High lawyer fees aren't written in ink.  Photographer: David Paul Morris/Bloomberg
High lawyer fees aren't written in ink.  Photographer: David Paul Morris/Bloomberg

Conservative activists have long complained about attorney’s fees for mass torts, which often result in multimillion dollar payouts for the lawyers and trivial benefit to the alleged victims. In egregious cases, the legal fees can vastly exceed the amount paid to people who are actually harmed.

The argument in favor of small-dollar class actions is that without them, companies will feel free to inflict small harms on their customers. And to be sure, that’s so. But the law is a sledgehammer, and there’s a reason you shouldn’t chase flies with a sledgehammer.

Concern over this issue has begun to expand beyond grousing libertarians, with courts and legislators moving to restrain some of the worst excesses. So this story is not entirely surprising: The judge presiding over a Hewlett-Packard shareholder suit has balked at the $48 million in fees negotiated by attorneys in a settlement. The amount of money that shareholders were going to get was not negligible, unlike some of the consumer suits where the victims get a coupon good for more product from the company they've accused of doing them wrong. But the judge seems to think that it’s disproportionally small compared with what the lawyers were getting.

Proponents of these sorts of fee structures may argue that they are a check on corporate abuses. Of course, they’re also an incentive for legal abuses. In mass torts, where attorneys can’t necessarily or easily be fired by their “clients,” the attorneys don’t prosper by negotiating the largest possible settlement for their client; they prosper by negotiating the largest possible set of fees for themselves. And one way to negotiate that is to offer up something very valuable to the firms they’re suing -- negotiating lower payouts for each beneficiary, for instance, preferably something like a coupon that most people won’t bother to redeem.

So it’s good that judges are stepping in. Perhaps fewer suits will be brought -- or perhaps the ones that are brought will deliver more benefit for the plaintiffs, and a little less for the lawyers who represent them.

To contact the author of this article: Megan McArdle at mmcardle3@bloomberg.net.

To contact the editor responsible for this article: James Gibney at jgibney5@bloomberg.net.