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The glimmering prize in a federal class action is the court order that awards the lucrative status of “lead counsel” to one lawyer, a group of lawyers from a single firm or, at times, a team from more than one firm. Until recently, the choice of lead counsel was at the absolute discretion of the trial judge. But in recent years, some judges have begun using a bidding process to select the lawyer or firm that promises to handle the case for the smallest percentage of whatever settlement or judgment is secured in the end. Bidding wars, however, have led to strong criticisms from some lawyers and judges who insist that the system was never broken and didn’t need fixing — and that cheaper lawyers aren’t necessarily better for the class and, in some cases, could prove worse. Proponents of bidding, however, argue that it does away with the unfairness that results in nearly all large class actions going to a small number of firms with prominence and connections to judges while equally capable firms never get the chance to establish a reputation. The current state of affairs apparently grabbed the attention of 3rd Circuit Chief Judge Edward R. Becker, who Tuesday announced that he has formed a task force to study the issue. The 20-member Task Force on Selection of Class Counsel is comprised of three judges, four law professors, 10 lawyers, three researchers and 3rd Circuit Executive Toby D. Slawsky as its secretary. Serving as co-chairs are attorney Gregory P. Joseph of Fried Frank in New York and Professor Stephen A. Saltzburg of George Washington University Law School. The task force will hold hearings on March 16, May 5 and June 1 and will publish a draft report by October 2001 that will be the main subject of discussion at the 3rd Circuit’s judicial conference the following month. Becker said the decision to convene a task force was sparked by accounts of the increasing use of bidding processes to choose class counsel. “Despite the apparent success of such a [bidding] process in terms of lowering transaction costs with seemingly greater benefit for the class, many respected judges and lawyers have opined that the bidding process is flawed in concept and practice, and that it presents professional responsibility problems,” Becker said. Critics of the bidding process, Becker said, “believe that the conventional method of selection of class counsel — at the discretion of the assigned judge — has not only proved successful, but has achieved excellent results for the class and is preferable.” Becker said he was concerned that, without guidance, a “newly minted” trial judge “will face a quandary as to how to proceed” because the current literature on the bidding process includes no empirical studies nor any “normative evaluation of the relative merits of the competing methodologies.” There also has never been any serious study of the special problems in securities class actions brought under the Private Securities Litigation Reform Act, Becker noted. Attorney Michael D. Fishbein of Levin Fishbein Sedran & Berman said he believes the task force is a good idea because the bidding process “is a horrendously bad idea.” Fishbein and his partner, Arnold Levin, have served as lead counsel in some of the biggest class actions in recent memory including the fen-phen diet drug case and the massive pedicle bone-screw cases. Although he is not a member of the task force, Fishbein said he intends to testify or at least submit detailed comments. While Becker hinted at numerous criticisms of the bidding process, Fishbein minces no words in condemning it as a bad idea. The concept, Fishbein says, started in academia and the idea was to “mimic” the way lawyers are chosen in private settings. But Fishbein said the comparison simply doesn’t work, since private counsel are chosen by their clients for a host of reasons — price being only one of them. And neither the fee for service nor the contingent fee in private settings offers an apt comparison to the class counsel’s percentage-of-the-fund fee, he said. The “biggest danger” in using a bidding process, he said, is that it can “incentivize” the lawyer to “settle early, fast and cheap.” In one instance, Fishbein said, the lawyers who lost a bidding process said they believed their competitor had approached the defendant with a “pre-packaged settlement” that allowed the firm to enter a low bid knowing that it would do minimal work. “I don’t know why we’re tinkering with something that works well,” Fishbein said, noting that the system for awarding fees in the 3rd Circuit is laudable for its ability to compensate a class action lawyer’s success. By awarding a percentage of the fund and then cross-checking that award under what is known as the Lindy lodestar — a figure that captures the lawyer’s reasonable hourly rate multiplied by the number of hours spent on the case — Fishbein said the courts have consistently ensured that the fees are fair. That system, Fishbein noted, is the direct result of an earlier 3rd Circuit task force on attorney fees that recommended the percentage-of-the-fund method in class actions. That task force’s final report was very influential nationally. “The 3rd Circuit has been in the vanguard both decisionally and in the task force approach — first on attorney fees and now on selection of class counsel,” Fishbein said.

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