Profit for Costs

30 Pages Posted: 21 May 2014 Last revised: 8 Jul 2014

See all articles by Morris Ratner

Morris Ratner

University of California Hastings College of the Law

William B. Rubenstein

Harvard Law School

Date Written: May 19, 2014

Abstract

Courts reward attorneys for investing time in class action lawsuits more generously than they reward them for investing money in the costs of those suits. Class counsel may directly profit on time investments in two ways: by billing lawyers at market rates though paying those lawyers less and by receiving multiplied fee awards. Those same attorneys in those same situations may also recover their costs but courts may not — or at least do not — permit the attorneys either to mark up their costs or to receive cost multipliers. As cost profits are rarely even debated, there is no good defense of why they are unavailable, but one assumes that courts are less comfortable awarding attorneys a markup on their copying machine than they are for their legal work.

The assumption that costs cannot be directly profitable appears therefore to belittle costs, relegating them to a secondary position in the fee and cost award analysis and treating them as something of a tagalong or afterthought. Our goal in this Article is to give costs their due. We describe current jurisprudence, demonstrating how, given a choice between investing profitable time or reimbursable costs, profit-maximizing attorneys will find time investment more attractive than cost investment. We then explore the effects of this bias, showing that because cost investments are not directly rewarded, profit-maximizing attorneys will predictably (1) avoid certain cases; (2) select suboptimal modes of proceeding within cases they do bring; and then (3) settle those cases prematurely. Assuming that conclusion is unfortunate, we consider and propose mechanisms for remedying it.

While our proposals are initial and therefore tentative, our commitment to the project of centering costs is not: it is grounded in the belief that the legal system’s anti-cost-investment bias impedes access to justice for individuals whose claims can be established only with substantial cost investments by entrepreneurial lawyers. Centering costs — and considering measures as conventionally discouraged as permitting third parties to profit from cost investments — has the potential to serve a larger public good.

Suggested Citation

Ratner, Morris A. and Rubenstein, William B., Profit for Costs (May 19, 2014). DePaul Law Review, Vol. 63, 2014; UC Hastings Research Paper No. 105. Available at SSRN: https://ssrn.com/abstract=2418511

Morris A. Ratner (Contact Author)

University of California Hastings College of the Law ( email )

200 McAllister Street
San Francisco, CA 94102
United States

William B. Rubenstein

Harvard Law School ( email )

1545 Massachusetts
Areeda 323
Cambridge, MA 02138
United States
617-496-7320 (Phone)

HOME PAGE: http://www.billrubenstein.com

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