Effective Hourly Rates of Contingency Fee Lawyers: Competing Data and Non-Competitive Fees

Abstract

One of the foremost civil justice issues commanding attention at both federal and state levels is reform of the tort system. Among the data cited by both proponents and opponents of tort reform, none more critically informs the debate than the yields realized by lawyers engaged in contingent fee-financed tort claiming. This is so because of the effect of yields on the tort system. Over the past forty years, the scope of liability assessed under the aegis of the tort system has greatly expanded. This expansion has not been a function of increasing rates of injury in society. Rather, it has been driven by the substantially increasing yield from contingent fees realized by plaintiff lawyers. Since 1960, the effective hourly rates of tort lawyers have increased 1000% to 1400% (in inflation-adjusted dollars), while the overall risk of nonrecovery has remained essentially constant though it has decreased materially for such high end tort categories as products liability and medical malpractice. That the dimensions of this increase in the yields from contingent fee claiming have gone unnoticed is due to the largely successful efforts of the personal injury bar and some torts scholars in obscuring the actual rates realized by tort lawyers. Most cited as authoritative with respect to effective hourly rates is a set of data indicating that the yields of contingent fee claiming approximate the returns realized by hourly rate lawyer counterparts and are therefore reasonable and the product of a competitive market. This data is central to contentions of scholars and personal injury lawyers that tort reform efforts are not only unnecessary but also counterproductive in that they deny claimants access to justice.

In this article, I rebut the validity of that data by demonstrating that much of it data is either trivial, unrepresentative, or unreliable and therefore conclusions based upon that data are unsubstantiated. I further rebut the data by presenting alternative data which indicates that the effective hourly rate of plaintiffs' lawyers in auto accident litigation is approximately two and one half times that of defense lawyers. Other data I present supports the conclusion that there is a top tier of contingent fee lawyers, comprising approximately 25-33% of that bar, which is distinguishable from the general run of tort lawyers by virtue of its focus on high end tort litigation which generates average verdicts far in excess of those realized in the majority of auto accident claimings. This top tier obtains effective hourly rates that are multiples of those realized in the average auto accident claim - often amounting to thousands of dollars an hour. Moreover, in aggregated litigations such as mass consolidations and class actions, effective hourly rates of tens of thousands of dollars an hour are not uncommon. In theory, these yields implicate ethical rules purporting to limit fees to reasonable amounts. In fact, however reasonable fee rules are largely a shibboleth. The real role of ethical rules is to prohibit price competition so that tort lawyers can continue to extract substantial rents.

Keywords: Contingent fee, hourly rates, tort reform