Contingent Fee Reform

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 Opinion:

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.

Attorney General Sunshine – S.B. 984

Oklahoma|2022

Requires state agencies and officials to use an open request

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Requires state agencies and officials to use an open request for proposal process when seeking outside counsel in a matter in which attorneys’ fees may exceed $1 million.  Mandates inclusion of due process safeguards in contingency-fee contracts between the state and outside counsel, such as ensuring that government attorneys have complete control over the litigation and settlement.  Requires state agencies and officials to disclose to the attorney general any past or present relationship between the attorney or firm and state agency, the reason use of a contingency-fee arrangement is believed to be in the state’s interest, and the justification for hiring the private attorney or firm before entering a contract.  Requires submission of a copy of contracts in which fees may be $1 million or more, along with supporting information, to the Legislative Oversight Committee.  Establishes a maximum sliding scale for contingency fees in state contracts with outside counsel ranging from 25% of amounts below $10 million to 5% of amounts over $25 million (the percentage declines as recovery increases).  Prohibits a total fee in excess of $50 million.  Makes contingency-fee contracts available to the public on the attorney general’s website and requires firms to maintain records of their time and expenses and requires the attorney general to submit an annual report to Governor and legislative leaders describing the use of contracts with private law firms and attorneys over the prior year.  Prohibits provisions in settlement agreements that direct money to any place other than the state or state agency that is a party litigation, which must be paid into the state treasury.  Exempts agencies not subject to notice and comment requirements and securities litigation conducted on behalf of state entities.


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Unchallenged

Hiring of Contingency Fee Counsel by Political Subdivisions: H.B 2826 (2019)

Texas|2019

The Office of the Attorney General is responsible for the

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The Office of the Attorney General is responsible for the review and approval of outside counsel contracts for state agencies. The provisions of the bill expand this requirement to include contingent fee legal contracts for political subdivisions. Furthermore, the bill provides an administrative appeal against determinations.


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Unchallenged

Contingent Fee Reform: HB 350 (1996).

Ohio|1996

Prohibits the assessment of contingent fees for expert witnesses.  The

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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).


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