The Public Policy Institute

Section 4

Toll-Free Torts

Scandal, titillation and get-rich-quick fantasies are standard features of daytime television. And in most parts of New York, so are commercials for personal injury lawyers. Whoever sponsors a particular ad, the themes are always the same (big money can be made from suing) and grow out of the same subliminal message (if something bad has happened to you, a lawyer will help you find someone to blame for it).

How to market litigiousness

Consider this verbatim sampling of recent TV sales pitches for personal injury lawyers in the New York City area:

No fewer than 55 such commercials ran in a single day on four New York City television stations monitored for this report during the mid-day period in late 1997. The commercials--which also frequently run during news hours--promoted 15 different toll-free numbers for around-the-clock legal consultation services, including one boasting that lawyers would take calls even "at midnight at New Year's Eve."

Similar high-profile media campaigns are sponsored by tort lawyers all over the state--and not just on television. For example, near the state Capitol exit on the northbound side of Albany's riverfront arterial, a large billboard promotes a personal injury law firm with a single pointed question: "Car Accident?"

In the fall of 1997, every household in the Rochester metropolitan area received a garish color flyer promoting a self-styled "$100 million Super-Lawyer" who calls himself "The Hammer." One of the most visible and aggressive tort marketers in New York State, this avid tort practitioner has published a booklet entitled Sue the [CENSORED]: Your Guide to HUGE CASH AWARDS, LIFETIME PAYMENTS & MAXIMUM MONEY.

The same basic message--with its overtones of a lottery system--is delivered more succinctly in the toll-free number promoted by a New York City law firm: "1-888-Lot O'Cash."

Car Accident? 1-800-LAWYERS

Outrageous as they may seem (and embarrassing as they may be to some members of the profession), advertisements like these are not making false or misleading promises.

These tort lawyer ads underscore the problem with the tort law itself: Virtually any injury you suffer in any kind of accident in New York State can, in fact, become grounds for a lawsuit demanding "a large cash award," paid by someone who may not even have been at fault.

The contingency fee factor

Of course, there's one detail these ads usually fail to mention: If you win, your lawyer will get a big chunk of the money.

Attorneys in private practice customarily charge an hourly rate for the bread-and-butter work of their profession, such as drafting wills and contracts, advising spouses in uncontested divorces, overseeing house closings, and representing defendants charged with minor criminal or traffic offenses.

Tort litigation, on the other hand, offers plaintiffs' lawyers a piece of the action--a financial incentive so lucrative that it explains why lawyers in the personal injury field are uniquely willing, among all professionals, to invest heavily in expensive TV commercials and toll-free 24-hour hotlines to generate new business.

In New York, as in most states, trial lawyers are entitled to charge up to one-third of the damages they recover for their clients in most personal injury lawsuits. Apologists for the system defend these contingency fees as "the key to the courthouse door" for clients too poor to afford to pay hourly rates. However, as Professor Lester Brickman of Cardozo Law School points out, contingency fees are also "the key to untold riches" for lawyers.(29)

"If an injured person comes to a lawyer and it is overwhelmingly likely that a substantial settlement will be forthcoming simply by making a few phone calls or writing a few letters, lawyers routinely mislead their clients as to risk," Brickman says. "Charging a standard contingency fee ranging between one-third and 40 percent of the gross recovery in such a circumstance is really no different than an hourly-rate lawyer billing for 20 hours when she has only worked 10 hours. In both instances, the fee is fraudulent."

According to Derek Bok, former Harvard University president and law school dean, the current system gives plaintiffs' lawyers an incentive to insist on contingency fees even if the client can afford a normal hourly rate. "Most plaintiffs do not know whether they have a strong case, and rare is the lawyer who will inform them (and agree to a lower percentage of the take) when they happen to have an extremely high probability of winning," Bok said.(30)

In cases where liability is not contested, the effective rates of compensation for contingency fee lawyers can range from $1,000 all the way up to $35,000 per hour, Brickman has calculated.(31) Moreover, lawyers often charge separate litigation expenses on top of their contingency fees.

Whether this gravy train can stay on track indefinitely is at last in doubt, however. The multi-billion-dollar fees that some trial lawyers have demanded from the state governments they assisted in tobacco litigation has heightened public awareness about the practice. And courts in some states are beginning to uphold suits from plaintiffs who sue to get back some of the contingency fees their lawyers took from them. Oklahoma's highest court recently delivered a public reprimand to a law professor for the big contingency fee he took in a civil-rights case.

Tort brokering

Trial lawyers can further pad their profits by engaging in what is known as "brokering"--using advertisements to troll for clients whose cases ultimately will be referred to another attorney.(32)

The problem was spotlighted in a November 1995 report to Chief Judge Judith Kaye from the Committee on the Profession and the Courts:

"The advent of the virtual office has contributed to the increase in the number of lawyers who broker cases, after soliciting those cases through misleading advertisements. The broker conducts the initial interview with the client, in effect screening the case for referral to another lawyer, based upon the latter's geographic location, expertise, or mere availability and willingness to pay a forwarding fee. During the initial interview, the broker sets the terms of the representation and the client commits, blindly, to be represented by an unknown person."(33)

Brokers are frequent and heavy advertisers, producing commercials that often feature a hurried voiceover disclaimer to the effect that they "are not a law firm or a referral service." Well, then, what are they?

The Chief Judge's Committee, and the State Bar Association's House of Delegates, have both recommended adoption of new standards requiring fuller disclosure in lawyer advertisements of case-brokering arrangements.

While the courts and the organized bar in New York have expressed concern about deceptiveness in lawyer advertising, they have not addressed the appropriateness of lawyer ads that simply promote the idea of suing. In Florida, tort-reform leaders in the state Senate are actively pressing for legislation that would sharply limit lawyers' advertising come-ons, including the commonly used "Have you ever been injured in an accident?" It may be time for the responsible leaders of the bar, or for the Legislature, to consider such action in New York.

The contingency fee system also came under critical scrutiny in the 1986 report of the Jones Commission, which said such fees "historically have been the most controversial method of compensation" for lawyers.

"Most English, European and early American courts outlawed contingent fee arrangements because they were seen to give the attorney an independent financial stake in the outcome that was considered unethical for a non-party," the Jones Commission noted. "Today, contingent arrangements are still illegal or disused in most foreign jurisdictions."(34)

Although the 33 percent fee is treated as sacrosanct by apologists for the New York trial bar, exceptions to it exist on both the state and federal levels--leaving more money in the pockets of plaintiffs in both jurisdictions.

Contingency fees for lawyers pushing claims against the federal government, including tort actions, have been capped for years at 25 percent.And New York State in 1985 enacted a sliding contingency fee schedule for medical malpractice claims. Under this schedule, plaintiff's attorneys in malpractice cases are permitted up to 30 percent of the first $250,000; 20 percent of amounts over $500,000; 15 percent of amounts over $1 million and 10 percent of amounts over $1.25 million.

Since these limits were adopted, along with several other reforms, the number of new malpractice claims has risen more slowly than other tort actions, as shown in Section 2. Even with these limits, however, "the New York approach is more generous to the attorney" than medical malpractice fee schedules adopted in other states, the Commission said.(35)

Over the past decade, New York's trial lawyers have successfully lobbied against adoption of a 1986 Jones Commission proposal to extend the medical malpractice fee schedule to all other tort actions. The Legislature also has failed to enact the Commission's recommendation that judges be empowered in some cases to adjust contingency fees based on the actual time and effort expended by plaintiffs' lawyers.

In its final report, the Jones Commission asked the state's organized bar to "address as a matter of urgency the problem of developing fee incentive arrangements designed to increase the share of total societal expenditure on tort compensation that reaches the pocketbooks of injured people."

The response of the profession, for more than a decade now, has been a deafening silence.

A protected class

How much do trial lawyers make off the tort system? As documented in Section 2, extrapolations from insurance data indicate the figure in New York alone is at least $2.3 billion a year. Nobody knows the precise amount, however, because lawyers have resisted attempts to collect better data.

Trial lawyers frequently portray themselves as consumer advocates doing battle with "unscrupulous businesses" and the like. They fund and dominate a number of self-styled "consumer" organizations, which then parrot this line. But the lawyers refuse to subject themselves to the same sort of intensive public scrutiny that their favorite adversaries receive from public regulators, consumer advocacy groups and financial markets. The Manhattan Institute's Walter Olson is among a number of legal scholars who identify this lack of disclosure by lawyers as a key shortcoming of the current system.

Lawyers, Olson says, "switch neatly back and forth: litigation is something charged with the widest public significance when it comes to justifying high damage awards or tough discovery powers, but the whole business gets redefined as cozily private, no one's business but their clients', when anyone starts asking questions about what goes on in their own chambers."(36)

Several reforms have been suggested to correct the skewed incentives of the contingency fee system and to put lawyers on a more even footing with other professionals. The Jones Commission, as noted, recommended adoption of the medical malpractice fee schedule for all liability actions.

Brickman and two other legal scholars sponsored by the Manhattan Institute have developed a system of incentive for early settlements in tort cases--and, thus, early recoveries by plaintiffs.

The "early recovery" plan has five main features:

  1. Contingency fees cannot be charged against settlement offers made to plaintiffs before they retain a lawyer.
  2. If a plaintiff accepts a settlement offer made within 60 days of a demand by his or her lawyer, the lawyer's fees are limited to hourly rate charges capped at 10 percent of the first $100,000 and 5 percent of any greater amounts.
  3. Demands for settlement submitted by a plaintiff's lawyers must include "basic, routinely discoverable information" that can help defendants evaluate the claim. By the same token, "discoverable material" in the hands of the defendant must be shared with the plaintiff for a settlement offer to be effective.
  4. When plaintiffs reject early offers, contingency fees may only be charged against recoveries that exceed the offer.
  5. If no offer is made within the 60-day period, standard contingency fees may be charged.

This proposal--which has been endorsed by two dozen of the nation's leading lawyers--does not diminish the plaintiff's right to sue and would actually benefit injured parties by encouraging early offers by defendants. Some lawyers for defendants have suggested an even more forceful incentive for settlements: adopt an "offer of judgment" provision under which attorneys' fees would be awarded to any party who made a settlement offer before trial, had that offer rejected, and then achieved a result at trial that was equal or favorable to the offer.

In addition to the early recovery proposal, Olson has suggested two further reforms designed to shine a light on plaintiffs' lawyers:

Growth in lawyers = growth in lawsuits?

The rate of tort litigation in New York has grown almost in tandem with the number of lawyers in the state.

In 1987, there were 75,733 lawyers actively practicing in New York. By 1997, that number had jumped by 40 percent, to 105,673--the second highest lawyer population found in any state, according to American Bar Association estimates.(37)

New York's total population grew by only 1.5 percent between 1987 and 1997. In other words, the number of lawyers grew 26 times faster than the number of people living in the state. And while the state gained nearly 30,000 lawyers during that 10-year period, it also suffered a net loss of 48,000 total jobs.

As a global center of commerce and finance, New York needs more lawyers than does the average state. But our numbers still seem out of line with those in other economic powerhouses. With 18 million residents, New York has only 8,000 fewer lawyers than California, which has more than 32 million residents. New York has nearly twice as many lawyers as Texas (which has passed us in population) and more than twice as many lawyers as Florida (which is close [and gaining] in population).

For every 10,000 residents throughout the country, there is an average of 35 lawyers. But as indicated in the map on the following page, New York has 58 lawyers per 10,000—more than any state except Massachusetts and New Jersey, which also experience high rates of litigiousness and high liability costs. Relative to population, most states have fewer than half as many lawyers as New York.

Over 50 percent of the lawyers in New York State practice in New York City, which also produces an exceptionally high rate of tort litigation and large jury verdicts. But state registration data indicate that high lawyer populations, compared to national norms, are also found throughout the state, even in small rural counties.

Supply pushing demand

In most sectors of the economy, an increase in the number of professionals supplying a particular good or service could be expected to put downward pressure on prices. But in New York's tort industry, the increased number of lawyers has not benefited plaintiffs because the "price" of the service is essentially targeted at 33 percent of the award or settlement recovered (except for lesser percentages for big medical malpractice cases).

Where the Lawyers Are

Therefore, as the growth in the number of lawyers in New York continues to outstrip the growth in the state's population, tort specialists know that the only way to generate more business is to generate more lawsuits—another explanation for the aggressive marketing techniques used by personal injury law firms.

These figures provide at least circumstantial evidence that the tide of torts is a classic phenomenon of supply pushing demand—driven by a rising number of lawyers competing to generate cases out of a stagnant client base.

29. L. Brickman, presentation to Manhattan Institute, March 27, 1997.

30. Bok in The Cost of Talent, quoted by Olson in "Taming the Litigators: Why Not More Disclosure?", Manhattan Institute Civil Justice Memo No. 24, February 1996.

31. Brickman, Horowitz and O'Connell, "Rethinking Contingency Fees: A proposal to align the contingency fee system with its policy roots and ethical mandates," Manhattan Institute, 1994.

32. In pre-advertising days, such firms were known among lawyers as "chasers."

33. Commission on the Profession and the Courts, "Final Report to the Chief Judge," p. 33.

34. Insuring Our Future: Report of the Governor's Advisory Commission on Liability Insurance, Vol. II, July 1986, p. 156.

35. Ibid., p. 159

36. W. Olson, "Taming the Litigators: Why Not More Disclosure?", Manhattan Institute Civil Justice Memo No. 24, February 1996, p. 2.

37. The state's own count of "registered" lawyers is somewhat higher for both years, but it increased by similar proportions.

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