Class actions get a bad rap from people who compare big fees that lawyers earn with small payments that class members receive. Blawgletter hasn’t much patience with the argument. It makes the wrong comparison. The fees should bear a reasonable proportion to the benefits the lawyers secured for the class, not with what a single class member receives.
But the process by which the class lawyers collect their compensation matters every bit as much as the size of the fee. The more transparency, in our view, the better.
The rules for negotiating fees allow class counsel to proceed generally in either of two ways. They may leave their award entirely to the discretion of the court, or they may negotiate with the settling defendant to provide varying degrees of support for a specific fee or percentage.
The first alternative presents few concerns. The lawyers for the class negotiate the best settlement they could get and now must persuade the presiding judge that they deserve compensation. They may propose a total dollar amount or a percentage of the "common fund". They may suggest a range. But, at this point, everyone knows that the lawyers and class members have adverse interests. The judge acts as the class’s fiduciary and does her best to set the fee at the right level. If she does her job properly, everyone should have a high degree of confidence in the outcome.
The other principal way of doing it — asking defendants to vouch for the fee — raises more issues. In the first place, discussion about fees should not begin until after agreement on the total benefits for the class. Doing otherwise puts lawyers and the class at odds over how much of the common fund each will receive, and the lawyers have a big advantage over absent class members. Second, the kinds of defense support may range from neutrality (they agree not to weigh in on the fee application) to advocacy (where they promise to argue in favor of a particular award). Hearty support may raise concern about the arm’s-length nature of the negotiations. Third, settling with the class first and then separately negotiating the fee may warrant closer scrutiny than if the fee comes solely from a common fund. The worry is again that the lawyers might not have fought hard enough for the class because they knew the settling defendant would pay only so much in total and wanted to save more for themselves.