Who Pays The Legal Fees in a Class Action Lawsuit?

When plaintiffs win a class action lawsuit, or when they secure a settlement with the defendant, legal fees and court costs are typically included in their award. This award is known as the “common fund,” from which these legal fees, as well as recovery for Class Members, is paid.

If the plaintiffs are seeking a declaratory judgment (clarification of a particular legal matter) or injunctive relief (a court order telling one party to refrain from the actions that are the basis of the complaint), the defendant may still have to pay the plaintiff’s legal fees if the case is decided in the plaintiffs’ favor.

Why Are There Class Actions?

You are no doubt familiar with the old saw about “strength in numbers.” For example, a single person who was misled into paying 50 cents too much for an overpriced tube of toothpaste doesn’t have enough incentive to go to the trouble and expense of litigation just to recover that small amount of money.

It’s when many people—often tens of thousands, or more—are harmed a similar way by the same problem that a class action lawsuit may be worth bringing. Uniting all these affected consumers into a plaintiff Class raises the stakes significantly for corporate defendants. It’s more likely that the payoff will be worth fighting for, and companies that face the prospect of class action liability have a strong incentive to correct their behavior.

Indeed, one of the biggest benefits of class action lawsuits is that it resolves a large number of claims all at once. If consumers were not allowed to litigate an issue in bulk through a class action lawsuit, they would each have to spend the time and effort it took to resolve the claims individually. Additionally, it would require significantly more time to litigate thousands of individuals lawsuits—meaning that class actions help resolve issues quicker for both defendants and consumers.

Typically, a well-prepared class action lawsuit will end in a settlement, without having to go to trial. The money recovered in a class action settlement often includes a sum intended to cover the plaintiff’s counsel’s legal fees. Many consumer protection laws provide for an award of attorney fees if the company is found liable. So corporate defendants are generally willing to include an amount for attorney fees in their settlement agreements to avoid the risk of being on the hook for an even bigger amount if the case were to go to trial.

How Do I Know if the Recovery is Fair and Equitable?

Through a class action, consumers are able to recover payments even if they have not put the time and effort into litigating the issue for months or even years. These actions also allow consumers to receive compensation or injunctive relief, even if it would have been financially prohibitive to take action individually.

Whether the settlement agreement is fair and equiable has been a bone of contention for companies who have pushed for tort reform, particularly as it concerns awards of attorney fees in class action litigation. These companies and their advocates often complain about the large awards of attorney fees that often change hands in class action settlements, and they argue that damage caps and limits on attorney fees are necessary.

But these awards never approach the amounts recovered for the entire Class. And regardless of the amount, legal fees in a class action lawsuit are subject to the approval of the court.

Plaintiffs’ counsel generally receives 25 to 33 percent of the amount of damages as their attorney fees. Another award goes to the class representative—the named plaintiff who pursues the claim on behalf of the Class. The reason is they must work closely with the legal team as well as travel in order to appear in court on behalf of other members of the Class.

Contrary to corporate complaints, there are legal standards in place that give the judge power to approve or disapprove a settlement that they deem unfair. Judges can and do reject proposed fee awards that exceed reasonable standards.

One red flag the courts are on the lookout for is known as a “clear sailing” agreement—cases in which the defendant agrees to a noticeably large award of attorney fees and agrees not to object to that amount. Another red flag may be if plaintiffs’ counsel has neglected to inform the Class Members about the amount of fees they’re requesting.

And even if the court approves a fee award, Class Members have the opportunity to object if they believe the award is too large. They don’t have to just sit back and accept whatever agreement has been negotiated on their behalf.