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In re Accuray Securities Litigation class action settlement

The Ninth Circuit has established a 25% "benchmark" for attorneys' fees: the attorneys should not collect more than 25% of the common fund available to the class. I'm increasingly seeing plaintiffs' attorneys trying to get around this approach by (1) requesting expenses (often illegally undisclosed in the class action notice) separate from the fees, thus increasing the percentage going to the attorneys; and (2) improperly including payments to third parties such as the newspapers where a settlement is advertised or the claims-fund administrator within the "common fund," thus effectively collecting a commission on money paid to the claims administrator. The conflict of interest is apparent: if the attorneys get paid the same whether money goes to the class or goes to the claims administrator (or goes to a third-party cy pres recipient), the attorneys have no incentive to ensure that the class maximizes recovery or that the claims administrator isn't overcharging. The Center for Class Action Fairness LLC objected to such arrangements in the pending Stetson v. West Publishing and Babies "R" Us cases, for example.

The problem repeats itself in In re Accuray Securities Litigation, No. 4:09-cv-03362-CW (N.D. Cal.). Except in a PSLRA case like Accuray, the problem is even more egregious, because the attorney-fee request is statutorily limited to being based on class recovery. One hopes that a shareholder (institutional or otherwise) objects, and, that even if one doesn't, the court exercises its fiduciary duty to the unrepresented class members.

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Rafael Mangual
Project Manager,
Legal Policy

Manhattan Institute


Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.