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

Furthermore, permitting contingent fee agreements is somewhat inconsistent with Rule 1.8(e), which forbids lawyers from advancing financial assistance to a client in connection with pending or contemplated litigation except for court costs and expenses of litigation if either (a) repayment is contingent on the outcome of the case or (b) the client is indigent.129 In both situations, there is a conflict of interest, where an attorney would be tempted to put his own financial interests above the interests of the client.130 And, in both situations, a client's waiver of the conflict would allow him to obtain counsel whom he otherwise might not be able to afford. Obviously, the fact that an attorney has loaned a client money creates an incentive for the lawyer to settle to recoup his investment. However, in a typical contingency case, an attorney has an incentive to take a quick settlement if it means little work, even though he might make potentially more money for his client by taking the case to trial.

One might argue that contingent fees are needed to enable clients to hire lawyers in situations in which they could not otherwise afford them or in which they were unwilling to assume the risk of the litigation. However, the same argument could be made with respect to advancement of medical costs and living expenses. Clients may fall victim to low ball offers from insurance companies if they are unable to obtain money to pay their medical bills and living expenses.131 Although one might argue that clients will be less inclined to fire lawyers in whom they have lost confidence if they would still owe them money from the advancement of living expenses or medical bills, the same issue arises when clients consider firing lawyers whom they have retained on a contingent fee basis. In many jurisdictions, they still owe the lawyer a reasonable fee for his services on a quantum meruit basis, regardless of whether the contingency ultimately occurs.132 Thus, we are still left struggling for an explanation for the disparate treatment between permitting contingent fees generally but not permitting the advancement of living expenses and medical bills.133

To justify the disparate treatment, one should consider the risk and danger of Type II error versus the risk and danger of Type I error.134 To do that here, we will need to determine (1) whether attorneys will have a greater conflict in one case rather than the other (i.e., whether they will be less able to adequately represent their client in one of the cases), and (2) whether the client will be less able to effectively waive the conflict either because she will be unable to understand and appreciate the conflict or because she would be more vulnerable and more under the lawyer's thumb in one case rather than the other. As discussed above, the conflict inherent in contingent fee representation is analogous to one in which a lawyer agrees to advance money to a client with repayment dependent on the outcome of the case.