIV>
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at 25% of past-due benefits.  Justice Ginsberg wrote the majority opinion, joined by seven other <\/FONT><\/DIV>
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justices, and Justice Scalia dissented.   The Court noted: <\/FONT><\/DIV>
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Characteristically in cases of the kind we confront, attorneys and clients enter into <\/EM><\/FONT><\/DIV>
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contingent-fee agreements “specifying that the fee will be 25 percent of any past-due <\/EM><\/FONT><\/DIV>
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benefits to which the claimant becomes entitled.” . . (“There is no serious dispute among <\/EM><\/FONT><\/DIV>
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the parties that virtually every attorney representing Title II disability claimants includes <\/EM><\/FONT><\/DIV>
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in his\/her retainer agreement a provision calling for a fee equal to 25% of the past-due <\/EM><\/FONT><\/DIV>
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benefits awarded by the courts.”). <\/EM><\/FONT><\/DIV><\/BLOCKQUOTE>
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Although Justice Scalia dissented, he had this to say about the mode of contracting (emphasis <\/FONT><\/DIV>
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added):<\/FONT><\/DIV>
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“The fee agreements in these Social-Security cases are hardly negotiated; they <\/FONT><\/DIV>
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are akin to adherence contracts<\/EM>. It is uncontested that the specialized Social-Security <\/FONT><\/DIV>
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bar charges uniform contingent fees (the statutory maximum of 25%), which are <\/FONT><\/DIV>
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presumably presented to the typically unsophisticated client on a take-it-or-leave-it basis<\/EM>.”<\/FONT><\/DIV><\/BLOCKQUOTE>
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If T&H had bothered to look, they would have found that, in the individual injury cases    \"one  <\/FONT><\/DIV>
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that are the focus of their monograph, virtually every p\/i contract has a contingency fee that is set at <\/FONT><\/DIV>
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the maximum allowed in the jurisdiction.  The fee is presented to the client as the “standard” fee, <\/FONT><\/DIV>
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with no opportunity to negotiate for an “efficient” contract.    Rejecting fee caps in the holy name <\/FONT><\/DIV>
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of “contract efficiencies” demands a faith-based brand of deduction and reasoning that should be <\/FONT><\/DIV>
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anathema to objective economists — and policy-makers. <\/FONT><\/DIV>
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\"tiny T&H also use the empirical work of Prof. Herbert M. Kritzer to support <\/FONT><\/DIV>
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their claim that contingency arrangements do not generate inappropriately high fees <\/FONT><\/DIV>
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as compared to work done on an hourly basis.  Kritzer’s work has been debunked by <\/FONT><\/DIV>
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us <\/FONT>here<\/FONT><\/A>, and by <\/FONT>Prof. Lester Brickman, as described <\/FONT><\/FONT>here<\/FONT><\/A>. Also, their hypotheticals <\/FONT><\/DIV>
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assume a 50% chance of a lawyer winning a case and being paid, whereas it seems <\/FONT><\/DIV>
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quite clear that p\/i lawyers seek much more certainty when accepting a case — and <\/FONT><\/DIV>
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are in fact victorious in perhaps as much as 90% of cases. (see this <\/FONT>post<\/FONT><\/A>, as well as<\/FONT><\/FONT><\/DIV>
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98% Win Rate: Where’s the Risk?<\/FONT><\/A>)<\/FONT><\/FONT><\/FONT><\/DIV><\/DIV><\/BLOCKQUOTE>
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\"tiny Their repeated use of hypotheticals and analogies involving tips given to restaurant <\/FONT><\/DIV>
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waiters also leaves this reader scratching his head.  The mere fact that tips are paid <\/FONT><\/DIV>
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after<\/EM> service is rendered, with the amount being at the discretion of the customer<\/EM>, <\/FONT><\/FONT><\/DIV>
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should be enough to make the authors look for better examples. <\/FONT><\/DIV><\/DIV><\/BLOCKQUOTE>
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There are many other leaps of faith and much faulty reasoning in Two Cheers<\/EM>, but there is one more<\/FONT><\/DIV>
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major error that seems to demonstrate that T&H do not grasp the basic ethical problem raised by <\/FONT><\/DIV>
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client advocates like Prof. Brickman and myself against the “standard contingency fee.”  T&H say:<\/FONT><\/DIV>
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“In support of a collusion theory, Brickman and others have observed and inveighed <\/FONT><\/DIV>
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against the fact that the same contingent fee applies to a big case as to a small one. <\/EM><\/FONT><\/FONT><\/DIV>
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The suggestion here is that time and effort do not rise in direct proportion to the “size” of <\/FONT><\/DIV>
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a case.” [emphasis added]<\/FONT><\/DIV><\/BLOCKQUOTE>
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It is the size of the risk<\/EM> undertaken by the lawyer — the likelihood of winning and the likely amount <\/FONT><\/DIV>
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of work and expense required for the case — not the size of the case, that is at the core of Prof.<\/FONT><\/DIV>
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Brickman’s argument (and mine).  T&H never address the risk issue — and never explain how or <\/FONT><\/DIV>
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why the <\/FONT>same percentage fee is charged across the board in very dissimilar risk situations.<\/FONT><\/DIV>
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<\/FONT> <\/DIV>
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\"scales  No matter what happens with tort reform, action should be taken to enforce ethical restrictions on <\/FONT><\/DIV>
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the use of the standard contingency fee.  The Association of Trial Lawyers of America (ATLA) has often <\/FONT><\/DIV>
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stated that attorneys should “exercise sound judgment in using a percentage in the contingent fee <\/FONT><\/DIV>
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contract that is commensurate with the risk, cost and effort required.” [Georgia’s Trial Lawyers have repeated this standard<\/FONT> here<\/A>.] <\/FONT>That is what is demanded by our <\/FONT>ethical rules. <\/FONT>But, America’s p\/i lawyers have <\/FONT>never put this pronouncement into practice.  (see Some UnCommonly Good Advice<\/A> <\/FONT>on Contingency Fees<\/FONT>)<\/FONT><\/DIV>
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<\/FONT> <\/DIV>
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As I have often said before, each lawyer owes loyalty to one client at a time. Each case taken on <\/FONT><\/DIV>
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contingency must be evaluated for its own merits and risk — and the fully-informed client allowed to<\/FONT><\/DIV>
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negotiate and <\/FONT>ultimately be charged a fee reasonably related to that risk. When the lawyer charges <\/FONT><\/DIV>
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a standard fee to <\/FONT>virtually every client — and it is the maximum percentage allowed in the jurisdiction — <\/FONT>many clients are by definition overcharged.   Injured consumers should not be sacrificed on the altar <\/FONT><\/DIV>
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of the <\/FONT>Holy Contract based on purely apocryphal efficiencies.<\/FONT><\/FONT><\/DIV>
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<\/FONT><\/FONT> <\/DIV>
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<\/FONT> <\/DIV>
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update<\/FONT><\/EM> (Sept. 23, 2005): See our post trivializing economics (Tabarrok and Helland),<\/FONT><\/A> a<\/FONT><\/DIV>
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response to the ABA Journal eReport<\/EM>, “Fee Caps Won’t<\/FONT><\/A><\/FONT><\/FONT> Solve Liability Crisis, Study Says<\/FONT><\/A>.”<\/FONT><\/FONT><\/DIV>
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 <\/DIV><\/FONT>
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at my gate<\/FONT><\/FONT><\/DIV>
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they pay their respects. . .<\/FONT><\/FONT><\/DIV>
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fireflies<\/FONT><\/FONT><\/DIV>
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<\/FONT> <\/DIV>
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<\/FONT> <\/DIV>
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<\/FONT><\/FONT> <\/DIV>
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taking up<\/FONT><\/FONT><\/DIV>
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the holy man’s chant. . .<\/FONT><\/FONT><\/DIV>
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croaking frogs<\/FONT><\/FONT><\/DIV>
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<\/FONT> <\/DIV>
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<\/FONT> <\/DIV>
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\"fireworksSmN\"<\/FONT><\/FONT><\/DIV><\/BLOCKQUOTE><\/BLOCKQUOTE><\/BLOCKQUOTE>
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<\/FONT> <\/DIV>
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riverboat. . .<\/FONT><\/DIV>
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on a night of fireworks<\/FONT><\/DIV>
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still selling fireworks<\/FONT><\/DIV>
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<\/FONT> <\/DIV><\/BLOCKQUOTE><\/BLOCKQUOTE><\/BLOCKQUOTE><\/BLOCKQUOTE><\/BLOCKQUOTE><\/BLOCKQUOTE><\/BLOCKQUOTE>
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Kobayashi ISSA<\/FONT><\/A>,<\/FONT><\/FONT><\/DIV>
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translated by <\/FONT>David G. Lanoue<\/FONT><\/A><\/DIV>
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<\/FONT><\/FONT> <\/DIV>
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                    <\/FONT><\/FONT><\/DIV>
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 <\/DIV><\/BLOCKQUOTE><\/BLOCKQUOTE><\/BLOCKQUOTE><\/BLOCKQUOTE><\/BLOCKQUOTE><\/BLOCKQUOTE><\/BLOCKQUOTE><\/BLOCKQUOTE><\/BLOCKQUOTE><\/FONT><\/BLOCKQUOTE><\/p>\n","protected":false},"excerpt":{"rendered":"

It is only fitting that AEI’s Liability Project has released Two Cheers for Contingent Fees to coincide with the Catholic Feast of the Assumption of the Blessed Virgin Mary (which celebrates Mary’s having been “taken up body and soul into heaven upon her death”).  Two Cheers is a 42-page monograph by Alex Tabarrok and Eric Helland (available here in […]<\/p>\n","protected":false},"author":94,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":false,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2},"jetpack_post_was_ever_published":false},"categories":[2926],"tags":[],"class_list":["post-4040","post","type-post","status-publish","format-standard","hentry","category-pre-06-2006"],"jetpack_publicize_connections":[],"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"jetpack_shortlink":"https:\/\/wp.me\/p6kP1R-13a","_links":{"self":[{"href":"https:\/\/archive.blogs.harvard.edu\/ethicalesq\/wp-json\/wp\/v2\/posts\/4040","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/archive.blogs.harvard.edu\/ethicalesq\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/archive.blogs.harvard.edu\/ethicalesq\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/archive.blogs.harvard.edu\/ethicalesq\/wp-json\/wp\/v2\/users\/94"}],"replies":[{"embeddable":true,"href":"https:\/\/archive.blogs.harvard.edu\/ethicalesq\/wp-json\/wp\/v2\/comments?post=4040"}],"version-history":[{"count":1,"href":"https:\/\/archive.blogs.harvard.edu\/ethicalesq\/wp-json\/wp\/v2\/posts\/4040\/revisions"}],"predecessor-version":[{"id":13067,"href":"https:\/\/archive.blogs.harvard.edu\/ethicalesq\/wp-json\/wp\/v2\/posts\/4040\/revisions\/13067"}],"wp:attachment":[{"href":"https:\/\/archive.blogs.harvard.edu\/ethicalesq\/wp-json\/wp\/v2\/media?parent=4040"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/archive.blogs.harvard.edu\/ethicalesq\/wp-json\/wp\/v2\/categories?post=4040"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/archive.blogs.harvard.edu\/ethicalesq\/wp-json\/wp\/v2\/tags?post=4040"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}