Stung by growing interest in an intriguing proposal for curbing contingent fees on early offers of settlement, the personal injury bar and other lawyers have mounted a ferocious counterattack with the approach of California’s March 26 primary election (when the proposal will be on the ballot).

A lot of their arguments have been so crude as to evidence both "the transparent self-interestedness" and "the ineptitude" of some members of the plaintiffs bar, in the words of Professor Stephen Gillers of New York University Law School.

But the debate has also featured some serious and substantive critiques of the proposal-not least by the same Professor Gillers. The hard question is whether these arguments make out a plausible case that it would do more harm than good.

Proposition 202, as it is called-and for which I have tentatively expressed enthusiasm in this column ("Tort Lawyers vs. Consumers," Jan. 29, 1996, Page 23)-would cap contingent fees at 15 percent of any settlement offer made by the defendant within 60 days of a claimant’s demand for compensation; if the claimant rejected the offer, the lawyer would remain free to charge whatever otherwise lawful percentage the claimant agreed to pay of that portion (but only that portion) of any eventual recovery that exceeded the original offer. The proposal would apply in all tort cases except class actions.

The design is to prevent lawyers from (over)charging their clients the now standard contingent fee of 33 percent to 50 percent in the many cases where the defendant’s liability is so clear that a reasonable early settlement can be reached without much effort or risk; to spur plaintiffs and their lawyers to accept reasonable early settlement offers except when they could expect to win substantially more through litigation; to give defendants an incentive to make such offers; and thereby to provide plaintiffs with quicker and perhaps greater net compensation at lower cost to defendants, by slashing both sides’ legal costs.

The basic concept of curbing windfall contingent fees on early settlements has been championed by legal luminaries including Derek Bok, former president of Harvard University and dean of Harvard Law School; Norman Dorsen, former president of the American Civil Liberties Union; and Robert Pitofsky, now chairman of the Federal Trade Commission. The detailed proposal was drafted by (among others) Professor Lester Brickman of the Benjamin Cardozo School of Law.

But now come the critics. Here are some of their key points and my responses to them. (Most are more fully developed in a Counsel Connect online forum entitled "Triple Threat: Tort Reform or Disaster?")

• The proposal would be an unwarranted intrusion on the free market for legal services.

This would be a powerful criticism if the current market for contingent fees provided personal injury plaintiffs with adequate protection against being charged excessive contingent fees. But it does not.

As Brickman and others have extensively documented, it is common for plaintiffs lawyers to reap huge windfalls by taking contingent fees of 33 percent to 50 percent for cases that they know (but don’t tell their clients) they can settle with little effort-so little that contingent fees sometimes yield thousands of dollars per hour of lawyer time.

Few (if any) contingent fee lawyers engage in real price competition, which is why contingent fees rarely dip below 33 percent. As Gillers notes, "I’ve never once, not once, seen a single ad in which the lawyer says he will charge 25 percent of the net recovery to the victim (or 20 or 15)."

Nor is the typical personal injury client in a position to negotiate aggressively with his lawyer for a fair deal on fees.

Of course, it’s theoretically unethical for lawyers to charge excessive fees. But bar groups almost never enforce these rules against contingent fee lawyers.

• The proposal is one-sided because it would not limit the fees paid by corporate defendants or insurance companies. This claim is also based on a false assumption: that corporations and insurance companies are also especially vulnerable to overcharging by their lawyers.

In fact, most tort defendants are sophisticated, repeat performers, and are hard-nosed in pressing their lawyers to hold down fees and costs. There is simply no market failure, and thus no need for a regulatory solution, on the defense side.

In any event, Proposition 202 would effectively limit fees paid to tort defense lawyers by creating incentives to settle early instead of litigating. That’s one reason so many defense lawyers oppose it.

• The proposal would hurt plaintiffs by putting undue pressure on their lawyers to take lowball early settlement offers rather than litigating as hard as necessary to get adequate compensation.

Now we’re getting serious. Gillers, for one-who likes the idea of capping contingent fees at 15 percent for cases that are, in fact, settled early-stresses that a plaintiff who is dissatisfied with the initial offer should be free to induce her lawyer to litigate for more by offering the lawyer 33 percent (or more) of the full recovery that might be obtained through litigation.

This seems right. A plaintiff should be able to waive the 15 percent fee cap in such a case, subject to protections such as an in-writing requirement and a cooling-off period to ensure informed consent.

Proposition 202’s foreclosure of this waiver option may warrant opposing it in its current form, at least to the extent that it really does seem likely to foster a pattern of lowball settlement.

Does it? That gets complicated.

To illustrate with a hypothetical: Imagine a personal injury case with a realistic settlement value of $100,000. The defendant makes a lowball offer of $60,000. People like Gillers are concerned that a lawyer who would now appropriately counsel rejection of such an offer would feel pressure to take it if Proposition 202 were adopted. This supposes something like the following calculation on the part of the lawyer:

"If I litigate for awhile and do some discovery, I can probably get the defendant up to $100,000, or maybe go to trial and get more. But I would need my standard contingent fee of 33 percent to compensate me adequately for the work involved and the risk of nonrecovery. Now, with my share of the first $60,000 capped at 15 percent ($9,000), 33 percent of the next $40,000 ($13,333) would bring my total fee on an eventual $100,000 settlement to only $22,333. That’s not enough. So I’m better off taking the $9,000 now and closing the case."

This sort of projection rests on some questionable logic. First, it assumes that the lawyer would have a greater incentive to take the lowball offer under Proposition 202 than now. But financial writer Andrew Tobias plausibly counters: "Under the proposition, lawyers would be less tempted to urge acceptance of a lowball offer, since they would get only 15 percent, instead of today’s 33 percent." And there would be no cap on the lawyer’s percentage of any incremental recovery obtained through his efforts after rejecting the lowball offer.

So it’s doubtful whether Proposition 202 would create any new incentive to take inadequate offers. And even if it would, plaintiffs and their lawyers could contract around the problem, to some extent, by negotiating higher-than-normal contingent fees on recoveries above the initial offer.

For example, the lawyer in the above hypo could agree to press the litigation only on the condition that he receive a 60 percent contingent free on any incremental recovery between the $60,000 offer and $120,000. That would bring the total fee on a $100,000 recovery to $33,000-15 percent of the first $60,000, plus 60 percent of the next $40,000-and thus end up in the same place as a 33 percent fee under the current rules.

To be sure, there would be less room for contracting around any "lowball offer" problem if the offer were, say, 80 percent of the realistic settlement value (as opposed to the 60 percent hypothesized above). But would that really be an inadequate offer? Under the proposed 15 percent contingent fee cap, an $80,000 early offer would leave the plaintiff with $68,000, a bit more net compensation than the $67,000 she would get now from a $100,000 settlement (less a 33 percent contingent fee). The compensation would also be swifter and surer.

This is not to deny the likelihood that, in the hurly-burly of the real world, the proposal would leave some plaintiffs worse off than now. But my guess is that-flawed though it may be by the absence of a waiver option-the proposal would leave a lot more plaintiffs better off. And it would clearly cut out a lot of legal waste.

So how should Californians vote? It’s a close call. One final consideration tips me toward the "no" side: A ballot initiative, like a constitutional amendment, cannot be revised or fine-tuned by ordinary legislation. Once adopted, any defects would be very hard to fix.

So maybe Proposition 202 should not be adopted-not unless and until an improved version is put on the ballot in a future election.