By: dmc-admin//September 4, 2001//
By: dmc-admin//September 4, 2001//
“The district judge defined megafunds as settlements of $75 million and up. Fees in ‘megafund’ cases should be capped at 10% of the recovery, the judge held, although she recognized that fees of 30% and more are common and proper in smaller cases. This means that counsel for the consumer class could have received $22 million in fees had they settled for $74 million but were limited to $8.2 million in fees because they obtained an extra $14 million for their clients (the consumer fund, recall, is $88 million). Why there should be such a notch is a mystery. Markets would not tolerate that effect; the district court’s approach compels it. A notch could be avoided if the 10% cap in ‘megafund’ cases were applied only to the portion of the recovery that exceeded $74 million, but that is not what the district court did; it capped fees at 10% of the whole fund. Under the court’s ruling, a $40 million settlement would have led to the same aggregate fees as the actual $132 million settlement. Private parties would never contract for such an arrangement, because it would eliminate counsel’s incentive to press for more than $74 million from the defendants. Under the district court’s approach, no sane lawyer would negotiate a settlement of more than $74 million and less than $225 million; even the higher figure would make sense only if it were no more costly to obtain $225 million for the class than to garner $74 million.”
Affirmed in part, vacated in part, and remanded in part.