Fee Litigation: Percentage of Recovery vs. Lodestar Method
In class action litigation and mass tort practice, determining attorney fees is a critical and often contentious aspect. Courts have developed various methods to ensure that fees awarded are reasonable and reflect the value provided to the class. Two prominent methods are the 'Percentage of Recovery' and the 'Lodestar' method.
The Lodestar Method
The Lodestar method is a widely used approach where attorney fees are calculated by multiplying the reasonable hours expended by counsel on the litigation by a reasonable hourly rate. This method aims to compensate attorneys for the actual time and effort invested.
The Percentage of Recovery Method
The Percentage of Recovery method, conversely, calculates attorney fees as a direct percentage of the total recovery obtained for the class. This approach aligns the attorneys' financial interests directly with the outcome for the class members.
Comparison and Judicial Discretion
| Feature | Lodestar Method | Percentage of Recovery Method |
|---|---|---|
| Basis of Calculation | Hours worked x Hourly Rate | Percentage of total recovery |
| Focus | Effort and time invested | Outcome and benefit to class |
| Risk Alignment | Can be adjusted with multipliers | Directly aligned with recovery |
| Transparency | Requires detailed time records | Simpler to calculate once recovery is known |
| Potential for Abuse | Padding hours, inflated rates | May incentivize large settlements over optimal outcomes |
Courts often use both methods in conjunction, employing the lodestar calculation as a cross-check for the reasonableness of a percentage award, or vice versa. The ultimate goal is to arrive at a fee that is fair to the attorneys while also being equitable to the class members. The specific method or combination of methods employed can vary significantly depending on the jurisdiction, the nature of the case, and the specific facts presented to the court.
The choice between the Lodestar and Percentage of Recovery methods is not always mutually exclusive. Courts frequently use one method to validate the other, ensuring a robust assessment of fee reasonableness.
Key Considerations for Courts
When evaluating attorney fee petitions, courts consider several factors, including:
- The time and labor required.
- The novelty and difficulty of the questions involved.
- The skill requisite to perform the legal service properly.
- The preclusion of other employment by the attorney due to acceptance of the case.
- The fee customarily charged in the locality for similar legal services.
- The amount involved and the results obtained.
- The time limitations imposed by the client or by the circumstances.
- The nature and length of the professional relationship with the client.
- The experience, reputation, and ability of the attorneys for the class.
- Whether the fee is fixed or contingent.
Conclusion
Understanding the nuances of the Lodestar and Percentage of Recovery methods is crucial for anyone involved in class action or mass tort litigation. These methods, while distinct, both aim to achieve the equitable compensation of legal professionals while safeguarding the interests of the represented parties.
Learning Resources
An article from the American Bar Association discussing the application and intricacies of the Lodestar method in class action fee awards.
This article explores the rationale behind the Percentage of Recovery method and its advantages and disadvantages in class action fee disputes.
Provides guidance and background on attorney's fees, including discussions on lodestar and percentage of recovery, from the Federal Judicial Center.
A landmark case that discusses the application and interplay of both the lodestar and percentage of recovery methods in determining attorney fees.
While not directly about fee calculation methods, CAFA impacts class action litigation and indirectly influences fee awards. This link is to a representative bill text.
A concise explanation of the Lodestar method from Cornell's Legal Information Institute, defining its core principles and application.
An accessible overview of attorney fees in class actions, touching upon the different calculation methods and considerations.
Discusses the economic incentives and outcomes in class action settlements, often related to attorney fee structures.
A detailed article exploring various judicial approaches and considerations when awarding attorney fees in class action lawsuits.
A practical explanation for plaintiffs and the public on how attorney fees are determined in class action cases.