The Florida Bar
Bar Issue Papers
Tort Reform -- Contingency Fees
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II. Bar Position
A contingent fee contract is one where the attorney agrees to represent the client for a percentage of the client's recovery. If the client loses and recovers nothing, the attorney receives no compensation. If the client wins, however, the attorney receives the agreed upon share of the recovery. The contingent fee may be based on either a fixed or sliding scale.
Depending on who's doing the talking, the contingency fee system in the United States is the "poor man's key to the courthouse" or a lawyer windfall -- with large jury awards and news accounts of those awards, media and the public have become more critical of the lawyers' share of those awards. Skeptics claim the jury awards would be less if the lawyers' percentage was less; or hypothetically, more money would go to the plaintiff. Some also argue that liability insurance would be less expensive if lawyers' contingent fees (among other tort reforms) were more closely regulated.
Generally speaking, contracts for fees based upon the success of litigation are recognized as valid and upheld by the Florida courts.
II. Bar Position
A. The Florida Bar's Position
In January 1986, the Board of Governors approved a joint report of the Special Commission to Study Contingency Fees and Referral Practices and the Tort Litigation Review Commission, agreeing to "prepare for submission to the Supreme Court a proposed fee schedule to regulate fees in personal injury, property damage or death cases or loss of use cases resulting from the tortuous conduct of another." The Board adopted a specific fee schedule (detailed below under "Background''. In addition, the Board approved the following recommendations of the joint report: a) statement of clients' rights; b) threeday notice of reconsideration; c) contingent fee schedule; d) escape clause for judicial approval of contract; e) structured settlements; f) overly aggressive solicitation; g) public education; and, h) referral fees study.
In March 1986, The Florida Bar petitioned the Supreme Court of Florida to amend the Code of Professional Responsibility in light of the Board's recommendations. Section 41.5 in the Rules of Professional Conduct, Rules Regulating The Florida Bar, reflect the official position of the Bar. Basically, those rules prohibit contingency fees in domestic relations and criminal cases, require specific consumer notification of clients' rights and cancellation option and set specific standards for percentages which are tied to stages of litigation. The new rules went into effect January 1, 1987.
As of August 14, 1998, the Trial Lawyers Section of The Florida Bar opposed federal legislation that would: preempt Florida's laws regarding the tort system; restrict access to courts; or cap compensatory damages, punitive damages or attorneys' contingent fees. As of February 12, 1999, the section opposes state "tort reform" legislation that would restrict access to the courts, and opposes legislation intended to limit fees that attorneys may charge on a contingency basis in tort cases.
A. Legislative History
Since 1977 the major influencing factors concerning reevaluation of contingency fees have been the alleged "medical malpractice crisis," and the "liability insurance crisis." A law passed by the 1985 Legislature entitled the Comprehensive Medical Malpractice Reform Act of 1985 (Ch. 85175, F.S.) substantially revised all practice and procedure regarding medical malpractice. It imposed a schedule on contingency fees ranging from 15 percent to 45 percent and set 15 percent as the presumed reasonable cap on amounts recovered in excess of $2 million. The new law provided for review by a court of competent jurisdiction to determine whether any contingency fee is illegal or excessive and states that the court "shall inquire" into referral fees with the power to modify the division of fees.
The law provided that if the Supreme Court determines the fee schedule to be too high or too low, the court may adopt a schedule which will supersede the statute, which it did in the Rules Regulating The Florida Bar.
In April 1998, the Senate passed 2416 a tort reform package after the House voted 7046 in favor of sweeping changes. The key provisions of the bill were:
- Joint and Several Liability: Imposes new limits on the amount of money a wealthy corporation would be forced to pay in cases involving multiple defendants;
- Product Liability: Blocks lawsuits against products more than 12 years old;
- Vicarious Liability: Rentalcar companies get new protections from lawsuits when a customer is involved in an accident;
- Government Standards: If a manufacturer complies with state and federal regulations, it would be considered not liable in most cases;
- Business premises: Allows protection from lawsuits if a company provides six out of nine possible security measures on its premises;
- Trespassers: Property owners would be shielded from most lawsuits if anyone, including children, trespass on their property;
- Employees: Companies would not be considered liable for criminal actions by an employee, provided a background check showed no sign of questionable behavior.
Gov. Lawton Chiles rejected the proposals with a veto. On May 26, 1999, Gov. Jeb Bush signed a version of the aforementioned bill into law, despite his "personal misgivings." The bill will become effective October 1, 1999, except that the statute of repose will have a delayed effective date of July 1, 2003. House Democrats who voted against the bill averaged $4,980 in identifiable contributions from the business coalition and $2,067 from trial lawyers. Democrats who voted for the bill averaged $12,244 in business contributions and $1.376 from the trial Bar. House Republicans for the bill averaged $10,465 from the business groups and $815 from the lawyers.
B. Judicial History
In 1977 The Florida Bar petitioned the Florida Supreme Court to impose a percentage schedule on contingency fees and to amend the (referral fee) rule governing division of fees. The court's opinion, In The Matter of The Florida Bar, 349 So.2d 630 (Fla. 1977), concluded the Bar had not demonstrated there were abuses of the contingency fee system such that a fee schedule should be adopted. The court did amend the rule on referral fees but declined to impose a schedule or other limitation on contingency fees. The opinion also concluded that a restriction on contingency fees might be unconstitutional. The high court also mentioned that lawyer advertising (which was at that time just beginning to be allowed) would aid consumers. (Supposedly by advertising and allowing for comparison of, contingency fee percentages. In actuality, advertising of contingency fees has centered more on the "no recovery -- no fee" aspect.)
On June 30, 1986 the Supreme Court ruled on The Florida Bar's petition implementing a contingency fee schedule (March 1986, Case No. 68,417). Generally, the Bar had set a $2 million recovery as a threshold. The Court lowered the threshold to $1 million, with a second tier between $1$2 million, and a third tier beyond $2 million.
The Court set the following schedule:
a) 331/3% of any recovery up to $1 million through the time of filing of an answer or the demand for appointment of arbitrators;
b) 40% of any recovery up to $1 million [from the time of filing an answer or the demand for appointment of arbitrators through the entry of judgment];
c) 30% of any recovery between $1 and $2 million [from the time of filing an answer or the demand for appointment of arbitrators through the entry of judgment];
d) 20% of any recovery in excess of $2 million [from the time of filing an answer or the demand for appointment of arbitrators through the entry of judgment];
e) If all defendants admit liability at the time of filing their initial answers and request a trial only on damages;
i) 331/3% of any recovery up to $1 million through trial;
ii) 20% of any recovery between $1 million and $2 million;
iii) 15% of any recovery in excess of $2 million;
f) An additional 5% of any recovery after notice of appeal is filed or postjudgment relief or action is required for recovery on the judgment.
C. Florida Bar Involvement
During the 198283 legislative session, various proposals for reform, amendment or modification of Florida's civil tort system were advanced, many by groups who are frequently defendants in the tort system. The 1983 session concluded without any dramatic revisions to the tort system. However, it was clear further examination of the tort system by the Florida legislature would occur in succeeding sessions.
In May 1983, the Tort Litigation Review Commission was created by the Bar to review the current and future status of Florida's tort system. The 19member commission, which included attorneys, judges, doctors and public officials, presented a comprehensive report on many tort reform issues, including contingency fees, in January 1984. At that time, the commission's opinion was that no ceiling be placed on contingent fees, but rather that the matter should be left to the attorney and client to be worked out in the employment contract. That opinion changed substantially when the commission was reappointed in 1985. In a January 1986 report, the Tort Commission recommended a maximum fee schedule be adopted by the Supreme Court of Florida which would apply to contingent fees. The recommended schedule was 33 1/3 percent before suit, 40 percent through trial and 45 percent on appeal.
The Special Commission to Study Contingency Fees and Referral Practices was created in May 1985. The 13member commission, which includes attorneys, a legislator, doctor, former supreme court justices, and a newspaper editor, was charged with reviewing available information regarding contingency fees and referral practices in Florida with a view toward determining abuses of the system, perceived abuses of the system and the necessity for changes by the Florida Supreme Court upon the recommendation of The Florida Bar. Generally, after some eight months of study and public hearings, the Special Commission found no substantial evidence of abuse, and an apparent public misconception as to the real number of high verdicts actually collected in full. In addition to several recommendations adopted by the Board of Governors, a fee schedule was recommended: 25% prior to suit being filed; 33 1/3% through time of filing an answer; 40% through trial of the case; 30% on the amount of recovery between $12 million; and 20% on the amount of recovery in excess of $2 million. If defendant admits liability: 33 1/3% through trial; 20% on the amount of recovery $12 million; and 15% on the amount of recovery in excess of $2 million. In both situations, the commission suggested a no greater than 5% for handling an appeal.
The Special Commission presented its final report to the Bar Board of Governors in November 1985, as did the Tort Commission. The Tort Commission generally supported the Special Commission's recommendation, but differed with the Special Commission in two major respects. The Tort Commission favored its proposed contingency fee schedule and did not support creation of a 10day "reconsideration" period for clients entering into contingent fee arrangements. At that time, the Board asked both groups to meet together and present joint recommendations at the Board's January 1986 meeting.
The Tort Commission and the Special Commission met in November 1985 and the resulting joint report outlined eight recommendations:
- Furnish clients entering a contingency fee agreement with a statement of client's rights.
- Amend lawyer disciplinary rules to provide clients with a threebusinessday reconsideration period.
- Amend rules to limit the contingent fee an attorney may charge a client in certain circumstances.
- Amend rules to allow clients to seek judicial approval of a contract which provides for a higher contingent fee than permitted in the previous recommendation.
- Amend rules to prohibit an attorney from charging a contingent fee on the total long range value of a future structured settlement.
- Bar should assign an existing committee to examine overly aggressive solicitation and its effect on clients and fees.
- Bar should promote efforts to educate the public about contingent fees and their rights as clients.
- Keep commission to make further recommendations in the area of referral fees and practices.
The Board of Governors accepted the recommendations, changing only the commissions' recommended maximum on contingent fees.
The Florida Bar petitioned the Supreme Court in March of 1986 to amend the Rules Regulating The Florida Bar consistent with the Board's revisions. Rule 41.5, effective July 1, 1986, reflects the maximum percentage amounts that attorneys can charge in contingency fee cases.
D. Federal Involvement
In 1996, President Bill Clinton vetoed the Common Sense Product Liability Legal Reform Act, H.R. 956. This was the first time product liability reform legislation made it to the president's desk. H.R. 956, as passed by the House would have capped punitive damages and limited joint and several liability in all civil cases. Similar legislation was proposed in 1997 but did not pass.
United States Senator McConnell sponsored a bill which requires an attorney to provide a written statement of estimated hours for service and the attorney's hourly and/or contingent fees. S300 was referred to the Committee on the Judiciary on January 31, 1995.
Section 302 of The Civil Justice Fairness Act S672 sponsored by Senator Hatch, requires each attorney to disclose to any client who has entered into a contingency agreement the actual services performed, the precise number of hours expended, and whether a referral fee was paid. On April 4, 1995 the Senate Judiciary Committee completed hearings on S672.
Prepared by The Florida Bar Department of Public Information and Bar Services with assistance of The Legal Division.