Justice Stein writes a somewhat compelling opinion in this case, which holds that a court must review the fee component of a class action settlement agreement to determine if the agreed-upon amount is fair. That seems right. Just because the parties agree upon the amount doesn't make it right. Similarly, that the parties allege that they negotiated the substantive terms of the agreement before agreeing upon fees does not immunize the agreement (and fee award) from review.
There was one portion of the opinion, however, that I didn't particularly appreciate. Justice Stein suggests that the lodestar multiplier applied by the trial court -- which was (a fairly high) rate of 2.5 to 3.0 -- was likely inappropriate. Perhaps that's true. But Justice Stein founds this conclusion in part on the argument that the contingent nature and risk of the litigation didn't justify any multiplier. Which seems flatly untrue.
Justice Stein argues that the contingent risk exists only because the case was weak. But at least as articulated by Justice Stein, such a position is both tautological and meaningless. Contingent risk obviously only exists when the likelihood of success is less than 100 percent. (As, of course, it almost always is. Few, if any, cases have an 100 percent chance of success.) Whenever the risk of recovery is less than 100 percent, every case is somewhat "weak". But that doesn't mean that a multiplier based upon contingency is inappropriate. The point of a multiplier is to compensate for the risk of nonpayment. That risk exists for both strong and weak cases, and in order to create appropriate incentives, the awarded compensation must adjust for that risk. Regardless of whether the case is weak or strong, and regardless of the reason for the alleged "weakness".
Viewed (extremely) charitably, perhaps what Justice Stein is saying is that you shouldn't get a big multiplier just because your case is weak. If that's what he's saying, I agree. But I don't find it plausible that Lerach Coughlin is saying that they deserve a multiplier of 3.0 because the likelihood of success is .33 since the case is so weak (i.e., that the multiplier times the probability of success must equal 1 in order to create the appropriate economic incentives). And that doesn't appear to be the position that Justice Stein is rejecting either. Rather, he appears to be holding that because the probability of success is low (e.g., less than .25), no contingency multiplier is appropriate, since the risk of nonpayment exists merely because case is weak. But that's just wrong. The risk of nonpayment results from the contingency and uncertain success alone, and it's those two facts that justify the multiplier. True, a .25 probability of success doesn't mean that a multiplier of 4.0 is automatically appropriate. But a multiplier of, say, 2.0 would still be entirely appropriate -- the same multiplier that would be applied to an "uncertain" case that had an even chance of success. Both strong and weak lawsuits generate a risk of nonpayment. In both lawsuits, that risk must be compensated. Which is why a contingency multiplier would be appropriate. (At least generally. At some point, no contingency multiplier would be proper; e.g., at the probability level of .99).
So although I agree with much of what Justice Stein says, there's a bit in this opinion that seems misguided. So I give the case a somewhat mixed review. Good substantive standard. Good overall approach. But a little off on some of the supporting reasoning and applicable law.
