Fee Sharing in Class Actions
nish
lawsuit on behalf of shareholders of a public corporation. Is it possible
in such cases for A to negotiate with B to receive some small percent (e.g.,
5%) of the actual legal fees received in the case, instead of participating
directly as a member of the class represented by the firm?
It might well be the case that no law firm would ever agree to this for
business reasons, but I want to know if such an agreement is forbidden by
any law or any ethics rules within the legal industry apriori.
nish
Mike Jacobs
> Assume some person A recruits a class action law firm B to engage in some
> lawsuit on behalf of shareholders of a public corporation. Is it possible
> in such cases for A to negotiate with B to receive some small percent (e.g.,
> 5%) of the actual legal fees received in the case, instead of participating
> directly as a member of the class represented by the firm?
No. That would violate the Rule of Professional Conduct making it
unethical (in all but a very few, tightly restricted instances) for an
attorney to share a legal fee with a non-lawyer.
> It might well be the case that no law firm would ever agree to this for
> business reasons, but I want to know if such an agreement is forbidden by
> any law or any ethics rules within the legal industry apriori.
See ABA Model Rule of Professional Conduct 5.4, or the version of it
adopted in your state (most have similar rules, but YMMV):
http://www.abanet.org/cpr/mrpc/rule_5_4.html
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Stuart A. Bronstein
> Assume some person A recruits a class action law firm B to
> engage in some lawsuit on behalf of shareholders of a public
> corporation. Is it possible in such cases for A to negotiate
> with B to receive some small percent (e.g., 5%) of the actual
> legal fees received in the case, instead of participating
> directly as a member of the class represented by the firm?
Well, a lawyer in California was recently disbarred and (I think)
sent to jail for doing just that.
-Barry-
> Is it possible
> in such cases for A to negotiate with B to receive some small percent (e.g.,
> 5%) of the actual legal fees
Read up on incentive awards. I wanted to be the first non-class action
plaintiff to get an incentive award based on some case law that said
it's awarded for public service. It didn't work, but you have a better
chance since you have an actual class action case.
Seth
nish <ni...@nunya.org> wrote:
>Assume some person A recruits a class action law firm B to engage in some
>lawsuit on behalf of shareholders of a public corporation. Is it possible
>in such cases for A to negotiate with B to receive some small percent (e.g.,
>5%) of the actual legal fees received in the case, instead of participating
>directly as a member of the class represented by the firm?
Not in the US: it's a violation for anybody not a lawyer to share in
legal fees.
Seth
Mike
> On Oct 26, 11:42 pm, "nish" <ni...@nunya.org> wrote:
>> Assume some person A recruits a class action law firm B to engage in some
>> lawsuit on behalf of shareholders of a public corporation. Is it possible
>> in such cases for A to negotiate with B to receive some small percent (e.g.,
>> 5%) of the actual legal fees received in the case, instead of participating
>> directly as a member of the class represented by the firm?
>
> No. That would violate the Rule of Professional Conduct making it
> unethical (in all but a very few, tightly restricted instances) for an
> attorney to share a legal fee with a non-lawyer.
>
>> It might well be the case that no law firm would ever agree to this for
>> business reasons, but I want to know if such an agreement is forbidden by
>> any law or any ethics rules within the legal industry apriori.
>
> See ABA Model Rule of Professional Conduct 5.4, or the version of it
> adopted in your state (most have similar rules, but YMMV):
>
> http://www.abanet.org/cpr/mrpc/rule_5_4.html
I understand the basic idea behind that rule but let's say that a law
firm was representing a class and was suing for $10,000,000 and was
going to collect 50% (yeah, it's high but it makes for round numbers
here.) Then the jury awards $1,000,000,000 instead. Could the law firm
then say "hey, we only expected to make $5,000,000 off this. We would
have been ecstatic to have received $50,000,000 off this. We think that
$500,000,000 is way too much. We're going to cut our fee to only 10% on
this case."
I.e. would that be considered "fee sharing" where it was decided AFTER
the fact to reduce the fee charged as opposed to a prior agreement of
"hey, if we win this, you get X% cut"? Yeah, I realize the chances a
lawyer doing that are slim even if allowed but would it be allowed?
Stuart A. Bronstein
> I understand the basic idea behind that rule but let's say that
> a law firm was representing a class and was suing for
> $10,000,000 and was going to collect 50% (yeah, it's high but it
> makes for round numbers here.) Then the jury awards
> $1,000,000,000 instead. Could the law firm then say "hey, we
> only expected to make $5,000,000 off this. We would have been
> ecstatic to have received $50,000,000 off this. We think that
> $500,000,000 is way too much. We're going to cut our fee to only
> 10% on this case."
>
> I.e. would that be considered "fee sharing" where it was decided
> AFTER the fact to reduce the fee charged as opposed to a prior
> agreement of "hey, if we win this, you get X% cut"?
You're not sharing a fee if the client is only getting more of what
the court gave him. In a class action say the award is calculated
at $25 per person. If the lawyer reduces his fee and the amount
goes all to the one class representative, it's sharing a fee if the
client ends up with more than $25.
If instead the lawyer goes back to court to give money back, and
the judge re-figures the compensation for all members of the class,
it's not fee sharing because each is only getting what he is
legally entitled to.
Mike Jacobs
> I understand the basic idea behind [ABA MRPC 5.4] but let's say that a law
> firm was representing a class and was suing for $10,000,000 and was
> going to collect 50% (yeah, it's high but it makes for round numbers
> here.) Then the jury awards $1,000,000,000 instead. Could the law firm
> then say "hey, we only expected to make $5,000,000 off this. We would
> have been ecstatic to have received $50,000,000 off this. We think that
> $500,000,000 is way too much. We're going to cut our fee to only 10% on
> this case."
That _does_ happen, sometimes. The lawyers either do that
voluntarily, or, someone else cuts it _for_ them - IIRC, the private
lawyers who represented a consortium of state attorneys general who
sued the major tobacco companies a few years ago and won a
multibillion-dollar verdict had the ginormous fees they would have
been entitled to under their original retainer contracts, cut to a
fraction of that level by the court, on the grounds the higher fees
would have been illegally excessive (even after the judge forced a
reduction, of course, the fees were still huge).
You may note, although it was not relevant to your query, that under a
different ethical rule (ABA MRPC 1.5), a legal fee must be
"reasonable" under all the circumstances - even if the strict
application of a written fee contract _would_ have given a law firm an
unreasonably huge fee, in circumstances such as that you posit above,
Rule 1.5 may _require_ that it be cut. In this, lawyers are unlike
any other kind of business - who else do you know who would _cut_
their fee in a case where they actually got a _better_ result than
intended, just to avoid giving a windfall to the professional at the
expense of his client? Think of that, next time someone rags on
about "greedy lawyers."
> I.e. would that be considered "fee sharing"
No, it would not be "fee sharing" - it would be the lawyers CUTTING
THEIR FEE and allowing the rest of the monies to remain with their
CLIENTS for whom their efforts had won that money in the first place.
It was the CLIENTS' money already, before any fee was due. Even if
the lawyers' retainer agreement allowed them to take their fee off the
top of the recovery they won for the client (i.e. gave them a lien, to
take it out of the gross) before turning over the remainder to the
clients, as is usually the case, the amount paid (or due) to the
lawyers does not become a "fee" until the lawyers actually claim it,
or take it. For Rule 5.4 purposes it doesn't matter if the lawyers
take their cut off the top, or if they turn the _whole_ amount over to
their clients, then bill the clients later, for work done - the amount
actually paid to the lawyers is what counts as their "fee."
Cutting a fee to only claim a lower percentage of the gross is not
"fee sharing" by any sense of the word - first it has to _BE_ a "fee,"
then the lawyers have to _share_ a part of that "fee" with non-lawyers
_as_a_share_of_the_fee_, as compensation for some work the non-lawyers
did on the case (which may be anything from being paid for a referral,
to actual grunt work as a paralegal), in order for a particular
scenario to constitute illegal "fee-sharing."
In your OP, the scenario was that "some person A recruits a class
action law firm B to engage in some lawsuit on behalf of shareholders
of a public corporation. Is it possible
in such cases for A to negotiate with B to receive some small percent
(e.g., 5%) of the actual legal fees received in the case, instead of
participating directly as a member of the class"?
Do you see the difference? In your original scenario, A was _not_ a
member of the plaintiff class - thus he was _not_a_client_ (nor a
fellow lawyer, we presume - that would be OK) and was not entitled to
any share of the gross recovery _as_a_client_ - but A wanted,
nevertheless, to get a cut of the action just for steering the case to
Firm B. That is against the ethical rules.
John F. Carr
Do you know why he would be sent to jail for something like that?
It would have to be a crime or a contempt, and I'm not seeing how
it is either.
--
John Carr (j...@mit.edu)
Barry Gold
[Concerning a hypothetical scenario in which the damages awarded
are much higher than expected, so the lawyer reduces his
(contingent) fee from, say, 33% to 10%.]
>> I.e. would that be considered "fee sharing" where it was decided
>> AFTER the fact to reduce the fee charged as opposed to a prior
>> agreement of "hey, if we win this, you get X% cut"?
Stuart A. Bronstein <spam...@lexregia.com> wrote:
>You're not sharing a fee if the client is only getting more of what
>the court gave him. [giving a much larger share to only the lead
plaintiff would be fee sharing, but]
>If instead the lawyer goes back to court to give money back, and
>the judge re-figures the compensation for all members of the class,
>it's not fee sharing because each is only getting what he is
>legally entitled to.
Yes. Or the representation agreement could be designed in advance,
thereby avoiding any argument over which is what (and who is entitled
to what). E.g., the lawyer will take 33% of the first $50,000,000,
20% of the next $200,000,000, and only 10% of anything over that.
--
Barry Gold, webmaster:
Conchord: http://www.conchord.org
Los Angeles Science Fantasy Society, Inc.: http://www.lasfsinc.org
Stuart A. Bronstein
>>Well, a lawyer in California was recently disbarred and (I think)
>>sent to jail for doing just that.
>
> Do you know why he would be sent to jail for something like that?
> It would have to be a crime or a contempt, and I'm not seeing how
> it is either.
I suspect it would be considered illegal solicitation, which can be
punished in California as a misdemeanor - up to one year in jail.
See CA Bus. & Prof. Code �6153.
Stuart A. Bronstein
As I recall, he made lots of money filing lots and lots of class
action suits. He would recruit and pay people to be named
plaintiffs, so that his firm could be the first to file suit.
Mike
> On Oct 30, 11:26 am, Mike <prabb...@shamrocksgf.com> wrote:
>
>> I understand the basic idea behind [ABA MRPC 5.4] but let's say that a law
>> firm was representing a class and was suing for $10,000,000 and was
>> going to collect 50% (yeah, it's high but it makes for round numbers
>> here.) Then the jury awards $1,000,000,000 instead. Could the law firm
>> then say "hey, we only expected to make $5,000,000 off this. We would
>> have been ecstatic to have received $50,000,000 off this. We think that
>> $500,000,000 is way too much. We're going to cut our fee to only 10% on
>> this case."
>
> That _does_ happen, sometimes. The lawyers either do that
> voluntarily, or, someone else cuts it _for_ them - IIRC, the private
> lawyers who represented a consortium of state attorneys general who
> sued the major tobacco companies a few years ago and won a
> multibillion-dollar verdict had the ginormous fees they would have
> been entitled to under their original retainer contracts, cut to a
> fraction of that level by the court, on the grounds the higher fees
> would have been illegally excessive (even after the judge forced a
> reduction, of course, the fees were still huge).
Yeah, I figured the court could force such a change in the fees. Just
wasn't sure about if it violated that rule if the lawyers, willingly,
did it themselves.
> In your OP, the scenario was that "some person A recruits a class
Actually, it wasn't MY original post but someone else's:) I was just
modifying the situation some to get a clarification of your response to
that other person. Thanx for the answer, though.