Monday, November 29, 2010

Grinding Out Settlements

We recently read an article about plaintiff law firm settlement mills. The article -- Engstrom, Run of the Mill Justice, 22 Georgetown J. Legal Ethics 1485 (Fall 2009) -- presents interesting contrasts and similarities with mass tort litigation. A "settlement mill" is marked by the folllowing characteristics: (1) high volume of cases; (2) high volume of advertising; (3) "entreprenurial legal practices;" (4) few if any cases go to trial; (5) tiered contingency fees; (6) little case screening and, therefore, lots of low value cases; (7) little attorney-client interaction; (8) incentivized settlements via quotas or rewards; (9) quick resolution of cases - usually within two to eight months of the accident; and (10) rare filing of lawsuits.


Some of that sounds familiar to us and some does not. Of course, the article isn't about mass torts. Rather, the cases more often than not involve car accidents. The damages arise from medical bills and the dreaded "soft-tissue injuries." Consequently, the settlements seldom reach five figures.


Engstrom includes case studies of settlement mills. Some of those firms no longer exist. Disbarment isn't exactly foreign to this milieu. Hegel said that quantititative differences after a point become qualitative. When we learn that a settlement mill lawyer will have 300-400 open files on her desk at any time, we're talking about something alien to our experience. How does one handle such an enormous case load with skill and diligence? It isn't pretty. One of the "enterprenurial" innovations is to allow non-lawyers to handle client-screening (of which there really isn't any besides verifying the existence of insurance). Amazingly, non-lawyers sometimes even handle the negotiations with claims adjusters. Those "negotiations" might take all of ten minutes to resolve the case. Meanwhile, the client might not see a lawyer until he or she receives the settlement check. Well, to be more precise, they might not see a live lawyer. Many settlement mills simply plant their clients en masse in a conference room where they watch a videotape of a lawyer "explain" the process.


The settlement mill lawyers just about never investigate the cases, research the law, or draft pleadings. Indeed, most of the cases do not get filed. As one of the settlement mill lawyers admits, "We did nothing legal." The whole game for the settlement mill is to devote about two hours to the case and collect a quick settlement. Lawyers and staffers are measured every month against a quota of aggregated settlements. The individual merits of a case matter not at all And forget about trials. To be sure, trials in these sorts of cases are rare no matter who the lawyers are. Approximately 2.8% of traffic accident cases go to a jury. But settlement mills go to trial something like 0.5% of the time. If a client wants to go to trial, the case gets sent to a real litigator. Or it gets dropped.


Engstrom argues that three facts of life account for the existence of settlement mills. First, legal advertising permits firms to drive up volume and reduce the reputational imperative. Word of mouth (which presupposes some degree of competence and satisfactory results) doesn't matter when tv and billboard ads can reach so many of the unsophisticated and disgruntled. Second, the tiered contingency fee arrangement is a marvellous means of persuading clients to accept a quick settlement, even if the amount is piddling. Here is an example of a tiered, or graduated, contingency fee arrangement: the firm gets one-third of the total recovery in the absence of suit, 40% if a suit is filed, and 50% of the settlement, verdict, or judgment in the event of an appeal. When a firm offers a client 70% of something now, versus 60% or 50% of possibly nothing in the indefinite future, it's no surprise that the client decides to pocket a sum certain now. Third, litigation has become inhospitable. It is slow, expensive, and uncertain. Interestingly, Engstrom shows that plaintiffs usually end up losing or getting very little. The chump change offered by a a settlement mill doesn't look so bad in that environment.


What's the result of this rather bizarre ecosystem? In the classic lawsuit settlement model, the settlement amount should equal the parties' estimate of the likely trial outcome, plus-or-minus cost calculations, then tweaked for uncertainty. But with settlement mills, there is virtually no effort to assess the value of the individual case. Rather, cases are clumped together and are assigned a "going rate." It's done via a grid that doesn't even pretend to take into account the sorts of things that might make a huge difference at trial (e.g., witness credibility/likeability or comparative negligence).


According to Engstrom, settlement mills produce adequate results for plaintiffs with weak, low value cases -- they get just about what you'd expect, and they get it fast. But there's a different story for more meritorious cases. Plaintiffs with better stories, stronger causation, and more profound injuries end up settling for pedestrian amounts. Not surprisingly, insurance companies take advantage of the fact that the settlement mills have no intention of taking cases to trial. (In Engstrom's case studies, it seems that on those very few occasions when the settlement mills do take a case to trial, they do a shockingly poor job. So maybe it's good that they know their limitations.)


The question arises as to why insurance companies play ball with settlement mills as often as they do. Why pay anything for the crummy cases? Why not call their bluff? The answer is that settlement mills are a good deal for insurers. They bundle the scary cases with the weak ones. Overall, they are cheap, fast, and predictable. Insurers and settlement mills act as repeat players and come to rely on each other's consistent methods of doing business. Some insurers try to direct cases to settlement mills.


Now, you can make of this system what you will. It's probably no accident that this article appears in a journal of legal ethics. But we don't mean to adopt a Holier than Thou posture. Perhaps this system works in some contexts. Certainly settlement mills are not wholly alien to mass tort litigation. In mass torts, the stakes are higher. (Not always: we saw a lot of fen-phen plaintiffs walk away with verdicts in the neighborhood of $5000. That wouldn't pay for the plaintiff experts' hotel bills.) The lead plaintiff firms that we confront are perfectly capable of performing wall-to-wall factual investigations, writing artful legal briefs, developing formidable experts, and, of course, doing that voo-doo they do so well in front of juries. But a decent-sized inventory of cases will invariably be in the hands of bottom-feeder firms that operate in a way virtually indistinguishable from settlement firms. (One difference: in mass tort cases they will actually file complaints.) The existence of those settlement mills probably vexes the other plaintiff firms more than the defendant. The settlement mills are free-riders and can help the defendant bundle cases in favorable ways and set low settlement values.


Not that much of mass tort litigation is run-of-the-mill. But why not exploit those bits that are?

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