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July 23, 2001

Price Colluder, Esq.

Plaintiff lawyers increasingly advertise but-rarely compete. And bar associations shy away from helping litigants shop.

By Judyth Pendell, Director, Center For Legal Policy at The Manhattan Institute

Edited By Tim W. Ferguson

A 1975 Supreme Court decision said that lawyers who fix prices are subject to antitrust laws. Why is it then that contingency fees in tort suits are all but rigged? Where are the price discounters?

The going rate for representing a tort plaintiff (say, the victim of bungled surgery) is 33% to 50% of the cash extracted from the defendant's insurance company. By tradition, the percentage varies according to when the case is settled: before trial, after trial or after a trial and an appeal. The percentage customarily does not vary with the lawyer's skill, the stakes, the amount of time the case commands or the risk that the plaintiff will recover nothing.

Intrigued by the issue, a group led by Jeffrey O'Connell, a University of Virginia Law School professor whose advocacy of no-fault car insurance makes him less than popular with ambulance chasers, surveyed 1,425 lawyer ads in the Yellow Pages of a dozen cities. Only 437 ads made any mention of fees, usually to explain "no fee, no recovery." Only seven ads mentioned the specific percentage the attorney charges. Only one ad asserted that the attorney was price-competitive.

We're all familiar with recent cases in which crusading lawyers succeeded against seemingly long odds to win big damages for clients. But more numerous are class actions where class members received coupons or modest payments and their lawyers received tens or even hundreds of millions of dollars. Less obvious are the day-to-day abuses in simple fender-bender, slip-and-fall and product-liability cases. Here the defendant often is prepared to concede liability or at least to settle. The time and work required is quite modest, yet the lawyer takes a third of the settlement. This can result in an effective hourly rate rising up into the thousands or even tens of thousands of dollars. Another abuse: Some lawyers apply the percentage to the gross recovery and then take from the plaintiff’s share expenses like experts' fees, filing fees and airplane fares. In a complicated medical malpractice case this formula can significantly inflate the attorney's fee.

The American Bar Association has a rule that fees are to be "reasonable," but courts rarely enforce the rule. The public, meanwhile, appears to have accepted the lawyers' claims that contingency fees in principle are fair, since plaintiffs don't have to pay anything if they lose. Polls suggest a belief that contingency fees make access to justice possible. But plaintiff lawyers routinely refuse to accept cases if the recovery would be small or there is a likelihood of no recovery.

Also, the organizations that should be arming the public with the information that would motivate them and instruct them in how to negotiate a more reasonable contingency fee or an hourly or fixed fee--bar associations--don't do the job.

My colleague at the Manhattan Institute, Paul Howard, did an informal survey of metropolitan bar association referral services in Chicago, Dallas, Los Angeles, New York City, and of suburban/rural services based in Albany, N.Y. and Austin, Tex. These six referral services receive a combined total of approximately 400,000 calls a year. None of the services provides any written information about fees. Some will orally provide a basic explanation about how a contingency fee works; others will not answer any questions about fees but simply suggest callers discuss fees with the attorney they choose.

Why don't lawyers create a competitive market by trading off lower fees for higher volume? There are too many advantages that flow from the current level of "cooperation." First, it makes possible the $25 million-plus annually contributed by trial lawyers to political campaigns, dollars invested to prevent reform of the liability system. Second, it facilitates an entrepreneurial opportunism, whereby high-risk cases with a potential for significant fees can be pursued.

Lawyers like to think of themselves as pursuing a profession. But lawyering is also a business enterprise. Let's treat it accordingly.

© 2001 Forbes



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