What Is the Common Fund Doctrine?
The common fund doctrine is why class action lawyers are paid from the settlement they create, rather than by individual clients.
The common fund doctrine is the principle that a lawyer whose work creates or preserves a fund for the benefit of a group can be paid a reasonable fee from that fund. It spreads the cost of the lawyers' work across everyone who benefits, rather than leaving it to the few people who brought the case.
Why it matters when you file a claim
Without this doctrine, class members could collect from a settlement without contributing anything toward the cost of winning it, while the named plaintiffs bore the expense. The doctrine solves that by taking fees from the fund as a whole. For you, it means you don't pay a lawyer directly, but the amount available to claimants is reduced by the court-approved fee.
How it works in practice
- 1The settlement creates a single pool of money for the class.
- 2Class counsel ask the court for a fee, often a percentage of that pool.
- 3Class members receive notice of the request and can object.
- 4The judge decides what is reasonable and approves a fee.
- 5The fee, costs and administration expenses come out before the rest is distributed.
A simple example
A bank agrees to pay a lump sum to settle claims about overdraft fees. Class counsel's work produced that fund. Under the common fund doctrine, the court awards them a portion of it, and the remainder is split among eligible account holders according to the plan of allocation.
Common fund vs. fee shifting
Some laws include fee-shifting provisions that require a losing defendant to pay the winning side's reasonable attorneys' fees. When fees are paid that way, they are calculated separately and don't come out of the class's money. Settlements sometimes blend the two, with a fund for the class and a separate fee payment. The notice usually says which approach applies, often in a section titled something like "how will the lawyers be paid."
How it relates to other terms
The doctrine is the legal basis for most attorneys' fees in class actions. It applies to a common settlement fund. It differs from fee-shifting, where a statute requires the losing defendant to pay the winning side's fees separately. For a broader look at where the money goes, see how settlement money is divided.
SettleScout estimates payouts with fees and costs in mind, so you can see which settlements are worth your time before you file.
Frequently Asked Questions
Is the common fund doctrine only for class actions?
No. It developed in equity and can apply whenever a lawyer's work creates a fund that benefits people beyond their own client, but class actions are where it is most common.
Does the doctrine set a fixed percentage?
No. The court decides what fee is reasonable based on the case. Practices vary between courts.
What if the defendant pays fees separately?
Then the fees don't come from the class fund, and the common fund doctrine may not be the basis for the award.
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