Two of the nation’s most prominent experts on the ethics of contingency fees, Prof. Lester Brickman of Cardozo School of Law and Prof. Richard Painter of the University of Illinois College of Law, are the guests in the second monthly “Featured Discussion” at Point Of Law, which gets started later today. Jim Copland sets the stage here and David Giacalone, whose site is another key resource for those interested in the ethics of fees, explains why you should care. Update: discussion has started.
Posts Tagged ‘contingent fee’
Law firm sues client
Cynthia Allen Mann retained the Dweck Law Firm on a contingency basis to represent her in an employment discrimination claim. Mann turned down a $1,035,000 settlement offer, so Dweck went back to the table, and negotiated a 30% larger $1.35 million settlement offer. But when Mann turned down this offer after (it claims and Mann disputes) Dweck refused to reduce its fee to increase her take-home amount, Dweck sued her.
The court dismissed a 2002 complaint for breach of contract, so the law firm amended the complaint to allege bad faith, and Southern District of New York federal Judge Shira Scheindlin recently ruled that the suit could go forward. “Where a client refuses a settlement offer because she believes her claim is worth more, and that her attorney has not effectively advocated on her behalf, she is not acting in bad faith,” the court said. “If, on the other hand, the client believes the settlement offer is satisfactory, but refuses it because she does not want to forfeit any recovery to her attorney, her actions may constitute bad faith.” (“Law Firm Has Claim Against Former Client For Rejecting Settlement Offer in Bad Faith”, ABA/BNA Lawyers’ Manual on Professional Conduct, May 19).
It remains unclear how one is to determine this subjective state of mind except through litigation–if a plaintiff takes the position that she does not want to settle because she wants to have a greater recovery than the combination of settlement offer and contingent fee permits, is that good faith or “bad”? The court made no effort to consider the ex ante effect of allowing law firms to have a plausible threat of suing a client if the client refuses to accept a settlement of a contingent case, especially given lawyers’ ethical obligations to their clients. Of course, the problem is more often the converse case: a risk-averse client wants a settlement, while a plaintiffs’ lawyer, who spreads his or her risk over several cases, wants the chance of a big payday.
Oz: a sued gardener’s plight
Even the loser-pays principle wasn’t enough to shield 78-year-old backyard gardener Vincenzo Tavernese of Hornsby, New South Wales, from a far-fetched claim by litigious neighbors claiming injury from the pesticides he used. “The growing popularity of no-win, no-fee law [in Australia] has led to an increase in litigation with little downside for the losing plaintiff. It has been a major driver of the liability crisis.” (Miranda Devine, “Don’t blame me, I’m just the lawyer” (opinion), Sydney Morning Herald, Mar. 4). The article drew responses in the form of letters that appeared in the SMH (one of which asserts that defendant Tavernese had the right to seek a costs security order in the litigation requiring the plaintiffs to show an ability to pay his fees if unsuccessful); a response by Ian Harrison SC defending contingency fees; and a discussion on the Slattsnews blog.
“Edwards gave loan to a federal judge”
“In 1994, when Sen. John Edwards (D-N.C.) was still the biggest tort lawyer in North Carolina, he lent $30,000 to a federal bankruptcy judge who was then overseeing a case on which Edwards?s wife, Elizabeth, did much of the legal work. The judge, J. Rich Leonard, is a longtime friend of Edwards?s. … Jonathan Turley, a professor of law at George Washington University who has brought ethics charges against judges before, said the arrangement presented a ‘compelling case of conflict of interest. It is hard to imagine a judge could rationalize presiding in a case where he holds a loan from a couple,’ he said.” Both Judge Leonard and the Edwards campaign deny impropriety and say the loan was fully disclosed and was repaid. Although Elizabeth Edwards’s law firm received a $1 million contingency fee for its work in the case she handled before Leonard, the fee was paid after she had already left the firm and she has said that she did not receive any of the proceeds. (Geoff Earle, The Hill, Mar. 2). Plus: instant retrospectives on the Edwards campaign (Chris Suellentrop, “The Pretender”, Slate, Mar. 2; Michael Graham, “The littlest candidate”, National Review Online, Mar. 3).
Update: second cardiologist sued over alleged fen-phen fraud
“A second doctor was accused of fraud [earlier this month] in a federal lawsuit filed by the AHP Settlement Trust, the entity created to process claims related to the $3.75 billion fen-phen settlement.” (see Sept. 21, Sept. 25). The new suit alleges that a New York City cardiologist conspired with an unnamed law firm to submit medically unreasonable claims of heart valve injury, resulting in the payment of millions of dollars in claims. “Compensation was a motivating factor in the fraud, the suit alleges, noting that for each VHD [valvular heart disease] certification, Mueller allegedly received an immediate payment of $500 over and above the $900 he received for interpreting the echocardiogram. The suit alleges that Mueller received another payment of $1,500 following compensation to the claimant, earning more than $1 million.” Contingency fees for expert witnesses are not necessarily prohibited as such in American courtrooms, though they have been widely viewed with distaste by ethics authorities. (Shannon P. Duffy, “Fen-Phen Settlement Trust Sues Second Doctor for Fraud”, Legal Intelligencer, Nov. 17).
“Little more than a publicly traded lawsuit”
The Wall Street Journal reports that SCO Group, which has sued IBM and threatened to sue many other companies based on the premise that the open-source Linux operating system infringes its intellectual property, has negotiated an arrangement with the law firm of Boies Schiller & Flexner. Under the arrangement, Boies Schiller will be granted a 20 percent contingent fee applicable not only to judgments and settlements arising from the lawsuits but also to certain events relating to SCO itself as an entity, including sales or equity financing. Corp Law Blog, commenting (Nov. 5), says: “SCO’s willingness to essentially give Boies 20% of SCO — whether through license fees, equity financings or a sale of the company — suggests that SCO is little more than a publicly traded lawsuit.” See William Bulkeley, “Boies’s Firm Could See $49.4 Million From SCO”, Wall Street Journal, Nov. 6 (sub). (via Prof. Bainbridge)
Update: Judge throws out Milwaukee lead paint case
In the latest high-profile lead paint suit to go down to defeat, Milwaukee County Circuit Judge Timothy G. Dugan dismissed the city of Milwaukee’s lawsuit demanding $85 million from NL Industries, maker of Dutch Boy paint, and Mautz Paint Co. Although Milwaukee’s contingency fee agreement with private lawyers was widely billed as one in which city taxpayers faced no risk, it turns out that the city will owe the private lawyers a substantial sum for expenses if it chooses to abandon the case rather than pursue appeal. (Tom Held, “Judge dismisses lawsuit against lead paint companies”, Milwaukee Journal Sentinel, Jul. 30; AP/Madison Capital Times, Jul. 30). The lawsuit had already contributed to the demise of the family-owned Mautz Paint Co., which sold itself to Sherwin-Williams in part because it could not afford to shoulder a legal defense (see Nov. 13, 2001). “The African American Chamber of Commerce and the Hispanic Chamber of Commerce praised the court’s action in prepared statements. ‘This lawsuit has hurt efforts to clean up lead paint problems,’ a statement from the African American Chamber said.” (“City’s lead paint suit dismissed”, Milwaukee Business Journal, Jul. 28).
Debunker debunked on contingency fees
David Giacalone at ethicalEsq? has posted a critique of a law review article entitled “Seven Dogged Myths About Contingency Fees“, published 2002 in the Washington University Law Quarterly and written by Prof. Herbert Kritzer of the University of Wisconsin, known as one of the more ardent academic defenders of the contingency fee. “Far from debunking the most important ‘myths’ about contingency fees,” Giacalone writes, “the Kritzer Article sets up an army of strawmen, shoots statistical and rhetorical blanks at them, and assures a hollow victory in the battle by using volunteer soldiers from the ranks of p/i lawyers.” (Jul. 30).
Arizona wants less zeal
David Giacalone is posting more interesting stuff at his new EthicalEsq? blog than we can hope to keep up with, particularly on the topic of excessive contingency fees (on which he challenges Public Citizen to amend its not-exactly-pro-consumer stance). One state that has taken a step in the right direction lately is Arizona, whose Supreme Court in June adopted new Rules of Professional Conduct that come down harder on overreaching fees than do the rules of the American Bar Association (Jun. 30).
In recent years Arizona has made itself into something of a laboratory for legal innovation. Of particular interest to us (see Jul. 7 commentary) is a seemingly minor one-word change to the state’s Rules of Professional Conduct (Jun. 6). To quote the court system’s press release, the change “removed the obligation of an attorney to be a ‘zealous’ advocate of his/her client and substituted to ‘act honorably’ in the furtherance of a client?s interests. According to Arizona Supreme Court Vice-Chief Justice Ruth McGregor, ‘Arizona is the first state in the country to make this crucial rule change.’ … ‘We are advised that this definitional change will also be considered by the American Bar Association,’ says McGregor. ‘This change may appear to be subtle,’ explains Chief Justice [Charles E.] Jones, ‘but in fact, it’s a very significant foundational change in the Rules of the Court, and one that is designed to send a distinct message to attorneys.’ The term ‘zealous’ was eliminated from the preamble, because it was erroneously being used by some attorneys to defend behavior that was seen as unprofessional and potentially belligerent, according to one committee member. ‘Jones explains that the State Bar committee’s recommendation … harkens back to a time when lawyers were closely identified as officers of the court. As such, they were duty bound to represent their clients with personal and professional ethics and integrity in mind.'”
We’re impressed. Time and again, in our experience, the putative obligation to represent clients in a “zealous” fashion has proved the last resort of the scoundrel litigator and ethical edge-skater. Yes, in principle there can also arise dangers when lawyers aren’t zealous enough, but no sane observer could imagine that the big problem with American litigation is that lawyers care so much for honor that they aren’t combative enough. We’ll be watching with interest to see whether the change produces any felt difference in Arizona litigation practice.
Bilking poor clients
“A prominent San Francisco attorney who represented the young, sick and poor was arrested Tuesday on federal charges of stealing $2 million of his clients’ settlement money to support a lavish lifestyle that included a six-bedroom mansion and a 73-foot yacht.” At its website, the successful San Francisco law firm of Tehin + Partners boasts of having “achieved an exceptional record of performance in litigation and trial through our 20 years + experience as a contingency fee-based plaintiff’s law firm”, not to mention “A Legal Philosophy That Sets Us Apart”. Today’s San Francisco Chronicle has a full helping of grotesque details (Stacy Finz, “S.F. attorney charged with bilking underdog clients”, Jul. 16)
It bears repeating that of all the institutions to which the temporal wealth of poor people is entrusted, law firms are among the least regulated; when outside authorities finally step in to clean up the mess, as here, it is typically after the fact, rather than in a preventive way through the sorts of regular disclosure and auditing requirements that banks or pension funds must meet. Nikolai Tehin lists among his affiliations Board of Directors, San Francisco Trial Lawyers Association. Update Apr. 24, 2005: judge sentences Tehin to 14-year sentence.