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

With regard to the client's ability to understand the conflict, there is no reason that a client would be more likely to understand the risks inherent in a contingent fee representation generally than those present when an attorney loans money to a client with repayment contingent on the outcome of the case. Although Model Rule 1.5(c) requires that contingency fee agreements be in writing, there is no requirement that the attorney explain fully how his interests might conflict with those of the client.135 For example, there is no requirement that the attorney explain that the client has an excellent case which might be settled after a few phone calls, but that the client would still be obligated to pay his contingent fee.136 In addition, there is no requirement that at the time of settlement the attorney provide a statement specifying how many hours he worked and what his effective hourly fee would be (like APR rate for consumer financing). If there were such a requirement, clients who had been gouged could at least know the extent and could consider contesting the fee in court.137

Although one could argue that permitting a greater degree of latitude in contingent fee situations is a necessary tradeoff for encouraging lawyers to handle cases, this justification of the rule is incomplete. It does not explain the failure to adequately inform clients of the conflict, which would be necessary if the rule is truly designed to benefit clients in obtaining representation. It also does not explain why lawyers are not required to offer hourly fees when clients desire representation on that basis. Therefore, unless the rule permitting contingent fees is designed to benefit lawyers at client expense (certainly a possibility),138 it would seem to be partially the product of unwarranted assumptions about lawyer and client behavior.

VI. How THE RULES SHOULD BE CHANGED To ADDRESS WHAT WE KNOW ABOUT THE BEHAVIOR OF LAWYERS AND CLIENTS IN CONFLICT OF INTEREST SITUATIONS

We cannot automatically assume that because there is a danger, lawyers will lack objectivity in assessing their own conflicts of interest. Nor should we necessarily create more categorical rules because clients will have difficulty in rationally determining whether their attorneys have debilitating conflicts. To make a rational choice, we would need to examine all the costs that would be imposed in depriving clients of the freedom of choice to waive conflicts. As stated by Professor Rachlinski, "[paternalistic constraints on choice cannot be justified with psychology absent a showing that the costs of privately developing better ways to make choices are greater than the costs of restricting individual choice."139

Instead of an outright ban on certain types of conflicts, we might seek to create greater informed consent by requiring additional disclosures from the attorney. The questions then would be whether these additional disclosures would likely work and how costly they would be.140 Both the general conflict of interest rule, Rule 1.7, and the specific rule regarding attorney financial dealings with a client, Rule 1.8(a), require client consent after disclosure. However, if the lawyer can skew the information to create the desired result and if the client is unlikely to pay careful attention to the information, has the rule really accomplished anything?