Person:

Rubenstein, William

Courts reward attorneys for investing time in class action lawsuits more generously than they reward them for investing money in the costs of those suits. Class counsel may directly profit on time investments in two ways: by billing lawyers at market rates though paying those lawyers less and by receiving multiplied fee awards. Those same attorneys in those same situations may also recover their costs but courts may not—or at least do not—permit the attorneys either to mark up their costs or to receive cost multipliers. As cost profits are rarely even debated, there is no good defense of why they are unavailable, but one assumes that courts are less comfortable awarding attorneys a markup on their copying machine than they are for their legal work.

The assumption that costs cannot be directly profitable appears therefore to belittle costs, relegating them to a secondary position in the fee and cost award analysis and treating them as something of a tagalong or afterthought. Our goal in this Article is to give costs their due. We describe current jurisprudence, demonstrating how, given a choice between investing profitable time or reimbursable costs, profit- maximizing attorneys will find time investment more attractive than cost investment. We then explore the effects of this bias, showing that because cost investments are not directly rewarded, profit-maximizing attorneys will predictably (1) avoid certain cases; (2) select suboptimal modes of proceeding within cases they do bring; and then (3) settle those cases prematurely. Assuming that conclusion is unfortunate, we consider and propose mechanisms for remedying it.

While our proposals are initial and therefore tentative, our commitment to the project of centering costs is not: it is grounded in the belief that the legal system’s anti-cost-investment bias impedes access to justice for individuals whose claims can be established only with substantial cost investments by entrepreneurial lawyers. Centering costs—and considering measures as conventionally discouraged as permitting third parties to profit from cost investments—has the potential to serve a larger public good.

This Article appears in a Symposium commemorating the Supreme Court's decision in Phillips Petroleum Co. v. Shutts. The legal claims that gave rise to Shutts were meritorious, yet of relatively modest value.

Individuals are unlikely to litigate such negative value claims because the costs of doing so outweigh the benefits they will receive; defendants are well-situated to escape liability. Conventionally, scholars describe this situation as posing a collective action problem and demonstrate how the class action mechanism works to solve that problem.

In this Article, I discuss the problem of negative value claims in a related yet distinct manner. The fact that parties will not pursue these claims is, I argue, an example of the underproduction of a so-called public good. That good is a lawsuit. Litigation can be conceptualized as a public good, with its pursuit producing positive externalities. The Article enumerates these collateral social benefits, grouping them as: 1) decree effects; 2) settlement effects; 3) threat effects; and 4) institutional effects.

The addition of this analysis to the scholarly literature serves several functions. Among these is that it illuminates how little collective action really takes places in small claims cases; how relatively unimportant the compensatory aspects of the case are compared to its other social functions; how the concept of deterrence does not capture these non-compensatory benefits as well as the concept of externalities does; and how small claims class actions are more like other types of class cases than generally presumed.