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A battle is now being waged in the California Supreme Court over how much money courts should pay attorneys from class action settlements.  The case will have national implications.  What's at stake is whether attorneys are to be paid based on a percentage of the settlement or based on the legal services they provide to the class.  Also at issue is whether a class guardian will be appointed to protect against excessive attorneys' fee requests by class counsel.

The Laffitte case is an employment dispute, in which the class's recovery was $19 million.  The plaintiffs' lawyers were awarded 33% of their clients' fund, which amounted to $6.3 million.  This was the equivalent of being paid at partner rate of $1,597.50 per hour.  The difference between a payment for legal services provided as opposed a percentage of the settlement is a windfall profit for the attorneys.  Every dollar of fees is a dollar that does not go to a class member. 

Excessive Class Action Attorneys’ Fees on Trial

By Lawrence W. Schonbrun

A class member in a landmark class action lawsuit is hoping that California will live up to its reputation as a national trendsetter—this time in the area of how attorneys get paid in class action litigation.  The California Supreme Court is considering a case which could level the playing field between class members and class action attorneys during the fee-setting process.  The Court’s decision could affect the allocation of billions of dollars, both in California and nationally.  Ultimately, the case will determine how many of those dollars remain in the hands of class members—on whose behalf the class action mechanism was originally designed—and how many of those dollars are to be diverted to the lawyers who litigate these lawsuits through judicial awards of attorneys’ fees.

The class member that I represent is asking the Supreme Court to confirm its landmark ruling in Serrano v. Priest.  In that case, California's highest court ruled that attorneys' fee awards were not to be based on a percentage of the class's settlement recovery, but rather on the value of the legal services performed by the attorneys.  The rationale for the decision was that courts were routinely overpaying class counsel by using the percentage method.  The Supreme Court was concerned that this jeopardized the public's respect for the judicial system and the integrity of the bar.

 The current case, Laffitte v. Robert Half International, is an employment law dispute, in which the class settled for $19 million.  From this amount, the plaintiffs' lawyers sought 33-1/3% of the recovery, or $6.3 million.  The attorneys sought payment for their work equivalent to a partner rate of $1,597.50 per hour!  Every dollar of that is a dollar that does not go to a class member.

Class action attorneys assert they should be paid like lawyers that take personal injury cases on contingency.  The traditional percentage in one-plaintiff/one law-firm contingent fee litigation is one-third.  However, class actions are profoundly different from contingent fee litigation.  In class actions, clients never have any contact with the lawyers who represent them and have not agreed to a fee prior to the commencement of the litigation.  When a case settles, the attorneys' fee is determined by a judge, who is supposed to protect class members from excessive attorneys' fee requests.

Class action attorneys argue that the award of a fixed percentage of their clients' recovery is necessary to attract skilled lawyers to take such cases.  The problem in class actions, however, may be that there is too much incentive, not too little.  Take, for example, the class action against Volkswagen after recent disclosures of corporate wrongdoing.  More than 500 separate class action lawsuits have been filed in the United States, each one seeking to represent the entire class of deceived car purchasers.  No problem attracting attorneys here!

The attorneys claim a fixed percentage incentivizes lawyers to get the most they can for their clients in settlement.  That sounds reasonable—until one remembers that law is a profession and attorneys have a duty of loyalty to their client.  It is the very foundation of professional responsibility.

These lawyers also argue that trial courts are too busy to calculate the fee based on the work done for the class because this would require judges to scrutinize lengthy bills listing each service performed by each attorney in the litigation.

Class counsel's arguments in our case all revolve around incentivizing attorneys to work in the best interests of their clients and on minimizing the burden on the judiciary.  The interests of class members are sadly absent, despite being the justification for the very existence of the class action mechanism.  The interests of plaintiffs' lawyers and judges take precedence in the minds of class counsel.

The American judicial system is based on adversarial presentations to the court.  The judge chooses between opposing positions argued by the two sides.  Our case asks the California Supreme Court to bring its originalSerrano III decision into the 21st Century by creating a more class member-protective system.  We seek to have the high court require that trial courts appoint class guardians to represent the interests of class members during the fee determination process.

At the fee-setting stage, the attorneys for the class are not representing their clients.  They are seeking to maximize their fee—inherently at the expense of their clients!  A class guardian would scrutinize attorneys' time records and provide a report to the judge.  When the class attorneys hire experts to give their fee requests a "professional blessing," class guardians would be able to hire opposing experts.  Guardians would provide the class with representation in the fee determination process by offering vigorous opposition to balance the forcefully argued position of class counsel seeking to maximize their fee awards.  Filling in the missing adversarial role for the class would make the fee determination process more consistent with American principles of justice.

—Lawrence W. Schonbrun is the Berkeley, California attorney for the petitioning class member in the Laffitte case.