International Precious Metals Corp. v. Waters
The Supreme Court declined to hear a challenge to a class-action settlement in which lawyers received $13,333,333 in fees while class members collected only about $6.5 million. Justice O'Connor wrote separately to flag the issue as important even while agreeing the case was a poor vehicle for resolving it.
How it got here: The trial court approved the fee award, the Eleventh Circuit affirmed, and the defendants asked the Supreme Court to review the award.
The Case in Depth
What happened
Class members sued alleging they had been fraudulently induced into excessive commodities options trading. The parties settled for a $40 million fund, with unclaimed money reverting to the defendants. The trial court approved $13,333,333 in attorney's fees—one-third of the fund—even though class members ultimately claimed only about $6.5 million.
The question before the Court
Should the Supreme Court have reviewed a $13.3 million attorney's fee award that was more than twice what the class members actually received?
Why it matters
Class-action lawyers and defendants often structure settlements around a large capped fund from which fees are paid, even when actual payouts to class members are far smaller. O'Connor's statement signals that the Court may eventually address whether such fee awards must be tied to what the class actually recovers, but for now lower courts remain split.
What changes now
The denial of certiorari leaves the Eleventh Circuit's decision upholding the fee award in place, and it is not a ruling on the merits of the underlying legal question. Justice O'Connor's statement does not bind future courts but signals that the Supreme Court may take up the question of linking attorney's fees to actual class recovery in a later case with a cleaner record.
What this does not decide
The Court did not decide whether attorney's fees in class-action settlements must be tied to what class members actually collect. Justice O'Connor explicitly said this case was not a suitable vehicle to resolve that question because the defendants had waived their right to challenge the fee award.
How the Court got there
The legal reasoning, step by step
- Justice O'Connor noted that in Boeing Co. v. Van Gemert, the Court had approved basing attorney's fees on the total settlement fund rather than the amount actually distributed, but had never decided whether fees must bear some rational connection to what the class actually recovers.
- She observed that allowing fee awards untethered from actual recovery creates risks: it can misalign lawyers' incentives with their clients' interests, give defendants leverage to induce settlements that shortchange the class, and encourage lawsuits where transaction costs swallow the class's actual recovery.
- She pointed out that federal appeals courts disagree on this question, citing one circuit that approved basing fees on actual payout and another that treated a percentage of the total fund as the benchmark.
- Despite viewing the issue as important, she concluded this particular case was a poor vehicle for resolving it because the defendants had contractually agreed not to oppose the fee application and their own lawyer had told the trial court the requested fee was reasonable, effectively waiving any challenge.
- Because of that waiver, she agreed that the petition should be denied, while urging the Court to take up the question in a future case where it was properly preserved.
Doctrinal impact
Cases affected by this decision
Distinguishes Boeing Co. v. Van Gemert (444 U. S. 472)
That case approved fee awards based on the total fund, but never addressed whether fees must track actual class recovery.