Guest Column

15 August 1996

"Lawyer Lies"

By O. Max Gardner III

Deceptive or not, the truth of the matter is that the average American actually needs some form of protection against the modern day contingency-fee practitioners.  This is the sad state of the situation because the current contingency fee practice is such that the only real contingency in any of these cases is whether or not the ultimate legal fee will amount to $3,000.00 or $300,000.00 for each honest hour of actual lawyer work.

How can this be?  How did this happen?  How did something that seemed so good at its inception turn out to be so bad today?  In order to understand where we are and how we arrived at this juncture, it is necessary to look back to the underlying policy justifications for allowing lawyers to claim a percentage of the client's money in the form of a legal fee.  The traditional justification for the contingency fee was based on the fact that the ultimate outcome of the case was uncertain or otherwise dependent on something substantially less than a 100% chance of recovery.  Given these facts, the trade seemed fair.  The client was giving up 30% to 40% of a less than certain financial recovery in exchange for the otherwise free services of a skilled and competent lawyer.  And the lawyer, on the other hand, was giving up his or her otherwise billable and collectible time if charged by the hour in exchange for the chance or possibility of the recovery of a damage award and the concomitant payment of his or her fee.  In other words, there was a clear element of chance or unpredictability that surrounded the transaction.

The original logic that supported the contingency fee is no longer valid.  This is true because the current practice of contingency fee trial lawyers is organized and indeed orchestrated in such a manner so as to remove all chances of uncertainty with respect to the recovery of a damage award.  In short, the so-called plaintiff's lawyer of today only takes those cases where a recovery is a virtual certainty and by no means a contingency.

Furthermore, when the contingency fee was initially sanctioned by the organized bar, damage awards or settlements in the millions of dollars which produced legal fees in the millions of dollars were beyond the realm of reason.  For example, civil actions or claims arising out of such things as asbestosis, Dalkon shields and silicon breast implants, all of which have produced millions upon millions of dollars in contingency fees, were factors that could not have been and were not considered.

If the original justification for the contingency fee was based on the novelty, uncertainty and difficulty of the particular case, then what has happened so as to render illogical what was originally completely logical?  Since everything is over determined, it is impossible to cite one single cause or event that created the current paradox between what was and what is the truth.  One obvious factor arises out of the transformation of the practice of law from a profession to a business.  Yet another factor has to be the proliferation of advertising and direct mail solicitation by the hordes of TV and Mail Order lawyers.  And, of course, last but not least is the excessive desire of many lawyers for acquiring more wealth than they need or deserve - a condition more commonly referred to as greed.

The corruption of the contingency fee is both complex and simple.  Suffice it to say, the contingency fee as employed today has been closely designed by the trial lawyers to resemble the "original thing" but in truth and in fact it is nothing more than the illegitimate bastard of what was once a "real deal."  This is so because the contingency of no recovery has been virtually eliminated by an elaborate screening process which removes every case from the "active client" files except those where liability is certain and recovery (usually from an insurance company) is a given.  As a result, the only real uncertainty when the case file is finally opened is how much will the lawyer eventually receive in the form of a fee.

The screening process in the typical automobile case begins with the accident report prepared by the investigating officer.  The personal injury lawyer and his or her paralegal do not study and thoroughly analyze these accident reports solely for the purpose of writing down the names and addresses of potential clients for their direct mail solicitation letters.  Rather, they study and analyze these reports in order to determine if liability is clear, if the party at fault had insurance, and if the investigating officer charged the guilty party with a criminal or a traffic law violation.  If a criminal or a traffic charge was lodged against the negligent driver, then the lawyers and their paralegals check the criminal or traffic court records for guilty pleas since such pleas are considered legal admissions of fault in subsequent civil cases.

The screening process does not end with a review of the accident reports but continues on through the initial client interview, a complete and thorough review of the potential client's own insurance policy for additional insurance monies (i.e., underinsurance or uninsured motorist coverage), and a review of the relevant medical records for the diagnosis and prognosis, the charges and fees, and for any problems such as pre-existing conditions.

If any major problems are uncovered during this intake and screening phase of the case, then the lawyer simply sends a letter to the potential client declining his or her case.  These letters are certainly not free from deceit and deception since they typically state that the lawyer must regrettably decline the case because of a heavy workload, an upcoming trial, or some similar conflict.  In order to eliminate the possibility of a future malpractice claim, such letters almost always state that the "former" client has a good claim and should consult with another lawyer as soon as possible in order to avoid any problems with the statute of limitations.  None of this, of course, is true and this language is simply inserted into these computer generated letters to disguise the real reason for declining the case.

If the potential client makes it through all of the initial screens, then most of these personal injury lawyers refer their clients to a friendly chiropractor or perhaps even to a real doctor from time to time for the sole purpose of enhancing the ultimate damage claim and of course the legal fee.  For many years, the majority of these claims have been valued by lawyers and insurance claims adjusters by multiplying the medical expenses and lost wages by a designated factor such as 3 or 4.  For example, if the medicals and lost wages in a given case amount to $10,000.00, then applying a factor of 3 results in a product or settlement value of $30,000.00

Given these evaluation processes, many personal injury lawyers go above and beyond the call of duty to make sure that the final calculations result in the highest possible number.  This is the case because the amount of the final legal fee is directly related to the final settlement amount.  Yes, money certainly talks as they say and in these cases the bottom line is simply that more medical expenses translate into a larger legal fee.

It is also said that figures never lie but liars like to figure.  While this may be true in many settings, it certainly has no application to the modern day personal injury lawyer.  As a matter of fact, the current practice has created an "unholy alliance" between many of these lawyers and their chiropractic cronies.  This alliance is based on the unspoken and unwritten knowledge that the lawyer only takes a case of clear and certain liability.  It therefore benefits both the lawyer and the chiropractor to increase the medical expenses or "specials" as they are called so as to increase the final damage settlement.

It is fairly obvious how this enhancement of medicals inures to the benefit of the lawyer but how does it help the chiropractor?  In most states, the treating health care provider has a lien on the damage settlement to the extent of his or her medical bill.  Accordingly, by relying on the fact that the personal injury lawyer only takes cases of clear liability and certain recovery, the chiropractor knows in advance that his or her entire bill will be paid "off the top" once the case is settled.  The incentive, therefore, is to charge as much as possible since in the end it will all be collected for free by the patient's own personal injury lawyer.  And, in this type of system there is absolutely and positively no incentive for a "conservative" medical approach.

This example brings us to the process of how the lawyer actually calculates the contingency fee.  Let's assume that the client has actual damages (i.e., medial bills) of $100,000.00 and further that the lawyer settles the case for $300,000.00.  We already know that the chiropractor will be paid first before any of the settlement money is distributed to the person who was actually injured in the first place.  But, how does the lawyer calculate the contingency fee?

Simple logic would lead us to believe that in this and, for that matter, in all contingency fee cases the lawyer would deduct the actual medical expenses from the gross settlement and then multiply the remaining balance times the fixed contingency percentage.  In our example, if these assumptions applied and the contingency fee was 40%, then the legal fee would be $80,000.00 ($300,000.00 less $100,000.00 times 40%).  Unfortunately, this is not how the system works.  The contingency percentage is multiplied times the gross recovery ($300,000.00), thereby producing a legal fee of $120,000.00.  The $100,000.00 in medicals is then subtracted from the balance leaving the client with $80,000.00.  Yes, that's right - both the chiropractor and lawyer end up with more money than the poor old injured client!

Unfortunately, in most cases the client in our example would not even end up with $80,000.00 since we have not yet taken the lawyer's expenses into account.  Most people would assume that such expenses as long distance telephone charges, copy charges, computer time, postage, lodging, food and gas would be included in and covered by the contingency fee.  A sizeable number of clients might also assume that the expenses of expert witnesses, depositions, and court charges would likewise be covered.  Such assumptions are false.  After the lawyer calculates his or her contingency fee based on the gross settlement amount, the balance then forms the net amount from which all of these expenses are then deducted.  In our little example, such expenses could easily amount to $25,000.00.  This means that our not so hypothetical client ends up with $55,000.00 and not $80,000.00.

And, by the way, what happened to the extra $25,000.00 that our client lost after the deduction for the expenses?  It was used by the personal injury lawyer's firm to basically cover day to day operational expenses and overhead.  It could be forcefully argued that in our example we actually had two contingency fees, one which was disclosed (40%) and a second that was not disclosed (approximately 8.5%).  The product of both the disclosed and undisclosed contingency fees resulted in our personal injury lawyer receiving virtually one-half of the gross settlement.  And, don't forget the little chiropractic friend, who manipulated our case into a substantial "professional" fee for his or her practice.  Unfortunately, the only forgotten person in our example is the poor client.

At the other end of the spectrum, our hypothetical client might have been lucky to end up with $55,000.00.  This is the case because the current contingency fee system is corrupt at both ends with the only common denominator being greed.  The so-called other end of the spectrum involves the personal injury lawyer who is hard pressed financially and therefore settles the client's case in our example for $150,000.00 so that he or she can get their grubby little hands on a quick $60,000.00 to pay the back taxes, alimony, child support or just plain old delinquent bills.  In the end, only the lawyer wins and the client is always at the short end of the stick.

The rewards of this "not so contingent personal injury practice" are substantial for those lawyers who are not under personal financial pressures, who use mass marketing techniques, and who also establish "working relationships" with a network of chiropractors and other health care providers.  The manner in which these settlements are traditionally calculated by the insurance industry has also created a strong incentive for substantial fraud and over billing by the so-called "treating health care providers."  The simple truth is that the more these health care providers bill the more they make and it is all like cash in the bank.  In fact, in most cases it is better than cash in the bank because the health care providers end up referring unrepresented patients to their "family personal injury lawyers" and the personal injury lawyers end up referring clients who need more in-depth medical treatment and evaluation to their "family chiropractors."  This network of mutual deceit and deception operates somewhat like the old unlawful pyramid schemes.  But, it is clearly different since all of our players begin and stay at the top.

The automobile liability cases only serve to underscore how serious this problem really is since the vast majority of these cases do not involve million dollar settlements.  The contingency fee as applied to shareholder derivative cases and the class actions in the asbestosis and Dalkon shield areas results in legal fees that have absolutely no relation to the level and quality of services actually provided.  And, in many of these cases the contingency fee lawyers are the only ones who end up receiving any real money.  Even in 1996, 15 to 20 million dollars would be enough to set most of us free from any future financial worries.

In response to these and other similar problems, many states have attempted to enact legislation that places a "cap" or limitation on contingency fees.  Under most of these formulas, as the settlement amount goes up the contingency percentage goes down and is eventually eliminated.  Such caps theoretically take away the present incentives for dishonesty and unwarranted enhancements of the actual medical expenses.  Since they also take away millions and millions of dollars from the trial lawyers, such lawyers have launched massive media campaigns to protect and preserve their ill-gotten gains.  Today, the trial lawyers through their various trade and professional associations are spending a fortune on false advertising in an effort to defeat these reform initiatives.  Some of these reforms would impose a "loser pays the legal fees" system on a limited number of specific civil cases; some others would place a cap on contingency fees as noted; and, still other proposals would impose a strict no-fault system for automobile negligence cases.

The trial bar may be able to block these so-called tort reforms in the short run; but sooner or later the American public will realize that they need protection from the contingency fee entrepreneurs who disguise themselves as lawyers and as doctors.  Sooner or later, most Americans will realize that they will come out much better paying a lawyer a fair and reasonable hourly fee to settle their clear cut liability cases rather than frittering away their just rewards on the legal and spinal manipulators who dominate the current contingency fee practice.