International Precious Metals Corp. v. Waters
Headline: Court denies review of an enormous class-action attorney fee tied to a $40 million reversionary fund, leaving a one-third $13.33 million fee in place despite much smaller class recovery.
Holding: The Court declined to review the lower courts’ approval of a one-third, $13,333,333 attorney fee from a $40 million reversionary settlement fund because the defendants waived their right to challenge it.
- Decouples class counsel’s incentives from class members’ recovery.
- Allows defendants to structure settlements that favor fees over payouts to the class.
- Could encourage needless small-value lawsuits where class recovery is minimal.
Summary
Background
A group of investors filed a securities class action accusing certain traders and firms of fraudulently soliciting and encouraging excessive trading of commodities options. The companies agreed to a settlement that created a $40 million reversionary fund for the class. Under the settlement, any part of the fund not claimed by class members and not paid as attorney fees would revert to the companies. The District Court approved attorney’s fees of $13,333,333—one third of the fund—even though actual payments to class members later totaled $6,485,362.15. The Court of Appeals affirmed that fee award.
Reasoning
The core question raised is whether a court must ensure some rational connection between attorney fees and the actual distribution to class members. Justice O’Connor noted that an earlier case allowed fee awards based on the entire fund but did not resolve whether judges must check for such a connection. She warned that large reversionary-fee arrangements can detach lawyers’ incentives from the class’s interests and can let defendants steer settlements that favor fees over payouts. Here, however, the settlement included an agreement by the companies not to oppose the fee request, and the record showed the companies’ counsel supported the fee amount, so Justice O’Connor agreed the Court should deny review of this particular case.
Real world impact
The denial leaves the $13.33 million fee award intact in this case but does not settle the broader legal question. The statement signals concern about reversionary funds and suggests the Court should take a future case where the issue can be fully examined.
Ask about this case
Ask questions about the entire case, including all opinions (majority, concurrences, dissents).
What was the Court's main decision and reasoning?
How did the dissenting opinions differ from the majority?
What are the practical implications of this ruling?