Lawyers On Auction – Protecting Individual Class Members

54 Pages Posted: 28 Jan 2020 Last revised: 9 Jul 2020

See all articles by Ittai Paldor

Ittai Paldor

Hebrew University of Jerusalem - Faculty of Law

Date Written: January 25, 2020

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

Suggested Citation

Paldor, Ittai, Lawyers On Auction – Protecting Individual Class Members (January 25, 2020). Hebrew University of Jerusalem Legal Research Paper 20-05, University of Cincinnati Law Review, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3525500 or http://dx.doi.org/10.2139/ssrn.3525500

Ittai Paldor (Contact Author)

Hebrew University of Jerusalem - Faculty of Law ( email )

Mount Scopus
Mount Scopus, IL 91905
Israel

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