Posts tagged as:

contingent fee

Law enforcement for profit to take another big leap forward? [Washington Post]:

The Internal Revenue Service would be required to turn over millions of unpaid tax bills to private debt collectors under a measure before the Senate, reviving a program that has previously led to complaints of harassment and has not saved taxpayers money.

The provision was tucked into a larger bill, aimed at renewing an array of expired tax breaks, at the request of Sen. Charles E. Schumer (D-N.Y.), whose state is home to two of the four private collection agencies that stand to benefit from the proposal.

It requires all “inactive tax receivables” to be assigned to private debt collectors if the IRS cannot locate the person who owes the money or if IRS agents are unable to make contact within a year.

The idea has been tried twice before, but was discontinued both times after poor results including net losses on the program. Nina Olson, who holds the position of Taxpayer Advocate in the U.S. government (and is no relation), strongly opposes the program, noting that some of the money would be recouped by the Treasury anyway through means such as future withheld refunds without the need for paying 25 percent contingency fees to the middlemen. Bounty-hunting freelancers are more likely to resort to tactics such as day-and-night harassing calls, and have less flexibility to work out payment plans for those getting back on their feet after reverses or, in the case of estate taxes, heirs who may have not yet received the inheritances from which they need to pay the tax due.

Compare many state governments’ practice of putting out plaintiff’s-side litigation opportunities to private lawyers at contingency fee, which has created a durable lobby for hardball extractive lawsuits of dubious social benefit as well as showering large sums on law firms that already are or soon become influential political players in their states.

{ 8 comments }

The various member countries have very different traditions as to “collective redress” of legal claims, and while some have liberalized the procedures recently, none is anywhere near as liberal as the United States in permitting lawyers to assert class actions. That’s not going to change, according to Monique Goyens, director general of the European consumer organisation BEUC, which has pushed for new collective redress rules: “The key safeguards against exorbitant awards are in place. So we are not importing US class actions.” [Euractiv] More specifically:

The safeguards include swiftly ending unfounded cases and avoiding national systems where lawyers’ fees are calculated as a percentage of the compensation awarded, like current systems in the US and, to a lesser extent, in some European countries. The Commission also advises countries to avoid punitive measures, inflicted on top of actual damage and compensation for victims.

Maybe one of these days we could get some of those safeguards over here.

{ 1 comment }

Asset forfeiture operations with private helpers working on contingency fee:

After seizing more than $1 million in cash in drug stops this year, a district attorney has suspended further roadside busts by his task force because of growing criticism over a private company’s participation.

District Attorney Jason Hicks, whose territory includes four Oklahoma counties, hired Guthrie-based Desert Snow LLC with a deal to pay it between 10 and 25 percent of seizure proceeds, depending on whether its “trainers” were present or only department officers. “Sometimes, no drugs were found and no one was arrested, but task force officers took money found in the vehicles anyway after a drug-sniffing dog got excited.” Now criminal charges arising from the stops are being ended, an investigation has been launched into allegedly missing funds, and “some” money is being returned to motorists. A judge said he was “shocked”

after learning the private company’s owner pulled over a pregnant driver along Interstate 40 and questioned her even though he is not a state-certified law enforcement officer….

Forfeited funds are split among the law enforcement agencies of the task force after Desert Snow is paid.

It bears repeating again and again: contingency fees and law enforcement authority don’t mix. Not ethically, anyway. (via Ed Brayton; more from Eapen Thampy, Americans for Forfeiture Reform).

{ 4 comments }

All 50 states have escheat laws awarding to state governments ownership of unclaimed property in business hands, which can range from bank, insurance, and stock holdings whose proper owners cannot be found to retail gift cards never cashed in. The revenue looms peculiarly large for the state of Delaware, because it is the state of incorporation for so many businesses. In recent years friction has been growing between the state and its corporate citizens as the state government has taken an increasingly aggressive stance in auditing corporations for unreported escheatable property. [WSJ] So far, perhaps, so routine (except for the parties to the dispute), but some accounts omit one of the most salient angles, summed up by one critic [Douglas Lindholm, IBD via Volokh] as follows:

Last year alone, Delaware seized $319.5 million from liquidated property while returning only $18.9 million of unclaimed property to its rightful owners.

Delaware does this through an unfair, onerous and expensive audit system that “looks back” to 1981, and contrives unclaimed property if the company doesn’t have records for all those years. This process often costs companies millions of dollars, mires them in years of audits, and forces them to deal with third-party auditors who are motivated by contingent fees to invent unclaimed property where none exists.

Kelmar, which conducts most of the audits for the Delaware Department of Finance and works on a contingent fee, was paid more than $30 million in the second half of 2012 alone.

Again and again — whether in forfeiture laws entitling law enforcers to a share of the booty seized, or percentage awards for informants under whistleblower laws, or traffic camera systems in which the operators of the cameras get a share of ticket revenue, contingency fees for participants in law enforcement prove deeply problematic. In my chapter on contingency fees in The Litigation Explosion, I summed things up this way:

Contingency fees tend to be disfavored in professions to whom the interests of others are helplessly entrusted, where misconduct is hard to monitor…. Giving traffic cops contingency fees by hinging their bonuses on whether they make a ticket quota arouses widespread anger because it so obviously tempts the officer running under quota to be unfair to the motorist. The same is true of giving tax collectors contingency fees by hinging their bonuses on how many deductions they disallow or how many assets they seize. (“Tax farming,” the old system where private parties were deputized to collect taxes and keep some of the haul for themselves, was abolished long ago in well-run countries, not because it was the least bit inefficient — it was a favorite way for Roman emperors to extract revenue from conquered provinces — but because it encouraged brutality and trampling of due process in tax collection.)

Delaware seems to have gotten its image in trouble through a variant on tax farming. Let’s hope a lesson is being learned.

{ 1 comment }

Torts roundup

by Walter Olson on July 3, 2013

  • State attorneys general and contingent-fee lawyers: West Virginia high court says OK [WV Record] Similar Nevada challenge [Daniel Fisher]
  • Driver of bus that fatally crushed pedestrian fails to convince court on can’t-bear-to-look-at-evidence theory [David Applegate, Heartland Lawsuit Abuse Fortnightly]
  • UK uncovers biggest car crash scam ring, detectives say County Durham motorists were paying up to £100 extra on insurance [BBC, Guardian, Telegraph]
  • “A Litigator Reviews John Grisham’s The Litigators” [Max Kennerly]
  • Quin Hillyer, who’s written extensively on litigation abuse, is putting journalism on hold and running for Congress from Mobile, Ala. [American Spectator]
  • Not clear how man and 5-year-old son drowned in pool — he’d been hired for landscaping — but homeowner being sued [Florence, Ala.; WAFF]
  • “U.S. Legal System Ranked as Most Costly” [Shannon Green, Corp Counsel] “International comparisons of litigation costs: Europe, U.S. and Canada” [US Chamber]

{ 1 comment }

A Florida cardiologist has been sentenced to six years in federal prison and ordered to pay $4.5 million in restitution after serving to review the echocardiograms of more than 1,100 prospective claimants on a fen-phen settlement trust fund; many of the claimants he diagnosed were not in fact ill. “The physician was also to be compensated $1,500 for each claimant who qualified for benefits when that person’s claim was paid, according to the U.S. Attorney’s Office for the Eastern District of Pennsylvania, which prosecuted the case.” At trial, he testified “that his medical reports had been forged by the mass tort lawyer who had hired him on a contingency fee basis, the record states.” As I observed in The Litigation Explosion, medicine, like law, is a profession in which the prohibition of contingency or success fees developed early, in large part because it was expected that such fees would work to the benefit of dishonest practice. [Penn Record]

“A Circuit Court judge has ruled that Baltimore County’s contract with its speed camera vendor is illegal, because it pays the company a cut of each citation issued…. Maryland law says that ‘if a contractor operates a speed camera system on behalf of a local jurisdiction, the contractor’s fee may not be contingent on the number of citations issued or paid.’ But several jurisdictions, including Baltimore County and Baltimore City, pay their vendors a cut of each ticket, arguing that the jurisdiction, not the company, operates the cameras.” Judge Susan Souder ruled that Xerox State and Local Solutions, which currently “receives about $19 from every $40 ticket,” is indeed involved in the operation of the cameras. Del. Michael Smigiel, an Eastern Shore Republican, has introduced a bill to repeal the camera program: “We specifically said we’re not going to allow this to happen, and it happened,” he said. [Baltimore Sun, auto-plays video]

{ 1 comment }

Our discussion of litigation, character, and humility at the John Templeton Foundation continues with talk of mediation, settlement rates, the impersonality of big cities, and contingency fees.

{ 1 comment }

November 29 roundup

by Walter Olson on November 29, 2011

  • UK: “Premiums to soar as accident claims lawyers push up cost of motor insurance, MPs hear” [Telegraph]
  • John Stossel on death by FDA [Reason] Disapproving stance on e-cigarettes might cost lives [Balko] Company abandons pioneering stem-cell research after running up $45 million in costs to win FDA approval of initial safety tests [Technology Review] NYT can be obtuse about regulatory costs [Cowen]
  • No, we’re not allowed to let you out of the van to relieve the call of nature [Ted at PoL]
  • “Economic Damages Are Affirmed Though Plaintiff’s Earnings Rose After Accident” [NJLJ]
  • A shame about the business climate in Hawaii [Inverse Condemnation]
  • “Massachusetts Lawyer Loses License for a Year for Charging $93.8K Contingent Fee, Absent a Contingency” [Martha Neil, ABA Journal]
  • Movement “rapidly gaining steam” in U.S. to prohibit anonymous sperm donation [Glenn Cohen, Prawfs]

{ 1 comment }

Although not conducted through the legal system, some battles in China over alleged injury from medical malpractice make for an interesting compare-and-contrast exercise, right down to the role of contingent fees:

Medical personnel advocates complain that the more violent incidents are staged by hired thugs, paid by families of the deceased in hopes of winning compensation from the hospitals. … The Chinese have even coined a word for the paid protesters: yinao, meaning “medical disturbance.”

“It has become a very sophisticated system for chasing profits. Whenever somebody dies in a hospital, the yinao will get in touch with the family and offer their services in exchange for 30% to 40%,” said Liu Di, who is setting up a social network for medical professionals.

[L.A. Times]

{ 2 comments }

Kathryn Johnson, 92, “was shot and killed by police during a botched drug raid in 2006,” resulting in a payout of millions of dollars by the city. Now Rev. Markel Hutchins, who made public appearances as spokesperson for Johnston’s family, is suing her estate, saying he had an understanding to receive 10 percent of any recovery. [Atlanta Journal-Constitution, WABE] (& note commented controversy over whether “botched raid” is accurate.)

{ 14 comments }

In the new issue of the Federalist Society’s Engage, Margaret Little reviews Lester Brickman’s Lawyer Barons: What Their Contingency Fees Really Cost America, one of the most important new books on tort law in years (review, PDF). Excerpt:

No scholar has studied the role of the contingency fee in America more comprehensively than Professor Lester Brickman. He has now published a definitive book that examines the historic, economic, and political legacy of this American means of financing the always elusive quest for justice. …

Litigation, while public in name, takes place out of the public eye. … the defense bar is up to its elbows in preserving these arrangements because of the mirror image benefits they derive from the expansion and complexity of tort liability.

A House of Commons select committee “identified the principal cause as ‘a rapid growth in the number of personal injury claims management firms, which are using direct cold-call marketing techniques to encourage people to make claims who otherwise would not have done so’”. [Philip Johnston, Telegraph]

England has been experimenting in recent years with versions of contingent and conditional fees previously barred by ethical rules; following widespread discontent about the results, including high insurance rates, the Cameron government plans a new wave of tinkering. [BBC]

More thoughts on why bonuses tied to prosecutors’ measured “accomplishments” — in this case, conviction rates at a Colorado prosecutor’s office — are such a bad idea. Very similar logic helps explain the historically prevailing ban on contingency fees for lawyers in most Western legal systems. [Tim Lynch, Cato; WSJ Law Blog; related earlier (Harris County, Tex.)](& welcome Above the Law, Truth on the Market visitors)

{ 2 comments }

“The tree trunks, exposed banks and other hazards whizzing past represent a cornucopia of potential tort suits under U.S. law, yet somehow the Swiss manage to operate these runs without being sued into oblivion.” Dan Fisher at Forbes has a go at explaining why. More: Bill Childs, TortsProf (many U.S. states relatively protective of winter sports providers).

{ 5 comments }

Like other variations on contingency pay for those charged with enforcing the law, they sound like a really bad idea [Greenfield]

{ 5 comments }

January 14 roundup

by Walter Olson on January 14, 2011

  • When naming a new law, please, no acronyms, no victim names, and no assumptions about what it will accomplish [WSJ Law Blog on Brian Christopher Jones's recommendations] More: Wood.
  • America’s Most Irresponsible Public Figure® — that would be RFK Jr. — sounds off on Tucson massacre [Hemingway, Examiner]
  • More press attention for CPSC’s dubious consumer complaint database [Washington Post; my take last month]
  • An appellate win for Internet anonymity in Pennsylvania [Levy, CL&P]
  • Santa Clara lead paint case: Supreme Court won’t review government misuse of contingency lawyers [Wood, ShopFloor]
  • DC cops’ “post and forfeit” policy deserves scrutiny [Greenfield]
  • “Philosophy Explains How Legal Ethics Turn Lawyers Into Liars” [Kennerly]
  • “Marshall, Texas: Patent Central” [six years ago on Overlawyered]