Pity the poor personal injury lawyer — he just doesn’t have enough
hands. In addition to a perennial gladhand, plus the one needed
for patting his/her own back (over free services, selflessness, and
gladitorial courage), the p/i lawyer has had to weigh just how to
talk about the contingency fee that gets presented to virtually every
client, in p/i cases all over town. Thus:
On the one hand, the p/i bar in each State spent decades
convincing the public (and eachother) that they charged
a “standard contingency fee,” with connotations both that
they everyone used the same rate for all personal injury
clients and that they sort of had to. For a long time, this
“standard” was one-third of moneys recovered for the client.
“one-third gray”
On the other hand, some economists, legal ethicists and
other observers, started talking about how unnatural and
even unethical it was to charge the same “standard” fee,
no matter how little risk a particular case presented of
being unpaid or underpaid for hours worked and resources
spent. This left self-annoited, good-guy “Consumer Attorneys”
with a public relations problem, so some started insisting
that there was no such thing as a “standard” contingency
fee.
- Others, who actually thought one-third was just
not quite enough, and wanted to start charging
40 to 50%, sort of liked the idea that there wasn’t
“really” a standard — or, at least, that it was not
a mere 33.3%. (see our prior post)
Yet (and this requires their using a finger, or Scalian
set of fingers, in conjunction with a raised chin or two),
the typical p/i lawyer still wanted to be able to use a
standard rate (or tier of rates — such as 25%, 33.3%,
and 40% — that depended on the stage at which the
case was won). This would allow him or her to proffer
the same rate (often pre-printed in the firm’s fee form)
to virtually every client. It would also allow the firm to
say that the rate must be reasonable, because it was
what other clients accepted and all the other “quality”
firms in town were also using.
- Any hypothetical firm that might offer below-
Standard fees is thus characterized as sub-standard
– surely too inexperienced or less skilled, and
therefore less able to get the client the highest
makes this specious argument)
It almost makes you want to throw your hands up in confusion, or
maybe join your hands in prayer for the plight of the misguided p/i
bar — if not offer a sympathetic hug. Instead, though, I thought —
with the help of an online thesaurus – that I would help clarify the
actual situation out in the real world:
The vast majority of p/i lawyers who are seeking your
business for typical personal injury cases (not class-action
suits, where fees are reviewed by a court before being doled
out to the lawyers) continue to offer a single percentage fee
or, as stated above, a tiered or stepped “varied” fee, that is
(a) “standard” within their particular firm, and therefore
offered to virtually every client (with that hope and expec-
tation that it will be meekly accepted);
(b) ”standard” across their locale, jurisdiction or State, so
that the vast majority of firms can be relied upon to also
proffer and use that rate – or, at the very least, refrain from
any advertising that might suggest otherwise. Or,
(c) a “standard” rate that is in fact the maximum rate set by
statute or regulation for a particular kind of case (i.e., medical
malpractice), or the maximum allowed without specific
authorization from a court or specific proof of special circum-
stances.
In coming to these conclusions, I have done significantly more than
talk with p/i lawyers and consumer advocates across the nation. I have
also engaged in considerable internet research — including a quick check
means “serving as a model for measurement or comparison or as an
accepted authority“ or “normal, routine, usual,” and is also synonymous
with “prevailing” and “common”.
Here’s some of our evidence (emphases added by Editor):
stated: “Indeed, it is convenient to refer to one-third as the usual
rate when explaining how contingency fees work.” That repeats
“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.”
Supreme Court, in 2002, it argued against the notion that
“those clients who win subsidize the losers.” Instead, they
amicus brief argues: “If it were the attorney’s only case, he
or she would charge the same prevailing contingency fee.”
Georgia Trial Lawyers: Offering personal injury information to the public,
Facts on the Contingency Fee System” (1994), including the statement
that contingency fees are “usually one-third.”
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, gen-
erally speaking, a one-third contingency fee is the customarily
accepted percentage that a lawyer will be paid from your award.”
[Ed question: If there's a statutory limit, was does the client
have to ask the lawyer? Is that to remind counsel or to reas-
sure the client that otherwise one-third is standard?]
tages of 33% are common. Any percentage in excess of 40% may be unethical.”
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.”
“slicingThePieF”
Recently, your editor was called both too old and ”too lazy to analyze the contingency
fee in context.” Despite my apparent intellectual infirmities, I seem to have detected
a pattern. Of course, I’d be pleased to hear there are exceptions to this constant
barrage that has tried to make one-third seem like the prevailing, customary, standard
fee level in personal injury cases for several decades.
is the analysis of the U.S. Supreme Court when faced with a contingency fee case in
fully representing Social Security disability claimants in court may be awarded fees based
on contingent fee agreements with their clients. Note that, by statute, contingency fees in
Social Security cases are limited to 25%.
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:
“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 repre-
senting 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 antitrust jargon, we’d say that the maximum price has become the floor — no price com-
petition. Please note that Justice Scalia did not dissent because he came to a different
understanding on the existence of a standard contingency fee in SSD cases:
“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.”
“one-third”
My conclusion from 2003 still stands: It seems perfectly fair 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.
There has, however, been one much-cited study that purports to show that no standard
U. Law Q, Fall 2000), by Prof. Herbert M. Kritzer, of U. Wisconsin-Madison. The Study
Kritzer used a small sample of cases, supplied by volunteer participants who had a
vested interest in helping Kritzer “debunk contingency fee myths”, and who also
selected which cases they reported. Nonetheless, Kritzer concluded that “on the order
of 60% of the cases employed the standard one-third contingency fee.” Of those that
didn’t use a flat 33%, many charged [what I would call the new or alternative stan-
dard] a variable fee that started at 25% or 33% and went to 40% or 50%. It seems
clear then that a very large percentage and number of consumers in Wisconsin
are presented with only a contingency fee option and are forced to accept a flat rate
of one-third or a varied rate that result frequently in fees of one-third or more.
Beyond not disproving the existence of a standard fee, Kritzer in no way helps quantify the key
question in my suggested (traditionalist) approach to contingency fees: 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?
Furthermore, Kritzer actually helps support my position, because he 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 big jackpots). (Read about Schenectady,
NY, lawyers who boast of a 98% Win Rate, ”most often” charges one-third, and I bet reject
a lot of clients)
“slicingThePice”
That’s why I believe 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%). Of course, 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.
Non-Competitive Fees, 81 Wash.U.L.Q. 653 (2003), Lester Brickman, Professor of Law,
Benjamin N. Cardozo School of Law of Yeshiva University, recognizes that the existence
of a standard fee system injures consumers and shows the existence of market failure
[at fn 160]:
“Even the bar recognizes that reliance on competitive forces to drive down
inordinately high contingent fees is not an effective regulatory strategy. One
clear indicator of the inadequacy of reliance on market competition to exert
downward pressure on contingent fees is the fact that contingency-fee lawyers
do not engage in competitive fee advertising. Moreover, even if a claimant were
to obtain “more information about fees,” he would simply discover that fees are
standard and not subject to bargaining. Though some claimants do shop around
for lower pricing, they quickly find out that lawyers are unwilling to bargain over
the fee percentage. As a consequence of these lawyers’ practices, claimants are
discouraged from seeking lower prices by shopping and bargaining because they
have learned what lawyers have intended for them to perceive: that there is a standard
industry practice of maintaining uniform pricing, and price shopping is therefore futile.”
“podiumSF”
As I stated in my earlier post on Kritzer, my focus is the individual lawyer’s ethical, profes-
sional 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 con-
tingency fees bearing little or no relationship to the risk and work facing the lawyer.
In fact, a typical personal injury client still faces a “standard” contingency fee. This means
that trial lawyer talk about the ethical obligation to use risk-based fee agreements – although
correct as to legal ethics - is hollow public relations posturing. (see our prior post risk matters)
From p/i awyers? Shocking.
p.s. It appears that there is no shortage of p/i lawyers in cases that have
statutory limits of 25%. Are medical malpractice suits really less risky than
typical auto accidents? Whey are auto accident plaintiffs forced to pay one-
third or more so often? In California, lawyers are required to tell medical mal-
practice clients (in their fee agreements, though not orally), that the 25% figure
is a statutory maximum and they have the right to negotiate for a lower amount.
Do any California lawyers negotiate? Do any fill in a number lower than 25%
before handing the Agreement to the client (now, I must be hallucinating)?
This post is the third part of a 4-part essay. It has been moved to