The study’s most provocative assertion, in my mind, is that judges may be overpaying shareholder firms in the biggest cases, awarding fees in excess of the risk the firms bear. Choi, Erickson and Pritchard found that judges award a smaller percentage of the class recovery as the size of the settlement increases. But the awards in these big cases, they found, nevertheless represent a higher multiplier on lodestar billings. Or, as the paper phrases the phenomenon: “As the settlements get larger, judges are willing to give plaintiffs’ firms a larger return on the time they invested.”
Moreover, the paper argued, big settlements may not be the result of skillful lawyering but simply a function of a defendant’s market capitalization. And judges rarely delve into factors such as parallel government investigations when they decide how much to award to shareholder firms, even though these considerations often affect defendants’ settlement decisions.
Source: Two shareholder firms have reaped more than $1 billion in fees. Are they overpaid? | Reuters