The American Association for Justice reported that New Hampshire has a new law regarding how medical malpractice claims may be pursued.  This is the first law of this type in the nation.  The law contains an “Early Offer” provision which allows personal injury victims of medical malpractice to sign up for a program that can compensate them without using the litigation system for recovery of damages.  No lawyers are required to participate in the program. The injured person can take care of it entirely by themselves, but in the process may settle their claim for an amount well short of what it’s really worth.

The New Hampshire law is controversial.  It severely limits the possibility of several types of legal damages.  Most importantly, it does not allow for recovery of noneconomic damages.  This means the injured person is basically signing a waiver saying that they will not be able to recover for pain and suffering, loss of consortium, and loss of enjoyment of life.

When you are injured by a physician, you may not know what the extent of your long term injuries are for years.  You may suffer consequences from the medical malpractice for life.  Settling quickly, without an attorney, could result in never being able to recover for all of your losses.

Watch out for legislation similar to the “Early Offer” law to appear in Ohio.  This type of law is not beneficial to victims of medical malpractice.  If you or a loved one is injured by a physician, protect the future by calling Slater & Zurz, LLP at 1-800-297-9191  for a free consultation with an attorney that has extensive experience in medical malpractice and personal injury.

Excerpts taken from http://www.justice.org/cps/rde/xchg/justice/hs.xsl/18838.htm

The Barrister’s Dream (Photo credit: Bonnetmaker)

case.  Will the medical practitioner/institution pay its fair share for the pain, suffering and death it/they inflicted?  Will the plaintiff pay the cost of bringing suit in an environment where the odds are greatly stacked against her?  The real answer is too often on the latter.  The plaintiff, hurt, injured or dead (the survivors seeking justice) will, all too often, bear the costs of trying to obtain justice.

Please be advised that under Michigan’s ethical rules, all costs of litigation (copies, postage, deposition fees, expert fees) are the ultimate responsibility of the client, even under contingent fee arrangements.   All of our clients sign written detailed fee agreements (citation).

So, you walk into a Med Mal attorney‘s office, or are wheeled in or such, and immediately you are, gently it is hoped, brought up to realize a strict and brutalizing reality: if the stars do no align, you will be the one on the hook for the pleasure of the experience.

It is well thought, although incorrect, that the plaintiff attorney will bear the costs of bringing suit.  With that line of reasoning, the argument runs like this: since the costs of litigation are high, and the plaintiff’s attorney takes such cases on a contingency basis, then the plaintiff attorney will only take the “valid” or “non-frivolous” cases as the plaintiff attorney will be on the hook for all of the costs of bringing the case (copies, postage, deposition fees, expert fees).

That commonly held belief is incorrect.  Patients are victimized by their physicians and then by the judiciary.  Once bitten, twice bit.

Related articles

• How to find counsel (justicejustus.wordpress.com)
• Medical Malpractice Reform Advocates Are Not Telling The Truth, Asserts Leading New York Personal Injury Lawyer (prweb.com)
• There is No Medical Malpractice Lawsuit Crisis, Says Arizona Attorney (prweb.com)
• Congressional Concession On Medical Malpractice Awards Will Not Lower Health Care Costs And Will Hurt Patients’ Rights, Washington, DC Attorney Says (prweb.com)

BLACK v. CULBERTSON

In other words, riddle me this:

Question: “How do you kill many small bittorrent cases, when each case only has just a handful of defendants?”

Answer: You BUNCH THEM TOGETHER into one case and you kill them all at the same time.

The following cases (so far) have now been joined:

THIRD DEGREE FILMS, INC. v. DOES 1 – 217 (1:11-cv-07564-JGK, or “11 Civ. 7564″);
DIGITAL SIN, INC. v. DOES 1 – 179 (1:11-cv-08172, or “11 Civ. 8172″);
MEDIA PRODUCTIONS, INC. v. DOES 1-55 (1:11-cv-09550, or “11 Civ. 9550″);
THIRD DEGREE FILMS, INC. v. DOES 1 – 216 (1:11-cv-09618, or “11 Civ. 9618″);
ZERO TOLERANCE ENTERTAINMENT, INC. v. DOES 1 – 56 (1:11-cv-09703, or “11 Civ. 9703″)

In District Judge Katherine B. Forrest’s order, she states:

“it is hereby ORDERED that the parties shall cease all discovery-related activity in the above-captioned cases until otherwise ordered by this Court.”

In other words, if your ISP has not yet handed out your information, I strongly suggest that you send them a copy of this order and stop them from handing out your information.  If you are a defendant in this case, I would hold off until their next status conference before doing anything, which is scheduled for March 12th, 2012, 3pm.

Once again, other plaintiff attorneys should sit up and take notice.

As for Mike Meier, well, if his New York cases go bust, at least he now has Terik Hashmi’s cases to fight in Florida.  At least they are merged together under Case No. 4:11-cv-00570 (FLND) and are under an order to show cause by March 9, 2012 why they should not be dismissed.  With Mike Meier taking over Terik’s cases and a letter to the court throwing Terik under the bus, perhaps those Florida cases may survive.

In the meantime, it looks like Lady Justice has a sense of humor.  Perhaps Mike’s cases got “infected” as soon as he agreed to take over Terik’s FL cases.  At the very least, it’s poetic justice.

The first and the most longstanding arrangement is the hourly fee arrangement.  In this arrangement, the Association is billed typically on a monthly basis for the actual hours spent by the attorney (including costs advanced by the attorney) in pursuit of the matter.  The Association pays as it goes, and when a recovery is made, the Association receives 100 percent of the recovery (assuming they paid their bills).

The second arrangement, which is suddenly popular, is the contingency fee arrangement.  The attorney is paid a percentage of any recovery that is made in the litigation.  Therefore, a 33 percent contingency fee arrangement means that the attorney is paid one-third (1/3) of any money that is recovered in the litigation and the Association receives two-thirds (2/3) of the money (minus any costs advanced by the law firm in the case).

The last arrangement is the flat fee arrangement.  This is not as popular as the previous two and sometimes is mixed with an hourly fee arrangement.  For example, the attorney may charge a flat fee to take the matter up to mediation and charge an hourly rate going through to trial.

The question most Associations have is which fee arrangement is the best?  As is expected when a lawyer is writing an article, the answer is “it depends.”  There are two primary goals the Association Board should seek to achieve in any fee arrangement.  First, to recover as much money as the Association needs to repair the conditions that exist at the Association after considering all the risks.  Second, that the Board be cognizant of its fiduciary obligations to the members to protect the Association’s finances and to keep as much money for the Association while advancing the first goal.

The contingency fee arrangement sounds attractive to some Boards because there is no monetary payment made as the litigation proceeds.  However, with contingency fee arrangements, the percentage amount paid to the attorney at the conclusion of the case may be much greater than the Association would have spent if it would have paid the attorney on an hourly basis.  For example, let’s assume that the Association has a $600,000 roof defect claim (cost of repair based on expert’s estimate) and has entered into a 33 percent contingency fee arrangement with a law firm.  Let’s assume further that the Association engages in mediation and based upon an evaluation of the risks and benefits and proceeding forward decides to resolve the matter for a $450,000 settlement at the mediation.  In this example, the law firm receives $150,000 in fees plus reimbursement for any costs that they advanced in the litigation (expert fees, filing fees, depositions, etc.).  For this example, let’s say that amount is $10,000.  This leaves the Association with $290,000 ($450,000 – $150,000 – $10,000 = $290,000) to fund a $600,000 repair.

The chief complaint with contingency fee arrangements is that the percentage taken by the law firm (one-third in my example) may not be based or related to actual time spent by the law firm for the work on the matter.  The law firm gets a windfall (they recover more money than they would have had the Association paid on an hourly basis).  This money is, therefore, not available for the Association to fully fund the repair.

The chief benefits of the contingency fee arrangement are the Association does not need to pay money on a monthly basis and if the Association’s claims get dismissed, the Association is not out any money in attorney’s fees (except the Association would still be liable for those costs advanced by the law firm).  In theory these benefits appear sound and advantageous to the Association. However, the Association needs to consider that most attorneys that are proceeding on a contingency fee basis have evaluated the case and generally do not take cases where the risk of getting nothing is present 

The concerns with the hourly fee arrangement are fairly obvious.  The Association may put money into a litigation and not recover enough to merit proceeding with the litigation (the money spent on the litigation surpasses the amount being recovered), or if the Association’s case is dismissed by the Court, the Association will have spent money on attorney’s fees which are not recoverable and a significant loss to the Association.  However, if the case is evaluated correctly and the risk of a zero recovery is not present the hourly fee arrangement is far more likely to net the Association more money as there is no windfall to the law firm. The law firm is compensated for the work they actually did.  This typically leaves the Association with more money to use towards the repairs.

This same concern with contingency fee arrangements can be seen in the flat fee arrangement.  There is one thing that can be said of lawyers, they do not suffer from a lack of concern for money.  The flat fee arrangement usually has a built in cushion for the attorney so they are not left working for free.  The flat fee arrangement, however, does help the Board in its budgeting so the Association knows exactly how much it is going to spend on the litigation. But like the contingency fee, the Association potentially pays the law firm more money then they actually earned.

As can be seen, there are benefits and risks to any fee arrangement.  It is critical that the Board consider all options and work with the lawyers to arrive at a fee arrangement which satisfies the two primary goals of recovering and keeping the most money to repair the conditions.

This post was authored by David J. McGee. David McGee’s practice is based in the litigation section at Thomsen & Nybeck, P.A.  Dave brings his 20 plus years of experience representing Community Associations in construction defects and insurance disputes.  Dave has recovered millions for Associations in disputes with developers, contractors and insurance companies, and heads up the firm’s “Property Insurance Claims” Group.  Dave has been named a “Top Lawyer” by Minnesota Law & Politics and Minneapolis/St. Paul Magazine for a number of years.  Dave has represented clients in numerous appellate cases including Chapman Place Ass’n, Inc. v. Prokasky, 507 N.W.2d 858 (Minn. Ct. App. 1993); Ly v. Nystrom, 615 N.W.2d 302 (Minn. 2000); and Peggy Rose Revocable Trust v. Eppich, 640 N.W.2d 601 (Minn. 2002).  Dave represents clients in arbitrations, mediations, court actions, trials, and appellate work.  Dave is a frequent lecturer and has written numerous articles in the area of Insurance, Construction, and Real Estate Law.  He is also a qualified neutral under Rule 114 of the Minnesota General Rules of Practice (mediation and arbitration).

http://www.judiciary.gov.uk/NR/rdonlyres/75D4F49E-BDC6-40BC-B379-B5A1DA82BED9/0/CodeofConductforLitigationFundersNovember2011.pdf

The code sets out standards of practice and behaviour to be observed by Funders who are Members of The Association of Litigation Funders of England & Wales.

It has take some time to get the Code of Conduct drawn up and agreed. It was important that the Code was not too strict otherwise it would put off potential funders and affect access to justice.

Worth a read, particularly given that it is predicated this will become the “norm” funding for large claims.

What is a Contingency Fee?

A contingency fee is the poor man’s key to the courthouse. You agree to pay a percentage of the amount your attorney obtains for you in exchange for the legal representation and expertise of the attorney. This fee is paid at the end of the case from the proceeds of the settlement. You do not pay any money from your own pocket to protect your rights. If there is no recovery, there is no fee.

In Florida, attorneys representing plaintiffs in personal injury cases typically set up a contingency fee agreement.  A client pays a contingency fee to a lawyer only if the lawyer handles a case successfully. Success in a personal injury suit can mean several things, ranging from a pre-suit negotiated settlement all the way through victory at trial.

In a contingency fee arrangement, the lawyer agrees to accept a fixed percentage of the recovery, which is the amount finally paid to the client. Percentages can change depending on the amount of recovery and the stage of the case during which the recovery is made.  See below for an example of a typical contingency fee recovery agreement.

If recovery is made, the contingency fee shall be as follows:

1. 33 1/3% of any recovery up to $1 million through the time of filing an answer or the demand for appointment of arbitrators;
2. 40% of any recovery up to $1 million through the trial of the case;
3. 30% of any recovery between $1-2 million;
4. 20% of any recovery in excess of $2 million;
5. An additional 5% of any recovery after notice of appeal is filed or in the event post judgment relief or action is required for recovery on the judgment.

Critics argue that contingency fee agreements are unfair, and unjustly reward the attorney. Keep in mind there are risks associated with taking on any legal case, especially personal injury cases. Insurance companies have teams of lawyers and experts working to defend claims. If your lawyer wins the case, their fee comes out of the money awarded to you. However, if you lose, neither you nor the lawyer will get any money.  Clients are not required to pay their attorney for the work done on their case regardless of the amount of time and money an attorney puts into researching and preparing a case. The attorney’s fees are paid directly out of any money awarded to the client, if any.

In sum, attorneys that set up a contingency fee agreement take a risk. Sometimes it pays off and other times it does not. It is not a perfect arrangement; however it is an arrangement that allows clients, whom may not have financial means to hire an attorney, to recover damages for their injuries and put their life back on track. 

For more information about Anton Castro Law in Tampa, FL please visit www.antoncastrolaw.com or call 813-907-9807.

In the U.S., the ethical rules prohibiting fee-splitting with nonlawyers made most types of third party litigation funding improper (see Model Rules of Prof’l Conduct, R. 5.4(a)), while the existence of law firm funding through contingent fee arrangements (Model Rules of Prof’l Conduct, R. 1.5(c)) made nonlawyer sources of funding unnecessary for the development of class action litigation.

However, in other parts of the world, where contingent fees are prohibited, third party litigation funding has developed as an alternative to provide a means for plaintiffs to pay for class action litigation and to avoid the risks associated with the English rule, or “loser-pays” rule, which requires the loser of a case to pay the other side’s costs and attorneys’ fees.

Sue Lannin, financial reporter for ABC (Australia Broadcasting Corporation) News, published this article on Wednesday discussing the impact that private litigation funding may be having on class action litigation in Australia.  The article quotes one Australian attorney who believes that private litigation funding is responsible for a recent increase in shareholder class actions and will likely continue to generate an explosion of class action litigation in that country.  However, the article also quotes an attorney with a contrary view, that the recent increase in shareholder class actions is simply the result of the financial crisis in the latter part of the last decade.

The combination of deep pockets and the legal ability to pursue class action litigation for profit would appear to be a good recipe for expanding class action litigation anywhere, but whether litigation funding in Australia actually creates a “US-style litigation culture with unregulated legal financiers shopping around for cases” remains to be seen.

I’ve been reading about certain “contingency fee” mortgages that some attorneys are having their clients sign.  Specifically referring to a New York Times article written by David Streitfeld on November 6th, 2010 entitled, “Taking On a Second Mortgage to Pay the Lawyer,” Florida foreclosure attorneys have devised a new and creepy way to have clients pay inflated attorney fees.

In short, the scheme is that the attorney charges a contingency fee of 40% for whatever the attorney saves the client in terms of a mortgage loan modification and/or principal reduction.  However, instead of having the client pay the fee out of their pocket (which is impossible because all that is gained is equity and a lower monthly mortgage payment), the client agrees to take out a second mortgage in the law firm’s name to pay the contingency fee.

There are many issues here, and pardon me for sounding the “foreclosure scam” alarm with regard to what on paper appears to be an inventive way for the attorney to guarantee being paid.  In short, the client is essentially signing over to the attorney a security interest in their home in return for providing a service which is supposed to have the end goal of lowering the homeowner’s mortgage payments to a fair and affordable amount.  However, charging an unreasonable contingency fee which attaches to, encumbers, and uses the home itself as security for payment of that contingency fee inevitably defeats the purpose of the loan modification because it will unnecessarily increase the monthly cost of the mortgage payment.

Then, as soon as the homeowner falls short of paying the second mortgage to the attorneys, regardless of what they claim they will or will not do, the law firm immediately has the right to declare a default on the second mortgage, accelerate the entire debt as being immediately due, and can foreclose on the home judicially or non-judicially, depending on the state in which the property is in.

In other words, the homeowner who contacts the law firm for help to protect them from losing their home to the bank signs over a security interest in the home which in the end will cause them to lose that very home the lawyer was sought out and paid to protect… to that lawyer.

While this is not a classic foreclosure scam, it still smells like one.  The lawyer is taking advantage of the fact that the homeowner does not have any other choice than to pay their inflated contingency fees.  However, the contingency fee should be commensurate with A REASONABLE FEE, not how much the attorney can save the client.  This model of charging a percentage of what is saved works well when it is a few thousand dollars, as is often done with tax assessors.  However, with a home which is easily worth hundreds of thousands of dollars, taking a 40% cut of whatever is saved (which can often be hundreds of thousands of dollars) would constitute an excessive fee.

On top of that, there are a number of ethical and legal issues with making such a transaction which would place the financial interests of the attorney and the client to be adverse to one another.  This raises ethical issues which will not be covered in this issue.

In summary, before agreeing to such a “contingency fee” security interest deal, ask yourself whether the amount of money you will save (and that the attorney will consequently earn) would constitute a REASONABLE FEE for the services rendered.

THREE ELEMENTS TO A PERSONAL INJURY CASE IN TEXAS

In general, there are THREE ELEMENTS to a personal injury case.

1) LIABILITY, namely asking whether there is someone (or multiple individuals or perhaps a corporation, etc.) who has caused you harm. It is the Texas attorney‘s job to determine in the first phone call who the parties are, whether you (the injured plaintiff) were also partially responsible for the harm that you have suffered, and how to best apportion who will be responsible to pay you damages for your injury.

2) DAMAGES, namely, the Texas attorney should try to estimate what kind of damages have you suffered, and an idea of what those damages will be. Even though an attorney should NEVER give his potential client an idea of what amount he might be awarded if he prevails (it is actually UNETHICAL and deceptive to do so, especially 1) in today’s climate of tort reform and a conservative shift of juries over the past ten years, and 2) since the attorney cannot possibly know what the damages might be until he has gathered all the evidence), he should determine what kind of damages have been suffered, and whether his client’s damages will be for solely for suffering that happened in the past, or whether his client should also collect future damages (e.g. for lost earnings, future lost earnings, future medical expenses, etc.).

3) CAN THE POTENTIAL DEFENDANT(S) PAY FOR IT? DO THEY HAVE ASSETS? Here, the attorney would ascertain who to sue, and from where can they afford to pay damages. The attorney, once retained, will do an asset check where he will determine what assets the defendant has, and what kind of liability coverage (insurance policies) the defendants carry.

YOUR FIRST MEETING WITH AN ATTORNEY

In the first meeting, the attorney will have you sign a contract outlining his fee (in most personal injury cases, the attorney will take a contingency fee percentage which means that the attorney would not bill for the time he spends on the case, although he may or may not have the client pay the court fees and out-of-pocket expenses; in some jurisdictions, it is a violation of the ethics rules for an attorney not to collect these from the client). Generally, the attorney will take 1/3 of the amount awarded (if he has paid out-of-pocket fees or court costs, this will be taken from the award prior to taking his 1/3 share). For more time consuming cases, or cases that require extra effort and costs to maintain, the attorney would likely take 40% rather than the traditional 1/3 share.
Here at the first meeting, the client will tell the entire story, and they will bring in all evidence they have of the event. This might include medical records, photographs, police reports, etc. If there are medical damages, the attorney will have the client fill out a “Medical Records Authorization” form which gives the attorney the power to acquire copies of the client’s medical records. [Sometimes the attorney will have the client acquire copies on their own, or if the case is a larger case, he may pay a service to acquire the evidence to make sure it is in a proper usable form for trial.]

AFTER THE FIRST MEETING WITH YOUR ATTORNEY

After the first meeting, the attorney will instruct the client not to speak to any insurance company agent, and not to give any statements or admissions to any parties. The attorney will contact each party (including the insurance companies and the government agencies, if necessary), and will instruct them not to contact the plaintiff. He will tell them to turn over all medical records and/or medical bills they’ve recovered. If they have taken any recorded statements from the client, he will demand that they turn those over to him immediately. The attorney will then start his own investigation as to the insurance policies and assets of each party (including the plaintiff, because the plaintiff’s own uninsured / underinsured motorist (UM / UIM) automobile insurance policy can often be an easy source of payment in case the defendant has no assets, no insurance of his own, or is otherwise judgment proof.

WHY MOST TEXAS PERSONAL INJURY CLAIMS NEVER SEE A COURTROOM

It should be noted that most personal injury and most medical malpractice lawsuits never see the inside of a courtroom. Most of the time, there is one party or another who has enough deep pockets where the defendant makes the calculation that it would be cheaper for them to settle the case rather than to go though an expensive trial. The amount of the settlement is usually substantial enough to have the client enthusiastically settle the case.

WHAT ELSE MIGHT A CLIENT NOT BE TOLD? WHAT IS SUBROGATION?

Since we’re giving the full story, the attorney-client relationship does not end here. Very often and without notice to the client, there are parties who must be paid first before the client receives his award (a competent attorney will take the following into consideration before advising the client to accept a settlement offer); some parties (e.g., hospitals, insurance companies, or government entities such as Medicare or Medicaid) hold liens on whatever judgment the plaintiff receives. It is the attorney’s responsibility to ascertain who is owed what, and to disburse the funds to these individuals before releasing the award to the client. The reason for this is that it looks unprofessional for an attorney to hand over money to a client, and then to have the insurance company sue the client based on their insurance policy’s “subrogation clause,” which gives the insurance policy the right to be reimbursed money they paid out to various parties prior to the lawsuit. This is fair because if an insurance policy pays out $10,000 in medical expenses, and then the client receives $100,000 in medical expenses, $10,000 of that amount fairly belongs to the insurance company. Hospitals often file liens on judgments to be paid in case their patent (the client) sues and prevails in an action, and they do this without giving the client notice that they have filed the lien. Government agencies hold what are called super liens, where if the attorney disburses funds to the client prior to paying them, the attorney can be held professionally and financially liable for the debt the client owes based on the lien. Thus, a responsible attorney will ascertain who is owed what, and will disburse these funds prior to giving the client his share of the award. —This part of the story is often left out, but it is responsible for an attorney to inform his client about subrogation and liens right at the outset of the attorney-client relationship.

IN SUM, EVERYBODY GETS PAID

Everything said, the client will receive a fair amount for the damages he has suffered, the hospital, insurance company, and government agencies will be paid for the services they rendered, the attorney will be reimbursed for his court fees and out-of-pocket expenses, and he will receive his commission. At this point, the attorney-client relationship will end, and everybody will part whole and compensated for their injuries.

Just as an attorney decides whether to take on a case based on the facts of the situation, consumer legal funding companies base their funding decisions on the merits of the case as well. Oasis employs underwriters, attorneys, and financial experts who all come together to offer the best product possible to consumers. Since the value of a case does not change based on the presence of consumer legal funding, Oasis staff are conservative in their funding decisions. Given that attorneys in these cases are already working on a contingency fee basis and therefore absorb all costs associated with the case until a resolution is reached, there is no need for an Oasis client to use the funding they receive to pay any legal costs.

Perhaps most important to note is that at no point is Oasis involved in the outcome of a case. We have no further involvement after a contract is signed and a funding is made. We do not weigh in on any aspect of the case including settlement offers and in fact, when cases settle for lower than anticipated, it requires us to reduce our fee. The funding that Oasis provides to consumers does not increase litigation costs, but rather, ensures that plaintiffs don’t have to endure excessive hardship while they wait for a fair settlement to be reached in their case.

Prior to this decision, certain factors such as attorney performance, risk, and expense advancement, were used by Courts to calculate reasonable attorney’s fees in contingency cases. Those fees are referred to as Lodestar fees. Under the Lodestar method, the Court multiplied the number of hours a lawyer worked by the prevailing hourly rates in the lawyer’s area, to determine the reasonable attorneys’ fees. However, in extraordinary circumstances, a Court could then use other factors to enhance the attorneys’ fee, for example, multiplying the fee by two.

In this case, however, the Court held that attorney performance, a factor previously limited to calculating the Lodestar fee, could also be used in enhancing that fee. The Court reasoned that in extraordinary circumstances, Lodestar calculation factors might not adequately take into account the justification for enhanced fees, and should not, therefore, be per se subsumed in fee calculation only.

This case opens up the possibility that numerous other factors, such as an extraordinary result, advancement of expenses, or delay caused by defendants, could be used to increase the size of the plaintiff’s attorneys fees beyond the ordinary Lodestar calculation.

Employment related legal issues can present significant exposure to employers.  Employees and employers should consult with an attorney to ascertain their rights.

Original article by Rutger J. Heymann of Phillip J. Griego & Associates

Feel free to suggest topics for the blog. We are happy to consider topics pertaining to general points of Labor and Employment Law, but we cannot answer questions about specific situations or provide legal advice. If you desire legal advice, you should contact an attorney.

Your use of this blog does not create an attorney-client relationship between you and Phillip J. Griego & Associates. The use of the Internet or this blog for communication with the firm or any individual member of the firm does not establish an attorney-client relationship. Confidential or time-sensitive information should not be posted in this blog and Phillip J. Griego & Associates cannot guarantee the confidentiality of anything posted to this blog.

By Steven G. Mehta

Yesterday, I was in a meeting and discussing mediation services when I was shocked by what I heard.  An attorney told me that a prominent mediator (He who shall not be named) in California charged a contingency fee for a mediation. 

Specifically, the attorney told me that the case was worth seven figures and the mediator told the parties that he would charge 5 percent of the settlement amount divided by each side, but only if the case settled.  I was shocked to hear that because of my belief that such fees are illegal.

I went to my computer to double check the issue and reaffirmed that such fees are illegal. 

Here is the California rule:

CRC, Rule 3.859. Compensation and gifts

(a) Compliance with law

A mediator must comply with any applicable requirements concerning compensation established by statute or the court.

***

 (c) Contingent fees

The amount or nature of a mediator’s fee must not be made contingent on the outcome of the mediation.

Sub section (c) makes it very clear that such a fee cannot be charged.  I was interested to see what other jurisdictions allowed and found that there are a few jurisdictions that allow such fees but the vast majority do not.  Moreover, mediator organizations also discourage the practice.    

Geoff Sharpe of Mediator Blah Blah identified an article, however, in support of such contingency fees. 

The case for and against (but mainly for) contingency billing by mediators is put in the well reasoned, but appallingly named, Contractarian Economics and Mediation Ethics: The Case for Customizing Neutrality Through Contingent Fee Mediation by Scott Peppet of CU Law. And find out why this minority view says neutrality is not undermined simply because of mediator interest in the outcome!

The problem with the contingent fee mediator – besides being unethical in most jurisdictions – is that it creates an appearance of impropriety and creates a bad taste in the mouth of the prospective clients.  Moreover, from a business standpoint, the mediator has two clients:  the Plaintiffs and Defense.  Although many plaintiffs attorneys may be familiar and accepting of such fees; the defendants typically do not regard them in a favorable light.  As such, even if the plaintiffs considered the fee arrangement, it is likely to turn off the defendants’ attorney.  Indeed, the attorney I spoke with last night was turned off by the fact that the mediator could theoretically do a few hours worth of work and earn over $50,000. 

Many attorneys also do not like mediator fees that are tied to the size of the case.  In other words, if the case is six figures or less it is one fee; seven figures, then another fee. 

The reaction I heard last night about the mediator (He who shall not be named) was a visceral reaction.  The attorney relaying the story did not know of the ethical issue.  He simply reacted by stating that he did not believe that was right that the mediator share in the fee.  He stated that he thought that would taint the neutrality of the process and would make the mediator a third player in the mediation.  Instead of trusting the mediator’s advice as neutral, the parties may have to consider whether the advice is given solely because the mediator wants to settle the matter and collect his handsome contingency fee. After all 5 percent of $1,000,000 is $50,000.

The reality is that not only is it unethical to charge such a fee, but it is also bad business.

The concept of the billable hour is simple: firms charge different rates for different attorneys (partners are billed at a higher rate than associates, etc.), and several attorneys of several levels may work on a project and the client is billed per hour, per attorney, per respective rate. Thought it’s held steady for over a century, the system stands in stark contrast to the efficiency of a flat schedule, in which one piece of work is performed in exchange for one agreed-upon price.

Now firms are playing catch-up. As corporate clients feel the recessionary pinch, their legal budgets are shrinking and they’re less inclined to pay their old lawyers their old hourly rates (often in the neighborhood of hundreds of dollars per hour). Legal Bisnow reports that of those venerable bastions doing the best job of adapting, Skaden Arps, Kirkland & Ellis, and Akin Gump are leading the pack. Those firms, plus CitiGroup and Arent Fox, recently sat down at Bisnow‘s “Breakfast and Schmooze” event in Washington, D.C. to discuss the future of their respective invoices.

The result? Arent Fox chairman Marc Fleischaker says alternative billing, like fixed fees, already accounts for one-third of that firm’s business. The rest agree, and note other long-term changes in their business models: improved client communication, especially with regard to billing details; fewer employees doing duplicative work; a shift to already-existing in-house counsel at some large corporate concerns; and more contingency fee work. Notably absent from the discussion: the prospect of reduced partner compensation.