A week ago we quoted reader Phil Grossman’s comment on this subject, provoking a discussion among readers. Now Grossman writes in with a followup:
Here’s the story on bar associations forbidding “discounting of contingency fees for clients coming to lawyers directly so that those lawyers do not have to pay referral fees”.
I had told you that I had seen reports out on the Internet saying that. But it now appears that what those reports were reporting on was that bar associations do not allow lawyers to raise their contingency fees to make up for paying referral fees in those cases where they are paying referral fees. And that really amounts to the same thing as not allowing lawyers to discount fees in cases where they are not paying referral fees. Because if they were allowed to give discounts to clients where they didn’t have to pay referral fees, they would be charging clients who come to them with a referral fee to be paid, more than clients who come to them without referral fees to be paid.
Now also one would think that a lawyer should charge a contingency fee based on his evaluation of how much work he is going to need to put into a case. He should charge a very tiny contingency fee (perhaps 5% or so – similar to what real estate agents charge) for a simple open and shut case that is not going to require much of any work at all on his part, perhaps a letter and a couple of phone calls before it is settled. On the other hand, he should charge a full contingency fee of 40% or so for a very complicated and risky case, that will require a lot of work and whose outcome is in doubt. But we know that never happens. In practice lawyers always charge the same contingency fee (typically setting it slightly higher if they have to go to court and slightly lower if it settles), so that a very simple open and shut case requiring only a letter and a few phone calls produces windfall profits for the lawyer. Also one would think that contingency fee percentages would vary from lawyer to lawyer and one could shop around comparing what a lawyer charges to one’s perception of how effective he is as a lawyer. But it appears that the size of contingency fees do not vary from lawyer to lawyer.
And I wonder how much the bar associations’ rule requiring ‘that lawyers not raise their contingency fees to clients where the lawyers have to pay a referral fee’ play into that effect of contingency fees always being the same despite the work a case requires. If a lawyer always charges the same contingency fee for all cases, then he is certainly complying with that bar association rule. But if he did charge varying contingency fees, depending on the particular case, how is one to know whether or not he is really complying with the bar association rule. Since we can assume lawyers use bar association rules to their advantage where it suits them (as well as often ignoring the rules when it does not suit them), lawyers probably not only refuse to discount their fees for clients coming in without referral fees “because it would violate the bar association rule against charging all clients the same fee, whether or not they come in with a referral fee”, but also use that bar association rule as an excuse to not lower their fee for simple and easy cases.
By the way, on the face of it, it appears that a rule requiring ‘that lawyers not raise their contingency fees to clients where the lawyers have to pay a referral fee’ does make sense and is fair to clients where they do come in with a referral fee. But that does mean that when a client comes in without a referral fee, and is charged the same as a client with a referral fee, the lawyer makes excess profits off that client and all clients are in effect paying extra for those referral fees, whether or not they actually come in via a referral fee.
There’s another issue in referral fees that I want to mention before leaving you. One of the reasons the bar associations give for allowing referral fees to be paid is so that a lawyer will have an incentive to pass a client onto a more experienced lawyer in that type of case, who will do a better job for the client, instead of keeping it for himself to make the fee off of it, while perhaps doing a poor job for the client. And that perhaps makes sense although the medical profession which bans referral fees among doctors as unethical certainly disagrees with that.
But lawyers who are not even practicing lawyers, who work in other jobs, and who the bar associations never expected to collect referral fees, are taking advantage of referral fees to make themselves extra money at the expense of their relatives or neighbors or coworkers. And legislators are getting referral fees for referring constituents to personal injury lawyers, making the current tort law situation quite lucrative often for law makers who are lawyers but do not even practice. In these cases the referral fees are kept very secret from the clients (of course referral fees between two practicing lawyers are often kept secret to some extent or another despite the bar association rules). That is against bar association rules but they are very unlikely to be found out (who’s going to tell?) and punished by the bar association so it is a very low risk behavior with a huge profit for virtually no work.
As before, I’m pretty sure I disagree with some of these points or agree only in part — for instance, I’d note that lawyers don’t always charge exactly the same contingency fee rates as their competitors, even if uniformity is the general rule. But reader input, especially from practicing lawyers, is once again welcome.
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