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Archive for May, 2008

According to an AP story published today, Texas Senator John Cornyn has introduced a bill “aimed at protecting shareholders from rogue attorneys” in securities class actions.  Senator Cornyn’s bill, not coincidentally, was introduced on the same day that class action attorney William Lerach reported to prison for a 2-year term for paying illegal kickbacks to securities class action plaintiffs.  See here for Senator Cornyn’s official statement regarding the proposed legislation.  According to Senator Cornyn, the bill would 1) require sworn disclosures regarding the existence of direct or indirect payments by counsel to plaintiffs; 2) create a competitive bidding process for the selection of lead plaintiffs’ counsel; and 3) commission a GAO study regarding the appropriate “hourly rate for lead counsel.”

I previously commented on a proposal to initiate a Congressional investigation into systematic abuses in class action litigation.  (See my earlier entry here.)  Having not read the text of Senator Cornyn’s bill, I can’t say with confidence that it is another example of an unnecessarily rash solution to a perceived problem that can be remedied simply by enforcing existing law.  However, Mr. Lerach was prosecuted under existing law, pleaded guilty, and is now serving time in prison for his illegal acts.  Reforms requiring more “transparency,” such as requiring the submission of a sworn statement, would not appear to be a significant deterrent to a clever lawyer bent on breaking the law.  As for the other proposed reforms, judges are already very well equipped to make determinations about the appropriateness of an attorney’s fee in a particular jurisdiction without having a government study to rely on.  The proposal to create a competitive bidding process for the appointment of class counsel is a concern because it may have the unintended consequence of encouraging, not reducing, unprofessional conduct, and because it has serious implications for the very nature of the attorney/client relationship.  Rule 23 already give judges the power to scrutinize relationships and potential conflicts of interests between lawyers and their clients in deciding whether to certify proposed class actions.  I am skeptical that reforms of the type proposed by Senator Cornyn are necessary or even likely to reduce potential lawsuit abuse in ways not already covered existing laws.

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Law.com published an interesting article Friday by Scott Balber of Chadbourne and Parke.  Mr. Balber provides statistics on securities class action filings in 2007 and comments on reasons for recent pro-business trends in securities class actions, including the resolution of several key legal issues on grounds favorable to defendants, a jury verdict for the defense in an investor fraud case, and scandals involving high-profile plaintiffs’ lawyers.  Here is a link ot the article:

http://www.law.com/jsp/article.jsp?id=1202421425201

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A Reuters.com article published today summarizes a NERA Economic Consulting study on litigation involving stock options backdating allegations.  The study found that settlements in shareholder class actions filed for alleged backdating have been lower than “comparable shareholder class action settlements” and that settlement amounts have been less than half on average of what the firm had previously predicted.  The article goes on to discuss possible reasons for the lower settlement amounts, including the possibility that the weakest cases were settled first and the possibility that difficulties in proving direct injuries resulting from backdating might limit settlement values.  Here is a link to the article:

http://www.reuters.com/article/marketsNews/idUSN1553623620080515

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Law.com has an article today summarizing a 2-1 decision by a panel of the United States Court of Appeals for the Second Circuit regarding the scope of a securities law exception to the Class Action Fairness Act’s removal provisions.  The article both summarizes the case and contains a link to the opinion itself.  The decision concerns an exception to the federal removal jurisdiction conferred by CAFA, codified at 28 U.S.C. §§ 1332(d)(9)(C) and 1453(d)(3) for claims that “relate[] to the rights, duties (including fiduciary duties), and obligations relating to or created by or pursuant to any security.”  The exception came into play because the defendant was a citizen of the forum state.  The majority held that the exception did not apply to claims for relief under state consumer fraud laws based on the defendant’s alleged acts in marketing securities because the claims did not “relate” the rights or obligations of holders of the securities.  

The opinion also addresses issues relating to procedures on interlocutory appeal of an order remanding a case removed under CAFA, including a finding that the phrase in 28 U.S.C. § 1453(c)(1) that an appeal be filed “not less than 7 days after the entry of the order” contains a typographical error and must be interpreted to mean “not more than 7 days after the entry of the order,” a conclusion also reached by other circuits. 

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It’s a little later this week than normal because I unexpectedly had to attend a hearing out of state, but better late than never.  Here are some blog posts of interest to class action practitioners from this past week…

The Complex Litigator has an extensive analysis of an upcoming Law Review article by Professor Sheila Scheuerman of the Charleston College of Law regarding “inferential preclusion of punitive damages claims in class actions.”

http://www.thecomplexlitigator.com/2008/05/has-the-united.html

For the latest in California class certification decisions, see The UCL Practitioner:

http://www.uclpractitioner.com/2008/05/new-class-certi.html

The California Wage and Hour Law weblog reminds the plaintiffs’ bar that some of the best ideas on employment class action strategies come from defense lawyers (right back at you)…

http://wagelaw.typepad.com/wage_law/2008/05/new-littler-rep.html

… and reviews a recent Ninth Circuit Court of Appeals decision regarding the ability of a district court in which a certified class action is pending to enjoin other competing actions:

http://wagelaw.typepad.com/wage_law/2008/05/district-courts.html

SCOTUS Blog provides links to case materials in for class action cases in which Petitions for Certiorari have been filed with the United States Supreme Court raising, including issues relating to class action arbitration bans in consumer contracts and removal issues:

http://www.scotusblog.com/wp/petitions-to-watch-conference-of-52208/

http://www.scotusblog.com/wp/petitions-to-watch-conference-of-52908/

Drug and Device Law Blog analyzes a recent Oregon Supreme Court decision in a class action lawsuit addressing whether having to undergo medical monitoring can be an injury sufficient support a negligence claim:

http://druganddevicelaw.blogspot.com/ (See Post entitled So Big And Yet So Small)

Class Action Defense Blog provides a detailed summary of a recent federal court decision certifying a class in an action against a pharmaceutical company for its alleged actions to prevent generic competitors from entering the market:

http://classactiondefense.jmbm.com/2008/05/glaxosmithkline_class_action_d.html

D&O Diary provides yet another excellent analysis of trends in subprime class action litigation:

http://www.dandodiary.com/2008/05/articles/subprime-litigation/variations-on-the-subprime-lawsuit-theme/

Federal Civil Practice Bulletin provides a link to an article by Vanderbilt Law Professor Amanda Rose regarding securities class action reforms:

http://federalcivilpracticebulletin.blogspot.com/2008/05/prof-rose-posts-article-on-reforming.html 

EDTexWeblog.com discusses a federal district court’s denial of a motion to dismiss a class action filed under the Federal Odometer Act:

http://mcsmith.blogs.com/eastern_district_of_texas/2008/05/motion-to-dismi.html

Northern Law Blog discusses the benefits of responding to class action settlement notices.

http://www.northernlawblog.com/2008/05/class-action-lawsuits.html

Smart Blog discusses a lawyer’s rating website that successfully defeated a class action lawsuit on First Amendment grounds:

http://smartblog.typepad.com/smart_blog/2008/05/no-good-deed-go.html

A (very) left-of-center blog criticizes Barak Obama’s support of CAFA.  (Not to get too political, but this post only helps solidify my own support of Mr. Obama.  No doubt a major press release of my endorsement will follow):

http://proletariat.wordpress.com/2008/05/09/obama-and-the-class-action-fairness-act/

istockanalyst.com provides an extensive commentary of both potential abuses in class action lawsuits in general and issues regarding a particular shareholder class action attacking a proposed merger between satellite radio providers…

http://www.istockanalyst.com/article/viewarticle+articleid_1853716.html

…but InjuryBoard.com defends the benefits of class action lawsuits:

http://cleveland.injuryboard.com/miscellaneous/benefits-of-class-action-lawsuits.aspx?googleid=238998

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The first time I ever used a mock trial as an evaluation tool for a class action, my expectation was that it would provide a great way to gauge potential exposure if the case went to trial.  I soon found that mock trials are a great tool for evaluating exposure in a class action only if you’re interested in narrowing down the range of possible verdicts from a defense verdict to a zillion dollars. That was about the range we got in our five or so different mock jury panels, except the zillion might have been a hundred million–still a fairly made-up number in a case where the actual amount of compensatory damages sought was a few hundred thousand dollars.  In truth, the best jury consultants can’t provide, and don’t even promise to provide, a narrow range of possible verdicts.  So what are they good for?  Quite a bit, actually, if you don’t treat them like something they’re not.  Here are a couple of areas in which mock trials can be useful:

Setting or adjusting client’s expectations.  If you have a client who won’t accept the risk that any group of six or twelve citizens could ever buy the plaintiffs’ crazy theories, a mock trial can be a very effective way to convince him or her otherwise.  A good jury consultant can put together a mock jury pool that matches very closely matches that of the forum and can provide statistics on initial written questionnaires as well as the ability to view multiple jury panels deliberate over the issues in the case.  Just seeing that more than half the prospective jurors in the jury pool are willing to award the plaintiffs money even if your client didn’t do anything wrong may be enough to change any expectation that there is no risk of losing.

Testing theories.  Mock trials can be a great way to test theories before having to face a real jury.  A jury consultant can provide a variety of methods of varying levels of sophistication for testing and evaluating the effectiveness of factual theories and themes.  On one end of the spectrum, simply providing a forum for the lawyers to talk to focus groups can provide a simple way to test out how regular people will react to the lawyer’s theories of the case.  On the more expensive end of the spectrum are technologies allowing mock jurors to provide feedback on the effectiveness and appeal of an argument as it is being made.   Lawyers and their clients can watch focus groups talk about their reactions to the arguments or even watch mock jury panels deliberate on a remote video feed.

Understanding bias and planning for jury selection.  A mock trial can help a lawyer get a rough idea of what juror profiles are likely to be favorable or unfavorable to his or her side of the case.  Not only can likely jurors’ attitudes be probed as a group, but jury consultants can provide detailed reports on the attitudes and reactions to facts of individual prospective jurors, both before and after the case information is presented.

The benefits of a mock trial will vary significantly depending on the particular issues and facts in the case, the forum involved, and the lawyers’ and client’s familiarity with the forum.  However, in the right case, a mock trial can be a useful tool in helping both counsel and client evaluate a case and prepare for trial.  Just don’t expect a precise monetary valuation of your case.

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Browsing the class action newswires today I came across this press release announcing a class action filed by a group of disgruntled mothers against their ungrateful offspring.  The suit, apparently a putative injunctive class action sought to be certified under Rule 23(b)(2), seeks an order that children “stop asking because from now on they are not getting – without more gratitude.”  I’m not saying that I jumped to the conclusion that I was a defendant, but in the abundance of caution, I read on.

A full read of the press release revealed, much to my relief, that it isn’t a real class action but rather a virtual “lawsuit” filed on a website called www.RealVerdict.com.  The website allows users to file grievances against others, give evidence as “witnesses” in these virtual cases, and vote as jurors on who should win.  Unlike other websites offering to assist potential litigants with assistance in real lawsuits (see April 14 entry entitled Class Action Lawsuits the Latest Internet Craze? ), Realverdict.com makes clear that its cases provide no legally binding dispute resolution.  However, as a forum for venting, comic relief, public commentary, private arbitration, or maybe even theory testing for real lawsuits (ok, probably not the last two), it might be worth a try.

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