Torts - Cases, Principles, and Institutions Fifth Edition, 2016a

Witt & Tani, TCPI 10. Damages
[T]he proposal prohibits plaintiff lawyers in personal injury cases from charging
standard contingency fees where allegedly responsible parties make early settlement
offers before the lawyer has added any significant value to the claim. Instead, the
lawyer is restricted to charging an hourly rate fee for the effort required to assemble
the relevant details of the claim and to notify the allegedly responsible party of the
claim. If an early settlement offer is rejected and a larger subsequent settlement or
judgment is obtained, the lawyer then applies the contingent percentage to the
amount in excess of the early offer, that is, to the value he added to the claim. He
would thus be paid what he would have received had the offer been accepted plus
the contingent percentage of the value he added.
LESTER BRICKMAN, LAWYER BARONS: WHAT THEIR CONTINGENCY FEES REALLY COST AMERICA
451 (2011). Does this proposal make sense? Note that some lawyers add vast value to a case
simply by being appointed as counsel. The threat of having lawyers like Sheila Birnbaum or
Elizabeth Cabraser (two prominent mass tort lawyers) involved in a case is often considerable
enough to change the case’s value. Should such super lawyers not be compensated for their
reputations?
In some ways, critics of the contingent fee like Brickman and defenders like Posner are talking
past each other—Brickman does not contest Posner’s point that plaintiffs’ lawyers have a strong incentive
to maximize the settlement value of the cases they take on, and Posner does not contest Brickman’s point
that plaintiffs’ lawyers may extract a higher than optimal cut of the total claim.
Is there a way we might reform the current contingency fee system to retain its advantages but
mitigate the high costs of the system?
In a number of respects, the contingent fee functions nicely to align the interests of
repeat-play lawyers and one-shot clients. . . . [But] the contingency fee does not
completely close the gap between the interests of the lawyer and the interests of
the client. The client’s interests are in maximizing the total value of the claim.
The lawyer’s interests are in maximizing the implicit hourly wage. It follows that
plaintiffs’ representatives have powerful incentives to settle cases early in the
process, before they have invested many hours in the claim, even if this means
settling at a lower claim value.
John Fabian Witt, Bureaucratic Legalism, American Style: Private Bureaucratic Legalism and the
Governance of the Torts System, 56 DEPAUL L. REV. 261 (2007). One of your authors identifies
two developments in the market for plaintiffs’ legal services that have mitigated this difficulty.
The first is the use of escalating sliding scale fees, in which the lawyer’s share of the damages
increases at each successive stage of the case (summary judgment, trial, post-trial, appeal). An
upwardly sliding fee scale helps (albeit only roughly) to align the client’s and the lawyer’s
interests with respect to the duration of litigation.
The second development is the rise of referral markets among lawyers in the market for
personal injury legal services, and in particular the role of reputation in that referral market. In
high-stakes personal injury cases, a robust lawyer-to-lawyer referral market has arisen, such that
lawyers who initially get high-value cases tend more and more to refer them to specialists in
return for a cut of the contingent fee. The lawyer-to-lawyer referral networks offer a market
solution to the lawyer’s skewed incentive to settle low rather than go to trial because any lawyer
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