Contingent Fees Research Articles

Risk Neutral Justice

It has long been understood that risk aversion reduces the likelihood of suit. This article offers a simple proof that risk aversion is observationally equivalent to risk-neutral pessimism by applying a change of measure to risk-neutral probabilities. The observational equivalence of risk aversion to risk-neutral pessimism may provide a useful framework for proving results in the study of several areas of interest, including (1) the role of risk-transfer mechanisms like contingency fees and litigation funding; (2) calls for prohibitions on, or judicial participation in, plea bargains; and (3) broader judicial review of the fairness, reasonableness, and adequacy of settlements in individual (that is, non-class) civil actions.

Mystery shopping: demand-side phenomena in markets for personal plight legal services

ABSTRACT“Personal plight” is the sector of the legal services industry in which the clients are individuals, and the legal needs arise from disputes. This article proposes that competition among personal plight law firms is suppressed by three demand-side phenomena. First, consumers confront high search costs. Identifying competing law firms willing and able to provide the needed services often requires significant expenditure of temporal and psychological resources. Second, comparable price and quality information about firms is scarce for consumers. Both of these factors impede comparison shopping and reduce competitive pressure on firms. A third competition-suppressing factor is observed in tort legal service markets, where offerings are typically priced on a contingency basis. Contingency fees have relatively low salience to consumers, and this reduces consumers’ willingness to negotiate and comparison-shop on the basis of price. This analysis is supported by the author’s empirical research with Ontario personal plight lawyers as well as the existing literature. The article concludes by suggesting possible consequences of this analysis for regulatory policy.

The Lemons Problem in Criminal Appeals: On the Pernicious Effects of Douglas v. California

Douglas v. California holds that states that provide an appeal as a matter of right from a criminal conviction must provide appellate counsel to indigent defendants wishing to appeal. States don’t have to provide a right of appeal at all, but if they do they have to give indigent defendants a free lawyer. Combined with earlier cases, Douglas provides defendants a free option to appeal. Combined with counsel whose ideological commitments may cause them to raise some issue — any issue — that has the slightest chance of success, Douglas has created a pool of criminal appeals that judges tend to view with a deservedly skeptical eye. The free option it creates makes it hard for defendants with solid appellate claims to distinguish themselves from the large fraction of appeals raising unsound claims. The situation is partly analogous to the well-known “lemons” problem in economics. The rule against contingent criminal representation is flawed on its own terms, but it also forecloses the most rational solution to the lemons problem in criminal appeals. The rule against contingent criminal representation should be repealed. Appellate defense counsel should be paid a market hourly wage to review a file, but any actual merits briefing and argument should be done on a contingent fee basis, with the risk-adjusted fee award paid by the government.

The Regulating Trends on the Contingency Fee Agreement in Foreign Laws

The Regulating Trends on the Contingency Fee Agreement in Foreign Laws

Are Hourly Rate Matters 'Unfinished Business' Following Law Firm Dissolution?

When law firms are falling into financial straits, lawyers associated with the law firms look elsewhere for their future. Following dissolution, all of the lawyers are gone except for the few left with the legal requirements for winding up and shutting down the business. Many firms have filed bankruptcy to deal with their liabilities which are frequently greater than their assets. Bankruptcy trustees for many of these law firms have successfully recovered settlements and judgments from successor law firms where the lawyers have taken the unfinished business of the now-bankrupt law firm. There are many ethical requirements that have to be addressed as a result of law firm bankruptcies and dissolutions – generally designed to protect clients' interests. Other duties include the employee's duty of loyalty to an employer. Where the departing lawyer is a member of the law firm management or board of directors, there are additional statutory and fiduciary duties that may be owed. Where the law firm has agreements (such as buy-sell agreements, operating agreements, or other agreements) with its lawyers, there may be duties under those agreements. These and other issues that should be considered and are discussed in more detail in Issues in Partner Migration and Law Firm Dissolution. Without a Jewel waiver in operative agreements, contingent fee cases have been found to be unfinished business which needs to be shared by the lawyers with the former (usually now-dissolved) firm based on a line of cases beginning with Jewel v. Boxer (Cal. App. 1984). Hourly rate cases have also been treated by some courts as unfinished business and many firms have paid large amount to bankruptcy trustees or receivers on that basis. Newer and better-reasoned cases, beginning with In re Thelen (NY 2014) have concluded that hourly fee cases belong to the client and the former firm's only rights are to be paid for work performed before the case left the firm.

Litigation Governance: Taking Accountability Seriously

Both Europe and the United States are rethinking their approach to aggregate litigation. In the United States, class actions have long been organized around an entrepreneurial model that uses economic incentives to align the interest of the class attorney with those of the class. But increasingly, potential class members are preferring exit to voice, suggesting that the advantages of the U.S. model may have been overstated. In contrast, Europe has long resisted the U.S.’s entrepreneurial model, and the contemporary debate in Europe centers on whether certain elements of the U.S. model - namely, opt-out class actions, contingent fees, and the “American rule” on fee shifting - must be adopted in order to assure access to justice. Because legal transplants rarely take, this Essay offers an alternative “non-entrepreneurial model” for aggregate litigation that is consistent with European traditions. Relying less on economic incentives, it seeks to design a representative plaintiff for the class action who would function as a true “gatekeeper,” pledging its reputational capital to assure class members of its loyal performance. Effectively, this model marries aspects of U.S. “public interest” litigation with existing European class action practice. Examining the differences between U.S. and European practice, this Essay argues none of these differences are dispositively prohibitive and that functional substitutes, including an opt-in class action and third party funding, could be engineered so as to yield roughly comparable results. Although the two systems might perform similarly in terms of compensation, the ultimate question, it argues, is the degree to which a jurisdiction wishes to authorize and arm a private attorney general to pursue deterrence for profit.

Regulation Through Litigation — Collective Redress in Need of a New Balance Between Individual Rights and Regulatory Objectives in Europe

Abstract The EU Collective Redress Recommendation has invited Member States to introduce collective redress mechanisms by July 26, 2015. The claim of the well-known reservations concerns the potentially abusive litigation and potential settlement of not well-founded claims resulting from controversial funding of cases by means of contingency fees and from “opt-out” class action procedures. The Article posits that apart from that claim, at bottom there may be some danger that the European Commission and private interest-groups may try to pursue the enforcement of their regulatory agendas in this way at the expense of individual claimants’ interests. However, in contrast to the situation in the United States, the need to complement regulatory enforcement by collective action may not appear as strong because of the relatively strict regulatory control and enforcement, which may explain EU Member States’ longstanding reluctance to adopt collective proceedings due to their concern for plaintiffs’ individual rights. Therefore, a comparative analysis is carried out to see to what extent individual rights as opposed to regulatory goals are taken into account in the different newly revised systems in place across Europe. As an interim result, the Dutch settlement procedure for mass damage claims, the English Group Litigation Order and the German test case procedure turn out to be relatively well-suited to dealing with mass damage claims. At the same time, none of them can quite reach an optimal balance between individual rights and regulatory goals and therefore each of them is subject to criticism. That is why the further question is raised as to how far these procedures could complement each other, thus contributing to the enforcement of individual rights without overregulating markets in Europe.

Review on a Effectiveness of Contingency Fee Agreement of lawyer

Review on a Effectiveness of Contingency Fee Agreement of lawyer

The Impact of State Medical Malpractice Reform on Individual-Level Health Care Expenditures.

Past studies of the impact of state-level medical malpractice reforms on health spending produced mixed findings. Particularly salient is the evidence gap concerning the effect of different types of malpractice reform. This study aims to fill the gap. It extends the literature by examining the general population, not a subgroup or a specific health condition, and controlling for individual-level sociodemographic and health status. We merged the Database of State Tort Law Reforms with the Medical Expenditure PanelSurvey between 1996 and 2012. We took a difference-in-differences approach to specify a two-part model for analyzing individual-level health spending. We applied the recycled prediction method and the bootstrapping technique to examining the difference in health spending growth between states with and without a reform. All expenditures were converted to 2010 U.S. dollars. Only two of the 10 major state-level malpractice reforms had significant impacts on the growth of individual-level health expenditures. The average annual expenditures in states with caps on attorney contingency fees increased less than that in states without the reform (p<.05). Compared with states with traditional contributory negligence rule, the average annual expenditures increased more in both states with a pure comparative fault reform (p<.05) and states with a comparative fault reform that barred recovery if the plaintiff's fault was equal to or greater than the defendant's (p<.05). A few state-level malpractice reforms had significantly affected the growth of individual-level health spending, and the direction and magnitude of the effects differed by type of reform.

Litigation and Stackelberg Contingent Fees

Litigation and Stackelberg Contingent Fees

Contingent Fee Agreement for Criminal Cases and Social Validity ― Based on En Banc Decision of the Korean Supreme Court on 2015. 7. 23 ―

Contingent Fee Agreement for Criminal Cases and Social Validity ― Based on En Banc Decision of the Korean Supreme Court on 2015. 7. 23 ―

Regulating Contingency Fees: A Consumer Welfare Perspective

How can we preserve and extend what's good about contingency fees, while minimizing the bad and the ugly? In order to identify the regulatory tools best suited to this challenging task, this Chapter proposes a consumer welfare analysis. The consumers of contingency fee legal services are the individual clients, and the members of classes, represented by law firms working on this basis. These consumers, like other consumers, have interests in: (i) quality, (ii) price, (iii) fairness, and (iv) choice. Part 2 of this Chapter will analyze these four sets of consumer interests, all of which are affected by the regulation of contingent fees. Part 3 scrutinizes various regulatory approaches to contingency fees against the consumer welfare criterion. I argue that heavy-handed interventions, such as fee caps and retrospective price review, can do as much harm as good for consumers. Light touch alternatives such as disclosure and standardized contracts, and fostering the invisible hand of the market, are preferable approaches for a regulators interested in maximizing consumer welfare.

Collective Action between Regulatory Goals and Individual Claimants' Rights Collective Redress Mechanisms in EU Member States as Points of Departure for Procedural Innovation

The EU Collective Redress Recommendation has invited Member States to introduce collective redress mechanisms by 26 July 2015. The well-known reservations claim potentially abusive litigation and potential settlement of not well-founded claims resulting from controversial funding of cases by means of contingency fees and from ‘opt-out’ class action procedures. The paper posits that there may also be some fear that the European Commission may try to pursue the enforcement of its regulatory agenda in this way at the expense of individual claimants’ interests. Therefore a comparative analysis is carried out to see to what extent concerns about individual rights as opposed to regulatory goals are reflected in the different newly revised systems in place across Europe. As an iterim result the Dutch settlement procedure for mass damage claims, the English Group Litigation Order and the German test case procedure turn out to be relatively well-suited to deal with mass damage claims. At the same time, none of them can quite reach an optimal balance between individual rights and regulatory goals and therefore each of them is subject to criticism. That is why the further question is raised in how far these procedures could complement each other, thus contributing to the enforcement of individual rights without overregulating markets in Europe.

Jostling for a larger piece of the (class) action

Both third-party litigation funders and plaintiff lawyers have attempted to improve their competitive positions in the class action market. First, in an environment with very little regulation, litigation funders have sought court approval for the introduction of a ‘common fund’ that would dramatically tilt the cost-benefit calculus in favour of the funder, providing them with far greater certainty about the risks involved in funding a particular action. Second, entrepreneurial lawyers have tested some questionable strategies designed to circumvent the prohibition on lawyers charging contingency fees. To date, neither has succeeded but their efforts have prompted discussion about the way class action litigation should be funded, who should be allowed to fund it and the need for greater regulation.

Mystery Shopping: Demand-Side Phenomena in Markets for Personal Plight Legal Services

Personal is the sector of the legal services industry in which the clients are individuals, and the legal needs arise from disputes. This article proposes that competition among personal plight law firms is suppressed by three demand-side phenomena. First, consumers confront high search costs. Identifying competing law firms willing and able to provide the needed services often requires significant expenditure of temporal and psychological resources. Second, comparable price and quality information about firms is scarce for consumers. Both of these factors impede comparison shopping and reduce competitive pressure on firms. A third competition-suppressing factor is observed in tort legal service markets, where offerings are typically priced on a contingency basis. Contingency fees have relatively low salience to consumers, and this reduces consumers' willingness to negotiate and comparison-shop on the basis of price. This analysis is supported by the author's empirical research with Ontario personal plight lawyers as well as the existing literature. The article concludes by suggesting possible consequences of this analysis for regulatory policy.

The Globalization of Entrepreneurial Litigation: Law, Culture, and Incentives

Entrepreneurial litigation is litigation in which the plaintiff’s attorney functions as a risk-taking entrepreneur, financing, organizing, managing, and settling the litigation on behalf of numerous clients (who generally hold “negative value” claims), but with only modest oversight from the clients. Although well established in the United States (and to a lesser extent in Australia, Canada, and Israel), it has long been resisted in Europe, the U.K., and elsewhere, where local rules both preclude the opt-out class action, contingent fees, and jury trials in civil cases, and mandate a “loser pays” rule with respect to legal fees. Yet, despite these obstacles, entrepreneurial litigation appears now to be coming to both Europe and Japan, with large settlements having recently been struck in securities litigation (most notably $1.4 billion this year in the Fortis litigation). Perhaps surprisingly, the driving force leading this transition has been American plaintiff law firms, who do not litigate the action, but do organize it, using third party funding and litigation insurance as functional substitutes for the contingent fee and the American Rule on fee shifting. Some have explained this phenomenon as a response to the U.S. Supreme Court’s decision in Morrison v. National Australia Bank Ltd., which barred U.S. courts from exercising extraterritorial jurisdiction over the federal securities laws, and thereby arguably encouraged other jurisdictions to compete for the cases that formerly were litigated in the U.S. Although the Morrison decision was a catalyst, this article rejects the claim that foreign jurisdictions are engaged in any competition for securities litigation, finding instead that defense counsel have found that they can sweep absent class members into a low cost settlement class action under The Netherland’s WCAM statute by discriminating between “active” and “non-active” class members.This article examines these developments and the issues they pose for Europe and Japan. Ultimately, despite early successes, the long-term question becomes: How successful can legal entrepreneurs be when operating in a different and skeptical legal culture?

The Impact of Contingency Fees on Collective Antitrust Actions: Experiments from Lithuania and Poland

Contingency-fee agreements are one—if not the only—tool that can be used to ensure that small-stakes collective antitrust actions are heard, yet they are subject to strong resistance from the European Union. There is a concern that contingency fees could lead to abuses of the system or conflicts of interest, as has been seen in the United States. Contrary to eu policy, two proactive member states—Lithuania and Poland—have introduced the possibility of using contingency fees in group litigation in order to facilitate group actions. Despite having a lot of potential, this paper will demonstrate that the introduction alone of contingency fees will not facilitate the compensation objective that is embedded in the Directive on damages actions. In addition, it will show that the safeguard policy against frivolous litigation is sufficient to limit the possibilities for litigation abuses, but it is ineffective for monitoring the individual behavior of group representatives.

(A Contingent Fee at the Rate of One Hundred Percent)

Hebrew Submission: מוכר נכס תבע מהקונה פיצויים מוסכמים בשל הפרת חוזה המכר. בין הקונה לבין עורך הדין שייצג אותה בתביעה הוסכם בעל-פה ששכר טרחתו של עורך הדין יהיה בשיעור ההפרש בין סכום הפיצויים המוסכמים שהלקוחה נתבעה לשלם לבין הסכום שבו היא תחויב למעשה. בית-משפט השלום קיבל את תביעתו של עורך הדין לשכר טרחה בשיעור זה, בית המשפט המחוזי הפחית במידת מה את השכר המוסכם, ובית המשפט העליון דחה בקשה לרשות ערעור על פסק הדין המחוזי.רשימה זו מציגה את הרקע הכלכלי, ההתנהגותי והמשפטי של הסדרי שכר טרחה התלוי בתוצאה. היא מסבירה שבמקרה הנדון היה מדובר בשכר טרחה התלוי בתוצאה, ששיעורו 100% מהתועלת שהלקוחה עתידה הייתה להפיק מהייצוג המשפטי. הרשימה טוענת שלא היה מקום לתת תוקף להסכם זה, משום שהוא בלתי-סביר ואינו עולה בקנה אחד עם חובות האמון החלות על עורכי דין. מעבר למקרה הספציפי, ההתדיינות הנוכחית חושפת ליקויים בהסדר המשפטי החל על הסכמי שכר התלוי בתוצאה במשפטנו, הן מבחינת היעדרה של דרישת כתב הן מבחינת אופן הפיקוח על סבירותם של הסכמים אלה. English Abstract: A seller filed a lawsuit for liquidated damages against a buyer who breached a sales contract. The defendant and her attorney agreed orally that the attorney’s fee will be the difference between the sum claimed by the seller and the sum she would actually have to pay. The court of first instance accepted the attorney’s claim for that fee, the court of appeal reduced the fee to a certain extent, and the Supreme Court of Israel rejected a petition for a second appeal.This Note presents the economic, behavioral, and legal background of contingent-fee arrangements. It claims that, in essence, the agreement in the present case provided for a fee rate of 100% of the client’s benefit from the legal representation. It further argues that this agreement should have been deemed unenforceable, because it was unfair and incompatible with the attorney’s fiduciary obligations. Beyond the particular case, the Note criticizes the regulation of contingent fees in Israel. It argues that the law should require that such agreements be made in writing and call attention to several deficiencies in the statutory provision authorizing the Bar to supervise their fairness.

Why plaintiffs’ attorneys use contingent and defense attorneys fixed fee contracts

Victims want to collect damages from injurers. Cases differ with respect to the judgment. Attorneys observe the expected judgment, clients do not. Victims need an attorney to sue; defense attorneys reduce the probability that the plaintiff prevails. Plaintiffs’ attorneys offer contingent fees providing incentives to proceed with strong and drop weak cases. By contrast, defense attorneys work for fixed fees under which they accept all cases. Since the defense commits to fight all cases, few victims sue in the first place. We thus provide an explanation for the fact that in the US virtually all plaintiffs use contingency while defendants tend to rely exclusively on fixed fees.

Third Party Financing and its Alternatives: An Economic Appraisal

In this contribution we provide an economic approach to third party funding. We first explain why third party funding emerges. It can be considered as a remedy for the market failure that can occur in cases of so-called dispersed losses where rational apathy may occur, and also when individuals do not bring claims solely because they do not have sufficient funds. However, we argue that although TPF can help solve market failures, it can create also problems of its own. All the classic economic problems, such as the principal-agent problem, information and transaction costs may jeopardize the effectiveness of TPF. However, we argue that remedies can be designed to increase the effectiveness. We further compare TPF to other mechanisms that could equally cure the market failures, such as legal expenses insurance (LEI) and the transfer of claims. We also briefly compare TPF to contingency fee arrangements, although this is not the central focus of our contribution.