Lawyers Seeking Fees Can Be Less Shamelessly Self-Interested (1)

Welcome back to the Big Law Business column. I’m Roy Strom, and today we look at something class-action lawyers don’t do: hire their own lawyers to argue fee petitions. Sign up to receive this column in your Inbox on Thursday mornings.

Lawyers’ process for getting paid in class-actions is well known. They file a fee petition, telling a judge how long they worked on a case and describing the results they achieved. Then they argue for how much money they deserve. The same process plays out in other types of cases, including frequently in Delaware Chancery Court.

The result of the process is a monumental moment for law firms. The judge’s decision will determine the success of the financial investment in the case. And fees are exiting the stratosphere.

After successfully challenging Elon Musk’s lucrative compensation package at Tesla Inc., a group of lawyers asked the Delaware Chancery Court to award them shares at one time valued at more than $7 billion.

Who is the best lawyer to call to make that $7 billion argument? Well, that’s the point of this column. There isn’t one.

I’ve covered fee petitions frequently, since they offer a rare look at the economics of a real case. Recently, a simple question started gnawing at me: Why do lawyers make these arguments for themselves?

I wondered if there was a case to be made for proactively hiring lawyers to make these specialized arguments, in part because of challenges I’ve seen with the current process.

The arguments firms make for themselves sometimes feel shamelessly self-interested. The logic of judges’ decisions seem increasingly complex. Members of the class sometimes challenge fee petitions, creating disputes over money between lawyers and their own clients.

And I have seen instances where lawyers press arguments for themselves—both in style and substance—that judges disliked. “If I had $187 million on the line, I’d probably lose my cool a little bit too,” a federal appeals court judge told a Quinn Emanuel partner arguing for his firm’s nine-figure fee in 2022.

Lawyers often hire academics to brief the court on how their fee request stacks up to historical cases.

But there’s nothing stopping them from going further. Firms in some cases might benefit from the expertise and objectiveness that an outside lawyer could provide. Plus, so much of the law has become niche and specialized—fee attorneys would fit that trend.

There isn’t a specialized bar that markets expertise around class-action fee petitions. I found only one case where lawyers brought in their own counsel to argue for their fees—more on that later.

Standing Up for Their Work

I asked experts why the status quo has existed for so long, given my questions about bringing in outside lawyers.

One explanation stems from class counsels’ intimate understanding of the case and the results they achieved.

These lawyers have developed trust with the judge throughout the process: They first convinced the judge they were the right pick to steward the case. Then they achieved a result the judge signed off on.

Those lawyers stand on the results to argue why they deserve their fee. It’s not obvious that outsiders hired to make that argument would know more about the work the lawyers did or have developed more credibility with the judge.

“One of the key things about getting final approval in a class action and getting fees paid in any case is establishing yourself as skilled and credible in front of the judge,” class-action lawyer Jay Edelson told me in an email. “I don’t want to look like I’m hiding behind someone else.”

A second explanation is based on the purpose of fee petitions.

The petitions are designed to be a substitute for negotiations between the lawyers and the class, which has so many people it can’t easily negotiate as one body. In typical negotiations over fees, lawyers don’t hire counsel to barter with their clients—they handle it themselves.

“I trust markets to come up with good working arrangements,” said Charlie Silver, a professor at the University of Texas law school who gives expert testimony in class-action fee requests. “Since I’ve never heard of a law firm farming out responsibility for arguing fees in this context, I’m confident that there’s a good reason for the existing practice.”

Judges Want More

Still, there is evidence that fee petitions have become more complicated. Judges are looking for better information.

The Delaware Court of Chancery was so torn over calculating a fee award in a Dell Technologies Inc. securities litigation last year that it asked academics to weigh in.

The request for advice told me the court either didn’t completely trust the briefs coming from the lead counsel or that the documents didn’t give a full picture.

Two sets of academics submitted competing answers to the question: Should courts discount the percentage of the lawyer fee as the size of the underlying settlement grows larger? It’s a question that hits at the tension between rewarding attorneys for good work and avoiding signing off on a windfall.

The court last month awarded the full $267 million fee to the lawyers who obtained a $1 billion settlement, declining to apply a discount as the fee grew.

Calling for More Experts

The Delaware court isn’t alone in wanting better information.

Three university law professors argued in a paper last year that plaintiff’s lawyers often try to convince judges their fee request is reasonable by comparing it to cherry-picked cases that paid lawyers the most money.

The academics argued that courts should instead force lawyers to provide the average fee percentage and multiplier (an award for successful representation) in cases involving settlements of similar sizes.

“I’d love to see special masters appointed in many of these cases to review billing records and the law firm’s performance in the case,” said Jessica Erickson, a University of Richmond law school professor who co-authored the paper. “We need more experts with specialized knowledge about the area as well as the incentives to ask hard questions.”

An Alternative

The law professors didn’t suggest lawyers need to hire counsel to argue for their fees. But one lawyer who did just that provided a compelling argument for the idea.

Stuart Garson is not your typical class-action lawyer. He’s a workers’ compensation attorney in Ohio. He filed a 2007 lawsuit against the state, arguing it had charged excessive premiums to certain companies.

The suit led to a change in state policy and, in 2014, a $420 million settlement.

When it was time to argue for the law firms’ fees in the case, Garson said he never gave it a second thought. He hired another Ohio attorney to make his case.

It seemed like “common sense” that a judge would prefer to hear about how successful the case was from somebody other than the lawyer who stood to gain from that argument, Garson said.

His decision paid off. The judge signed off on the request for attorneys’ fees amounting to $136.5 million, or nearly one-third of the settlement total.

Garson figured it was standard practice hire separate attorneys to make fee arguments. It is not.

Brian Fitzpatrick, a Vanderbilt University law school professor who is one of the country’s leading fee petition experts, said Garson’s case is the only instance he’s ever seen a lawyer hired specifically to make a fee argument.

The case—while a decade old—holds a place in what might be considered the class-action fee Hall of Fame.

It was cited last month as one of 51 class-actions that recovered $100 million or more and paid lawyers 30% or more of that recovery. It also was one of only 12 of those cases that went to trial. (Arguably the greatest fee petition success, according to the expert’s table, came in a class-action involving plutonium releases from the former Rocky Flats nuclear weapons site northwest. The lawyers received 40% of the $375 million settlement.)

The citation was in an expert report arguing for a 33% lawyer fee in a series of settlements totaling nearly $1 billion. The settlements were the result of another prominent class-action, antitrust litigation against the National Association of Realtors and a group of major brokerages.

Garson is proud of his case and the changes it made for Ohio worker’s compensation policies, but he won’t take a victory lap. “My father told me that self-praise stinks,” he said.

As for his strategy of hiring a lawyer to argue for his fees, he said, “I enjoyed being more of a spectator in that than being my own advocate. I’d have been really uncomfortable standing up there tooting my own horn.”

Worth Your Time

On Cahill: Cahill Gordon & Reindel managing partner Herb Washer tells Meghan Tribe about his plans for the firm after a slump in its leveraged finance practice and rare partner departures.

On Political Fundraising: Lawyers gave more to Vice President Kamala Harris in the first 10 days of her presidential campaign than to former President Donald Trump in nearly two years, Tatyana Monnay and K. Sophie Will report.

On Law Firm Mergers: Bloomberg Law columnist Rob Chesnut is not convinced mergers will lead to better service and price savings for clients, who says working with mega-firms comes with tradeoffs.

That’s it for this week! Thanks for reading and please send me your thoughts, critiques, and tips.