Payment for legal services in the USA civil procedure: Contingent fee, American rule and their impact on the judicial caseload

The article deals with the influential mechanism of the contingent fee and the American rule on the number of filings to the US judicial system, and, consequently, on the judicial caseload as a whole. The author concludes that at the moment there is no uniform idea about the role of contingent fee arrangements and the American rule in the growth of the number of filings to courts. There are two opposing views on this issue: those who stand on the side of the plaintiffs’ attorneys (and therefore for the contingent fee and for the American rule), on the one hand, and those who act on behalf of the defendants (which means against these institutions). With certainty, it can only be argued that the contingent fee and the American rule complement each other. The contingent fee justifies its existence by expanding the accessibility of justice. Under the fee, those who are unable to pay for the services of a lawyer get the opportunity to go to court. And this availability is largely based on the plaintiff ’s belief that even in the event of a loss, he will not have to pay the defendant’s costs. Together, these rules, according to their supporters, make it possible to ensure the implementation of one of the unshakable values — the right of every American to get their “day in court”. At the same time, many facts indicate that the “bundle” of the contingent fee and the American rule has led to an increase in the number of clearly unreasonable, frivolous, nuisance lawsuits that are filed not with the aim of obtaining a positive court decision, but only to persuade the defendant to accept a settlement agreement on the payment of compensation to the plaintiff.

THE IMPACT OF THE 2017 TAX ACT ON CERTAIN PERSONAL INJURY PLAINTIFFS

The 2017 Tax Act was the most sweeping federal tax legislation in over a generation. While many of its reforms, from dramatically lowering the corporate tax rate to altering the international tax rules, have already received significant attention, comparatively little attention has been paid to the 2017 Tax Act’s effects on personal injury plaintiffs. This Article explores those impacts. The 2017 Tax Act added a new provision that indirectly affects plaintiffs who allege sexual harassment or abuse. The new provision disallows the defendants’ deductions if the parties enter into a nondisclosure agreement. While targeted at defendants, the provision likely unwittingly harms plaintiffs by reducing settlement offers. The provision also suffers from a host of ambiguities that the Treasury Department and Internal Revenue Service will need to resolve. The 2017 Tax Act also eliminated so-called miscellaneous itemized deductions. In certain types of personal injury claims, such as defamation or emotional distress, this development causes the plaintiff to be taxed on the full settlement amount even if, as is often the case, one-third or more of the settlement is paid as a contingent fee to the plaintiff’s attorney. Legislative or administrative action is required to remedy this patent unfairness.

Litigation Financing: Balancing Access with Fairness

Litigation financing of plaintiffs by financiers other than the law firms representing the plaintiffs in the litigation is now a multi-billion-dollar industry. Contrary to assertions by advocates for such litigation financing, such litigation financing does not increase fairness and justice to poor and middle-class victims. Instead, it creates substantial problems beyond any associated with standard contingent-fee agreements between plaintiffs and the lawyers who represent them.This article describes the multiple ways in which the litigation-financing industry harms poor and middle-class tort plaintiffs and generates inefficient uses of judicial resources and jurors' time. It then recommends actions that courts can take to reduce those problems.

Part VI The Legal Process, 24 Costs, Funding, and Settlement

This concluding chapter examines some aspects of the costs, funding, and settlement of damage claims in the UK. The costs of bringing a claim can be high. The most expensive jurisdiction is England, but other procedural rules counterbalance this expense to make suing in England attractive. In some jurisdictions, reforms have been put in place to reduce litigation costs such as conditional fee arrangements and damage-based agreements that share the risks between claimants and their lawyers. After the event insurance (ATE), third party litigation funding, and lawyers’ contingent fee arrangements all reduce the costs and risks associated with litigation. However, very few civil actions go to trial and most are settled out of court through direct negotiations among the parties or through mediation or arbitration.

How Do Risk-Averse Litigants Set Contingent Fees for Risk-Neutral Lawyers?

We examine a two-stage litigation in which risk-averse litigants set contingent fees strategically for risk-neutral lawyers. In the first stage of the litigation, each litigant sets a fixed fee and a contingent fee for his lawyer. In the second stage, each lawyer exerts effort to win a lawsuit on behalf of the litigant. Employing the subgame-perfect equilibrium as a solution concept, we obtain the following results. First, if a litigant sets a higher rate of contingent fee, then the opponent follows suit and the contingent fee fraction increases in the difference in litigant’s utility between winning and losing the case. Second, changes in a litigant’s initial endowment have different effects on the contingent fee fraction depending upon litigant preferences, while an increase in the prize of the case always increases the contingent fee fraction regardless of litigant preferences.

Repeat Players in Multidistrict Litigation: The Social Network

102 Cornell L. Rev. 1445 (2017)As class certification wanes, plaintiffs’ lawyers resolve hundreds of thousands of individual lawsuits through aggregate settlements in multidistrict litigation. But without class actions, formal rules are scarce and judges rarely scrutinize the private agreements that result. Meanwhile, the same principal- agent concerns that plagued class-action attorneys linger. These circumstances are ripe for exploitation: few rules, little oversight, multi-million dollar common-benefit fees, and a push for settlement can tempt a cadre of repeat players to fill in the gaps in ways that further their own self-interest. Although multidistrict litigation now comprises 36% of the pending federal civil caseload, legal scholars have offered little sustained theoretical or empirical analysis as to how repeat players’ enforcement efforts shape litigation or claims resolution. We wade into this increasingly controversial territory to offer the first comprehensive empirical investigation of private attorneys’ efforts in multidistrict leadership on both the plaintiff and defense side. We found that transferee judges regularly appoint the same lead attorneys. To then uncover what the naked eye cannot see, we employed a social-network analysis to reveal repeat actors’ connections to one another. No matter what measure of centrality we used, a key group of attorneys maintained their elite position within the network. This matters considerably, for lead lawyers control the proceeding and negotiate settlements. They can bargain for what may matter to them most: defendants want to end lawsuits, and plaintiffs’ lawyers want to recover for their clients and receive high fee awards along the way. By identifying settlement provisions that one might argue principally benefit the repeat players, we examined the publicly available nonclass settlements these elite lawyers designed. Over a twenty-two-year span, we were unable to find any deal that did not feature at least one closure provision for defendants, and likewise found that nearly all settlements contained some provision that increased lead plaintiffs’ lawyers’ common-benefit fees. Bargaining for attorneys’ fees with one’s opponent is a stark departure from traditional contingent- fee principles, which are designed to tie lawyers’ fees to their clients’ outcome. Based on the evidence available to us, we found reason to be concerned that when repeat players influence the practices and norms that govern multidistrict proceedings—when they “play for rules,” so to speak—the rules they develop may principally benefit them at the expense of one-shot plaintiffs.