Empirical Research with a Policy Payoff: Market Dynamics for Lawyers Who Represent Plaintiffs for a Contingent Fee
Schneyer, Ted, Texas Law Review
Many excellent empirical studies of law practice have been conducted over the years, mostly focusing on practice in various workplaces,1 locales,2 specialties,3 or forums.4 These studies have unquestionably enriched our understanding of law practice and the American legal profession, but their impact on public policy is less clear. Because empirical research is costly, one would expect funding sources to be vitally interested in the practical payoff of the studies they support. Yet surprisingly few studies directly address policy issues or provide data that have influenced or seem likely to influence public policy as it bears on professional regulation or access to legal services. Steve Daniels and Joanne Martin's study of Texas "plaintiffs'
lawyers"5-lawyers who specialize in representing plaintiffs for contingent fees-is a welcome exception.6
A policy debate has been raging for some time regarding both the reasonableness of the fees that plaintiffs' lawyers charge and the manner in which those fees should be regulated.7 A leading critic, Professor Lester Brickman, asserts that, under existing forms of regulation, contingent fees often yield above-normal returns on plaintiffs' lawyers' time.8 Indeed, by his estimate plaintiffs' lawyers earn "no less than $7.5 to $10 billion in unethical, windfall contingency fees" each year!9 Because lawyers in any given locale tend to charge the same contingent-fee rate (e.g., one-third of any recovery) and tend to charge each of their clients at that rate even though the risk of non-recovery10 varies from case to case, Brickman concludes that competition in the field is far from robust,11 and he supports stringent new
restrictions on contingent-fee rates, even where statutory fee caps already exist for personal-injury cases.12 Other scholars, notably Professor Kritzer, view matters quite differently.13 Using data available for the mid-1990s, Kritzer estimates the "effective hourly rates" that lawyers earn in contingent-- fee cases.14 He finds that, although a small percentage of plaintiffs' lawyers earn very large incomes, returns from contingent-fee practice overall are similar to what lawyers earn from hourly-fee practice, or "at best" only marginally higher. 15
The Daniels-Martin study sheds new light on this debate, although it does not directly address the magnitude of prevailing contingent-fee rates or the adequacy of existing regulations. The profitability of contingent-fee work depends not only on fee rates, but also on the percentage of claims that result in recoveries, the amounts recovered, and the costs lawyers incur in pursuing recoveries. The debate often seems to proceed on the assumption that the latter variables remain fairly stable over time.16 Daniels and Martin question that assumption. The policymaking value of their study stems precisely from their focus on market dynamics. The study strongly
suggests17 that the market for plaintiffs' lawyers' services in Texas between 1995 and 2000 was quite "unstable"18-that tort-case filings, recovery rates and amounts, and lawyers' net incomes all fell, while costs rose. It suggests, too, that these changes were occasioned by local manifestations of a nationwide phenomenon-the "tort reform" movement of the past two decades. On this account, the reduced circumstances of plaintiffs' lawyers in Texas are probably far from unique.
Daniels and Martin conclude that, in contrast to the pre-1990 period, the challenge for many Texas plaintiffs' lawyers during the 1990s was simply "to keep the lights on"19 (i.e., to continue to do plaintiffs' work) in a contracting market.20 Between 1995 and 2000, considerably more lawyers in their survey reduced the percentage of their practices devoted to contingent-- fee work than expanded it. …