Nora Freeman Engstrom, an Assistant Professor at Stanford Law School has a fascinating article out in the New York University Law Review. It deals with the largely unnoticed phenomenon of what she calls “settlement mills” in auto accident claims. The core idea is that law firms that handling large volumes of insurance claims on a mass basis, with effectively none going to trial, but recoveries in large percentages of cases. The difference from traditional law firm contingency practice is that such firms take a far fewer percentage of cases, with many more of those going to trial. The good point is that without the mills, most of their clients would get nothing. The bad one is that there is little transparency about these organizations’ operations. Here is the abstract:
Accident compensation, and particularly auto accident compensation, is typically thought to take one of two dichotomous forms: either no-fault or traditional tort. Further, conventional wisdom holds that while pure no-fault may be an option in theory, it is not one in practice. No pure no-fault auto regime has ever been enacted in the United States, and states these days are repealing, rather than enacting, modified no-fault legislation. Yet something peculiar is happening on the ground. Far out of the light of day, high-volume personal injury firms that I call “settlement mills” are quietly achieving many of no-fault’s objectives — speeding recoveries, lowering systemic costs, and delivering relatively standardized sums to an apparently expanded set of clients — while ostensibly operating within traditional tort. What settlement mills are accomplishing, then, is in some respects astonishing — and certainly commendable. Yet, the fact settlement mills’ distinctive operations are out of the light of day and rarely revealed to clients is problematic, raising profound issues of informed consent and highlighting severe information deficiencies in the market for legal services. A well-designed disclosure regime can preserve settlement mills’ substantial benefits, ameliorate their unique costs, and, more broadly, improve the tort system’s operation and address the vexing problem of attorney choice.
The professor describes what she understands as the root of problems with the system — lack of client choice about attorneys — and her proposed solution — mandatory public filing of settlement information — as follows:
Yet, policy makers have never addressed the issue of attorney choice head-on. Policy makers have failed to construct a regulatory architecture that broadly ensures adequate attorney quality. And in the three decades following the Bates decision, policy makers have failed to police the accuracy of attorney ads and—despite the Supreme Court’s clear admonition to do so—have also failed to arm prospective clients with information which would permit them to“place advertising in its proper perspective.”367 It is in this regulatory void that settlement mills, with their over-the-top ads and under-the- radar practices, have also developed. And policy makers’ malaise in the face of the vexing problem of attorney choice has enabled that which is most problematic about settlement mills (e.g., the incompetent representation of the most seriously hurt, the sub rosa delegation to non-attorney personnel, and the curiously high fees) to take root.
In this Article, I have proposed a system to dramatically increase transparency in one segment of the legal services industry. The proposal is far from perfect. Some clients can be counted on to ignore the data, no matter how clearly the information is conveyed; some firms would no doubt discover ways to manipulate their standings; and some of the anticipated benefits I lay out would surely prove elusive. But the mandatory, public filing of closing statements would force settlement mill operations out of the shadows, while, at long last, giving all prospective personal injury clients the ability to “place advertising in its proper perspective.” And this, I submit, represents a significant step forward.
There are several conclusions that I draw from this:
- It underlines how little we know about how the access system really functions.
- It again emphasizes that the private sector plays a larger role than we realize in the middle income access system.
- Most clients choose lawyers on little information (and indeed the lack of confidence about this process is a major barrier to the hiring of laywers, one the bar has done little to address).
- If we are to build incentives for the private sector to meet areas of need, we must understand the dynamics of choice, quality, return, etc.
Thanks to the access to justice blog for catching this one.