Hemispherx BioPharma (HEB)

[jmbar2]

How some class action lawsuits work:

From http://abovethelaw.com/2011/11/attorneys-fees-in-class-actions-too-low-too-high-or-just-right/


Some plaintiffs’ lawyers file a lawsuit that they believe to be meritorious, alleging a defect with some device. The defendant responds by pointing out the shortcomings of the case — e.g., that the supposed defect affects a very small percentage of the devices — and by making a settlement offer that involves repairing or replacing any devices that are defective.

Perhaps the value of the relief amounts to just $50,000 (because so few of the devices are actually defective). The plaintiffs’ lawyers respond, however, that they have put a great deal of time and expense into the case, which they viewed as meritorious at the time they filed it, and they need to be paid for their trouble. So they might ask for $250,000 in attorneys’ fees.

A settlement providing for relief to the class worth $50,000 and attorneys’ fees worth $250,000 — i.e., lawyers getting five times as much as the class — might look bad on the surface. But this is a settlement that the client might be happy to accept, according to Jacobson. The client would be pleased by the rapid resolution and the small amount of relief, reflecting the fact that very few customers actually experienced the defect identified in the lawsuit. Even if fighting this out at trial could bring the defendant total vindication, it would end up costing far more than $300,000 — which is why settlement is attractive, even if the lawyers get more than the class.

At the end of the day, said Jacobson, “Defendants need to be able to settle a cheap case cheaply.”