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Herzfeld & Rubin, Volkswagen, and Stockholm Syndrome

I've noted before that one of the things that's surprised me most about my practice with the Center for Class Action Fairness (which, as always, is not affiliated with the Manhattan Institute) is how often law firms representing defendants will seek to lose the war to win exceedingly tiny battles at the long-term disadvantage of all of their corporate clients, including the one in the case.

Herzfeld & Rubin represents a number of Fortune 500 clients, including Volkswagen. For reasons that remain utterly inexplicable to me, they negotiated a settlement that arbitrarily excluded a million vehicles in the settlement class from receiving any pecuniary relief, while other class members were entitled to reimbursements of over $1000. My clients objected to the illegal intra-class disparities in the distribution, and, though VW should hypothetically be economically indifferent as to which class members receive which relief from a settlement fund they've already committed to pay, they've spent a lot of VW's money defending that distribution tooth and nail. We've argued that it made no sense to treat identically situated vehicles in a single settlement class differently: if a 1997 Audi and a 2009 Touareg are in the same class with the same claim and the same damages, there's no reason that the owner of the older Audi should get full reimbursement while the Touareg owner gets nothing. This isn't some odd right-wing ideological view of class actions; Public Citizen takes the same position about the same settlement. And if the argument is that it's okay to treat the uncertified "subclasses" differently because they're differently situated and have different individualized chances of success at trial, then there is obviously a Rule 23(a)(2) commonality problem that should preclude certification of the single settlement class.

This week, Herzfeld & Rubin has filed a brief defending the settlement by asking the Third Circuit to essentially eviscerate the Wal-Mart v. Dukes commonality requirements. Why would a defense law firm ask a court to take such a position ultimately so harmful to defendants' rights? Set aside an abusive personal attack that they made on me by name in an earlier appellate brief. Set aside that Sullivan v. DB Investments questionably narrowed Wal-Mart and other Supreme Court precedent: Herzfeld & Rubin is asking the court to make a questionable extension of Sullivan, a case that actually supports reversal. It would be one thing if this was just myopia of seeking a short-term result against long-term interests, but CCAF's argument against the settlement is largely irrelevant to VW's bottom line in this one case. It's a question of whether class members will get reimbursed or whether there will be leftover money in the settlement fund that will go to an unrelated charity some time in 2015; at worst to Volkswagen, a reversal will result in a wealth transfer from 1997 Audi owners to 2009 Touareg owners, and VW will, for interests of customer relations, make up the difference to Audi owners out of its own pocket. This is just seeking Pyrrhic victory for the sake of Pyrrhic victory: a notch in defense counsel's belt at the expense of their clients. And, of course, elimination of the commonality requirement is good for class-action defense firms, if not their clients.

Perhaps the fault is that of a general counsel who doesn't want to have to explain to his boss that a settlement needs to be renegotiated. But corporations are ill-served if their general counsels are not doing long-term strategic thinking. And they're worse served if their defense counsel is looking out for its own mercenary interests rather than the long-term interests of its clients.

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Rafael Mangual
Project Manager,
Legal Policy

Manhattan Institute


Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.