David Rosenberg & Kathryn E. Spier, A Game Changer for Attorney Fees: Benchmarking Against Settlement Offers (Harv. Pub. L., Working Paper No. 25-11, 2024).
Abstract: We propose a new and better way to align the interests of lawyers and clients. A lawyer, representing a plaintiff, enjoys de facto control over the effort spent pursuing the case and over settlement decisions. It is well-known that hourly fees may create incentives for over-lawyering and excessive delay, while percentage fees may create incentives for under-lawyering and early settlement at disadvantageous terms. With our new method, the lawyer is paid by the hour but their pay is capped by the plaintiff's net recovery in excess of the rejected settlement offer. Benchmarking against the defendant's settlement offers aligns the lawyer's incentives with the plaintiff's, avoids windfall attorney fees, and gets the defendant to make early and reasonable settlement offers. Our method harnesses the information and incentives of the defendant to solve agency problems between the plaintiff and their lawyer and reduce the administrative burden on the court.