CONTINGENT FEE REFORM

A contingent fee is a lawyer’s fee that is based upon a percentage of the money awarded to the client.  Generally, contingent fees are on-third of the total recovery.  The widespread use of the contingent fee is unique to the American civil justice system.  Contingent fees allow plaintiffs with little money to seek redress in the courts because the attorney bears the financial risk of bringing a lawsuit in exchange for a percentage of the recovery, if any.  In recent years, the current system has benefited lawyers at the expense of their clients.

PROBLEM:  The contingent fee system invites abuse because it encourages lawyers with a financial interest in the outcome of a case to try meritless claims or ask for unreasonably high awards.  Contingent fees are generally one-third of a total award, even when, as is often the case, attorneys bear no risk in taking a case.  Attorneys today seek out cases that can be settled easily, with little work, or can be decided under no-fault laws.  The one-third contingent fee pay-off for seeking such cases is disproportionate and discourages lawyers from taking more difficult, work-intensive, cases.     

ATRA’S POSITION:  ATRA supports legislation that limits the use of contingent fees in cases where a legitimate risk of non-recovery exists, and requires an hourly fee in cases where no legitimate risk of non-recovery exists, such as cases involving automobile accidents and other incidents where the parties are likely to settle, and cases where strict liability is imposed, such that no liability question exists to be resolved at trial. 

ATRA also supports legislation that provides a sliding scale for the award of contingent fees.  A sliding scale removes some of the incentive for lawyers to seek excessive jury awards, while preserving for plaintiffs the access to the civil justice system that the contingent fee system provides.

ATRA also supports legislation requiring an attorney to provide clients up front with an estimate of what the hourly rate for a case would be versus the applicable contingent fee charge.  The client would be free to choose the payment method under which they would like to proceed.  After disposal of a case, an attorney would disclose the number of hours actually spent resolving the case and the amount of the hourly fee or the contingent fees due.  Fully informed clients would be able to compare attorneys' fees and go in to fee arrangements with realistic expectations.

OPPOSITION:  The personal injury bar’s argument against imposing reasonable limits on contingent fees – that the unrestrained use of contingent fees gives plaintiffs who would otherwise be able to afford a lawyer access to the civil justice system – fails to address abuses of the contingent fee system by lawyers seeking to maximize their financial gain by almost exclusively taking on cases involving little or no risk and involving the potential for huge pay-offs, without disclosing to the client beforehand how much work and risk is involved in the case.  Personal injury lawyers have the upper hand in fee bargaining and can easily mislead clients about the value of their services.  Additionally, the typical personal injury client lacks "bargaining power" to negotiate aggressively with his lawyer for a fair deal on fees.   As a result, the disparity between lawyers and their one-time tort clients leads to gross exploitation in some cases.

STATE REFORMS

ALASKA

Medical Liability Reform: Contingent Fee Reform: Alaska Stat. § 9.60.080.  Requires that contingent fees be calculated exclusive of punitive damages.

ARIZONA

Medical Liability Reform: Contingent Fee Reform: Ariz. Rev. Stat. § 12-568.  Allows a court to consider the reasonableness of attorneys’ fees in medical liability cases, taking into account factors such as “the time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal skills properly.”

CALIFORNIA

Medical Liability Reform: Contingent Fee Reform: The Medical Injury Compensation Reform Act (MICRA): (1975): Cal. Bus. & Prof. Code § 6146(a).  Limits contingent fees in medical liability cases to 40% of the first $50,000 recovered, 33.3% of the next $50,000, and 15% of any amount exceeding $600,000.

CONNECTICUT

Medical Liability Reform: Contingent Fee Reform: Conn. Gen. Stat. Ann. § 52‑251c.  Limits contingent fees in medical liability cases to 33.3 % of the first $300,000 recovered, 25% of the next $300,000, 20% of the next $300,000, 15% of the next $300,000, and 10% of any amount exceeding $1.2 million.

DELAWARE

Medical Liability Reform: Contingent Fee Reform: Del. Code Ann. tit. 18 § 6865.  Limits contingent fees in medical liability cases to 35% of the first $100,000 recovered, 25% of the next $100,000, and 10% of the balance.

FLORIDA

Medical Liability Reform: Contingent Fee Reform: Fla. Atty. Conduct Reg. § 4-1.5(f)(4)(b).  Limits contingent fees in medical liability cases that settle before filing an answer or appointing an arbitrator to 33.3% of awards up to $1 million, 30% of awards between $1 million and $2 million, and 20% of awards exceeding $2 million.  Limits contingent fees in medical liability cases that do not settle before an answer is filed to 40% of awards up to $1 million, 30% of awards between $1 and $2 million, and 20% of awards exceeding $2 million.  Limits contingent fees in medical liability cases, where liability is admitted and only damages are contested, to 33.3% of awards up to $1 million, 20% of awards between $1 and $2 million, and 15% of awards exceeding $2 million.  Limits fees in medical liability cases that are appealed to an extra 5% of what is otherwise allowed.

HAWAII

Medical Liability Reform: Contingent Fee Reform: Haw. Rev. Stat. § 607-15.5.  Limits contingent fees in medical liability cases to a “reasonable amount,” as determined by the court.

ILLINOIS

Medical Liability Reform: Contingent Fee Reform: 735 Ill. Comp. Stat Ann. § 5/2 –1114.  Limits contingent fees to 33.3% of the first $150,000 recovered, 25% of the next $850,000 recovered, and 20% of any amount recovered over $1 million.  The statute limiting the amount of contingent fees that attorneys representing medical liability plaintiffs may recover, but providing that court may review the fee agreement and approve a larger fee in an appropriate case, did not violate the access to courts provision of the State Constitution or equal protection, or due process provisions of the State or Federal Constitutions, and did not constitute prohibited special legislation.  Bernier v. Burris, 497 N.E.2d 763 (Ill. 1986).

INDIANA

Medical Liability Reform: Contingent Fee Reform: Ind. Code Ann. § 34-18-18-1.  Limits contingent fees in medical liability cases to 15% of the recovery that comes from the Patient’s Compensation Fund.  

IOWA

Medical Liability Reform: Contingent Fee Reform: Iowa Code Ann. § 147.138.  Provides that a court in medical liability cases “shall determine” the reasonableness of the contingency fee. 

MAINE

Medical Liability Reform: Contingent Fee Reform: Me. Rev. Stat. Ann. tit. 24 § 2961.  Limits contingent fees in professional liability cases to 33.3% of the first $100,000 recovered, 25% of the next $100,000 recovered, and 20% of any amount recovered over $2 million.  Permits a judge to allow fees in excess of these amounts in special circumstances.

MASSACHUSETTS

Medical Liability Reform: Contingent Fee Reform: Mass. Gen. Laws Ann. Ch. 231 § 60-I.  Limits contingent fees in medical liability cases to 40% of the first $150,000 recovered, 33.3% of the next $150,000 recovered, 30% of the next $200,000 recovered, and 25% of any amount over $500,000 recovered.

MICHIGAN

Medical Liability Reform: Contingent Fee Reform: Mich. Ct. R. 8.121.  Limits contingent fees in medical liability cases for personal injury or death to 33.3% of the amount recovered.

MINNESOTA

Medical Liability Reform: Contingent Fee Reform: Minn. Stat. Ann. § 548.36.  Requires that contingent fees in medical liability cases be based on the award adjusted for collateral source benefits.

NEBRASKA

Medical Liability Reform: Contingent Fee Reform: Neb Stat. § 44-2834.  Allows a court to review contingent fees in medical and professional liability cases.

NEW HAMPSHIRE

Medical Liability Reform: Contingent Fee Reform: N.H. Rev. Stat. Ann. § 508:4-e.  Requires a court to approve contingent fees exceeding $200,000 in medical liability cases.

NEW JERSEY

Medical Liability Reform: Contingent Fee Reform: N.J. Ct. R. § 1:21-7.  Limits contingent fees in medical liability cases pursuant to a sliding scale provided in the New Jersey Court Rules.

NEW YORK

Medical Liability Reform: Contingent Fee Reform: N.Y. Jud. Law § 474-a.  Limits contingent fees in medical liability cases by a sliding scale.

OKLAHOMA

Medical Liability Reform: Contingent Fee Reform: Okla. Stat. Ann. tit.5, § 7.  Limits contingent fees to 50% of a plaintiff’s recovery.

OHIO

Contingent Fee Reform: HB 350 (1996).  Prohibits the assessment of contingent fees for expert witnesses.  The comprehensive 1996 tort reform law violated the doctrine of separation of powers and one-subject provision of the State Constitution.  State ex rel. Ohio Academy of Trial Lawyers v. Sheward, 715 N.E.2d 1062 (Ohio 1999).

TENNESSEE

Medical Liability Reform: Contingent Fee Reform: Tenn. Code Ann. § 29-26-120.  Requires a judge to award contingent fees in medical liability cases not to exceed 33.3%.

UTAH

Medical Liability Reform: Contingent Fee Reform: Utah Code Ann. § 78-14-7.5.  Limits contingent fees in medical liability cases to 1/3 of the amount recovered.

WASHINGTON

Medical Liability Reform: Contingent Fee Reform: Wash. Rev. Code Ann. § 7.70.070.  Requires a court to determine the reasonableness of contingent fees in medical liability cases.

WISCONSIN

Medical Liability Reform: Contingent Fee Reform: Wisc. Stat. Ann. § 655.013.  Limits contingent fees to 1/3 of the first $1 million recovered, 25% of the first $1 million recovered if liability is stipulated within 180 days of filing of the original complaint and not within 60 days of first day of trial, and 20% for amounts exceeding $1 million recovered.  Allows a judge to exceed these amounts in exceptional circumstances.

WYOMING

Medical Liability Reform: Contingent Fee Reform: Wyo. Ct. Rules Ann. Contingency Fee R. 5.  Limits contingent fees in medical liability cases to: one-third of the recovery, if the claim settles within 60 days of the filing of the lawsuit; forty percent of the recovery, if the claim is settled after 60 days or a judgment is entered upon a verdict; and 30 percent of any recovery exceeding $1 million.