A New Model of Plaintiffs' Class Action Attorneys

Article excerpt

I. INTRODUCTION 758

II. THE CONVENTIONAL UNDERSTANDING OF THE PLAINTIFFS ' CLASS ACTION ATTORNEY 762

HI. WHY THE CONVENTIONAL UNDERSTANDING FAILS AND THE NEW MODEL THAT REPLACES IT 773

A. The Plaintiffs ' Class Action Bar Is Highly Stratified; the Leading Firms Are Relatively Large 773

B. Law Firm Organizational Complexity Creates Incentives Other Than Maximization of Law Firm Profit 780

1 . Firm Ownership May Not Track Case Management Authority 784

2. A Lawyer's Perceived Self-interest Is Shaped by Law Firm Practices 786

a. Equity Allocation Schemes 786

b. Compensation and Promotion Schemes for Non-Equity Attorneys 787

c. Case Financing 790

d. Resource Allocation Mechanisms 791

e. Degree of Firm Attachment 793

f. Law Firm Structure, the Conventional Understanding of Plaintiffs ' Class Counsel, and a New Model 793

C. Plaintiffs ' Class Action Attorneys Invest Time in Cases for Complex Reasons Beyond Just Expected Fees 796

1. Fees Are Difficult to Predict 796

2. Factors Alien to the Conventional Account May Dictate Case Investment 801

IV. WHY THE NEW MODEL IS IMPORTANT 813

A . The New Model Is More Descriptively A ccurate 813

B. The New Model 's Complexity Underscores the Need for Better Empirical Research on the Actual Agency Problems that Exist in Class Action Litigation 814

C The New Model 's Complexity Enables Us to Identify the Best Tools for Reducing Agency Costs 817

1 . The New Model's Complexity May Enable Tailoring of Incentive-Based Reforms 820

a. Firm Structure Reveals New Levers to Align Class Counsel 's and Class Members ' Interests 820

b. Why Tailored Incentives May Fail 822

2. Complexity Counsels in Favor of Rehabilitating the Trial Court Judge to Minimize Agency Costs 824

I. INTRODUCTION

The class action mechanism is designed to harness the plaintiffs' class action attorney's self-interest, typically framed as the desire to maximize fees, to further the equitable goals of Rule 23 (e.g., enabling litigation that would not be economically viable absent certification).1 In a series of influential articles over the past several decades, Professor John C. Coffee, Jr. identified a problem with this design.2 Professor Coffee used agency cost theory3 to demonstrate that class members' inability or unwillingness to monitor class counsel gives the plaintiffs' attorney license to pursue his own interests without effective restraint. That, then, begged important subsidiary questions: what does class counsel want, and how does he achieve it? The answers to these questions inform our understanding of the nature of agency costs in class litigation and of how we should manage such costs. Professor Coffee provided one answer, by way of illustration, imagining class counsel as a solo practitioner or small law firm, cohesive in its desire to maximize law firm profit and capable of pursuing that one overriding interest by pegging case investment to expected fees.4 This understanding of the plaintiffs' class action attorney gained currency in the 1980s and became conventional;5 however, there is little consensus regarding the solution to the agency cost problem the conventional understanding defines.6

This paper introduces a new perspective to the literature, namely that the conventional account of the plaintiffs' class action attorney that was developed in Professor Coffee's early work nearly a quarter of a century ago reflects a different practice regime than today's. It thus does not correctly identify class counsel's characteristics, interests, or capabilities. Specifically, there is no one entrepreneurial lawyer at the heart of class litigation. Instead, there are varieties of lawyers and law firms working on different types of cases, each combination of which produces a distinct array of incentives. Moreover, class counsel invest time in cases for complex reasons other than the effect on expected fees, which are exceedingly difficult to predict. …

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