After years in the class action defense bar, I’ve learned that few things will get the average non-lawyer to think I’m doing God’s work more than talking about class action attorneys’ fees. The general consensus is that while all lawyers overcharge their clients, class action lawyers do it more–and more spectacularly–than most.
And that’s why it’s so surprising to read a recent article for the DePaul Law Review from law professors Morris A. Ratner and William B. Rubenstein titled Profit for Costs, which argues that, in addition to attorneys’ fees, class action plaintiffs’ lawyers should be allowed to mark up their photocopying and expert expenses. Or, as they put it:
[F]ocusing on law firm investments, we explore how enabling cost profits might funnel resources to cases that are meritorious but presently underfunded, thereby increasing access to justice.
I’ll leave it to others to debate the policy implications of this proposal (although a few flaws are apparent right away, including a few the authors acknowledge).
I’m more interested in how Professors Ratner & Rubinstein analyze the effect costs have on plaintiffs’ work, in no small part because Professor Ratner used to be a plaintiffs’ lawyer himself. And there are two primary implications they identify. First, plaintiffs’ lawyers may not take on cases that require too much expert development as opposed to just motions practice:
[A] firm considering investing in two cases, one involving high costs and low attorney time and the other involving relatively low costs and high attorney time, will invest in the latter case because the possibilities of fee profits and fee multipliers—with no possibility of profiting from costs—makes the investment much more attractive. This means that a set of high-costs cases will likely not be pursued, even if the odds of prevailing are similar.
The authors provide a table that develops a few examples of what they mean by high-cost versus low-cost cases. What’s most interesting is that the low-cost cases, at least according to their descriptions, are more likely to get certified than the “meritorious” high-cost cases. Some enterprising law student might look at whether not making costs a profit center might actually screen out cases that should not be class actions. (I’d also point out briefly that Professor Ratner’s earlier work undermines the decision-making model presented here; according to him, plaintiffs’ firms are very poor at guessing what their fees will look like.)
Second, the authors write that cost investments may drive some early settlement decisions:
Because attorneys receive relatively little reward for their cost in- vestments, they may be tempted to settle cases on the eve of such investment points. For example, a firm may:
• Work a case through motion practice, but settle before investing significantly in outside experts;
• Avoid or defer moving for class certification, although such certification would give it settlement leverage, if it were going to be required to pay the costs of notice of a litigation class—costs that would normally be shouldered by the defendant in the event of a settlement; or
• Pursue a case to the point of trial but settle before investing significantly in such a trial.”
The strategic implications here are clear. (No, not “pursue strategies that drive up costs”– plaintiffs already assume defense counsel do that, and several courts have pointed out that it is improper.) Instead, keep an eye on the cost points the plaintiff is likely to face. If you have to make a settlement overture, that may well be the time to do so.