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July 30, 2003

Kritzer Contingency Fee Article: More Bunk Than Debunk

Filed under: pre-06-2006 — David Giacalone @ 3:59 pm

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Oklahoma personal injury lawyer Brian Huddleston asked me last month for my reaction to a law journal article by Prof. Herbert M. Kritzer, of U. Wisconsin-Madison.  The article, which is often cited by opponents of “tort reform” and proponents of the current contingency fee system, is Seven Dogged Myths Concerning Contingency Fees, which was in the Fall 2002 edition of the Washington U. Law Quarterly.

Far from debunking the most important “myths” about contingency fees, the Kritzer Article sets up an army of strawmen, shoots statistical and rhetorical blanks at them, and assures a hollow victory in the battle by using volunteer soldiers from the ranks of p/i lawyers.   In fact, the article actually strengthens my most important factual claims about the use of contingency fees, makes no attempt to address ethical issues, and then concludes with a proposal totally consistent with my own:

The Article does a poor job debunking the “seven dogged myths” that Kritzer says are spread by the “so-called tort reform movement.”  He describes the proponents of tort-reform as seeking “to reduce both the exposure to lawsuits and the amounts paid out in damages” (which is why p/i plaintiffs lawyer oppose the movement).   I believe that tort reform is a matter of political and social policy, not legal ethics.  It isn’t my fight. I want clients to get all that they deserve, and I want their lawyers to take only the fees that they deserve.   So, I’m leaving it to actual tort reform advocates to respond point by point to Kritzer’s arguments, and I’m looking forward to the upcoming reply by Prof. Lester Brickman to Kritzer’s empirical “evidence” and arguments, which will be published in the Washington [St. Louis] Law Quarterly.  (Brickman’s fight against excessive contingency fees was discussed in a posting yesterday on this site.  See, this article for a summary of my own position on using a standard contingency fee.  Also, check out the Fees section of our Ethics Resources.)

I will, however, point out the biggest probem with Kritzer’s underlying data and resulting conclusions:  His “most important” source of information is his own “Wisconsin study” of contingency fee usuage. The study is amazingly flawed and suspect from the start, because it uses data from cases and fees chosen and reported by self-selected participants.

  • Prof. Kritzer states that the respondents were 51% or less of the contingency-fee-using lawyers who had been sent the questionnaire.  When a study uses data collected from randomly chosen sources, 51% of the target population is far more than necessary to obtain statistically valid information.  But, the target population here knew the purpose of the study (to debunk contingency-fee myths), had a stake in the outcome, decided themselves whether to participate and, if they did, which examples fit the categories of information request.  No self-respecting lawyer or accountant would let her client make practical or policy decisions based on such a study.

The Kritzer Article supports my concerns about the current use of contingency fees in several ways:

(1) Kritzer states that of the 989 cases he studied (which came from volunteer participants who also selected which cases they reported) “on the order of 60% of the cases employed the standard one-third contingency fee.” Of those that didn’t use a flat 33%, some charged a variable fee that started at 25% or 33% and went to 40% or 50%, if the case entailed significant trial preparation, went to trial, or had an appeal.  Saying, in effect, “hah, hah, sometimes we charge even more than 33%, so there’s no standard fee” is scarcely a persuasive argument.  It is clear that a very large percentage and number of consumers are presented with only a contingency fee option (and given no opptunity to negotiate the percentage rate).  We have no idea if the variable rates used in some reported cases were the offered initially by the lawyer or were demanded by the rare savvy consumer.   Nor do we know if an example given by a p/i lawyer to show that he has in fact offered some client an hourly rate is the bogus situation where the offer is intentionally meant to scare the client away — because the case is so obviously weak that the “injured” party would never try to bankroll his own case.   Kritzer in no way helps quantify the key question in my approach: How many lawyers are willing to negotiate and tailor the fee arrangement to the particular client’s situation, while giving the client enough information and objective advice to make an intelligent choice?

(2) Kritzer also argues against the supposed myth that p/i lawyers take every case that walks into their doors. No sane observer of the legal scene believes that myth or mouths it. Quite the opposite is true: p/i lawyers sort through cases all the time, rejecting the poor prospects (and advertising that they only take “serious” injuries that could bring huge fee jackpots).  That’s why I know that an experienced p/i lawyer can and does make intelligent guesses about the likely outcome of a case, greatly lowering the overall risk in his or her practice. And, that’s why I’ve often suggested that one possible pricing strategy might be a three-tier percentage system based on the lawyer’s perception of the risk: You give the client a good faith evaluation as to whether the case appears to be low, medium or high risk, and offer corresponding percentages (e.g., 13-23-33%).  And you also let the client know that a hourly fee could be negotiated — just like in marital or commercial cases, where the client often has no idea what the final outcome or bill will be.

(3) After sketching a fictional scenario where a lawyer discusses the option of using an hourly fee, Kritzer simply concludes “With all of these considerations, most clients would choose the contingency fee over the hourly fee.” Making such broad assumptions and arguments, or using worse-case scenarios — which I often hear from actual practicing personal injury lawyers — is precisely the wrong approach if the issue is the fairness of the fee for each individual client and case.   Instead, one key question is whether p/i lawyers are offering to work on an hourly basis when the client is very likely to receive a lot of money, and the lawyer is very unlikely to run up enough billable hours to earn more than the fee that would result using the local standard contingency rate.  

My focus is the individual lawyer’s ethical, professional and fiduciary obligations to the individual client. That’s what legal ethics are about.  What’s happening or not happening on the macro-level can reinforce or deter anti-consumer and anticompetitive practices, but can’t justify a failure by the lawyer to give each client undivided loyalty — even when it comes to fees or to pressure from partners to generate profits. No client should be asked to subsidize other clients with riskier cases. And, no client should be forced to enter into a contingency fee arrangement without enough information to make an intelligent choice about fee levels and options.  Beyond its failure to present valid data, Kritzer’s study does not help us gauge the ethical significance of a system that consistently uses contingency fees bearing little or no relationship to the risk and work facing the lawyer.

Finally, Kritzer concludes the article with a suggestion that is totally consistent with my own focus on preventing or punishing individual instances of excessive fees. He states:“[I]f the real goal is to protect the injured parties from greedy, overcharging lawyers, then the route is not to restrict contingency fees.  Rather, the route is to let the market find the appropriate level for such fees by removing artificial controls that allow lawyers to overcharge in a clearly identifiable subset of cases.”  (emphasis added)

Of course, to make the market work, “consumers” need to be well-informed and the “sellers” need to actively compete on the basis of price (to wit: no conspiracy to limit the advertising or offering of fee options other than the local standard contingency fee).

P.S. To the probable dismay of trial lawyers who actually read the entire Article, Prof. Kritzer also makes the following observation in his conclusion: “More importantly, if there are cases that do not merit paying a lawyer a one-third contingency fee because they can be easily settled, then such cases could be handled by nonlawyers; nonlawyers who handled only such cases would be able to charge fees considerably lower than those charged by lawyers.” (Emphasis added)


Fee Simple (Not): Here are two quick blurbs that are also related to legal fees:

Go Judge! Walter Olson at Overlawyered.com wrote yesterday (July 29, 2003) concerning an Australian judge, who wrote an article warning estate lawyers to stop charging excessive fees that gobble up an estate and total more than the share won by their clients. The news report from the Sydney Morning Herald carrying the story is worth a look (July 28, 2003).  Why doesn’t the good old USA have such judges?

Common Better?  In May, as you probably know, Common Good unveiled its “Early Offer” Settlement proposal, and filed petitions in 13 States seeking to reduce contingency fees in situations where an early settlement is reached.  At the time, the organization stressed its willingness to listen to suggestions to improve the proposal.  For example, Michael Horowitz of the Hudson Institute, one of the drafters of the plan, told the New York Times, “[I]t should not give defendants an unfair advantage. If we have struck the balance between those two needs incorrectly, we are willing to make the necessary changes.” (May 26, 2003, now only available through their premium archive)    ethicalEsq? has heard from reliable sources that The Common Gooders are in fact working on revisions that will make the plaintiffs’ obligations less onerous, and clarify that the notice requirement is not meant to give an informational advantage to the defendant. I’ll be watching that space to see what improvements are made, but you need only watch this space. [My take on the Common Good Early Offer proposal can be seen in postings on May 30 and June 6, 2003.]

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