Proposition 202
Attorneys' Contingent Fees. Limits.

The information below was provided by the California Journal.

Background: Few issues in the realm of state government have had a longer shelf life, and generated more special-interest attention, than the effort to change the state's civil liability system. Tort reform has been a priority for businesses and local governments since the early 1980s, as the number and scope of lawsuits began a precipitous climb. Many of these suits were brought with the help of attorneys who worked on a contingent-fee basis: If the plaintiff loses, they pay nothing; if they win or settle, the lawyer gets a percentage of the settlement, sometimes as much as a third of the total. Concurrent with the rise in civil suits against businesses and government was a marked increase in auto-insurance rates in the state. Insurance companies claimed these increases were the result of an explosion in the number of auto-accident cases that were winding up in court.

Business and government got some relief in 1986 with voter approval of Proposition 51, which limited plaintiffs' ability to extract huge awards from the "deepest pocket" in a civil case. Less than two years later, the Legislature ratified an agreement that stabilized the escalation in medical malpractice lawsuits. While individual special interests crafted their side-deals in secret, however, the fight over automobile cases was being waged in a noisy and expensive initiative war. In 1988 insurance companies and the state's trial lawyers spent tens of millions of dollars bashing each other and pushing their own wish-list insurance initiatives, among them an industry-backed no-fault proposal. When the dust settled, the one initiative left standing was the one both sides agreed they didn't want--Proposition 103, which proposed strict regulation of the insurance industry and sought to slash auto rates by 20 percent.

Sacramento tort wars then went on hiatus for a few years. The business community, however, was still far from satisfied, and liability costs consistently ranked near the top of the California Business Roundtable's annual survey of concerns. The focus of its anger remained contingent-fee lawyers, whom it believed were targeting it with meritless cases for the sole purpose of extorting a settlement. Meanwhile, another high-profile tort-reform advocate -- the insurance industry -- was making effective use of the tort system to block implementation of Proposition 103. Even though car insurance rates had stabilized, the long-promised rate rollbacks were slow to materialize.

When an unconventional attempt to implement a pay-at-the-pump insurance system died a quiet death in the Legislature, some consumer groups began to take a second look at the concept of no-fault car insurance. Rather than drivers in an accident suing and counter-suing each other in an effort to prove the other's liability, those involved in traffic accidents would simply submit their damage and medical claims to their own insurers. Consumer groups had united in opposition to the insurance companies' 1988 no-fault plan, but some concluded that a properly constructed system could work. Others, like renowned activist Ralph Nader, were adamant in their opposition to any no-fault plan.

The split over no-fault led Proposition 103 spearhead Harvey Rosenfield to part ways with the Voter Revolt consumer group he helped found, and the chain reaction from this fissure has resulted in the three tort-reform initiatives on the March ballot. With no-fault advocates at the helm, Voter Revolt began looking for no-fault supporters, and found one in Andrew Tobias, best known as the author of the popular personal finance software, Managing Your Money. Tobias, who conceived the ill-fated pay-at-the-pump concept, enlisted the help of one of his erstwhile rivals -- Intuit chairman Tom Proulx, co-creator of the even more popular Quicken software. As they shopped the insurance concept, the pair found some interest from their Silicon Valley colleagues, but what the executives really wanted to talk about was the tort system, in particular, the lawsuits being filed against them by shareholders. These so-called "strike suits" generally appeared when company profits dipped precipitously. So, in the interest of getting funding for their initiative, the no-fault advocates decided to pool their efforts with tort-reform backers. Result: The alliance to Revitalize California. Funded largely by loans and contributions from computer giants such as Intel and Seagate, the Alliance drafted, circulated and qualified the three initiatives described below. The feat was accomplished primarily by vilifying the state's trial lawyers and their trade association, the Consumer Attorneys of California. With lawyer-bashing a sport that crosses party lines, the well-funded alliance collected a record number of signatures, while the CAOC failed to qualify a counter-initiative for the March ballot. The alliance then hired a pricey group of political consultants, whose strategy was simple: present all three initiatives as a comprehensive package and peg them to public antipathy toward lawyers.

While the alliance advertises itself as a business-consumer coalition, its supporters weigh heavily toward businesses. Backers include Governor Pete Wilson, an array of business organizations and a large chunk of Republican legislators. In addition to the trial bar, most of the state's better-known consumer advocates oppose the alliance initiatives, including Ralph Nader, Rosenfield and Consumer's Union. As of this writing, the insurance industry had remained neutral on the measures, but the alliance is actively seeking its support and concede it is counting on the industry for significant financial support. Opponents say these overtures to insurers suggest the supporters are less interested in protecting consumers than they are in protecting corporate profits.

Proposal: Proposition 202 seeks to reduce the number of contingent-fee liability cases filed in civil courts by limiting their profitability to attorneys. In cases where a defendant offers an early settlement in a tort case, and the settlement is accepted, the plaintiff's attorney would be eligible to receive no more than 15 percent of the settlement. If the plaintiff rejects the settlement, the lawyer would be able to negotiate a larger percentage of any amount the plaintiff wins over and above the original settlement offer. For example, if a plaintiff settles a $200,000 lawsuit for $100,000, the lawyer would be entitled to only 15 percent of that $100,000. If the plaintiff wins the whole $200,000, the lawyer could negotiate for a larger percentage, but only on the second $100,000. The first $100,000 would still be subject to the 15 percent cap. Lawyers would be required to disclose details of their demands to defendants early in the process, in advance of the initial settlement offer, and would also be required to disclose details of the contingent-fee limitations to their clients. Attorneys working on an hourly-fee basis would not be covered by the restrictions.

Arguments for: Proponents, which include those for the above two measures along with the California Business Roundtable, blame the contingent-fee system for many of what they consider to be the excesses of the tort system. The current system, they argue, encourages the filing of frivolous lawsuits, which extort nuisance settlements out of companies, with lawyers pocketing as much as 40 percent of the settlement. Proposition 202, they say, protects both plaintiffs and defendants by allowing for quick settlements and a cap on the amount the lawyer can skim off the top. Legitimate claims will be settled quicker, they contend, and more money will go to deserving victims. They also maintain the fee limitation will discourage the filing of phony suits, which they say kills jobs and costs the state's economy billions.

Arguments against: Opponents, which include those mentioned for the above two initiatives along with the Utility Consumer Action Network and Mothers Against Drunk Drivers founder Candy Lightner, say Proposition 202 tilts the balance in civil liability cases away from the victims and toward the large corporate defendants. They note that the fee limitations apply only to the attorneys that represent lower-income clients who can't afford to pay a lawyer's hourly rates. Large corporate defendants, which can afford the big-money lawyers, won't have their rates limited. Opponents contend that, like Proposition 201, this measure would make it harder to hold bad actors like Charles Keating accountable for their misdeeds. They also say the limitations could make it harder to collect the kinds of punitive damages that keep dangerous products from being sold to consumers.

For additional information please see:

Secretary of State Ballot Pamphlet

Campaign Finance Data from the Secretary of State

Original Legislation

California State Senate Office of Research

California League of Women Voters

Easy Reader Voter Guide

Related News Articles

Campaign Web Sites:

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