Who Is Responsible for Legal Costs in a Class Action Case?
Unlike in individual lawsuits, class action attorneys are compensated through a court-approved fee award. Individual class members generally do not pay an attorney directly, as a traditional hourly client might.
In individual lawsuits, plaintiffs usually agree to attorneys’ fees by contract before services are provided. In a class action, it’s not possible for an entire class to contract with attorneys before filing, because a class cannot be certified until the suit is filed by attorneys. Because of this, attorneys’ fees are set by the court after settlement or trial instead.
Courts use several factors to calculate attorneys’ fees in a class action, typically based on reasonable hours worked multiplied by reasonable hourly rates, with adjustments as appropriate. The “lodestar method” is one method for calculating attorney fees that multiplies the number of hours reasonably spent on the case by trial counsel and a reasonable hourly rate. This number can be adjusted for factors such as contingency fee arrangements, quality of work, and more.
Federal Rule of Civil Procedure 23
Under Federal Rule of Civil Procedure 23, a federal court may award reasonable attorney fees and nontaxable expenses to class counsel, subject to the rule’s requirements and court approval. There is no rigid limit for attorneys’ fees under federal law.
In some class actions, the monetary relief obtained for the class isn’t the sole determinant of appropriate attorney fees. Rule 23 states that injunctive or declaratory relief may also have a significant benefit to the class and must be compensated accordingly.
What Is the Difference Between Attorney Fees and Litigation Expenses?
When the plaintiffs win a case or negotiate a settlement, defendants are typically responsible for paying their court costs and legal fees. A settlement notice may list attorney fees and court costs separately.
Attorney fees compensate the class action lawyers who worked on the case for their legal services, while litigation expenses include costs associated with:
- Experts
- Filing fees
- Depositions
- Document management
- Other litigation-related services
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What Determines How Much Attorneys Receive in Fees?
One of the most important determinants of attorney fees is the class recovery size, or the total amount recovered in a settlement or verdict award. Studies have found that this association is strongest in cases with recoveries of $100 million or more. Other determinants of attorney fees include the fee method used, the case’s riskiness, and court costs, which are strongly associated with the hours spent on the case.
Can Class Members Object to Attorney Fees?
If class members feel the proposed fee is unfair, they can challenge it in court and have it reviewed by a judge. Class members have the opportunity to object to their lawyers’ motion for attorneys’ fees, and the court may hold a hearing on fees and state its legal conclusions. It can also refer to issues related to the amount of fees to a special master or magistrate judge.
How Can I Tell If a Class Action Settlement Is Fair?
Though it isn’t a steadfast rule, class action lawyers typically collect between 25% and 33% of the settlement or verdict award as their fees. Some issues with a proposed attorney fee arrangement may warrant a closer review by the court, such as a “clear sailing agreement.”
A clear sailing agreement is a compromise in which a class action defendant agrees not to contest the plaintiffs’ attorneys’ petition for attorneys’ fees. These often facilitate collusive settlements that return unclaimed money to the defendant. This can be exploited by presenting an inflated settlement amount to the court to justify higher fees while reducing the defendant’s true cost. These agreements often produce settlements that are systematically too low for the class.
Another red flag may be present if plaintiffs’ counsel has neglected to inform the Class Members about the amount of fees they’re requesting.
