Who pays the lawyers in a class action?

Class action attorneys advance the time and costs of the case themselves: expert witnesses, document review, depositions, and years of motion practice. They are repaid only from a recovery. There is no retainer, no hourly bill, and no invoice to class members.

When a case settles, the fee is paid in one of two ways:

• From the common fund. This is the usual structure. The defendant pays a lump sum into a fund, and the court-approved fee, expenses, administration costs, and service awards come out first. What remains is divided among claimants.
• Separately by the defendant. Some settlements, especially those involving statutes that let winning consumers recover attorneys' fees, have the company pay fees on top of the class benefits. For example, in the Equifax duplicate collection account settlement, Equifax agreed to pay class counsel $425,000 for practice changes on top of the $2.2 million fund, so that portion did not reduce class payments, according to the settlement notice.

The Supreme Court endorsed the common fund approach in Boeing Co. v. Van Gemert (1980), holding that fees can be charged against the entire fund, including unclaimed portions, because every class member who can collect a share benefits from the lawyers' work. Under the common fund doctrine, recognized by the Supreme Court in 1980, people who share in a recovery also share in the cost of the lawyers who created it.

No fee is final until a judge approves it. Under Federal Rule of Civil Procedure 23(h), a court may award only a "reasonable" attorney's fee, the request must be made by motion with notice to the class, and any class member may object. Judges use two main methods.

1. Percentage of the fund. The judge awards a share of the settlement. In In re Bluetooth Headset Products Liability Litigation (2011), the Ninth Circuit said courts "typically calculate 25% of the fund as the benchmark" for a reasonable fee, with departures explained on the record. The same opinion said courts should lower the percentage for very large "megafund" settlements where 25% would be a windfall.
2. Lodestar. The judge multiplies the hours reasonably worked by a reasonable hourly rate, sometimes adjusted up or down by a multiplier for risk and results. Many courts run a lodestar "cross-check" on a percentage award to see whether it produces an unreasonable hourly rate.

Coupon settlements have special limits. Under the Class Action Fairness Act, 28 U.S.C. 1712, fees tied to coupons must be based on the value of the coupons class members actually redeem. That rule targets deals where lawyers were once paid on the face value of vouchers few people used.

Judges also look for signs that the lawyers traded a weak deal for the class in exchange for a generous fee. The Bluetooth opinion named three warning signs: counsel receiving a disproportionate share of the settlement, a "clear sailing" agreement in which the defendant promises not to oppose fees up to a set amount, and a "kicker" that sends any fee reduction back to the defendant instead of to the class. None of these automatically sinks a settlement, but each one requires the judge to look harder at whether the fee is reasonable. Class members can point to these same features in an objection.

Fee requests commonly run from about 25% to one-third of the fund, and judges sometimes award less. Here are examples from official settlement documents and court orders.

The Capital One robocall case shows how a fee ruling changes class payments. In In re Capital One Telephone Consumer Protection Act Litigation (N.D. Ill. 2015), Judge James Holderman cut the fee from $22.6 million (30%) to $15.7 million, which raised the estimated payment per claimant from $34.60 to $39.66. The Wells Fargo CARES Act settlement awarded 30%, while in the Robinhood trade execution settlement, class counsel asked only for litigation expenses. The pending Amazon returns settlement allows a request of up to $100 million, and the court will decide the actual amount.

Across a whole market, fees are a meaningful but minority share. The Consumer Financial Protection Bureau's 2015 arbitration study found that consumer finance class settlements over five years totaled $2.7 billion, with roughly 18% going to attorneys' fees and expenses.

Attorneys' fees are not the only deduction. A typical fund pays, in this order of approval:

• Litigation expenses, such as expert fees, court reporters, and travel, reimbursed at cost with court approval.
• Notice and administration costs for the settlement administrator, which mails notices, runs the website, reviews claims, and issues payments. In the Capital One case, $5.09 million of the fund was designated for notice and administration.
• Service awards (also called incentive awards) for the named plaintiffs who lent their names, sat for depositions, and produced documents. These are usually a few thousand dollars each. The ABC Legal settlement proposed up to $3,500 for each of eight class representatives.
• Class member payments from whatever remains, the net settlement fund.

Our guide to how class action money is divided explains how that net fund is split, and why payouts are often smaller than expected covers the math from a claimant's side.

No, not by class counsel for representing the class. Federal law also protects class members from settlements that leave them worse off. Under 28 U.S.C. 1713, a court may approve a settlement that makes a class member pay class counsel an amount resulting in a net loss only if it finds in writing that non-cash benefits substantially outweigh the loss.

You may pay a lawyer in two situations, both by your own choice:

• You hire your own attorney to appear in the class case, for example to object. Rule 23 notices tell class members they may enter an appearance through an attorney, at their own expense.
• You opt out and sue on your own. An individual case is a separate contract, often also on contingency. Personal injury and mass tort cases usually use individual contingency agreements rather than a class fee. See class action vs. individual lawsuit.

If you think the lawyers are asking for too much, you have a formal right to say so. The class notice lists the fee request (or where to find the fee motion), the objection deadline, and the address of the court.

1. Read the fee motion on the official settlement website, usually under "Court Documents."
2. Write an objection that identifies the case, states that you are a class member, and explains why the fee is unreasonable (for example, a high percentage of a fund where most members get little, or a fee based on coupons nobody will use).
3. File or mail it by the deadline, following the notice's instructions exactly. Rule 23(e)(5) requires an objection to state whether it applies only to you, to a specific subset of the class, or to the entire class, and to state its grounds with specificity.

Our guide on how to opt out or object to a class action covers the full process. If you were harmed in a way that a class payment will not cover and want to explore your own claim, a free case review takes about two minutes.