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Posts Tagged ‘class action scandal’

As the new year approaches, everyone seems to be doing a “top ten” list for 2008, so of course, ClassActionBlawg has to have one too.  However, this “top ten” list has two improvements.  First, the rankings will be decided by reader vote.  Second, and even better, it goes to 11!

So, here are some key class action decisions and trends from the year that was, in no particular order.  See the poll below to vote for the one you like best.  Feel free to submit comments with other suggestions, and maybe together we can make a top ten list so good that it will go higher than 11.  Best wishes to all in 2009.

  • RICO fraud class actions show promise after Supreme Court’s decision in Bridge v. Phoenix Bond & Indemnity Co., 553 U.S.. —. , 128 S.Ct. 2131 (U.S. June 9, 2008) (holding that a plaintiff need not show first-party reliance in order to assert a claim under the federal RICO statute).
  • “Foreign Cubed” class actions show promise, then sputter a bit.  See Morrison v. National Australia Bank Ltd., 2008 WL 4660742 (2d Cir. Oct. 23, 2008) (discussing federal jurisdiction over “foreign cubed” securities class actions).
  • Fraud on the market theories are tested in consumer fraud cases.  See McLaughlin v. Philip Morris USA, Inc., 522 F.3d 215 (2d Cir. 2008) (rejecting class certification on various consumer fraud theories, including the “fraud on the market theory”).
  • Courts reject certification of FACTA Class Actions on superiority grounds based on reasoning that class exposure would be grossly disproportionate to the alleged harm to consumers.  See, e.g., this recent California federal court decision summarized at Class Action Defense Blog.
  • California courts address certification of wage and hour class actions involving unpaid wages for time worked during meal and rest breaksSee Brinker Restaurant Corp. v. Superior Court (2008), 165 Cal. App. 4th 25, review granted (Oct. 22, 2008).
  • Truth in Lending Act (TILA) actions seeking rescission of mortgages due to alleged predatory lending deemed unsuitable for class treatment.  See Andrews v. Chevy Chase Bank, No. 07-1327 (7th Cir., Sept. 24, 2008)
  • Class actions for damages caused by pollution where defendant has complied with applicable regulations see mixed results in the U.S. and Canada.
  • The Second Circuit Court of Appeals holds that a preponderance of the evidence standard of proof applies in determining whether the elements of class certification have been satisfied in Teamsters Local 445 Freight Division Pension Fund v. Bombardier, Inc., Case No. 06-3794-cv (2d Cir. Oct. 14, 2008).
  • Italy’s new class action law takes effect, while other European countries consider class action reforms.
  • Class action scandals involving illegal kickback and bribery schemes result in prison sentences for class action lawyers Melvin Weiss, William Lerach, Dickie Scruggs and others.
  • The Supreme Court rejects “scheme liability” in securities fraud cases in Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, Inc., 128 S. Ct. 761 (2008)

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AP writer Greg Risling reported today on the sentencing of former Milberg Weiss partners Steven Schulman and David Bershad for their roles in a scheme involving the payment of kickbacks to plaintiffs in securities class actions.  Both lawyers were sentenced to six month prison terms.  The scandal involved paying class representatives a portion of the oftentimes multi-million dollar legal fee awards obtained as part of large class action settlements.  In this way, the conspirators were able to provide a significantly greater incentive for a plaintiff to pursue the case than if he or she were limited to recovering an amount necessary to compensate them for their injury.  However, fee-splitting with non-lawyers is considered unethical under long-standing rules of professional conduct.  According to the article, available at Newsweek.com:

In a letter submitted to Federal District Court Judge John Walter, Bershad apologized for the deception.

“I now recognize that our behavior grievously injured the judicial process,” he wrote. “I will live out my days with the painful knowledge that our acts tarnished all of the good work we did.”

Co-conspirator William Lerach published an essay in Portfolio.com earlier this year entitled “I am Guilty,” in which he unapologetically blamed his conviction on zealous prosecutors, the bar associations, big business, and just about everyone other than himself.  Lerach’s diatribe makes the quote from Bershad’s letter seem downright contrite, until you look more closely at his word choice: “I now recognize.”  Though subtle, either the introductory clause reflects a lingering defiance, being code for “I know I need to say this but I don’t really mean it,” or Bershad was commenting on the difficulty of seeing anything wrong with his behavior in the first place: “how could I possibly have known that what I was doing was illegal?”  Either way, his failure to state simply that “Our behavior grievously injured the judicial process” reflects the warped sense of morality that underlies the actions of the lawyers involved in the scandal.

Bershad’s apology fails to recognize that his illegal acts didn’t just tarnish “all the good work” he believes he did, they took the “good” of the work entirely.

Essentially, the argument is that fee-splitting with clients, while concededly unethical and illegal, was a morally necessary tactic to level the playing field in taking on powerful interests.  “Whistleblowers” just needed an extra push to convince them to help the white knights seek justice against evil corporations.  Lerach’s essay even goes so far as to compare his crusade to that of the lawyers who brought the landmark civil rights decision Brown v. Board of Education, though his essay glosses over the small detail that those lawyers did not need kickbacks to persuade a plaintiff to help them do justice.

The “end justifies the means” argument does not work here.  Taking on wrongs in the name of public interest is what attorneys general and other regulators are for.  If public prosecution is not enough, and if there is a true problem in incentivizing victims to pursue a civil remedy without having to bribe them, then we should have a debate about how to change the system.  The kind of private vigilante justice that Lerach and his counterparts championed, where the rule of law is abandoned in the name of the common good, can only lead to exploitation and greed.  It can in no way be considered “good work.”

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Washington Post columnist has David Ignatius published a great op-ed last week regarding the downfalls of high-profile plaintiffs’ class action lawyers Melvyn Weiss and Dickie Scruggs.  The column appears in the June 5 edition of the Post under the title Reining in the Kings of Tort and in the June 6 edition of the Indianapolis Star under the title The Case of the Runaway Class Action Lawyers.  Mr. Ignatius points out that the recent bribery, illegal kickback, and other scandals involving class action lawyers are tarnishing an image of plaintiffs’ lawyers as the “good guys” fighting for the common man against corporate greed and corruption.  He analyzes the possible motivations underlying these scandals and their impact on popular myths about class action lawyers as champions of the people created by authors like John Grisham and the works of consumer advocates like Ralph Nader.  He observes that men like Weiss and Scruggs were probably not motivated by greed–they both had more money than they could spend.  More likely, they became so zealous in their belief that they were protecting the interests people who had been the victims of harm that they began to “cut corners.”  The end justified the means. 

Scandals like those involving Weiss and Scruggs and abuses of trust of other so-called consumer advocates like former New York Attorney General and Governor Eliot Spitzer don’t mean that all plaintiffs’ lawyers and consumer advocates are greedy, unethical egomaniacs (see my earlier commentary here).  However, they do expose over-simplistic popular conceptions of who is a hero and who is a villain.  As important as recognizing that plaintiffs’ class action lawyers are not all heroes is the recognition that not all corporations are out to exploit, defraud, or otherwise harm the public.  Just as plaintiffs’ class action lawyers are human beings with real human flaws, large corporations are run by human beings with real human compassion.  Hopefully it doesn’t take reading Mr. Ignatius’s column for most people to appreciate those realities, but his column does serve as an important reminder.  Real life is not like a John Grisham novel.

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