Annual Meeting 2007
Contingent Fee Horror Story
Posted Aug 9, 2007, 07:22 pm CDT
By John Gibeaut
For all the hostility they produce, contingent fees aren’t going anywhere in the near future.
The justifications and the complaints are familiar: Contingent fee arrangements, in which plaintiffs lawyers front the costs of litigation and get paid later, give thousands of injured people access to the courts they otherwise can’t afford. The defense bar gripes that contingent fees can mean crippling payouts for innocent clients that increase the cost of doing business and ultimately the prices consumers pay for products and services.
But, as one lawyer’s horror stories demonstrated Thursday, they also can just as easily bring a firm to the brink of disaster as they can produce undeserved windfalls that tort reformers and defense lawyers say occur when plaintiffs flood the system with frivolous litigation.
Austin, Texas, plaintiffs lawyer George Fleming was the first batter up at a panel discussion on contingent fees, which for years have lain at the bottom of many a consumer complaint about lawyers. The program was sponsored by the Coalition for Justice, an ABA Judicial Division outreach program designed to involve nonlawyer organizations in issues facing the court system.
Fleming told how he dodged the financial bullets that defense lawyers and one judge fired back at him for supporting cases for thousands of clients with leaky homes because of defective polybutylene pipe used to plumb them.
Fleming reluctantly became involved in the mass-torts business the late 1980s when a colleague brought an innocent-looking piece of plastic tubing to his office. “He said to me, ‘What do you think of this pipe?’ ” Fleming remembered . “I said ‘nothing.’ ”
Then Fleming found out a few things. For example, he learned how someone would turn on a ceiling light only to have water pour out of the fixture because the plumbing leaked. There were tales of folks waking up in the middle of the night and stepping into soggy carpeting at the edge of the bed. He heard of folks who had discovered dog bowls floating in their living rooms.
Fleming still wasn’t sold. “My immediate reaction was that this has to be an installation problem.”
He changed his tune after he learned builders had used polybutylene in as many as 6 million homes. He recalled how he introduced jurors to the problem: “Do not use this plumbing with water. I introduce to you the world’s only biodegradable plumbing system.”
Polybutylene litigation quickly became a gargantuan undertaking. For help, Fleming hired 49 law firms in 13 states, propounded 40,000 interogatories, paid for 35,500 home inspections, took 8,000 depositions, tried six cases, won them, then beat back 16 appeals, including three to the Texas Supreme Court.
Then, after the case was over, the judge made a move unprecedented in Fleming’s experience and announced he was going to scrutinize the fees—as if the case were a single class action without the thousands of individual contingent contracts each of Fleming’s clients had signed. The judge apparently didn’t believe Fleming had made that many individual deals with his clients, so he sent a clerk to see for herself at a warehouse where Fleming stored them.
“I heard her get on the phone and say, ‘Yup, he’s actually got them—all 35,000 of them,’” Fleming said. The court wasn’t deterred. “He took out our contingent fee contract, and he mangled it.”
The court killed $80 million in fees and halved another $22 million in charged costs. An agreed-on 20 percent contingency shrank to 4 percent with the stroke of a pen. By that time, Fleming’s firm was so broke it couldn’t fund any more cases while it appealed the fee cut. He finally got his money back. “But it took three years,” Fleming said.
Thus Fleming discovered another role for contingent fees. They work as deterrents to abusive litigation because no lawyer in his or her right mind can afford to take a chance on filing bogus claims only to run into a judicial buzz saw down the road. For his part, Fleming says he flirted with personal bankruptcy throughout his 40s and 50s. He wants to avoid more of the same now that he’s hit 60.
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