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Posts Tagged ‘class action abuse’

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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In response yesterday’s entry discussing Daniel Fisher’s article on the potential impacts of Concepcion, I got one of the best comments that I’ve ever received on this site.  It comes from Portland complex injury and consumer class action attorney David Sugerman, who blogs at www.davidsugerman.com.  Of course, I disagree with just about every word of it, but with imagery like a bunch of corporate fat cats “fixing to celebrate the opening of the all-you-can-eat trough of greed,” I could not help but re-post it here:

I’m amused. As I said to defense counsel at a large multi-national firm, I guessed that midway through the second glass of champagne, the defense bar realized it had a real problem. He is apparently looking for a new job or to transition into other areas of practice.

Your one concrete example–retail sales–is, as you know, a less viable class because of problems of ascertainment, notice, locating the class, providing notice and obtaining and distributing relief. And not all retail sales cases survive. You likely recall the Gateway case some years ago with the forced mandatory arbitration clause in the paperwork in the box that was deemed accepted upon registration?

I love the concerted talking points in the defense bar that these cases are not done. Those of us who represent consumers know better.

We also know the torrent about to be unleashed when consumers can no longer take concerted action to stop nickel and diming on high-volume, small amount claims. AT&T, Comcast, banks, utilities, credit card companies are fixing to celebrate the opening of the all-you-can-eat trough of greed.

The argument that Congressional or Executive action *might* change things proves too much. Absent such action, consumer class cases are pretty much done. The argument also illustrates the crass overreaching in SCOTUS’ opinion, with views on federalism and statutory construction that are as breathtaking as the Citizens United case.

This is really not a problem for me because I handle a wide range of consumer and plaintiff problems. But my colleagues in high-priced defense firms who defend consumer class actions for a living are likely to have problems.

So no, if I were a high end defense attorney, I wouldn’t take much comfort in Forbes view or the talking points. It’s going to get bleak out there.

Lest you doubt my dire predictions, let’s set a wager for 12 months from the decision on how many consumer class actions have been filed, how many layoffs in the defense industry, or some other agreed-upon metric that we can revisit next year.

Ok, David, friendly banter on.

First, I must say that I don’t know a single defense lawyer who owns a private jet, but I know several plaintiffs’ lawyers who do, so all this talk about “high-priced” defense firms rings a little hollow to me.

Second, defense lawyers will have jobs for as long as there are plaintiffs’ lawyers around to file lawsuits, and somehow I don’t see the plaintiffs’ bar throwing in the towel this easily.  What you may see is simply a shift in the kinds of class actions that get filed in the future, or the industries that are targeted.  I say “targeted” because in my experience trends in consumer class actions are more often driven by the creativity of the entrepreneurial trial bar than by any epidemic of corporate greed.  Don’t get me wrong, I’m not saying there aren’t well-publicized scandals involving an epidemic of corporate greed (See Enron), but they tend to generate securities or ERISA class actions, not consumer class actions.

Finally, I’ll wager you, although not for money.  Only for pride.  (I’m not made of money after all, I’m just a defense lawyer).  I’ll bet that not only don’t we see a decrease, but we’ll actually see an increase in consumer class actions over the next year.  Sort of like the rash of class actions filed just before CAFA took effect.  I’m not sure at this moment how we’ll measure this, but I’d imagine that there’s a consulting firm out there (no doubt worried about the effect Concepcion is going to have on its own bottom line) planning just the kind of research we need.

So, if you’re a consulting firm looking for a project, we’ve got a job for you (pro bono, of course)…

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In a case rife with lessons, a lawyer learned another valuable one today:  If you’re going to dish out the vitriol in your briefing with certain judges, be ready to be put in your place. 

The case of Thorogood v. Sears Roebuck & Co. is already famous for the suggestion made by plaintiffs’ counsel in oral argument that the Seventh Circuit panel’s three male judges poll their wives to see if they agreed whether the possibility that a stainless steel clothes dryer contained non-stainless components made them fearful of rust damage to their laundry.  The panel conducted the poll as suggested and the unanimous “no” result helped to solidify Judge Posner’s conclusion that the proposed fraud claims was not susceptible to common proof.

Today’s decision was an unusually lengthy denial of a rehearing petition, following an appeal of an earlier panel decision holding that the all Writs Act permits a federal district court to enter an injunction against future putative class actions in other courts on the same grounds in which the district court previously denied certification.  Judge Posner, also the author of the three previous decisions in the course of the litigation, explained the lengthy opinion by saying that it might be helpful to readers of the panel’s previous opinions in the case, as well as to the author of the petition for rehearing, “whose accusations are over the top, as we shall now explain, and who may wish to moderate his fury.”

Aside from being an exceedingly entertaining read (for anyone other than the petitioners’ counsel), the opinion is of interest for Judge Posner’s additional discussion of the potential (with an emphasis on the word potential) abuses of class action settlements by both plaintiffs’ attorneys and defendants.

No doubt there will great discussion about this opinion across the web in the coming weeks.

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This evening, I came across an excellent blog article by David J. Sales, a trial lawyer with the Florida personal injury firm, Searcy Denney.  His article discusses Democratic Presidential candidate Barack Obama’s vote in favor of the Class Action Fairness Act of 2005 and the significance of that vote in demonstrating an independent streak, allowing him to counter John McCain’s claim to being the “maverick” candidate willing to break with his party.

Sales makes two insightful observations about CAFA that refute popular myths about the statute.  First, he points out that by passing a statute that shifts jurisdiction over many class action lawsuits from state courts to the federal courts, Congress created a “decidedly anti-federalist” measure, a point that calls into question any perception of the law as a triumph in conservative lawmaking.  Second, he notes that the effects of CAFA have not been been measurably harmful to consumers as many Democrats and trial lawyers warned, a point that discredits any argument that support for CAFA could only have been justified by a pro-big business, anti-consumer agenda.

CAFA has not brought about an end to class actions, as some conservatives hoped and as some liberals had feared.  Maybe for some the law didn’t go far enough in preventing class action abuse, and maybe for others it went too far in restricting access to justice.  But it did add some reasonable procedures that may at least in some cases improve the quality of decision making and prevent abuse in class actions.  Isn’t that exactly the kind of compromise that the vast majority of us who find ourselves closer to the middle of the American political spectrum would like to see happen more often?

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Here is an article on CFO.com that caught my eye today.  Reportedly, Republican Congressmen John Boehner and Lamar Smith have sent letters to Democratic majority leaders seeking an investigation into what the article refers to as “the practices of the class actions litigation industry.”

Certainly, there have been some high-profile abuses among members of the plaintiffs’ class action bar recently.  But these are examples of individual arrogance and greed, not evidence of an epidemic in need of a Congressional investigation–especially in light of the myriad other things Congress could be doing these days.  The acts of a few bad apples shouldn’t ruin the bunch. 

Among other things, Boehner and Smith seek “[r]eforms that Congress can make to rid the judicial system of [class action] abuses.”  If you really want to spend government money to prevent class action abuse, here’ s a modest proposal from a class action defense lawyer’s perspective: try better funding for the courts.  If there were more, better-paid judges available to give the time and thoughtful analysis needed in carrying out their function as gatekeepers rather than simply doing whatever they can to manage their overflowing dockets, maybe there wouldn’t be any incentive to pursue frivolous class actions and abusive tactics.  Just an idea.

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