Auctioning for Loyalty: Selection and Monitoring of Class Counsel

Abstract:     
This Article takes a fresh look at the misalignment of interests between class attorneys and their clients. Specifically, it examines the class attorneys' opportunity for shirking and for striking collusive settlements with corporate defendants. Both case law and scholarly writings offer numerous solutions to this misalignment of interests; yet, those solutions suffer from serious flaws. Professors Harel and Stein examine the reasons for that failure and propose a new solution that overcomes the class action agency problem. They argue that the law should resolve this problem by choosing between two basic paradigms of class action lawyering: Attorney-as-Owner and Attorney-as-Servant (Ownership and Servantship). The Ownership paradigm seeks to align the attorney's and the claimants' interests by giving the attorney a proprietary right in the action (usually, through a contingent-fee arrangement). The Servantship paradigm attains this alignment through the attorney's supervision and monitoring, coupled with penalties for inadequate performance. Professors Harel and Stein analyze these paradigms by rigorously identifying the attorney's "conflict-of-interests differential" and by juxtaposing the two paradigmatic attempts to bring this differential down to zero. Subsequently, they develop a new competition-based mechanism that operates under the Servantship paradigm and aligns the interests of class attorneys and their clients.

Number of Pages in PDF File: 57

Keywords: Class action, agency costs, civil procedure, attorney fees, conflict of interests, economic analysis

JEL Classification: K19, K22, K41

Accepted Paper Series