A Thorough Response on PI Fees

This blog is not going to turn into a war with those who disagree with me. However, based on requests from readers and the large amount of mis-information floating around, I have decided to post the following, which is long. Of course, feel free to comment.

In response to those self-proclaimed ethical gurus who want to debate the fee agreement, I tracked down a copy of the ABA opinion. It is not quite what they claim. Here, are my findings, along with quotes from the ABA opinion.

First, the opinion starts simple enough: " In the opinion of the Committee, the charging of a contingent fee, in personal injury and in all other permissible types of litigation, as well as in numerous non-litigation matters, does not violate ethical standards as long as the fee is appropriate in the circumstances and reasonable in amount, and as long as the client has been fully advised of the availability of alternative fee arrangements." So, a contingency fee is fine as long as the fee is appropriate and reasonable. I think we all agree with that.

Then, despite language that indicates that you have to explain all options to the client, the opinion continues: "It may also be in some cases that a contingent fee arrangement is the only practical basis upon which a matter can be handled, but that decision should be made after consideration of the relevant facts and circumstances in consultation with the client." So, despite what some argue, after talking to the client, you can say to the client "Mr. Client, this case can only be handled on a contingency fee basis." That is perfectly ethical.

We then get to the crux of the argument. David Giacalone, one of the most proficient at making this argument despite a lack of experience handling PI cases, pulls out one paragraph and to him make his stand. It would be like taking one stretch of the UCLA-Gonzaga game from last week and determining that Gonzaga was the better team. You have to, as Gonzaga fans know, look at the entire body of work. Here is the language relied on by Giacalone:

"The extent of the discussion, of course, will depend on whether it is the lawyer or the client who initiated the idea of proceeding with the contingent fee arrangement, the lawyer's prior dealings with the client (including whether there has been any prior contingent fee arrangement), and the experience and sophistication of the client with respect to litigation and other legal matters. [FN7] Among the factors that should be considered and discussed are the following:

a. The likelihood of success;
b. The likely amount of recovery or savings, if the case is successful;
c. The possibility of an award of exemplary or multiple damages and how that will affect the fee;
d. The attitude and prior practices of the other side with respect to settlement;
e. The likelihood of, or any anticipated difficulties in, collecting any judgement;
f. The availability of alternative dispute resolution as a means of achieving an earlier conclusion to the matter;
g. The amount of time that is likely to be invested by the lawyer;
h. The likely amount of the fee if the matter is handled on a non- contingent basis;
i. The client's ability and willingness to pay a non-contingent fee;
j. The percentage of any recovery that the lawyer would receive as a contingent fee and whether that percentage will be fixed or on a sliding scale;
k. Whether the lawyer's fees would be recoverable by the client by reason of statute or common law rule;
l. Whether the jurisdiction in which the claim will be pursued has any rules or guidelines for contingent fees; and
m. How expenses of the litigation are to be handled."

I will save my discussion of this list of 13 factors for another post. After all, I am droning on about this enough for one post. But, that is the language relied on by Mr. Giacalone.

The opinion continues: "Notwithstanding the foregoing, however, the inquiries prompting this opinion take the position that there are two particular circumstances where contingent fee arrangements are inappropriate. To these we now turn.

D. Contingent Fees May Be Appropriate when the Client Can Afford to Pay on Another Basis

E. In a Case in Which Liability Is Clear and Some Recovery Is Certain, a Fee Based on a Percentage of the Recovery Can Be Ethically Proper"

So, the Opinion was written solely to discuss these two issues. As my law school professors would tell me, the rest is just dicta. Interesting that this issue is never discussed.

Now we get to my point. The opinion continues: "In addition to the requirement that a fee be appropriate, Model Rule 1.5 requires that the fee, whether based on an hourly rate, a contingent percentage or some other basis, ‘shall be reasonable.’ Similarly, DR 2-106 prohibits a ‘clearly excessive fee,’ which is in turn defined as a ‘fee ... in excess of a reasonable fee.’" Wow. So, this is what the opinion ACTUALLY says about a fee. (As an aside, notice that this is a RULE and not just an opinion.)I don't see where the rule says the risk of a case must be decided BEFORE you sign up a case. I don't even see that it says that the fee must be estimated to be reasonable when meeting with the client for the first time. In fact, the fee only needs to be reasonable. So, while a 40% fee prior to filing a lawsuit may not be reasonable, there is nothing that says signing up the case as a flat 40% fee and then reducing your fee later is unethical.

The opinion then goes on to tell us how to determine if a fee is reasonable:

"In deciding whether a contingent fee arrangement is reasonable the lawyer must consider the following factors set forth in Model Rule 1.5(a):

(1) the time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly;
(2) the likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer;
(3) the fee customarily charged in the locality for similar legal services;
(4) the amount involved and the results obtained;
(5) the time limitations imposed by the client or by the circumstances;
(6) the nature and length of the professional relationship with the client;
(7) the experience, reputation, and ability of the lawyer or lawyers performing the services.

Additionally, the lawyer must look again at, and discuss with the client, the factors that were considered in reviewing the appropriateness of the fee, discussed in Section C above."

So, now you have those 13 factors laid out earlier and these seven factors. The first 13 factors should be discussed. But, Model Rule 1.5(a) provides certain factors that must be considered in determining if a fee is reasonable. Notice number 3. Yes, you can look at the fee customarily charged in the locality. Again, I will discuss these in a separate post at another time. But, the argument that a client is stuck with a set fee in a certain geographical location is bunk. Even the ABA says that this is one consideration in determining if a fee is appropriate. So, if everyone is charging $250 an hour for business formation, then charging this is reasonable, at least under this prong. Similarly, if charging 33% for a PI settlement is being done in a community, then you meet this prong of the RULE, not just dicta.

Then we hit the conclusion: "A lawyer entering into a contingent fee arrangement complies with the ethical standards set forth in both the Model Rules of Professional Conduct and the Model Code of Professional Responsibility if the fee is both appropriate and reasonable and if the client has been fully informed of all appropriate alternative billing arrangements and their implications." Yes, if you charge a fee that is appropriate and reasonable, you have met the ethical standards. This conclusion never says that the fee has to be reasonable and appropriate at the time you sign up the case, but just that it has to be reasonable. So, the standard practice of many PI attorneys to reduce the fee later based on the factors listed above seems to meet the requirements of the ABA.

Interestingly, note that an attorney cannot charge more if the case turns out to be harder than it seemed, but the attorney can always charge less. See e.g., Chase v. Gilbert, 499 A.2d 1203 (D.C.1985) (A lawyer cannot modify a fee agreement even if he ends up performing significantly more services than were contemplated when agreement was entered into). So, if a PI lawyer charges a client a 33% fee, which some commentators argue is "standard" and therefore, bad, but then reduces the fee after the case resolves, and based on Model Rule 1.5(a), he/she is meeting both the spirit of the rules and the text. However, if an attorney mis-evaluates a case, he cannot charge more to make up for that. In order to avoid this, those who argue against the current system will encourage higher fees to be charged so that the attorneys, who are usually fronting the heaviest potential loss, are not put out of business.

-----Jonathan

Comments

[Jonathan]

First, there were no personal attacks. I just prefer that people who post comments tell us who they are instead of hiding behind the anonymous nature of the internet. Of course, since I allow comments without approval, this is one of the downsides.

Second, you need to brush up on your lingo. A jury does not find someone "not guilty" in a civil case. Further, most civil cases result in a resolution in favor of the plaintiff. Just go read some jury verdicts and you will see that.

So, until you have some facts, please stop commenting.

[Supremacy Claus]

Personal remarks are a sign of debate exhaustion. Take a rest. Then, try to address the substantive PR points.

It is the jury that states the overwhelming majority of torts cases has no merit, with 75% not guilty rates. Among the cases with merit, any unattractive client feature gets the potential plaintiff rejected. Most firms are proud they only take 1 in 50 cases.

The lawyer has both a high false positive error rate, and a high false negative error rate. These rates are below the professional standard of due care set by the criminal prosecutor, working under far greater handicaps. The DA's produce a 75% guilty rate, and have set the standard which the tort bar is in utter failure at ever meeting.

The land pirate is protected by the self-dealing and the 99.999999% rigging that protects him from any accountability to adverse third parties. The pirate can play his vicious, unjust lottery games and plunder all productive entities totally unafraid.

Please, address the champerty and maintenance aspect of the contingency fee, if you are not too tired.

[Jonathan]

A few responses. I will skip the easy one that this is an anonymous comment, which to me is like anonymous bloggers. Say what you have to say and be a man about it. Tell us who you are. Otherwise, it is just taking pot shots from the protection of being anonymous. Now, on to the substance.

First, on what basis do you figure that plaintiff's attorneys are "land pirates" or collect "unconscionable sums"? As I have stated before, and I will state again, if I were taking my full fee on every case, my income for the year would have been much higher. Most of us are supporting a family and paying our bills, not making unconscionable sums.

Second, clients are not chosen on the merits of the case? Really? So we bring cases with no merits? Go read the studies that show that the contingency fee actually takes away the incentive for frivolous cases. We do take cases where we believe we can succeed, but doesn't every lawyer. Or, do hourly lawyers take cases even where they will not succeed? Then, doesn't that make the hourly lawyer unethical?

Third, as far as the incentive to settle, it is usually not there. If I can settle a case for $1,000 today, I would get a $300 fee. If, however, I settle that case in 1 year for $10,000, I get a $3,000. That does not even take into consideration that my fee would go up after mediation, arbitration or at trial. So, my take would more likely be $4,000.

Now, if you would like to play again, provide some facts, and an identity.

Jonathan

[Supremacy Claus]

The origin of the contingency fee is instructive. The masking ideology of the lawyer of its granting access to the courthouse to the poor, was not true. Until the early 19th Century, successful US plaintiffs paid their lawyers by the hour, as in Britain.

Plaintiffs would win, collect their settlement, with the help of the lawyer, but never pay the legal bill. The contingency fee was a collection method.

Land pirates get to collect unconscionable sums, permitting the purchases of professional sports teams, as toys, while delivering no value to the economy.

There is also an inherent conflict of interest with the client. The latter are not chosen on the basis of merit, but on attractiveness and likelihood of success. There is too strong an incentive to settle, a type of payment from the defendant to the plaintiff lawyer. Taking a fraction of a low settlement protects the lawyer with certainty, in exchange for greater risk of demanding a more accurate higher amount.

It is a stealthy form of champerty, legal, but unethical and unprofessional. Loans to clients are not permitted. Yet, the fee is analogous to a reverse mortgage loan. The cost of expensive services are "loaned" to the client, until the time of "closing."

[Jonathan]

David -

Great response. I appreciate the insight, wisdom and reply to my post. As far as my own financial interest, my settlements grossed over half a million dollars last year. If I was in it for my own financial interest, my income would be about $200,000 last year. However, it was less than that. So, I guess that means that I am not in this for the financial aspect. In addition, I spend a lot of time volunteering, giving back to the community and working with LSCP. So, is it really about the financial interest or is it about the fact that I, with over 8,000 claims settled, am not confident in my ability to evaluate the risk of a case BEFORE I get all of the information?

My offer still stands. Any time you want to, I will give you the fact patterns and have you tell me what the appropriate fee would be in your make-believe world and then I will tell you the actual outcome of the case.

As for the lack of linking, I had the same issue that the editor of Blawg Review had when you whined about not being included. Sometimes your blog is down. You should check with those smart folks at Harvard and see if they could get a system that is up more often, or stop being cheap and hire Kevin at LexBlog to do a good blog for you.

Jonathan

[david giacalone]

"Thoroughly Misleading" is the only way to describe your analysis, Jonathan. Or, maybe "April Fool's" satire. I'd call your reasoning specious, but it doesn't rise to that level.

Do you really not understand the issues, the plain language of the Opinion, and the importance of language you have chosen to omit, or is this your idea of fair advocacy on behalf of your own financial interests?

p.s. It is very rare for a weblogger to discuss someone else's position without being willing to link to that person's analysis, but you have now done it twice. I suppose I should congratulate you for having the courage to at least refer to me by name this time. You must be a real tiger in the courthouse.