The price of law: How the market for lawyers distorts the justice system

Michigan Law Review

Volumn 98, Issue 4, 2000, Pages 953-1004

  Hadfield, Gillian K ^a  

^a NONE

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EID: 0004477561     PISSN: 00262234     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Article

References (106)

1. Lawyer Jokes (visited Nov. 1, 1999) 〈http://www.kinseylaw.com/JOKES/Jokes. html#anochor772866〉.
2. See Katherine Q. Seelye, Financial Holdings Stay Steady for Clinton but Legal Fees Soar, N.Y. TIMES, May 18, 1999, at A18.
3. See Editorial, An Unmourned Death, L.A. TIMES, Feb. 25, 1999, at B8.
4. See JONATHAN HARR, A CIVIL ACTION 453-54 (1995).
5. See Barry Meier, Lawyers in Early Tobacco Suits to Get $8 Billion, N.Y. TIMES, Dec. 12, 1998, at A1. The settlement with Florida was $13 billion; across the nation the total was $206 billion.
6. See Richard H. Sander & E. Douglass Williams, Why Are There So Many Lawyers? Perspectives on a Turbulent Market, 14 L. AND SOC. INQUIRY 431 (1989).
7. See A. McIlroy, "Franked!," GLOBE AND MAIL, May 22, 1999, at D1.
8. See Karen M. Zuckerman, Contingent Fee for All, TEX. LAW., 1998 SALARY & BILLING SURVEY (Apr. 6, 1998) 〈http://www.texlaw.com/special/salbill/040698r.htm〉.
9. See Virginia's No-Fault Divorce Reform Bill (visited Nov. 1, 1999) 〈http://patriot.net/ ~crouch/artj/tvshow.html〉 (comments of John Crouch, Executive Director of Americans for Divorce Reform).
10. Q. "What is the difference between a lawyer and a leech?" A. "A leech will let go and drop off when its victim dies." Canonical List of Lawyer Humor (Court Jester) (last modified Mar. 2, 1995) 〈http://www-personal.usyd.edu.au/~atan/jokes/canonical_lawyer. html〉. For a scholarly treatment of lawyer humor, see Marc Galanter, The Faces of Mistrust: The Image of Lawyers in Public Opinion, Jokes, and Political Discourse, 66 U. CIN. L. REV. 805 (1998).
11. Q. "What is the difference between a lawyer and a leech?" A. "A leech will let go and drop off when its victim dies." Canonical List of Lawyer Humor (Court Jester) (last modified Mar. 2, 1995) 〈http://www-personal.usyd.edu.au/~atan/jokes/canonical_lawyer. html〉. For a scholarly treatment of lawyer humor, see Marc Galanter, The Faces of Mistrust: The Image of Lawyers in Public Opinion, Jokes, and Political Discourse, 66 U. CIN. L. REV. 805 (1998).
12. See Sherwin Rosen, The Market for Lawyers, 35 J.L. & ECON. 215 (1992).
13. See Robert M. Gordon, The Independence of Lawyers, 68 B.U. L. REV. 1 (1988).
14. COMMISSION ON PROFESSIONALISM, ABA, IN THE SPIRIT OF PUBLIC SERVICE: A BLUEPRINT FOR THE REKINDLING OF LAWYER PROFESSIONALISM 1 (1986).
15. Id. at 3.
16. See Altman Weil, Inc., The 1998 Survey of Law Firm Economics (visited Nov. 1, 1999) 〈http://www.altmanweil.com/publications/surveys/slfe/Section_01.htm〉. Some caution is in order in interpreting this data. The sample, while large (over 10,000 lawyers and 400 firms), is based on Altman Weil, Inc.'s clients and contacts. Altman Weil is a large consultant to law firms. These clients, while they include small offices, are probably not representative of the smaller general practice or solo practitioner office serving individual clients. Anecdotal data from such firms suggest that rates of $150 are standard. See About Our Fees at Wolfe Legal Services, Ltd. (visited Nov. 1, 1999) 〈http://www.wolfelaw.com/ fees.htm〉.
17. One study found that 92% of lawyers either intentionally padded their bills or knew lawyers who did. See Stephen M. Voltz, Litigation Cost Control Resource Center (visited Nov. 1, 1999) 〈http://www.legalfees.com〉. A frequent form of overbilling is double-billing: billing two or more clients for the same work if both require it be done. Legal bill auditors estimate that 5% to 10% of bills include fraudulent charges. Overbilling and fraud have been uncovered at leading law firms in the past several years. See id.
18. This was done by Chrysler in recent years. See Dan Shingler, Reminger Flat-Fee Billing Attracts Big-Time Clients, CRAIN'S CLEV. BUS., Oct. 16, 1995, at A2.
19. See Hourly Billing Rates, TEX. LAW., 1999 SALARY AND BILLING SURVEY (Apr. 6, 1998) 〈http://www.texlaw.com/special/salbill/032999aa.htm〉.
20. See Voltz, supra note 16. In 1995 the ABA, in consultation with in-house corporate attorneys and large corporate law firms, established a standardized approach to task definition and published the Uniform Task-Based Management System: Litigation Code Set. Canadian firms are following suit.
21. SEE ROY W. REESE & CAROLYN A. ELDRED, ABA, LEGAL NEEDS AMONG LOW-INCOME AND MODERATE-INCOME HOUSEHOLDS: SUMMARY OF FINDINGS FROM THE COMPREHENSIVE LEGAL NEEDS STUDY (1994).
22. See Ministry of the Attorney General Ontario Canada, Court Statistics Annual Report: Fiscal Year 1997/1998 2-6 (Toronto: Ministry of Attorney General Program Development Branch, 1998).
23. See STANDING COMMITTEE ON THE DELIVERY OF LEGAL SERVICES, ABA, RESPONDING TO THE NEEDS OF THE SELF-REPRESENTED DIVORCE LITIGANT (1994).
24. See Legg Law Firm, L.L.C., Fee Schedule: Service Fees (visited Nov. 1, 1999) 〈http:// www.legglaw.com〉.
25. See RICHARD L. ABEL, AMERICAN LAWYERS (1989); KAREN WINNER, DIVORCED FROM JUSTICE: THE ABUSE OF WOMEN AND CHILDREN BY DIVORCE LAWYERS AND JUDGES (1996).
26. See RICHARD L. ABEL, AMERICAN LAWYERS (1989); KAREN WINNER, DIVORCED FROM JUSTICE: THE ABUSE OF WOMEN AND CHILDREN BY DIVORCE LAWYERS AND JUDGES (1996).
27. See ABEL, supra note 24.
28. Unpublished statistics from the 1998 Member Information Form data collected from all practicing lawyers in Ontario by the Law Society of Upper Canada (regulatory body for Ontario).
29. JOHN P. HEINZ & EDWARD O. LAUMANN, CHICAGO LAWYERS: THE SOCIAL STRUCTURE OF THE BAR (1982).
30. I use the term "corporate" here and throughout the paper to mean any business interest, including partnerships.
31. See HEINZ & LAUMANN, supra note 27.
32. These figures include in "corporate" all organizational clients, including government. These latter client types are a small fraction.
33. The remainder is work for government, nonprofits, law schools, and so on.
34. See HEINZ & LAUMANN, supra note 27.
35. See John P. Heinz et al., The Changing Character of Lawyers' Work: Chicago in 1975 and 1995, 32 L. & SOC'Y REV. 751 (1998).
36. See Sander & Williams, supra note 6.
37. Marc Galanter has long emphasized the dominance of organizational clients in the legal system. See MARC GALANTER, WHY THE HAVES COME OUT AHEAD (1974); Marc Galanter, Planet of the AP's [Artificial Persons]: Reflections on the Scale of Law and its Users (Oct. 11, 1999) (unpublished manuscript, on file with author).
38. This is not to say that there are not things that lawyers currently do that could be done as well, if not better, by individuals with less or different training.
39. Rosen, supra note 11, at 216.
40. See Herbert M. Kritzer, The Wages of Risk: The Returns of Contingency Fee Legal Practice, 47 DEPAUL L. REV. 267, 290-303 (1998).
41. Medical experts, and critics, will no doubt want to object that the complexity of a procedure is also a function of technology and ideology, but my point is only to draw a clear reference point.
42. There is a growing literature on the economics of civil procedure which looks at this question in particular. See, e.g., Geoffrey P. Miller, The Legal-Economic Analysis of Comparative Civil Procedure, 45 AM. J. COMP. L. 905 (1997).
43. In one sample of filings in Ontario courts, almost one-third of matters were procedural in nature, seeking, for example, rulings on discovery or case scheduling. (Data on file with author).
44. Striking evidence of this was found in the RAND Institute's evaluation of the impact of the Federal Civil Justice Reform Act's efforts to reduce the time and cost of federal procedure. The study found that establishing discovery controls increased the amount of legal effort required to resolve a matter. Lawyers now had to become familiar with the new "streamlined" procedures and prepare filings and strategy in relation to those procedures. JAMES S. KAKALIK ET AL., JUST, SPEEDY, AND INEXPENSIVE? AN EVALUATION OF JUDICIAL CASE MANAGEMENT UNDER THE CIVIL JUSTICE REFORM ACT 16-17, 26-27 (1996).
45. See Anthony D'Amato, Legal Uncertainty, 71 CAL. L. REV. 1 (1983).
46. See RICHARD A. POSNER, ECONOMIC ANALYSIS OF LAW 493-99 (3d ed. 1986).
47. See Gillian K. Hadfield, Bias in the Evolution of Legal Rules, 80 GEO. L.J. 583 (1992).
48. See Voltz, supra note 16.
49. See, e.g., Michael A. Darby & Edi Karni, Free Competition and the Optimal Amount of Fraud, 16 J.L. & ECON. 67, 68 (1973).
50. See Asher Wolinsky, Competition in Markets for Credence Goods, 151 J. INSTITUTIONAL & THEORETICAL ECON. 117 (1995); see also Winand Emons, Credence and Fraudulent Experts, 28 RAND J. ECON. 107 (1997) (showing existence of nonfraudulent equilibria under certain conditions).
51. See Asher Wolinsky, Competition in Markets for Credence Goods, 151 J. INSTITUTIONAL & THEORETICAL ECON. 117 (1995); see also Winand Emons, Credence and Fraudulent Experts, 28 RAND J. ECON. 107 (1997) (showing existence of nonfraudulent equilibria under certain conditions).
52. See Gregory A. Patterson, Sears's Brennan Accepts Blame for Auto Flap. WALL ST. J., June 23, 1992, at B1; see also Ernest Holsendolph, Faulty Car Repairs Found Widespread, N.Y. TIMES, May 8, 1979, at A1 (citing U.S. Department of Transportation study finding 53% of service charges were for unnecessary repairs).
53. See Gregory A. Patterson, Sears's Brennan Accepts Blame for Auto Flap. WALL ST. J., June 23, 1992, at B1; see also Ernest Holsendolph, Faulty Car Repairs Found Widespread, N.Y. TIMES, May 8, 1979, at A1 (citing U.S. Department of Transportation study finding 53% of service charges were for unnecessary repairs).
54. See supra note 13 and accompanying text.
55. Canonical List of Lawyer Humor (Court Jester), supra note 10.
56. Economists speak of this as the client's "reservation price." If the value to the client of the legal service when performed well is, say, $1,000, then the client's reservation price is $1,000.
57. Under the assumption that all lawyers are in fact identical, win/loss records reflect only the nature of the cases a lawyer ended up with, not the performance of the lawyer.
58. Customer feedback on pre-paid legal plans indicates that the most frequent concerns raised about legal providers are about characteristics such as politeness, punctuality, and returning phone calls.
59. See MARC GALANTER & THOMAS PALAY, TOURNAMENT OF LAWYERS: THE TRANSFORMATION OF THE BIG LAW FIRM 98-110 (1991); see also Ronald J. Gilson & Robert H. Mnookin, Coming of Age in the Corporate Law Firm: The Economics of Associate Career Patterns, 41 STAN. L. REV. 567 (1989).
60. See MARC GALANTER & THOMAS PALAY, TOURNAMENT OF LAWYERS: THE TRANSFORMATION OF THE BIG LAW FIRM 98-110 (1991); see also Ronald J. Gilson & Robert H. Mnookin, Coming of Age in the Corporate Law Firm: The Economics of Associate Career Patterns, 41 STAN. L. REV. 567 (1989).
61. Settlement outcomes will reflect the risk of these win-lose possibilities. Having a slightly better lawyer, because it produces a jump in the probability of winning, also produces a jump in settlement amounts.
62. See ROBERT H. FRANK & PHILIP J. COOK, THE WINNER-TAKE-ALL SOCIETY 2-5 (1995).
63. This is not to say that people cannot or do not choose "nonrationally," by which I mean on the basis of criteria which cannot be computed in the economist's sense.
64. I am grateful to Bruce Chapman for emphasizing the need for a shared ranking.
65. See Michael G. Crawford, The 1999 Canadian Lawyer National Compensation Survey, CANADIAN LAW., June 1999, at 21, 23, 24. This article provides Canadian data on the salaries of lawyers in solo to four-practitioner firms and firms with five to twenty-five lawyers.
66. According to the Law Society of Upper Canada, (the professional body which regulates the legal profession in Ontario, Canada), a lawyer must surrender all records and notes to his or her client's replacement lawyer upon receiving written notification from the client of the change. Telephone Interview with Hari Viswanathan, Staff Person, Law Society of Upper Canada (July 19, 1999).
67. See 2 THE NEW PALGRAVE DICTIONARY OF ECONOMICS AND THE LAW 703-10 (Peter Newman ed., 1998).
68. There are many difficult issues embedded here. For one, efficiency is not necessarily the right criterion for allocating access to justice; other values are at stake. Moreover, it is difficult to apply the concept of efficiency here because court-awarded damages (or settlements reached in the shadow of such damages) reflect public, not private, valuations of harm. The victim of racial discrimination on the job may be harmed to a greater extent or judged to be more deserving of access to the courts than the victim of a slip-and-fall, but the latter may be a more lucrative client for the contingency lawyer.
69. The appropriate contingency fee will be even more difficult when the fee is a percentage of money damages. In these cases, the lawyer will also have to have a reasonable estimate of the amount of money damages, something which shows high variance, especially in jury trials.
70. For a recent addition to this large literature, see Kritzer, supra note 38.
71. See HEINZ & LAUMANN, supra note 27.
72. In one reported case, a negotiation professor managed to auction a $100 bill for $7,000. See ROBERT H. MNOOKIN ET AL., BEYOND WINNING: HOW LAWYERS HELP CLIENTS CREATE VALUE IN NEGOTIATION (forthcoming 2000).
73. See Jonathan Rose, The Legal Profession in Medieval England: A History of Regulation, 48 SYRACUSE L. REV. 1 (1998).
74. See id.
75. In California, admission to the bar may be obtained solely by passing the bar examination. Historically, extremely few people have managed to pass without a law degree.
76. See Sander & Williams, supra note 6, at 449-51.
77. See Monique Conrod, Unemployment and Under-employment: The Harsh Reality Facing New Lawyers, LAW, WKLY., Sept. 16, 1994, at 5.
78. See Herbert M. Kritzer, Adjudication to Settlement: Shading in the Gray, 70 JUDICATURE 161, 162 (1986); Carl Baar, The Myth of Settlement (1998) (unpublished manuscript, on file with author).
79. See Herbert M. Kritzer, Adjudication to Settlement: Shading in the Gray, 70 JUDICATURE 161, 162 (1986); Carl Baar, The Myth of Settlement (1998) (unpublished manuscript, on file with author).
80. I use the term "natural" here only to distinguish these barriers from the "artificial" barriers that are put in place with the objective of restricting entry into the profession.
81. JOSEPH W. BARTLETT, THE LAW BUSINESS: A TIRED MONOPOLY 7 (1982).
82. See GARY S. BECKER, A TREATISE ON THE FAMILY 33 (1982).
83. This is not to say that there are not competitive or other advantages to having private access to information, or that the information is less valuable the more others have it. Nonrivalry in consumption refers only to the fact that the quantity or quality of information in not diminished by consumption, as is the case for most goods.
84. For other analyses of the role of human capital and intangible assets such as reputation in the organization of law firms, see Ronald J. Gilson & Robert H. Mnookin, Disputing Through Assets: Cooperation and Conflict Between Lawyers in Litigation, 94 COLUM. L. REV. 509 (1994); Gilson & Mnookin, supra note 55; Ronald J. Gilson & Robert H. Mnookin, Sharing Among The Human Capitalists: An Economic Inquiry into the Corporate Law Firm and How Partners Split Profits, 37 STAN. L. REV. 313 (1985).
85. For other analyses of the role of human capital and intangible assets such as reputation in the organization of law firms, see Ronald J. Gilson & Robert H. Mnookin, Disputing Through Assets: Cooperation and Conflict Between Lawyers in Litigation, 94 COLUM. L. REV. 509 (1994); Gilson & Mnookin, supra note 55; Ronald J. Gilson & Robert H. Mnookin, Sharing Among The Human Capitalists: An Economic Inquiry into the Corporate Law Firm and How Partners Split Profits, 37 STAN. L. REV. 313 (1985).
86. Sharing human capital is central to the analysis of GALANTER & PALAY, supra note 55.
87. See Carroll Seron, Managing Entrepreneurial Legal Services: The Transformation of Small-Firm Practice, in LAWYERS' IDEALS/LAWYERS' PRACTICES 63 (Nelson et al. eds., 1992). Standardization, however, appears to have effectively put these lawyers out of business. See Karen Dillon, After the Revolution, AM. LAW., Apr. 1996, at 64-66. The pioneers - Jacoby & Meyers and Hyatt Legal Services - have largely folded. Hyatt now focuses on offering pre-paid plans - which pay the plan attorney of the client's choice a set fee for providing standardized services - as employee benefits to large corporations. See id. at 66-67.
88. See Carroll Seron, Managing Entrepreneurial Legal Services: The Transformation of Small-Firm Practice, in LAWYERS' IDEALS/LAWYERS' PRACTICES 63 (Nelson et al. eds., 1992). Standardization, however, appears to have effectively put these lawyers out of business. See Karen Dillon, After the Revolution, AM. LAW., Apr. 1996, at 64-66. The pioneers - Jacoby & Meyers and Hyatt Legal Services - have largely folded. Hyatt now focuses on offering pre-paid plans - which pay the plan attorney of the client's choice a set fee for providing standardized services - as employee benefits to large corporations. See id. at 66-67.
89. As ranked by U.S. News and World Report in 1999. See Exclusive Rankings: Schools of Law, U.S. NEWS & WORLD REPORT, Mar. 29, 1999, at 94.
90. See HEINZ & LAUMANN, supra note 27.
91. See Sander & Williams, supra note 6.
92. See Linda F. Wightman, Predictive Validity of the LSAT: A National Summary of the 1990-1992 Correlation Studies, in LSAC RESEARCH REPORT SERIES 23 (1993).
93. Actually there is a limit imposed by the ability of the judge to understand the level of complexity; it is possible to overshoot the court and lose as a result.
94. This point is similar to, but not the same as, the winner-take-all point. The focus here is on increases in the absolute level of skill that a tournament which rewards on the basis of relative skill establishes as a threshold for being a potential competitor. The difference between the gold and the silver medalists in a given year may be miniscule, but over time the skill necessary to have a shot at winning increases substantially.
95. See George Symeonidis, Innovation, Firm Size and Market Structure: Schumpeterian Hypotheses and Some New Themes, 21 OECD ECON. STUD. 35 (1996). This work presents a survey of empirical literature rejecting Schumpeter's hypothesis that market power and large firms stimulate innovation. See JOSEPH A. SCHUMPETER, CAPITALISM, SOCIALISM AND DEMOCRACY (1950).
96. See George Symeonidis, Innovation, Firm Size and Market Structure: Schumpeterian Hypotheses and Some New Themes, 21 OECD ECON. STUD. 35 (1996). This work presents a survey of empirical literature rejecting Schumpeter's hypothesis that market power and large firms stimulate innovation. See JOSEPH A. SCHUMPETER, CAPITALISM, SOCIALISM AND DEMOCRACY (1950).
97. SEE W. BRIAN ARTHUR, INCREASING RETURNS AND PATH DEPENDENCE IN THE ECONOMY (1994); DOUGLASS C. NORTH, INSTITUTIONS, INSTITUTIONAL CHANGE, AND ECONOMIC PERFORMANCE (1990).
98. SEE W. BRIAN ARTHUR, INCREASING RETURNS AND PATH DEPENDENCE IN THE ECONOMY (1994); DOUGLASS C. NORTH, INSTITUTIONS, INSTITUTIONAL CHANGE, AND ECONOMIC PERFORMANCE (1990).
99. For a careful treatment of the difficulties with this concept, see Meir Dan-Cohen, Between Selves and Collectivities: Toward a Jurisprudence of Identity, 61 U. CHI. L. REV. 1213, 1213-18 (1994).
100. Again, the large corporate client has some scope for choice in the international setting. International transactions can select a jurisdiction and make a choice of law; within a federal system such as in the U.S. and Canada, some selection can be made between states or provinces. Even then, however, because the systems among which there can be choice are the only systems in those jurisdictions, and hence they serve multiple goals, this "market" cannot be terribly responsive to "incentives" to innovate or improve procedure. More troubling, however, is the fact that whatever response there can be is responsive to the needs of large corporate actors, which will often run counter to the needs of noncommercial or smaller actors and individual citizens.
101. See HEINZ & LAUMANN, supra note 27.
102. For an analysis of a corporate "right" to freedom of speech from this perspective, see Meir Dan-Cohen, Freedoms of Collective Speech: A Theory of Protected Communications by Organizations, Communities, and the State, 79 CAL. L. REV. 1229, 1244-48 (1991).
103. Rawls uses the term "primary goods" to refer to liberty, dignity, and so on. See JOHN RAWLS, A THEORY OF JUSTICE (1971).
104. Richard Epstein has examined some of the implications of complex rules in his writings. See RICHARD A. EPSTEIN, SIMPLE RULES FOR A COMPLEX WORLD (1995).
105. My own familiarity with common law systems, and the interpretation of statutes in a common law system, leads me to restrict this observation to those systems. Whether the legal reasoning in civil or other legal systems shows the same natural entropy as common law systems is a matter for further research.
106. See LISA BERNSTEIN, THE NEW LAW MERCHANT: PRIVATE COMMERCIAL LAW IN THE UNITED STATES (1995) (discussing private legal systems and merchant law history).