Utah court rejects bid to limit contingent fees.

In a decision hailed by plaintiff attorneys as a victory for the civil justice system, a Utah Supreme Court attorney-ethics committee unanimously rejected a tort "reform" group's proposal to radically change that state's rules regarding lawyer fees. (In re Petition for Rulemaking to Revise the Ethical Standards Relating to Contingency Fees (Utah Jan. 28, 2004).)

The Utah court's Advisory Committee on the Rules of Professional Conduct said the proposal--which, among other things, would have prohibited contingent fees in personal injury lawsuits unless plaintiff lawyers first sent a detailed "notice of claim" to potential defendants--was "entirely out of character with the general approach and goals of the Rules of Professional Conduct" and "uncharacteristic of general principles that govern the actions and relationships of lawyers."

The proposal was advanced by Common Good, a self-described "nonprofit, bipartisan legal reform coalition dedicated to overhauling America's lawsuit culture," and came in the form of a petition to change the ethical rules governing how lawyers collect tees. Last May, the group announced that it was filing the petition in 12 states, and that it had submitted a similar proposal in Texas. Utah is one of several states that have either rejected or dismissed the petition. No state has accepted it.

The chair of Common Good, Philip Howard, said the petition is still being considered by seven states, but Robert Peck, president of the Center for Constitutional Litigation (CCL) in Washington, D.C., disagrees. The petition was rejected on the merits in Alabama, Arizona, Maryland, and Ohio, Peck said. Five states--Colorado, New Jersey, Oklahoma, Texas, and Virginia--dismissed it on procedural grounds. The remaining states in which it was filed--California, Mississippi, and New York--have not yet acted, he said.

The petition's record so far "is a very good indication that this is a non-starter," said Peck. He and several CCL staff attorneys filed a 54-page brief opposing the petition on behalf of the Utah Trial Lawyers Association.

The advisory rules committee "basically agreed with all the arguments that we put forth," Peck said.

Ralph Dewsnup, the Salt Lake City lawyer who argued the trial lawyers' case before the rules committee, agreed. "I was very gratified, especially because it was a unanimous decision [of the 14-member committee]. I've always thought that trying to approach this as an ethical matter was misguided," he said.

The petition proposes amending ethical rules governing contingent fees in what Common Good calls "early offer" settlements. Ethical requirements that lawyers charge fees that are reasonable and appropriate given the time and work involved are often ignored in cases where the parties settle early, Common Good claimed in its memorandum supporting the petition.

"Cases in which an offer of settlement is accepted early on by definition involve minimal risk of nonrecovery and minimal attorney time, labor; and skill. Unfortunately, the ethical duty to charge a reasonable fee is often honored in the breach in these cases.... The proposal will facilitate compliance with the existing ethical standards by ensuring a reasonable fee in personal injury cases where a settlement offer is accepted early on," the group said in its memorandum.

The trial lawyers' memorandum opposing the petition took dead aim at this premise. "Such naive notions ignore the considerable amount of work plaintiff's counsel must do in the preparation of a matter at the outset and in finalizing a settlement, even after a monetary amount is agreed upon."

Under Common Good's plan, three situations would trigger a cap on a plaintiff lawyer's fee:

* the lawyer agreed to represent an injured person who had already accepted a settlement offer

* a lawyer retained on a contingent fee basis did not send all potential defendants "a notice of the claim sufficient to allow the allegedly liable party to assess the claim and make a reasonable offer of settlement

* a client accepted an offer made within 60 days of the notice of claim.

In each of these scenarios, the amount the lawyer could charge would be limited to an hourly fee representing 10 percent of the first $100,000 recovered and 5 percent of any amount above that. These changes are needed, Common Good argued, because plaintiff lawyers almost uniformly charge contingent fees amounting to one-third of recoveries, even when a case settles early with little time or effort expended by the lawyer.

"The proposal will assist ... enforcement efforts by providing a self-executing mechanism for reasonable fees in early-settlement cases. The burdens of case-by-case review make enforcement of existing [rules] difficult and impractical.... The disciplinary mechanism of the state bar associations has also failed to police widespread abuse," Common Good's supporting memorandum said.

CCL's Peck said the picture that Common Good paints of the typical trial lawyer churning a high volume of cases, doing little work on each, and skimming a third off the clients' recoveries is inaccurate and unfounded. "It's entirely based on speculation. They were not able to offer any evidence, empirical or even anecdotal, to support it," he said.

In contrast, Peck said, CCL gathered the affidavits of several Utah plaintiff lawyers, who said they always factor in the time and effort spent on a case when billing clients. For example, Colin King, Dewsnup's law partner, said, he has reduced fees because of "a less-than-expected recovery, or to facilitate a difficult lien against a case settlement, or because the case resolution required significantly less time and resources than predicted, or for other reasons."

Common Good argued that the rule changes would reduce court caseloads by providing greater incentives for early settlement and that the money that defendants would save would be passed on to consumers.

"When settling a claim, the calculus for both sides includes the potential cost of continuing the litigation. The great advantage of the early-offer program is that it provides an economic incentive for both defendant and plaintiff to resolve the litigation," said Howard.

"That theory only works if you accept a Rube Goldberg version of the world," Peck said, adding that Common Good offered no concrete evidence to support its claims.

In fact, he said, the proposed rule changes would actually increase docket loads by requiring "satellite" litigation when parties disagree over attorney fees, including what constitutes a reasonable hourly rate.

Common Good's proposal caught the attention of the American Bar Association's Tort, Trial, and Insurance Practice Section (TIPS). It has asked an 11-member task force to look into the group's claims to see if there is a need to change how contingent fees work.

"We're trying to get all the facts on the table to see whether there is a problem with contingent fees and see what, if any, reforms could be initiated," said Steven Lesser, a Fort Lauderdale, Florida, lawyer who chairs the task force.

The task force includes lawyers and academics on both sides of the fee issue. Some are personal injury lawyers; others work for the insurance or tobacco industries. "It's a pretty good range of people from various camps," Lesser said.

The group convened late last year and has since been briefed by experts on legal lees, as well as by advocates on both sides of the issue. Lesser said the task force will continue to gather evidence and testimony throughout the year and plans to submit a "credible report" to TIPS members in 2005.

Peck said he has been to all of the task force's meetings, and he is optimistic about its findings. "I'm fairly confident that it will come out with a ringing endorsement of the contingent fee system," he said.

Howard said Common Good has not yet decided whether to push the proposal in other states or in other forums. The Utah rules committee, in the letter rejecting the proposal, said it touched on "an area of legal policy that ... should more properly be addressed in other forums," specifically the Utah Supreme Court's Advisory Committee on the Rules of Civil Procedure.

Utah trial lawyer Dewsnup said he expects to see the issue raised again in some venue in his state. "I don't think we'll see the end of it. We're against a group of people that are single-minded in their effort to pursue this agenda. They've got a lot of money and, apparently, a lot of time," he said.

The Utah committee's letter and both parties' memoranda are available at: www.atla.org/courts/victory/CCL_Utah. asp. (Follow the links at the bottom of the page.)