Lawyers On Auction – Protecting Individual Class Members

Abstract

The inadequacy of class settlements plagues mass litigation. Virtually all class actions settle, but a plethora of case law and academic writings shows that class attorneys often walk away from these settlements with a hefty fee, while class members receive illusory benefits. Class counsel may intentionally sell out class members by agreeing to a suboptimal settlement in return for increased fees. Class counsel may also genuinely miscalculate the best attainable settlement. In both cases, the mechanisms currently in place to protect class members fail miserably.
This Article develops a simple solution: once a settlement is reached, appointment as class counsel is auctioned. The minimum bid is the fee defendant agreed to pay class counsel. The highest bidder pays original class counsel, and is appointed as new class counsel. She may then pro-ceed to handle the case as she deems appropriate, with a single limitation: the ratio between class counsel’s fees and the class’s recovery re-mains as it was in the original settlement. If the original settlement is indeed inadequate, purchasing appointment as class counsel automatically becomes a lucrative investment opportunity. The more egregious the inadequacy, the more profitable it is to be appointed as new class counsel. Consequently, every class settlement will effectively be monitored by countless would-be class counsel rather than by a single ill-equipped court. The mechanism is immune to manipulation by the settling parties, but does not chill their incentives to negotiate appropriate settlements. A costless mechanism solves the most formidable problem of mass litigation.

Keywords: Class Action, Class Settlements, Civil Procedure, Mass Litigation

JEL Classification: K40, K41, K49