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Common benefit fees come from lawyers
Whose money pays
Clients sign individual retainers with their own law firms, and those can run anywhere from 25 to 40 percent. The common benefit holdback is a redistribution of those attorney's fees. Picture a $100 recovery in which the attorney gets $30 and there is a 10 percent holdback: the $10 comes out of the attorney's $30. A client cannot ethically pay more than the retainer says.
Why firms contribute
The holdback exists because of the firms that advertise for cases, sit back, and wait for other firms to litigate and build a settlement. Then they want to put their cases into it. Supreme Court cases going back 40 years hold that it would be unjust to let them freeload on all that work without contributing to the fees of the lawyers who did it.
Size and court approval
Bigger funds carry smaller percentages. In Vioxx, a $4.85 billion settlement, the common benefit pot was 6 percent of the total.
A judge has to approve it with analysis. There must be a reasonable basis for an attorney's fee, and a court makes findings firm by firm about what each one did to earn it.
Where does the common benefit principle come from?
The principle goes back to Trustees v. Greenough, an 1881 Supreme Court case in which a bondholder who sued to protect a trust fund for all the bondholders was allowed to recover his costs from the fund. The Court reasoned that everyone who shared in the fund had benefited from the effort. In Boeing v. Van Gemert in 1980, the Court applied the same logic to attorneys, holding that a lawyer who creates a fund for others may be paid a reasonable fee from it. Courts call this the common fund doctrine.
Why do bigger settlements pay smaller percentages?
Fee percentages in large funds tend to shrink because the lawyers' work does not grow in step with the size of the pot. Empirical studies of class action settlements, including work by law professors Theodore Eisenberg and Geoffrey Miller, have found that the percentage falls as the settlement grows. Courts often point to this pattern when reviewing requests in very large cases. In a settlement of several billion dollars, even a few percent is a very large sum.
How do judges check the lawyers' work?
Courts commonly compare the requested percentage with a lodestar, which multiplies the hours a firm worked by a reasonable hourly rate. If the percentage would pay far more than the lodestar supports, judges can reduce it. Firms usually submit time records, and in large cases a court may appoint a committee or special master to review them. The lodestar method traces to the Third Circuit's 1973 decision in Lindy Brothers Builders v. American Radiator.
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