Prime beach reading has been posted on SSRN.
The potential for self-dealing for attorneys representing plaintiff classes is a persistent problem. NJCJI has repeatedly pointed out that the class action model is a deeply flawed mechanism for delivering relief to class members, with attorneys more often creating the illusion of relief for class members while delivering significant fees to themselves.
The problem is especially pronounced in securities class action litigation, where the litigation effectively works to return shareholders’ own dollars back to themselves, minus the attorney fees and other transaction costs. Attorneys have much stronger incentive to generate fees than does representative plaintiff to monitor fees, though the Rules of Civil Procedure attempt to address this flawed incentive structure by charging judge to monitor and approve fees.
This recent study examines to what extent attorneys have nevertheless been able to game the judicial scrutiny to secure significant fees without regard to incremental value brought to the litigation. Sadly, the authors conclude that:
plaintiffs’ attorneys are receiving windfall fee awards in mega-settlement cases at shareholders’ expense. Although there typically is strong evidence of corporate wrongdoing in cases leading to the mega-settlements, this evidence often comes to light prior to the involvement of plaintiffs’ attorneys through restatements, SEC and other government investigations, and/or the termination of top officers. … Knowing that a large settlement is likely, plaintiffs’ attorneys may anticipate a need to justify a large fee award—leading them to “make work.”