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Working Paper: Judicial Guide to Awarding Attorney Fees in Class Actions

March 7, 2021 | Posted in : Article / Book, Contingency Fees / POF, Expenses / Costs, Fee / Rate Economics, Fee Allocation / Fee Apportionment, Fee Award, Fee Award Data, Fee Award Factors, Fee Calculation Method, Fee Cap / Fee Limits, Fee Data / Fee Analytics, Fee Dispute, Fee Doctrine / Fee Theory, Fee Fund, Fee Jurisprudence, Fee Reduction, Fee Request, Fee Scholarship, Fees & Common Fund, Fees & Fiduciary Duty, Fees & Judicial Discretion, Hourly Rates, Lodestar, Lodestar Crosscheck, Lodestar Multiplier, Practice Area: Class Action / Mass Tort / MDL, Settlement Data / Terms

A recent Fordham Law Review working paper by Brian T. Fitzpatrick, “A Fiduciary Judge’s Guide To Awarding Fees in Class Actions (pdf),” considers the fiduciary role of judges in awarding attorney fees in class action litigation.  This article was posted with permission.  Professor Fitzpatrick concludes his article:

If judges want to act as fiduciaries for absent class members like they say they do, then they should award attorneys’ fees in class actions the way that rational class members who cannot monitor their lawyers well would do so at the outset of the case.  Economic models suggest two ways to do this: (1) pay class counsel a fixed or escalating percentage of the recovery or (2) pay class counsel a percentage of the recovery plus a contingent lodestar.  Which method is better depends on whether it is easier to verify class counsel’s lodestar (which favors the contingent-lodestar-plus-percentage method) or to monitor against premature settlement (which favors the percentage method) as well as whether it is possible to run an auction to determine the market percentage for the contingent-lodestar-plus-percentage method.  The (albeit limited) data from sophisticated clients who hire lawyers on contingency shows that such clients overwhelmingly prefer to monitor against premature settlement, since they always choose the percentage method.  Whether the percentage should be fixed or escalating depends on how well clients can do this monitoring.  Data from sophisticated clients shows both that they choose to pay fixed one-third percentages or even higher escalating percentages based on litigation maturity just like unsophisticated clients do, and they do so even in the most enormous cases.  Unless judges believe they can monitor differently than sophisticated corporate clients can, judges acting as good fiduciaries should follow these practices as well.  This conclusion calls into question several fee practices commonly used by judges today: (1) presuming that class counsel should earn only 25 percent of any recovery, (2) reducing that percentage further if class counsel recovers more than $100 million, and (3) reducing that percentage even further if it exceeds class counsel’s lodestar by some multiple.

Brian T. Fitzpatrick is a professor of law at Vanderbilt University Law School in Nashville.