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NALFA: Tort Reform Lobby Deny Free Market Principles in Class Actions

March 11, 2014 | Posted in : Contingency Fees / POF, Fee Award, Fee Award Factors, Fee Jurisprudence, Fee Shifting, NALFA News, Study / Report

“There’s been a lot of hand-wringing from the tort reform lobby over attorney fees in class actions.  Conservatives in the tort reform lobby complain about attorney fees in class actions, but need to be reminded that we live in a free market economy and that there’s existing fee jurisprudence in this area of law,” said Terry Jesse, Executive Director of NALFA.

“Conservatives in the tort reform lobby deny basic facts about our free market economy and ignore mainstream attorney fee jurisprudence.  Risk is the most fundamental principle in our free market economy.  And there’s no other professional who takes on the contingency fee risk than a class action plaintiffs’ lawyer,” Jesse added.

“The tort reform lobby has created myths about attorney fees in class actions.  Because we’re an organization that specializes in attorney fees, we need to set the record straight,” Jesse said.  The facts below draw from the seminal study, “Attorney Fees in Class Action Settlements: An Empirical Study,” by Theodore Eisenberg, Cornell Law School and Geoffrey P. Miller, New York University School of Law.

Myth:  Class members often lose money while plaintiffs’ lawyers receive excessive fees.

Facts:

Median attorneys’ fees were only 21.9 percent of the recovery – not more than all class members combined get, as claimed by the Chamber’s Institute for Legal Reform, and even less than a typical 33 percent fee recovery in personal injury cases.

Median attorneys’ fees in consumer class actions, were only 13 percent.

Attorneys’ fees as a percent of recoveries were higher in federal rather than state court settlements.  This is the opposite of the “anything goes” attitude that’s supposed to prevail in state courts, according to the Chamber’s Institute for Legal Reform.  Fees were about 20 percent in federal courts and 19 in state courts for non-securities, non-fee-shifting cases and 38 percent compared to 32 percent in fee-shifting cases.

Only 7 percent of the class actions result in a coupon settlement.

Myth: Attorney fee awards in class actions have skyrocketed in recent years.

Facts:

Median attorneys’ fees increased from about $2 million in 1993 to about $3 million in 2002 – A very modest increase over a 10 year period.

There is a “strong correlation between the fee award and client recoveries.”  As the comprehensive study found, and as one would expect, “[a]s the client recovery increases, so does the fee.  However, as the “client recovery increases, the fee percent [in contrast to the fee amount] decreases, putting more money into class members pockets.

Attorneys’ fees strongly correlate with the risk involved in pursuing the case: “high risk is associated with a higher fee, while low-risk cases generate a lower fee.”