Class action attorneys fees
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Fee awards help millions of individuals gain access to justice each year and improve the law’s deterrence impact by encouraging attorneys to manage class actions. However, there is no research into why judges award the sums they do or whether they correctly size fee awards. The procedure is indeed a mystery. This Article is the first empirical research to peer into the black box, based on a systematic analysis of 431 securities class actions that settled in federal district courts between 2007 and 2012. Unlike previous studies, this one uses the actual court filings of each case to build an initial, detailed data set on all points that federal judges are likely to consider fee issues. These data enable us to paint an unusually comprehensive and complex image of the fee-setting method, which debunks several popular misconceptions.
The following are some of the major findings of this article: (1) federal judges often deviate from the path laid out by Congress in the Private Securities Litigation Reform Act of 1995 (PSLRA), which requires lead plaintiffs to set the terms of class counsel’s retention and federal judges to serve as backstops against abuses; (2) fees are generally lower in federal districts that see a high volume of securities class actions; and (3) fees are generally lower in federal districts that see a high volume of securities class actions. Finally, the so-called “lodestar cross-checks,” which are supposed to help judges moderate fee awards, have unintended consequences, according to this article. When fee demands require cross-checks, fee awards are substantially higher than when lawyers simply use the percentage form. Lawyers could be anticipating judges’ responses to fee demands and behaving strategically as a result. They provide lodestar data when their requests seem unreasonable, and they omit it when they expect judges to grant their requests or believe the lodestar data would not support their case.
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I objected to the attorneys’ fee portion of a negotiated settlement in a securities case in 2005 as a member of a plaintiff class. Over my dissent, the court accepted a settlement in which a class attorney received a 25% contingency fee (plus expenses) from a $80 million settlement fund—a sum that reflected a 4.7 multiplier on the “lodestar” figure obtained by multiplying the hours worked by the standard fee. To put it another way, to earn that amount of fees, class counsel would have had to work many more hours at their daily billing rate.
Regardless of my lack of success, I believe it is important to focus on this experience for two reasons. First, in recent years, the attorneys’ fee aspect of class action settlements has been the topic of heated debate. The question of whether or not attorney fee awards are increasing has been raised. Second, the controversy continues since the Class Action Fairness Act of 2005 did not fix attorney fees in any significant way. 1
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In general, class action attorneys are compensated from the money recovered on behalf of the class. This is because class actions are brought on behalf of a group of people. As class action plaintiffs win a recovery for the class, the attorneys who contributed to the recovery are entitled to a portion of it as compensation and reimbursement of their expenses. In certain cases, the defendants will individually negotiate a settlement for class action attorneys that is separate and distinct from the class recovery. Also reimbursed are the costs incurred by the class action lawyers in defending the case, such as legal fees, travel expenses, expert witness fees, and so on.
The court must, however, accept the settlements regardless of how the class action attorneys are compensated and their costs reimbursed. When the class action has been settled, this is usually achieved. The court would order that each class defendant receive a notice outlining the amount of fees and cost reimbursements sought by the class action lawyers. The court will allow class members to express their opinions about whether such requests are reasonable, and it will decide separately how much to grant class counsel in the end.
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The main issue before the Committee is whether it is improper for plaintiffs’ counsel to discuss the value of such fees with defendant prior to resolution of the underlying case in a class action in which plaintiffs’ counsel is statutorily entitled to be paid by defendant. Ancillary questions include the propriety of disclosing to defendants the amount of hours and hourly rate spent by plaintiffs’ counsel prior to a merits settlement, as well as plaintiffs’ counsel’s right to prohibit his client from agreeing to a settlement without protecting plaintiffs’ counsel’s right to recover fees from the defendant.
The questions asked raise the specter of a classic attorney-client conflict of interest: the client’s and attorney’s conflicting interests in the sharing of a settlement fund that a defendant is willing to pay to settle litigation. Surprisingly, no ethics opinion on the subject has been discovered. 1st However, a number of recent cases have addressed the issue in the form of class action settlement acceptance or rejection, and we believe that, whether interpreted as statements of substantive law or ethical standards, these cases are compelling and determine the outcome of our deliberations.