Jim, we agree about a lot in Judge and Jury: American Tort law on Trial but agreement is boring so I'm glad that we will focus on one area of disagreement, contingent fees (or, as you say, contingency fees. See, we can't even agree on what to call them!)

Briefly, I think that contingent fees are not a driving force behind problems in the tort system and capping them could have serious unintended consequences.

First, contingent fees have been around for well over a hundred years - thus they cannot be responsible for problems in the tort system that have developed over the past several decades.

Second, tort reformers are usually respectful of markets and private contracts. Indeed, they rightly point to the death of contract (some say it was murder!) as a cause of current problems. Yet when it comes to private contracting between a lawyer and her client, regulation is now in order. That inconsistency bothers me.

If a lawyer and her client want to contract in Lira what business is it of the state to interfere? If the lawyer and client agree on an incentive plan, why should that be regulated? Do we want to regulate contingent fees in other areas? A money-back guarantee, for example, is a contingent fee - you pay only if the product is a winner. A tip is a contingent fee - you pay only if the service was good.

True, not all contracts should be respected - we don't enforce contracts against the public interest - nevertheless, my spider-sense starts to tingle whenever reformers of any stripe try to abrogate private contracting.

It should now be clear that I am not against regulating fees, contingent or otherwise, in class action suits. In class action suits there is no private contract between a lawyer and client. It's all lawyer and that is a recipe for abuse. The type of contingent fee restrictions that have been passed and that Helland and I analyze in Judge and Jury, however, are not restricted to class action cases.

Contingent fees have some good qualities, some of which you have already mentioned. Contingent fees allow injured but cash-poor individuals access to the legal system, they spread risk from plaintiffs to lawyers, and they act as an incentive system for lawyers who would otherwise be difficult for clients to monitor.

It's the last point which explains why restrictions on contingent fees can actually increase the number of frivolous lawsuits. A lawyer paid by the hour is paid regardless of whether the case has merit. But a lawyer paid by contingent fee is paid only if the legal system agrees that the case has merit. As a result, lawyers paid by contingent fee will screen cases more closely than those who are paid by the hour - thus doing the legal system a favor. More on that later.

You are correct that a lawyer on contingent fee may have an incentive to take on some cases that have a low probability of winning but high damages if they do win. But the lawyer's client has exactly the same incentives (indeed, given a contingent fee of 1/3rd, twice as strong incentives!) Thus the argument must be that these cases will go to court with contingent fees but not without them. But why would this happen? Only because clients wouldn't have the cash to take these cases to court - thus we are asking liquidity constraints to do our tort reform for us. I don't like tort reform by the back door.

Not all low-probability, high damages cases lack merit. Nor will capping contingent fees prevent all low-probability, high-damages cases from accessing the courts - only the low-probability, high damages cases where the client can't fund the case in some other way will be stopped. Can we be so sure that clients with little cash are the real danger?

Capping contingent fees is a blunt weapon and I am not at all confident that it hits the right people or hits enough of them to justify the hits that others must take.

Tort reform should aim more directly at the true source of problems in our current system namely judges, juries, and the law.