Contingent Fees and Tort Reform: A Reassessment and Reality Check

Article excerpt

ELIHU INSELBUCH [*]

I

INTRODUCTION

Many consumer organizations, public advocates, labor unions, and plaintiffs' lawyers view the United States' system of contingent fees as nothing less than the average citizen's "key to the courthouse door," giving all aggrieved persons access to our system of justice without regard to their financial state. [1] Others, including some defense counsel and academics funded by or speaking for corporations and their insurers, view them as the bane of our legal system, the source of frivolous and expensive litigation that lines the pockets of the claimants' lawyers with unwarranted and extravagant fees. [2] Despite a 1994 formal opinion of the American Bar Association finding contingent fees to be squarely within the bounds of American legal ethics, [3] they remain subject to attack by their critics. [4]As Congress and some state legislatures continue to debate the subject of "tort reform," [5] however its advocates may define it, contingent fees will almost certainly remain among the primary targets of the cries for change.

Most of the calls to limit or eliminate contingent-fee compensation are at best misguided. If there are real inefficiencies associated with litigation, they do not arise out of the actions of injured plaintiffs and their attorneys, who have no motive to make litigation slower or more expensive. Rather, it is the manufacturers, their insurers, and their attorneys whose economic self-interest leads to prolonged litigation and, in the process, makes the system cumbersome and expensive. This article reviews the role of contingent-fee compensation in the United States' legal system, considers the criticisms leveled against it, and offers alternatives to the critics' suggestions on how to redress the problems that, according to their claims, are the products of such fees. [6]

II

THE ROLE OF THE CONTINGENT FEE

In theory, any litigant may retain counsel on a contingent fee basis to pursue or defend against most actions. [7] Plaintiffs retain counsel on a contingent fee basis to pursue a wide variety of claims outside the arena of tort law, such as actions based on the violation of federal civil rights, antitrust, and securities statutes, and even garden variety collection cases. But the overwhelming number of contingent-fee retentions occur in tort cases, and so for the most part, it is the contingent-fee contract between a tort plaintiff and counsel that has drawn the most attention from the bar and commentators.

For at least a century, the use of contingent-fee contracts for legal services has been an accepted practice in the United States. [8] In this respect, the system of justice in the United States has parted company with its English counterpart, which does not permit contingent-fee contracts. [9] The English common law considered them illegal on the ground that they were champertous. [10] The ban appears to have survived in present-day England in large part because of a perception that contingent fees are responsible for excesses resulting from the commercialization of American jurisprudence, [11] as well as the relative reluctance of British subjects to resort to the legal system to redress wrongs. [12]

It is perhaps ironic that American critics of the contingent-fee contract cite England as the preferred model. [13] What they ignore is that in England, a plaintiff with limited means and a claim to assert has recourse to that country's substantial Legal Aid program, which is financed by the government. [14] The United States, of course, has no comparable nationally financed legal aid program for providing counsel to aggrieved persons in civil cases. Because the United States lacks such a system, the contingent-fee contract is widely recognized as the means by which all Americans may retain counsel to seek legal assistance, no matter what their means may be. Critics in the United States do not suggest the substitution of a nationwide government-funded legal aid system for the contingent fee. …

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