f/k/a archives . . . real opinions & real haiku

September 5, 2003

It’s Not Unusual (to take one-third)

Filed under: viewpoint — David Giacalone @ 4:22 pm

Having a slow news day, I stopped in at the ATLA website to see what my trial lawyer buddies are doing. [Note: since this post was written, ATLA, the Association of Trial Lawyers of America, has changed its name to American Association for Justice. Really. See Declarations & Exclusions, Overlawyered.com, and LegalBlogWatch.] Before I knew it, I had stuck the word “contingency” in the ATLA search box and got a list of 30 results. Two caught my eye, and upon perusal seemed well worth sharing.

Both items were surprising, in light of the frequent claims (by apologists for the contingency fee system as it currently operates) that lawyers do not charge a “standard” contingency fee to their p/i clients.

  • Background: In my experience, it was p/i lawyers themselves who invented the term, and tried so hard to establish the concept, of a “standard” fee — usually 33% — that would be offered to and mutely accepted by virtually all injury victims. If a prospective client asked why the fee was so high, the lawyer would just swallow and say “it’s the standard fee, ma’m.” So, I’ve been bemused whenever I hear there is no such thing as a standard contingency fee. One proponent of this new myth, is Prof. Herbert W. Kritzer, who wrote the now much-cited article Seven Dogged Myths Concerning Contingency Fees, (Wash.U.L.Q, Fall 2002) See our posting on July 30, 2003, for a review of the Kritzer Article, and for a link to my argument that the use of a standard fee for each p/i client, rather than fitting the percentage charged to the risk taken by the lawyer in each case, is unethical. Yes, I admit that all p/i lawyers do not charge a standard contingency fee of 33.3%. You see, in some areas, they charge 40% as the standard, and in others they charge the judicial or statutory maximum (be it 33%, 40%, or 25%).

With this “debate” in mind, I was surprised to find a Fact Sheet Glossary of Tort “Reform” Terms [Note: now called “Glossary of Civil Justice Terms”] among ATLA Consumer & Media Resources, which states (emphasis added):

Contingency Fee: The contingent fee system is the “key to the courtroom” for thousands of Americans. It allows people who suffered an injury to bring a suit without having to have the money up front to pay their attorney. Rather than charging for legal services by the hour, an attorney agrees to accept a portion of any recovery in the case, usually one-third.

[Also, ATLA’s “Keys to the Courthouse: Quick Facts on the Contingency Fee System” (1994), reproduced by Georgia trial lawyers, says “The contingent fee is the most common form of payment arrangement for plaintiffs seeking representation in personal injury litigation. Instead of billing the plaintiff on an hourly basis, the attorney is entitled to a percentage of the settlement or trial award, usually one-third.” And see their “What Is a Contingent Fee?” which says “usually in the amount of one-third”.]

Similarly, I was intrigued to learn in footnote 2 of ATLA’s amicus brief to the U.S. Supreme Court last year, in Gisbrecht v. Barhart, that (emphasis added):

It is not accurate to state that those clients who win subsidize the losers — any more than a company whose stock rises is subsidizing those companies in an investor’s portfolio whose shares lose value. [editor’s aside: don’t you just hate totally inapt analogies?] The attorney who takes a contingency fee assumes the risk of loss for that case. If it were the attorney’s only case, he or she would charge the same prevailing contingency fee.

  • [On the “subsidization” issue, please check out the very next page of the brief (20), where ATLA argues that contingency fees do not result in “windfall” profits, because “contingency fee lawyers do not earn substantially more per hour than their counterparts who bill on an hourly basis.” The two studies cited, Kritzer’s and one by Rand Corp., both obtain the effective hourly figure by “averaging over cases won and loss.” Now I understand: winners don’t subsidize losers; losers make our winnings seem less excessive.]

In addition, ATLA posted a very triumphant Amicus News press release (May 28, 2002) about the final opinion in Gisbrecht v. Barnhart, 535 U.S. 789 (2002) (attorneys successfully representing Social Security disability claimants in court may be awarded fees based on contingent fee agreements with their clients). I therefore took a look at the Court’s decision. Justice Ginsberg wrote the majority opinion, joined by seven other justices, and Justice Scalia dissented. Here’s a little of what the Gisbrecht Court had to say about the use of contingency fees in Social Security cases, which are limited by statute to 25%:

Characteristically in cases of the kind we confront, attorneys and clients enter into contingent-fee agreements “specifying that the fee will be 25 percent of any past-due benefits to which the claimant becomes entitled.” Brief for National Organization of Social Security Claimants’ Representatives as Amicus Curiae 2; see Brief for Washington Legal Foundation et al. as Amicus Curiae 9, n. 6 (“There is no serious dispute among the parties that virtually every attorney representing Title II disability claimants includes in his/her retainer agreement a provision calling for a fee equal to 25% of the past-due benefits awarded by the courts.”).

In case you thought that Justice Scalia was dissenting because he came to a different understanding on the existence of a standard contingency fee, read on:

“The fee agreements in these Social-Security cases are hardly negotiated; they are akin to adherence contracts. It is uncontested that the specialized Social-Security bar charges uniform contingent fees (the statutory maximum of 25%), which are presumably presented to the typically unsophisticated client on a take-it-or-leave-it basis.”

It seems perfectly fair to me to call a contingency fee “standard,” when it is “prevailing” and is “usually” offered to clients. Ditto when the statutory maximum is used “characteristically” and “in virtually every case” for Social Security claims. [I even checked the Quick Definitions at OneLook Dictionary Search to make sure the words usual and prevailing and standard were synomyms. And see the Wordsmyth Thesaurus, for a list of synonyms for the adjective “standard.”] Thus, and to wit, I can now cite ATLA and the Supremes for the existence of a “standard” contingency fee. Not bad for a slow news day.

Now that we have an admission that the standard contingency fee still exists, maybe the trial lawyers can start to break themselves of the addiction. It will take tough love and a lot of discipline. Of course, success would be a lot easier, if bar counsel and the courts stop enabling the practice and start enforcing the ethics rules against excessive fees.

See our version of The Injured Consumers’ Bill of Rights for Contingency Fees, which is based on the requirements set forth in ABA Ethics Op. 94-389 and in Rule 4-1.5 of the Rules Regulating the Florida Bar.  And, for a thorough discussion of contingency fee economics and ethics, see our 4-part series, from April 2006, which begins with contingency fees (part 1 of 4): market failure.

occasional updates (as I run across them): Here’s what the Tennessee Bar says about contingency fee rates: “In some cases such as social security and worker’s compensation, there is usually a cap or limit on the percentage or the dollar amount that an attorney is permitted to charge. You should ask the attorney if there is such a limit and what it is. In most personal injury cases, there is not a limit on what the attorney can charge. However, generally speaking, a one-third contingency fee is the customarily accepted percentage that a lawyer will be paid from your award.” The Consumer Attorneys of California [nee California Trial Lawyers Association] states: “Rather than charging for legal services by the hour, an attorney agrees to accept a portion of any recovery in the case, usually one-third.” (emphases added). Similarly, the New Hampshire Bar says “Contingency fee percentages of 33% are common. Any percentage in excess of 40% may be unethical.”

  • Two Cents from Jack Cliente: The next slow news day, let’s figure out why the trial lawyers keep agreeing that the contingency fee should vary with the risk, but keep using a standard rate. For example, the Association of Trial Lawyers of America (ATLA) has often stated that attorneys should “exercise sound judgment in using a percentage in the contingent fee contract that is commensurate with the risk, cost and effort required.” See “Keys to the Courthouse,” (1994); and ATLA Memorandum to the Supreme Court of Utah (2003), at 12. Georgia’s Trial Lawyers have adopted this standard, noting that “trial lawyer associations publicly urge members” to follow it. Public Citizen has also recogized it.] That is what is demanded by our ethical and fiduciary principles (and see the Federal Trade Commission’s Facts for Consumers: Hiring A Lawyer.

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