Limiting Justice: The Problem of Judicially Imposed Caps on Contingent Fees in Mass Actions

Article excerpt

I. INTRODUCTION ........................................................................ 209

II. ORIGINS OF JUDICIAL AUTHORITY TO REGULATE CONTINGENT FEES IN MASS ACTIONS ........................................................... 211

A. The Judicial Capacity to Regulate the Ethics of Lawyers ......................................................................................... 212

B. The Judicial Power to Regulate Settlements in Class Actions ............................................................................. 213

C. Extension of These Two Powers to Capping Fees in Mass Actions ............................................................................. 214

III. REDUCTION OF FEES NOT ALWAYS AN APPROPRIATE MEASURE ................................................................................ 217

A. Freedom of Contract ....................................................... 218

B. The Need to Consider Reasonableness of Contracts on the Basis of the Individual Circumstances at the Time the Agreement Was Made ...................................................... 220

1 . Judges Must Consider the Risks Lawyers Take ....... 222

2. Economies of Scale Not Sufficient Reason for Blanket Fee Reduction ............................................... 223

IV. LONG-TERM CONSEQUENCES OF BLANKET FEE REDUCTIONS IN MASS ACTIONS ........................................................................ 226

A. Inability of Plaintiffs to Find Representation .................. 226

B. Courts Would Essentially Perform Legislative Function of Declaring Which Claims Can Be Brought ...................... 228

V. CONCLUSION ........................................................................... 231

I. INTRODUCTION

Imagine that you want to do some contract work on the side. You and the company agree on a price up front. You sign a contract with the company's project manager to do the project for them. You spend years working on this project and do good work. You achieve the best results that you possibly can for the company.

When you have finished the work and everyone is happy with the results, you are told by the company's CEO that the price you agreed to at the beginning was too high. After all of the time that you put into this project, and all of the other work that you had to turn down to complete this project, you are told that you will only receive a portion of the agreed-upon price.

I would guess that this situation sounds unreasonable to you. After all, you did the work, and everyone is happy with the results. Why should you not get the full amount that you were promised? Yet, this is the situation faced by many lawyers who charge contingent fees for their services. At the end of the day, a judge will decide that the lawyer is only entitled to a percentage of the agreedupon fee based on a determination that the contractual fee is not reasonable.

A contingent fee is often summarized as "no win, no pay."1 Under these arrangements, the attorney is paid only if the client wins the case.2 Typically in these situations, the attorneys' fee is satisfied by a percentage of the amount recovered for the client.3 If the client recovers no money, the lawyer is not paid as "any percentage of nothing is nothing."4 These fees are generally associated with plaintiffs' attorneys, but are not so limited. 5 The traditional justification for this sort of fee arrangement is that it allows plaintiffs to bring claims they might not otherwise be able to afford to bring.6

There are risks inherent in choosing to work on a contingent fee basis.7 For one thing, it is difficult for a lawyer to determine what, if any, amount he will be paid for taking on the case.8 The lawyer is also not certain of the amount of investment he will have to make to take the case to resolution.9 Thus, before taking a case, a contingency-fee lawyer has to guess how much time and money he will need to invest in the case and how much he can expect to recover for his client and himself. …