The jury verdict in the Merck/Vioxx trial generated a good bit of debate about tort reform, and one of the common topics in that discussion is the effect that contingent fees have on the civil justice system. Contracting for a contingent fee is a way in which a plaintiff can hedge the cost of a lawsuit by shifting a portion of the risk of loss to an attorney. Many tort reformers propose to do away with — or at least severely restrict — contingent fees on the premise that they inevitably lead to increased frivolous litigation.
Along those lines, Ted Frank passes along this interesting AEI project from Alex Tabarrok (of Marginal Revolution fame) and Eric Helland in which they review the results of their study on the probable effects of limiting contingent fees. In short, they question whether the purported benefit of capping contingent fees merits the extreme measure of limiting the contractual right of a plaintiff to contract for a contingent fee:
If America is a “lawsuit hell,” then contingent-fee lawyers are often considered its devils. Contingent fees have been called unwarranted and the lawyers who accept them have been denounced as unethical and uncivilized. Furthermore, in the midst of increased filings and escalating awards, it is difficult not to notice that some plaintiffs’ lawyers have become very rich. As a result, tort reformers have called for limits on contingent fees and many states have obliged. But limits have been enacted without any evidence that contingent fees were either responsible for the liability crisis or that limiting them would produce benefits.
This study, one of the first empirical examinations of contingent-fee limits, finds that contingent fees benefit plaintiffs and do not cause higher awards. Furthermore, contingent-fee limits are unlikely to reduce lawyers’ income very much, since they will simply switch to hourly fees. Since hourly fee lawyers are willing to take more cases to court than contingent-fee lawyers, contingent-fee limits can increase the number of low-value “junk suits.”
Tort reform is an important goal, but limiting the contractual rights of plaintiffs and their lawyers is an unattractive and likely ineffective method of achieving that goal.
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UAL Corp.’s shopping excursion for reorganization take-out financing has apparently resulted in a preliminary commitment of a cool $3 billion in financing from four lending lending institutions that, if consummated, would allow the troubled airline to emerge from over three years in chapter 11. The four lenders involved in the negotiations with UAL are apparently Citigroup Inc., J.P. Morgan Chase & Co., General Electric Co. and Deutsche Bank AG.
