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By Walter Olson
Adapted from The Litigation Explosion, Truman Talley Books, 1991

Compared with the legal systems of many other countries, that of the United States is unusually broad-minded in the ethical rules it applies to the legal profession: it indulges more zealous representation and leeway for entrepreneurial lawyering, while placing less emphasis on the idea that lawyers are "officers of the court" with broader obligations to the cause of justice who must not pursue every option that might be profitable for themselves or their clients. In his book The Litigation Explosion, our editor discussed one of the "great exceptions" of the American legal scene -- our use of the lawyers' contingent fee, which most countries ban as unethical -- as an example of how our approach to legal ethics has shaped the litigation landscape generally (download chapter 2 in its entirety here):

One reason lawyering has always been treated as something of a special line of work is that lawyers come under such intense and varied ethical pressures. They face countless temptations to exploit opponents and clients alike. Huge amounts of money can hang on the choices they make when no one is looking over their shoulder. Few occupations offer such chances for dishonest persons to become very rich.

A job that offers enormous returns to unscrupulousness will attract many unscrupulous persons and corrupt many persons of ordinary character. Most of the possible ways to sort out the bad apples are not very promising.

Criminal prosecution, disbarment, and other heavy-duty disciplinary measures can help in the few cases where abuses can be brought to light and proved conclusively. In practice only a few relatively flagrant cases of lawyer misconduct (mostly embezzlement of client funds and the like) are caught and corrected in this way. Advance screening of bar applicants for "good character" is a subjective affair that can imperil the merely unpopular applicant along with the shady one; it has fallen largely into disuse. Civil lawsuits against lawyers . . . provide occasional recourse for victimized clients but next to none for victimized opponents.

Finally there is the idea of reducing the temptations for dishonesty within the practice of law itself.

The ethical rules of many professions share a common underlying principle: if temptations are allowed to get out of hand, many will yield. To put it in raw dollar terms, if under system A people can grab a thousand dollars by telling a lie, and under system B they can grab a million by telling the same lie, more people-not all, but more-will tell the lie under system B. No system could block all chances to profit from lying, cheating, and corner-cutting; that would be hopelessly utopian. What a practical system of ethics can do is fence off the steepest and most slippery slopes, lowering the rewards for dishonesty not to zero but to a point where most people can be trained in the habit of resisting. . . .

[D]octors have never been allowed to charge contingency fees-in effect to place bets with their patients on the success of their therapies. Under a system of medical contingency fees, doctors would dispense with their fees if a patient remained sick. If he rallied, they would charge higher-than-usual fees. And if he got well enough to go back to work, they might even arrange to take a share of his future earnings, to reflect the value of their efforts.

Why would this be unethical? One reason is that it would open up so many temptations for doctors to depart from honesty. Under such a fee arrangement some doctors would portray transient maladies, best treated by doing nothing, as life-threatening to scare patients into promising a whopping contingency. Some would cure an illness with harsh remedies that left the body vulnerable to worse assaults later on. Some would allow patients who were still sick to believe they were cured, perhaps administering feel-good potions toward that end, although their best judgment would otherwise be to recommend drastic measures to stave off an imminent relapse. Falsification of test results, bedside charts, and autopsy findings would go on constantly. Even doctors of ordinary integrity would feel their objectivity subtly disoriented, and the truly unscrupulous would find chances to become very rich indeed. Observing this, more unscrupulous persons would enter the medical profession instead of other lines of work.

And so the custom arose of paying doctors by the hour, as work went along, whether their patients recovered miraculously, feebly, or not at all. By achieving a surprise cure a doctor might hope to get valuable word-of-mouth and repeat business. But that is the difference between more and some, not between feast and famine. Many of the subsidiary rules of medical ethics, such as the separation of medicine from pharmacy, follow similar lines. By shielding doctors from a sharp financial interest in drug dispensing, we avoid clouding their decision whether to prescribe or withhold drugs in borderline cases. . . .

In virtually every other country in the world, the case of lawyers is seen as very much like the case of doctors. The near-universal view is that neither clients nor (especially) opponents are very good at looking out for themselves; that no direct means of policing lawyers' misconduct is likely to be even halfway effective; and that the first line of ethical defense for lawyers is therefore to insulate them from a direct stake in the outcomes of their fights. The tradition of the English common law, the French and German civil law, and the Roman law all agree that it is unethical for lawyers to accept contingency fees. In 1975 British judges strenuously opposed even a closely regulated version of the fee, in which a contingency suit could go forward so long as leading lawyers verified its reasonableness. They explained that lawyers would no longer make their cases "with scrupulous fairness and integrity."

Why is America the glaring exception? What has emboldened our lawyers to accept this sort of fee?

The American exception on contingency fees seems to have developed naturally and inevitably from a wider and more profound American exception on legal fees in general, an exception that is central to understanding the problems of our legal system. America is the only major country that denies to the winner of a lawsuit the right to collect legal fees from the loser. In other countries, the promise of a fee recoupment from the opponent gives lawyers good reason to take on a solidly meritorious case for even a poor client. . . . The obvious result of not allowing recoupment is that clients must find some other way to compensate their lawyers. Unless the client has independent sources of cash, the only place for the fee to come from is out of the recovery itself. . . .

There is no point denying that contingency fees have certain productivity advantages. Paying people only if their efforts culminate in success definitely coaxes more effort out of them, but the question is always whether the effort is aimed in the right direction. . . . Contingency fees tend to be disfavored in professions to whom the interests of others are helplessly entrusted, where misconduct is hard to monitor. Accountants have long been barred from accepting contingency fees ("I'll pay twice your normal rate if my taxes go down, the bank stays happy, and I survive the next annual meeting without being voted out"); we hope they will stay independent enough to tell the client unwelcome truths. . . .

Contingency fees are particularly frowned on where the costs of abuse fall on third parties who are not taking part voluntarily. Giving traffic cops contingency fees by hinging their bonuses on whether they make a ticket quota arouses widespread anger because it so obviously tempts the officer running under quota to be unfair to the motorist. The same is true of giving tax collectors contingency fees by hinging their bonuses on how many deductions they disallow or how many assets they seize. ("Tax farming," the old system where private parties were deputized to collect taxes and keep some of the haul for themselves, was abolished long ago in well-run countries, not because it was the least bit inefficient-it was a favorite way for Roman emperors to extract revenue from conquered provinces-but because it encouraged brutality and trampling of due process in tax collection.) . . . .

Which interests are helplessly entrusted to lawyers? Their clients', of course, in many cases. . . . [M]any clients are quite surprised to discover at the end of a suit that the lawyer's claimed "expenses"-copying, filing costs, expert witness fees and so forth-have somehow ballooned to represent a huge share of the settlement on top of the contingency fee itself. . . .

Although contingency-fee lawyers face many temptations to exploit their clients, the worst dangers of the fee do not rest primarily on that ground. Alert clients can be on guard against being exploited by their own lawyers; as the abuses are more widely publicized, more may learn to avoid the lawyers who get too greedy in bill reckonings. The real problem with the contingency fee derives not so much from the conflicts it creates between the interests of lawyer and client as from the even more dangerous identity it creates between their interests as against everyone else's. In truth, many clients are delighted to find a lawyer who is much more ruthlessly committed to winning than the hourly-fee lawyer who represents their opponent. They seek out the operator who knows how to turn a worthless or low-value claim into a cash bonanza even if he keeps most of the extra money for himself. If they are made to cooperate in truth-shading or worse, they are not bothered. Some are only too glad to think up new embellishments of their own.

The case against the contingency fee has always rested on the danger it poses not to the one who pays it but to the opponent and more widely to justice itself. As other nations recognize, it can yoke together lawyer and client in a perfectly harmonious and efficient assault on the general public. There are things lawyers will do when a fortune for themselves is on the line that they won't do when it's just a fortune for a client. Taking all in all, we don't want them to do those things. . . .

For more specialized treatments of questions of ethics arising from attorney fee arrangements, see the many published writings of Lester Brickman on the topic, including The Market For Contingent Fee-Financed Tort Litigation: Is It Price Competitive?, 25 Cardozo L. Rev. 65 (2003), and Effective Hourly Rates of Contingency Fee Lawyers: Competing Data and Non-Competitive Fees, 81 Wash. U. L.Q. 653 (2003) (on the (non-) competitiveness of contingency fee contracts); The Continuing Assault on the Citadel of Fiduciary Protection: Ethics 2000's Revision of Model Rule 1.5, U. Ill. L. Rev.1181 (2003) (on the legal profession's poor record of policing itself through bar association ethics rules); and Lawyers' Ethics and Fiduciary Obligation in the Brave New World of Aggregative Litigation, 26 Wm. & Mary Envtl. L. & Pol'y Rev. 243, 245-52, 306-07 (2001) (on the specialized ethical problems arising from contingency fees in mass tort litigation).



Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.