On The Case

In biggest cases, class action lawyers are low-balling fee requests - and that's a good thing

U.S. District Judge Carl Barbier of New Orleans ruled last week that the plaintiffs' lawyers who led the Deepwater Horizon oil spill litigation against BP are entitled to about $555 million in fees and about $45 million in costs for their work on what the judge calls the biggest class action settlement in U.S. history. The $555 million common benefit award will be presumably be shared by the 93 lawyers who signed the fee application last July.

As a raw number, $555 million is an awful lot of money, even divided 93 ways. But in relative terms, not so much. Judge Barbier, citing an affidavit in support of the fee request from Vanderbilt law professor Brian Fitzpatrick, put the total value of the two big BP class settlements for economic damages and medical exposure at about $13 billion. So attorneys' fees, by Judge Barbier's calculations, are only 4.3 percent of the class recovery.

That percentage is less than the fee allocation in all but two “super-mega-fund” settlements, which is Fitzpatrick’s coinage for class action settlements of $1 billion or more. According to the Vanderbilt prof, there have been 21 class action settlements of more than a billion dollars in U.S. history. The average fee award in these class actions is 9.92 percent of the class recovery; the median is 7.4 percent. It’s worth noting, as Fitzpatrick does in his affidavit, that in one of the two super-mega cases in which plaintiffs’ lawyers were awarded a lower percentage than the lawyers in BP, Milberg Weiss was class counsel - and was, at the time, facing criminal charges (unrelated to the case).

Judge Barbier also did a lodestar cross-check to make sure the $555 million fee award wasn’t out of line with the actual work BP lawyers performed. Plaintiffs’ lawyers performed 527,081 hours of legal work for the benefit of the two BP classes. (That’s distinct from the hours lawyers worked for their own individual clients.) Partners put in 268,297 hours; associates, 180,302 hours; and non-lawyer professionals, 78,482 hours. The judge said $450 per hour was a reasonable blended billing rate, based on a National Law Journal survey from 2014, among other considerations. Class counsel’s lodestar fees, he found, were about $237.2 million, so $555 million represented a lodestar multiplier of about 2.34.

That figure, too, is below the average in super-mega-fund litigation. In the 18 cases in which lodestar information was available, according to Fitzpatrick, the average multiplier was 3.14 and the median was 2.80.

There’s another crucial fact you need to know to evaluate the BP fee request: BP agreed to it. In the BP case, as in almost-as-gargantuan VW clean diesel class action, plaintiffs’ lawyers negotiated fee deals with defendants after and apart from reaching a settlement for class members. Class counsel argue that separating fee negotiations from the class settlement resolves conflicts and keeps more money in the pockets of class members because the defendant, rather than the class, pays plaintiffs lawyers’ fees.

Some class action critics claim class members don't really benefit from these post-settlement fee deals because defendants factor anticipated class counsel fees into their settlement strategy. But at the very least, ex post facto fee agreements have good odds of approval from trial judges as long as they are derived from arms-length negotiations.

We don't know yet what fee award class counsel will request in the VW clean diesel litigation, in which the benefits for class members are worth about $10 million. Lead counsel in the VW case, Elizabeth Cabraser of Lieff Cabraser Heimann & Bernstein, is due to file a fee request for the plaintiffs steering committee next Tuesday. We do know from a previous filing, however, that the request will not exceed $332.5 million in fees and costs. Reuters reported in October that Volkswagen has consented to pay $175 million.

Even the higher number represents less than 3 percent of the benefits for VW car owners and lessees, which means the lawyers who led the case will receive a historically tiny percentage of the recovery. (That’s not counting whatever plaintiffs end up paying their individual lawyers.) I’m guessing the lodestar multiplier in the VW case will be much higher than in BP, since VW settled in a matter of months and BP dragged on for years, including bellwether trials and 90 trips to the 5th U.S. Circuit Court of Appeals, according to Judge Barbier.

Regardless, leading plaintiffs’ lawyers in the BP and VW cases - apparently the two biggest-ever class action settlements - seems to be operating with a clear strategy of modesty. One school of thought among plaintiffs’ lawyers is to assert aggressive fee requests because you’re not going to get money you don’t ask for. That approach accounts for the almost daily headlines you see about trial judges slashing fees awarded to class action lawyers.

Indignant judges make for good copy, but as a matter of public policy, the class action system suffers when plaintiffs’ lawyers seem greedy - even more so when they seem greedy at the expense of class members, who are their nominal clients.

The BP and VW lawyers seem to be thinking further ahead than plaintiffs’ lawyers looking to score big from a single settlement. For repeat mass litigation players, it’s simply good business to request fee awards that emphasize the economies of scale that are supposed to be promoted by class actions.

Professors like Fitzpatrick sometimes argue that judges disincentivize plaintiffs’ lawyers by awarding smaller percentage awards in super-mega fund cases, sending the message that class counsel won’t be rewarded for obtaining the most possible money for class members. That’s a fine theory, but the lawyers in the BP and VW cases seem to prefer preserving the system - admittedly, a system that rewards them pretty lavishly - to squeezing out every possible dollar from their cases.