The common fund doctrine is a legal concept that guarantees lawyers who recover money on behalf of a group of individuals receive reasonable compensation for their services. The doctrine is important in class action lawsuits, mass torts, and other types of cases where many plaintiffs gain from a single lawsuit. It stops people who have not contributed to legal fees from reaping the fruits of a lawsuit without sharing the cost of attorney fees.
In this Article, we are going to analyze the definition and function of the common fund doctrine, its operations, applications in court cases, major court decisions, and exceptions to the doctrine.
What is the Common Fund Doctrine?
The common fund doctrine is a legal rule that allows an attorney to claim reasonable fees from a settlement or judgment obtained on behalf of a group. The doctrine is based on the idea that all beneficiaries of the legal action should share in the cost of legal representation, rather than allowing some to benefit for free while others bear the expense.
When attorneys recover a financial award on behalf of a group, their fees are deducted from the total settlement rather than being paid separately by individual plaintiffs. This prevents situations where some individuals benefit from the legal work without contributing to the costs.
Key Principles of the Common Fund Doctrine
- Prevents unjust enrichment – Ensures that individuals who benefit from a lawsuit contribute to attorney fees.
- Encourages legal representation – Motivates attorneys to take on class actions and complex cases with the assurance of compensation.
- Applies to group litigation – Used in cases where multiple parties receive financial benefits from a single legal action.
- Fee deduction from settlement – Attorney fees are paid from the awarded settlement before distributing funds to plaintiffs.
How the Common Fund Doctrine Works
When attorneys recover a financial award on behalf of a group, their fees are deducted from the total settlement rather than being paid separately by individual plaintiffs. This prevents situations where some individuals benefit from the legal work without contributing to the costs.
Steps in Applying the Doctrine
- A lawsuit is filed on behalf of multiple plaintiffs – The attorney represents a group of individuals who share a common legal claim.
- A financial settlement or judgment is reached – The court awards compensation or the parties agree on a settlement.
- Attorney fees are deducted from the total award – Before distributing funds to the plaintiffs, a portion is allocated to cover legal fees.
- The remaining funds are distributed among the beneficiaries – The rest of the settlement is divided among the plaintiffs.
Applications of the Common Fund Doctrine
The common fund doctrine is primarily applied in cases where multiple parties benefit from legal representation, including:
1. Class Action Lawsuits
- The doctrine is most commonly used in class action lawsuits, where one or more plaintiffs (class representatives) sue on behalf of a larger group.
- Since all class members benefit from a successful outcome, they share the cost of legal representation
2. Mass Torts
- In mass tort cases, multiple plaintiffs suffer similar harm but file individual lawsuits against the same defendant.
- If a mass settlement is reached, attorneys may seek compensation through the common fund doctrine.
3. Insurance Subrogation Cases
- When an insurance company recovers funds from a third party responsible for a loss, the insured party benefits as well.
- The attorney who secured the recovery can claim fees under the common fund doctrine.
4. Pension and Trust Fund Litigation
- In cases involving pension funds or trust funds, attorneys who recover assets for fund members can request payment through the common fund doctrine.
5. Government and Public Interest Cases
- Courts sometimes apply the doctrine when a lawsuit benefits a large group of citizens or a public entity.
Key Court Rulings on the Common Fund Doctrine
Several court decisions have shaped the application of the common fund doctrine, reinforcing its importance in ensuring fair legal compensation.
Supreme Court Rulings
- Trustees v. Greenough (1881) – Established that attorneys who recover funds benefiting a group can claim reasonable fees from the settlement.
- Central Railroad & Banking Co. v. Pettus (1885) – Confirmed that legal fees could be deducted from a judgment that benefits multiple parties.
Modern Applications
- Courts continue to apply the common fund doctrine in class actions, antitrust cases, and shareholder lawsuits, ensuring that attorneys are fairly compensated for securing financial recoveries for large groups.
Exceptions and Limitations to the Common Fund Doctrine
While the common fund doctrine is widely accepted, there are some limitations and exceptions.
1. Cases Without a Defined Fund
- If a case does not result in a specific monetary fund, attorneys may not be entitled to claim fees under the doctrine.
- Example: A lawsuit that results in policy changes but no financial settlement.
2. Contractual Agreements
- Some legal agreements specify how attorney fees will be handled, overriding the doctrine.
- Example: A contingency fee agreement where plaintiffs directly pay their attorneys.
3. Government Lawsuits
- In some cases, courts have ruled that the common fund doctrine does not apply when a lawsuit benefits the general public rather than a specific group.
4. Voluntary Settlements
- If parties reach a private settlement, attorneys may not be entitled to fees under the common fund doctrine unless explicitly agreed upon.
How Attorney Fees Are Calculated Under the Common Fund Doctrine
There are two primary methods for determining attorney compensation under the common fund doctrine:
1. Percentage of the Fund Method
- Attorneys receive a percentage of the total settlement (typically 20% to 40%).
- Commonly used in class action lawsuits.
2. Lodestar Method
- Attorneys are paid based on the number of hours worked multiplied by a reasonable hourly rate.
- Courts may adjust the fee based on factors such as case complexity and results achieved.
Advantages of the Common Fund Doctrine
- Ensures fair attorney compensation – Lawyers are incentivized to represent large groups without relying on individual client payments.
- Encourages class actions and mass litigation – Plaintiffs can seek justice without worrying about high upfront legal costs.
Prevents freeloading – All beneficiaries contribute to the legal costs rather than some getting a free benefit.
Disadvantages of the Common Fund Doctrine
- Reduces plaintiff payouts – Attorney fees reduce the total amount distributed to plaintiffs.
- Potential for excessive fees – Some cases raise concerns over attorneys claiming large percentages of settlements.
- Not applicable in all cases – Some lawsuits may not meet the criteria for the doctrine to apply.
About the Author
Neil Bhartia
Neil Bhartia isn’t your typical, stuffy attorney that you see on TV. While some have their sights exclusively on money and treat their clients like a number, Neil takes a personal interest in every single client he has. As an empath, Neil understands that people that seek legal help are typically in an involuntary, and stressful situation, and he goes out of his way to diffuse the stress and educate clients on each every detail of the legal process.
