Lawyer Reform

The Path To High Legal Fees Today

To understand our legal system today it helps to return to its origins. For our purposes, the modern civil justice system was conceived in the 1960s and early 1970s. It was a time of considerable and even well-intentioned legal policy experimentation, but, like much of the experimentation during that period, the original rationale has become hazy if not forgotten. It was also a time of social evolution with profound effects on our society. Law, in its own way, was part of this movement. With social activism came legal activism, transforming litigation into a public good and lawyers into champions of liberty and justice.31 This was a pivotal moment in our nation’s legal history. Prior to this point, the law and lawyers were conceived of in a fundamentally different way. Under the old system, a lawsuit was viewed as a conflict between private parties that was to be avoided. “[T]he good lawyer did not go about looking for chances to litigate….[T]he lawsuit [was] something unfortunate, something with more losers than winners, a poor substitute for getting along with each other.”32 Litigation was a regrettable event that lawyers were ethically required not to stir up. A guide for lawyers practicing in New York state courts, which was written in 1844, articulated this ethos well:

It is said to be a secret worth knowing, that lawyers rarely ever go to law, and Doctors seldom take medicine. It is also said to be a wise child that knows enough to keep out of the fire, and I should think as much of the man who contrives to keep out of the law; for generally speaking, like the majority of prizes in a lottery, it is a losing game even when successful. A prudent man, therefore, will refrain from law as long as his wrongs are tolerable or endurable.33

The Canons of Professional Ethics of 1936 echoed this view. Canon 28 provided that “It is unprofessional for a lawyer to volunteer advice to bring a lawsuit….It is disreputable…to breed litigation by seeking out those with claims for personal injuries or those having any other grounds of action in order to secure them as clients.”34 Members of the legal guild who strayed from these norms were viewed as undignified and worthy of contempt. In his Commentaries of 1803, Blackstone wrote about the “pests of civil society, that are perpetually endeavoring to disturb the repose of their neighbors, and officiously interfering in other men’s quarrels.”35 When there were good grounds for litigation, however, lawyers were to behave civilly, particularly toward one another. As one nineteenth century legal ethicist wrote: A very great part of a man’s comfort, as well as his success at the Bar, depends upon his relations with his professional brethren….He cannot be too particular in keeping faithfully and liberally every promise or engagement he may make with them….He should never unnecessarily have a personal difficulty with a professional brother. He should neither give nor provoke insult….Let him shun most carefully the reputation of a sharp practitioner.36

By the 1960s, however, the foundational norms of the old order began to give way and were soon replaced by a new philosophical superstructure.37 The chief architects of this paradigm shift include William Prosser, Guido Calabresi and Richard Posner. For Prosser, the law of torts more than any other branch of law “…is a battleground of social theory….[T]he twentieth century has brought an increasing realization of the fact that the interests of society in general may be involved in disputes in which the parties are private litigants….There is good reason, therefore, to make a conscious effort to direct the law along lines which will achieve a desirable social result, both for the present and for the future.”38

In order to direct the law to achieve such desirable social results, Prosser contended that courts should consider interests beyond those directly involved in the case at hand. He explained that courts examine the parties’ “capacity to avoid the loss, or to absorb it, or to pass it along and distribute it in smaller portions among a larger group.”39 In tort law, the most desirable social result, then, will result from the selection of the party, which can best sustain current accident costs. For him, while litigation serves as a proxy for the interests of society as a whole, liability serves as a nexus between policy and law with regard to who could most adequately further those interests.

In most tort cases, the choice was clear. The defendants were primarily companies and individuals with means — e.g., public utilities, industrial corporations, commercial enterprises, and automobile owners with insurance. Adopting the shorthand of the time, Prosser referred to these defendants as “deep pockets.”40 For “Mr. Deep Pocket,” the price of accidents is just another cost of doing business.41 “[B]y means of rates, prices, taxes or insurance [deep pocket defendants] are best able to distribute to the public at large the risks and losses which are inevitable in a complex civilization.”42 Logically, lawyers set out to find new and better ways to pick those deep pockets. If the immediate transgressor’s pockets were not deep enough, then the hunt would begin to find the party who could bear the cost of the accident, and the deeper the pockets the better. Courts, too, did their part, by generally finding against deep pocket defendants as they upheld increasingly novel legal theories such as successor liability and negligent entrustment. Not surprisingly, judges and juries began to award larger and larger recoveries because of the extensive use of insurance and other measures by defendants.43 Although Prosser argues that the availability of liability insurance is not in-and-of itself sufficient to attach liability to a defendant, he did believe that insurance does serve as a “makeweight” or additional reason for attaching liability.44

Calabresi’s contribution was to re-conceptualize the tort system by articulating a new economically rationalized theory of deterrence. Like Prosser, he argued that the costs of accidents can be reduced most “by placing them on the categories of people least likely to suffer substantial social or economic dislocation as a result of bearing them, usually thought to be the wealthy.”45 Accident costs will be reduced by forcing these parties to internalize the costs of accidents on an ex ante basis. In turn, “internalizing the costs of accidents provides an incentive for manufacturers to make appropriately safe products.”46

With Calabresi, the economic logic of the law replaced the custom of the old guild. In the calculus that torts had become, accidents, victims and defendants were all abstract variables to be manipulated in order to maximize market efficiencies for the advancement of social welfare. The question for judges and juries was reduced to an equation to determine which party is the “cheapest cost avoider.”47 The cheapest cost avoider is that party which is in the most appropriate position to choose between paying for the present cost of accidents or paying for the cost of avoiding future accidents. For Calabresi, “[t]he consumer, in practice, cannot make this comparison. Relatively, the producer is the cheapest cost avoider, the party the best suited to make the cost-benefit analysis and to act upon it.”48 Therefore, defendants and potential defendants have an obligation to make an economically rational choice between these two costs. Those who do not pay in advance to prevent accidents will pay, and pay dearly, after the fact. Plaintiffs, on behalf of society at large, merely hold defendants to this obligation. In Posner’s view, the primary function of the tort system is regulation and not compensation.49 While administrative agencies regulate, so too do courts. Both represent forms of public control. As the common law is a “system for maximizing the wealth of society,” liability plays a critical social function. 50 Therefore, it is argued, litigation should not be understood within the narrow confines of the parties to the dispute. Rather, judges and litigants are actors in the regulatory process, on equal footing with executive and legislative officials.51 Moreover, effective regulation involves incentives. Posner believed that, “people respond to incentives—that if a person’s surroundings change in such a way that he could increase his satisfaction by altering his behavior, he will do so.”52 As a rational profit maximizer, a plaintiff is induced by jury awards and settlements “to play his regulatory role of identifying violations of the applicable judge-made rule…and when appropriate pressing for changes in the rule.”53

While plaintiffs are incentivized to make law and police it, defendants are similarly incentivized to follow the law. “[I]ncentives to obey are created by the threat of having to compensate victims for the harm done them by a violation of the rules.”54 Prosser, Calabresi, Posner and others signaled the beginning of the end of the old order. With a new philosophical and moral mandate, the law was transformed and lawyers heralded the dawning of a new age of liberty through litigation, justice through jurisprudence and, not coincidently, civic virtue through contingency fees. Once viewed as an evil between private parties, litigation came to be seen as a public good, and a profitable one at that.

Plaintiffs and their attorneys had been recast as the defenders of the public interest in improved health and safety by deterring bad behavior. Few, it seemed, mourned the passing of the old order. In fact, “[t]he fall of the old rules was widely hailed as a victory for the public welfare over the organized bar’s crass self-interest and pompous concern for its dignity. Mysteriously, however, the profession began to prosper mightily after the self-interested rules came off, and to become vastly more powerful and widely feared after suffering this blow to its dignity.”55 This marriage of public-spiritedness and profit proved irresistible. Few could resist its charms, including the Supreme Court. In 1977, Justice Blackmun expressed great concern that “the middle 70 percent of our population is not being reached or served adequately by the legal profession,” and that this “underutilization” of lawyers is a significant problem.56 Exemplifying the emergent philosophy, the administration of justice had become inextricably intertwined with market share. Because supply was not meeting demand and lawyers were not litigating, justice was not being served. Therefore, the logic continues, lawyers need greater market access to those in need of their services. Then justice will be done. Eight years later, Justice White announced the end of the old order, stating, “we cannot endorse the proposition that a lawsuit, as such, is an evil…. That our citizens have access to their civil courts is not an evil to be regretted; rather, it is an attribute of our system of justice in which we ought to take pride

31 Hazard, Geoffrey, The Future of Legal Ethics, 100 YALE L.J. 1239, 4 (1991). See generally Olson, supra note 18.
32Olson, supra note 18, at 340.
33Crowell, Moses, The Counselor, or Every Man His Own Lawyer: The Several Modes of Commencing and Conducting Actions in the Justice’s Courts in the State of New York, (D. D. & A. Spencer, Ithaca, 1844).
34ABA Canons of Professional Ethics, Canon 28 (1936).
35IV William Blackstone, COMMENTARIES *135.
36Sharswood, George, AN ESSAY ON PROFESSIONAL ETHICS (5th ed. 1884), at 73-74.
37Tobias, Carl, Interspousal Tort Immunity in America, 23 GA. L. REV. 359, 429-30 (1989). (arguing, “This theorizing [by Prosser and others] contributed to subtle changes between 1945 and 1970, so that by 1970 torts was evolving into a public law subject, principally aimed at adjusting societal risks through more equitable and efficient compensation of injuries.”)
38Prosser, William & Keeton, W. Page, THE LAW OF TORTS, 15 (5th ed., 1984).
39Id. at 24.
40Prosser, William, et al., CASES AND MATERIALS ON TORTS, 352 (9th Ed., The Foundation Press, Inc., Westbury, N.Y., 1994).
41Id. at 360.
42Prosser & Keeton, supra note 37, at 24.
43Symposium on Civil Justice Reform: Foreword, 42 AM. U. L. REV. 1245, 1246 n.11 (1993).
44Beltran, Beatrice, Posner and Tort Law as Insurance, 7 CONN. INS. L.J. 153, 157 n.18 (2000-2001).
45Calabresi, Guido, THE COSTS OF ACCIDENTS 40 (Yale University Press, 1970).
46Sarlitto, Mark, Recognizing Products Liability Claims at Dissolution: The Compatibility of Corporate and Tort Law Principles, 87 COLUM. L. REV. 1048, 1059 (1987).
47Calabresi, supra note 45, in Rabin, Robert, PERSPECTIVES ON TORT LAW 199 (4th ed., Little, Brown and Company, Boston, 1995).
48Rabin, supra note 47, at 215-16.
49Posner, Richard, A Theory of Negligence, 1 J. LEGAL STUD. 29 (1972), in Rabin, supra note 47, at 16.
50Rabin, supra note 47, at 17.
51Id. at 16.
52Posner, Richard, ECONOMIC ANALYSIS OF LAW, (5th ed., Aspen Law & Business, 1998), in Rabin, supra note 47, at 17.
53Rabin, supra note 47, at 17.
54Posner, supra note 52, at 401.
55Olson, supra note 18, at 27.
56Bates v. State Bar of Arizona, 433 U.S. 350, 376 (1977). (quoting ABA, REVISED HANDBOOK ON PREPAID LEGAL SERVICES 2 (1972)).
Copyright 8 2004 Washington Legal Foundation 19

Legal Fees in the Legal Industry Today

The numbers speak for themselves. America’s civil justice system is the world’s most expensive. For the second year in a row, the cost of the tort system in the United States experienced a double-digit percentage increase, growing 13.3 percent in 2002 and 14.4 percent In 2001.

4. At current levels, the costs of the tort system total $233 billion or 2.23 percent of GDP. If they continue to grow at this rate, costs will amount to more than $4.8 trillion by 2011.

5. Tort costs in 2002 were $809 for each U.S. citizen in 2002, up $87 from 2001.

4Tillinghast-Towers Perrin, U.S. Tort Costs: 2003 Update, Trends and Findings on the Costs of the U.S. Tort System, at 7 (2003), http://www.towersperrin.com/tillinghast/.5Copland, Jim, The Tort Tax, THE WALL ST. J., June 11, 2003.

6. This is the equivalent of a five percent tax on wages.

7. Over the past ten years, class actions have increased by 1,000 percent in state courts and that rate continues to grow.

8. In asbestos litigation, an estimated 1.1 million individuals will file claims at a cost of $275 billion.

9. Such litigation will cost insurers alone $130 billion. Total costs for insurers and defendant corporations could reach as high as $200 billion.

10. These rising costs are attributable, in part, to the soaring number of claims filed each year. While roughly 30,000 cases were filed in 1999, some 90,000 new asbestos cases were filed in 2001.

11. The resulting litigation has cost companies a total of $54 billion, causing 67 of those companies to file for bankruptcy.

12. Despite the collapse of the asbestos industry many years ago, at least 16 asbestos defendants have entered Chapter 11 since 2000.

6Tillinghast-Towers Perrin, supra note 4, at 7. 7Tillinghast-Towers Perrin, supra note 4, at 1. 8Institute for Legal Reform, Facts and Figures, (2003) (citing Federalist Society, 1999)at http://www.legalreformnow.com/newsroom/factsfigures.cfm.
9Institute for Legal Reform, supra note 8 (citing Milliman USA).
10Freedman, Michael, The Tort Mess Is Worse Than You Think: Out-of-ControlLawsuits Are Shutting Down Medical Practices, Killing Businesses and Costing the Economy 200 Billion a Year, FORBES, May 13, 2002, at 90. 11Parloff, Roger, Asbestos Lawyers Are Pitting Plaintiffs Who Aren’t Sick Against Companies That Never Made The Stuff – And Extracting Billions for Themselves, FORTUNE, Mar. 4, 2002, at 155. 12Institute for Legal Reform, supra note 8 (citing RAND, Jan. 2003).

13. In turn,some 60,000 jobs have been lost and another 138,000 were not created because of the costs of litigation.

14. Since 1994, the average medical malpractice verdict has increased from $1.1 million to $3.5 million.

15. In 2002, the three largest medical malpractice verdicts in the country occurred in New York State and amounted to $94.5 million, $91 million, and $80 million.

16. Medical malpractice suits cost the U.S.economy $21 billion in 2001.

17. While roughly 70 to 80 percent of obstetricians have been sued, it is reported that 100 percent of Washington, D.C.’s neurosurgeons have also been sued.

18. As a result, doctors protest, maternity clinics and trauma centers shut down, and patients have to travel great distances for expensive procedures.

19. The National Institute of Medicine (IOM) has found that the rise of “defensive medicine” has resulted in significant reductions in the quality of healthcare in the United States.

13Hantler, Steven, Toward Greater Judicial Leadership on Asbestos Litigation, Civil Justice Forum No. 42, Apr. 2003, at 5, http://www.manhattan-institute.org/cjf_41.pdf.
14Institute for Legal Reform, supra note 8 (citing RAND, Jan. 2003, and Sebago Associates, 2002).
15Institute for Legal Reform, supra note 8.
16Copland, Jim, Hellhole, N.Y. POST, June 16, 2003.
17Institute for Legal Reform, supra note 8 (citing Tillinghast-Towers Perrin, 2003).
18Olson, Walter, THE LITIGATION EXPLOSION: WHAT HAPPENED WHEN AMERICA
UNLEASHED THE LAWSUIT 9 (Truman Talley Books-Dutton, 1991).

20. With liability insurance premiums skyrocketing, the IOM found that in addition to taking unnecessary liability reducing procedures, many physicians are simply leaving medicine. In rural areas, for example, one in five doctors has ceased delivering babies, citing medical malpractice suits as the primary cause.

21. A July, 2003, study by Harris Interactive offers strong support for the IOM’s findings. Harris interviewed 250 physicians from five different medical specialties, and found virtually all of them (99 percent) are personally concerned that they may be the target of groundless litigation.

22. Two-thirds of the physicians interviewed said they are very concerned they may be involved in a groundless lawsuit.

23. Even more troubling, 43 percent of physicians interviewed said they have avoided prescribing a drug that was appropriate for a patient because they were aware it might be involved in product liability litigation.

19Stein, Rob, Increase in Physicians’ Insurance Hurts Care: Services Are Being Pared, And Clinics Are Closing, WASH. POST, Jan. 5, 2003, §A, at 1.
20Malpractice Costs Cut Ranks of Those Who Deliver Babies, Associated Press, N.Y. TIMES, Oct. 12, 1999.
21Id.
22Harris Interactive, Pharmaceutical Liability Study Report on Findings, at 22 (July 15, 2003), http://www.sickoflawsuits.org/library.
23Id.

24. The clear beneficiaries of this litigation explosion are plaintiffs’ attorneys. In 2002, the top 10 jury awards totaled $32.7 billion, which is a jump of nearly $24 billion since 1999.25 Only 46 cents of every dollar spent on litigation in liability actions went to claimants in 1995, with the rest going to legal fees and administrative costs.

26. Another study has found that the effective rates for asbestos plaintiffs’ lawyers range from $1,000 to $25,000 an hour.

27. Only contingency fees in the tobacco litigation exceed these hourly rates. Finally, the extent of the American litigation crisis becomes clear when viewed through the lens of international litigation trends. In 1987, there were nearly four times as many lawyers per capita in the United States as in the United Kingdom.

28. Per capita, there were 10 times as many tort claims in the United States as in the United Kingdom, 30 to 40 times as many malpractice claims, and nearly 100 times as many product claims.

29. The United States spends five times more on its personal injury litigation than any other industrialized country.30

24Id.
25Institute for Legal Reform, (citing NAT’L L.J., Jan. 2003), supra note 8. 26Kakalik, James and Pace, Nicholas, Costs and Compensation Paid in Tort Litigation: Testimony before the Joint Economic Committee of the U.S. Congress, (RAND, 1986); Tillinghast-Towers Perrin, Tort Cost Trends: An International Perspective (1995).
27Brickman, Lester, Asbestos Litigation: Malignancy in the Courts, Civil Justice
Forum No. 40, Aug., 2002, at 5, http://www.manhattan-institute.org/cjf_40.pdf.
28Atiyah, P.S., Tort Law and the Alternatives: Some Anglo-American Comparisons,
1987 DUKE L.J. 1002, 1006 (1987).

Reduce the size of legal fees as . . .

The single greatest problem with high legal fees is that it prevents many citizens from availing themselves of the legal system in the first place. Particularly in the civil justice system. When the cost of obtaining justice is greater than the amount in dispute there is no economic reason for using the legal system so no justice may be obtained.

For example, a small business—let’s say a printer—is owed $20,000 on account for envelopes, letterhead and a marketing brochure printed for a customer. The customer refuses to pay. The printer is now faced with a Hobsens choice: On the one hand hire an attorney, file a lawsuit in state district court and spend $25,000 to bring the case to trial, plus spend the necessary time to go through the extensive bureaucratic process known as our legal system. Or take the other choice and simply walk away. In the first case the printer loses $25,000 plus his time and aggravation. In the second he loses only $20,000.

Most of the public is not aware of this situation. But attorneys are. Which is why attorneys are among the most dishonest of all groups in paying their bills. (Ask any small businessman who has been around a dozen years or so.) The lawyers know the choice. In fact they created it. And they benefit from it. Going and coming.

The reason the public is not aware is obvious. Small business does not publicize it. Consider how much more difficult running a small business would be if everyone were aware. The dishonest would never pay. As they would realize there is no consequence for their behavior.

Yet when one considers that small business provides 90% of all new jobs in America in spite of this anchor dragging them down, one can only wonder what growth our economy would have if our legal system were an economic one.

It takes little imagination to realize that there is little justice in the civil justice system. An individual can hold up a convenience store committing a criminal act which at the most may yield him a few hundred dollars. And that person will be provided a defense attorney at taxpayer expense. Yet the same individual can refuse to pay someone $20,000 and there is no consequence for his behavior. And the person owed will be required to pay for lawyers, courts, etc. to try to recover his funds.

Administrators report that only 5% of American households possess the necessary resources to carry a typical civil lawsuit through from initial filing to trial.

The law of supply and demand is suspended because of the lawyer monopoly

Although there is one lawyer for every 200 adults in the United States the price charged by them does not reflect this fact. In spite of this obvious oversupply their prices do not reflect it. Because of competition in most industries where there is an abundance of supply of a product or service a lower price is charged for it. Because of competition restaurants cannot charge $25.00 for a hamburger. For lawyers whose profession suspends this law of supply and demand this suspension does not seem odd or even relevant. Most practicing lawyers demand $250.00 per hour. And almost all do it. If they do not they are blackballed by their peers.

If the law of supply and demand were in play the inexperienced lawyer would be paid $15.00 to $25.00 per hour and the rates would go up from there. One could make some informed judgment about an attorney’s skill by the rate he was able to charge. Contrary to now where an attorney charges a high rate to imply skill when it may or may not be present.

And since citizens are not allowed to hire non lawyers to represent themselves they have no choice but to pay the high legal fees demanded. Monopolies have benefits to those who set them up and can keep them.

High legal fees force those involved in a lawsuit to settle to limit the expense

[link to settlements]

High legal fees discourage those who have lost a lawsuit from appealing.

The law is written to take advantage of high legal fees as it allows judges great discretion in awarding attorney’s fees.

A judge may use the option of awarding substantial attorneys fees against a losing party as leverage to prevent a losing party from appealing his ruling. If the losing party decides not to appeal then the judge may typically award substantially less to the winning party. The law is written such that the judge and the losing party both have the same thirty days to make their decision. It is a game of chicken in which the judge will always win in the end.

High legal fees result in America squandering its resources

Look at the pay of teachers relative to lawyers to see this in stark contrast. The Texas Teacher of the Year who is a government employee, probably makes $60,000 annually. The best courtroom lawyer in the state Joe Jamail, Jr. who as an officer of the court and therefore in effect a government employee makes $21,000,000 per year. The public is paying for both. And yet the teacher is performing the admirable task of molding many young minds to improve their future productivity and responsibility while the courtroom lawyer is always a failure 50% of the time. And the non-courtroom lawyer fails almost 100% of the time as he is one of the legions of lawyers who are hired by corporations as advance damage control specialists to avoid getting into the 50 – 50 of a courtroom in the first place. “Almost 100%” because the expenditure for his services are almost entirely wasted if his position is honest and correct and justice could be depended upon to prevail in an efficiently run courtroom. There would be no need for elaborate 500 page contracts between parties. No additional value is created by the advance damage control. The courtroom lawyer simply redistributes resources. The non-courtroom lawyer using his client’s fear of this redistribution simply tries to prevent it. The only certain result is that people’s private and public resources are drained so that money can be redistributed among parties motivated by greed and fear.

High legal fees cause judges to assert that they are paid too little

Another side effect of the escalating fees for lawyers, is that judges become discontent with their salaries. Many judges especially federal judges complain that they do not make as much as first year law associates do in some law firms. So, it would appear that the unreasonable fees awarded by judges to lawyers has yet another benefit, to support the cycle of demands for increases in judicial salaries. See, ABA President A. P. Carlton Remarks on the Federal Judicial Pay Report May 28, 2003 who complains that federal judges' salaries are woefully inadequate as compared to what lawyers make and urges an increase in salaries (at taxpayers' expense), which complaint persists to this date. To read Click here. Yet another federal court judge quits to make more money in private practice. The annual salary of $157.700 with other benefits is not enough. Judges claims it is less than what second year associates make. Click here Federal Judges one of the highest paid judges claim they are leaving the bench for private sector, because of higher earnings there. Click here However, these salaries do not include the many other ways judges including the US Supreme Court judges earn substantial additional income. Click here.

http://www.judicialaccountability.org/baraccountability6.htm

The problem is not that judges are making too little. The problem is that lawyers are making too much. Judges who have high prestige should not be in it for the money anyway. In fact no one is forcing them to be judges. They should be like good ministers of religious faith who focus on improving peoples lives and beliefs—not making money.

A few solutions. . .

Allow juries to assess or set attorneys fees not judges

Eliminate the Hourly Billing of Clients

We have usury laws for bankers, why not usury laws for lawyers. Bankers in most cases provide a useful service by allowing businesses to expand, families to buy homes, etc. Why not limit lawyers fees to an amount that the public through their non lawyer members of the legislature feel is an appropriate for the government employees that lawyers are.

Prevent lawyers from gaming the system to increase legal fees

[Lawyers] have an economic interest in cultivating and prolonging conflict. This means they are fundamentally at odds with the purposes of the legal system. Courts and lawyers exist only to explain and enforce the rules society sets for itself--and settle disputes arising from these rules. . . . The trouble is that lawyers' well-being runs in the opposite direction. The more conflict, the better. The more cumbersome and ambiguous society's rules, the better.

Eliminate the high percent rate on contingency fees

Cap attorneys fees on a contingency lawsuit to 10% of the amount awarded.

http://nashville.bizjournals.com/nashville/stories/2003/06/09/focus3.html

A little history. . . First, the practice of law has become a truly profitable business, which was facilitated, in part, by the relaxation of the ethical rules guiding our country’s lawyers. At the heart of this transformation was the contingency fee. Its use developed as a response to the exceptional American decision to deny the winner of a lawsuit the right to collect legal fees from the loser

57Zauderer v. Office of Disciplinary Counsel, 41 U.S. 626, 643 (1985).
Copyright 8 2004 Washington Legal Foundation 20

.58 As volunteer legal service was unable to cope with the demands of the neediest plaintiffs, our country turned to the contingency fee as the solution. While states began to end the prohibition on contingency fees following the Civil War and acceptance had become fairly wide spread by the end of the nineteenth century, several states continued their ban well into the second half of the twentieth century.59 Maine was the last state to legalize the use of such fees in 1965.60
Restrictions on the use of contingency fees quickly fell by the wayside. As they did, the principal-agent conflict of interest problem moved to the fore. With the contingency fee, the interest of the principal-client and the agent attorney diverged.61 Contingency fees provide lawyers with a powerful incentive to: minimize their work so as to maximize their fees-to-hour ratio; settle early in order to develop a war chest for other suits or prolong litigation in order to test their legal theories and those of (current

58Olson, supra note 18, at 37.
59Wolfram, Charles, Modern Legal Ethics 527 n.10 (West Publishing Co., 1986); see
Countryman, The Ethics of Compensation for Professional Service, 16 AM. L. REV. 240 (1842); see Weeks, E., A Treatise on Attorneys and Counsellors at Law, at 717 (2d ed., 1982); see Busath, The Contingent Fee: Disciplinary Rule, Ethical Consideration, or Fee Competition, 1979 UTAH L. REV. 547 (1979); see MacKinnon, F., CONTINGENT FEES FOR LEGAL SERVICES 8-15 (1964).
60Wolfram, supra note 59, at 527 n. 14; see 1965 Maine Laws, c. 333, amending 17
ME.REV.STAT. ANN. § 801 (“The Maine Supreme Court promptly promulgated Rule 88 of the state’s civil rules to regulate contingent fee contracts.”); see Field, R., McKusick, V. & Wroth, L, MAINE CIVIL PRACTICE § 88.1 (2 ed., 1970).
61See Coharis, Peter, A Comprehensive Market Strategy for Tort Reform, 12 YALE J.
ON REG. 435, 473 (1995).

and future) defendants; and fish for sympathetic jurisdictions. It was not long before plaintiffs complained that their attorneys were settling too early or dragging litigation on for too long.62

With more and more clients came the judicial consolidation of tort cases as mass actions and statutorily-sanctioned class actions that clogged the courts and forced settlements, resulting in huge fees for the attorneys and next to nothing for the individual plaintiffs.

The rise of coupon settlements is illustrative. In 2001, for example, Blockbuster agreed to settle a nationwide class action case challenging the company’s late fee policy that was filed in a Texas state court. Under the settlement, while each plaintiff became eligible to receive up to $20 worth of coupons for free video rentals (not including new releases) and certificates for $1 off non-food items, plaintiffs’ attorneys received over $9.25 million in fees and expenses. It is estimated that less than 10 percent of the coupons were used.63 With the plaintiffs’ attorneys in the driver’s seat, plaintiffs themselves had been reduced to mere contingency fee delivery vehicles.

62Olson, supra note 18, at 42.
63Institute for Legal Reform, Class Action, at http://www.legalreformnow.com/issues.
Copyright 8 2004 Washington L
Copyright 8 2004 Washington Legal Foundation

Eliminate the Preference on funds of Bankruptcy Lawyers

When a firm goes bankrupt the first claim on its assets is by law allowed to be from lawyers. Property taxes to local taxing authorities to fund schools, accounting fees to determine the assets to be claimed and everyone else is second. Who made these laws? Why lawyers in legislatures and Congress of course.

The Enron case in Houston provides a good illustration:

A big winner in Enron’s bankruptcy proceeding has been the firm of Weilj Gotshal & Manges, Enron’s lead counsel.

In addition to billing $45 million so far, the firm has enjoyed some of the best hospitality Houston has to offer. In the week after Enron filed for Bankruptcy, the firm flew dozens of lawyers into town to hit the company’s books.

They didn’t skimp on expenses. During the first week alone, lawyers ran up a tab of more than $50,000 at the Four Seasons Hotel, arguably Houston’s finest, averaging $328 a night, including taxes.

At the time, says Jordy Tollett, president of the Greater Houston Convention and Visitors Bureau, the average pretax downtown hotel rate was about $165.

Such extravagance doesn’t sit well with some longtime Enron observers like Jim Walzel, president and chief operating officer of Enron predecessor Houston Natural Gas from 1983 to 1985. He laments that among the company’s first acts of bankruptcy, Enron fired all the secretaries and brought in $500-an-hour lawyers to search for files.

I have the idea that these bankruptcy guys are kind of like a mafia,” he said. “The new executives and lawyers come in and clean up, and don’t leave much behind.”

Eliminate The Ability Of Judges To Award Legal Fees

Judges often award attorney’s fees in the cases they hear. Their standard for the amount awarded is not what a person with equal education and training makes but what a lawyer makes. Which of course then serves as a basis for what a lawyer should make on the next case. And if the judge should decide or the voters decide that he himself should go back to private practice than the judge has assured himself that the rate he receives for his services as a lawyer will remain a good one.

To determine the amount of “reasonable legal fees” a table should be set up based on what the average American worker with similar education makes for the time invested. This then should be used as a basis for payment to attorneys in all cases.

Refund punitive damage awards back to the public.

The concept of punitive damages is that the public and an individual has been harmed so the responsible person should be penalized to discourage him from doing it again. Except that the public is paid no restitution.

A better handling would be for the levied punitive damages to be given back to the public in the form of lower taxes, higher payment for jury service or any other expenditure that voters would approve.