The Seventh Circuit today did again something that it does quite often — it reaffirmed its faith in the wisdom of markets.

The market in question involves commerce in legal services.  Specifically, the work that class action lawyers provide on a contingent fee basis under the "common fund" doctrine (which pays lawyers out of the benefits that the class recovers).  The district court awarded a fee equal to 15 percent of an $18 million class settlement, far less than the 28 percent that counsel asked for ($2,605,000 instead of $5,040,000).  The court cited the "degree of success" as the key factor and disregarded risk of loss.

The Seventh Circuit vacated.  "In deciding fee levels in common fund cases," the court said, "we have consistently directed district courts to ‘do their best to award counsel the market price for legal services, in light of the risk of nonpayment and the normal rate of compensation in the market at the time.’"  Sutton v. Bernard, No. 06-3778, slip op. at 5 (7th Cir. Oct. 12, 2007) (quoting In re Synthroid Mktg. Litig., 264 F.3d 712, 718 (7th Cir. 2001)).  Because the district court failed to heed the market-mimicking direction, it committed an error of law and had to redo its analysis on remand.

Barry Barnett

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