Brett Kavanaugh, Conferences / Symposia, Federalist Society, Litigators, Money, Plaintiffs Firms, Ted Frank

Attorneys Fees in Class Actions: Too Low, Too High, or Just Right?

Plaintiffs’ lawyers in class action cases: are they heroes, or villains? Do they make too much in fees, leaving the classes they represent high and dry? Or could it be argued that they make too little for the work that they do?

Let’s discuss….

An excellent panel at the National Lawyers Convention of the Federalist Society, held recently at the Mayflower Hotel in Washington, D.C., tackled these topics. The expert panelists:

Ted Frank

Ted Frank — who was recently profiled in the Wall Street Journal (and profiled back in 2009 in these pages) — began the discussion. He noted the conflict of interest that can arise when plaintiffs’ lawyers in class actions are simultaneously negotiating (1) the terms of the settlement to the class and (2) their own fees. Courts have the power to police excessive fees and reject unfair settlements, but historically they have generally served as a rubber stamp. Judges have incentives to sign off on settlements so these cases can get off their dockets.

This is where Frank’s organization, the Center for Class Action Fairness, comes in. As explained in Ashby Jones’s WSJ article, Frank seeks “to right the wrongs of the class-action system by upending settlements that he thinks give class members too little and give the plaintiffs’ lawyers too much.” (It’s not for nothing that we dubbed Ted Frank the Class Action Avenger.)

Frank’s concerns with the class action process were echoed by Professor Alan Morrison, who argued that current class-action procedures do not permit adequate opportunity to challenge unfair settlements, and by Professor Lester Brickman, author of Lawyer Barons: What Their Contingency Fees Really Cost America (affiliate link). Professor Brickman identified several phenomena seen in the class-action context that merit condemnation:

  • “clear sailing” provisions in settlements, in which defendants agree not to object to attorney fees up to a certain (generally exorbitant) amount;
  • injunctive relief provisions that mean nothing (e.g., the defendant agreeing to follow the law going forward);
  • padding of time records; and
  • settlements in which class members are given coupons of little to no value.

According to Professor Brickman, plaintiffs’ lawyers frequently put their own interests ahead of the interests of their clients, in breach of their fiduciary duties.

Professor Brian Fitzpatrick

The role of defending the plaintiffs’ class action bar fell to Professor Brian Fitzpatrick (who might seem like a surprising advocate, given his clerkships with such conservative stalwarts as Judge Diarmuid O’Scannlain and Justice Antonin Scalia, as well as his status as a Fed Soc favorite). Based on his empirical study of the class action world over the past few years, Professor Fitzpatrick’s conclusion is that “class action lawyers get a bad rap.”

To be sure, there are individual examples of abuses by class action lawyers. But these instances of misconduct should not be viewed as representative of the entire class action bar, according to Professor Fitzpatrick.

On the whole, class action lawyers do not receive excessive compensation. Professor Fitzpatrick reviewed two years of class action settlements and found that the plaintiffs’ lawyers received fees equal to approximately 15 percent of the total settlement money — an amount that is “not that opulent.” Of the $33 billion in settlement value for this two-year period, only 4 percent was attributable to the value of injunctions, and well over 75 percent of the amount was distributed to class members (e.g., pro rata distribution in shareholder class action suits).

Professor Fitzpatrick posed this question: is criticism of the class action bar really just criticism of the class action mechanism itself, a masked way of arguing that the optimal number of class actions is zero? (The possibility of zero class actions generated scattered applause in the audience.)

Jeff Jacobson

Some practical perspective was provided by Jeffrey Jacobson of Debevoise, who represents defendants in class action cases. He described a typical case that he often sees in his practice. Some plaintiffs’ lawyers file a lawsuit that they believe to be meritorious, alleging a defect with some device. The defendant responds by pointing out the shortcomings of the case — e.g., that the supposed defect affects a very small percentage of the devices — and by making a settlement offer that involves repairing or replacing any devices that are defective.

Perhaps the value of the relief amounts to just $50,000 (because so few of the devices are actually defective). The plaintiffs’ lawyers respond, however, that they have put a great deal of time and expense into the case, which they viewed as meritorious at the time they filed it, and they need to be paid for their trouble. So they might ask for $250,000 in attorneys’ fees.

A settlement providing for relief to the class worth $50,000 and attorneys’ fees worth $250,000 — i.e., lawyers getting five times as much as the class — might look bad on the surface. But this is a settlement that the client might be happy to accept, according to Jacobson. The client would be pleased by the rapid resolution and the small amount of relief, reflecting the fact that very few customers actually experienced the defect identified in the lawsuit. Even if fighting this out at trial could bring the defendant total vindication, it would end up costing far more than $300,000 — which is why settlement is attractive, even if the lawyers get more than the class.

At the end of the day, said Jacobson, “Defendants need to be able to settle a cheap case cheaply.”

2011 National Lawyers Convention Schedule [Federalist Society]
A Litigator Fights Class-Action Suits [Wall Street Journal via Point of Law]
Do Class Action Lawyers Make Too Little? [University of Pennsylvania Law Review via SSRN]

Earlier: Prior ATL coverage of the Federalist Society

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