Last night I attended an interesting lecture by Professor Lester Brickman of the Cardozo School of Law at Yeshiva University. Professor Brickman, a legal ethicist, has written a provacative new book,"Lawyer Barons: What Their Contingency Fees Really Cost America" (Cambridge 2011). In "Lawyer Barons," Professor Brickman posits that there has been an exposion of litigation in America because as the filing of lawsuits gets more lucrative for plaintiffs' counsel, the number of cases filed increases.
Professor Brickman has "calculated the inflation-adjusted effective hourly rate of the contingency fee bar to have increased by 1,000 to 1,400 percent over the last forty years. . . . In the aggregate, tort lawyers' incomes from contingency fees have grown to Fortune 500 levels, ranging from $50 billion to $55 billion in 2006." Id. at 37-38. That's some serious coin.
Professor Brickman is particularly critical of the fact that the standard contingency arrangement provides a 33% to 40% fee to lawyers, regardless of the type of case that it is. Contingency fees, he instructs, were originally conceived of to compensate lawyers who took great risk of no recovery. But many of the suits filed today are virtually guaranteed recovery, and yet the contingency fee amount remains inelastic, and there is no real price competition among contingency fee lawyers.
The result of all of this, Professor Brickman concludes, is increased lawsuit filings, more frivolous filings, and ever-greater payouts in settlement, which get passed on by businesses to consumers as costs.
So what is to be done? Professor Brickman is not out to ban contingency fees; he says it would never gain any political or judicial traction. Nor is he an advocate of adopting Britain's "loser pays" rule across the board. One interesting proposal that he does make is called the "early offer rule," whereby tort defendants, shortly after being sued, could make an early offer of settlement. Plaintiffs' counsel could not charge a contingency fee on amounts offered in the early offer; only hourly rates. If the offer is rejected and the case goes to trial, the plaintiffs' counsel can charge an hourly rate on any recovery up to the early settlement offer, and a contingency fee only up on amounts recovered above the amount of the early settlement offer. This would have the effect of limiting the contingency fee to its proper purpose, namely, compensating counsel where they have added value in the face of a significant risk of loss.
Professor Brickman's book has been well reviewed and, based on his lecture, it will make for some thought-provoking reading this Spring. I encourage you to pick up a copy.