The issue of a deduction for contingency fees that would have been paid in the underlying matter has far-reaching implications in legal malpractice claims. This is because it could potentially reduce the value of a plaintiff’s malpractice claim by a third or up to fifty percent. For instance, it is common in personal injury claims for a plaintiff to contract to pay his counsel one
Contingency fees sliced from the malpractice award.third of any recovery if the claim settles before a lawsuit. Contingency fee contracts also frequently provide for a high percentage recovery for the lawyer depending on how far through the litigation process the case must go. Some contingency fee contracts provide for a recovery to the lawyer of as much as fifty percent if a recovery is only made after appeal.

Notably, courts in three jurisdictions have adopted the view that the malpractice plaintiff’s damages are reduced by the hypothetical contingency fee that would have been paid if the case had been successful: South Dakota, Wyoming, and the federal First Circuit.* The Dallas Court of Appeals recently found that an award should not be reduced by contingency fees, because a plaintiff should not bear the cost of another set of attorney’s fees. (Akin, Gump, Strauss, Hauer & Feld, L.L.P. v. Nat’l Development and Research Corp., Case No. 07-0818.) The Texas Supreme Court refused to address this issue when the Akin Gump case came before it. The Texas Supreme Court instead ruled on other issues that it found outcome dispositive.

Nevertheless, the courts in three jurisdictions—New Hampshire, New York, and Minnesota—have adopted the view that the malpractice claimants damages should be reduced by the hypothetical contingency fee that would have reduced the plaintiff’s recovery if the claim had been properly handled. There is also a hybrid approach adopted by Tennessee, Indiana, and New Jersey, where damages are not automatically reduced by the amount of the contingent fee, but rather by the value of the services rendered to the client.

The moral to the story on allegedly mishandled plaintiff’s cases is to consider whether the damage claim is subject to a reduction for the contingency fee that would otherwise have been paid, if the underlying case had been properly handled.

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* I have removed Tennessee from the list of jurisdictions that support reducing a fee award for contingency fees. Both parties and the Dallas COA have incorrectly noted that four jurisdictions have adopted this view, by including Tennessee in the list. That no longer appears to be good law in Tennessee. In Silton v. Clements, 257 F. Supp. 63, 66(E.D. Tenn. 1966), the federal district court reduced a plaintiff’s award by the contingency fee he would have paid to his attorney. In 1985, the Tennessee Supreme Court held that a plaintiff’s damages are only reduced by the value of the services rendered to the client. Foster v. Duggin, 695 S.W.2d 526, 527 (Tenn. 1985).

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For more information on this topic see the article "Collectability, Deductibility, and Recoverability,"by Bruce A. Campbell. Texas Lawyer, June 9, 2009. For more articles on legal ethics, see Lawyer Conduct Issues.

Bruce A. Campbell is the managing shareholder in the law firm of Campbell & Chadwick, P.C. He has defended lawyers and other professionals on a variety of malpractice and other tort claims for more than 25 years in claims totaling more than $2 billion. Mr. Campbell may be reached by email or at 972-277-8585.

For about 20 years the Texas Disciplinary Rules have remained substantially the same. This year that is about to change. The Texas Supreme Court has issued proposed amendments to the Texas Disciplinary Rules of Professional Conduct. The amendments are broad and extensive. The last time the Rules underwent this level of sweeping changes was in January, 1990. After the 1990 revisions to the Rules, the number of disciplinary sanctions against Texas lawyers experienced a substantial increase approximately a year after the rules changed.   And, the number of sanctions had not returned to normal even nine years later. Lady or the Tiger? Opening the Door to Lawyer Discipline Standards, Campbell, Fla. Coastal L.J. Vol. 1, p.232-36 (1999). If there was one lesson to be learned from the last time the Rules were substantively amended, it is that it can take a decade or more for lawyers to conform their conduct to substantial changes in the Rules. Now would be a good time to start the process of helping your insureds become aware of the changes and hopefully conform their conduct to the amendments before it is too late. For more information on this topic, see Comment on Disciplinary Rules' Proposed Amendments, Texas Lawyer, December 28, 2009, and Staying Within the Lines: Proposed Rule Changes Could Blur the Lines for Attorneys.

Bruce A. Campbell is the managing shareholder in the law firm of Campbell & Chadwick, P.C. He has defended lawyers and other professionals on a variety of malpractice and other tort claims for more than 25 years in claims totaling more than $2 billion. Mr. Campbell may be reached by email or at 972-277-8585.

The Employment Opportunity Commission has published new proposed rules clarifying the meaning of "reasonable factors other than age" under the Age Discrimination in Employment Act.

The new rules are in response to the 2008 Supreme Court ruling in the case Smith v. City of Jackson, which held that an employment practice that has a disparate impact on older workers is discriminatory unless the practice is justified by a reasonable factor other than age.

The proposed rule explains that the "reasonable factors other than age" defense applies only if the challenged practice is not based on age. An age-neutral practice that disproportionately affects older workers can be justified under the defense only by showing that the practice is objectively reasonable when viewed from the perspective of a reasonable employer under like circumstances.

Click here to see a .pdf file of the Federal Register which has the proposed rules.

Richard Bucilla, 2006 PLUS Foundation Award Winner for Outstanding Leadership in Healthcare Professional Liability and long-time PLUS Member, died peacefully at home on February 27, 2010 after a long illness.

Richard was Executive Vice President of Lexington Insurance Company and Senior Executive responsible for AIG's healthcare industry casualty business.  The cornerstone of his underwriting vision was that each client / prospective client was unique, insurable on some basis/price, and capabale of improving its risk profile given proper risk management/patient safety guidance by its underwriters / consultants.  He had been a member of PLUS since 1988.

Donations can be made in his memory to the Passim Folk Music & Cultural Center, 26 Church Street, Suite 300, Cambridge, MA 02138. 

A full notice of the obituary can be found here on the Boston Globe website.

Britain's No. 1 insurer said it would finance the buy through a rights issue of $21 billion including costs and fees, a record for an acquisition-related cash call, and by raising $5 billion of debt.

The acquisition increases Prudential's already strong exposure to soaring demand for personal financial services in Southeast Asia as rapid economic growth there lifts consumer spending power, compensating for at-best sluggish growth in Britain.

"Transformational is an overused word, but this deal is truly transformational," Prudential Chief Executive Tidjane Thiam told reporters. The British company reported the deal on Monday, confirming an earlier Reuters report.

Buying American International Group Inc Asian arm, AIA, will lift the proportion of Prudential's new business profit generated in Asia to 60 percent from 44 percent, while roughly trebling its Asian customer base to 30 million, the company said.

Read the full story here on the Reuters website.