A recent academic paper, “Do Class Action Lawyers Make Too Little?” (pdf), by Vanderbilt Law Professor Brian T. Fitzpatrick, published in the University of Pennsylvania Law Review, explores the economics of attorney fee awards in class action litigation.  The paper concludes:

Judges have been given the discretion to award a significant portion of all the contingency fee lawyers in the United States collect when they set attorneys’ fees in a few hundred class action judgments every year.  Judges currently appear to award these fees largely in the absence of any normative theory and, instead, on the basis of intuition.  As a result, judges tend to award lower fee percentage in class action cases than those negotiated in the competitive market for individual litigation.

Although lower percentages might be justified in large-stakes class actions, current compensation practices underpay class counsel in the small-stakes actions that may comprise most of the class action docket in state and federal court.  To maximize social welfare, it is often thought that litigation should both deter defendants from causing harm and insure plaintiffs against those harms when they are not deterred.  But small-stakes class actions serve no insurance function; they are only about deterrence.  As such, there is little reason as a theoretical matter not to fully incentivize class action lawyers to bring these suits by awarding them the entire class recovery.  Although political and perhaps even legal constraints might prevent judges from setting fee percentages at 100% in small-stakes cases, deterrence-insurance theory nonetheless suggest that judges ought to give class counsel as much as they can, which, by any measure, is more than the 25% they usually give now.