Lessons from America
New Horizons in Law and Economics series
Edited by Jürgen G. Backhaus, Alberto Cassone and Giovanni B. Ramello
Chapter 8: Class Action Finance and Legal Expense Insurance
Jürgen G. Backhaus INTRODUCTION In an interesting development, the Wall Street Journal1 reported that Pfizer, in the name of Amy Schulman, its chief counsel, is sick and tired of having to pay billable hours for winning regulatory approvals. She wants to adopt a system of contingency fees to reward lawyers who win approvals for new drugs and applications. Those who fail to win approvals will not be compensated for their efforts. Contingency fees are at the heart of class action finance. To this aspect we now turn in the eighth chapter. 1. THE ATTORNEY AS THE BANK AND PORTFOLIO CHOICE Fee-for-service (in medicine or law) is a financial arrangement which unties the service and its respective outcome. Fee-for-service is the method of choice when irrespective of the outcome a well-prescribed standard and indisputable service needs to be rendered. For instance, for checking the well-functioning of a car, you want to opt for a fee-for-service arrangement in order to prevent the mechanic from making unnecessary repairs. Likewise, the services of a notary public need to be rendered according to prescribed rules and formalities. When the service is successful, we never hear about the case. But the fact that we never hear about a particular case does not mean that the service was successful. It may simply mean that a fault turned out to be inconsequential or just never surfaced. A totally different financial arrangement is called for when action is required that 1 Koppel and Ashby (2009, p.1). 127 Columns...
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