Would Fees Be More Reasonable to Plaintiffs Under an Hourly Agreement?

The contingent fee helps protect the integrity of the civil justice system. An hourly fee arrangement can encourage delay, inefficiency, and unnecessary action. A contingent fee is an added inducement for a lawyer to be efficient and expeditious.

"There does not appear to be any gross discrepancy between the effective hourly fee earned by plaintiff lawyers under the contingent fee arrangement and the normal hourly fee charged by defense attorneys in medical malpractice cases on the average."

Stephen K. Dietz, C. Bruce Baird, and Lawrence Berul, "The Medical Malpractice Legal System," Report of the Secretary's Commission on Medical Malpractice, U.S. Department of Health, Education and Welfare 87, 154 (January 16, 1973).

The American Bar Association's Special Committee on the Tort Liability System expressed concern about allegations that contingent fees encourage lawsuits.

"We take it that any litigating lawyer, whatever his or her fee arrangement, wants to win, but it is not at all apparent that the incentives to win are unhealthily greater for lawyers working on contingency fees than for those employed at fixed hourly rates."

Sue Brown, "Do Contingency Fees Really Cause Malpractice Suits?" Medical Economics,
October 21, 1985, at 55.

"What little empirical evidence is available confirms that, averaging over cases won and lost, the effective hourly earnings of attorneys paid on a contingent basis are similar to the hourly earnings of defense attorneys paid by the hour."

Patricia Munch Danzon, Rand Corporation, Institute for Civil Justice, "Contingent Fees for Personal Injury Litigation," Summary at viii (R-2458-HCA, June 1980).

Even as the contingent fee is being condemned by corporate America, those same corporations as clients are becoming disgruntled with the hourly billing rate which has been the bedrock of their own lawyer-client relationship for decades.

"Clients are talking about fixed fees, capped fees, fee estimates, contingent fees, and discounts."

Blane R. Prescott, a partner with Hildebrandt, a management consulting company, based in Somerville, N.J. in Margot Slade, "Billable Hour, a Centerpiece of American Law, Is Fading," New York Times, October 22, 1993, at A1 (emphasis added).

Even in a corporate setting, the contingent fee offers the client the opportunity to shift the risk to the law firm.

"Law firms are also bad at predicting the likelihood of a bad outcome, especially in litigation. Relying on a contingent fee, in which the lawyers profit from a good outcome and share in a bad one, shifts that risk, too."

Id.

In fact, Zoe Baird, general counsel for Aetna Life & Casualty Company, had this to say at the 1992 annual meeting of the American Bar Association held in San Francisco:

"As the company's lawyers, we have to look not only at the service and quality of law firms with which we do business, but also at the linkage between price and performance. Hourly billing provides no such linkage. It is an accounting device. There is no credible economic theory underlying the hourly billing method, and for that reason, we no longer accept it as the sole, or even predominant, method of pricing legal services.

"In fact, hourly billing pushes economic incentives in the wrong direction -- weakening rather than strengthening the bonds between performance and pay.

"It also pushes law firms to a near-obsession with billable hours. And this in turn supports the great unwritten rule of all law practices: that those who want to get ahead must tally up the hours. This is first and foremost dubious economics. The number of hours spent on a matter is no measure of productivity. Productivity is better measured by results, including both outcome and time-frame. Linking the economic structure of your profession to true measures of productivity & nbsp--value -- will benefit both the firms and the client."

Sherry Matteucci, "What the Heck Is `Value Billing' Anyway?" Montana Lawyer, November 1992, at 2.

One of the largest property casualty insurers in the United States, Aetna, has recently stated, ". . . any abuses of the contingency fee system are best addressed through marketplace solutions (full disclosure to potential clients of the hours likely to be spent on the case, probability of success, probable recovery, and alternative fee arrangements) and when necessary, reduction of excessive fees by the courts. We do not support regulating fees."

Judith W. Pendell, Vice President, Law and Regulatory Affairs, Aetna, New York Times, March 11, 1994.