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Fees and markets: Prof. Painter responds

Those of you who have been anxiously awaiting Professor Painter's response to Professor Brickman in their ongoing Featured Discussion on contingency fee reform... it's here! Professor Painter makes several points regarding the contingency fee issue generally, offers both praise and mild criticism of Professor Brickman's "early offer" proposal, then lays out the case for his "New American Rule."

To recap, Professor Brickman's early offer idea would only permit contingency fees above a rejected early settlement offer. Professor Painter objects (a) that pre-offer discovery litigation could actually increase costs under the proposal, (b) that the proposal is more restrictive on "market mechanisms" (of fee contracting) than necessary, (c) that the early offer approach wouldn't affect situations where a lot of work was performed for exhorbitant fees (e.g., the tobacco fees), and (d) that the proposal peculiarly gave the defendant power to interfere with the plaintiff-attorney contract through its own settlement decisions.

The New American Rule would, in essence, force plaintiffs' attorneys to offer a choice between a contingency fee percentage and an hourly rate (upon a successful outcome) to their clients, at the outset, before representing them. Although such a regulation could be avoided by offering an exhorbitant hourly rate, the client would at least be aware of that rate and presumably more competition would be added into the market for contingency fees. Professor Painter lauds his approach as less market-intrusive. Interestingly, he also introduces two "corollaries" to the New American Rule: (1) that large entities (e.g., governments) not be allowed to enter into contingency fee contracts at all since they can self-insure; and (2) that courts "take seriously" ethical requirements that fees be reasonable. While (2) seems seems self-evident but difficult to enforce, (1) would I think be a most welcome development...

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Rafael Mangual
Project Manager,
Legal Policy

Manhattan Institute


Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.