Champerty and Contingent Fees V
Bill Long 12/15/05
Putting the Story Together
The previous essays have shown that the English "garment" of champerty didn't quite "fit" the American frame when courts and legislatures got around to declaring or making law. To be sure, most American jurisdictions that had anything to say about it in the first three decades of the 19th century held that champerty, the participation in a lawsuit for a portion of the award when you have no interest in the lawsuit, was illegal. But even while holding that it was illegal, courts, such as the Court of Errors of New York, developed a historical rationale which would have questioned the appropriateness of the doctrine for the America. Its basic point was where you have strong instruments of justice you don't need the doctrine. Courts can oversee and disallow officious intermeddling when there is a risk that the judicial process will be perverted. Nevertheless, you had champerty prohibitions, either through statute (New York) or through judicial opinion (most other states).
But, as we have also seen, you also had the rise of the contingent fee arrangement. As early as 1813 Pennsylvania Judge Hugh Brackenridge claimed that "parties not monied" chose to "stipulate for something of what was recoverable," with attorneys "taking what are called contingent fees" (quoted in Karsten, "Enabling the Poor," 47 DePaul LR (1998) at 234). And, by 1836 Prof. David Hoffman, in his Fifty Resolutions in Regard to Professional Deportment, could say, "On the contrary, they (contingent fees) are sometimes perfectly proper and are called for by public policy, no less than by humanity" (Resolution 24). What Hoffman meant by his last words is that many prospective litigants, who often had been thrown off their land, had no money with which to hire an attorney but had a just cause. To prevent them from seeking justice because of some ancient doctrine which no one could even pronounce was not right.
Various Options with Respect to Champerty/Contingent Fees
As I have previously argued, however, a contingent fee arrangement is champertous, under the traditional common law definition of champerty. This tension caused the legal establishmenet to tie itself into veritable knots over the next century as each state had to solve the following puzzles: (1) Do we accept the common law doctrine of champerty?; (2) If we do, are we going to limit it or pare it down from its broad common law formulation? (3) If we pare it down, does it have room for the theory and practice of collecting a contingent fee? States could go a number of directions in answering these questions. They could say that the common law doctrines of maintenance and champerty were not law in their jurisdiction. This is what CA did in the 1860s and New Jersey did in the 1870s, for example. Therefore, these states were free to develop a doctrine of the contingent fee unhampered by common law antecedents.
Second, a state could limit its definition of champerty so that it only concerned efforts to stir up unjust litigation or litigation that was solely driven by financial motivations. This limitation of the meaning of champerty would keep the doctrine "on the books" but would allow room for the acceptance of the contingency fee as long as the fee agreement provided that the attorney's help was to the benefit of the client. This is what the great majority of states did. But, it took the states many many decades, working independently of each other, to do this. For example, Deleware accepted contingency fees as not champertous as early as 1840, while MA didn't do so until in the 1960s! Both, however, retained the doctrine of champerty but in significantly limited form. Then, in 1997, MA got rid of champerty altogether. But, Oregon, for example, narrowed the definition of champerty in 1891 but then kept the doctrine lying around. The problem is that if you keep the doctrine lying around it may always be subject to resuscitation in the future.
Third, states could adopt procedural statutory reforms relating to attorney fees which would, by implication, touch on the issue of contingency fees without expressly mentioning them. I will focus on this device below, because it was used by the immensely influential state of New York through the Field Code of 1848. Finally, the national bar, when it issued its Canons of Ethics in 1908 addressed the issue of contingent fees in Canon 13. States which may have been slow to adopt judicial narrowing of champerty or to adopt contingency fee statutes, could point to Canon 13 as the "permission" to allow these fees. [The text of Canon 13 is in this essay.]
Overlaying the Debate with One other Value
One other value that influenced the debate over the propriety of contingency fees, in addition to obvious human need, was the gradual emergence of the doctrine of "freedom of contract" in the mid-nineteenth century. One might argue that this doctrine was always around in America, but I think that only when the industrial age began to dawn, when contracts for the sale of goods proliferated and vastly different relationships between employer and employee developed, this doctrine also took on a sharper focus. The implication of the doctrine of freedom of contract for the contingency fee debate was that if an attorney and his client wanted to negotiate any kind of contract, they ought to be able to do so. America stood for freedom of contract; thus, implicitly, contingent fee arrangements would be included in this.
This discussion sets the stage for the work of David Dudley Field in his Code of 1848. The next essay considers his operative philosophy before showing how the debate still persisted well into the 20th century.
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