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The final word on fees

April 23, 2012 8:20 AM

Brian T. Fitzpatrick

Mr. Frank criticized the methodology in my study because it is based on settlement amounts approved by district courts rather than settlement amounts actually distributed to class members. He's right about that, but, again, it turns out not to make much of a difference to the portion that attorney's take from settlements. The vast majority of the money approved by courts is distributed pro rata--meaning it is all distributed, and how much each class member gets depends on how many others submit claims. Thus, even if we were to ask what portion of distributed money goes to class action lawyers, the answer would be about the same.

This is not to say that there aren't isolated examples where the only ones defendants end up paying are the lawyers. But it is to say that these cases are not representative. It is almost unheard of for undistributed settlements to revert back to defendants these days. If they cannot be distributed to class members, they at least go to third parties like charities; either way, the deterrence gained is the same.

Mr. Frank returned to the Bank of America settlement, but, again, I do not understand why. In one breath, he says the lawyers there did not take on any risk, but in the next he acknowledges that Bank of America had already settled the same claims for a fraction of a cent on the dollar. The fact that the new lawyers managed to persuade Back of America to resettle the case for over ten times the original amount is not just good lawyering, it is remarkable lawyering. They deserved to be paid handsomely. So what if they made a multiple of their hourly rate? The lodestar method fell into disfavor in class action litigation previously because it rewarded lawyers for dragging things out rather than getting results. The percentage method rewards results, and remarkable results should be rewarded with remarkable fees.

I will close on one point on which Mr. Frank and I agree. The optimal method for awarding fees is not to do so ex post by trying to divide some fair percentage of the settlement. It is to do so ex ante by auction. But until courts warm up to that, we will continue with the second best. And that is the percentage method, not the lodestar

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