Class Action Fees Shaped by Circuit, Benchmarks

Credit: Rich Legg/iStockphoto.com.

When it comes to attorney fees in class actions, it pays to be in the U.S. Court of Appeals for the Seventh Circuit — and it’s tough to get what you want in the Second and Ninth circuits.

That’s according to two leading academic research reports that federal judges increasingly cite in determining how much in fees to award plaintiffs attorneys who work on contingency.

New York University School of Law professor Geoffrey Miller and the late Theodore Eisenberg, a professor at Cornell Law School, authored one of the studies. The second is a 2010 study conducted by Brian Fitzpatrick, a professor at Vanderbilt University Law School.

Both reports found that federal judges tend to determine a percentage of the settlement amount, then crosscheck it against the hours that plaintiffs attorneys spent multiplied by a reasonable hourly rate — called the lodestar. They also found that as the size of the settlement goes up, the percentage of fees that judges award to plaintiffs attorneys goes down. That’s particularly true when it comes to the largest class action settlements.

Fee Awards 2006-2007 federal class action
 

But a lot depends on what circuit of the U.S. court of appeals the case ends up. Here are some key points from the studies:

• Fee awards aren’t evenly spread out: The vast majority of class action fee awards come in the Second, Ninth, First and Seventh circuits, Fitzpatrick said. He attributed much of that to the larger cities in those circuits — Boston, New York, Chicago, San Francisco and Los Angeles. “The lawyers are there, the defendants are often there, and I think judges with a lot of experience are often there, so that attracts these cases,” he said.

• Benchmarks might matter: The Ninth Circuit is one of the few circuits with a benchmark that judges cite in determining fees — 25 percent based on its 2011 holding in In re Bluetooth Headset Products Liability Litigation. Fitzpatrick said “that really limits the number of times a court would award more than 25 percent. It’s working as a ceiling in the Ninth Circuit.” Miller said having a benchmark didn’t seem to matter when it comes to lower fee awards — his report found the Ninth Circuit stuck to 25 percent for the most part.

• The Second Circuit has experience: The Second Circuit handled nearly a third of all the cases, according to the Eisenberg/Miller report. Many are securities class actions. The circuit doesn’t have a benchmark, but it did set forth six factors for judges to consider in a 2000 ruling called Goldberger v. Integrated Resources. It’s the circuit in which a judge is most likely to reject the original fee request made by lawyers. “It’s a hard road to convince a district judge in the Second Circuit that your fee request ought to be accepted without question,” Miller said.

• One of the most generous circuits is the Seventh: That’s due in large part to a 2001 decision in In re Synthroid Marketing Litigation, in which the Seventh Circuit downplayed the significance of using the percentage of the settlement fund by directing judges to look at market rates when assessing the lodestar component of an attorney fee request. “They have said clearly you should not lower the percentage over the entire amount of the settlement,” Fitzpatrick said. “You should do it on a marginal basis. I see more district courts doing it in the Seventh Circuit than anywhere else because of those admonitions.”

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