Wednesday, January 13, 2010

*Really* Selling Out the Class

Usually when academics and policymakers talk about class action lawyers selling out the interests of the class in favor of increasing their fees there isn't any direct proof that this is what occurred, and its always hard to second guess the outcome of negotiations (not to mention hindsight bias).  But here is a case that is quite obvious, the kind that ends up making things worse for upstanding plaintiffs lawyers.

A class action lawyer settled a class action on behalf of 7 plaintiffs, paying the class reps $7 million and himself $2 million, rather than arranging payment for the entire class. The settlement was overturned.

Now whether this is an efficient approach from an economic perspective I leave to your consideration.  But in any event its not currently permitted.  For an argument that it is more efficient to pay the lawyers than try to pay the class from a deterrence perspective, see Myriam Gilles & Gary Friedman, Exploding the Class Action Agency Costs Myth - the link is to SSRN.

The Florida Bar has recommended discipline. You can see the article here at the ABA Law Journal


Class Actions, Ethics | Permalink

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