Wednesday, January 25, 2023
The Rainmaker’s Case
(and the Aleatory Contingency Fee Scam)
When lawyers hear the word “rainmaker,” they think of a partner in a law firm who makes his money by attracting high-paying clients to the firm. He often assigns their legal work to his partners and associates, whose work earns the firm’s income. But don’t feel sorry for them: a good rainmaker can be worth his weight in gold to his partners, whose net earnings would dwindle without him.
The term “rainmaker” in such a case is metaphorical, referring to tribal magicians who are believed to produce rain by propitiating the gods. The recent devastating floods in drought-stricken California reminded me that “rainmaker” used to have a more literal meaning. A little over a century ago, while California was enduring yet another prolonged drought, an enterprising sewing machine salesman named Charles Mallory Hatfield invented what he claimed was a new, scientific method of making rain. Hatfield sold his services as a “pluviculturist” to several California municipalities under a series of contingency fee contracts in which he would be paid only for producing rain in agreed-upon amounts. The following version of his story can be found here.
In 1915, Hatfield entered a contract with the city of San Diego to produce enough rain to fill the nearby Morena Dam Reservoir. Under the terms of the deal, Hatfield would be paid $1,000 per inch of rain produced between 40 and 50 total inches. He would receive nothing for rain up to 40 inches, which the parties apparently assumed would fall without artificial assistance. He also would receive nothing for rain above 50 inches, which was apparently all that the city needed. The contract provided that the $10,000 fee was payable only when the reservoir was filled.
Hatfield put his mechanism into action and on January 5,1915 it began raining. And raining. And raining. Thirty inches fell in January alone. The rain not only filled the reservoir but caused devastating flooding, which broke a dam and caused millions of dollars in damage. “Hatfield’s Flood” ultimately claimed 50 lives. Pleas to Hatfield to call off the rain were ignored because he was helpless to do so. Instead of calling it off, he doubled-down, promising to provide yet more rain!
Après le deluge, Hatfield confidently claimed his $10,000 fee. The city of San Diego contested the claim. The city denied liability on the oral contract on several grounds. It also counterclaimed against Hatfield for $3.5 million in damages resulting from the flood.
These offsetting tort and contract claims created a perfect legal stalemate. The city could not lose: Either Hatfield was a fraud and did nothing to earn his fee (the rain having fallen without his assistance) or else he did cause the rain and so was liable in tort for the resultant flood damage as an intentional or negligent trespass. Hatfield likewise could not lose: either he earned the fee or else he was not liable because he did not cause the flood. Because neither party could lose, neither could win. The court reportedly held that the rain was an Act of God (not an Act of Hatfield), and so denied both the contract claim and the tort counterclaim. The only rainmakers to make money from the case were the lawyers.
The Rainmaker’s Case resonates with the dark folklore of contract, myths rooted in fears of rash promises and unintended consequences. One trope involves the consequences of breach of a promise to pay for supernatural services. Compare the people of San Diego with the citizens of Hamlin, who made a deal with the Pied Piper to pay for the extermination of the plague of rats. When they refused to pay as promised, he spirited away their children. When the city refused to pay as it had promised, Hatfield punished their breach of contract with more deadly rain.
Or perhaps Hatfield suffered the fate of the Goethe’s Sorcerer’s Apprentice, a role played by Mickey Mouse in the 1940 Disney movie Fantasia. Left to manage the sorcerer’s workshop while his master was away, Mickey wielded magic that he did not understand in order to get his water-carrying chores done by an animated broom, He found himself unable to utter the magic spell that would stop an army of implacable, bucket-carrying brooms from flooding his master’s workshop. The master returned just in time to regain control and the apprentice was duly chastened. Perhaps like Mickey Mouse, Hatfield learned the risks of tampering with the elemental forces of nature. When you mess with Mother Nature, always have a safe word.
Moving from myth to more mundane matters, the Rainmaker’s deal illustrates one of the oldest cons in the book, what I call the Aleatory Contingent Fee Scam. It works like this: Suppose someone approaches you in a casino and, recognizing that you are a novice, makes you the following offer: “I will give you guaranteed roulette wheel betting advice for a fee: If you lose a bet following my advice, you pay me nothing. If you win, you pay me 10% of your winnings.” Hatfield offered rainmaking services to San Diego on exactly the same basis. The city got his services for free if it didn’t rain, while he got paid up to $10,000 if it did.
I trust the reader can see that it would be foolish to agree to pay an aleatory contingency fee on the basis of a chance event. The key to the scam is that the payee cannot influence the contingency and simply rides along on the payor’s good fortune when it occurs.
The reader may be inclined to think that no rational person would agree to an Aleatory Contingency Fee Scam. The reader would be wrong. Consider corporate executive compensation contracts that reward CEO’s with vast bonuses payable on the contingency of stock price movements that the CEO’s may have had little or no hand in influencing. If it doesn’t’ rain, they get nothing. But if it rains, they get rich; and the corporation takes a bath.