fed. court averts fee crime

It may not be a crime to ask for $609 million dollars in legal fees for one class action lawsuit, but at times I wish it were.  Nonetheless, as I've been known to carp about courts accepting contingent legal fees that are too high, I want to go on record praising the 5th Circuit panel (judges Cabranes and Wesley), who rejected the $609 million request by class counsel in the Visa/MasterCard Debit-Card Antitrust suit. (decision, Wal-mart v. Visa, Jan. 4, 2005; New York Sun article, Jan. 18, 2005; Overlawyered post).

Lloyd Constantine, who heads class counsel Constantine & Partners, was featured in a guest post here a month ago.  Acknowledged as a premiere antitrust attorney, Constantine is quoted in the NY Sun article saying "If you’re just asking the question in a vacuum ‘Is $609 million too much for a bunch of lawyers to be compensated for doing a case?’ I’d say absolutely, that’s a ridiculous amount of money.”  I believe the lower and appeals courts were correct to find the amount ridiculous in context, too -- including his assertion that a sliding scale fee percentage is inappropriate.   Brooklyn Judge John Gleeson was not as polite as the appellate jurists, when he ruled on the fees (per the Sun):

  “Lead counsel’s request to be paid almost 10 times their hourly rate is absurd,” Judge Gleeson wrote. “It is fundamentally unreasonable and wholly out of character for a group of counsel whose commitment to the corner store merchants they represent has, until now, been admirable and unflagging.”

    Judge Gleeson ridiculed the suggestion that the $220 million fee he awarded would be insufficient to motivate other lawyers to bring meritorious but risky cases. “If it amounts to punishment,I am confident there will be many attempts to self-inflict similar punishment in future cases,” the judge wrote.

Those readers who like a little irony can join me in smiling at this quote from the Constantine law firm Profile:

"The firm's billing rates and total fees are typically significantly less than those charged by larger firms."

Thumbs Down, are deserved, I submit, for the three professors hired by Constantine to bless his fee request.  As the Sun reported:

   To make their case for $609 million in fees, the plaintiffs’ lawyers retained several renowned law professors as experts: Arthur Miller of Harvard, John Coffee Jr. of Columbia, and Harry First of New York University. All filed declarations saying the plaintiffs’ lawyers should be awarded a substantial percentage of the settlement, even in so-called megafund cases,to preserve their incentive to press for the largest possible fund for the class.

It's interesting that none of the professors even mentioned the dollar figure requested by class counsel in their submissions.  I join in the opinion of Prof. Lester Brickman:

“This is a round-up of the usual suspects. These are some of the most prominent lawyers who are law professors, who are frequently hired to bless the fee. Their blessing comes at a commensurate price, but their blessings are certainly worth the price they charge.”

Like the district court, the 5th Circuit correctly sought "to compensate plaintiffs’ counsel handsomely, and at the same time limit the percentage of the award so that plaintiffs’ counsel would not receive a windfall detrimental to the class.”   Any lawyers who need a larger incentive to pursue cases of similar risk and complexity are in the wrong profession, and should find a line of business that does not involve fiduciary duties and ethical limitations on fees.   

Comments

[Aaron]

Maybe they should be paid with non-transferrable discount coupons? (A slightly sarcastic comment from the "beneficiary" of a few class action settlements which seemed structured to benefit everybody but the class members.)

[David Giacalone]

Don't get me started on class action coupons. At least you didn't receive "emotional satisfaction" as compensation, like class counsel were proposing in the Fleet decision that was sunk by Judge Posner last year.

Those unfamiliar with the coupon shenanigans in class action settlements should check out FTC and Class Actions, where FTC Com'r Thomas Leary described two coupon cases in which the Com'n appeared as amicus, because the deal seemed contrary to the interests of the injured plaintiffs:

Erikson v. Ameritech involved a proposed coupon settlement that the Commission believed was not only unlikely to be of value but actually likely to be affirmatively harmful. To compensate consumers for its failure to disclose key terms of its voice mail service, Ameritech offered to provide coupons for one free month of speed dial service. There was no evidence that consumers would want this unrelated service and, worse, the settlement notice did not adequately disclose that consumers who accepted the free service for a month would thereafter be billed for it unless they affirmatively canceled. The court rejected the proposed settlement, with the comment that it "smacks of a court-sponsored promotion gimmick."(29)

One very recent case involved both what appeared to be an excessive fee and a coupon settlement of dubious value. H&R Block is well known for providing assistance with tax returns. Class counsel in Haese v. H&R Block(30) claimed that defendant recommended a particular bank to its clients who wanted to borrow against an anticipated tax refund, without disclosing that it got a referral fee from the bank. A state court judge found that this omission constituted a violation of a fiduciary obligation for which the class could recover the total referral fees collected, notwithstanding the absence of any evidence that bank charged above-market rates for the refund anticipation loans.

Faced with this large potential liability (plus the risk of punitive damages in addition) H&R Block agreed to a settlement that provided coupons for books and software of questionable value to the consumers in the class and a $50 million fee to the lawyers, who then agreed to make a "gift" of approximately half to the consumer class. The Commission filed an amicus brief, objecting to the settlement on multiple grounds.(31)

There are two alternative possibilities in this situation, and the settlement seems inappropriate in both of them. If there was indeed real consumer injury, class counsel will receive half of the monetary portion, which is excessive. In our view, the coupons will do very little either to help consumers or deter similar conduct in the future. Alternatively, there was no real consumer injury, which means that class members did not get less than they deserved, but which also means that the fees were excessive and likely to encourage the kind of litigation that may be damaging to consumers as a whole.