Are Differences Among the Attorney Conflict of Interest Rules Consistent with Principles of Behavioral Economics?

Georgetown Journal of Legal Ethics, The, Winter 2006 by Gross, Leonard E

Rule 1.5 permits lawyers to charge contingency fees in a wide variety of cases, though not in criminal matters or in domestic relations matters.115 The rule has been interpreted by the ABA as even permitting lawyers to charge contingent fees when liability is clear and the only uncertainty is the amount in question.116 Professor Brickman, among others, has strongly criticized this rule since it allows lawyers to put their own interest ahead of their clients by charging contingent fees in cases in which liability is clear and the prospects of early settlement are high.117 Economists have argued that permitting contingent fee agreements drives a wedge between attorneys and clients (unless, of course, attorneys act altruistically) since attorneys have a selfish interest in early settlement, while clients will be more inclined to take the case to trial given that they do not have to pay for the incremental cost of the attorney's services.118 Such conflicts can be reduced if the contract between the attorney and client seeks to align the parties' interests. One way of doing this is to have the lawyer's percentage recovery be less for settlement than for trial. However, if the percentage were not calibrated carefully, one could create an inappropriate inducement causing the lawyer to take a case to trial when settlement was in the client's best interest.119 It is perhaps for this reason that many states have statutorily limited the amounts that attorneys can recover in medical malpractice cases.120

Some have argued that contingent fee arrangements serve to deter accidents because they encourage lawsuits, thus inducing producers to place a greater emphasis on product safety.121 However, it seems likely that accidents will be deterred only if plaintiffs adopt more aggressive bargaining positions in settlement. Although clients may have such an incentive, since they are subject to the influence of their attorney who often will favor an early settlement, the theory that contingent fee agreements enhance accident deterrence is questionable.122

One assumption behind permitting contingent fees is that it allows clients to obtain lawyers in circumstances where either they could not afford to obtain counsel or are unwilling to run the risk of financing the litigation.123 One major problem, however, is that the Model Rules, unlike Ethical Consideration 2-20 of the former AE A Model Code of Professional Responsibility, do not even require that the lawyer offer the client the opportunity to retain him on an hourly basis.124 It is true that lawyers retained on a contingent fee basis and those retained on an hourly basis are both subject to the requirement that their fee be reasonable.125 However, Model Rule 1.5 allows the existence of a contingency to be a factor in determining the relative reasonableness of the fee.126 More importantly, it is easier for clients who are charged an excessive fee on an hourly basis to recognize that they are being gouged and complain. Personal injury lawyers realize that they can make much more money per hour by handling cases on a contingent fee basis. As a result, in many areas it is difficult to find an attorney to handle a personal injury case on an hourly basis since virtually all charge a contingent fee and indeed the same contingent fee.127 The fact that yellow page ads show little variation in minimum contingent fees suggests little competition among personal injury lawyers.128