November 5, 2006
Still More on Damages Posted by John Steele Gordon at 09:20 PM EST Mr. Smoler is bringing in all sorts of new matters that have nothing to do with punitive damages. Contingency fees: I have no problem, per se, with contingency fees, where the lawyer finances the case and gets a percentage of what is recovered as his fee. But I don’t see why the practice of financing someone else’s litigation should be restricted to lawyers. If my impecunious neighbor were to be tortiously wronged and I offered to pay his legal bills in return for a percentage of what was recovered, I’d be guilty of champerty. If a lawyer does exactly the same thing, it’s called a contingency fee. In many cases the lawyer who is nominally handling the case is actually doing no such thing. Some associate being paid an hourly wage does the actual work. All the bargain-making lawyer is doing is assuming risk. That’s champerty in all but name. No other profession is allowed to charge on anything other than a fee-for-service basis. Contingency fees began as a means of allowing the little guy his day in court, and most cases were handled in the normal fee-for-service arrangement. But today, tort lawyers insist on contingency fees in all cases, making them partners in someone else’s case, whether the someone else wants it that way or not. That should not be allowed. Nor should contingency fees be allowed where there is no contingency, i.e., where there is no chance of losing. If a construction crane collapses and demolishes a million-dollar house across the street, for instance, the owner of the house is certain to recover (the house, after all, didn’t hit the crane). The party at fault will be more than happy to settle and there is nothing much to do but negotiate the precise agreement. But try to find a tort lawyer who will handle such case without becoming a partner in it. Often, a lawyer in such a case can make hundreds of thousands of dollars for a few hours work, despite the flat ban in legal ethics against excessive fees. Lester Brickman, a professor at Cardozo School of Law in New York, has written an excellent book on Rethinking Contingency Fees, now out of print. I recommend it to all. Basically, he would require that the plaintiff first demand compensation. If the defendant made an offer of settlement, the plaintiff could either accept it, and the lawyer would receive a suitable fee, or reject it and go to court. In that case, the lawyer would get a contingency fee only on whatever was collected over and above the original offer. That would go a long way to clearing up the clogged court system. The American Rule: Mr. Smoler writes, “More freely assigning costs to the victor—the British rule—is widely thought to discourage people from seeking justice.” First, it is usually called the “English rule,” not the British rule, and it assigns court costs to the loser, not the victor. Under the American rule, each side pays its own court costs, regardless of outcome. (Under certain statutes, the plaintiff is explicitly empowered to collect his legal expenses from the defendant if victorious. I know of not a single instance where the defendant can collect if victorious. Not exactly a level playing field.) If the English rule discourages plaintiffs from going into court, which it does in iffy cases but not strong ones, the American rule greatly encourages plaintiffs to go into court on weak cases. It also greatly encourages frivolous lawsuits and what might properly be called legal extortion (“Yeah, you’ll win the case eventually, but it will cost you $250,000 to successfully defend it. So pay my client $100,000 now and I’ll go away”). Good ideas always spread, even when the forces of the status quo fight tooth and nail to prevent them from doing so. Take the Field Code of Civil Procedure. Largely the work of the great New York lawyer David Dudley Field (brother of Cyrus Field, who laid the Atlantic cable, and Stephen Field, who sat of the U. S. Supreme Court for 30 years), in the 1840s it reformed the Byzantine rules of civil procedure that New York State had inherited with the common law. It made the rules simple, logical, and efficient (think Dickens’s Bleak House for what it replaced). It quickly spread to other states and to the federal court system. In 1873 it was used as the basis for reforming civil procedure in Britain and the Empire. Today, whether you are in Banff or Brisbane or Boston or Birmingham, civil procedure is basically what David Dudley Field devised 160 years ago.
Now, the American rule has been around longer than that. If it is a good idea, why has it not spread to one single legal system outside the United States? Not one. Nada, zilch. The reason, of course, is that it is a lousy idea, unless you happen to be a lawyer. The good idea of the English rule will come to this country eventually, but we might have to follow Shakespeare’s advice first. For the origins of the American rule and David Dudley Field, see here.
He writes, “John Steele Gordon writes that state judges cannot be trusted to judge justly, because ‘tort lawyers are, by far, the greatest contributors to the electoral campaigns of state judges.’ It would be interesting to generalize from this principle. If credit card companies are bigger contributors to congressmen who pass bankruptcy laws than are people with a lot of credit-card debt, should we strip Congress of the power to legislate in this and comparable cases? To ask this question is to answer it.” No, to ask that question is to be silly. Is that really the most impressive argument Mr. Smoler can muster on this subject? Congressmen receive contributions from lots of different interests. Elected judges receive contributions only from tort lawyers (and maybe their mothers). Does Mr. Smoler think that a well-funded Congressman who got contributions from just one industry, the industry regulated by the committee upon which the Congressman sits, would draw no attention? Congressmen are subject to intense media scrutiny and are elected every two years. Judges, unless they misbehave egregiously, are ignored and elected to long terms. They shouldn’t, of course, be elected at all. That’s another truly lousy American legal idea that has spread absolutely nowhere. There’s a reason the federal bench is so much more respected than most state benches. I would recommend the website www.overlawyered.com, created by my friend Walter Olson of the Manhattan Institute, along with his other website, www.pointoflaw.com. It is not a pretty picture sometimes, although sometimes it is hilarious.
I might also point out that tort lawyers as a group are the largest single contributors to Democratic and liberal candidates and interest groups. No wonder liberals have so much trouble discerning problems with the status quo. They are funded by it.
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