IN COMMON-FUND CLASS ACTIONS, THE INTERESTS OF THE lawyers who bring the class action diverge from those of the class when it comes time to set the fee. Because the fee comes from the common fund, a zero-sum game prevails: The more the lawyers are awarded, the less there is available for the class.

A similar conflict of interest arises in cases initiated under a statute with a fee-shifting provision, which allows the court to order a settling defendant to pay the plaintiffs' attorneys fee and costs in addition to the settlement amount. In these cases, defendants are concerned about the total payment required to settle the action, which consists of the payment to the class plus the payment of the class lawyer's fee. For this reason, the parties often simultaneously negotiate the settlement amount and the fee so that the defendant has a fix on the total cost of the settlement. But this presents the parties with the opportunity to trade a higher fee for a more-than-offsetting lower settlement amount for the class. Even when the shifted fee is negotiated after the settlement is reached, the defendant takes the expected fee reimbursement into account in agreeing to the terms of the settlement. Courts are well aware of the incentives for collusion in these circumstances and maintain that they carefully scrutinize such settlements. Even so, many collusive settlements gain approval.