Wisconsin Lawyer: Wisconsin Lawyer March 1997: Holding Back the Floodtide: The Role of Contingent Fee Lawyers:

State Bar of Wisconsin

Sign In
    Wisconsin LawyerWisconsin Lawyer

News & Pubs Search

Advanced

    Wisconsin Lawyer March 1997: Holding Back the Floodtide: The Role of Contingent Fee Lawyers


    Share This:

    Holding Back The Floodtide: The Role Of Contingent Fee Lawyers

    By Herbert M. Kritzer

    Amid the ongoing debate about the supposedly "litigious American," there is no recent systematic assessment of the role of lawyers, particularly contingent fee lawyers, as the gatekeepers of the civil justice system. Yet such an assessment is crucial to understanding the civil justice system, given that the only way most people can pursue compensation or other redress through the courts, outside of small claims venues, is by hiring a lawyer. Other than practice areas such as divorce, hiring a lawyer most often means paying the lawyer on a contingency basis.1 The nature of the American contingency fee - the fact that it is actually a percentage or commission fee - means that lawyers' economic self-interest is a major determinant in how contingent fee lawyers exercise their gatekeeping function.

    Lawyers as gatekeepers

    This economic self-interest has led to the common image of the contingent fee lawyer as a hustler or ambulance chaser. Undoubtedly, a contingent fee lawyer wants profitable cases, 2 and there are a variety of ways to seek them out. However, many cases that come to the lawyer lack merit or adequate fee potential either because of

    lack of damages or absence of insurance coverage. Simple economic theory predicts that the contingent fee lawyer should decline such cases.

    How do contingent fee lawyers handle potential cases that the public brings to them? How often and why do lawyers turn down cases? Other than an occasional journalistic report, 3 we know almost nothing about how, and with what result, contingent fee lawyers screen potential cases. 4 A 1995-96 study of contingent fee legal practice in Wisconsin offers the first systematic information on these and other questions. This study, which employed survey, observational and interview methodologies, looked both at lawyers who accept only contingent fee cases and at lawyers who combine contingent fee work with work paid on some other basis.

    The flood, or trickle, of phone calls

    Screening potential cases is a key part of contingent fee practice. At the extremes, Wisconsin contingent fee lawyers can receive thousands of calls a year or less than one call a month. But what are the typical patterns?

    Figure 1 shows the number of calls by practice area received by Wisconsin contingent fee practitioners. The figure reveals that almost a quarter (23 percent) of all respondents receive fewer than 12 calls per year (less than one call per month) compared to only 11 percent who receive 250 or more calls per year (more than about one call per day). About 35 percent receive between 12 to 49 calls per year (at least one call a month but less than one a week), and another 30 percent handle between 250 to 999 calls per year (more than one call a week but less than one per day). For purposes of analysis, the survey assumes 50 weeks and 250 days per year.

    Not surprisingly, the number of calls a lawyer receives varies with the nature of the lawyer's practice. As Figure 1 shows, the volume of calls for lawyers with personal injury plaintiff practices tends to be much higher than for other practice areas, with most personal injury lawyers receiving at least one call a week (although 15 percent report fewer than one call per week). In contrast, about 75 percent of lawyers who did at least some contingent fee work but whose practices did not concentrate on personal injury plaintiffs work received fewer than one call per week.

    What happens when the phone rings?

    There is considerable variation in how lawyers and law firms handle the screening process. In most offices (64 percent), a lawyer handles the initial screening. Typically, a receptionist will transfer a call to a lawyer as soon as it is clear that the caller is a potential client. If no lawyer is available, the receptionist might get some initial information or simply take a phone number for a lawyer to return the call. In another 26 percent of the offices, either a lawyer or a nonlawyer handles the initial screening depending upon who is available when a call comes in. Only 8 percent of the respondents reported that a nonlawyer typically handles the initial telephone contact from a potential client. As the number of calls increases, nonlawyers are more likely to handle some or all of the initial screening.

    Accepting potential cases

    This initial contact is crucial, because lawyers decline about two thirds (67 percent) of all rejected cases during the initial phone call. Lawyers handling larger numbers of calls decline more on the first call. For example, lawyers handling 1,000 or more calls per year decline 77 percent of eventually rejected cases during the first call. Lawyers with fewer than 50 calls per year decline about half of the eventually rejected cases during the first call. About 5 percent of the rejected cases reflect a potential client who failed to appear at the first scheduled appointment. Lawyers decline the balance of all eventually rejected cases at or after the first appointment.

    Looking at numbers of contacts

    Figure 2 shows that in the aggregate, 5 Wisconsin lawyers accept as clients 28 percent of the potential clients who contact them. A small number of high-volume lawyers and firms heavily influence this overall acceptance rate. 6 Figure 2 shows that acceptance rates vary depending upon the number of calls a lawyer receives from potential clients. Lawyers receiving fewer than one call per day accept about half of the potential cases; those receiving one to four calls per day (250 to 999 calls per year) accept around 40 percent; those receiving the largest number of calls (1,000 or more per year) accept 10 to 15 percent.

    Another way to view acceptance rates is to look at each lawyer's individual acceptance pattern rather than to compute aggregate acceptance rates. Figure 2 also shows the median acceptance rates for the same groups discussed above. Looked at this way, the median lawyer accepts 43 percent of his or her potential cases. The difference between this overall median and the aggregate figure reflects the fact that the aggregate figure is more heavily influenced by high-volume practitioners than is the median figure. In a sense, the aggregate looks at acceptance rates in terms of the likelihood that a typical case will be accepted, while the median looks at it in terms of the likelihood that a typical lawyer will accept a case if it is offered.

    Figure 2 masks the variation from lawyer to lawyer, because even after controlling for the number of calls a lawyer might receive, some lawyers accept a large percentage of cases while others do not. This is clearly evident in Figure 3, which shows a type of graphic display called a "box and whisker" plot or "boxplot." Figure 3 shows a box for all lawyers (at the top) and a box for each comparison group (defined by the number of calls the lawyer receives from potential clients). Four components in the figure are noteworthy.

    • The heavy vertical line in the middle of each box corresponds to the median acceptance rate for each group, and shows the same values (in a different way) as does Figure 2. The variations in medians shown in Figure 2 also are evident here.
    • The horizontal lines extending from each box (the "whiskers") show the overall range of acceptance rates. For all groups except the highest volume lawyers, Figure 3 shows that lawyers range from accepting almost no cases (0 percent) to accepting all or virtually all cases (100 percent).
    • The length of each box shows the range of "typical" acceptance rates. Typical here means the group of lawyers falling in the middle when lawyers are ranked from lowest to highest acceptance rates. Taking all respondents, the middle group accepts from about 25 percent to almost 70 percent of the potential cases, a spread of 45 percentage points. The lengths of the boxes for most of the groups are somewhat shorter than is the box for all respondents. The highest volume group has the shortest box length, showing only a spread of 13 percentage points.
    • The last noteworthy component is where the box is placed. Boxes shifted to the left of center represent lower acceptance rates. The ranges for the middle groups of low- and medium-volume lawyers (1 to 99 contacts per year) fall in the 30 to 70 percent range. In contrast, the middle group among the higher volume lawyers (100 to 999 contacts per year) fall in the 20 to 50 percent range, with the middle group of highest volume lawyers (1,000 or more contacts) in the 5 to 18 percent range.

    In summary, Figure 3 shows that, with the exception of the highest volume lawyers, there is a great deal of variation in acceptance rates.

    Looking beyond case volume. There are some interesting variations in acceptance patterns that go beyond case volume. Variations in acceptance rates by type of case, for instance, do not show up in the statistical data.

    For example, lawyers accept very few potential medical malpractice cases. This was very evident from observing lawyers over a three-month period. I saw lawyers consider 14 potential medical malpractice clients; only one of these potential clients was offered a retainer agreement to sign, and that retainer did not involve the malpractice aspects of the case. One of the lawyers I observed spent a lot of time in phone calls with potential medical malpractice clients, explaining that the reality of medical malpractice compensation was very different from talk at cocktail parties. He would laboriously explain that:

    • negative outcomes did not equate to malpractice;
    • proving negligence was extremely difficult;
    • it was not necessarily clear that an error had significant consequences (For example, did a failure to diagnose a cancer for six months make any difference in the treatment and/or outcome?);
    • temporary pain did not imply major damages; and
    • even if negligence could be proved, the costs of pursuing a medical malpractice claim were likely to exceed the compensation that could be obtained.

    Other types of cases can be difficult to win or involve issues that most nonlawyers and potential clients do not understand. As a result of much of the rhetoric about the litigation crisis and tort reform, many nonlawyers have distorted ideas of what constitutes a compensable injury. For example, while weather-related slip-and-fall injuries are common in Wisconsin, such injuries often are problematic with regard to potential tort remedies. My observation at one firm occurred during winter, and I overheard several calls from potential clients who had been injured after slipping on snowy or icy walks. The lawyer handling the calls spent much time determining when the fall occurred and explaining to the caller that property owners have a period of time to clear the walks before they become liable for injuries.

    Lawyers also frequently turned down routine worker's compensation cases. For many of these cases, even though the claimant can (and will) collect benefits, there is limited fee potential for lawyers because by statute they are only entitled to fees with regard to disputed benefits. For many, perhaps most workplace injuries, there is nothing in dispute.

    Reasons for declining cases

    The foregoing discussion leads to the question: Why do lawyers decline cases? The survey asked the lawyers what percentage of the cases they declined was due to:

    • lack of liability;
    • inadequate damages or inadequate fee potential; 7
    • combination of liability and damages;
    • the case was outside the lawyer's area of expertise; and other reasons.

    Figure 4 shows the aggregate percentages for each of these four reasons. 8 As the first set of bars show, absence of liability clearly is the most common reason for declining a case, alone accounting for almost half of the cases declined. Inadequate damages alone are much less likely, at least overall, to be the reason for declining a case. While inadequate damages may be more important in some types of cases, such as medical malpractice, even there my observation of lawyers as they screened cases indicates that liability problems dominate.

    Figure 4 shows that liability issues loom largest for the high-volume practitioners, which is not surprising. Their efforts to generate large numbers of contacts lead to many calls from persons with injuries for which there is no legal recourse. The greater concern about damages for those with low and medium volumes probably results from many of those practitioners not being proficient in handling contingent fee cases and not being set up to handle smaller cases, which require the efficiencies of volume.

    Gatekeeping and its implications

    Contingent fee lawyers do function as gatekeepers to the civil justice system for individuals who believe that someone has caused them harm. Simply put, the typical lawyer declines more cases than he or she accepts. While some lawyers do aggressively seek clients, those same lawyers turn away most potential clients who call them.

    Some civil justice system critics contend that virtually anyone seeking representation eventually could find a lawyer willing to take any potential case on a contingency basis; however, there is no systematic evidence supporting this contention. Only seven out of the 465 lawyers in the survey for whom an acceptance rate could be computed took all of the cases they were offered, and six of those lawyers had had contacts from six or fewer potential clients.

    A potential client who is turned away from one office can contact other firms in the hope of finding a lawyer willing to take the case. Some people do contact many lawyers, and some people do find a lawyer to take a case after it has been declined by a first or second or third lawyer. There was at least one case that was declined by one of the lawyers I observed and accepted by another. I also listened in on several calls from potential clients who reported that another firm had not wanted their cases. Still, I know of no systematic evidence that large numbers of people engage in extended searches to find a lawyer to take a case that a first or second lawyer has declined.

    One recent study of medical malpractice claims in Florida found that almost half of the claimants had contacted more than one lawyer before signing a retainer, but fewer than 5 percent contacted four or more lawyers (16 percent contacted three or more). 9 Another recent national study of victims of all types of injuries found that of the claimants who hired a lawyer, 26 percent contacted two lawyers but only 5 percent contacted three or more. 10

    One important function of the screening process is to correct distorted perceptions about compensation levels. During the observation in lawyers' offices, it was clear that news coverage and reform rhetoric has led some consumers to have wildly unrealistic views of the compensation for various injuries. In response, lawyers repeatedly explained to potential clients, "It's a good thing your case is not worth all that much, because if it was it would have to mean that you were in much worse shape than you are. Instead of a shoulder sprain, it would probably mean that you were a quadriplegic."

    The unanswerable question is whether lawyers turn away too many or too few potential clients. The contingent fee system encourages potential clients to contact a lawyer because the client will bear relatively little economic risk if the lawyer says the case is worth pursuing.

    In types of cases where consumers are unfamiliar with issues like causation, responsibility and compensable injuries, lawyers will have to turn away many callers. Lawyers also may turn away potential clients who have valid cases but that do not meet the lawyers' criteria of fee potential. It is unlikely that these potential clients would be willing to pay a lawyer hourly to pursue such cases.

    Lawyers inevitably will make some mistakes in their screening decisions, either turning away good winnable cases or accepting unwinnable cases. Lawyers make these decisions based heavily upon their own interests, but in doing so they shield potential clients from substantial risks they might otherwise have to bear.

    Many recent litigation reform proposals would alter the incentives driving contingent fee lawyers' decisions to take or decline potential cases. Demands for such reforms come in part from the widely held perception that lawyers bring too many cases that should not be brought, particularly in areas like medical malpractice. This misperception persists even though lawyers are reluctant to take medical malpractice cases, as noted earlier.

    Medical malpractice presents an interesting dilemma. As it turns out, even if lawyers accept only a small proportion of unmeritorious cases and a large proportion of meritorious cases, the mix of accepted cases is likely to involve a large number of cases ultimately found to be unmeritorious.

    For illustrative purposes, assume that 10,000 people sustain injuries during medical treatment, but only 500 (5 percent) of these are due to negligence. Further assume that 1,000 (10 percent) of injured patients seek legal representation regardless of whether the injury was due to negligence (How is the patient/client to know?); 50 of these patients will have been injured due to negligence and 950 not due to negligence. After initial investigation, lawyers correctly accept 90 percent, or 45, of those 50 patients whose injuries are due to negligence and incorrectly accept only 10 percent, or 95, of those 950 patients whose injuries are not due to negligence. This means that even though the lawyers make the correct decision 90 percent of the time, only 32 percent of the cases they accept will turn out to be due to negligence. 11

    Conclusion

    Understanding the gatekeeping role of contingent fee lawyers in the civil justice system is crucial to finding ways to make the system work more fairly and efficiently. An irony of some recent litigation reforms aimed at reducing the number of cases that contingent lawyers pursue is that many of those reforms actually can make the system look worse. For example, a frequent concern about the civil justice system is that jury verdicts have skyrocketed in recent years (we do not know whether that is true in Wisconsin). Litigation reforms that make lawyers more cautious and selective in accepting cases will lead lawyers to seek out those cases with the largest, surest payoffs. 12 The result could be a decline in the number of cases being brought or going to trial, but a sharp increase in the size of verdicts and settlements. Proposed reforms must include the gatekeeping calculus if we are to fully understand the impact of changes to the civil justice system.

    wisc kritzer polisci edu Herbert M. Kritzer is professor and chair of political science and professor of law at the University of Wisconsin - Madison. He has conducted extensive empirical research on the American civil justice system and on other common law systems.

    Endnotes

    1 See Herbert M. Kritzer, The Justice Broker: Lawyers and Ordinary Litigation, 58-59 (New York: Oxford University Press, 1990), reporting that relatively few individual litigants use fee structures other than contingent fees for nondivorce cases; even in practice areas such as contracts, contingent fees are the most common type of fees for individuals.

    2 See Michael J. Saks, Do We Really Know Anything About the Behavior of the Tort Litigation System - and Why Not?, 140 Iowa L.R. 1147 at 1190-92 (1992).

    3 Mark Crane, Lawyers Don't Take Every Case, Nat. L.J. 1 (Jan. 25, 1988).

    4 The only published systematic study is more than 25 years old. That study only dealt with medical malpractice cases. It found that lawyers turned down seven out of eight medical malpractice cases they screened. See Stephen C. Dietz, C. Bruce Baird and Lawrence Berul, The Medical Malpractice Legal System, Appendix, Report of the Secretary's Commission on Medical Malpractice, 95-101 (Washington, D.C.: U.S. Dept. of Health, Education and Welfare (OS) 73-89, 1973).

    5 The aggregate figures are computed by adding all of the contacts the lawyers reported and all of the cases the lawyers accepted, and dividing the latter by the former. For all lawyers, the aggregate number of contacts was 63,574 and the aggregate number of cases accepted was 17,811.

    6 One extreme outlier that reported an extraordinarily high contact volume and an extremely low acceptance rate has been omitted from the analysis; inclusion of that one respondent would in itself substantially change some of the patterns reported.

    7 This language was meant to capture cases in which there were problems with finding a source of compensation (that is, lack of or inadequate insurance coverage).

    8 For information on how the aggregation was done, see supra, note 5.

    9 Frank A. Sloan et al., Suing For Medical Malpractice, at 75 (Chicago, IL: University of Chicago Press, 1993).

    10 Deborah Hensler et al., Compensation for Accidental Injuries in the United States, at 133-34 (Santa Monica, CA: The RAND Corp., 1991).

    11 This illustration is based on Saks, supra note 2, at 1193-95.

    12 Id., at 1192.