Recently in Class Actions Category
Legal Intern, Manhattan Institute's Center for Legal Policy
A couple of weeks ago, the California Supreme Court decided a potentially very impactful case dealing with the enforceability of arbitration agreements made between companies and their consumers/employees.
In Sonic-Calabasas A, Inc v. Moreno, the court ostensibly agreed with the U.S. Supreme Court's rulings in Concepcion and Italian Colors Restaurant that federal preemption applied over any state rulings that attempted to control the scope of consumer arbitration agreements under a specific formulation of the unconscionability doctrine.
However, the Sonic court then opened up the door to the potential introduction of a new unconscionability standard that would be substantively similar to the previously-discredited standard.
In the prior U.S. Supreme Court rulings, the Court specifically overruled the Discover Bank rule, which mandated that consumer arbitration agreements that did not include clauses allowing for class action suits were effectively unenforceable. The Supreme Court has held that the Federal Arbitration Act's mandates apply, regardless of any state "substantive or procedural policies to the contrary," including any any specific state standards for arbitration applicability.
Andrew J. Pincus and Archis A. Parasharami of the Mayer Brown law firm have written an op-ed discussing the various issues involved.
Businessweek mentions the pending CCAF Marek v. Lane Facebook cy pres certiorari petition (on the calendar for tomorrow) in a larger article about how the Supreme Court is supposedly squelching the class action by issuing rulings against abusive class-action certifications. Public Citizen got to Businessweek apparently, with the author warning that a cert grant could be bad for consumers. It's hard to see how consumers could be made worse off than a $0 settlement; such settlements hurt consumers by raising their costs without any corresponding benefit. Defense attorney John Beisner tells me of being on an American Constitution Society panel and asking the audience to identify a consumer class action where the consumers got more than the attorneys, and no one being able to name one.
One quote stands out as especially poor analysis, though:
Reliable data on class actions are in regrettably short supply because courts don't track them. The only helpful gauge over time measures just a slice of the relevant cases: federal securities fraud claims. The economic consulting firm Cornerstone Research says in the first six months of 2013, 74 securities class actions were filed in U.S. district courts. That's down 22 percent from the 16-year average from 1997 to 2012 and off 42 percent from the peak in the second half of 1998.
The problem here is that the Supreme Court has consistently ruled in favor of plaintiffs in securities cases in the last few years. If securities filings have gone down, it's because the stock market has gone up in the last four years, and securities filings go up and down in inverse correlation to the market direction—which does a lot to demonstrate that securities lawsuits tend to be less about fraud than about rent-seeking. In any event, the direction of securities class actions tells us nothing about the direction of consumer class actions.
Anyone wanting to hear my voice? I recently did two podcasts.
Law & Liberty talks to me about class actions and recent Supreme Court jurisprudence on class-action waivers.
And on Legal Talk Network, I debate trial lawyer Marc Saperstein about the recent appalling New Jersey appellate decision creating liability for third-party texters when drivers have accidents after texting. The crazy thing I learned about in this podcast: the driver who had the accident had the accident seventeen seconds after he sent a text. Unless he was in the middle of another text (and no one claims that he was to my knowledge), it's hard to see how texting (much less texting by an outside party) "caused" the accident.
So I tell ProPublica, though my empirically correct observation is somewhat buried amidst a number of Chicken Little quotes. Walter Olson goes into more detail.
In The Wall Street Journal, David Rivkin and Lee Casey write about Marek v. Lane, arguing that it's time to end class-action settlements that only reward lawyers, not plaintiffs. Earlier.
FACTA—which calls for statutory damages for printing too much information on credit card receipts—is perhaps the statute with the most abusive class action settlements, because notice rarely reaches class members and thus no one objects when the attorneys rip off the class. If a district court doesn't engage in its duty to protect class members, attorneys can walk away with windfalls while accomplishing next to nothing for their putative clients.
In Albright v. Bi-State Dev. Agency, a St. Louis federal case, here's how the settlement shook out:
$742.50 in cash and face value of tickets (surely mostly all tickets) to class members
$2,500 each to two class reps
$190,000 in attorneys' fees and expenses.
And the attorneys—Armstrong Law Firm, Bock Law Firm, LLC, and Chant and Co.—had the temerity to request over $400,000 in fees before the judge reduced it to something more than 200 times the class benefit. The class representatives got nearly seven times what the class got.
The case is Albright v. Bi-State Dev. Agency, 2013 U.S. Dist. LEXIS 129579 (E.D. Mo. Sept. 11, 2013).
Procter & Gamble (but not the plaintiffs) filed an en banc petition seeking further review of the 2-1 decision striking down the ludicrous attorney-benefit-only settlement in Dry Max Pampers. CCAF filed its opposition yesterday. I'm optimistic that the petition will be denied; it relies too heavily on a dissent that simply ignored precedent and problems with the settlement and class certification. But perhaps we'll get a certiorari petition, too.
At first glance, the Korean Air Passenger Settlement looks pretty good: $50 million in cash for class members. You have to dive very deep in the papers to find out that the attorneys are going to ask for $21.5 million of that cash. They justify this by valuing coupons with face value of $36 million at $36 million, but we know from the Class Action Fairness Act and In re HP Inkjet Printer Litig. that you're not allowed to do that. Tsk, tsk. (And, of course, 25% is likely excessive even if the settlement was worth $86 million, given that the lawsuit just piggybacked on a government antitrust investigation. But, of course, the court is never going to hear that unless a class member comes forward and objects, or retains counsel (perhaps pro bono counsel?) to represent them at the fairness hearing.
The class consists of:
All persons and entities (excluding governmental entities, Defendants, and Defendants' respective predecessors, subsidiaries, and affiliates) who purchased Passenger Air Transportation on [Korean Air or Asiana Airlines], or any predecessor, subsidiary, or affiliate of the Defendants, at any time
during the time period January 1, 2000 through August 1, 2007. As used in this definition, "affiliates" means entities controlling, controlled by, or under common control with a Defendant [and does not include travel agents]. "Passenger Air Transportation" means passenger air transportation service purchased in the United States for flights originating in the United States and ending in the Republic of Korea ("Korea") or flights originating in Korea and
ending in the United States.
There is a claim form online if you want your cash and coupons; class members should get formal notice shortly.
One of the lead class counsel is Jeff Westerman, who you might remember from his Milberg days for his role in the NVIDIA settlement bait-and-switch where he hired an expert witness to testify against letting class members recover what the settlement notice told them they'd recover. So one is skeptical when one reads in the settlement that "Korean Air and Class Counsel shall set the maximum coupon redemption value per ticket by mutual agreement."
Facebook and (disappointingly) Public Citizen tell the Supreme Court that there's no dispute about cy pres in the courts that merits Supreme Court intervention. (Earlier.)
I wish the district courts knew that. In EasySaver, the district court thought nothing about awarding $3 million to local universities (including class counsel's alma mater) in a national class action, even though the class was receiving only $225,000 and worthless coupons.
And just this summer, a district court made an appalling cy pres award in BankAmerica Corp. Securities Litigation. Though the class of shareholders received less than a nickel on the dollar for their alleged damages (and claimants ended up being paid less than a dime on the dollar), the Missouri district court refused to distribute $2.7 million to the class, instead ordering that a local legal aid society that serves only the St. Louis area get the money. CCAF wasn't involved at the district court level, but the class representative retained us as appellate counsel, and last week, we filed a brief in the Eighth Circuit appealing the decision. If the law of cy pres were clear, this wouldn't be remotely a close case, but the district court rejected the correct result out of hand.
At least Cato filed a strong amicus brief in the Facebook case. And some district courts are getting it right: the Northern District of California refused to approve problematic cy pres in a problematic settlement; a Kansas federal court demanded that cy pres recipients be identified in the class notice—something the Third Circuit refused to do in Baby Products.
You may recall the Ninth Circuit throwing out a bad settlement (in an opinion later modified) over Frosted Mini-Wheats that paid $800,000 to consumers, $2 million to lawyers, and some unknown figure to unknown cy pres. On remand, the parties set up a $4 million settlement fund—but $900,000 or so is earmarked for settlement administration. Is that a $4 million settlement, or is it really a $3.1 million settlement, because that's all the class can hope to get? Class counsel is "only" seeking $1 million this time, which is still disproportionate to actual class relief; meanwhile, the objectors who turned the $800,000 in class relief into over $2 million of class relief aren't being given anything. This morning, I'll be at the fairness hearing in San Diego, presenting the CCAF objection of Chicago Law professor Todd Henderson. (As always, CCAF is not affiliated with the Manhattan Institute.)
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Lawyers' Ethics and Fiduciary Obligation in the Brave New World of Aggregative Litigation
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