David Hoffman and Fifty Resolutions and Professional Deportment and contingent fee history

**David Hoffman's Fifty Resolutions V**

Bill Long 12/12/05

Resolution 24; On Champerty and Contingency Fees

Three of the biggest bogeymen in the common law regarding attorneys and their responsibility to the law were maintenance, champerty and barratry. Barratry, which is still illegal in some jurisdictions, relates to the "stirring up" of lawsuits. Canon 28 of the 1908 Canons speaks directly to this, when it refers to the "stirring up litigation, directly or through agents." I have spoken elsewhere about this prohibition. Maintenance and champerty were usually spoken of in the same breath, with the former condemning taking part in or encouraging a cause not your own, while the latter disapproved of making agreements to get a portion of the settlement of a claim as payment for legal fees.

But in the early 19th century the device known as the contingent fee arrangement was just beginning to be known in this country. A contingent fee is precisely what champerty seemingly condemned, for it is an arrangement where an attorney agrees with the client for a fixed percentage of the judgment award in lieu of an "up-front" fee in the case. Thus, in my mind, the two concepts are contradictory, but when contradiction faces the legal system, it can do three things. It can: (1) deny the validity of the new device; (2) embrace the new device and throw out the old one; or (3) try to affirm both at the same time. Hoffman, to his credit, wanted to try to affirm both the common law prohibitions against champerty and, at the same time, approve contingent fee arrangements.

In tentatively approving these agreements, Hoffman was way ahead of the curve. This is seemingly strange, because the impression we have received of Hoffman so far is of a sort of conservative, wealthy Protestant who would normally have been deaf, one would think, to the introduction of new legal devices such as the contingent fee. Even in 1908, for example, in Canon 13, contingency fees are not eagerly embraced. Canon 13 provides: "Contingent fees lead to many abuses, and where sanctioned by law should be under the supervision of the court" (as if private parties couldn't be trusted to enforce these without "parental" supervision). Here is his extremely long Resolution 24. See if you see a tension between paragraphs 1 and 2, and see if you think paragraph 3 resolves it. A helpful introduction to this little-explored issue is Peter Karsten, "Enabling the Poor to Have Their Day in Court: The Sanctioning of Contingency Feee Contracts, a History to 1940," 47 DePaul LR 231 (1998).

Resolution 24

24. "I will never be tempted by any pecuniary advantage, however great, nor be persuaded by any appeal to my feelings, however strong, to purchase, in whole or in part, my client's cause. Should his wants be pressing, it will be an act of humanity to relieve them myself, if I am able, and if I am not then to induce others to do so. But in no case will I permit either my benevolence or avarice, his wants or his ignorance, to seduce me into any participation of his pending claim or defense. Cases may arise in which it would be mutually advantageous thus to bargain, but the experiment is too dangerous, and my rule too sacred, to admit of any exception, persuaded as I am that the relation of client and counsel, to be preserved in absolute purity, must admit of no such privilege, however guarded it may be by circumstances; and should the special case allluded to arise, better would it be that my client should suffer, and I lose a great and honest advantage, than that any discretion should exist in a matter so extremely liable to abuse, and so dangerous in precedent."

"And though I have thus strongly worded my resolution, I do not thereby mean to repudiate, as wholly inadmissible, the taking of contingent fees. On the contrary, they are sometimes perfectly proper and are called for by public policy, no less than by humanity. The distinction is very clear. A claim or defense may be perfectly good in law, and in justice, and yet the expenses of litigation would be much beyond the means of the claimant or defendant--and equally so to counsel, who, if not thus contingently compensated in the ratio of the risk, might not be compensated at all. A contingent fee looks to professional compensation only on the final result of the matter in favor of the client. None other is offered or is attainable. The claim or defense never can be made without such arrangement. It is voluntarily tendered, and necessarily accepted or rejected, before the institution of any proceedings."

[Here follows his attempt to differentiate the two. What do you think?]

"It (i.e., a contingent fee arrangement) flows not from the influence of counsel over client. Both parties have the option to be off. No expenses have been incurred. No moneys have been paid by the counsel to the client. The relation of borrower and lender, of vendor and vendee, does not subsist between them; but it is an independent contract for the services of counsel to be rendered for the contingent avails of the matter to be litigated. Were this denied to the poor man, he could neither prosecute nor be defended. All of this differs essentially from the object of my resolution, which is against purchasing, in whole or in part, my client's rights, after the relation of client and counsel, in respect to it, has been fully established, after the strength of his case has become known to me, after his total peciniary inability is equally known, after expenses have been incured which he is unable to meet, after he stands to me in the relation of a debtor, and after he desires money from me in exchange for his pending rights. With this explanation I renew my resolution never so to purchase my client's cause, in whole or in part, but still reserve to myself, on proper occasions, and with proper guards, the professional privilege (denied by no law among us) of agreeing to receive a contingent compensation freely offered for service wholly to be rendered, and when it is the only means by which the matter can either be prosecuted or defended. Under all other circumstances, I shall regard contingent fees as obnoxious to the present resolution."

Conclusion

Hoffman tries to distinguish between the two by saying that a champertous arrangment (he doesn't use the term) happens after you are involved in a suit and a client becomes desperate and asks you for your help while a contingent fee arrangement occurs before the suit begins, when power relations are more equal. However, Hoffman is redefining the concept of champerty to try to contrast the two. Champerty didn't just refer to an agreement to "share the proceeds" after a client became desperate and asked the attorney for financial help. At common law it related to an attorney's taking any financial interest in the outcome of the case.

There is much more to be said about this, but not now.

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