Opinion
0
January 1, 1999
REASONABLE FEES: A SUGGESTED VALUE-BASED ANALYSIS FOR JUDGES by John F. Grady
Senior United States District Judge, Northern District of Illinois; Member, Judicial Panel on Multidistrict Litigation. This article is based on remarks delivered by the author at the Transferee Judges' Conference held in October of 1998.
Most federal district judges would agree that the determination of reasonable attorneys' fees is among the most challenging tasks they are called upon to perform. The fee question arises under fee-shifting statutes, in cases requiring enforcement of contractual provisions for payment of reasonable fees, and in assessing reasonable fees in class actions. A number of present-day fee awards have received considerable media attention and editorial criticism for their alleged excessiveness. Public respect for the courts and the legal profession is necessarily affected by highly publicized fee awards that are seen as unjustified. The class action situation, where the court must determine what share of the "common fund" should go to plaintiffs' attorneys, has been the occasion for most of the largest awards in recent times. The growing frequency of large class settlements makes the fee question a timely concern for the bench and bar.
There is general agreement on the proposition that an attorney is entitled to a reasonable fee. But that proposition is simply the beginning, not the end of the analysis, because opinions can differ dramatically as to what amount is reasonable in a particular case. What I hope to suggest in this article is the application of traditional concepts in a way that will avoid excessiveness but provide fair compensation to the attorney. To the extent that my suggestions depart from current practice, it is a matter of emphasizing the need to identify the actual value of the attorney's services to the client.
The courts have used different kinds of analyses to determine reasonable fees. The "lodestar" method, multiplying hourly rates by the number of hours reasonably expended, has been so unsatisfactory that it is now being abandoned in most Circuits, at least in class action situations, in favor of a modified percentage-of-recovery approach. But the percentage method poses its own problems — problems which gave rise to the lodestar method in the first place. Whether it be the lodestar or percentage analysis or some combination of the two, the difficult question comes down to the same thing: what is reasonable compensation?
[The lodestar approach] encourages lawyers to expend excessive hours, and, in the case of attorneys presenting fee petitions, engage in duplicative and unjustified work, inflate their "normal" billing rate, and include fictitious hours or hours already billed on other matters, perhaps in the hope of offsetting any hours the court may disallow. These various forms of running the meter are accompanied in a number of cases by the presence of far too many law firms submitting fee petitions.
Court Awarded Attorney Fees: Report of the Third Circuit Task Force, 108 F.R.D. 237, 247-48 (1985).
The Third Circuit Task Force described the major problem with percentage awards that led the courts to adopt the lodestar approach:
Awards often reflected what the court believed was a "reasonable percentage" of the amount recovered, with the percentages varying considerably from case to case. However, the percentage-of-recovery system sometimes resulted in strikingly large fee awards in a number of cases. Press reaction to these awards, and criticism from within the profession that the fees were disproportionate to the actual efforts expended by the attorneys, generated pressure to shift away from the percentage-of-recovery approach.Id. at 242.
The courts and the organized bar are in agreement on the kinds of criteria for deciding what amount is reasonable. The Model Rules of Professional Conduct promulgated by the American Bar Association state that, "A lawyer's fee shall be reasonable," and provide a list of the appropriate factors to consider, including:
(1) the time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly . . . [and] . . .
(4) the amount involved and the results obtained. . . .
Model Rules of Professional Conduct Rule 1.5 (1983). The complete list set forth in the Rule is:
(1) the time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly;
(2) the likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer;
(3) the fee customarily charged in the locality for similar legal services;
(4) the amount involved and the results obtained;
(5) the time limitations imposed by the client or by the circumstances;
(6) the nature and length of the professional relationship with the client;
(7) the experience, reputation, and ability of the lawyer or lawyers performing the services; and
(8) whether the fee is fixed or contingent.
The list is similar to the guidelines required by the frequently-cited case of Johnson v. Georgia Highway Express, Inc., 488 F.2d 714, 717-19 (5th Cir. 1974), abrogated in part on other grounds, Blanchard v. Bergeron, 489 U.S. 87, 109 S.Ct. 939, 103 L.Ed.2d 67 (1989). The formulation in Johnson, as the court pointed out, was itself consistent with the then-current ABA Code of Professional Responsibility. Id. at 719.
The point I wish to make in this article is that paying close attention to what the attorney has accomplished for the client, and distinguishing that from what the client had to begin with, or would have had anyway, will give the judge more guidance than anything else in arriving at a reasonable fee. When that focus is missing, a fee award will usually bear little relationship to anything that is rationally justifiable. A value-based analysis won't provide the specific answer, of course; it won't tell the judge what fee to award. But it will keep the judge on the right track and illuminate the fact that some traditional factors may have little or no application to a particular case.
While some of the factors listed in the ABA Model Code do not focus on the benefit to the client (e.g., whether the employment will preclude the lawyer from accepting other employment), factors (1) and (4), which refer to the quality of the legal service and the results obtained, clearly emphasize the importance of that consideration. It would be impossible to argue that the value of the service to the client is not among the more important factors, if not the most important factor, in determining a reasonable fee. If the service does the client little or no good, it would be very difficult to justify a substantial fee. On the other hand, if as a result of the service the client obtains a substantial benefit he would not otherwise have had, or would have realized to a substantially lesser extent, a reasonable fee should ordinarily be one that is substantial.
The Event
In this discussion of what valuable services a lawyer renders a client, it is useful to observe, at the outset, that the lawyer has nothing to do with the creation of the facts of the case. Some event causes, or allegedly causes, injury to the client. It may be an accident resulting in personal injury or death, a refusal to perform a promise, an exposure to a toxic substance, a fraudulent misrepresentation, a discriminatory discharge from employment, or any of a host of other occurrences which can cause injury leading to consultation with a lawyer. The defendant's alleged wrongful conduct, whatever it may be, has occurred without any involvement of the lawyer. Likewise, the client's injury has been sustained before the lawyer is retained, and the lawyer has nothing to do with its occurrence or severity.
Only when the defendant's alleged wrongdoing and the client's injury have occurred will the lawyer enter the picture. The role of the lawyer, simply put, will be to attempt to obtain appropriate compensation for the injured client. The value of the lawyer's services will lie in the extent to which those services, as opposed to entirely independent factors, are responsible for the fact of the client's recovery and the amount of that recovery. It follows, therefore, that in order to determine value, the judge must examine the kinds of services the lawyer has performed and their relationship to the fact and size of the client's recovery.
I will now discuss the various kinds of legal services a lawyer might perform in the step-by-step development of a typical client's case.
Investigation of the Occurrence
I have oversimplified the matter by asserting that the client will consult the lawyer when he believes he has been injured by the wrongful act of another. That is the usual situation, but there are other situations where the client is unaware of the wrongdoing, or even the injury, and the lawyer is at least partially responsible for bringing either or both to light. There is still such a thing as old-fashioned investigation conducted by or for lawyers that results in the discovery of causes of action which, but for that investigation, might remain unknown. Obviously, that kind of productive pre-filing investigation is of value to the client, and it should be reflected in the amount of a reasonable fee.
By contrast, there are situations where the necessary investigation is performed by persons having no connection with the lawyer and whose work product the lawyer simply makes use of. For example, in the tort area, medical researchers at universities or government agencies conduct scientific studies leading to the conclusion that a particular substance or product is a cause of injury or disease. These studies are conducted over long periods of time by eminent experts and can be enormously expensive. The studies are published and available for use by attorneys, some of whom subscribe to medical and other scientific journals. Another example is the accident investigations conducted by the National Transportation Safety Board and the Federal Aviation Administration. The activities of these investigators usually include taking statements from all witnesses with relevant information and can even include such monumental undertakings as raising fragments of a jetliner from the ocean floor and reassembling them in an attempt to determine the cause of a crash. All of the information obtained in this way is available to interested attorneys, virtually free of charge.
Sometimes the disclosure of facts indicating possible or even probable liability is made by the prospective defendant itself, as where a manufacturer announces recall of a product, or a company reports in a proxy statement some error or omission made by its management in the previous quarter.
Cases involving extraordinarily large settlements are often class actions filed shortly after public disclosure of such scientific studies, governmental investigations, or other kinds of information indicating the likelihood of fruitful litigation. Lawsuits are even filed while the scientific investigation is in progress and before any definite conclusion has been reached, with the hope that discovery during the litigation can track the progress of the scientific inquiry. Such haste may be prompted in part by the desire of attorneys to obtain class certification and be named class counsel.
The fact that an attorney has utilized information developed and disclosed by others in order to determine that litigation is warranted does not, of course, mean that the attorney is not entitled to be well compensated for prosecuting the case to a successful conclusion. My only point is that, in assessing what value to assign to the attorney's opinion that a claim is warranted, the judge who may have occasion to rule on the fee question should consider the extent to which the attorney relied on the work of others. If, on the basis of public disclosures, a reasonable likelihood of successful litigation would be apparent to a legal novice, the value of the attorney's judgment is not as great as it would have been had he performed the necessary investigation himself. In short, ". . . the time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly," in the words of Rule 1.5(a)(1), are simply not as great as where the lawyer's own investigation brings the material facts to light.
Articulating the Claim
The client may know of the wrongdoing and of his injury, but will ordinarily not know what to do about it in any specific terms. He needs a lawyer to tell him whether he has a claim and to express that claim on his behalf. Here, the lawyer performs a valuable service. How valuable it is depends in large part upon how much skill is required to recognize what remedy the law might afford under the circumstances. The existence of a viable claim may be doubtful, and the lawyer may have to plow new ground. Successful legal pioneering is a pursuit that should be well rewarded. The doctrine of strict products liability, for instance, greatly expanded consumer protection by doing away with the need to prove negligence or privity and eliminating the defense of contributory negligence. Few of us would know or remember the names of the lawyers whose ingenuity contributed to the development of the strict liability doctrine. One can only hope that they were well compensated for their efforts.
Rule 11 of the Federal Rules of Civil Procedure recognizes the right of an attorney to file a claim that is warranted "by a nonfrivolous argument for the extension, modification, or reversal of existing law or the establishment of new law." Such recognition is a salutary thing. But it rarely comes into play in cases involving large recoveries of the kind likely to generate extraordinarily large fee requests. For instance, seldom do any of the cases consolidated for multidistrict litigation pursuant to 28 U.S.C. § 1407 involve complaints that set forth anything but claims that are actionable under well-settled legal principles. The typical products liability complaint will have a count in strict liability, a count in negligence, a count for breach of warranty and occasionally a count for fraudulent concealment or conspiracy — nothing new. Claims of securities fraud, patent or trademark infringement, antitrust violations and other staples of "complex" litigation are, again, pleaded in terms that are standard and, indeed, virtually boilerplate. New legal theories infrequently appear.
This is not to be critical of counsel who plead their cases under theories that fit the facts. This is precisely what they should do. Nor is there anything wrong with using standard pleading formats (provided care is taken to see that they do fit the particular facts of the case). Pleading the claim in this fashion is a valuable service to the client. As with the matter of pre-filing investigation, the point is that the value of the service is related to the degree of skill and effort required to perform it. A lawyer who reads in a medical journal that a particular substance has been shown to cause injury in humans, and that the substance is contained in a common household product, and then files a standard complaint on behalf of a client who has used the product and has been diagnosed as having the injury, has not done anything that a beginning lawyer would be unable to do.
Cases involving one or more claims that depart from the beaten track are easy to spot because the judge will be called upon to decide the defendants' inevitable motions to dismiss for failure to state a claim. The motions rarely go to the whole complaint, however, and usually address counts that would provide no different relief than the unchallenged counts. The value of adding these counts that trigger defense motions is open to question in certain cases.
Pretrial Discovery
The next step in the litigation is formal discovery by way of depositions, interrogatories, requests to admit, and document production requests, all for the purpose of finding evidence to support the claims and negate, or at least limit, the defenses. There are cases where discovery makes a real difference; weak claims become stronger, defenses are negated, smoking guns are uncovered. Sometimes the opposing side's expert witnesses are cornered into making significant concessions. However, discovery does not often produce such dramatic results. Witnesses say pretty much what the opponent expects they will, all but a few of the documents produced are useless, and smoking guns are something found in pulp fiction. Discovery, especially in large, complex cases, is enormously expensive and rarely worth the cost. One problem, however, is that one can rarely know in advance that this will be the situation. Hope springs eternal in litigation as everywhere else, and a diligent lawyer will often keep going past the point where there is any reasonable expectation of uncovering additional material that will be useful.
Very few cases are tried, and most litigation activity consists of pretrial discovery. When a lawyer petitions for fees, most of the activity cited in support of the requested fee is discovery activity. Without a trial, there is relatively little else to cite. Therefore, in cases that are not tried, and in which dispositive motions have not been time-consuming, the value of the attorney's services to the client is largely a question of what was accomplished by pretrial discovery. Doing discovery that yields no benefit other than committing the opposing party to a particular position can be valuable, and I do not suggest that the attorney is not entitled to compensation for the effort. But discovery that results in a significant addition to plaintiff's evidence of liability will be far more valuable. The point here is that there is no standard value for time spent in discovery, let alone any room for a presumption that each hour spent in discovery was productive and equal in value to any other hour spent in discovery.
It is not realistic to think that a judge can determine with any precision which hours were productive and which were not, or even what percentage of the overall discovery was productive and what percentage was not. No judge has time to make that kind of analysis. What judges can do, however, is ask counsel to explain in general terms what the formal discovery accomplished: What was the available evidence at the time suit was filed, before any formal discovery was conducted? What material evidence was added by the formal discovery? What difference did the new evidence make to the outcome of the case?
Lawyers are not used to answering questions like this, nor are judges used to asking them. But if court-awarded fees are to be based upon value delivered to the client, it is difficult to avoid them. And the inquiry need not be arduous. Given adequate notice, counsel should be able to describe the important evidence obtained in discovery that was not previously known. If such a description proves impossible, it does not mean that the question was unreasonable. It means that discovery turned up nothing that was new and useful.
Dispositive Motions
The last step on the way to trial or settlement — the dispositive motion-is usually a motion for summary judgment. Defendant's motion may present a real hurdle, even in a case where there is nothing novel about the nature of the claim asserted. There may be a very close question as to whether there is evidence of defendant's wrongdoing sufficient to create a genuine issue. In that kind of situation, a skillful presentation which defeats the motion will be of great value to a plaintiff who then goes on to negotiate a substantial settlement or win a substantial judgment. On the other hand, some dispositive motions have so little merit as to implicate the possibility of sanctions against the defendant for making the motion. Rule 11 has probably reduced the number of unwarranted summary judgment motions by defendants, but many of them still require relatively little effort on the part of plaintiff's attorney to obtain a favorable ruling.
Again, just as all discovery is not the same, the skill required to defeat a dispositive motion will vary according to the facts of the case.
The Risk Factor
Another of the Rule 1.5 factors is "whether the fee is fixed or contingent," and properly so. An attorney who takes a case on a "contingent" fee basis is in many cases providing the client something of great value: legal services that are free unless there is a recovery and for which any payment will come solely from the recovery. If the services are rendered competently and there truly is a significant risk of non-recovery, no one would question that the attorney is entitled to compensation for the element of risk over and above the straight value of the services themselves. Thus, in the single plaintiff case, the "contingent" fee is generally a significant percentage of the recovery, typically 33-1/3 percent.
A reward for risk is not warranted, however, where there is no real risk. That should be obvious enough. What may not be so obvious is that the question of risk needs considerably more analysis in most cases than it usually receives. Specifically, the question should be asked, risk of what? The paradigm usually suggested to justify a fee equal to a substantial percentage of the recovery is the lawyer who takes the case on a contingent fee basis, prepares it for trial, tries it to verdict and loses, and thus receives nothing for his extensive efforts. The scenario works in the case of a trial lawyer, by which I mean a lawyer who tries cases. But it has nothing to do with the lawyer who takes a case without any intention of trying it but instead with the intention of settling it. Virtually every case can be settled for something. The lawyer who settles a case taken on a percentage basis will usually receive a fee which is at least sufficient to provide reasonable compensation for the time he has spent on the case, and often the fee will be many times the amount necessary to cover the time.
See infra note 12.
For some elusive reason, the phrase "trial lawyer" is now used to refer generically to lawyers who represent plaintiffs in personal injury cases, whether or not they have ever tried a case.
An employment contract which provides for a fee payable only out of a recovery does call for a fee that is, literally speaking, "contingent." But to say that in the typical case the fee is really contingent would elevate form over substance. What the attorney commonly has in mind is not a contingent fee but a delayed fee. The fee is delayed until the anticipated settlement of the case is effected. There is nothing contingent about it.
In the Northern District of Illinois, a typical metropolitan venue, about 2 percent of the civil cases filed in district court actually go to trial. It is time we stop giving automatic credit for "risk" in situations where there is no risk. True contingency is the exception, not the rule.
Administrative Office of the U.S. Courts, Judicial Business of the United States Courts: Annual Report of the Director 156 (1997). The percentage for the 12-month period ending September 30, 1997, was 2.2 percent. Id. The nationwide percentage for all districts was 3 percent. Id. at 154.
It does not follow that the plaintiff receives a settlement in all cases that do not go to trial. Some cases are resolved against plaintiffs on dispositive motions and some are dismissed for want of prosecution or other reasons. But the fact remains that the overwhelming majority are settled and a very small percentage involve the risk and labor of a trial.
Many of the cases resulting in the largest settlements are undertaken on the assumption that there will be a settlement rather than a trial. Actual risk of non-payment for the attorney's services is minimal or entirely absent. In class actions, the risk of being found liable to a national class of injured persons often exerts pressure on the defendant to settle for a reasonable amount. The fact is that almost all such cases are settled rather than tried. There are even cases where the settlement agreement is reached before suit is filed and the parties jointly seek certification of a "settlement only" class and court approval of the agreed amount. There is no risk whatsoever of non-recovery in this type of situation, and a percent-age fee that purports to take account of some "risk" to the attorney will necessarily be excessive.
The question of risk is case-specific. The petitioning attorney should have the burden of demonstrating the nature and extent of the risk he took. Appropriate lines of inquiry might include the following: what did the liability situation look like at the time counsel undertook the case? Virtually no case involves a certainty of recovery. Granting that the attorney knew the plaintiff could lose if the case were tried, did that have any significance aside from being something the attorney factored into his calculation of the settlement value of the case? How much work has been done on the case that appears to have been genuinely directed toward preparation for trial? Is the fee petitioner an experienced trial lawyer, or a lawyer who has rarely, if ever, tried a case? (How many jury trials has the lawyer had? When was the last one?) The answer to these and similar questions will help the judge decide what enhancement, if any, there should be in order to compensate for a risk factor.
Resolution of the Case — Trial or Settlement
With the completion of discovery and the denial of any dispositive motions, the case is ready for resolution by trial or settlement. If the case is tried and plaintiff wins, the judge may have occasion to set reasonable fees for plaintiff's attorneys, normally because of a fee-shifting statute or because the case is a common fund class action. A trial usually facilitates the task of determining the value of the attorney's services. The judge has seen the lawyer perform and can assess the extent to which that performance contributed to the successful outcome of the trial. The judge heard the witnesses testify and got a feel for the extent to which the pretrial discovery was useful. For example, were witnesses impeached by their deposition testimony? Does the fee petition include time spent taking depositions of numerous witnesses who were never called at trial, suggesting that the depositions were unnecessary?
Cases that are tried, however, make up a very small part of the universe of cases in which judges must determine reasonable fees. This is because trials are the exception and settlement the rule. Moreover, the largest fees are usually sought in class actions, which are rarely tried.
See supra note 7.
Undoubtedly, a settled case is the most difficult situation in which to evaluate the services of counsel. If a judge were to avoid analysis and simply award the attorneys some arbitrary percentage of the settlement amount, the task would be very easy. But no conscientious judge would do it this way. It is not easy to see how any percentage, used as a fee determinant, could be anything other than arbitrary, because there is no relationship between any percentage, the attorney's services, and the amount of the settlement. The legal requirement that the judge set a "reasonable" fee requires a rational basis for the amount awarded and that, in turn, inescapably leads to an inquiry about the value of the legal services. An amount equal to that value will necessarily equal some percentage of the recovery, but that is a coincidence rather than a factor in the analysis.
Associated with a court's power to allocate part of the recovery to counsel is its obligation to limit the fee to a reasonable amount. A court abuses its discretion if it allows a fee without carefully considering the factors relevant to fair compensation.
Allen v. United States, 606 F.2d 432, 435 (4th Cir. 1979).
The same can be said of the time-honored 33-1/3 percent customarily used in the single-plaintiff personal injury case. Its general acceptance is probably due more to its age than anything intrinsic that commends it. In fact, some attorneys have reduced their customary fee to 25 percent.
I suggest that there are two basic inquiries that will be helpful in the settlement situation. First, what was the value of the attorney's services in bringing about settlement? Second, what did the attorney's services have to do with the amount of the settlement? The inquiries overlap to an extent, but there is an important aspect in which they do not, which I will discuss shortly.
The fact of settlement (as opposed to the amount) could be largely due to the diligence and skill of plaintiff's attorney. The attorney may have brought the existence of the claim to light by pre-filing investigation, developed valuable evidence in pretrial discovery, skillfully handled dispositive motions and persuaded the defendants that, unless they settle, they face a jury trial they are unwilling to risk. The settlement amount is clearly adequate to compensate for plaintiff's injuries. This scenario is at one extreme. At the other, the case is essentially the same as it was when the attorney filed it based on the investigation performed by others; the pleading and motion practice was undemanding; formal discovery added nothing remarkable; and counsel's ability or willingness to try the case is unclear to the defendants. The defendants offer an amount so near the low end of the range of reasonableness that, if court approval is required, as in a class action, the approval is given with hesitation.
The judge may be required to give approval even if in his opinion the case should be worth substantially more than the amount of defendant's offer. While the judge has an obligation to protect the class from what clearly is an unfair settlement, he does not have a right to substitute his judgment for that of counsel where the matter is fairly debatable.
Because settlement of a class action, like settlement of any litigation, is basically a bargained exchange between the litigants, the judiciary's role is properly limited to the minimum necessary to protect the interest of the class and the public. Judges should not substitute their own judgments as to optimal settlement terms for the judgment of the litigants and their counsel.Gautreaux v. Pierce, 690 F.2d 616, 638 (7th Cir. 1982) (quoting Armstrong v. Board of Sch. Dirs., 616 F.2d 305, 315 (7th Cir. 1980), overruled on other grounds by Felzen v. Andreas, 134 F.3d 873 (7th Cir. 1998)). See also Ruiz v. McKaskle, 724 F.2d 1149, 1152 (5th Cir. 1984) ("[I]n the absence of fraud or collusion, the trial court `should be hesitant to substitute its own judgment for that of counsel.'") (quoting Cotton v. Hinton, 559 F.2d 1326, 1330 (5th Cir. 1977), See also 7B Charles Alan Wright, Arthur R. Miller, Mary Kay Kane, Federal Practice and Procedure § 1797 (2d ed. 1986).
The most typical situation probably combines elements of both scenarios, and the judgment as to what the attorney really contributed to bringing about the settlement, other than filing the suit and performing fairly routine tasks, is difficult to make.
It is understandable that plaintiff's counsel believes his or her efforts have "brought the defendants to the table" and forced them to settle out of fear of what might befall them if they refuse. It is also natural that this attitude will be reflected in the amount of the fee requested. In weighing the plaintiff's benefit from the settlement, the judge's own reaction to the proposed amount will be of significance. If the amount appears to be what virtually any attorney would be able to obtain from the defendants to settle the case, it is obviously not a situation in which any kind of bonus for extra value is warranted. In this connection, the seventh factor in the Rule 1.05 formulation is often cited — "the experience, reputation, and ability of the lawyer or lawyers performing the services." A lawyer will claim that his or her "reputation" affected the defendant's willingness to settle. This could well be true. Certainly a lawyer's reputation for trying jury cases to large verdicts is a factor that will induce most defendants to offer more in settlement than they would to settle the same case being handled by a lawyer with no known trial experience. But the fact is that many lawyers who handle cases resulting in large settlements have had little or no trial experience. They have no reputation for having won large jury verdicts because it has never happened. They may never have tried a case to verdict. Their experience, and their reputation, is in connection with settling cases. This, too, can be a skill, and there are lawyers who have acquired reputations for being able to negotiate favorable settlements for their clients. However, a skilled negotiator who is known as one who will not take the case to trial is not a lawyer whose "reputation" has induced the defendants to settle.
So far, I have been discussing the settlement of an individual case, or perhaps a case involving the separate claims of two or three individuals who have been joined in the same complaint. The total settlement amount in such cases is usually relatively small in comparison to the total amount paid in large class actions. Here, it is particularly important for the judge to recognize the relationship between the value of the attorney's services and the total amount of the settlement. Relatively modest payments to individual class members can result in enormous settlements simply as a function of the number of class members. A settlement of $500 per class member results in a total settlement of $50 million if there are 100,000 class members. The $500 payment (less fees) may mean little to the individual class member (who may not even realize he has been "injured" until he receives an opt-out notice in the mail). The claim of each class member is identical, so that the factual and legal issues are no different from what they would have been had only one claimant been involved. If the requirements for class certification under Rule 23 of the Federal Rules of Civil Procedure were easily met, as they are in many class actions, the additional work occasioned by the class aspect of the case would be mostly ministerial. Processing the claims of individual class members once overall settlement has been reached is ordinarily handled by professional claims administrators who are paid separately from the attorneys.
In short, the aggregation of 100,000 individual claims turns the $500 case into a $50 million case. Class counsel had nothing to do with the fact that 100,000 persons, rather than only one, were injured. The aggregation of the claims is a sensible procedure contemplated by Rule 23, but it owes nothing to the ingenuity of counsel.
But the case has now been settled, and there is a fund of $50 million. To what extent should the question of reasonable fees be affected by the amount of the settlement? I do not suggest that the fee should be measured by the $500 settlement shares of the attorney's few initial clients, the class representatives. The claims of those few clients would not have warranted a lawsuit, and that, of course, is one of the reasons a class action was appropriate. A large number of small claims, none justifying an individual lawsuit, can be combined and efficiently prosecuted in one action. There would be no motivation for any attorney to file any class action, large or small, if fees were to be measured solely on the basis of the class representatives' shares of the total recovery. Some appropriate account must be taken of the incidental benefit to the large number of class members whose presence in the case has generated the large settlement amount. The question is how much the fee should reflect the additional amount generated by the size of the class.
There is no easy answer, and this may be the most difficult question in present-day jurisprudence concerning attorney's fees. As noted at the beginning of this article, some of the fees being requested in recent class action settlements have caused the courts and the legal profession to come under renewed criticism. If the fees are justified, so be it; the fact that they turn out to be large should not make the court shrink from doing what it believes is proper. Attorneys are entitled to compensation that is commensurate with the value their services have had in producing the result in the case. But where the award is disproportionate to any value the attorney could possibly have imparted to the case, the judicial system suffers not only from the notoriety of that case, but from the unfortunate precedent the award will set. What one judge does is cited to other judges; the common law of fees is a reality. Each large award is duly recorded and cited to the next judge in a continuing escalation.
The greatest single factor that accounts for fee awards amounting to tens of millions of dollars in class action and other multiple-plaintiff settlements is undoubtedly the size of the settlement. An additional explanation is that courts are increasingly using a percentage approach. In a contingent fee case involving a small number of plaintiffs, a percentage of the recovery, even a fairly large percentage such as 33 1/3 percent, will frequently yield a result that is fair to both the attorney and the client in light of the value provided to the client by the attorney. But where the size of the settlement is due to the fact that it resolves not just one claim, but large numbers of identical claims, and the services of the attorney are essentially the same as would have been required had there been only one claim, it makes no sense to gear the fee award to the total dollar amount of the settlement. The attorney is entitled to be compensated for whatever work was involved in aggregating the claims in a class action (in most cases, a routine task) and overseeing claims administration by the separately-paid claims administrators. However, treating the recovery of every class member in an identical way for fee purposes, and awarding the attorney a fee based upon a percentage of the total recovery, cannot be justified, even if the percentage is "small," as is frequently argued in support of percentage fees in class actions. The size of the percentage is irrelevant. The size of the fee is what counts. A percentage that sounds very small ("only 5 percent") can yield a fee that is enormous and palpably unjustified.
Even in the single-plaintiff case, however, a percentage fee will not be justified where there is no real contingency. "When a relatively small amount of work is performed, or the case does not involve complex services or risk of nonrecovery, courts will not hesitate to find contingent fees unreasonable." Model Rules of Professional Conduct Rule 1.5 cmt. (1983).
The settlement of a case involving aggregation of a large number of claims is analogous to the situation where an attorney working on an hourly basis performs work simultaneously for different clients. The ABA Committee on Ethics and Professional Responsibility has ruled that a lawyer charging on an hourly basis is not permitted to bill the same time to more than one client and should not, absent consent, charge a subsequent client the full amount when he recycles work product produced for a prior client.
See ABA Comm. on Ethics and Professional Responsibility, Formal Op. 379 (1993):
A lawyer who spends four hours of time on behalf of three clients has not earned twelve billable hours. A lawyer who flies for six hours for one client, while working for five hours on behalf of another, has not earned eleven billable hours. A lawyer who is able to reuse old work product has not re-earned the hours previously billed and compensated when the work product was first generated. Rather than looking to profit from the fortuity of coincidental scheduling, the desire to get work done rather than watch a movie, or the luck of being asked the identical question twice, the lawyer who has agreed to bill solely on the basis of time spent is obliged to pass the benefits of these economies on to the client. The practice of billing several clients for the same time or work product, since it results in the earning of an unreasonable fee, therefore is contrary to the mandate of the Model Rules.
But as I have conceded earlier, there must be compensation for bringing the class action; otherwise, there will be no class actions. Incremental compensation should be gauged to provide the necessary incentive. What that is will depend on the facts of the case. What is the benefit to the class? Did each class member receive something substantial, or merely a token payment? How much work was required to make it a class action? Was it a case where the court had to be persuaded that a class was appropriate, or was it obvious from the outset that all of the requirements of Rule 23 were met?
Something like the "multiplier" concept used in a lodestar analysis might be appropriate to determine a reasonable fee in a class action settlement. If, say, $50,000 would be the reasonable value of the attorney's services (considered apart from the amount of the recovery) if the class representatives had been the only plaintiffs, and the court determines that an appropriate incentive for bringing the class action would be a doubling of that amount, then the fee would be $100,000. The total amount of the settlement, which could be in the tens of millions of dollars due to the number of class members, would not be a major factor in the calculation. Yet reasonable compensation would be achieved, and the attorney would be suitably rewarded for taking on the representation of a class of plaintiffs.
The Time Required and Number of Lawyers Participating
I have been using the words "lawyer" and "attorney" in the singular, throughout this article. In fact, there are many cases in which more than one lawyer will represent the plaintiffs. The number may be appropriate or, in some cases, excessive. As the Third Circuit Task Force observed, the "lodestar" method of determining fees has been troublesome in this regard:
These various forms of running the meter are accompanied in a number of cases by the presence of far too many law firms submitting fee petitions.See supra note 3. The value-based analysis I have proposed in this article should eliminate the need to calculate the hours spent by each attorney and the difficult, often impossible task of identifying which hours are superfluous, duplicative, or otherwise questionable. The important issue is what the work of the attorneys contributed to the result of the case, not how much time they spent or how many of them participated. The judge should give general consideration to the time actually required to accomplish the result. Time is one — but only one — of the items mentioned in the first factor of Model Rule 1.5. But the matter of time should not preoccupy the judge as it did in the lodestar approach, and it certainly should not overshadow the main inquiry into the value of the services rendered. This will simplify the inquiry for the judge and benefit the efficient and productive attorney as well. If the skill of the attorney accomplishes a good result in less time than someone less skillful would require, there should not be a penalty for efficiency. The only lawyers who will be disadvantaged by a value-based analysis are those who are used to receiving compensation on an hourly basis without regard to accomplishment.
Supra note 4.
Once the judge has determined the reasonable fee, giving appropriate weight to the time element, there will be no need to apportion the fee among several lawyers unless more than one firm is involved and they are unable to agree on their appropriate shares. In that event, the judge will need to make the apportionment on the basis of the relative contribution each firm made to the result in the case.
Conclusion
Some members of the bar resent the limitations imposed by judges on their "right" to collect fees they think are appropriate. This resentment is misplaced, for at least two reasons. First, in the typical context in which judges have occasion to determine fees, the attorney has no right to fees apart from the judicial determination. No contractual right of the attorney is involved. I mention this to emphasize that a judge should not feel a need to apologize for taking an independent stance on the matter of attorneys fees or for disagreeing with what the attorney asserts is reasonable. Too often the attitude of attorneys puts judges on the defensive. There is no reason to be defensive. The judge is simply doing his or her job.
The second reason there is no basis for attorney dissatisfaction with the process is that the criteria the courts apply to determine reasonable fees are those established by the organized bar itself, in cooperation with the courts, and explicitly set forth in the Model Rules of Professional Conduct. Rule 1.5 of the ABA Model Rules is the latest incarnation of what has been accepted by the bar for generations: fees are not simply a matter of contract, or of what the traffic will bear; they are a matter of professional ethics, governed by standards designed to ensure that they will be fair to the client as well as to the attorney.
As I acknowledged at the beginning of this article, my suggestions do not amount to a formula that will point to the right answer or, more correctly, the right range of possible answers, in any particular case. The very term "reasonable" implies the case-specific nature of the question. But an analysis directed toward identifying services rendered by the attorney that have led to the result in the case, and distinguishing those from services of a routine or non-productive nature, and from circumstances the lawyer had nothing to do with, will keep the judge's focus where it ought to be. And it is likely to result in the kind of reasonable fee contemplated by the longaccepted ethical standards of the profession.