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mark-thierman-headshotOur founding partner, Mark R. Thierman recently wrote an op-ed that has been published in the leading online legal news service, Law360.com. Mr. Thierman’s article, “Don’t Throw Away the Keys to the Courthouse” discusses why contingency fees provide greater access to highly skilled legal counsel for the average person. Here is the article in its entirety:

OPINION: Don’t Throw Away The ‘Key To The Courthouse’

The June 6, 2016, article “An Uncertain Fate For Class Counsel Fees in California” raises some very important issues.

First, any rational attorney would want to know what the probable fee is before taking a case, and a class action lawyer is no different. Obviously, a class action is almost always going to be taken on a contingency fee basis, since no client will spend a half million dollars to litigate a $30,000 overtime claim. If the percentage of recovery is set too low, lawyers will not take the case. Just compare Social Security/Medicare litigation against the government where fees are capped at 10 percent of recovery with qui tam recoveries in favor of the government; the government gets the best representation while few firms represent the supposed beneficiaries of the system — the people. Failure to set the fee at the beginning of the case, or setting the fees too low, will only benefit guilty defendants at the cost to individual workers and consumers. And administrative agencies are too political, and/or too understaffed, to pick up the slack.

The English style of jurisprudence has always relied upon private sector lawyers to accomplish public good. Indeed, the contingent fee represents the dominant system in the United States by which legal services are financed by those seeking to assert a claim.[1] It has been said that contingency fee representation serves as the “key to the courthouse” for the vast majority of ordinary Americans, who could not otherwise afford to pursue their rights at the profession’s prevailing hourly rates.[2] The contingency fee lawyer provides access to affordable legal representation by agreeing to be paid as a percentage of the recovery, thus bearing the risk of losing the case.[3]

Second, what is the harm we are trying to prevent by regulation of fees? Is it just to reduce the lawyer’s fees or is it really to discourage representation of the masses? The best way to prevent class counsel from “selling out the class” is to announce a fixed percentage contingency fee at the start of the litigation. Unless the object of the litigation was truly injunctive relief initially, then paying class counsel hourly rewards inefficiency or bad case selection. If the fee goes down as the recovery goes up, then settlement occurs at the breakpoint, or close to it, because the marginal utility of further litigation is reduced. If counsel gets one third of recovery, no more and no less, counsel will maximize recovery efforts based on counsel’s cost benefit analysis. If recovery is based upon funds paid out — no reversion to defendant — then there will be lower settlements and less of them. Neither plaintiffs’ nor defendants’ counsel want that. Defendants have only so much money to pay, and contingency fee plaintiff lawyers attempt to extract every penny they can for the entire class. Indeed, some class members don’t participate in settlements for a host of reasons, including the interpretation that they personally didn’t suffer any harm. The court really will never have enough information to second-guess an honest, arms-length settlement, unless the court becomes the advocate of one side or the other.

Additionally, second-guessing lawyers involved in the case does not usually lead to better results. Everyone who had a case they “couldn’t loose” and then did, knows how unpredictable the eventual outcome of any case can be. The court may know how it will rule, which the parties do not, but the court does not know what a court of appeals might do, and delay often benefits defendants far more than a ruling on a particular point of law.

Contingency lawyers maintain a portfolio of cases, and analyzing any one case in isolation leads to inaccurate conclusions.[4] Settling weak cases quickly for less is often more beneficial for the class and for the lawyer than going further and loosing. And, hanging in until the end no matter what is not always best for the class as well, as illustrated by Jan Schlichtmann’s experience and portrayed in the novel and movie “A Civil Action.” Cases are unique, and no one can predict their outcome; second-guessing a lawyer whose interest in settlement is confined by a percentage of recovery without a showing of direct fraud or collusion should be discouraged.

For more than 200 years, contingency fee lawyers have charged one-third of any recovery.[5] There is nothing magic about the number but it has worked well for all this time, and there is no strong scientific or statistical evidence any other number works better. The market for contingency fee lawyers is one-third plus costs. Why should the court compel a different result?

While there are superstars in all occupations, most class action lawyers don’t earn as much as top “big law” partners representing the defendant on an hourly basis, and most lawyers who make their living doing contingency work — whether on a class action basis or for individual clients — are not paid much more than their hourly billing counterparts who undertake little or no risk of loss in bringing a case to trial. And while we all hear about the mega class action settlements, most are not so large as some tort, patent or breach of contract cases. In fact, if there is a comparable market to class action common fund recoveries it would be the large multimillion-dollar mass tort cases, such as with an aviation disaster or pharmaceutical product liability case, where the fee is set through individual arms-length negotiations with the client before the cases are filed, typically at one-third or more.

Cut the fees too low, or make recovery of fees uncertain, and more lawyers will head for corporate defense firms to earn a living at the expenses of the “little guy.” And then who will bring the class action lawsuits that create the jobs for those very corporate defense firms everyone wants to go work for now that a class action practice is not financially sustainable?

—By Mark R. Thierman, Thierman Buck LLP

The opinions expressed are those of the author(s) and do not necessarily reflect the views of Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

[1] F. MacKinnon, Contingent Fees for Legal Services 4 (1964).

[2] See Philip H. Corboy, Contingency Fees: The Individual’s Key to the Courthouse Door, 2 Litigation 27 (Summer 1976); Peter Karsten, Enabling The Poor To Have Their Day In Court: The Sanctioning Of Contingency Fee Contracts, A History To 1940, 47 DePaul L. Rev. 231 (1998).

[3] See U.S. Airways, Inc. v. McCutchen, 2012 WL 5375165 (U.S.), 17-18 (U.S., 2012).

[4] See, Risk, Reputations and Rewards by Herbert M. Keitzer (Stanford University Press: 2004).

[5] See e.g., Gaskill v. Gordon, 160 F.3d 361, 362 (7th Cir. 1998); H. Kritzer, The Wages of Risk: The Returns of Contingency Fee Legal Practice, 47 DePaul L.Rev. 267, 285-86 (1998).