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Want to earn big fat fees for little to no work or risk-in violation of governing rules and laws? If you are a personal injury attorney, you may be used to this arrangement, even though your fees are legally required to meet a fiduciary reasonable-fee standard, not the anything-but-fraud norm of ordinary commercial transactions. Typically, tort lawyers charge at least one-third of any award�now 40% in a growing number of states�even if the case is settled before much time has been clocked and even if the defendants’ liability is clear. As Derek Bok wrote in The Cost of Talent, “There is little bargaining over the terms of the contingent fee. Most plaintiffs do not know whether they have a strong case, and rare is the lawyer who will inform them (and agree to a lower percentage . . . )” when they happen to have a very strong case. Indeed, a forthcoming study by the Insurance Research Council, Paying for Auto Injuries, found that median attorney contingent fees remain at 33% regardless of whether it takes a day or a year to settle the case, or the settlement is $100 or $25,000, or which party’s insurance company pays. To curb these abuses, petitions were recently filed with 12 state supreme courts (with others in the works) to revise rules of professional conduct to prevent such overcharges and to enforce existing fiduciary standards better. While the petitions have attracted limited public interest and have been denied in two states, their substance is of cosmic significance to today’s tort system. Ironically, the most revealing evidence of the need to rein in contingent fees abuse has come from the tort bar itself. In Utah�the first state to conduct hearings on the rule change�the principal defense of the status quo took the form of allegations by attorneys that they “voluntarily reduce[d]” their fees when they regarded them as excessive. The Utah “ defense” is damning. Attorneys should be the last parties to exercise unfettered discretion in determining whether they have violated fiduciary duties. Lawyers routinely condemn such blatant conflicts of interest when judging the practices of trustees and other fiduciaries. A reasonable reform Under the proposed reform, plaintiffs’ lawyers are required to advise defendants of the basic, discoverable facts of their claims, and may not charge more than 10% of the first $100,000 of a settlement and 5% of additional sums if the clients accepts an early settlement offer. Lawyers may petition the courts to increase their fees when equitable. The proposal neither requires defendants to make offers nor plaintiffs to accept them. The proposal would create an incentive for settlement offers that would net claimants what they would receive under the current system, or even more, while saving defense litigation costs. A recent study highlights this need: Congress’ Joint Economic Committee has found that legal fees in automobile cases (99% of such claims are settled pretrial and almost all involve routine processing) exceed $16.7 billion yearly. The proposed reform is not entirely new. In real property condemnation cases, lawyers typically charge a contingent fee only against the difference between the state’s initial offer and any higher sum paid after the lawyer is retained. Other examples exist, too, ranging from workers’ compensation to securities class actions, in which contingency fees are charged on an added-value basis. Some critics charge that the proposed rule will create situations that benefit everyone except the lawyers. Just so: The reform is designed to benefit injured parties and American consumers. That the defense and plaintiffs’ bars are equally opposed to the proposal is revealing. The current system’s perverse incentives encourage endless depositions and other obstructions by defendants’ counsel. And the proposal makes the familiar plaintiffs’ gaming incentives counterproductive�i.e., figuring one can settle for peanuts and make a high hourly fee, or go for top dollar and get modest compensation for one’s time even if successful. The Association of Trial Lawyers of America (ATLA) resolved in 1986 that attorneys should “exercise sound judgment in using a percentage in the contingent fee contract that is commensurate with the risk, cost and effort required.” It’s time for ATLA to join such luminaries as Derek Bok, Mary Ann Glendon and Roger Cramton, who recently commended this reform proposal. What mustn’t be done is nothing. Reform is necessary to drastically reduce the tort system’s bloated transaction costs and restore the fundamental trust that should be at the heart of attorney-client relationships. Jeffrey O’Connell is Samuel H. McCoy II Professor of Law at the University of Virginia School of Law. Brent Tantillo is deputy director of the Project for Civil Justice Reform at the Hudson Institute.

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