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Risks, Reputations and Rewards Contingency Fee Legal Practice in the United States By Herbert Kritzer Stanford University Press/$45 bookjacket: risksreputations.jpg On Election Day 2004, tort reformers had more to enjoy than the increase in Republican officeholders. Most visibly, voters amended the Florida Constitution to cap contingency fees. Now Florida plaintiff lawyers who bring “medical liability” cases on a “no win, no fee” basis may earn no more than 30 percent of the first $250,000 awarded in a lawsuit. For any winnings beyond that, they may collect only 10 percent. After the victory, reformers celebrated a brighter future in Web postings and on talk shows. “The toughest aspect of settling claims is coming up with enough money to satisfy the attorneys,” one insurance professional, John O’Hara III, wrote on a public forum sponsored by an industry magazine. “These attorneys do not always work in their client’s best interests, but always in their own. They make the same fee [percentage] no matter how little work they may have to do on some cases.” The Florida cap of fees, and a similar one enacted in Nevada, presume that plaintiff lawyers regularly engage in client exploitation and tawdry money-grabbing. Do they? In “Risks, Reputations and Rewards,” Herbert Kritzer raises doubts. A professor of law and political science at the University of Wisconsin, Kritzer engages the national debate over injury lawsuits by dropping us right into the offices of contingency fee lawyers, using questionnaires and fly-on-the-wall access. His research provides a picture that differs from O’Hara’s: When contingency fee attorneys settle a case early, at least in Wisconsin, they often charge less than what their retainer dictates. Of the three R’s in his title, Kritzer digs deepest into rewards. Decades ago, a contingency fee was the arrangement of last resort, used by lawyers otherwise unable to attract paying clients. Now, lawyers often turn to the “no win, no fee” proposition as the preferred path to profits. Many specialize, some dabble: In Wisconsin, 58 percent of all private-practice lawyers at least occasionally accept contingency fees. Almost all of these lawyers, Kritzer argues, share the goal of beating their regular hourly rate. To determine whether they win this gamble, Kritzer devised a financial formula — one that also could address the political debate. Critics carp on lawyers earning tens of thousands of dollars per hour. So the author sets out to tell us what “effective hourly rates” contingency fee lawyers typically earn, relying on his 1995-96 survey of contingency fee lawyers throughout Wisconsin. Using 852 cases, and weighting the data to compensate for limits in his sample, he reports a variety of findings: � A few really big disputes raise the average rate to a respectable $365 per hour. Ignoring the top 10 percent of cases lowers the mean to $184. By subtracting paralegal costs, he calculates the financial return for each case to be $207 per hour, or $147 without the 10 percent most profitable cases. � Personal injury lawyers beat the average, earning $446 per hour ($277 return), and those who advertise make $513 per hour ($284 return). His tables break down rates by 12 factors, including area of law, lawyer gender and income, and whether lawsuits were actually filed. His data parallels more limited national figures from the early 1990s. He concludes that the contingency fee lawyers generally win their gamble. They beat their market-rate hourly fee by 25 percent to 30 percent. He cautions, however, that his respondents’ memory may be faulty. In an unscientific spot check, he obtained time records for 92 of the cases, and among them the mean hourly rate was only $189 per hour, barely half his scientific survey finding of $365. Kritzer argues that even this higher level of enrichment does not justify limits on contingency fees. His argument revolves around the satisfaction of client demand. Contingency fees allow lawyers to carry a portfolio of cases, with varying risks, allowing some clients’ cases to subsidize the others. This pooling of risk, he reminds us, allows people of modest financial means to pursue cases they couldn’t otherwise. “Many clients probably do pay more for legal services than they might if they paid by the hour, but many of those same clients would probably not seek redress if it were not for the insurance function provided by the contingency fee. In a sense, clients pay a premium for eased access to the civil justice system,” he writes. Take that away, Kritzer implies, and society would be obliged to increase government legal aid. Many other countries, including nonlitigious ones like Japan, also rely on contingency fees to provide access to the courts. Kritzer only briefly weighs frivolous litigation and other systemic ills that corporate advocates say result from contingency fees. He mainly emphasizes that economic factors prevent abuses. As his fieldwork reveals, contingency fee lawyers have a motive to preserve their reputations so that they can attract new clients. This and the tendency to keep a diversified portfolio of cases helps keep them from filing junk lawsuits, he says. Kritzer does not fully illuminate whether contingency fee lawyers are overpaid, though. His discussion tilts toward fees and rates. His survey shows that the median firm partner or shareholder earned $103,099 in 1994, based on 562 Wisconsin practitioners. “This is consistent with private practitioners in the Wisconsin Bar as a group, although perhaps slightly on the high side,” he concludes, unhelpfully. Twenty-four percent of personal injury specialists made more than $200,000. Unfortunately, he didn’t ask them to estimate how many hours they worked for that money, and he gives no sense of their overhead costs. Most crucial to the political debate, he tells us nothing about the pay of the defense lawyers they oppose. (For what it’s worth, partners at Milwaukee’s Foley & Lardner averaged $345,000 in 1997.) Instead of pushing fee caps, Kritzer suggests that reformers cultivate free-enterprise schemes to lower fees. One model: encouraging private insurance adjusters to compete with plaintiff lawyers to negotiate settlements with insurers, which should expand price competition. (For the record, the caps on contingency fees in Nevada and Florida occurred because of campaigns by parties who no longer can avail themselves of laissez-faire pricing: doctors, who are under the thumb of private price controls from the managed care companies.) But this proposal underscores the main failing of his book: Competition to settle individual injury cases wouldn’t help prevent dubious class actions, which is central to the reformers’ complaints about contingency fees. Beyond earnings analysis, Kritzer tries to capture the routine of contingency fee lawyers. This is fine as far as it goes. He has a good ear for lawyers’ mouthiness, and his fieldwork illustrates how members of this bar are forced to act appropriately toward clients in part because they are cultivating their reputations. One can see this when they handle referrals and often when they choose cases. But he does not show these entrepreneurs talking about cash flow, how they plan for the future, how the work compares to their expectations or their contemplation of pro bono work. Meanwhile, his look at the three R’s veers too often into academic overkill — presenting frameworks and elaborating on unsurprising practices. The otherworldliness is magnified when he misspells the name of someone like Johnnie Cochran. And one R he should have attended to more diligently was repetition. Settling cases may be the core activity of these lawyers, yet parts of three chapters grind on reviewing the steps of settlement. On the other hand, his biggest contribution may be in avoiding an excess of another R: rhetoric. Were Kritzer to inspire colleagues in Florida, New York, Texas, California and Illinois to produce equally ambitious and rhetoric-free studies, we would know more precisely whether lawyers in those flashier jurisdictions enrich themselves more or less handsomely than their Wisconsin counterparts. Our debate over the flaws in the legal system would be far the richer. Matt Fleischer-Black is a reporter with The American Lawyer, a Recorder affiliate based in New York City.

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