Saturday, July 11, 2015

Specific Performance v. Money Damages: The Importance of Attorney Fees

Yonathan A. Arbel's “Contract Remedies in Action: Specific Performance” (not up on the web yet, it seems. An idea in the paper that particularly caught my attention was this:

"Many contract cases involve some contingency fee component, so that part of the lawyer’s payment is based on a fixed percentage of the amounts the client wins. In specific performance cases, such contingency fees create a problem, as there is rarely a clear metric upon which to assess the value of performance."

Dollar damages are better than specific performance for the legal process, because (a) the lawyer can be sure he's paid, because the damages are routed through the lawyer, and (b) if the lawyer is on contingency, he won't have to argue with his client about the value of winning. (Note that that argument could happen either before he takes the case, or afte the court decision, and either way is a cost.)

Arbel looks at this as an agency problem, with conflict of interest between lawyer and client, but I wouldn't call it that. Efficiency requires that the lawyer be paid, and paid with as little trouble as possible. Money damages reduce transaction costs, and the saving will be shared between lawyer and client. Lawyers, in competing for clients, will offer better terms if they have a bigger probability of being paid for their work without hassle. Difficulty of collection--- whether of damages from the other side, or of fees, is a major concern of lawyers. If collecting the fee that's owed them requires another lawsuit, against the former client, that is tremendously costly.

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