Federal Appeals Court Surprises Everyone by Embracing the Contingency Fee as the ‘Key to the Courthouse Door’
By Leslie A. Brueckner, Public Justice Senior Attorney
On May 18, 2010, a federal appeals court issued a ringing endorsement of the value of contingency fees in preserving access to justice. The case is In re Abrams & Abrams, No. 09-1283, which challenged a district court judge's refusal to honor a contingency fee agreement between the parties to a personal injury lawsuit. In reversing the district court, the United States Court of Appeals for the Fourth Circuit wrote that contingency fees play a crucial role in our legal system because they “provide access to counsel for individuals who would otherwise have difficulty obtaining representation.” Public Justice, along with the American Association for Justice, had filed an amici brief in the case urging the Court to rule as it did.
The District Court Slashes a Contingency Fee Award over the Plaintiff’s Objection
The case arose out of an auto accident in a parking lot in North Carolina on New Years Eve, 2005. Mark Pellegrin was struck by a drunk driver and so severely injured that he will be incompetent for the rest of his life. The car was leased by the driver’s employer and insured by National Union, which denied coverage on the ground that the driver was drunk and refused to defend the negligent driver.
Suit was brought against the driver in North Carolina state court by Mark’s father as guardian ad litem, and an uncontested bench trial resulted in a $75 million verdict. Mr. Pellegrin then filed suit against National Union, alleging that the insurer was liable under its automobile liability policy and its umbrella policy for up to $21 million. National Union removed to federal court on the basis of diversity jurisdiction. In mediation, the parties agreed to a settlement of $18 million. The settlement was then submitted to District Judge Terrence Boyle for approval.
Judge Boyle approved the settlement only after drastically slashing the fee for plaintiff’s counsel. Plaintiff’s counsel had agreed to represent the Pellegrins for a contingency fee of 33 1/3%. Judge Boyle ruled that, under the circumstances of this case, such a fee would be unconscionable, and reduced the fee to $600,000 plus $35,000 in expenses.
Judge Boyle opined that plaintiff’s counsel had not put sufficient time into the case to warrant a multimillion-dollar contingency fee. Judge Boyle particularly faulted plaintiff’s counsel for his “fail[ure] to provide contemporaneous records as to the number of hours actually put towards the representation of the case,” and dismissed counsel’s representation in open court that he and co-counsel had each spent at least 1,000 hours on the case as “wholly speculative.” Ultimately, to arrive at what he considered to be a reasonable fee, the court decided that the market rate for similar services in North Carolina is $300 per hour, which he multiplied by 1,000 hours for each co-counsel, yielding a total fee of $600,000.
Public Justice had filed an amici brief in the case not only because we believe the decision below was wrong, but also for fear that the conservative Fourth Circuit might use this case as an occasion to unleash a full scale assault on the contingency fee system in its entirety. But instead, the Court surprised the legal world by powerfully reaffirming the vital importance of contingency fees in ensuring access to justice. Contingency fees, the Court observed, “are an acknowledged feature of our legal landscape, approved by our legislative and judicial bodies alike, that help secure for the impecunious access both to counsel and to the court.”
In overturning the decision below, the Fourth Circuit repeatedly emphasized how contingency fees ensure that victims are able to seek compensation for their injuries.
The facts of this particular case, the Court noted, illustrate precisely the type of situation in which a contingency fee may be the only way an individual can protect his or her interests. The victim’s father, wrote the Court, “faced a tough financial situation. His son was horribly injured, and he certainly did not have the estimated $17 million needed over a lifetime of care. At the same time, neither did he have the resources to retain lawyers on an hourly basis to pursue a large insurance company in court.... The contingency fee was, as the saying goes, the key to the courthouse door that allowed Jerry Pellegrin to retain the attorneys who eventually provided for his son's ongoing needs.”
The appellate court chastised the district court for failing to consider that contingency fee arrangements transfer a significant portion of the risk of loss to the attorneys taking a case. "Access to the courts," the Court wrote, "would be difficult to achieve without compensating attorneys for that risk." The Court correctly observed that, given the risk that a lawyer who takes a case on contingency may not be paid at all, “it may be necessary to provide a greater return than an hourly fee offers to induce lawyers to take on representation for which they might never be paid…” Conversely, the Court noted, an attorney compensated on a contingency basis has a strong economic motivation to achieve results for his clients, precisely because of the risk accepted."
The Court also criticized the district court for its failure to consider the degree of success obtained in the case. On this point, the Court noted that not only did the attorney succeed in winning a large settlement under extremely difficult circumstances, but that even his client "asked both the district court and this court in no uncertain terms to uphold the parties' contingency contract." The Court observed that Jerry Pellegrin was so happy with the results achieved by his attorney that he retained his own counsel to request reversal of the district court's fee reduction and reinstatement of the contingency agreement.
The Court emphasized that Mr. Pellegrin "not only made no objection to the thirty-three percent contingency fee but also actively supported it, both as a point of personal honor and in recognition of the manner in which his son's lawyers provided for the lifetime needs of their severely disabled client.”
Upon remand, the Fourth Circuit ruled, the district court’s discretion must be guided by “a recognition of the important role played by contingency fees in this type of litigation.”
Why We Care:
This decision is a slap in the face of all those who would seek to deny victims their right to access to justice. The district court’s approach – if applied more broadly – could have drastically limited victims’ ability to obtain counsel in contingency fee cases within the Fourth Circuit. But that would have been only the beginning. If the district court’s contingency-fee-slashing approach had spread, it could have made it significantly more difficult for injury victims across America to obtain any compensation for their injuries, regardless of how badly the defendant may have acted.
The Fourth Circuit's landmark ruling not only stopped this potential trend in its tracks, but it presents, in stirring terms, a powerful endorsement of the oft-criticized contingency fee at a time that we need it most. As everyone knows, the tort system -- and, in particular, "greedy trial lawyers" -- have been under assault in recent years, with conservative forces arguing that personal injury lawsuits, and the lawyers that bring them, are at the root of a host of evils. The Fourth Circuit’s spirited defense of the contingency fee won’t halt this assault, but it does provide some dearly-needed ammunition in the fight to preserve access to justice.
About the Author
Leslie A. Brueckner is a Senior Attorney at Public Justice. She received her A.B. degree summa cum laude from U.C. Berkeley in 1983, where she received the University Medal for the Most Distinguished Graduating Senior. Ms. Brueckner is also a 1987 magna cum laude graduate of Harvard Law School. In December 1993, she joined Public Justice (then Trial Lawyers for Public Justice), where her areas of practice include Title IX, federal preemption, combating court secrecy, and objecting to illegal or unfair class action settlements.