Opinion ID: 1175384
Heading Depth: 1
Heading Rank: 7

Heading: the logic and policy behind contingent fee agreements

Text: We cannot ignore the issue of the fairness of contingent fee agreements. I believe the subject agreement combines hourly and contingent fees in a way that undermines the basic justification for contingent fees. There are at least four general objections to the contingent fee. The first is that it threatens the ethical integrity of the profession by encouraging a speculative attitude toward law practice, too great an emphasis on winning and the solicitation of clients. F. MacKinnon, Contingent Fees for Legal Services 4-5 (1964). The second frequent objection to the contingent fee is that it encourages unnecessary litigation. In the English system, the contingent fee has always been banned, because it is considered a variety of maintenance; that is, supporting or promoting the litigation of another. Black's Law Dictionary 860 (5th ed. 1979). The prohibition on maintenance was the result of a variety of influences, but one of the primary causes was clerical opposition to the vice of litigation. Radin, Maintenance by Champerty, 24 Calif. L. Rev. 48, 66, 68 (1935). Litigation is still considered a necessary evil in Britain, and is still discouraged there in part by the prohibition on contingent fees. Minish, The Contingent Fee: A Re-examinae, 10 Manitoba L.J. 65, 71 (1979). [1] Even in this country, where the attitude toward litigation is more positive, contingent fees are often blamed for nuisance lawsuits and the promotion of a litigious atmosphere. F. MacKinnon, at 5. The third fundamental objection to the contingent fee is that there is no logical relationship between the time and effort devoted to a case and the compensation received. [2] One effect of this is to raise the possibility of disproportionate fees. In People v. Nutt, 696 P.2d 242 (Colo. 1984) for example, an attorney was suspended for 6 months because he received a clearly excessive fee. The services rendered in a suit for oil and gas royalties had a value of $18,272.78. The fee arrangement, however, would have permitted the attorney to receive up to $200,000. See also In re Swartz, 141 Ariz. 266, 686 P.2d 1236 (1984). Even where the fee is not grossly disproportionate, it is arguable that, as a general rule, contingent fees overvalue lawyer services. See F. MacKinnon, at 159-94. The fourth basic objection to contingent fees is related to the third. Severing the logical tie between compensation and services rendered means that the client and the attorney are placed in a conflict of economic interest. The attorney will tend to spend as little time as possible on the case, so that he will maximize his hourly compensation. The client, on the other hand, will want the attorney to spend as much time as possible on the case, so as to avoid paying a disproportionately high cost for legal services. Clermont & Currivan, Improving on the Contingent Fee, 63 Cornell L. Rev. 529, 534-66 (1978). Despite these claimed flaws, contingent fees are extensively used throughout the United States. [3] The most important justification for the contingent fee is that it opens up the legal system to those who could not otherwise afford it. The justness of his cause, and not the ready availability of means to prosecute that cause, should be the test of whether a person pursues the remedial action which the law provides. Life for the average person in our modern society is a risky, complicated, and expensive business. It is equally clear that the law, as it always has, reflects the complexity of the society it serves. The new and added risks of injury or wrong to which the citizen is exposed have led to the creation of whole new bodies of law, and the reach of earlier laws has been extended to afford him redress under changed conditions. All of this response of the law to new and changed conditions would be without meaning unless there were also provided sensible access for the average person to the processes of the law. Hughes, The Contingent Fee Contract in Massachusetts, 43 B.U.L. Rev. 1, 7-8 (1963). The contingent fee is important to the profession, because it is an essential part of its economic viability. It should be noted at the outset that the contingent fee is the dominant system in the United States by which legal services are financed by those seeking to assert a claim. F. MacKinnon, at 4 and 114-40 (statistics on the fee's economic importance to the profession). [4] It is now being seriously discussed that we combine contingent and hourly fees in a single agreement on compensation. In fact, the leading proposal for reform of contingent fee practices relies on such a combination. Cornell's Professor Clermont and a colleague have proposed a contingent hourly-percentage fee, calculated as the sum of (1) the attorney's hourly rate times the number of hours worked and (2) a percentage of the amount by which the gross recovery exceeds that time charge. As the authors point out: This contingent hourly-percentage fee largely solves the problem of economic conflict of interest between lawyer and client, a problem that exists under both the certain hourly fee and the contingent percentage fee. It also solves or minimizes many of the other problems associated with these two basic fee systems. Because of its contingency, the proposed fee facilitates access by the poor to legal services. Moreover, it measures well the cost to the lawyer and the value to the client of the legal services rendered  certainly better than does either a pure hourly fee or a pure percentage fee. Clermont & Currivan, at 598. The combination of hourly and contingent fees in the agreement at issue here only exacerbates the argument against the contingent fee. The most obvious flaw, and the one which has created the problem, is the potential for excessive recovery. In ordinary contingent fee contracts, this tendency can be justified by the fact that risk is shifted to the attorney and by the fact that he lends his services and can plausibly claim interest. A combination of hourly and contingent fees like the Clermont and Currivan proposal can eliminate the problem. In this agreement, however, the combination of hourly and contingent compensation makes the problem worse. To the extent the client bears the legal fees directly, he continues to bear the risk of pursuing the litigation. To the same extent, the attorney is no longer advancing services and there is no interest theory justification for an excessive contingent fee payment. This combined contingent/hourly contract, in other words, undercuts the justification for the contingent fee. The only way to combine hourly and contingent fees so as to avoid this effect is to offset the hourly fee against the contingent fee. This agreement, as the majority interprets it, fails to make that critical adjustment. The result is that the hourly fee in this agreement destroys one of the contingent fee's major attractions. [5] This agreement, as the majority interprets it, also intensifies the conflict of economic interests between the attorney and the client. The subject agreement not only encourages the attorney to spend as little time as possible on the case, it makes it legally possible to shift work to a second attorney. Since the first attorney's work load is reduced while his contingent fee compensation is not reduced at all, he will send as much work as possible to the second attorney. The client, meanwhile, not only pays the relatively high contingent fee, he pays an hourly fee for work that should have been covered by the contingent fee and the client necessarily does not receive the services he contracted for, because they are performed by a different attorney. This is exactly what happened here. The majority, however, fails to recognize this conflict of interest. Given that this fee agreement was flawed, it cannot constitute a reasonable basis for the award of fees under RCW 4.84.020. The way to cure the defects of the subject agreement would be to offset the hourly fees against the contingent fee. The trial court failed to do so, and therefore abused its discretion.