Contingent fees are unfair because plaintiffs are not allowed to recover the cost
of the fee from the defendant—that is, add the fee to the judgment awarded.
Plaintiffs must prove the economic worth of their injuries. In a simple case, this
might be the extra medical bills and lost wages incurred as a result of the
negligence. If these total $20,000 and there are no other alleged injuries, then
the jury will be limited to awarding $20,000. Approximately half of that will go
to paying the attorney and the costs of the litigation. Therefore, the purpose of
tort law—to make the plaintiff “whole” by compensating him or her for the
losses due to the defendant’s negligence—is not fulfilled. The plaintiff is able to
recover 50% of the actual losses because the defendant does not have to pay
the plaintiff’s attorney’s fees and costs of court. The problem of recovering
litigation costs drives many of the claims for imaginative damages.
Contingent fees create an incentive to exaggerate the plaintiff’s damages, and
they encourage the filing and prosecution of cases with large damages but little
negligence. Take the case of parents who come to the attorney’s office with a
brain- damaged child requiring custodial care. The potential recovery is so large
that it is worth searching for any possible negligence to justify a lawsuit.
Conversely, contingent fees deny access to the courts to plaintiffs with
meritorious claims but low damages. Every plaintiff’s medical malpractice
lawyer has turned away cases in which the patient was injured by clear, even
gross, negligence, but the potential recovery was too small to cover the cost of
litigation. In general, if the provable damages are not in excess of $100,000, it
does not make economic sense for an attorney to take the case.
In both law and medicine, it is ethically questionable to stop providing services
to a client because the client cannot afford the fee. In criminal cases, the
courts make it nearly impossible for an attorney to withdraw once
representation has begun. As a result, criminal attorneys demand fees, which
are nonrefundable, in advance. (There is also the problem of collecting from
the incarcerated client.) In civil lawsuits, it is difficult to withdraw after the
lawsuit has been filed. Ideally, every case will be investigated before a lawsuit
has been filed. The problem is that the defense often refuses to cooperate in
the investigation of a case. The plaintiff’s attorney must decide whether to sue
based on limited information. This encourages the filing of a case with large
damages in the hopes that liability can be found as the case proceeds. For an
attorney, this is the most ethically responsible step. Refusing to represent the
client because the defense makes it difficult to investigate the case would
compromise the client’s rights.
Many state legislatures are capping the fees of plaintiffs’ attorneys, [Birnholz
RM. The validity and propriety of contingent fee controls. UCLA Law Rev.
1990;37:949.] typically in two ways: sliding scale caps and limits on the
percentage that the attorney may charge. In the sliding scale system, the fees
that the attorney may charge for small cases—those under $100,000—are
unaffected. Using the previous example, in a case settled before trial, the
attorney would get 40% ($40,000) and be reimbursed for expenses (perhaps
$5,000). As the award increases, the allowable fee, as a percentage of the
award, is diminished, falling to perhaps 10% of the proceeds over $1 million.
This type of cap does not affect the initial decision to accept the case; rather,
it encourages the attorney to settle the case at a discount. After a certain point
in the history of a case, it acquires a settlement value. In the traditional
contingent fee contract, the attorney is provided an incentive to continue to
invest work and money to raise that settlement value. With a sliding scale cap,
the reduced reward for increasing the value from, say, $900,000 to $1 million
may not offset the work involved.
Limiting the percentage of an award that the attorney may claim as a fee
affects the litigation process in a different way. Capping the percentage
charged (perhaps at 25%) raises the threshold value for accepting a case. A
case that was profitable at 40% (of $100,000) would have to be worth
$160,000 to yield the same fee at 25%. It has been argued that sliding scale
caps prevent attorneys from gaining windfalls. Percentage caps, however,
serve only to deny access to the courts.