The Legal System Is Too Expensive for Middle Class People
Lawyers' hourly rates and the expense of legal procedures have made it impossible for people to pursue medium-sized claims
Let’s posit three different victims of some sort of civil wrong.
Victim #1 took her car in to be repaired. The mechanic charged her $5,000 and did nothing. This was discovered when the problem recurred and she took her car to another mechanic. Victim #1 therefore has a claim for $5,000 in compensatory damages against the first mechanic.
Victim #2 purchased an addition to his house. The builders used shoddy, low grade materials, of a far lower quality than a consumer would expect from the amounts invoiced, and this was discovered when a maintenance worker came in later in the year. Replacement of the low grade materials with proper quality materials will cost $50,000. Victim #2 therefore has a claim for $50,000 in compensatory damages against the builders.
Victim #3 is an old woman, living alone. A network of con artists targeted her and, over time, defrauded her of her life savings, over $500,000, and used the proceeds to buy a house, fancy cars, and fur coats. When she ran out of money, one of her grandchildren discovered what had happened. Victim #3 has a claim for $500,000 in compensatory damages against the con artists.
Which one of these victims will likely not be able to prosecute his or her claim to a judgment in Southern California?
If you said Victim #1, with the small claim, you are actually wrong. Most court systems around the country, including California’s, have excellent small claims procedures. In California, you may sue for up to $10,000, and you get an informal, streamlined procedure, no lawyers, very limited discovery procedures, and a quick judgment. Indeed, before I became a lawyer, I sued a used car dealer who failed to install a required smog device on a car I bought, instead forging the smog certificate. I won a judgment of about $1,500 (the cost of the repair), and later collected it.
The actual answer is Victim #2. Victim #3 has a large enough claim that, even though she no longer has assets, a lawyer could be willing to take the case on a contingency. That lawyer might stand a chance at making 30 to 40 percent of the total recovery, which could be $150,000-$200,000. Depending on the lawyer’s typical billing rates, this could run close to his customary compensation on such a case.
But Victim #2 is in legal no-man’s land. His claim is too big for small claims court, but too small to either produce a meaningful contingency fee recovery or justify the victim paying his attorneys himself. He’s looking at depositions and discovery against a builder who is probably insured and has money to spend on a defense, and maybe a year or more of litigation. The attorney’s fees on the case, here in Southern California, will almost surely top $100,000. Any lawyer he does consult will probably tell him to take any reasonable settlement from the builder and drop it. He’s never getting his entire $50,000 back.
This is one of the biggest crises facing the legal system, and yet nobody talks about it. Middle class people with middle class claims can’t get justice, because the costs of prosecuting a lawsuit (which include not only the fees of expensive lawyers but also court reporter and videographer fees for depositions, which can run many thousands of dollars for each session, expert witnesses, who often charge almost as much per hour as lawyers do, the cost of preparing trial exhibits, copying charges, and court costs) far exceed the value of their claims.
And this means not only a loss of compensation but a loss of deterrence. My hypothetical builders are probably aware, on the corporate level, that they will lose far less paying out a few favorable settlements (which will show up in their insurance premiums) than they would have to pay out to use high quality materials. At big corporations, people are paid to think about things like this.
A world where middle class people can’t sue is a world where middle class people get screwed over. And yet not only does my profession say little about this problem, but the political class, full of vaunted concern for the middle class, doesn’t say anything about it either.
I can’t tell you why this issue doesn’t interest politicians, but I can tell you exactly why it doesn’t interest the State Bar- because the system is set up the way it is to ensure that lawyers make a lot of money and have very little competition. Law practice is the classic cartel- there are very high barriers to entry (in the form of law school tuitions that start in the five figures and run into the six figures, as well as the bar exam), and a bunch of rules and restrictions that ensure that only lawyers are allowed to do certain sorts of work. On this latter point, things have eased slightly- legal document assistant services are allowed to help you do simple things like execute a will. But when it comes to bringing a lawsuit, only a lawyer can help you with that. And with a constricted supply of lawyers who have high entry costs they need to recover, that lawyer charges you full freight one way or the other.
While one thing we could (and should) do is raise the small claims threshold (instead of $10,000, we could make it $50,000 or something), that would only be a partial solution. Expensive claims are often more complex and draw more complex defenses. Plaintiffs often need depositions and the discovery process to prevail on their claims, and at some point, the prohibition on lawyers in small claims court proceedings becomes something of an issue of due process- we certainly wouldn’t want to say that someone could win a $10 million judgment against you and you had no right to have a lawyer present at the proceeding; where’s that threshold? I don’t know for sure, but it’s a concern when you raise the small claims limit high enough.
The other solution is one that is much more painful to lawyers. We need to create something akin to the nurse practitioner in the medical field. The nurse practitioner is a nurse who gets a bunch of special training and can do many, but not all, of the things a doctor is allowed to do, but at lower cost. It is a recognition that the practice of medicine is a cartel with high barriers to entry (in the form of medical school tuition, exams, and residency requirements) and that there are a ton of people who will simply not be able to afford care unless there is some intermediate position with lower barriers and lower costs. Doctors’ organizations, of course, are suspicious of nurse practitioners- the cynical take is they don’t want the competition; the high-minded take is that they are concerned about patient welfare in being treated by people who have received less training. You can decide what you want to believe; the bottom line is we have nurse practitioners now and the world has not come to an end.
So what would a nurse practitioner look like in the legal field? Well, it could be a lot of things, but one way it could play out is to have a person with extensive paralegal training, but no law school (we will call them “legal practitioners”), be certified to take cases all the way up to trial. You’d still have to have a lawyer conduct the actual trial, but discovery could be done much cheaper. Many cases settle after a lot of discovery anyway (especially when the discovery shows the defendant is going to lose at trial), which means the lawyer’s expensive services may never be required.
Another approach could be to simply allow “legal practitioners” to handle cases that seek less than a certain dollar amount. So if the Plaintiff is asking for less than $500,000 all inclusive, a legal practitioner rather than a lawyer can handle the representation. This could also be accompanied by other cost-cutting measures- for instance, the expensive video deposition could be banned in such a case (the traditional stenographer is far less expensive than a videographer), expert fees could be capped, and the number and length of depositions limited (many judges already do this). The point would be to get the costs low enough that someone who has a claim which comes in over the small claims limit but isn’t large enough to justify the costs of a lawyer can still prosecute the claim.
Whatever we do, however, the status quo is not an option, because it is only going to get worse. Legal fees continue to skyrocket, as does law school tuition. Those costs have to be passed on to clients, and it’s the middle class that loses out.