Brian Fitzpatrick’s argument that courts should approve more fees for class action plaintiffs’ lawyers has generated its share of discussion. And a few months ago, the Seventh Circuit weighed in (sort of), during an argument about fees for objectors in In re Trans Union Corp. Privacy Litigation.
It is a curiosity of class action litigation that often there is greater ferocity in combat among the class lawyers over the allocation of attorneys’ fees than there is between the class lawyers and the defendants. The contest among the lawyers is a zerosum game. But the contest between them and the defendants is a positive-sum game because the class lawyers are naturally very interested in the fee component of any settlement, while the defendants care only about the size of the settlement, including fees. So the lawyers may be willing to settle for less for the class if the defendants will help them obtain a generous fee award, and the defendants will be happy to help them if the sum of the fee award and the relief granted to the class is smaller than it would be if the class lawyers pressed for more generous relief for the class. …
Indeed, class lawyers may try to fend off interlopers who oppose a proposed settlement as insufficiently generous to the class; and given the role of such interlopers in preventing cozy deals that favor class lawyers and defendants at the expense of class members, their requests for fees must not be slighted.
(Emphasis added.) In this case, the original class action involved the leaking of confidential personal data. The appellant was an objector (Dawn Wheelahan) who had been awarded $2.7 million in fees after challenging the original Trans Union settlement. (Pre-objection, the lawyers were going to settle for $40 million–$20 million in cash and $20 million in in-kind relief. Post-objection, the case settled for $110 million–$75 million in cash, $35 million in in-kind relief.) Wheelahan argued that $2.7 million was not enough; she should have received $14 million–20% of the additional $70 million she got for the class. And, in a twist peculiar to class actions:
She is not opposed by the class action defendant, Trans Union, because this is a "common fund" suit; attorneys’ fees come out of the amount of damages awarded the class, and so Trans Union has no stake in the dispute over fees. Wheelahan’s only opponents are some of the other class lawyers, who fear that an increase in the amount of fees awarded to her would come at their expense. They don’t object to an increase in the total fees awarded, or indeed to an increase in the share awarded to her that would not reduce their fees. With the class members unrepresented and the defendant indifferent to the overall award of attorneys’ fees, we must decide the appeal with limited assistance from an adversary presentation. But this is a standard dilemma in class action adjudication, as we noted at the outset, and may be unavoidable without elongating the litigation disproportionately to the stakes in the fee dispute.
(Emphasis added.) Much of Judge Posner’s discussion focuses on the special master’s method of determining fees in the case (which, in typical Posnerian fashion, contains an excellent summary of research on the subject). I won’t further summarize an already-dense explanation, but I will highlight two comments the opinion makes on the special masters. First, the opinion points out that courts need not place much weight on the previous arrangement between class-action lawyers and plaintiffs:
The special master arrived at these figures by first determining the total amount of attorneys’ fees that would be reasonable to award and then allocating that amount among the lawyers. He placed little weight on the contingent fee agreements between the lawyers and the "clients" (the named plaintiffs in the class actions), recognizing that named plaintiffs are usually cat’s paws of the class lawyers.
(Emphasis added.) The opinion also tries to untangle the knotty question of how much value an objector adds to an improved settlement. Is it just the difference between the two settlements? Judge Posner thinks that may overstate the case:
In making these adjustments the special master was wrestling with a problem of joint causation. The final settlement was the result of the combined efforts of MDL counsel and of the other two class lawyers. The fact that these efforts were successive rather than simultaneous has no significance. The MDL counsel created an asset—the expected gain from the lawsuits— the value of which they did not realize. The efforts of the other lawyers enabled the full value to be obtained.
(Emphasis added.) All told, the opinion concludes that objectors’ counsel was underpaid by approximately $1.4 million. In fact, it concludes that all of the attorneys may may have been underpaid, but only those who appealed (here, objector’s counsel) are entitled to any extra money. Judge Posner is no stranger to the effects monetary incentives can have on litigants; here’s hoping he’s prepared for the logical consequence of that part of his ruling.