Lawyers who represent individual clients often pay a portion of their attorneys’ fees to a common benefit fund to lawyers who have worked in the litigation to benefit all of the clients.
Common benefit work that qualifies for compensation includes tasks such as engaging in conference calls and meetings, participating in the discovery process, reviewing relevant legal documents, and retaining experts for further discovery. It also involves handling motion practice, making court appearances, and managing plaintiff-specific discovery and motion practice in bellwether cases. Additionally, undertaking bellwether trials and working on settlement negotiations are also part of this compensable work.
The idea of a common benefit fund is to reward those attorneys whose efforts benefit the entire group of plaintiffs, despite not individually representing each one. So lawyers who represent individual plaintiffs, but whose work doesn’t extend to the collective group, are required to allocate a portion of their fees to this common benefit fund.
So the purpose of these fees is to fairly compensate those who carry the majority of the workload and responsibility in managing and executing MDLs on behalf of other parties. It is a lot of work and risk involved in managing complex litigation and the fee needs to be high enough to encourage the best lawyers to assume a leadership role. These attorneys may include lead and co-counsel, as well as members of significant committees such as the Plaintiff’s Steering Committee.
How MDL Leadership Works?
When these attorneys apporinted to leadership positions in an MDL, they take on the responsibility of managing the Multidistrict Litigation (MDL) from the plaintiffs’ perspective. These lawyers manage complex litigations that involve many similar cases filed in federal courts across the country.
When an MDL is created, the Judicial Panel on Multidistrict Litigation (JPML) appoints a federal judge to oversee it. This judge then typically selects a group of attorneys, commonly referred to as the Plaintiffs’ Steering Committee (PSC), to lead and coordinate the plaintiffs’ side of the litigation.
The PSC is usually composed of lawyers who have significant experience with the type of litigation at hand and have demonstrated leadership abilities. One or several of these attorneys may be selected as “lead counsel” or “co-lead counsel”, responsible for overseeing the PSC and coordinating the plaintiffs’ overall litigation strategy.
The roles and responsibilities of MDL leadership typically include:
- Conducting Discovery: They handle the bulk of the discovery process, which involves collecting and exchanging information relevant to the case.
- Filing Motions: They file key pretrial motions that affect all plaintiffs in the MDL, and argue those motions before the judge.
- Developing the Litigation Strategy: They decide the overall legal strategy, including which legal positions to take on key issues, which cases should be tried first (so-called “bellwether trials”), and how to negotiate potential settlements.
- Communicating with Other Plaintiffs’ Lawyers: They are responsible for coordinating and communicating with other attorneys who have cases within the MDL, ensuring that everyone is on the same page and working together efficiently.
- Settlement Negotiations: They often play a key role in settlement negotiations with the defendants, aiming to achieve a resolution that benefits all plaintiffs.
Common benefit funds are frequently set up in MDLs to ensure that if the lead counsel achieves a result benefiting all plaintiffs, they are compensated from this fund. A specified percentage from each plaintiff’s recovery is reserved and deposited into the fund. As the MDL approaches its conclusion, the lead counsel generally presents a case to the Court detailing the value of their work and the amount they believe is owed to them from the fund.
But it is not just steering committee leadership who can claim a portion of the common benefit fund. Any attorney who has performed “common benefit work” in conjunction with the lead counsel may typically submit a claim for compensation. A judge, often with the support of a court-appointed “special master,” evaluates the various compensation claims and determines the distribution of the fund’s resources.
Who Pays the Common Benefit Fees?
Victims do not pay additional attorneys fees. This comes out of the original lawyer’s attorneys’ fees. But, as we explain more below, there may be expenses incurred by the common benefit fund that are passed along to the client although this is rarely more than one or two percentage points of the settlement.
How Does a Common Benefit Fee Work?
How does it work practically? Common benefit fees are mandatory deductions from each settlement.
The administration and determination of the common benefit fee generally occurs as the District Court anticipates settlements, at which point a common benefit fund is established. What happens is that at some point over the course of the litigation, leadership of the MDL will apply to the MDL or class action judge for their fees.
How Much Should the Common Benefit Fees Be?
The fairness and reasonableness of common benefit fees have been subjects of considerable debate in modern mass tort law. The perception of these fees can often be subjective and variable, depending on the circumstances and scope of the MDL itself. Concerns have escalated as the percentages requested by lead counsel, and sometimes approved by courts, have steadily increased.
Let’s look at some examples:
- Talc powder: 6% (10% for late participation)
- 3M earplug: 9% (15% for late participation) (this includes 16 trials)
- Uloric 3%
- DePuy Hip: 7%
- Bard IVD: 6%
- Actos: 8.6%
- Elmiron: 9%
- Zimmer Knee: 2%
- Yaz: 4% for some cases and 9% for others
There are also common benefit costs that are often passed down to the clients which usually equals 1% to 2% of the recovery. These are for the out-of-pocket expenses associated with he litigation that the lawyers fronted and risked.
Common Benefit Fund Law
The legal principles that guide the distribution of common benefit fees among individual law firms are well established. The seminal case is the Fifth Circuit’s ruling in In re High Sulfur Content Gasoline Products Liability Litigation.
This is a good example of how not to set us a common benefit fund. What happened was the PSC suggested the distribution of common benefit funds to a district court in an ex parte proceeding. The district court accepted the suggestion without scrutiny and sealed all records outlining the recommendation.
The Fifth Circuit reversed. It ruled that and MDL judge can certainly appoint a committee to suggest how to distribute a combined fee award. But the court has to dig deeper to at the attorney fee allocation remains. Because asking lawyers what their fee should be is like asking the barber how often you should get a haircut – the attorneys making the suggestion have a financial stake in the awards. The court emphasized that a district court should not hastily approve the attorney fee provision of a class settlement, and this task should not be delegated to the parties. An exacting review is necessary to ensure that the fees awarded are reasonable and comply with the relevant laws.
The court further added that MDL judges should use the “lodestar method” to calculate common benefit fees. Under this method, the district court initially determines the reasonable number of hours expended on the litigation and the reasonable hourly rate for the attorney involved. The lodestar is calculated by multiplying the number of reasonably expended hours by the reasonable hourly rate. The court can then adjust the lodestar up or down after considering the twelve factors set forth in Johnson v. Georgia Highway Express:
- The time and labor required
- The novelty and difficulty of the issues
- The skill required to perform the legal services properly
- The preclusion of other employment
- The customary fee
- Whether the fee is fixed or contingent
- Time limitations imposed by the client or the circumstances
- The amount involved and results obtained⦁ The experience, reputation, and ability of the attorneys
- The undesirability of the case
- The nature and length of the professional relationship with the client
- Awards in similar cases