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f/k/a archives . . . real opinions & real haiku

June 7, 2003

FTC Opposes Inflated Fees Based on Face Value of Coupons

Filed under: pre-06-2006 — David Giacalone @ 11:01 pm

The Federal Trade Commission announced in a press release on June 6th, that its staff had filed an amicus brief opposing the proposed class action settlement in the Texas case of Haese v. H&R Block, Inc. — due mostly to excessive attorneys fees.  The plaintiffs claimed that H&R Block helped them get income tax “refund anticipation loans,” but failed to disclose it was receiving a “kick back” from the lending bank on each RAL.  The settlement would give the 700,000 class members coupons for a $20 H&R tax prep rebate, software and planning booklet for five years.  Based on the alleged face-value of the coupons, plaintiffs’ lawyers estimated the value of the settlement at $261 million, and requested attorneys’ fees of $49 million.

In its amicus brief, the FTC staff:

  • explained at length why the purported face value of the coupons “wildly exaggerates the true value of the settlement to class member”
  • noted the apparent strength of the case on the merits, and that the attorneys’ fees would comprise “the only cash relief provided to anyone”
  • opined that the reqested $49 million fee draws into question the adequacy of counsel’s representation, and suggests the settlement may not have been the result of arms-length negotation
  • called for using the “lodestar” method for calculating the fees (hours worked times an appropriate hourly rate), due to the inability to estimate the true value of the settlement;
  • pointed out why the class counsel’s offer to divert $26 million of its fees to the class (if it got the whole $49 million) “raises concerns that warrant the Court’s scrutiny.”
  • concluded that the excessive fee request shows the settlement on the whole to be improper and contrary to the public interest

Prior efforts by the FTC to limit excessive attorney fees in class action suits, as part of its Consumer Protection mission, are described in a 9/29/02 Washington Post article The Commission’s targets have included instances where the suits are “piggybacking” on government cases and the lawyers were therefore neither taking much risk nor doing much “heavylifting.” FTC Chairman Timothy J. Muris is quoted saying: “if it’s a choice between the money going to consumers or to the plaintiffs’ attorneys, we’ll take the consumer every time.”

  • Two Cents from the sidekick Jack Cliente: We’ve been online for a week, and one kibitzer has already complained that we’re a “Johnny one-note” harping on excessive contingency fees.  Seems to me, we’d have a lot more topics and good news to report, if bar associations and courts would start promoting programs to better inform clients of their rights, and maybe enact some enlightened ethics rules (like those proposed here).


Thanks to Ken at the Crimlaw blawg for mentioning us tonight. Public P.S. to Ken:  As my alter ego Jack Cliente says above, I wish we had more non-contingency-fee news. After my first eight days blawging, 5 of my 10 substantive postings have been on other topics — but, I had to “create” the topic, there was no actual news to report.  Plus, none of those other topics has garnered a comment. 

By the way, I don’t dislike the use of contingency fees.  I dislike applying a  Standard Rate without taking into account the circumstances of each client’s case — e.g., the likely risk and the amount of work.  That’s kind of like all criminal lawyers charging a fixed, flat fee that assumed you’d have a full-blown trial.  Please tell your buddies in those small p/i firms that they might soon be big firms, if they tried attracting clients from the start with lower contingency rates tailored to each case, rather than only cutting rates to prevent client defections.  Bravo for the clients who know enough to bargain.

Thanks also to the eclectic Jeremy of  too many topics, too little time for linking to ethicalEsq?.  How do you young folk get so much done?

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