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Fees, Ethics and Litigation

By John Dietz - Email Editor

Date: 24-Jan-2006

ABC NEWS correspondent and co-anchor of 20/20, John Stossel, wrote a piece recently about the horrid state of the U.S. legal system, once again singing the song of much needed tort reform. He claims that the U.S. system needs to change to what U.S. lawyers call “the English Rule.” What he is referring to is a system where there is no contingency fee litigation and the “loser pays.”

Depending on which study you may have read, both here and abroad, U.S. contingent fees (as they relate to torts) represent about 85 percent of current lawsuits. Torts are not the only type of litigation to enjoy such windfall percentages. A little over half of the U.S. contract litigation cases are contingent fee driven.

The reality of the U.S. system is commerce. While it’s true that some U.S. cases have put an occasional contingent fee litigator in the poor house, the truth is you don’t need a real strong batting average to end up a multi-millionaire. Let’s be candid: There is no litigation shortage.

Appalling as this all may sound, other countries are not looking at the U.S. system with disdain. They are looking at market forces demanding change. The ongoing ethical debate in Europe seems to be favoring some sort of leeway for entrepreneurial lawyering (an incentive driven legal system) much more aligned with its U.S. counterparts.

Currently, contingent legal fees in Europe are forbidden (pacum cuota litis) because the system is not allowed by the ethical code of European association of lawyers. However, some countries have been under scrutiny for letting the practice go on. Hmmm.

As always, the market forces will win out. Many countries are allowing what’s commonly called “conditional fees,” meaning the lawyer will get an upgraded pay, if the case is won. The premium is not related to the amount adjudicated. The UK introduced these conditional fees in the 90s, and since then, many other countries have followed.

The real interesting part of this is that there is a full-scale debate going on about which fees make more sense, contingent or conditional. The argument is over how much effort an attorney would be willing to put into a case, and whether the fees are commensurate with the effort put forward. In the current UK system, the conditional fees are not related to the settlement. Double Hmmmm.

So here we are back to square one. Incentive based litigation is not going away any time soon. If fact, it looks as though it will get worse in the U.S. and in the rest of the developing world. The only answer is self-help tort reform. I remember my first meeting with Rob Lambert. We were discussing tort reform. His answer was simple: “Better take matters into you own hands because I don’t see it anytime soon.“

In the end, take charge of your own finances, and let the legal demigods do as they will.

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