Working Hard or Making Work? Plaintiffs' Attorneys Fees in Securities Fraud Class Actions

55 Pages Posted: 16 Jul 2019 Last revised: 21 Oct 2019

See all articles by Stephen J. Choi

Stephen J. Choi

New York University School of Law

Jessica Erickson

University of Richmond School of Law

Adam C. Pritchard

University of Michigan Law School

Date Written: July 15, 2019

Abstract

In this paper, we study attorneys’ fees awarded in the largest securities class actions: “mega-settlements.” Consistent with prior work, we find larger fee awards but lower percentages in these cases. We also find that courts are more likely to reject or modify fee requests made in connection with the largest settlements. We conjecture that this scrutiny provides an incentive for law firms to bill more hours, not to advance the case, to help justify large fee awards – “make work.” The results of our empirical tests are consistent with plaintiffs’ attorneys investing more time in litigation against larger companies, particularly when there are multiple lead counsel firms. Using a difference-in-difference analysis, we show that “make work” increased in cases with multiple lead counsel after the Supreme Court validated a “price impact” defense in the Halliburton II case. We find a similar pattern with relative efficiency, with more hours per litigation day. We also find that courts award higher multipliers in cases with pre-litigation observable characteristics that indicate a lower risk of dismissal – and a correspondingly higher probability of settlement – particularly against larger companies. Overall, our results suggest that plaintiffs’ attorneys are receiving windfall fee awards in mega-settlement cases at shareholders’ expense.

Keywords: securities class actions; fraud; corporate law; attorneys' fees; class actions; Private Securities Litigation Reform Act; PSLRA

JEL Classification: K22

Suggested Citation

Choi, Stephen J. and Erickson, Jessica and Pritchard, Adam C., Working Hard or Making Work? Plaintiffs' Attorneys Fees in Securities Fraud Class Actions (July 15, 2019). NYU Law and Economics Research Paper No. 19-31; U of Michigan Law & Econ Research Paper. Available at SSRN: https://ssrn.com/abstract=3420222 or http://dx.doi.org/10.2139/ssrn.3420222

Stephen J. Choi

New York University School of Law ( email )

40 Washington Square South
New York, NY 10012-1099
United States

Jessica Erickson (Contact Author)

University of Richmond School of Law ( email )

28 Westhampton Way
Richmond, VA 23173
United States

Adam C. Pritchard

University of Michigan Law School ( email )

625 South State Street
Ann Arbor, MI 48109-1215
United States
734-647-4048 (Phone)
734-647-7349 (Fax)

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