February 6, 2013

Meddling with Contingency Fee Arrangements

by Levin & Perconti

The Center for Justice & Democracy’s “Courthouse Cornerstone” report on contingency fees is a helpful guide to learn more about the critical benefits conferred by these attorney fee arrangements. As we discussed this week, these fee arrangements ensure open access to the civil justice system for all those injured by the misconduct of others--regardless of their economic position. Fairness dictates that no one be denied access to recovery because they are not independently wealthy. Contingency fee arrangements ensure that

In addition, contingency fees help align the rights of a lawyer and their client to maximize efficiency. Because attorneys only recover when their clients do, and do not receive an hourly wage, there is a spur to resolve each matters efficiently and as quickly as possible. Similarly, because costs in these matters are “fronted” by the attorney (at risk of being lost permanently), the arrangement acts an inherent check on the filing of frivolous lawsuits. Attorneys have nothing to gain by filing lawsuits without merit, because it will only result in the firm losing money.

Laws Affecting the Arrangements
As the CJ&D report notes, some states have gotten involved in these agreements, placing limits on what percentage of an award an attorney can collect. In general, private citizens are free to contract as they wish. However, there are often limits placed on terms of certain consumer agreements, and it is under that rubric that laws are passed limited contingency fee relationships in personal injury cases.

Most often the limits on the agreements are the creation of “sliding scales’ which place caps on the percentage of an award an attorney can collect as an award grows larger. For example, the attorney may be able to receive 33% of the first $100,000, but only 25% of any award over that amount.

Understandably, some may argue that these laws make sense--ensuring more money ends up in the hands of plaintiffs. In fact, that is the exact argument that large insurance companies and other defendants make when trying to lobby for these bills.

The problem, however, is that the somewhat arbitrary scales often prevent those with the largest claims from receiving the best representation. That is because cases the more money at stake often require the plaintiff’s attorney to front far more money to advance the matter--tens of thousands of dollars, and sometimes much more. If the attorney’s ultimate recovery is limited, the risk of fronting that money because a dangerous business move. Many firms are unable to pursue an expensive case when those limits are in place.

Change in Illinois Med Mal Law
Until this year, Chicago medical malpractice cases were similarly affected by these “sliding scale” laws. Recovery over a certain amount resulted in a sharp cut in attorneys fees. This disproportionately hurt community members who had cases of significant value, limiting their ability to secure the best representation possible.

Fortunately, in January Governor Quinn signed a bill into law which repealed that sliding scale in medical malpractice cases. In its place there is a simple limit of ⅓ recovery for all medical malpractice cases, no matter what the value. This straightforward rule better balances the needs of all community members and the open access for plaintiff’s attorneys to afford to spend sums up front on worthwhile case.

See Other Blog Posts:

Contingency Fees & Open Access to Justice

Malpractice Run Amok in Cook County?