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The State Bar of Texas is conducting hearings across the state on whether changes to the longstanding open referral-fee system are in order, and whether proposed Rule 8a of the Texas Rules of Civil Procedure -� which was promulgated by the Texas Supreme Court and which reduces referral fees to 15 percent of the total fee or $50,000, whichever is less -� should be adopted. For a host of reasons, the changes as proposed by the court are bad for Texas, bad for families and bad for the civil justice system. Texas always has had a referral-fee system, regulated through the rules of ethics and the grievance system. Lawyers are free to enter into any relationship, approved by the client, which does not result in the charge of an unconscionable fee. As a result of these guidelines, a robust referral-fee system has existed for many years. Under this system, lawyers retained or contacted by potential litigants in an area of litigation with which they are unfamiliar, or for which their firm resources might be inadequate, are encouraged to forward the case to a lawyer or firm better able to handle the case. Who benefits from this system? First and foremost, the client. Under the wide-open referral-fee system, all three entities �- the client, the referring lawyer and the handling lawyer -� have an indivisible identity of interest: full recovery by the client. Who does not benefit? Only tortfeasors and their insurers -� the very entities, represented by the self-styled Texans for Lawsuit Reform (TLR), whose Nov. 4, 2003, memorandum to the Supreme Court embodies the arguments of those wanting to restrict our referral system. TLR argues four points as justification for the proposed changes in our procedure. First, it argues for disclosure to the client of the referral fee “so that consumers of legal services can know who is actually serving as their lawyer and who is responsible for their case.” Disclosure of referral fees to clients already is required and is an established and beneficial part of contingent-fee practice. Proposed Rule 8a makes no changes here. Second, TLR argues that “it is imperative that referral fees be reasonable in amount and not simply operate as a windfall for lawyers.” This is one of the great fallacies in TLR’s legal analysis, yet one of the cheapest, most effective sound bites in its well-worn repertoire. To call a referral fee a windfall implies that a lawyer who contacts the best lawyer in the state and places a client with that lawyer for representation, thus maximizing the client’s recovery, has performed no service. It also ignores the reality that the referring lawyer has, in many cases, cultivated knowledge of the bar, lawyers, areas of practice and levels of proficiency in various disciplines for many years. These are important services that operate to the benefit of all but the tortfeasors who ultimately will have to pay the larger recovery obtained by the more proficient lawyer. Several misguided letters to the court, notably from physicians, re-emphasize the “windfall” point, assuming that a “mere” referral is no service to the client. If only physicians would adopt the legal system’s referral-fee practice, their patients would fare better. More than 20 years of experience with medical-malpractice litigation has shown me many cases in which a less experienced physician caused injury or even death “learning” a new procedure on a patient. Because physicians are forbidden from taking referral fees, they have no economic incentive to send patients to more competent, specialized physicians � only moral and ethical incentives. The moral incentive is, sadly, often trumped by the economic incentive. Why should the legal system adopt the medical field’s misguided practice? Public Scrutiny Third, and perhaps most telling, TLR advocates public disclosure of the referral arrangement. It is interesting that in this one and only area of the legal system, clients should have to be exposed to public scrutiny in their legal contracting. TLR does not reveal its fee agreements with its lawyers, nor do insurance companies representing tortfeasors, large corporations defending product liability and toxic-tort cases, or large businesses using the courts (even in contingent-fee cases). But TLR would like families who need the contingent-fee system to access the civil justice system to have their private legal contracts exposed to public scrutiny. What possible benefit could there be to the system from such a proposal? TLR states that it is necessary so that “the public and consumers of legal services know who are actually bringing lawsuits before our courts.” Why? So that another blacklist can be created, such as the Web site by and for Texas physicians that until recently listed malpractice patients and their attorneys? So that lawyers in small towns or tight-knit legal communities might feel the chilling effect of public scrutiny on their efforts to represent their clients zealously by the best possible referral and recovery? Why should we have selective disclosure of private contractual relationships only for families who can’t afford to pay their lawyers by the hour? Lastly, TLR argues that it is “appropriate to regulate such referral fees as to amount,” thus reducing total fees to the client. Truly touching concern, but misguided. Referral fees do not increase the amount of total contingent fees paid. They reduce the fee recovered by the handling lawyer. Proponents of 8a cannot grasp this indisputable fact, but it is the reality. A 40 percent contingent fee in a product liability or malpractice case remains a 40 percent contingent fee, regardless of how many lawyers divide it. The cost to the client is identical. The crocodile tears shed by 8a’s proponents are wasted here, though their sound bite is effective. The State Bar of Texas has held a number of public hearings, and its task force will promulgate a rule to be voted on by lawyers in a referendum. Many thoughtful comments have come to the committee. No one has been in favor of public scrutiny of legal contracts between private parties. Few, if any, have favored the harsh, arbitrary maximum-dollar and percentage restrictions originally proposed by the court. Most fall in a middle ground of encouraging the task force to propose rules that will enforce existing regulations against deceptive advertising, while preserving the unity of economic and ethical interests in referral-fee situations from which Texas lawyers and litigants benefit. An important component of our legal system is at stake. Reason and legal reality, not sound bites and political expediency, should govern the process and its outcome. Paula Sweeney, a plaintiffs lawyer for 23 years, is a partner in Howie & Sweeney in Dallas. She is a past member of the board of directors of the State Bar of Texas, has served on the Texas Supreme Court’s Rules Advisory Committee for 13 years and is a past president of the Texas Trial Lawyers Association.

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