When
I was studying to be a lawyer I remember attorneys in my hometown of Marquette
telling me how the adoption of the no-fault system in Michigan took a lot of
work away from lawyers. Almost two
years ago I move back to Michigan from Wisconsin, and after working in both
states, I can see exactly what they mean. I see the Wisconsin legal market
today as similar in many respects to what I think the Michigan legal market was
like in the past before the no-fault system was adopted. Car accidents are big business for
lawyers in Wisconsin and almost everybody tries to get in on the action,
whereas in Michigan, personal injury matters stemming from car accidents is a
much more specialized practice area. Why? Money.
The
no-fault system in Michigan makes it harder to successfully bring a claim for
damages compared to the common law negligence actions that existed before
adoption of the no-fault system. There
are actions to be had in Michigan, just not as many of them. This affects all lawyers because if
there are less personal injury cases then less personal injury plaintiff’s
attorneys are necessary, less personal injury defendant’s attorneys are
necessary, and these displaced lawyers move into other practice areas. I am not saying that is a bad thing, I
am just noting what happens.
In
Wisconsin, it is quite the opposite. Note the advertisement on the back of your
phone book, watch late night TV commercials, and look at the billboards along
every major freeway. Personal
injury lawyers advertise seemingly more than any other kind of attorney in
Wisconsin. This kind of
advertising is expensive, but yet there are always lawyers willing to shell out
the money for these ads. The
reason is simply, you can make a lot of money on one single case.
Most
personal injury lawyers—nearly all of them—take their cases on a contingency
basis meaning their fee is taken as a percentage of the money recovered,
typically between 20% to 40%. For
example, lets say a lawyer spends 100 hours working on a case, it settles for
$300,000.00, and the lawyer charges a 1/3 contingency fee. The client gets $200,000.00 and the
lawyer gets $100,000.00. Compare
that to the billable hour and you can see why these cases are so
attractive. A lawyer would have to
bill 500 hours at $200.00 per hour to make $100,000.00. A few cases like that in a year and a
lawyer is making a pretty nice living without having to work too many hours. And what happens if they get that case
that settles for millions?
Now,
before the personal injury lawyers start jumping up and down and screaming at
me, I should point out that that is not really the way it works. That is the perception, but that is not
the way it works. Lawyers that
focus on personal injury have to pay for that expensive advertising, they have
to spend significant amounts of time weeding through potential clients, and
they don’t win or make large returns on every case. So they often end up making an income similar to attorneys
in other practice areas.
In
Wisconsin, it’s not just the lawyers that I would call personal injury lawyers
who take personal injury cases.
Most Wisconsin firms have someone who claims personal injury as one of
their practice areas. Litigation
is the focus of my practice. If I
was at a similar firm in Wisconsin, then I am sure that I would advertise
personal injury as one of my practice areas. I have worked on personal injury cases, but I don’t
advertise that because I mostly handle real estate disputes, commercial
litigation, and trust and estate proceedings. In prior positions, I focused on environmental and construction
litigation. In essence, I mostly
serve business clients. Although,
to some extent litigation is litigation and I have some experience with
personal injury matters, so there is no real reason I could not take more
personal injury type matters and hold myself out as a personal injury lawyer. However, the incentives in Michigan are
different than they are in Wisconsin.
In
Michigan, I don’t look to highlight the personal injury matters I have worked
on because my business clients are more likely to see that as a negative. They often view all personal injury
attorneys as the ambulance chasing caricatures they see on TV. Since business clients are my targets,
I would rather avoid that stereotype.
Litigators similar to me in Wisconsin, however, often risk that
perception because the allure of the big case is too great to resist. They end up with personal injury listed
in their practice areas on their websites and phone book ads, but they don’t
have to put in the advertising dollars that the lawyers who work exclusively in
personal injury do because it is not their sole practice area. For these lawyers, one big case or a
few sizable car accident cases can payoff handsomely.
The
economist in me finds the whole pricing method for personal injury cases
annoying. All that expensive
advertising seems like a waste. If
lawyers made less money—less revenue (not necessarily profit)—on the personal
injury matters, then there would be less lawyers working in the personal injury
area and more clients to go around for the lawyers still working in that area. The problem, as I see it, is the contingency
fee.
I
understand that contingency fees are offered because your average Joe, who gets
into a car accident, does not have the $20,000.00 or more necessary to pay an
attorney to work 100 hours or more to handle a litigated personal injury matter
for them. But who says contingency
fees have to be based on percentages?
Couldn’t an attorney take a personal injury case on contingency fee
basis where he still also charges by the hour?
The
fees would have to be capped at a certain percentage of the total recovery to
comply with certain ethical requirements.
Lawyers could keep track of their time on personal injury matters just
like they do on other matters, but they could also wait to bill the client
until the end of the case. They
could even charge an increased hourly rate to account for the risk and
inconvenience of being paid only at the end of the case.
Using
our example above, 100 hours on a case that settles for $300,000.00, the lawyer
could charge $300.00 per hour and make $30,000.00. The client would pay $70,000.00 less for the attorney then
under the typical 1/3 arrangement.
Now I understand why the lawyers who spend all that money on advertising
would not and could not agree to take cases in this manner. But general civil litigation attorneys
who do not spend a lot of money on advertising could take cases in this
manner. Further, you would think
that if the word got around that an attorney was charging fees this much lower
than his competition, then the lawyer would attract even more clients. Moreover, the lawyer is better off
taking these cases than his other cases because we are assuming he is taking
them at an increased fee compared to his normal rate. This fee arrangement would only work on large matters where
the damages are well in excess of $100,000.00 because the hourly fees on
smaller matters would likely quickly hit the cap and be equivalent to the
traditional percentage arrangement.
I
posed this idea to a colleague and his response was that personal injury
clients are low information consumers meaning they don’t care about price or even
realize the potential savings that could be had. He also told me a story about how one of his law professors
was looking for a personal injury lawyer in another state to help a family
member who had a good claim where there was clear liability and deep pockets to
pay that liability. No matter how
many phone calls the professor made he could not find a lawyer that would take
the case by the hour. If a law
professor couldn’t find someone to take a case in that manner what hope does
anyone else have? His point was
that the contingency fee system is simply too ingrained in the system to change
it now. I, of course, debated each
point. I argued that even if he was correct that most personal injury clients don’t shop based on prices, there
has got to be some personal injury clients that do. Further, it only takes a few lawyers operating under a
system as I have proposed to start to change the system overall.
This
gave me an idea for an experiment.
I live and work in Marquette, Michigan. I am about a three and half hour drive from Green Bay, and about
a five and half hour drive to Milwaukee or Madison. The distances are not ideal for me to take car accident
cases in Wisconsin, but for the right case, I may take one, and I may take one
on a contingency fee by the hour as I have described in this blog. If someone finds me on the Internet
because of this blog and gives me a call for an initial consultation, then
maybe I will have proved to my colleague that not all personal injury clients
are low information consumers… or maybe I am just wasting time, solving the
world’s problems, drinking too much coffee, and avoiding real work that needs
to be done.
THAT’S
MY ARGUMENT.
©
November 2013 Brandon J. Evans
