pageok
pageok
pageok
Contingent Fee arrangements for government lawyers:

Yesterday President Bush issued an Executive Order banning contingent fee arrangements for private attorneys who are hired to represent the government. The order is long overdue. Given that Senator Clinton's brother was the beneficiary of a manifestly corrupt government contingent fee, there is a risk that President Bush's Order might be overturned by a future President. Given the avowed determination of both parties in Congress to clean up government corruption, a bill to outlaw public contingent fees ought to attract wide bipartisan support.

In an Issue Backgrounder for the Independence Institute, I suggested that states should also consider enacting similar bans. At the very least, states should impose some sort of hourly-rate caps on contingent fees, to prevent politically-connected attorneys from receiving enormous windfalls for performing a trivial amount of legal work.

Viscus (mail) (www):
This is a very unwise executive decision.

Contingent fee arrangements give attorney's appropriate incentives to extract larger settlements.
5.18.2007 2:12am
Roger Schlafly (www):
Contingency fees can make sense for poor people who cannot afford or manage lawyers. The US govt can afford lawyers. I do not want private lawyers deciding to pocket taxpayers' money based on their own private deals. Good decision.
5.18.2007 2:58am
Paul Karl Lukacs (mail) (www):

Niggling legal usage point:

The validity of Executive Orders is tracked by the National Archives' Disposition Tables, which refer to EOs that "revoked" or "superseded" or "amended" prior EOs. I have never seen the Disposition Tables refer to an EO that "overturned" a prior EO.
5.18.2007 6:14am
Eric @ New York Personal Injury Law Blog (www):
Contrary to popular belief, the executive order doesn't stop the issue of a conflict between the zealous advocacy that private counsel is supposed to give with the impartial counsel that a gov't attorney is supposed to give, which I covered here:

Bush Prohibits Contingency Fees for Gov't Attorneys

--ET
5.18.2007 7:25am
DiverDan (mail):
Contingent fee arrangements for lawyers representing governments are an open invitation to corruption. The sordid history of the contingent fees agreed to and paid to the personal injury lawyers in the Texas Tobacco Litigation is a fine example -- the Texas AG at the time, Dan Morales, ended up doing prison time for his efforts to get his political cronies a piece of the action after the settlement was a done deal, and the limitations on fee splitting in the State Bar Rules are just too lax (and too weakly enforced) to even discourage the game playing that goes on to win a contingent fee assignment that looks like a big pay day. Want a contingent fee case that might get you a big windfall? Just sign on my Brother-in-law's law firm as "co-counsel" for a 5% cut! There is virtually no way to effectively police these under the table deals - just prohibit them outright.
5.18.2007 10:17am
Eric @ New York Personal Injury Law Blog (www):
Contingent fee arrangements for lawyers representing governments are an open invitation to corruption.

It's no different than corruption that might take place if fees were paid on an hourly basis. Pay-offs to get government contracts are as old as government. Singling out contingency fees did nothing to cure that problem. This was an exercise in politics, not policy.
5.18.2007 10:30am
Justin (mail):
Odd. Why handcuff the federal government?

"Contingent fee arrangements for lawyers representing governments are an open invitation to corruption."

Actually, its a lot less likely to cause corruption. You can hourly bill a worthless case and still make substantial amounts of money. Only a handful of the AmLaw 100 get substantial revenue from contingency fees, and they do quite fine for themselves. To get a contingent fee, on the other hand, you have to win a case, which presumably provides revenue to the government, which could help offset those taxes that conservatives are so against.
5.18.2007 11:03am
Special Guest:
Weird. They seem to have an ideological hatred of contingency fees that is not substantiated by any serious economic rationale. I guess it's because that form of payment is associated with the dreaded plaintiffs' bar? Yet another win for empty symbolism in politics. Hurray.
5.18.2007 11:13am
Jake (Guest):
It might be a little trickier to get people these multi-thousand dollar per hour fee arrangements when they can't be couched in terms of a contingent fee.

It also doesn't seem like a crazy, hacktastic idea to think that attorneys wielding government power shouldn't have a financial interest in the outcome of a case.
5.18.2007 11:24am
VFBVFB (mail):
--- Contingent fee arrangements give attorney's appropriate incentives to extract larger settlements. ---

Not always. Contingency fee arrangements often encourage attorneys to take a quick settlement for less than what they could get by pursuing the case further.

For example, suppose a case is filed for $100,000, in which the attorney’s contingency fee is one third. If the defense offers $30,000 preanswer, but the Plaintiff’s attorney is confident that he could get a $50,000 settlement offer on the eve of trial, its plainly in the client’s interests not to take the initial offer. But from the attorney’s perspective, even though he will receive less money, it might be worthwhile to take the offer, because he saves himself the work of going through discovery. Thus, the lawyer makes less money per case, but can handle more cases.

Contingent fee arrangements often encourage attorneys to go for the quick settlement. Its not true that it encourages attorneys to get the biggest settlement they can get.
5.18.2007 11:26am
DiverDan (mail):
I see this board is well represented by the Plaintiffs' bar - But their assertions that hourly fee arrangements are just as subject to corruption will not withstand scrutiny. Why make an illegal bribe or kickback (and accept the risk of criminal prosecution) to get a government case on an hourly fee deal that is going to pay you the very same rate as a private client is willing to pay you? Especially when the billings on the government case are almost undoubtedly going to be subject to strict auditing requirements? And fee splitting arrangements on hourly fee deals are not only rare, it's impossible to split the fees on any basis other than on work actually done, as opposed to contingent fee deals, where "referral fees" are quite regularly paid without regard to the amount of work done -it's easy to arrange a disproportionate payoff to the politically connected "co-counsel" for little or no work at all. Finally, that claim that contingent fee lawyers don't get paid unless they win is a red herring - no lawyer takes on contingent fee cases unless they are fairly certain they are going to get paid, and a huge number of questionable claims are settled because the defendant has no ability to recover its costs of defense. In fact, contingent fee arrangements create an incentive for quick settlements, often at the expense of clients with legitimate claims. And no, it is not an "ideological hatred" of contingent fees - I have taken on a few contingent casers myself in 26 years of practice, but I recognize the problems and conflicts inherent in these arrangements, and the only situations which justify these types of cases are where the client simply cannot afford to obtain justice without them. They have no place in government sponsored litigation.
5.18.2007 11:37am
fffff:
Several people have already made the point that hourly fees are just as susceptible to corruption as contingency fees. Moreover, its possible -- if you have an open and fair process -- to ensure that the contingency fee percentage does not represent a windfall. There's a long and well-established line of court decisions that use competitive bidding in class actions to ensure the fairest fee for the class. In re Oracle Sec. Litig., 131 F.R.D. 688 (N.D. Cal.), modified, 132 F.R.D. 538 (N.D. Cal. 1990). In re Quintus Sec. Litig., 201 F.R.D. 475 (N.D. Cal. 2001); Wenderhold v. Cylink Corp., 189 F.R.D. 570 (N.D. Cal. 1999); In re California Micro Devices Sec. Litig., 168 F.R.D. 257 (N.D. Cal. 1994). See also Laural L. Hooper &Marie Leary, Auctioning the Role of Class Counsel in Class Action Cases: A Descriptive Study (Federal Judicial Center 2001).

There's nothing inherently wrong with contingency fees for government work. In an era where every tax dollar matters, why would we chill states from using every attorney-fee management technique available to the rest of the legal services market? Unless, of course, you simply fear the plaintiff's bar and are eager to reduce their market generally.
5.18.2007 11:42am
Zathras (mail):
Diver Dan,

Almost every point you make is incorrect:

1) Why make an illegal bribe or kickback (and accept the risk of criminal prosecution) to get a government case on an hourly fee deal that is going to pay you the very same rate as a private client is willing to pay you? This only makes sense if the lawyer is working a fixed number of hours, so that he gets exactly the amount of cases, never short, and turning away unnecessary cases. There is almost no attorney who works this way.

2) And fee splitting arrangements on hourly fee deals are not only rare, it's impossible to split the fees on any basis other than on work actually done.... There is nothing to prevent referral fees to be contingent on payment, or even a percentage. Some states have DR's that disallow this, but these rules similarly disallow the practice in contingent fee cases as well.

3. Finally, that claim that contingent fee lawyers don't get paid unless they win is a red herring - no lawyer takes on contingent fee cases unless they are fairly certain they are going to get paid.... Wrong, wrong, wrong. Most plaintiff lawyers have a book of cases, and for almost all of these cases it is very difficult to determine initially whether a case will pay off.
5.18.2007 11:56am
Steve:
It's simply wrong to say that contingent fees are only for clients who can't afford to pay an hourly rate. For example, in securities fraud class actions, the lead plaintiffs these days come from the ranks of the largest public pension funds in the country (such as CalPERS and NYSCRF), extremely sophisticated consumers who negotiate their fee arrangement at arm's length. Nevertheless, these cases continue to involve contingent fees.

And of course, collection agents, and lawyers who work in the capacity of collection agents, are but one example of groups who are generally paid on a contingent basis. It's not because creditors are unable to afford an hourly rate, it's because this is the standard, bargained-for arrangement that provides the appropriate incentives, in the estimation of the parties involved.

This post is extremely weak, frankly, in its refusal to make any argument whatsoever, aside from warning that that noted corruptocrat Hillary Clinton may give away your tax dollars when she becomes President. I mean, President Bush's own brother pocketed millions of dollars from government contracts awarded as a consequence of No Child Left Behind; I assume we're not children and know that these things happen all the time. The solution might be anti-nepotism laws, the solution might be a lot of things, but this is unlikely to be it.

Off the top of my head, I'd suggest that all contingent fee arrangements ought to be subject to competitive bidding procedures. If the government decides that the best way to enlist competent help on an assignment is to pay a contingent fee, great, but don't award a no-bid contract to some politician's brother. Open the bidding up and emulate the highly successful practices employed by courts and public pension funds in class-action securities litigation.
5.18.2007 12:01pm
Steve:
If the defense offers $30,000 preanswer, but the Plaintiff’s attorney is confident that he could get a $50,000 settlement offer on the eve of trial, its plainly in the client’s interests not to take the initial offer. But from the attorney’s perspective, even though he will receive less money, it might be worthwhile to take the offer, because he saves himself the work of going through discovery.

True, but that's why it's the client, and not the attorney, who gets to decide whether to settle!

When you're dealing with a sophisticated client, like a major public pension fund, or the federal government, the idea that you'll be able to rip off your client by talking them into a cheap and early settlement is rather unlikely.
5.18.2007 12:04pm
Jake (Guest):
So should prosecutors get a cut of the property seizure money generated by their cases?
5.18.2007 12:25pm
Zathras (mail):
Jake: No one is suggesting that every single fee should be contingent. To suggest otherwise is a complete non sequitur.
5.18.2007 12:32pm
fffff:
So should prosecutors get a cut of the property seizure money generated by their cases?

This isn't quite right: the only way this analog works is if we have prosecutors who don't get paid if they aren't successful in seizing the property. (Actually, I watch the The Wire on DVD and wonder how well such a system might work, especially with skeptical judges and juries to counterbalance overzealous prosecutors.)

Open the bidding up and emulate the highly successful practices employed by courts and public pension funds in class-action securities litigation.


One of the great ironies of the PLSRA is that, rather than making the plaintiffs' bar more competitive, its lead counsel presumption has actually calcified the dominance of the very firms the PSLRA was meant to curb.
5.18.2007 12:59pm
Steve:
One of the great ironies of the PLSRA is that, rather than making the plaintiffs' bar more competitive, its lead counsel presumption has actually calcified the dominance of the very firms the PSLRA was meant to curb.

That's absolutely incorrect. Those firms which were able to adapt to the PSLRA's new way of doing business have prospered, while those who stubbornly clung to the old ways have gone by the wayside. Yes, some of the names remain the same, but that's a result of the fact that market leaders are often willing to do what it takes to maintain their position of dominance.

The purpose of the PSLRA was to promote client-driven litigation rather than attorney-driven litigation, with sophisticated clients making the decisions of what cases to bring, what settlements to accept, and how much to pay their attorneys. As long as the clients are satisfied with how the market leaders serve them, those firms are likely to remain the leaders, and there's nothing wrong with that. But if they fall short, there's now a free-market system in place where others can leave their mark.

If we institute competitive bidding for a government agency that used to award no-bid contracts, we might well find that the same contractors are winning the bids, because they're among the most successful companies doing work in this field. But as long as we're achieving our purpose of instituting a competitive bidding process resulting in lower prices, why should we care who the winners are?
5.18.2007 1:20pm
fffff:
Koppel's link makes some valid (but rebuttable) points and some questionable ones.

Contingent fee lawyers with government contracts are by their own words a fourth branch of government. But they are subject to none of the controls (e.g., financial disclosure, elections, etc.) applicable to the three real branches of government. These contracts usurp the proper functions of the legitimate branches of government.


The last sentence is ill-taken. Contingent fee lawyers are no different than any other government contractor -- nobody thinks the waste management company that picks up your garbage is usurping the municipality in which you live. That said, contingent fee lawyers should be subject to the same scrutiny (if not more) that other government contractors face. If you're going to do the high-profile work that government-state contingency fee arrangements imply, you should be subject to enhanced scrutiny. We can all agree that campaign contributions shouldn't be a deciding factor in the selection of governments' contingency fee counsel. But competitive, double-blind bidding would take care of that. Hell, if it doesn't, there's a market for False Claims Act and RICO claims against plaintiffs' lawyers that corrupt the process, isn't there? Fear of liability would contingency fee counsel just as honest as it keeps (most) corporate executives.


It is a huge violation of due process for any government official (including a lawyer hired by the government) to have a personal financial interest in the outcome of a case he is in charge of. Contingent fees for government lawyers are like paying a police officer contingent fees out of the traffic tickets he writes. Government workers are not supposed to be able to make themselves rich by picking targets to persecute. Contingent fees encourage predatory lawyers to use the power of government to extract huge winnings from various victimized businesses.


I want to point out that there is a (dishonorable) tradition of law enforcement agencies enriching themselves under forfeiture law. Substantively, contingency fee counsel aren't government employees and there's no due process problem if they are selected competitively and openly. This argument presupposes that meritorious defenses will not prevail. To the extent contingency counsel prevails, the defendants are just as liable as they would be if the government had used hourly counsel.


The contingent fee contractors invent lawsuits, and then shop for local governments to serve as nominal plaintiffs. For example, the anti-gun contingent fee lawsuits were invented by contingent fee lawyers and lawyers for anti-gun groups, who then solicited mayors as clients.


To the extent that governments are "nominal" plaintiffs, they won't have very large damages, will they? Courts do check in contingency fee and class action litigation to ensure that the lawsuit is client-driven, not attorney-driven. Again, presuming that the selection of contingency fee counsel is competitive, why should contingency fee claims be any less valid than hourly-fee claims?
5.18.2007 1:26pm
r78:
Given the incompetence and lawnessness demonstrated by our current AG and his staff, anything that would result in people outside of government getting involved would be a plus.

I mean, really, if they entrust a 29 year old graduate from Regent University to make personnel decisions about US Attorneys, do you really want to trust them to handle your litigation?
5.18.2007 1:38pm
Montie (mail):
Sheesh, people. It is just an executive order.

I would point out that it is not clear why in most instances the government needs to use contingent fees. The government has plenty of money and lawyers on staff. Moreover, I would also point out that contingent fees might cause a bias toward damage awards at the expense of other remedies. The government should be seeking to serve the public good in a lawsuit, not a maximum dollar award.
5.18.2007 2:11pm
Hattio (mail):
Diver Dan,
Your points on contingent fees hide an important fact. The person making the real money from these cases are the partners, not the poor schlubs who do the work. To the partners, there's no such thing as having all the work they need. Heck, if its really necessary you can always hire another schlub. Better yet, just make the schlubs you have work until 10 instead of 8.

ffff,
Have you ever seen a place with both skeptical juries and skeptical judges?
5.18.2007 2:27pm
fffff:

One of the great ironies of the PLSRA is that, rather than making the plaintiffs' bar more competitive, its lead counsel presumption has actually calcified the dominance of the very firms the PSLRA was meant to curb.

That's absolutely incorrect. Those firms which were able to adapt to the PSLRA's new way of doing business have prospered, while those who stubbornly clung to the old ways have gone by the wayside. Yes, some of the names remain the same, but that's a result of the fact that market leaders are often willing to do what it takes to maintain their position of dominance. ... As long as the clients are satisfied with how the market leaders serve them, those firms are likely to remain the leaders, and there's nothing wrong with that. But if they fall short, there's now a free-market system in place where others can leave their mark.


Ahem. My point is that the PSLRA eliminated any free market for the lead counsel and leaves it to the whim of the institution with the biggest loss. There's no guarantee that that institution will select lead counsel competitively. Indeed, lead plaintiffs are more subject to agency capture (by plaintiffs counsel) than courts are. But don't take my word for it. Take the Third Circuit's word:


[W]e call attention to a situation that Congress may not have contemplated when it enacted the PSLRA. Congress clearly anticipated that pension funds would seek to serve as lead plaintiffs; indeed, that likelihood was seen as a specific benefit of the legislation. See H.R. Conf. Rep. No. 104-369, at 34 (1995), reprinted in 1995 U.S.C.C.A.N. 730, 733. What is unclear, however, is whether Congress considered a particular risk that seems unique to publicly-managed pension funds. The concern is that an informal quid pro quo could develop in which law firms specializing in securities class actions would contribute to the campaign coffers of the elected officials who oversee those funds, and that, in exchange (and in the hopes of getting more contributions), those officials would use their control over the funds to select those firms to serve as lead counsel for cases in which the funds are the lead plaintiff. In such a situation, there would also be reason to fear that the lead plaintiff would be complacent and unwilling to object to an excessive fee request, thus defeating the Reform Act's goal of lead plaintiff-controlled, rather than lead counsel-controlled, litigation. Were such a scenario to occur, the elected official's conduct--besides representing a breach of fiduciary duty to the pensioners--would threaten the best interests of the class members. Though we stress that there is no evidence of such impropriety in this case, Congress does not appear to have considered this risk when it enacted the Reform Act and may wish to revise the PSLRA to account for it.

In the absence of any such amendment, district courts should be particularly attuned to the risk of pay-to-play. In cases where a court determines that a publicly-managed fund is the presumptively most adequate plaintiff, the court could properly require that the fund disclose any campaign contributions by the fund's choice of counsel to any elected officials possessing direct oversight and authority over the fund. If any such contributions have been made, the court could also require that the fund submit a sworn declaration describing the process by which it selected counsel and attesting to the degree to which the selection process was or was not influenced by any elected officials.

Courts must also, however, take care to prevent the use of discovery to harass presumptive lead plaintiffs, something that the Reform Act was meant to guard against. The statute is clear that "discovery relating to whether a member . . . of the purported plaintiff class is the most adequate plaintiff may be conducted by a plaintiff only if the plaintiff [seeking discovery] first demonstrates a reasonable basis for finding that the presumptively most adequate plaintiff is incapable of adequately representing the class." 15 U.S.C. § 78u-4(a)(3)(B)(iv) (emphasis added). We reiterate that evidence of campaign contributions, standing alone, does not create "a reasonable basis" sufficient to justify party-conducted discovery, though it would certainly (as noted earlier) be enough for the court, on its own initiative, to seek further information from the presumptive lead plaintiff.


In re Cendant Corp. Litig., 264 F.3d 201, 270 (3d Cir. 2001)

Pretending pay-for-play doesn't happen is unwise if you want to protect the securities bar from accusations of corruption or conflict of interest. The lead plaintiff provisions of the PSLRA are well-intended failures; they merely shifted to the problem from the courts to a less accountable party. The fact of the matter is that the PSLRA's lead plaintiff presumptions have made the bar less subject to competition -- counsel's personal relationship with the lead plaintiff determines the attorney's fee, not a competitive bidding process.
5.18.2007 2:29pm
c.f.w. (mail):
Flat fee or fixed fee government contracting is a form of contingent work - one does not know if it will be profitable until it is done. Why is that wrong? It saves money over T&M work (time and materials) which is what Bush has mandated, pretty much, for counsel. This enshrines the billable hour approach, or tends to, and should be rejected on that basis.

One place where it gets particularly dicey is in False Claim Act litigation, where the hourly lawyer can milk the case forever, and normally wants to, as opposed to proceeding with an "eat what you kill" approach.

Bush is as dumb as a stone when it comes to lawyers and lawyering, or is simply determined to undermine the professions. First the federal in house counsel get besmirched (by scandals in hiring and firing), now the contingent fee bar gets castigated.

The fact that there have been debacles (with hourly counsel as well as contingent counsel) acting for government should not mean the government marries itself to outdated T&M approaches to billing for outside law services.

How many think the huge settlements from big tobacco would have ever occurred without contingent fee lawyers?
5.18.2007 2:41pm
r78:
It is odd that people who profess to believe in the free market and in pay for performance turn into nanny-state socialists when the subject is contingency fees.
5.18.2007 3:47pm
Bill Dyer (mail) (www):
With due respect, this is like blaming box-cutters for 9/11. The examples you give in your position paper, Mr. Kopel, are of lawyers and government officials acting corruptly and/or stupidly -- and they almost assuredly would have found other ways to be corrupt or stupid without this particular mechanism.

Variations in the contingent rate, caps, sliding scales, recovery tiers — all those things may be appropriate. But you don't need a statute to mandate them; you need smart negotiators to apply and enforce them.

Properly used, contingent fee contracts can make sense for lawyer, client, and society. They reallocate certain risks and obligations, sometimes based on the actors' assumptions about their respective ability to evaluate information and effect a particular outcome, and sometimes based on the lack of alternative means of financing legal services. They're not inherently evil, nor do they uniformly encourage unethical conduct — and in some respects they promote efficiency and discourage corruption far better than do standard hourly-rate contracts. They use free-market principles to incentivize lawyers, and while they can potentially create other problems, as a general rule they eliminate the very real, very important conflict between a lawyer whose financial incentives are to milk a case and his hourly-rate-paying client.

I will grant you that they indeed tend to be particularly inappropriate for some kinds of cases — and particularly impractical in some others — and there ought not be many instances when government entities are hiring private lawyers anyway. But I can also certainly postulate some situations in which they do make sense for governmental clients — just as they do for the very sophisticated corporate clients who sometimes insist on contingent fee engagements!

I'm surprised to see such an anti-free market, illiberal reaction on a blog noted for pro-free market libertarians.
5.21.2007 12:29am