Should Plaintiffs Lawyers Get 94% of A Class Action Settlement?

Fortune reports on the Center for Class Action Fairness' petition to the Supreme Court to review the Duracell class action settlement.

On Saturday, a class member who objected to the settlement, Ted Frank, filed a petition seeking U.S. Supreme Court review of the deal. Frank’s petition should be taken seriously. He’s an attorney with the Competitive Enterprise Institute Center for Class Action Fairness, and he’s probably the nation’s most relentless warrior against class-action fee abuse. Lending heft to his petition is the fact that he’s being represented in the matter by prominent Supreme Court advocate Tom Goldstein, of Goldstein & Russell, who is also the founder and publisher of Scotusblog.

The reason the Duracell agreement sailed through the Eleventh Circuit without objection is that the parties used several common, but controversial, techniques for inflating the apparent value of a class-action agreement far beyond the actual cash sum that reaches class members. (Some of these techniques have been rejected by other federal appeals courts, leading to contradictory opinions among circuits—one factor the Supreme Court looks for when choosing which cases to review—according to Frank’s petition.)

The basic problem is this: While class counsel and defendants have an incentive to bargain effectively over the size of a settlement, similar incentives do not govern their critical decisions about how to divvy it up—including the portion allocated to counsel’s own fees. The defendant cares only about the bottom line, and will take any deal that drives it down. Meanwhile, class counsel have an obvious incentive to seek the largest possible portion for themselves, and will accept bargains that are worse for the class if their share is sufficiently increased. As [Court of Appeals Judge Richard] Posner [of the Seventh Circuit] has recently explained: “From the selfish standpoint of class counsel and the defendant, … the optimal settlement is one modest in overall amount but heavily tilted toward attorneys’ fees.”

The problem with all these methods of inflating the true value of the relief plaintiffs firms have won for the class is that they reward attorneys for bringing cases that may well have not been worth bringing. There are plenty of wrongs out there worth correcting. But if it’s not clear that a wrong occurred, and only a tiny fraction of the class is interested in the relief you’ve won for them, then maybe you should choose your next cause more carefully.

Read the full article at Fortune.