A Practitioner's Perspective on the Selection of Class Counsel, page 4

A PRACTITIONER'S PERSPECTIVE (continued)

Page 4

Plaintiffs' counsel are well equipped to evaluate the risks and rewards in pursuing certain litigation and to propose an appropriate price structure for such cases. The contingency nature of their practice makes this type of evaluation necessary before they decide to pursue any case. After determining that the facts and circumstances of a case are meritorious, counsel may determine a reasonable range for a potential settlement or verdict and then attempt to anticipate the time and risk in achieving that range. A firm will generally want to begin with a proposed fee that is low enough to be under, or at least in the same range, as the proposed fees of other firms. A firm may decide to increase the proposed fee in order to ensure a multiplier on time, or a profit above hourly rate in order to compensate the firm for the risk of unsuccessful litigation, or the lost time value of money in terms of the firm's time "receivables" and out-of-pocket costs while the litigation is ongoing. See, e.g., Ketchum v. Moses, 104 Cal. Rptr.2d 377, 388-89 (Cal. 2001) A firm may also decide to decrease its proposed fee to increase its chances of being chosen as counsel for the class.

Fees Established at the Outset Should Not Be Subject to One-Way Ex Post Reduction

Where price competition at the outset of the litigation has been factored into the court's counsel selection process, and a "winning" bid announced, this fee must be afforded definitive, or at least presumptive weight in the court's award of fees at the end of the litigation. A proposed fee cannot be so crucial as to cause a firm to be selected as class counsel, yet so unreliable as to be disregarded when it comes time to award fees. Courts and counsel will be discouraged from participating in a process that is redone later. The Third Circuit's recent decision in In re Cendant Corp. Prides Litig., 243 F.3d 722 (3d Cir. 2001) ("Cendant/Prides"), raises concerns that benefits achieved through an ex ante fee determination will be lost, as hindsight will "invariably alter the perceived fairness of class counsel's compensation arrangements." Oracle, 131 F.R.D. at 692. The perceived benefits of auctions will be lost if the successful bid is not respected.

The Status Quo

A fee reached at the outset is similar to any settlement in that, it is imperfect because it is not based on complete information, but based on only information that can be known and is known at the time. Such uncertainty does not make a settlement subject to renegotiation whenever additional information is obtained, nor should it make a fee subject to renegotiation. To ensure that fee awards are fair to both the class and to its counsel, it is first imperative that the district court examine at the outset the assumptions and conclusions underlying counsel's fee proposals. At the conclusion of the litigation, any fee proposal accepted at the outset should be treated as presumptively fair and, after an analysis such as that conducted by the Third Circuit in Cendant/Prides, should be adjusted, either up or down, only in the most extraordinary circumstances.

If counsel face the specter of downward adjustment, they should in fairness also be afforded the possibility of an upward adjustment, a performance bonus, to recognize extraordinary effort and result, and to correct for a situation in which adherence to the auction fee would penalize counsel. If, as in Cendant/Prides, courts are to endorse or require a second look at pre-set fees to avoid a windfall, they should likewise do so to avoid a penalty. This will restore the proper incentives to the bidding process.

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