Class Action Reform

I am not a class action lawyer, so forgive me this question: Why do laywers in class action cases get such high fees?

As I understand it, a class action involves bringing a claim on behalf of a wide group of people similarly situated to the representative plaintiff. If the representative plaintiff wins, an award that benefits all class members results.

In Connecticut, a simple case against the Department of Corrections involving strip searches of inmates is about to yield a $2.5 million settlement. Of that some, about $834,000 will go to attorney's fees. Windfall

The claim brought on behalf of 1,600 people arrested on minor charges, detained, and then strip searched as though they were hardened criminals. Damages in the settlement are capped at no more than $20,000 per detainee.

I've litigated scores of unreasonable search claims, and have never had to spend more than 100 hours of time on such a case. It is a rare fee affidavit that I have submitted under 42 U.S.C. Section 1988 that exceeds $30,000.

Eight hundred thousand in attorney's fees seems excessive in this case. Oh, I know that the costs of providing notice to prospective plaintiffs is high, and that there are administrative expenses in contending with a large class of plaintiffs. Perhaps this warrants the eye-popping results here.

But from what I know of class-action lawyering, the savvy lawyer seeks a case involving small harm to a large number of people. Muliply a ten dollar injury times a million class members and you've suddenly proven a $10 million case. Should the lawyer in that case really get a multi-million dollar fee? I have friends who have made tens of millions of dollars in fees this way. It seems less like lawyering than marketing.

Why not limit as a matter of law the fee a class action lawyer can receive to some reasonable muliple of the harm caused to a representative plaintiff? That would free up more money for the aggrieved parties.

Lawyers do not have an unlimited freedom to contract with clients. Our fees cannot be unreasonable. Yet looking at the class action game yields the sorry conclusion that lawyers gorging themselves in a manner we would criticize were they the CEO of a major corporation.

Comments

[Maren Chaloupka]

Although I, too, question the fees earned in some class action cases, I would hesitate to codify a limitation on fees in legislation. The proverbial slippery slope ulcerates the wisdom of that kind of legislation - - we begin with capping fees on class action litigation, and from there it is a short hop to ruling that fees in individual tort cases must be capped. These legislative proposals fail to recognize those of us (and there are many) who frequently cut our fees voluntarily in order to get more money to a client to get a difficult case settled.

Judges decide our fees in individual 1983 cases, bad faith cases (in Nebraska, attorneys' fees may be recovered in cases against one's own insurer), discovery disputes, and other matters - - and they seem perfectly capable of chopping our fees down to below the work we actually did. Hence I would think that judges should be capable of the same magic in class action cases.

[Lear's Fool]

"Lawyers do not have an unlimited freedom to contract with clients. Our fees cannot be unreasonable."

If anyone cares to indulge a question arising from ignorance, I'd like to understand on what basis a lawyer's fee can even be regulated. On what grounds are we the people (or a judge acting as our agent) authorized to restrict the fee a client pays to his attorney, as in the instances Norm and Maren mention? And what about the client-attorney relationship distinguishes it, in this regard, from the CEO-stockholder relationship Norm mentions?

[Mahan Atma]

"On what grounds are we the people (or a judge acting as our agent) authorized to restrict the fee a client pays to his attorney, as in the instances Norm and Maren mention?"

The Federal Rules of Civil Procedure, at the federal level. See Rule 23(g) governing the appointment of class counsel. There is also abundant case law on the topic.

For example, in the Third Circuit, depending on the type of case, class counsel must submit hours worked, the work done, and the hourly fees. This is used to calculate a "lodestar". The court then examines the submission and determines whether the hours spent and fees charges are reasonable and in line with what is charged in the local market.

When I was a clerk, I spent many hours examining fees and costs submitted by class counsel in a large class action we had. We subtracted out the frivolous stuff, and calculated the lodestar down to the penny. We then wrote a 30-page opinion on why the fees were reasonable under the circumstances.

[Mahan Atma]

^^^ That should be Rule 23(h), not Rule 23(g) (although 23(g) does empower the court to order the attorneys to submit the basis for their fees.)

[S.cotus]

I don’t think 800k is excessive. These things drag on for years, require extensive outlays of expenses, and constitute multiple tens of thousands of man hours. Assuming that witness fees other expenses are not factored in, and assuming that most lawyers make around $200k (which is reasonable, considering the risk of non-payment), this is only four man-years worth of work. Class actions take on a life of their own, and probably did require this much work. (By the same token, most antitrust litigation or pre-merger filings quickly balloons up because of the high cost of dicovery.)

What I wonder is what the point of nickle-and- diming these lawyers is. They take on difficult cases. They have to figure out commonality of claims. The political climate is hostile. Clients are difficult. Very often people conspire against them. There is a high risk of non-payment. When it comes to shifting fees from an evil defendant to a victorious and injured plaintiff, why not err on the side of the lawyer who spotted the evil.

Also, I don’t think that most fee applications include “frivolous” claims, but, at worst, just claims for things that are not properly billable.

[Mahan Atma]

"Also, I don’t think that most fee applications include “frivolous” claims, but, at worst, just claims for things that are not properly billable."

In the fee application we had, the lawyers had included several dinners for them and their clients that ran into the hundreds of dollars per dinner.

In my book, that's "frivolous".

[Aaron]

I am not sure that a "reasonable multiple of the harm caused to a representative plaintiff" would be an effective means of calculating a reasonable fee - that is, the multiple would seemingly have to vary depending upon the amount of harm and the size of the class or you would quickly get absurd results. But I would have nothing against class action counsel being paid in the form of the type of coupon or discount they often negotiate as compensation for class members.... (They prefer cash? What a surprise.)

[Lear's Fool]

Thanks for the reply, Mahon, but that's not quite what I was getting at. Let me try to phrase it better: What gives me the right to tell you what you can and cannot charge your client? The majority may, via our legislative representatives, enact laws governing your billing. But I would like to understand what (aside from the fact that we outnumber you) authorizes us to do so. (It's an aside, I know. :-)

[Mahan Atma]

"What gives me the right to tell you what you can and cannot charge your client?"

In large class actions, there is very little direct communication between the class plaintiffs and class counsel. There are some notices sent out, and that's pretty much it. Class plaintiffs have a limited opportunity to object to what class counsel does.

So basically somebody -- here the court -- needs to be sure the attorneys aren't ripping off their clients, because the class plaintiffs aren't really in a position to make that call.

[markm]

In the case Norm cited, at least the plaintiffs got monetary damages, in large enough amounts that they can actually buy something they normally couldn't afford. What really bothers me are the much larger class actions, where the lawyers get tens of millions and the clients they supposedly represent get coupons, or checks for amounts less than what it must have cost to mail them out.

For example, some years ago I may have (unknowingly) been in the plaintiff class in a lawsuit against Iomega, alleging that their "Zip" disk drives were defective and prone to wreck the removable disks and lose data. I say "may" because I never had any problems with two Zip drives I used, but it wasn't clear if that mattered if I had cared to claim my piece of the settlement. However, what the "clients" received in this settlement was a 10% off coupon for more of the allegedly defective drives and disks. Iomega paid the "plaintiffs' lawyers" many millions in cash, and all the plaintiffs themselves got was something Iomega might well have done anyway as a sales promotion.

That is, someone who had actually suffered damages could only recover 10% of what he was willing to spend on more of the products that had allegedly caused his loss. Someone who wanted to avoid further losses by avoiding the whole product line got nothing. Furthermore, although I was not worried about that (between the improvements Iomega had made in its products and my habit of keeping multiple backups I wasn't going to lose any data), the coupons were worthless to me because during the years the lawsuit ran inexpensive CD writers came on the market and, IMO, made the entire Iomega line obsolete.

[Doxy]

"What gives me the right to tell you what you can and cannot charge your client?"

One simple thing: restricted access to the court.

That is, Joe Citizen CAN NOT file his own suit. He is restircted from accessing the court through any means other than hiring a lawyer. As such, lawyers are (to a certain degree) officers of the court. Court access is guaranteed in the Constitution.

Beyond that, see above regarding class actions and the lack of control by the SUPPOSED plaitiffs (many of whom never even know they were "plaintiffs" at all!).

What markm said, +1.

[wavemaker]

Why not just do the lodestar analysis on every fee application? Perhaps the argument is that class plaintiff attorneys wouldn't take the cases without the prospect for the huge score at the end. Fine with me. I've entered a half-dowen classes in the IPO suits against issuers and accountants, and never seen a check for more than $3.00 come my way -- yet the class lawyers are making $20M. I just do it for morbid amusement.

[john gardner]

My issue is that the biggest beneficiary in many successful class action cases are the attorneys. In many cases the class ends up with a worthless coupon. The lawyers justify that they are policing corporate america. They may be, but at the cost of the public. Wait until I deliver my maytag neptune to the attorneys office.