Contingency Fees Allow Greater Access to Courts

By: Lance M. Sears
Published in the August 7, 1989 issue of the Rocky Mountain News

The contingency fee system used by attorneys came under attack July 27 in a Rocky Mountain News editorial. The arguments in favor of the contingency fee system are numerous, however, while the arguments against it have developed without basis in fact.

The primary function of the contingency fee is to enable people who cannot afford counsel or the expense of a lawsuit to retain a lawyer and obtain access to the courts. Access to the courts for meritorious claimants, regardless of their income or financial worth, is the primary justification for the contingency fee contract.

A contingency fee contract is the percentage of a settlement or trial award that goes to a lawyer for the cost of representation—usually about one-third. Most important, an attorney must win or he or she gets nothing. The American judicial system is designed to create justice for all; the contingency fee contract is the great equalizer.

Second, the contingency fee contract also works to protect the integrity of the civil justice system and diminishes any potential conflict of interest that a lawyer may have with his or her client. The more the lawyer can obtain, either by settlement or verdict, the more the client receives.

Because the contingency fee is result-oriented, the better the result and the faster it is achieved, the more money the lawyer makes. There is incentive to get a maximum recovery within a minimum time and at a minimum expense.

The situation is just the opposite when lawyers bill clients by the hour. While most responsible lawyers miraculously discipline themselves and overlook personal benefits, the fact of the matter is that the time-charge basis of billing encourages protracted litigation. This was one of the conclusions of a 1980 report by the Rand Corporation on behalf of the U.S. Department of Health, Education and Welfare.

“What little empirical evidence is available confirms that, averaging over cases won and lost, the effect of hourly earnings of attorneys paid on a contingency basis are similar to the hourly earnings of defense attorneys paid by the hour,” the report said.

The News suggested that contingency fees encourage frivolous lawsuits. In fact, the opposite is true. A review of insurers in the few states that restrict attorney’s fees indicates that almost all of them have experienced an upsurge in both the number of suits and size of awards.

As reported in the October 1985 Journal of Medical Economics, both the American Medical Association and the American Bar Association (which includes both plaintiff and defense lawyers) have determined that restricting contingency fees won’t reduce the number of law suits. Indeed, the contingency fee has the opposite effect. What better incentive against bringing “frivolous” cases than the contingency fee?

The News also seem to suggest that because Europe does not allow contingency fees, America should adopt the same approach. The Japanese, long known for their efficiency and productivity, not only allow for contingency fees by plaintiffs but also for defendants! In Japan, time-charges are allowed, but rarely used in litigation. The Japanese recognize that to the extent that there is economic motivation on the part of the lawyer, the system benefits by resolving disputes quickly and inexpensively. Thus, the power of the contingency fee has been harnessed to reduce the cost of litigation.

In the end, no device can nor should be allowed to impinge on the right of trial by jury. While we all share the desire for an efficient, businesslike justice system, the business of the courts is neither efficiency nor business. The business of the courts is justice.