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Two Cheers For Contingent Fees

Alex Tabarrok of GMU (also seen on the must-read Marginal Revolution blog) and Eric Helland of Claremont McKenna have released a new monograph through the AEI Liability Project entitled "Two Cheers For Contingent Fees". The study, the first of its kind on contingent-fee limits, finds that capping contingent fees for plaintiffs' attorneys is not only a limit on the contractual rights of plaintiffs, but may have counterproductive results vis-a-vis the intent of the litigation reform movement.

If America is a "lawsuit hell," then contingent-fee lawyers are often considered its devils. Contingent fees have been called unwarranted and the lawyers who accept them have been denounced as unethical and uncivilized. Furthermore, in the midst of increased filings and escalating awards, it is difficult not to notice that some plaintiffs' lawyers have become very rich. As a result, tort reformers have called for limits on contingent fees and many states have obliged. But limits have been enacted without any evidence that contingent fees were either responsible for the liability crisis or that limiting them would produce benefits.

This study, one of the first empirical examinations of contingent-fee limits, finds that contingent fees benefit plaintiffs and do not cause higher awards. Furthermore, contingent-fee limits are unlikely to reduce lawyers' income very much, since they will simply switch to hourly fees. Since hourly fee lawyers are willing to take more cases to court than contingent-fee lawyers, contingent-fee limits can increase the number of low-value "junk suits."

Tort reform is an important goal, but limiting the contractual rights of plaintiffs and their lawyers is an unattractive and likely ineffective method of achieving that goal.



Rafael Mangual
Project Manager,
Legal Policy

Manhattan Institute


Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.