Expert Advocacy

Contingency Fees Preferred by Clients, Study Finds

The Manhattan Institute is a conservative think tank that pushes a tort-reform agenda as it attacks plaintiffs’ attorneys for numerous evils, both real and perceived. One of the primary gripes tort-reformers have against plaintiffs’ attorneys is that the contingency fee agreements used so prevalently in litigation–a legal fee agreement where the client pays a percentage of any recovery to the attorney for his services–unjustly exploit clients who cannot afford hourly attorneys’ fees and thereby unjustly enrich attorneys at their expense.

So, it’s ironic that The Manhattan Institute’s PointofLaw website recently published a story describing the findings of a legal fees study performed by Israeli behavioral economists Eyal Zamir and Ilana Ritov. The study, titled, “Neither Saints nor Devils: A Behavioral Analysis of Attorneys’ Contingent Fees” found that–contrary to the beliefs of tort-reformers–the vast majority of litigation clients prefer contingency fee agreements to the traditional billable hour fee agreement.

The study reaches a number of conclusions, but the key conclusion is that clients are risk-averse. They prefer a fee arrangement where the attorney shares the risk of litigation with them, even if that means the client ends up paying more in attorneys fees for that service. The attractiveness of the contingency fee agreement is that if the client wins, he will recover monetary damages, and, if he does not win, he does not owe any money in attorneys fees (“heads I win, tails let’s call it even).

Think about the utility and value of the contingency fee agreement the next time you hear some tort-reform argument, or, worse yet, a tort-reform initiative seeking to ban the contingency fee agreement.