Plaintiffs’ Attorneys Fees
We know from our recent decade-long experience fighting ever-abusive Assignment of Benefits (AOB) litigation here in Florida that certain trial lawyers are particularly adept at making lemonade when the court hands them lemons. When one loophole closes, these lawyers find a way to seek and exploit another one. A new report by a trio of law professors finds this to be the case in “mega-settlement” class action securities lawsuits. And the more trial lawyers involved in the case, the higher the attorney fees.
The report, Working Hard or Making Work? Plaintiffs’ Attorneys Fees in Securities Fraud Class Actions, concludes that trial lawyers have an incentive to run up the clock in the number of billable hours they devote in such cases in order to justify large attorney fee awards. Often, the work is unnecessary, too. The report is authored by Stephen Choi of the New York University School of Law, Jessica Erickson of the University of Richmond School of Law, and Adam Pritchard of the University of Michigan Law School.
Courts are more likely to reject or modify large attorney fee requests. That’s due in part to the Private Securities Litigation Reform Act of 1995, whose goal was to reduce massive fee awards by limiting them to a “reasonable” percentage of the settlement fund. The authors found that “eye-popping numbers still show up in the largest cases,” despite the scrutiny of courts.
“We conjecture that this scrutiny provides an incentive for law firms to bill more hours, not to advance the case, (but) to help justify large fee awards – ‘make work,’” according to the report’s abstract. Plaintiffs’ attorneys invest more time in big litigation cases, particularly when there are multiple lead counsel firms. But the report found evidence that plaintiffs’ attorneys may work less efficiently in cases with the largest stakes.
Attorney fee awards are based on the number of hours worked multiplied by the billing rate, as well as a lodestar multiplier to compensate attorneys for the risk involved in litigating the case on a contingency basis. But the report found multipliers aren’t used to reward attorneys who take on riskier cases, as was the intent. Instead, they’re used in cases where serious violations of securities laws have occurred and therefore are actually less risky in terms of recovery.
“Overall, our results suggest that plaintiffs’ attorneys are receiving windfall fee awards in mega-settlement cases at shareholders’ expense.”
LMA Newsletter of 7-20-19