Legislative Policing of Judicial Power

JurisdictionKansas,United States
CitationVol. 60 No. 12 Pg. 23
Publication year1991
Kansas Bar Journals
Volume 60.

60 J. Kan. Bar Assn. December, 23 (1991). LEGISLATIVE POLICING OF JUDICIAL POWER

Journal of the Kansas Bar Association
Vol. 60, December, 1991

Contingent Fee Regulation in the Tort Reform Era

Ron Smith[FNa1]

Copyright (c) 1991 by the Kansas Bar Association; Ron Smith

The Four Horsemen of the Apocalypse-Famine, Death, Pestilence and Disease-have been renamed. Tort reformers, which now include the vice president, refer to the unholy quartet as Pain and Suffering, Collateral Sources, Punitive Damages and Contingent Fees.

As issues of litigation controlled primarily by judges, the first three fell to legislative regulatory scythes in 1987 and 1988. [FN1] The fourth, contingent fees, lives on, but as an endangered species.

The bar generally prefers traditional judicial regulation of the bar, especially attorney fees, to legislative regulation. [FN2] Partly because of a Kansas Bar Association request, the Model Rules now regulate all fee contracts. [FN3] Legislators, however, often hear different drummers.

This article examines the Kansas Legislature's previous rationale for such muddling with this issue, and the practical and constitutional problems legislative fee limits pose to the bar. [FN4]

History of Contingent Fees

By historical standards, a Kansas Legislature that fails to regulate livelihoods is wimpish. Since before the glory days of our frontier gopher scalping law, [FN5] our Legislature has cherished, and still uses, its presumptive right to regulate all manner and means of making a living. [FN6]

There is no unrestricted right for attorneys to use contingent fee contracts. Determining the reasonableness, adequacy and appropriate use of such contracts is a judicial power of some antiquity. [FN7] Common law courts exercise regulatory power over the practice of law and contingent fee contracts. [FN8] Lawyers are officers of the court; thus, courts have implied powers to insure the reasonableness of all types of fee arrangements. [FN9]

Revolutionary America generally regarded the English concept of "profession" as aristocratic and anti-democratic. There was concern indigent litigants might be too harshly treated by the loser-pays English rule. The English feudal system preferred that only the wealthy litigate. Americans, however, chose to let ordinary supply and demand principles govern attorney-client fee relationships. [FN10]

Before the late 19th Century, advent of wide-spread workers' compensation laws, work-place accidents were handled in an increasingly overburdened tort system. Injured workers were least likely to hire lawyers by the hour. Without the contingent fee, a profit economy required those least able to afford attorneys to bear the full burden of seeking compensation for the risk inherent in dangerous work or products. [FN11] Industrialization caused wider use of contingent fees. Essentially the attorney became an alternative insurer, bearing some risk of loss. [FN12]

Arguments For Regulation

Proponents of fee regulation understand contingent fees serve the traditional function of getting the poor and middle class into court while screening non-meritorious cases from the system. They understand since the attorney gets paid only by winning, meritorious cases are made less attractive by fee limits, [FN13] and "will at least somewhat deter the litigation of legitimate causes of action thus creating a potential impediment to injured individual's access to courts and counsel." [FN14] The Legislature also realizes that attorneys specialize and that good plaintiff's counsel command high fees. During tort reform efforts, it became clear: regulate what the attorney can make from the case and you regulate the incidence of that type of case being brought. [FN15] There were other theories offered in support of legislative limits, some of them novel:

Wagering. Some senators alleged that contingent fee agreements were "gambling contracts" and the Legislature had every right to regulate them. [FN16]

State Alter Ego. The Health Care Stabilization Fund (the "pot" into which health care provider premiums go to pay for claims against an HCP's mandated coverage) is no different than the state general fund, and Fund premiums essentially are a mandatory "tax" on health care providers. Therefore, like claims against the state under the Tort Claims Act, the Legislature can limit recoveries therefrom. [FN17]

Adhesion v. Paternalism. Lawyers, it is argued, have disproportionate bargaining power over fee contracts. Thus, legislatures should protect the consumer with fee limits. [FN18] "Government paternalism" argues government must protect people against themselves, even if it creates a greater danger-the inability to hire a lawyer. [FN19] However, it ignores judicial safeguards built into our system. [FN20]

Workers' Compensation Similarities. Another reason advanced to regulate medical malpractice fee contracts is that medical malpractice insurance, like workers' compensation, is mandated in Kansas. Malpractice is no more difficult to prove than workers' compensation, hence reformers argue both should have similar statutory fee caps. [FN21] These arguments have not gained support in states where malpractice contingent fees are regulated. [FN22]

Regulating Frivolity. Legislators see the 25 percent trial verdict rate by malpractice plaintiffs and conclude that the remaining claims were frivolous, otherwise plaintiffs would have been successful. [FN23] Therefore, the argument goes, fee caps curb frivolous litigation. [FN24]

Dual Purpose Savings. The most widely used theory, however, is that fee limits promote the "dual purpose" of saving the Health Care Stabilization Fund claims' expense while at the same time increasing the plaintiff's portion of the recovery. This preserves the state's interest of maintaining malpractice insurance availability and affordability and keeps doctors in Kansas. [FN25] It is the "tort trickle-down" economic theory: fee limits provide economic disincentives for fewer claims; fewer claims mean lower premiums; doctors who pay smaller premiums will stay in Kansas and (presumably) charge clients less for medical services.

Arguments Against the Rationale. Kansas malpractice premiums, either commercially or through the Fund, are rarely established solely on Kansas claims' experience. Thus physicians realize little direct actuarial gain from fee limits on Kansas litigation. [FN26] If a premium saving is the goal of limiting contingent fees, savings comes primarily from the less salutary motive of changing incentives to litigate. [FN27]

Paying the plaintiff's attorney fees is a common concession during settlement negotiations. At trial, juries hear no evidence as to what the attorneys are paid. With special verdict forms it is difficult to pad verdicts without judges spotting the attempt. [FN28] Yet the contract limits affect only trial outcomes, not settlements. [FN29]

Another blow to the dual purpose rationale comes from Rand Corporation research predicting opposite results of what proponents envision. Plaintiffs facing fee limitations tend to recover less. [FN30] Allowing plaintiffs to retain a greater percentage of their recovery may be a legitimate state interest. However, it is not a compelling one. [FN31] Further, the means chosen to "retain a greater percentage" for plaintiffs works against the interests of plaintiffs generally. Those concerned about plaintiff recoveries being adequate would let juries decide damages based on the evidence, not legislatures subject to lobbying.

When the early 1970s malpractice crisis hit, Kansas opted to create a Fund. Forty-three other states facing the same crisis did not. Kansas was the only state to make insurance compulsory and to compound the problem by requiring high limits of coverage. [FN32] Kansas has now reversed course. [FN33]

Discrimination. Fee limitations regulate the client's flexibility to contract. Only individuals are limited by the proposal; corporations in business litigation can-and do-hire lawyers on a contingent basis for other litigation. [FN34] Corporations, for fiscal reasons, are beginning to use complicated contingent fee arrangements in contracts with defense attorneys. [FN35] It is interesting that insurers and other businesses now seek to hire defense counsel on contingent fee arrangements while at the same time preferring to structurally limit plaintiff's ability to hire counsel on a same basis.

The fairness issue is most acute in contingent fee regulation. While limits on noneconomic loss and collateral source rules regulate the...

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