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Does the contingency fee system really level the playing field for poor car accident victims?

January 20, 2017 by Steven M. Gursten

Yes, but studies also show low-income individuals are more likely to choose attorneys based only on advertising, even though the contingency fee was designed to allow people access to the very best personal injury lawyers

My law firm uses a contingency fee system, just as every other personal injury law firm I’ve ever come across.  The premise behind it is that the contingent fee helps to level the playing field and allows accident victims access to the very best attorneys.  When a law firm uses a contingency fee, clients do not pay unless and until their attorneys reaches a legal recovery, through a settlement or verdict.  The attorney pays and fronts all of the costs for experts and legal discovery, case support and litigation expenses such as deposition fees.   Once a settlement or trial verdict has been secured for an accident victim, the attorney will take a portion of the clients’ recovery.   In Michigan, this amount cannot exceed one-third of the recovery, although many states allow contingency fees of 40% or even 50% of the total settlement amount.

The contingency fee system of paying attorneys is predicated on allowing lower-income people who would not be able to fund the litigation costs of a lawsuit to be able to still receive the best legal representation available.  When it works, it is a great equalizer.  It allows injured people regardless of financial means to receive the highest quality legal services, and be able to withstand the costs of litigation against the deepest pockets.  Referring lawyers and law firms also have a direct financial interest to seek out and recommend the most qualified attorney for a case because these referring attorneys then receive a higher attorney referral fee at the end of the case.  This means they want to make sure people wind up with the best attorney so they can receive a higher referral fee at the end of the case.*

*For full disclosure, our entire law firm is predicated on this model.  We do no traditional advertising to the public.  We do not do television commercials, or billboards, or bus wraps or radio spots.  With the exception of a website and this blog, which is more of a labor of love for me, we have no advertising presence at all.  Almost all of our cases come to us from happy clients and from other Michigan attorneys, including many personal injury attorneys.  We’ve had a 17year streak of recovering the highest injury settlements and jury verdicts for automobile accidents, and we are known in the legal community to prioritize attorney-client communication and our attorneys take returning every phone call very seriously (unfortunately, the legal profession has an ugly reputation for not returning phone calls or prioritizing client communication, especially in my own area of personal injury law).

As I said, this is when the contingency fee system works. But as I wrote last week, the poor are more likely to choose attorneys based on legal advertising alone according to many different studies.   There is nothing inherently wrong with legal advertising for those law firms that choose to practice this way, but the nature of television advertising means that in most legal markets – both in Michigan and around the country – the biggest television advertisers are often known more as legal mills than as law firms that provide the highest quality legal services.   In part this is because the very nature of advertising and the enormous costs involved require these firms to “feed the beast” and take on as many cases as they can.  It is not uncommon for lawyers in personal injury law firms that advertise to have 200 or more active cases in litigation at any time.   This means they cannot return phone calls or maximize case values.  They have one priority – move files.  That is why many refer to these law firms as “mills.”

And then we have the lawyers who are deliberately targeting the poor.  These are the attorneys and law firms who in the profession are often thought of as the  least qualified to handle these types of auto accident cases.

We have to consider how far we’ve come.  When the contingency fee system was first introduced, it was designed to create equality in the legal system.  It was designed so people of lower socioeconomic status could now afford the best personal injury lawyer representation. But this isn’t how the contingency fee system is playing out in many areas of the country.  A study by the American Bar Association on “Comprehensive Legal Needs” found that low-income individuals are far more likely to choose an attorney on the basis of legal advertising than the wealthy or a more sophisticated consumer.  Many people who do not have a high degree of sophistication when it comes to legal services erroneously believe that lawyers who advertise are better than those who do not.  And of course these television lawyers do everything they can to encourage this perception through their advertising and increasingly outrageous claims of how much they’ve recovered for people.

“We’ve recovered $100 million for our clients. Oh yeah, we’ve recovered $500 million!  Wait, look at me, we’ve recovered one billion dollars (insert obligatory picture of Dr. Evil from Austin Powers here).

But you don’t have to take my word for it. Studies also show the poor are less likely than the wealthy to seek compensation following a personal injury. Yet this failure to hire lawyers and file lawsuits isn’t because they can’t afford it.  It is because there is  a lack of information concerning the legal rights and potential legal remedies among poorer demographic groups.  There is also inadequate knowledge about the legal system and the contingency fee system.  In other words, it is very easy to fall prey to a television commercial, especially ones specifically targeting groups of people who meet this level of education and socioeconomic means.   Detroit Mayor Duggan was on to something when he recently complained of the “billboard lawyers” with signs popping up all over Detroit.

In reality, then, the poor are often represented by “under-paid and over-burdened” settlement mill attorneys.  Most of these attorneys are paid very little, and they have little experience in court.  They are further stifled by high caseloads, inadequate support and lack of training (“Legal Access and Attorney Advertising,” The American University Journal of Gender, Social Policy & the Law, (2011)).

Another study, this one by a former attorney, helps explain the epidemic of solicitation and ambulance chasing that we see in Metro Detroit and throughout Michigan today.  This particular study focused on the relationship between “unsophisticated” clients with little knowledge about attorneys, who in turn, defer most everything to them (or to defer to a “runner” who shows up at their door or stuffs a law firm’s contingency fee contract in their hands when they are at a doctor’s office!).  These same people are at the same time depending on lawyer self-regulation to ensure the attorneys are doing their jobs – another problem in Michigan as I’ve been openly critical of the job the Michigan Attorney Grievance Commission has done in addressing the personal injury lawyer ambulance chasing epidemic we see today. Therefore, the study found, the poor were unlikely to leave their first visit with an attorney unrepresented, because they lack — or feel they lack — sufficient options. They also may not fully comprehend the differences between attorneys or how the contingency fee allows them access to choose the very best personal injury lawyers (“Effects of Reputation on the Legal Profession,” Washington and Lee Law Review, (2008).

A primary reason the poor are frequently represented by settlement mills? These mills settle many of their cases without ever filing a lawsuit.  They settle cases using settlement demands pre-lawsuit as a way to move files faster.  For the poor, often lacking a stable foundation for shelter, sustenance and transportation, they are often more likely to take an inadequate settlement because they don’t know how to question their attorney and they need money as quickly as possible.   More than anything else, this helps perpetuate the law firm settlement mill system that many big legal advertisers have created in television markets throughout the country.

But it is easy to differentiate good lawyers from the bad lawyers. Next week, I’ll continue my blog series on legal adverting with a post on what the studies say about the effectiveness of television adverting by personal injury attorneys.


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