Shift Happens: Pressure on Foreign Attorney-Fee Paradigms from Class Actions

Abstract

This essay, in an issue in memory of Duke comparative-law professor Herbert Bernstein, explores tensions between the class-action device and norms governing attorney-fee liability and class-action financing practices in most of the world outside the United States. Aggregation of claims of multiple plaintiffs, whatever its advantages, tends to entail larger costs and down-side risks on the plaintiffs' side, especially in systems with loser-pays liability for attorneys' fees. These costs and risks can be disproportionate to the stake of those designated as class representatives, making them reluctant to enter into what may be a one-rabbit/one-horse tradeoff as far as potential gains and losses are concerned. This imbalance poses a threat to the viability of group or representative litigation - unless something gives. With regard to fees of the plaintiff's own lawyer, it is unlikely that the few individual class representatives can be expected to take on liability for all the fees of the class's attorney in the event of defeat. That creates pressure for acceptance of contingent payment of the fees, with substantial compensation available only in the event of success. That contingency, if accepted, creates risk for the plaintiff's attorney, who in effect plays an insurer's function against the risk of defeat. Such risk-assumption requires compensation, which is likely to have to come in the form of fees larger than would ordinarily be paid when the plaintiff prevails - either via a percentage uplift above the usual or by taking a percentage of the recovery for the - or else potential class attorneys will tend to take on only cases that appear in advance to be sure winners. Concerning the fees of a prevailing defendant, the United States with its virtually unique American rule against fee shifting usually does not have to deal with plaintiffs'-side liability for defense fees. But in the large majority of the civilized world where substantial indemnity is the norm, one or more of several difficult adjustments may have to be made. It may be inconsistent with viable class actions to impose liability for defense fees on the class representatives alone, and it may be impractical to seek to collect them from the class members. It may be inconsistent with strong professional norms for plaintiffs' attorneys, willingly or otherwise, to face such liability. But if none of these approaches is viable, absent public funding the only alternative might be abandonment or at least modification of the deeply entrenched rule that losers bear substantial portions of winners' attorney fees. Nations adopting some form of class-action device need not go to the American extreme of contingent percentage fees; widespread, highly entrepreneurial plaintiffs' lawyering; and no, or just one-way pro-prevailing-plaintiff, attorney shifting. But increases in the use of class actions, I hypothesize, will create pressures to move somewhat in those directions. Without attempting to prescribe particular approaches, I explore alternatives and conclude optimistically that while the choices among approaches to issues that face framers of class-action rules in systems with loser-pays rules and restrictions on contingent fees can be difficult and may become politically sensitive, they nonetheless offer considerable opportunity for trying to shape the class device so that it is usable in meritorious cases while reducing conflicts of interest and incentives to pursue questionable claims. And although having class actions does raise tensions with some existing norms and practices concerning attorney fees in many systems, the provisions applicable in class actions can be framed in ways that accommodate them at least somewhat to traditions that claim strong adherence.