President Bans Contingency Fees
The President has just signed an executive order barring federal agencies from hiring trial lawyers on a contingency fee to bring lawsuits.
State attorneys general have hired trial lawyers on contingency fees to bring lawsuits demanding hundreds of billions of dollars. In the process, they have gotten defendants to agree to pay billions of dollars to the trial lawyers in exchange for settling those suits. This is described in greater detail in CEI’s recent essay on The Nation’s Top Ten Worst State Attorneys General.
The Executive Order is a good thing for several reasons.
First, contingency-fee arrangements are often used by government officials to transfer huge amounts of money to trial lawyers for bringing lawsuits that require little skill or risk. The trial lawyers are often campaign contributors to the government official.
For example, in New York State, trial lawyers who were major political donors received $625 million for bringing New York State’s copycat lawsuit against the tobacco companies. They received this obscene sum even though they were hired by the state’s attorney general only after the tobacco companies were already on the verge of capitulation, and had already agreed to pay billions of dollars to two other states.
The government officials who authorize such contingency fees sometimes receive a cushy job or other lucrative reward after leaving government service, as payback for approving the contingency fee.
Second, such contingency fee arrangements encourage trial lawyers to seek the most expensive possible end to a lawsuit, rather than the most sensible one, since they receive a lawyer’s fee that is based on the amount of money recovered in the suit. Thus, a trial lawyer bringing a nuisance suit against lead paint companies may demand that the companies finance the removal of all lead paint in buildings, no matter how harmless — for example, even lead paint that is buried under multiple layers of other paint, and is intact and properly maintained — even though such removal itself poses more serious health issues than just leaving the paint alone.
Third, such contingency fees circumvent federal and state constitutional requirements that government money only be spent as directed by legislatures — not executive branch officials. They thus violate the separation of powers.