International Precious Metals Corp. v. Waters

Background

Respondents brought a securities class action accusing petitioners of fraudulently soliciting and stimulating excessive trading in commodities options. The parties settled when petitioners agreed to create a $40 million reversionary fund for the class. The settlement allowed unclaimed money and fees to revert to petitioners. The District Court approved $13,333,333 in attorneys’ fees—one third of the fund—even though class members actually received $6,485,362.15. The Court of Appeals affirmed the award.

Reasoning

The central question raised was whether a fee award must have some rational connection to the amount actually paid to class members. The opinion explains that a prior case permitted fees based on the total fund, but did not address the need for a link to actual payouts. The statement highlights concerns that large, reversionary-fee arrangements can split counsel’s incentives from class interests, encourage settlements favoring defendants, and prompt needless suits. Courts of appeals have taken different approaches. The Justices declined to review this case because, here, petitioners had agreed not to oppose the fee and so appear to have waived any challenge.

Real world impact

Because the Court refused review, the large fee award stands in this case and the class members’ smaller payout remains unchanged. The ruling leaves unresolved the broader question of when fees must track class recoveries. That unsettled issue could affect how future class settlements are structured and whether lawyers’ incentives align with class interests.

Dissents or concurrances

Justice O’Connor agreed with denying review but stressed the issue’s importance and urged that the Court take up the question in a suitable future case.