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Posts Tagged ‘class action reform’

After years of debate, France has finally passed its first “class action” law. Act No. 2014-344 of 17 March 2014 (relatif à la Consommation) went into effect on March 18. Chapter One of the new law introduces a new collective action procedure to adjudicate claims arising out of anti-competitive behavior and certain other consumer protection claims. Like the group action laws of many other civil law countries in Europe, the new procedure is very different from consumer class actions as they are known in the United States and other common law countries. The law creates a simplified opt-in collective action procedure that can only be enforced by an approved consumer association, not by individual litigants.  However, it is a significant development for a jurisdiction that has long resisted implementing collective action procedures of any kind.

Here is a link to the google translation of the Act in English.

Thanks to friend of ClassActionBlawg Larissa Clare Pochmann da Silva for tipping us off to this new development.

For a more detailed summary of the various aspects of the new law, see this Lexology article authored by Jérôme Philippe, Maria Trabucchi, Stephane Benouville, Dimitri Lecat and Alexandra Szekely of Freshfields Bruckhaus Deringer LLP.

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My article for the University of Denver Law Review’s Online Edition entitled Statutory Penalties and Class Actions: Social Justice or Legalized Extortion?  was posted today.  The article discusses potential reforms to address the problem of class actions for statutory penalties giving rise to potentially annihilating liability in cases involving little or no actual harm.  Please check it out.  While you’re there, check out some of the other excellent content on a wide variety of legal topics that the DU Law Review has to offer in its online supplement to its regular print publication.

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On Monday, I summarized proposed Arizona class action reform legislation forwarded to me by Shawn Aiken of Aiken Schenk Hawkins & Ricciardi P.C.  Yesterday, Aiken forwarded the final version of the class action bill as introduced before the Arizona Senate.

Click here for a copy of SB 1452.

Aiken also noted that there could be challenges to the legislative power to enact a new class action rule:

Our state constitution has many unique provisions. The one that will be invoked here is this: “The supreme court shall have . . . [the] [p]ower to make rules relative to all procedural matters in any court.”  Arizona Constitution, Article 6, Section 5.  The question will be what is more procedural than judicial certification of class actions?

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Brian Wolfman, Co-director of the Institute for Public Representation at Georgetown University Law Center, has two excellent recent posts on Public Citizen’s Consumer Law and Policy Blog that provide food for thought on the need for class action reform, and the best way to achieve reform if it is needed.

In the most recent of the two articles, Paying the Lawyer’s Expenses in Class Actions, Wolfman discusses the social importance of allowing plaintiffs’ attorneys to recover their reasonable costs incurred in successfully pursuing a class action settlement or judgment, but discusses a recent case in which two attorneys from a prominent plaintiffs’ firm were sanctioned for having claimed reimbursement for fancy dinners and first class airline tickets.  Wolfman warns about the negative impact that this type of conduct has on public perception of class actions, and makes the valuable point that even minor abuses of the system for personal gain threatens to bring scrutiny to the class action mechanism more generally, which limits access to justice that class actions may provide in meritorious cases.

In an earlier article, Important 7th Circuit Decision Rejecting Shareholder Derivative Suit, Wolfman applauds Judge Frank Easterbrook’s opinion throwing out the settlement of a shareholder derivative suit after finding that the underlying suit lacked merit and should be dismissed.  Wolfman makes the point that rather than approving a settlement that provides little or no benefit to class members on the grounds that the merits of the claims are weak, the better solution from a public policy perspective is to dismiss the case entirely.  He sums up this point concisely, “[a]n obviously meritless case should not benefit the lawyers and no one else.”

The two articles illustrate two important conceptual principles on which many consumer advocates and corporate interests may find themselves in complete agreement: First, it is the potential for abuse of class actions, and not the class action mechanism itself, that often provides the basis for legitimate criticism.  Second, courts can preserve the fairness and integrity of class action mechanism without the need for systematic reform simply by applying common sense restraints in the face of clear abuse.  I think that both of these points are correct as a matter of principle, and they are both eloquently illustrated by Wolfman’s posts.

My only question is whether the idea of preventing abuse through the application by the courts of common sense constraints, while pure in theory, is truly realistic in practice.  It only works to the extent that all judges will act as carefully and thoughtfully as the judges in the two cases highlighted above.  If courts do not dismiss all frivolous cases when a defendant files a motion to dismiss, what choice does a defendant have as a practical matter but to consider buying peace on the best terms possible, which often means paying off the lawyers at the expense of a class that the defendant doesn’t believe was harmed anyway?  And, if some courts continue let frivolous claims proceed in the hopes that the parties will settle, or turn a blind eye to small excesses in fee and cost petitions, then basic human nature says that some (but certainly not all) plaintiffs’ lawyers will continue to commit these abuses, and some (but not all) defense lawyers will play along to serve their own interests.  In the end, the cynic will question whether relying on the diligence and intellectual honesty of the judiciary and the professional integrity of the bar is a realistic path to reform.

On the other hand, for those of us who are practitioners and not policymakers, professional responsibility, appeal to reason, diligence, and intellectual honesty are the only tools we have at our disposal at maintaining the integrity of the judicial process.

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According to Pete Kasperowicz at The Hill’s Floor Action Blog, Senator Al Franken (D-Minn.) and Representative Rosa DeLauro (D-Conn.) have introduced legislation in Congress intended to reverse limitations on employment discrimination class actions recognized in the Supreme Court’s 2011 decision in Wal-Mart Stores, Inc. v. Dukes

A fact sheet available on Senator Franken’s official website describes the key provisions of the bill as follows:

The Equal Employment Opportunity Restoration Act will restore workers’ ability to challenge discriminatory employment practices on a class-wide basis. It adds to Title 28 of the U.S. Code a new section 4201, which does the following:

  • Section 4201(a) creates a new judicial procedure – called “group actions” – that workers can use when bringing employment discrimination cases. The requirements for establishing a group action are the same as the pre-Dukes requirements for maintaining a class action under Rule 23 of the Federal Rules of Civil Procedure—namely, clarifying that the merits of the case need not be proven to certify the group action.
  • Section 4201(b) provides that group actions can be used regardless of whether the group is challenging an objective employment practice, a subjective employment practice, or a mixed employment practice (such as the use of a written test to qualify for an interview).  It also provides that employers’ written anti-discrimination policies can be considered as a defense to certification only insofar as the employer demonstrates that the policy actually has been implemented in practice.
  • Section 4201(c) says that the group actions authorized by this section are subject to the same procedural requirements as class actions authorized by Rule 23. These include notice and opt-out requirements. This section also preserves the application of the Class Action Fairness Act and the availability of appeals.
  • Section 4201(d) says that courts can use statistical analyses and any other procedures they deem necessary to provide justice to prevailing plaintiffs.

It does not appear from Senator Franken’s fact sheet that the bill has significant bipartisan support, and having just been introduced, there is no telling how far it will go towards becoming law in its present form.  However, we’ll keep an eye on any future developments here at CAB.

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A recent article by Ann Woolner of Bloomberg offers an interesting profile of class action pioneer William Lerach, who has been traveling the world and relaxing in his seaside mansion since his release from prison last year.  Lerach was convicted in 2007 for his part in a kick-back scheme in which lawyers agreed to split fees with clients in order to convince them to participate as representatives in class actions.   Whatever you might think about Lerach, it’s hard to deny his influence on the development of modern U.S. class actions.  However, the hubristic conduct that led Lerach to prison, his public lack of remorse for his actions, and the idea that he is now left to live happily ever after, will continue to make him a poster child for those who argue that our U.S.  system of class actions is in need of drastic reform.

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On Friday afternoon, I received a comment to a December post entitled Are Class Actions About to Make a Run for the Border? that deserved a more conspicuous mention.   The comment came from Mexican attorney Jorge de Hoyos Walther, who had the following update on the status of legislation in Mexico introducing collective actions:

In April 2011 the Mexican Parliament approved a legislative package that regulates such actions, foreseeing the publication of the same in the Federal Official Gazette during the month of July. The amended laws are six: (1) Federal Code of Civil Proceedings; (2) Federal Civil Code; (3) Federal Law of Economic Competence; (4) Federal Law of Consumer’s Protection; (4) Organic Law of the Federal Judicial Power; (5) General Law of Ecological Equilibrium and Environmental Protection; and (6) Law of Protection to the User of Financial Services. On August 30th 2011, the Federal Official Gazette published this amendment to the federal law.

Legislation limits collective actions to matters related to the consumption of goods or services (public or private) and the environment.

jdehoyos@dha.com.mx

Jorge de Hoyos Walther

http://www.dha.com.mx

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Legal commentator and unabashed crusader for class action reform, Lawrence W. Schonbrun, has a new article on The Huffington Post discussing so-called “professional” objectors in class action lawsuits.  Schonbrun criticizes what he believes is hypocrisy in plaintiffs’ class action lawyers attempting to vilify those who seek to object to class action settlements for profit because, in his view, many class actions themselves are simply vehicles for lawyers’ profit with no other social utility.  Whether you agree with his perspective, Schonbrun’s commentaries are always thought-provoking, and this piece is no exception.

I will leave it to Schonbrun and others to comment on the social value of professional objectors or class actions more generally.  As a defense practitioner, my concern is with the potential practical impact on my clients’ cases.  From a practical perspective, it is important to note that what most practitioners would consider “professional” objectors does not include nonprofit associations and lawyers whose motivation is based on a genuine belief that the settlement is unfair to consumers or that class actions should be reformed.  Nor would it include a lawyer who was retained by a client because of the client’s bona fide objection to the fairness of the settlement.  While it is possible that the motivations of a particular objector’s counsel could be mixed or unclear, most practitioners would agree that the term “professional objector” is susceptible to the same “I know it when  I see it” standard as Justice Potter Stewart’s  standard for identifying obscenity.

There is no doubt that there exists several cottage industries of entrepreneurial lawyers who have found creative ways to profit from class actions filed by other lawyers and their clients.  Professional objectors are but one of at least three groups of what many traditional plaintiffs’ attorneys would consider interlopers who seek to make a cheap buck off of someone else’s class action:

1) “Copy cat” lawyers, who file competing lawsuits in other jurisdictions

2) “Opt out” lawyers, who round up individuals to opt out of class action settlements in order to file mass actions raising the same claims

3) “Professional objectors,” attorneys who solicit members of a class in order to raise objections to a class settlement, in the hopes of being able to extract a portion of the fee or to take over as class counsel. 

From my perspective, the influence of these groups, at least in the consumer class action context, has waned over the past decade.  Five or ten years ago, it was common to expect one or more objections to a large class action settlement filed by attorneys who had an obvious track record of objecting to class actions (and no obvious political or charitable agenda).  Back then, many plaintiffs’ lawyers would simply agree to pay a small portion of the fee to the objector’s lawyer, rather than have the entire settlement held up for months or years while the objectors exhausted their appeals.  These days, by contrast, there are a variety of techniques that have been successful in  reducing the number of objections motivated purely by an outside lawyer’s attempt to profit from the settlement.  The most significant tool has been to file a motion to require the objector or his attorney to post a significant bond, measured by a percentage of the value of the settlement, pending any appeal of the denial of an objection.

The problem of dealing with professional objectors is customarily the role of plaintiffs’ counsel, although after having agreed to a settlement, the defendant has nearly as much of an incentive to overcome objections as the plaintiffs’ lawyers do.  There are several key preventative measures that both parties to a class action settlement can take to ward off professional objectors (or any objectors, for that matter), including:

  • Avoiding the appearance of collusion.  This problem is usually avoided if the settlement is reached after an otherwise contested litigation, but can be a problem if the parties reach a settlement shortly after the complaint has been filed.  In most cases, experienced plaintiffs’ counsel will insist on at least performing some confirmatory discovery before agreeing to a settlement in the first place.
  • Retaining a qualified notice expert to ensure that the notice program follows current best practices and to opine, if necessary, about the fairness, reach, and reasonableness of the settlement notice.  This is important because the most persuasive arguments that can be made by an objector is not that the settlement value is unfair (after all, the settlement is the result of a compromise between the parties) but rather it was procedurally unfair because it did not provide potential claimants with reasonable notice.

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Class Action Watch executive director Lawrence W. Schonbrun has an opinion piece in yesterday’s Huffington Post entitled The Class Action Mess in a Nutshell.  In the article, he questions whether the same “weapons of mass destruction” label that Warren Buffet gave to financial derivatives should apply equally to class action lawsuits.  As an example, he offers a recent lawsuit against a mortgage lender that had to settle a lawsuit for millions rather than face billions in potential liability for statutory penalties under the Fair Credit Reporting Act (FCRA).  The allegation against the company had been that it had sent out a mass solicitation that failed to give a sufficiently “conspicuous” statutorily-required notice about a consumer’s right to prevent certain uses of his or her credit information. 

As noted in this February 14 CAB entry, class actions seeking statutory penalties under FCRA and similar statutes have been a controversial issue over the past few years.  Some say that it is unfair to subject a company (and, by implication its employees and shareholders) to potentially “annihilating” liability for acts that have caused no material injury to the vast majoirty of a class of consumers.  Others say that if class actions are to be prohibited in cases seeking penalties under these statutes, it is up to Congress to say so.

I will leave it up to the reader to decide whether these types of class actions portend an economic nuclear holocaust.

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According to this February 8, 2011 article from Lee Ann Schultz of the Twin Cities Daily Planet, the Minnesota legislature is considering a bill that, according to its sponsors, would curtail consumer class action litigation in the state.  The bill, HF211, has three key provisions of interest, which would:

  1. limit private actions under three consumer protection statutes to actions filed by “natural persons who purchase or lease goods, services, or real estate for personal, family, or household purposes”;
  2. require proof of personal loss of money in order to support a cause of action for damages under the consumer protection statutes; and
  3. make class certification orders immediately appealable and imposes an automatic stay of proceedings at the trial court while the appeal is pending.

All three measures are similar to class action reform measures passed or at least considered by various states over the past decade or so.  However, there are at least three aspects of the proposed reforms that would make consumer protection actions in Minnesota more restrictive than in other states.

First, this bill appears to limit consumer protection actions to actual consumers.  Some state statutes broadly construe who is a “consumer” for the purposes of enforcing the consumer protection law, so that small businesses and other non-natural “persons” can sometimes qualify. 

Second, while most states have some sort of requirement that there be proof of causation of injury in a consumer protection case, HF211 would require a specific kind of injury:

No award of damages in an action covered by this subdivision may be made without proof that the person or persons seeking damages suffered an actual out-of-pocket loss. The term “out-of-pocket loss” means an amount of money equal to the difference between the amount paid by the consumer for the good or service and the actual market value of the good or service that the consumer actually received.

This language appears to restrict consumer protection claims to only those situations in which the named plaintiff and other would-be class members suffered a loss of value to the product or service purchased.  So, a claim that deceptive marketing or advertising practice caused consumers to suffer financial losses other than loss of value to the product itself would apparently be foreclosed.  The specific language may be intended to avoid the kinds of uncertainty that has plagued litigants in California following the passage of Proposition 64 in 2005, a voter-approved reform that requires proof that the named plaintiff “lost money or other property” in order to pursue a class action under the state’s Unfair Competition Law (UCL).

Curiously, the bill makes reference to a requirement that this injury be proved on an “individual” basis, even in a class action:

Each such person seeking to recover damages for violations of these sections, either in an individual action, a class action, or any other type of action, is required to plead and prove on an individual basis that the deceptive act or practice caused the person to enter into the transaction that resulted in the damages.

It is unclear whether this language, if adopted, would a) effectively prevent any consumer protection claim from being pursued on a class basis because all consumer protection claims would require individual proof of injury, b) be interpreted only as a threshold matter to insure that the class representative (but not absent class members) has standing before the case is allowed to proceed, or c) somehow introduce a new requirement of “individual” proof for all class actions, even while still allowing class actions to be pursued in some form.

Third, this bill would allow appeals of class certification decisions as of right and would create an automatic stay.  By contrast, federal rule 23(f), and the similar rules of many states allow interlocutory appeal of class certification orders only in the discretion of the appellate courts and do not mandate an automatic stay of proceedings at the trial court level while the appeal is pending.

The Bill was introduced in the state House on January 24.  It is not clear what the Bill’s chances of passage are.  Only one of the Bill’s 12 authors is a Democrat (or, for my Minnesota friends who want to be picky, DFL).

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