Chronicling the high cost of our legal system
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Before asking a federal judge to grant preliminary approval for a class action settlement with Ameritrade over alleged privacy breaches, make sure that your “client,” the class representative, isn’t going to tell the court he opposes the settlement. In re TD Ameritrade Account Holder Litigation, Case No. C 07-2852 VRW (N.D. Cal.) ($1.87M for the attorneys, coupons for the class.).
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Among the many reactions to our item last week on a Los Angeles judge who ordered that class action counsel be paid in gift cards (having negotiated only a gift-card settlement for the class) was one from Politics Across the Pond: “This should happen a lot more often, which would make it happen a lot less often.”
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The client class members were to receive only gift cards, not cash, in the settlement with Windsor Fashions, a clothing retailer, so Los Angeles Superior Court Judge Brett Klein thought it only fair to provide that Yorba Linda attorney Neil B. Fineman be paid his fee with “12,500 ten-dollar Windsor Fashions gift cards.” (Metropolitan News-Enterprise via California Civil Justice Blog) (& welcome Megan McArdle readers).
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I never thought I’d be involved in a hot-coffee lawsuit, but Gamepolitics covers my intervention and objection to the Grand Theft Auto: San Andreas class action settlement, which I predicted before the suit was even filed.
(I corrected a mistake in the earlier post; I said I purchased GTA:SA for the Xbox 360 when, of course, I purchased it for the Xbox. Fortunately, my affidavit to the court was correctly phrased.)
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The Washington Legal Foundation announces a new paper by Brian Anderson and Mel Schwing: “Two leading class action defense
attorneys utilize a federal court judge’s recent rejection of a settlement as a case study of how CAFA can deter defendants’ ability to ‘buy peace’ through settlements” in cases where the claim is so meritless that it is only worth a small amount of money for the defendant to settle:
While CAFA surely benefited class action defendants more than plaintiffs by transferring more cases to federal courts that offer more fairness and predictability in the adjudication of class actions, it is not a “free-pass” for targets of class action lawsuits.
The quid pro quo of giving class action defendants greater access to federal courts is that CAFA expects defendants to vigorously litigate, not settle via coupon settlements, frivolous class actions. The message of Figueroa is that class action defendants in federal court who try to escape all litigation risk by proposing low-value coupon benefits in exchange for global releases of claims (especially where competing lawyers and attorneys’ general are involved in the controversy) will have a difficult time persuading the federal courts to approve such settlements.
Figueroa was the first time in the three-year history of CAFA that state attorneys general used their CAFA right to intervene in a settlement hearing. Last year, I also took a look at CAFA.
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No, not $2,402 each. The $2,402 represents the total redemption of coupons by a 1,500,000-member class, or $0.0016 per class member. The Illinois state court (in the judicial hellhole of Cook County) awarded plaintiffs’ attorneys Gary K. Shipman of Shipman & Wright $1,000,000, presumably because they represented the face value of the unlikely-to-be-redeemed coupons to be in the millions of dollars. A North Carolina state judge was not impressed after he forced the forum-shopping attorneys (and defendants) to reveal the results of the settlement before dismissing a parallel lawsuit. (Moody v. Sears, Roebuck, & Co.) (via Nick Pace of RAND Institute at CL&P Blog).
Note that the widely-publicized Eisenberg/Miller class-action study, regularly cited for the proposition that state courts were no worse than federal courts in terms of awarding attorneys’ fees, would have erroneously calculated this attorney fee as 14% or so of the total settlement value, rather than the actual number of 100%. Garbage in, garbage out.
Pace mistakenly thinks that the class members were deprived of a remedy. Not really, though consumers are certainly worse off because of such litigation. Problems like this arise because a Sears is only willing to settle a frivolous consumer-fraud suit for nuisance amounts, and the plaintiffs’ attorneys just want a paycheck, so Sears is willing to pay the protection money to make the meritless lawsuit go away, since it will cost more in litigation expense to defend itself. When neither the plaintiffs’ attorneys nor the judge cares about the class members, plaintiffs’ attorneys can extract, as here, 99.9% of the settlement amount. If, on the other hand, a court ensures that the majority of a nuisance settlement must go to the ostensible plaintiffs, the plaintiffs’ attorneys will be less likely to find it profitable to bring the meritless suit and try to extort a settlement, because defendants will be more likely to find it worthwhile to defend against the suit, and the suit won’t happen in the first place. Which does make consumers better off, because then they realize a substantial part of the savings of doing business when there’s less protection money paid off to plaintiffs’ lawyers like Gary Shipman.
The Class Action Fairness Act fixes these matters—or at least it does in the cases where federal judges apply its rules and accept jurisdiction. First, CAFA effectively consolidates national class actions into a single federal jurisdiction, defendants are unable to play one plaintiffs’ attorney off of another, as happens when plaintiffs file several dozen identical and parallel class actions. Second, CAFA requires federal judges to apply meaningful scrutiny to class-action settlements and the award of attorneys’ fees, especially coupon settlements like this one. A $2402 coupon redemption with a million-dollar attorneys’ fee would have been impossible under CAFA.
When, however, judges misread the jurisdictional provisions of CAFA and remand legitimate removals back to the state courts that routinely approve such travesties, they undo the whole point of the legislation, and hurt consumers in the bargain. That Public Citizen regularly argues for such narrow readings of CAFA suggests their true interests lie with trial attorneys, rather than consumers, and that the true consumer advocates are those who support civil justice reform. (Cross-posted to Point of Law)
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Point of Law Volokh