NYU Law Review

\\jciprod01\productn\N\NYU\86-4\NYU401.txt unknown Seq: 1 30-SEP-11 7:26 NEW YORK UNIVERSITY LAW REVIEW VOLUME 86 OCTOBER 2011 NUMBER 4 ARTICLES SUNLIGHT AND SETTLEMENT MILLS NORA FREEMAN ENGSTROM* 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 appar- ently 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. * Copyright 2011 by Nora Freeman Engstrom, Assistant Professor, Stanford Law School. My ongoing research on settlement mills is supported by a research grant from the American Bar Association (ABA) Section of Litigation. However, the views expressed here are not intended to represent ABA positions or policies. I am grateful to Agnes Chong for excellent research assistance and to Richard Abel, Dmitry Bam, Samuel Bray, David Freeman Engstrom, James Greiner, C. Scott Hemphill, Deborah Hensler, Daniel Ho, Chimene Keitner, Herbert Kritzer, Robert Rabin, Deborah Rhode, and John Fabian Witt, as well as participants in the Bay Area Civil Procedure Forum and Vanderbilt Uni- versity Law School’s New Voices in Civil Justice workshop, for their insightful comments on previous drafts. Finally, I am indebted to the current and former settlement mill employees who cooperated with this project. All errors are mine. 805 \\jciprod01\productn\N\NYU\86-4\NYU401.txt unknown Seq: 2 30-SEP-11 7:26 806 NEW YORK UNIVERSITY LAW REVIEW [Vol. 86:805 INTRODUCTION ................................................. 807 R I. SETTLEMENT MILLS ASA DISTINCT COMPENSATION MECHANISM ............................................ 814 R A. The Usual Dichotomy: No-Fault Versus Traditional Tort ................................................. 814 R B. Settlement Mills as a Blended Mechanism ........... 816 R 1. The Texas Law Firm of Joe W. Weiss .......... 817 R 2. The California Law Firm of Jim Rogers ........ 821 R II. COSTS AND BENEFITS ................................... 824 R A. Settlement Mills in Substance ........................ 824 R 1. Transaction Costs ............................... 824 R 2. Delay ........................................... 825 R 3. Court Congestion ............................... 826 R 4. The Litigation Lottery .......................... 827 R 5. Access to Justice ................................ 829 R 6. Fabricated or Exaggerated Claims............... 833 R B. Settlement Mills in Form: The Mill Masquerade ..... 835 R 1. Settling for Less: The Under-Compensation of the Most Seriously Hurt ......................... 838 R 2. Unauthorized Practice of Law .................. 841 R 3. The Matter of Fees .............................. 845 R III. THE NEED FOR REFORM ................................ 849 R A. Disparate Justice, D´ej`a vu ........................... 850 R B. The Trouble with the Current Regulatory Architecture ......................................... 854 R 1. Disciplinary Controls ........................... 854 R 2. Liability Controls ............................... 856 R 3. Institutional Controls ............................ 858 R 4. Informal Controls: The Reputational Imperative ...................................... 858 R C. The “Pin-the-Tail-on-the-Donkey” Problem of Attorney Choice..................................... 859 R 1. Market Forces: Existing Insufficiencies and Inefficiencies .................................... 860 R 2. Practitioner Referral Networks: An Illustration of a Broken Market................................ 862 R IV. A PROPOSAL FOR REFORM ............................. 865 R A. Mandatory, Public Closing Statements .............. 866 R B. Facilitating Client Use ............................... 868 R C. Predictable Effects .................................. 871 R 1. How Would Lawyers and Law Firms Change Their Conduct? ................................. 874 R 2. How Would Settlement Mills Fare? ............. 878 R \\jciprod01\productn\N\NYU\86-4\NYU401.txt unknown Seq: 3 30-SEP-11 7:26 October 2011] SUNLIGHT AND SETTLEMENT MILLS 807 D. Some Pitfalls ........................................ 880 R 1. Singling Out Contingency Fee Practitioners ..... 880 R 2. Eroded Confidentiality of Settlements ........... 882 R 3. Undue Reliance on Gross Recoveries ........... 883 R CONCLUSION ................................................... 884 R “Let me tell you, so much goes on in a law firm that settles cases, and it’s all out of the light of day.”1 INTRODUCTION In 1938, Karl Llewellyn wrote: “[S]pecialized work, mass- production, cheapened production, advertising and selling—finding the customer who does not know he wants it, and making him want it: these are the characteristics of the age. Not, yet, of the Bar.”2 Over a half-century has elapsed since Llewellyn’s writing, and in these years, the Bar, or at least a segment of it, has made up for lost time. Here, I refer to firms that I have previously labeled “settlement mills.”3 These firms, on the far end of a continuum of contemporary personal injury practice, advertise aggressively and settle what are usually low-stakes personal injury claims in high volumes, typically with little attorney- client interaction and without initiating lawsuits—much less taking claims to trial. At these firms, mass-production methods are indeed employed and law is unabashedly sold—even hawked on big-city billboards and daytime TV. Settlement mills thus represent, and in some ways typify, a rapid and profound shift in the delivery of legal services in the United States. Whether the shift is for the better or the worse is less clear and is the issue this Article begins to address. The Article proceeds in four parts. Part I begins by introducing settlement mills as providers of a relatively distinct, long overlooked, and poorly understood form of accident compensation. Accident compensation, and particularly auto accident compensation (in which settlement mills specialize and which comprises the bulk of contemporary tort litigation),4 is typically thought to take one of two separate and contrasting forms: no-fault or traditional tort. Debate over the 1 Telephone Interview with E.C. (Apr. 22, 2008). For the majority of interview cita- tions, initials are used in lieu of names in order to preserve source confidentiality; sources’ real initials are used only with permission. 2 K.N. Llewellyn, The Bar’s Troubles, and Poultices—and Cures?, 5 LAW & CONTEMP. PROBS. 104, 115 (1938). 3 Nora Freeman Engstrom, Run-of-the-Mill Justice, 22 GEO. J. LEGAL ETHICS 1485, 1486 & n.2 (2009). 4 Automobile accidents account for two-thirds of all personal injury claims and three- fourths of all personal injury damage payouts. JAMES M. ANDERSON ET AL., RAND, THE U.S. EXPERIENCE WITH NO-FAULT AUTOMOBILE INSURANCE: A RETROSPECTIVE 1 (2010). \\jciprod01\productn\N\NYU\86-4\NYU401.txt unknown Seq: 4 30-SEP-11 7:26 808 NEW YORK UNIVERSITY LAW REVIEW [Vol. 86:805 merits and demerits of each has raged for nearly a century.5 More- over, conventional wisdom holds that while pure auto no-fault con- tinues to be discussed, its chances of enactment are bleak and getting bleaker. No pure no-fault auto regime has ever been enacted in the United States.6 And though there was a flurry of legislative activity in the 1970s as roughly two dozen states enacted “modified” or “add-on” no-fault legislation, no new state has implemented a no-fault regime since 1976; a handful of states have repealed their modified no-fault legislation; and on California’s ballot in 1988 and 1996, it was resound- ingly defeated both times.7 In short, the no-fault movement has, it is said, “breathed its last breath,” while traditional tort has triumphed.8 5 From the early days of the automobile, various academics and policy makers have criticized the tort system and advocated plans to replace it with some type of no-fault compensation scheme. A few of these proposals include STAFF OF JOINT ECON. COMM., 108TH CONG., CHOICE IN AUTO INSURANCE: UPDATED SAVINGS ESTIMATES FOR AUTO CHOICE 11 (Comm. Print 2003), COLUMBIA UNIV. COUNCIL FOR RESEARCH IN THE SOC. SCI., REPORT BY THE COMMITTEE TO STUDY COMPENSATION FOR AUTOMOBILE ACCIDENTS 216–17 (1932), ROBERT E. KEETON & JEFFREY O’CONNELL, BASIC PROTECTION FOR THE TRAFFIC VICTIM: A BLUEPRINT FOR REFORMING AUTOMOBILE INSURANCE 34–69 (1965), and Weld A. Rollins, Letter to the Editor, A Proposal To Extend the Compensation Principle

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