May 12, 2004

$3000/hour Lawyering fee

The California Lawyers that sued Microsoft in a class action suit alleging price fixing are now asking the court for $258,000,000 in legal fees for their heroic and valiant efforts towards settling the case.

It amounts to about $3,000 per hour for one lawyer, more than $2,000 an hour each for 34 other attorneys and $1,000 an hour for administrative work.
The lead attorney in the case, Eugene Crew, planned to ask the judge Wednesday for the fees. He told the judge in legal briefs that he deserves about $3,000 for each of his 6,189.6 billable hours, "considering the enormity of this undertaking against the most powerful corporation in America."

Wow. That's quite a bit of cash, especially considering the crappy settlement that they worked out:

The deal enables anyone who bought a computer in California to get vouchers worth $5 to $29 per Microsoft product, but only a small fraction of the millions eligible have applied for the money.

Mr. Crew allegedly argues in his memo to the judge that his requested fee is fair "because of the difficulty of maneuvering through the legal system to recover money for consumers." Yeah, right, Mr. Crew, you're a real champion of consumers rights. I'm sure that the computing population of California is just exhilirated at the prospect of getting a $5 coupon. You're a regular Ralph Nader.

Now, I'm the first to concede that a reward of large legal fees is often necessary to ensure that these cases get the attention that they deserve - after all, law firms are private enterprises that need to turn a profit. One of the benefits of our contingency fee system is that it works to ensure that the most important cases get heard, a valid consideration considering how overloaded our courts are. Of course, the system assumes that "important" correleates to "valuable," and necessarily relies on potential financial return as a proxy to assign values to cases.

It isn't always true that "important" cases are also "valuable." In fact, this is the problem that class action suits were created to address - before the advent of class action suits, this exact case against Microsoft would have never been heard by a civil court, as the recovery per individual was so small that it wouldn't be worth anyone's time to bring it - not the court, not the consumer, not the attorney. The problem was that large companies had carte blanche to rip off consumers, so long as it wasn't on a large enough scale to attract the attention of governmental authorities.

Enter the class action - the class action allows an attorney to sue on behalf of a group of consumers, and to collect a fee on the totality of the judgment amount. This arrangement, while it may seem like a windfall for the greedy lawyers, it actually pro-consumer. First, it acts as an incentive for a lawyer to take the case. As I described above, without the class action lawsuit, many, if not most, of these cases would never be heard. The second major benefit to consumers is that the wrongdoing doesn't continue. For instance, a phone company may be charged in class action with overcharging 1 million customers $1 each. The settlement from that suit will be something like: each consumer gets 66 cents, and the attorney gets $334,000. True, the 66 cents doesn't benefit the consumer very much. But the stopping of the wrongdoing, the fact that he won't be overcharged $1 per month for the rest of his life, is where the real benefit comes.

Back to Mr. Crew and his requested fees. From what I can surmise, he is charging 5x his regular rate because of the difficulty of suing a large corporation like Microsoft in a class action. This assumes that suing a large corporation is inherently more difficult than suing a smaller one, presumably because they have a lot of money, and that they spend this money on lawyers, and that going up against more lawyers makes a case more difficult to win. Using this logic, Mr. Crew could make the argument that he needs an "extra" incentive to take the case - i.e. why should he take a risky case for $400/hour when he can just as easily take not-so-risky case for $400? A valid point, if the above assumptions are true. The problem is, the assumptions aren't true.

Suing Microsoft isn't any harder than suing any other company with adequate legal representation. In fact, it's probably easier, given that companies with a ton of cash would prefer to just pay these things off than actually litigate them. A company like Microsoft also has an interest in preserving the value of its name, and therefore doesn't want it turning up on the news every night in conjunction with words like "illegally," "price-fix," and "fraud," which further increases its incentive to settle.

The best evidence that this extra incentive isn't necessary may be that lawyers from 35 firms joined the suit. If the case is so hard, so daunting a challenge that the extra incentive of 5 times your regular rate is warranted, then why are so many firms chomping at the bit to throw their hats into the ring?

Additional incentives may be appropriate in some cases, but I can't for the life of me see how this is one of those cases.

And let's not forget the crappy settlement here - it's not even for real money, just a coupon worth a paltry $5-$29, to be used toward the purchase of more Microsoft products. Microsoft Office costs $420. Windows XP also costs $420. Tell me, exactly how does a 1%-7% savings benefit the consumer?

It doesn't. And Gene Crew and his staff should be paid a rate commensurate with the benefit that they provided. In this case, the regular rate seems appropriate, but with a small twist - it should be paid in the form of Microsoft product vouchers.

Posted by jkhat at May 12, 2004 01:42 PM | TrackBack

As attracive a $258 million fee sounds, I have a real problem seeing it as reasonable. I was a class member in a similar action and got lots of complex explanations of the alleged wrongdoing, how I could object and the fact that I would get a coupon worth $5-$10 toward a Microsoft product. Learning that the maximum payout was $10 dampened my enthusiasm for reading any more of mail about the settlement.
I see a parallel between the stratospheric CEO salaries and super-sized class action attorney fees. The justification for both is that only that kind of money attracts top talent. I remain unpersuaded that anyone earns $30 million per year.

Posted by: Bryan Gates at May 13, 2004 10:12 AM
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