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June 7, 2003

FTC Opposes Inflated Fees Based on Face Value of Coupons

Filed under: pre-06-2006 — David Giacalone @ 11:01 pm


The Federal Trade Commission announced in a press release on June 6th, that its staff had filed an amicus brief opposing the proposed class action settlement in the Texas case of Haese v. H&R Block, Inc. — due mostly to excessive attorneys fees.  The plaintiffs claimed that H&R Block helped them get income tax “refund anticipation loans,” but failed to disclose it was receiving a “kick back” from the lending bank on each RAL.  The settlement would give the 700,000 class members coupons for a $20 H&R tax prep rebate, software and planning booklet for five years.  Based on the alleged face-value of the coupons, plaintiffs’ lawyers estimated the value of the settlement at $261 million, and requested attorneys’ fees of $49 million.


In its amicus brief, the FTC staff:



  • explained at length why the purported face value of the coupons “wildly exaggerates the true value of the settlement to class member”
  • noted the apparent strength of the case on the merits, and that the attorneys’ fees would comprise “the only cash relief provided to anyone”
  • opined that the reqested $49 million fee draws into question the adequacy of counsel’s representation, and suggests the settlement may not have been the result of arms-length negotation
  • called for using the “lodestar” method for calculating the fees (hours worked times an appropriate hourly rate), due to the inability to estimate the true value of the settlement;
  • pointed out why the class counsel’s offer to divert $26 million of its fees to the class (if it got the whole $49 million) “raises concerns that warrant the Court’s scrutiny.”
  • concluded that the excessive fee request shows the settlement on the whole to be improper and contrary to the public interest

Prior efforts by the FTC to limit excessive attorney fees in class action suits, as part of its Consumer Protection mission, are described in a 9/29/02 Washington Post article The Commission’s targets have included instances where the suits are “piggybacking” on government cases and the lawyers were therefore neither taking much risk nor doing much “heavylifting.” FTC Chairman Timothy J. Muris is quoted saying: “if it’s a choice between the money going to consumers or to the plaintiffs’ attorneys, we’ll take the consumer every time.”



  • Two Cents from the sidekick Jack Cliente: We’ve been online for a week, and one kibitzer has already complained that we’re a “Johnny one-note” harping on excessive contingency fees.  Seems to me, we’d have a lot more topics and good news to report, if bar associations and courts would start promoting programs to better inform clients of their rights, and maybe enact some enlightened ethics rules (like those proposed here).

ethicalEsq?ethicalEsq?


Thanks to Ken at the Crimlaw blawg for mentioning us tonight. Public P.S. to Ken:  As my alter ego Jack Cliente says above, I wish we had more non-contingency-fee news. After my first eight days blawging, 5 of my 10 substantive postings have been on other topics — but, I had to “create” the topic, there was no actual news to report.  Plus, none of those other topics has garnered a comment. 


By the way, I don’t dislike the use of contingency fees.  I dislike applying a  Standard Rate without taking into account the circumstances of each client’s case — e.g., the likely risk and the amount of work.  That’s kind of like all criminal lawyers charging a fixed, flat fee that assumed you’d have a full-blown trial.  Please tell your buddies in those small p/i firms that they might soon be big firms, if they tried attracting clients from the start with lower contingency rates tailored to each case, rather than only cutting rates to prevent client defections.  Bravo for the clients who know enough to bargain.


Thanks also to the eclectic Jeremy of  too many topics, too little time for linking to ethicalEsq?.  How do you young folk get so much done?

14 Comments

  1. Not complaining – just trying to give people I’m linking thru an idea of what I saw in a quick once over. If I’d have wanted to say you were single minded I’d probably have compared you to Southern Appeal (a site I’ve always liked and read daily and which, of late, has All Pryor, All Day).

    Comment by ken — June 8, 2003 @ 10:08 am

  2. Not complaining – just trying to give people I’m linking thru an idea of what I saw in a quick once over. If I’d have wanted to say you were single minded I’d probably have compared you to Southern Appeal (a site I’ve always liked and read daily and which, of late, has All Pryor, All Day).

    Comment by ken — June 8, 2003 @ 10:08 am

  3. You weren’t the kibitzer mentioned by Jack, and I didn’t consider your comment a complaint. I don’t want to get pigeon-holed early in my blawg life, and your blurb was a good opportunity for me to point out my broader interests. Of course, I will always be taking positions that (I believe) are in the client’s best interests.

    Comment by David Giacalone — June 8, 2003 @ 10:31 am

  4. You weren’t the kibitzer mentioned by Jack, and I didn’t consider your comment a complaint. I don’t want to get pigeon-holed early in my blawg life, and your blurb was a good opportunity for me to point out my broader interests. Of course, I will always be taking positions that (I believe) are in the client’s best interests.

    Comment by David Giacalone — June 8, 2003 @ 10:31 am

  5. They don’t cut rates – they preemptively quote lower rates to begin with. When the client realizes she might win she will often leave for the bigger firm with the higher contingency rate. They must be able to get her a better result- they advertise on TV, have 4 offices in the Metro area, all her friends know the firm’s name, and they charge a higher rate. The lower rate keeps some clients but, to hear my friends talk, when a case starts to shape up with some real potential a large percentage of clients will leave.

    It’s the wierdest thing. Clients will walk away from the guy offering the lower fee. Over and over again. I had to learn that lesson the hard way in my criminal defense practice. I would quote $200-$300 for a simple case and the client would walk out of my office and go hire the guy who quoted them $800. Over and over again.

    Comment by ken — June 8, 2003 @ 11:48 am

  6. They don’t cut rates – they preemptively quote lower rates to begin with. When the client realizes she might win she will often leave for the bigger firm with the higher contingency rate. They must be able to get her a better result- they advertise on TV, have 4 offices in the Metro area, all her friends know the firm’s name, and they charge a higher rate. The lower rate keeps some clients but, to hear my friends talk, when a case starts to shape up with some real potential a large percentage of clients will leave.

    It’s the wierdest thing. Clients will walk away from the guy offering the lower fee. Over and over again. I had to learn that lesson the hard way in my criminal defense practice. I would quote $200-$300 for a simple case and the client would walk out of my office and go hire the guy who quoted them $800. Over and over again.

    Comment by ken — June 8, 2003 @ 11:48 am

  7. sorry second comment took a little while to get to you. Started it this morning but got distracted so didn’t finish until just now.

    Comment by ken — June 8, 2003 @ 11:51 am

  8. sorry second comment took a little while to get to you. Started it this morning but got distracted so didn’t finish until just now.

    Comment by ken — June 8, 2003 @ 11:51 am

  9. Very interesting, Ken. People have often been suspicious of my brother’s non-exhorbitant hourly rate and my own low mediation fees, thinking they represented an admission of lower quality. Of course, I buy generic products whenever I can, but a lot of Americans must have the name brands, even though they can easily find out if the generic/store brand suits their needs.

    Unfortunately, the ability of a law firm to get better results can’t be tested out by the clients in advance. I still believe that no firm can insist on using one “standard” rate for all p/i clients — it forces clients with the best cases to subsidize those with poor cases, and it gives the lawyers an unearned windfall at the client’s expense.

    I’d very much appreciate it if you would get your local Yellow Pages out, as I requested folks to do on Friday (6/6/03), and let me know if any ads state lower percentage rates, or suggest a willingness to negotiate or tailor fees to the individual client’s case.

    Don’t worry about a slow response — we should both have better things to do on a Sunday in Spring.

    Comment by David Giacalone — June 8, 2003 @ 1:19 pm

  10. Very interesting, Ken. People have often been suspicious of my brother’s non-exhorbitant hourly rate and my own low mediation fees, thinking they represented an admission of lower quality. Of course, I buy generic products whenever I can, but a lot of Americans must have the name brands, even though they can easily find out if the generic/store brand suits their needs.

    Unfortunately, the ability of a law firm to get better results can’t be tested out by the clients in advance. I still believe that no firm can insist on using one “standard” rate for all p/i clients — it forces clients with the best cases to subsidize those with poor cases, and it gives the lawyers an unearned windfall at the client’s expense.

    I’d very much appreciate it if you would get your local Yellow Pages out, as I requested folks to do on Friday (6/6/03), and let me know if any ads state lower percentage rates, or suggest a willingness to negotiate or tailor fees to the individual client’s case.

    Don’t worry about a slow response — we should both have better things to do on a Sunday in Spring.

    Comment by David Giacalone — June 8, 2003 @ 1:19 pm

  11. Ken-

    Sorry about that. I have been a little single minded of late, but the Pryor nomination is of great interest to me for several reasons (which I will be happy to share with you via e-mail, if you’re interested). I will say this though, I am getting quite a bit of traffic from people who are following the nomination, so that I guess that is one positive side effect. Anyway, sorry that it has gotten a bit redundant over SA. I will try to mix it up a bit more. :)

    Comment by Feddie — June 8, 2003 @ 5:12 pm

  12. Ken-

    Sorry about that. I have been a little single minded of late, but the Pryor nomination is of great interest to me for several reasons (which I will be happy to share with you via e-mail, if you’re interested). I will say this though, I am getting quite a bit of traffic from people who are following the nomination, so that I guess that is one positive side effect. Anyway, sorry that it has gotten a bit redundant over SA. I will try to mix it up a bit more. :)

    Comment by Feddie — June 8, 2003 @ 5:12 pm

  13. we don’t get as much done as we’d like, but usually we get most things done with a little help from others. I linked because I have held a research interest in ethics for quite some time, and this seemed an interesting topic in that area.

    Comment by jeremy hunsinger — June 9, 2003 @ 5:01 pm

  14. we don’t get as much done as we’d like, but usually we get most things done with a little help from others. I linked because I have held a research interest in ethics for quite some time, and this seemed an interesting topic in that area.

    Comment by jeremy hunsinger — June 9, 2003 @ 5:01 pm

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