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Class counsel fees are not dirty words

Trials & Tribulations
|Written By Margaret L. Waddell
Class counsel fees are not dirty words

Greed. Economic opportunism. Conflict of interest. Potential for abuse. I’ve heard all the negative epithets that have been directed at class counsel seeking court approval of the fees they have earned following the successful prosecution or settlement of a class action. The not-so-subtle message conveyed by comments such as these, is that class counsel are considered to be a particularly unethical and avaricious breed of lawyers who prey on their own clients for personal profit.

This attitude towards class counsel is both unwarranted and unfair. Yet it seems to have become pervasive, and generally acceptable to take cheap shots at class action lawyers when they ask to be paid for their work.

Rarely do you hear class counsel being praised for their dogged perseverance in the face of an avalanche of defence tactics aimed at delaying or defeating the claim, or just plain wearing down the plaintiff’s team through multiple motions, appeals, and leaves to appeal, and responding to 160-page-long facta.

No comparison is made to the fees charged by the battalions of defence lawyers and received by them on a regular and ongoing basis, regardless of the outcome of the case. Class counsel’s critics also do not give consideration to the fact the subject of their disparagement work is without remuneration, oftentimes for many years. Many carry the costs of the litigation, which can run into the hundreds of thousands of dollars, as well as assuming the risks of adverse costs awards if an indemnification has been given to the representative plaintiff.

When the Ontario legislature saw fit to pass the Class Proceedings Act, 1992, it expressly included the ability for class counsel to enter into contingency fee agreements with their clients. Unlike some other provinces, where contingency agreements were already permissible, prior to 1993, that was not the case in Ontario. Permitting counsel to act on a contingency basis was recognized as being the only realistic method by which the vast majority of class actions would ever see the light of day.

Class actions were meant to be, and are in fact, a powerful mechanism for the private policing of widespread institutional or corporate wrongdoing. They serve important societal functions in providing not only access to justice for the victims of mass wrongs, but a class action can also achieve behaviour modification on the part of the wrongdoer. However, for class actions to have these salutary effects there need to be lawyers willing to act for the aggrieved class.

Last time I checked, the private practice of law was a business, not a charity. Lawyers expect to and are entitled to get paid for their work. They expect to get paid by their clients. In the class action context, class counsel agree to and expect to get paid by the class. Their fees are paid from whatever recovery is achieved in the case, either by settlement or judgment. The fees paid to class counsel under their contingency agreements are in this respect no different than those received by any other lawyer working on a contingency basis.

In the case of a contingency retainer, the lawyer agrees to defer getting paid until the end of the case. He or she assumes the risk of not getting paid at all if the case is not won, or the risk of getting paid less than they might on an hourly basis if the results are not substantial, but the time expended is. In exchange for the assumption of that risk, and the lengthy deferral of payment, the lawyer and client will typically agree that the lawyer’s fee will be a percentage of whatever recovery is achieved in the action. This may well result in the lawyer receiving a payment that is greater than the amount they would have received if the client had paid on an hourly basis.

There is absolutely nothing wrong with this arrangement. It is not predatory, abusive, or unreasonable. It happens every day without concern or comment in personal injury cases. The upside potential of a contingency retainer is the primary reason, and quite frankly the only economic rationale, for a lawyer to enter into the arrangement. So why is it that so many people think that class counsel are engaging in an unconscionable practice when they seek court approval of their fee arrangements?

I believe part of the problem lies in the misconception that by seeking payment for their work, class action lawyers are taking money that rightfully belongs only to the class. Therein lies the problem. But for the fee agreement made between the class’ court-approved representative (the representative plaintiff) and class counsel, the class action would not have been prosecuted and the class would receive nothing. The lawyers who have agreed to perform the work on behalf of the class did so pursuant to an express agreement that they would be compensated for that work out of the proceeds of the case.

The function of the court is to ensure the quantum of the remuneration is ultimately fair and reasonable given the complexity of the case, the risks assumed by the lawyers, the results achieved, and the other factors typically applied on a fee approval motion.

I agree with the general proposition that it makes more sense to consider the reasonableness of the amount to be paid on a percentage of recovery basis, rather than based upon an examination of the hours expended by counsel and then applying some form of multiplier. A percentage-based fee is a concept that most people understand, including the class members, and it encourages efficiency in class counsel. Regardless of the actual time and expense incurred by the lawyers, if they have achieved a reasonable result, then they should be fairly compensated for their efforts. A percentage of the recovery is an easy and comprehensible means of assessing fair compensation.

If, in some cases, that means the lawyers might be paid more than they otherwise would on a rates-times-hours approach, then the system is not flawed, it is working. Absent the potential upside, there would be no incentive for lawyers to act as class counsel.

Class actions are expensive, high-stakes cases. They cost a fortune to prosecute. Many are unsuccessful, in which case class counsel get paid nothing, despite their substantial investment of time and money. Since, as a society we have concluded that class actions are to be encouraged and that they achieve commendable results from a policy perspective, we need to stop vilifying class counsel when they ask to get paid for their work.

  • RE: Class counsel fees are not dirty words

    David Thompson
    Well said Marg! I agree completely!
  • RE: Class counsel fees are not dirty words

    I believe that the best way to determine reasonable class action fees is at the very beginning of the case, not at the end of the case. At the beginning of a case, the representative plaintiff can choose beetween law firms and fees charged. the fees charged should represent the risk taken by the lawyer which can be tested by the market. If there are lawyers who are just as skilled willing to do the work on a lower fee, then the client can hire the cheaper lawyer. If the client wants the "best lawery" then they may be willing to pay a higher fee. This is simple supply and demand and contract law. A Judge or some other person should decide if the fee is fair at the beginning. If it is deemed fair at the beginning then at the end, it should be paid out.