Contingency Fee Abuses, Ethical Mandates,and the Disciplinary System: The CaseAgainst Case-by-Case Enforcement

Introduction Contingency fee abuses are attracting increased public attention. Particular interest is focused on the enormous contingency fees generated by mass tort litigation; in some cases, lawyers are collecting multi-million dollar fees essentially for performing paralegal work.2 In addition, the relationship between the availability of enormous contingency fees and the amassing of thousands of claims of injury in order to dramatically shift the litigation dynamic in favor of plaintiffs is becoming increasingly apparent.3 For example, the possibility that major ongoing massive litigations, such as those involving silicone breast implants and the as yet nascent litigation involving the contraceptive Norplant, have much less to do with injury and much more to do with contingency fees is being increasingly broached in the press, even in newspapers that usually have opposed most tort reform efforts.4 In addition to stories in the print media on contingency fee abuses,5 similar stories by television journalism programs now fill the airwaves.6 A contingency fee reform proposal co-authored by Professor Jeffrey O'Connell of the University of Virginia Law School, Michael Horowitz of the Hudson Institute, and myself,7 first announced in February 1994,8 has elicited support from a broad range of practitioners, judges, scholars, and editorial writers.9 The proposal has also received attention from state legislatures,10 and a version appeared on the March 1996 California ballot. 11 The proposal was also introduced in the U.S. Senate,12 where hearings have been held on contingency fee abuses.13 The American Bar Association (ABA) has also taken note of the increased public concern. A plenary session of a recent National Conference on Professional Responsibility was devoted to "a debate regarding the call to rethink contingency fees."14 Perhaps the most significant step taken by the ABA has been to respond to a request from a group of practitioners, educators, and scholars for ethical guidance regarding the use of standard contingency fees.15 In its response,16 the Standing Committee on Ethics and Professional Responsibility (the Committee) essentially absolved contingency fee lawyers from any meaningful ethical mandates pertaining to fees, holding that charging standard and substantial contingency fees is not inappropriate in cases that do not include an issue of liability and in which substantial settlement offers prior to the rendering of any significant services are almost certain.17 While elevating the financial interests of lawyers over those of clients and the public,18 the ABA Committee did acknowledge that although charging standard contingency fee rates was virtually always ethically permissible, such charges had to be "reasonable. "19 To many, the recital of the "reasonable fee" mantra20 no doubt appears to be responsive to the considerable evidence of abusive fee practices. On closer analysis, however, the reasonable fee declaration is an essentially ritualistic incantation designed to give an appearance of effective disciplinary enforcement of ethics rules, but in reality, is devoid of substance. In fact, the reasonable fee invocation is nothing more than a ringing endorsement of the status quo,21 in which lawyers routinely charge and obtain substantial and sometimes enormous windfall fees in cases without risk. These fees can easily amount to thousands and even tens of thousands of dollars per hour22. The ABA Committee's claim that it is indeed enforcing ethical standards by invoking the reasonable fee standard is based on the following syllogism: Lawyers who charge "unreasonable" contingency fees violate the ethics codes. Violations of the ethics codes result in disciplinary sanctions. Therefore, in the world of the ABA, contingency fee lawyers are subject to ethical constraints. However, there is a critical flaw in the syllogism. Contingency fee lawyers are virtually never disciplined for charging unreasonable fees, that is, for charging substantial risk premiums in cases without meaningful risk. …