Fees, Incentives, and Deterrence: A Reply to Professor Fitzpatrick
In his recent article, Protection of Investors in the Wake of the 2008-2009 Financial Crisis: Do Class Action Lawyers Make Too Little?, 158 U. Penn. L. Rev. 2043 (2010), Professor Brian Fitzpatrick asserts that "the optimal award of fees to class action lawyers in small-stakes actions is 100% of the judgment." The premise of Fitzpatrick’s proposal is that deterrence is the sole purpose of small-stakes class actions and an increase in fees will incentivize lawyers to file more small-stakes class actions which in turn will result in more class awards and more deterrence. This paper addresses two fundamental questions relating to Fitzpatrick’s proposal: (1) how much more deterrence can we expect to derive from an increase in fees to class action lawyers?; and (2) what are the costs associated with a significant increase in small-stakes class actions? The paper suggests that the increase in deterrence may be far outweighed by the increase in cost associated with the proposal.