August 6, 2008

George Krueger and Judd Serotta of Blank Rome, in today's WSJ, think the use of litigation slush funds might overstep the constitutional authority of the courts:

In our view, this as-near-as-possible remedy in class actions is defective. The Constitution provides for the resolution of "cases" and "controversies" between aggrieved parties. Courts are empowered to resolve those specific disputes, and not to transfer a corporate defendant's assets to an outside organization that has not appeared before the court. The Constitution does not give courts the authority to satisfy notions of "deterrence" by giving institutions like legal aid societies or universities windfalls when those entities are not even parties to the lawsuit.

The best solution would be to give the remainder of the uncollected funds back to the defendant; to those class members who have already collected their initial portion; or even to the government, thereby at least allowing society to benefit in some way, while still serving as a deterrent. Another solution would be to come up with a less arbitrary -- and more objective and disinterested -- mechanism for finding an appropriate beneficiary organization that shares the plaintiffs' common interests.

Krueger and Serotta also say a new round of class action reform is needed that would tie class counsel's compensation to "the reward actually recovered by class members, as opposed to the total claimed 'value' of the settlement".