Overlawyered: Chronicling The High Cost Of Our Legal System

Posts Tagged ‘class actions’

iSue

I wonder what the quickest time between the introduction of a consumer product and the introduction of the consumer fraud class action lawsuit is. Apple’s new iPhone was released on June 29, 2007; last Thursday, the first — as far as I know — class action lawsuit was filed. (I’m sure that this doesn’t qualify as the fastest consumer lawsuit, but I am curious.)

A Chicago-area resident, Jose Trujillo, is suing Apple and AT&T under Illinois’s “consumer fraud” law; the typo-filled complaint claims that the defendants failed to disclose to consumers that the phone’s battery — like that of the iPod — could only be replaced by Apple, and not the user. The suit also alleges that the battery only lasts for 300 charges and will have to be changed annually; given that Mr. Trujillo has had the phone for a maximum of a month, and that each charge lasts for several days, it is unclear how he could possibly know this or have a good faith basis for alleging it.

The suit contains the usual features of bogus consumer fraud litigation, such as claiming “fraud” without identifying any false statements, but instead by alleging a failure to disclose information that was widely known; attempting to represent consumers who are perfectly happy with the product; suing based on hypothetical damages that may or may not be incurred in the future; and claiming to be an unhappy consumer, but failing to act as an ordinary consumer would — e.g., by returning the product for a refund.

Incidentally, I just got a new cell phone (not an iPhone) last week. I checked the box; nowhere does it disclose that the battery won’t last for an infinitely long time, or that I will have to pay for a new one when it does die. Also, I’m pretty sure the car dealership that sold me my SUV never mentioned that it required a substance called “gasoline” to run, and that I would need to keep buying this substance. I wonder if I’ve got a case.

As an addendum, the trial lawyer in this case, Larry Drury, is no stranger to ludicrous “consumer” litigation; he played a leading role in the bogus Million Little Pieces class action suits. (Covered on Overlawyered in many posts). And he once sued Arista Records over the Milli Vanilli “scandal.”

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Class acting

More on the story Walter only teased us with earlier today: The Associated Press reports on the fall of a mighty class action plaintiffs’ lawyer — the managing partner and third name in the firm now known only as Milberg Weiss:

A former partner of a major New York law firm pleaded guilty to conspiracy Monday in connection with kickbacks the firm is accused of paying to plaintiffs in class action and shareholder lawsuits.

David J. Bershad, 67, of Montclair, N.J., pleaded guilty in federal court to one count of conspiracy that includes obstruction of justice and making false statements under oath.

…Prosecutors believe the firm, now known as Milberg Weiss, received more than $200 million in fees from such lawsuits filed over the past 20 years. Bershad was responsible for overseeing the firm’s accounting department and financial affairs….

Bershad could face up to five years in federal prison when he is sentenced on June 23, 2008.

Grisly. According to the New York Law Journal, Bershad himself made — sit down for this part — $160 million as a Milberg Weiss partner over the last twenty years, so that $8 million (why so low?) should not be all that painful, financially; but this is not the style in which to go out for a Columbia Law man.

Here is the stipulated statement of facts in support of the plea agreement, from the Law Journal. If you have trouble following what he did wrong — the rules regarding class actions and fees are fairly arcane — in short, if you represent a class, you’re not allowed to secretly share attorneys’ fees with favored class members. Such payments create conflicts of interest between the paid plaintiffs and the rest of the class members the lawyers represent. As the statement says:

By entering into such secret payment arrangements, BERSHAD and the other Conspiring Partners were able to secure a reliable source of individuals who were ready, willing, and able to serve as named plaintiffs in Class Actions that Milberg Weiss wanted to bring. In addition, some of these individuals would investigate and propose to BERSHAD and other Conspiring Partners potential Class Actions for Milberg Weiss to bring. Such payment arrangements generally enabled Milberg Weiss to file more Class Actions and to file them more quickly than would be possible absent such arrangements. Filing Class Actions more quickly than other competing plaintiffs’ law firms enhanced Milberg Weiss’s ability to obtain lead counsel status in cases, before and after the passage of the Private Securities Litigation Reform Act of 1995. Lead counsel generally obtained a larger share of the attorneys’ fees awarded in a Class Action than other counsel.

The statement of facts goes on to lay out a Byzantine arrangement of cash flow, everything short of a hollowed-out pumpkin. It describes the sort of thing that, well, crooks do. At this point, the crooks have names in the court filings such as Partner A, Partner B, down through the alphabet — and, just like Little Cats A through Z in The Cat in the Hat, they all cleaned up.

So, how long will this 67-year-old man sit in jail? I imagine he had something more like Miami in mind. But it could get even hotter — for his partners. Bershad is surely going to spill his guts even more. As the story continues:

Legal experts believe Bershad’s plea appears to be an effort to reduce his possible prison sentence in exchange for testimony.

Meanwhile, the good work of the firm goes on:

In its statement Monday, the firm said: “We remain confident that [Mr. Bershad’s] actions will have no effect on the firm’s commitment to its clients and its ongoing work to protect public shareholders and consumers.”

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So few class-action antitrust trials

Although the New York attorney general had already extracted $3 million in penalties on the charges, a jury returned a defense verdict in a class-action suit charging that Macy’s and other department stores conspired to fix the price of high-end tableware. Plaintiffs admitted they had no direct evidence of a conspiracy and jurors in San Francisco federal court declined to infer one. Manufacturer/defendant Lenox had already paid $500,000 to be let out of the case.

What was truly unusual about the case, however, was that it went to trial at all, given the pressure to settle on defendants in such situations:

Antitrust attorneys say the verdict was remarkable if only because the case made it all the way to trial.

“In terms of a price-fixing class action going to trial, I honestly can’t think of one,” said James McGinnis, a partner at Sheppard, Mullin, Richter & Hampton, who briefly represented May Department Stores, one of the defendants, at an early stage in the case.

Usually, said lawyers on both sides of the bar, a combination of sky-high financial risks and the prospect of criminal prosecution is enough to encourage a settlement. Defense attorneys, for example, may not want to lay all their cards on the table in a civil case while prosecutors are watching.

(Matthew Hirsch, “Macy’s Beats Antitrust Price-Fix Rap”, The Recorder, Jul. 5).

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Class actions from scratch

The important issues challenging our society remain at the forefront of the class action bar:

Microsoft has been targeted by a $5m (£2.5m) lawsuit over its Xbox 360 console and the infamous yet almost forgotten scratched disc saga. There have for a long time been many rumours about the Xbox 360 scratching game and movie discs.

Count on lawyers never to forget. What’s this about?

A growing number of Xbox 360 customers are reporting having problems with their disc’s getting scratched by the DVD drive when switching the unit’s position from vertical to horizontal and vise versa.. Initially we thought this was the usual fanboy vs. hater propaganda that swirls around the launch of any new console like this. It didn’t take long until the seriousness of the situation…

… which is explained at some length. Not everyone is sympathetic to the victims in this dog-eat-dog world. But most of the discussion of this burning issues seems to go back, indeed a couple of years.

On the other hand, there’s always the Old World, ever eager to distract from its own coming demographic obsolescence by beating up on that most American of companies, Microsoft. Yes, less than a month ago word got out that the EU lean was on Microsoft to address the problem — which Microsoft seems grudgingly to admit to.

One month: That’s about long enough to read the story, do some research, find a lead plaintiff, and file the lawsuit. So foes of the class action can thank the European Union for this one. Considering the “popularity” of Microsoft on either side of the pond (right up there with plaintifs’ lawyers), not much sympathy is to be expected. But this is an interesting exercise in how the once-forgotten can, in the new global economy, still be resurrected, as long as the statute hasn’t run.

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Object to a class action settlement, face a RICO suit

Perhaps we shouldn’t rush to conclusions about this filing by plaintiffs’ counsel in Madison County, Ill., who are aiming a complaint under the federal RICO racketeering law against two lawyers and a Florida resident who had sought to block a $63.8 million class action settlement over the drug Paxil. After all, not all class action settlements are a bad deal for class members, some objections to such settlements are unmeritorious, and there are even some bad objectors out there who are more concerned with being paid to go away than with saving class members from a bad deal. Still, it may not take many treble-damage RICO suits before both types of objector, the helpful and the unhelpful alike, begin to reconsider showing up in court, will it? (Steve Gonzalez, “Plaintiffs in $63 million Paxil case claim ‘objectors’ violated RICO in new class action”, Madison County Record, Jun. 9). Update Oct. 7: suit dismissed without prejudice.

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June 21 roundup

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Pearsonesque $2 billion consumer-fraud lawsuit against Ford

The Ford Explorer is a sport utility vehicle. Judge Roy Pearson, excited by the $67 million he anticipates receiving for his pants, is bringing a lawsuit in California claiming that every California Explorer owner is entitled a total of $2 billion from Ford because the Explorer is allegedly prone to rolling over, using the California version of the law that Pearson is bringing his pants-suit over. Note that the damages are not for an actual rollover, just damages because of the “fraud” that the vehicle might roll over, though at least some models of the Explorer are in fact less dangerous than an average SUV in rollovers, and safer than the average vehicle in other types of accidents. (IIHS reports that the average fatality rate for mid-sized 2-door SUVs is 63 per million vehicles, and the average fatality rate for the 2-door Ford Explorer is 49 per million vehicles—and that latter number includes crashes caused by defective Firestone tires. Note that this is publicly available information: where is the fraud?)

Oh, sorry, it’s not Roy Pearson, it’s Arkansas attorney Tab Turner who is bringing the lawsuit. [Hudson Sangree, “SUV rollovers put Ford’s future in judge’s hands”, Sacramento Bee, May 24; official class notice from Sacramento County Court]

But because ATLA and Kia Franklin have condemned Roy Pearson’s lawsuit as a frivolous abuse of justice, I am sure that they will have no compunction against issuing the same criticism against millionaire trial lawyer Tab Turner for bringing a much larger and socially harmful lawsuit that might bankrupt Ford on the same bogus “consumer fraud” legal theory that Pearson used. Of course, there’s a difference between Pearson and Turner: Turner is asking for more money, and his claim has less factual basis.

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Speaking in Austin June 20, and Houston June 21

I’ll be speaking at Federalist Society events Wednesday, June 20 in Austin and Thursday night, June 21 in Houston on the issue of contingent fees in class actions. Other speakers include the Charles Stuckey of State Farm, Brian Anderson of O’Melveny & Myers, and (one hopes) a plaintiffs’ attorney to be named later. I hope to see lots of Overlawyered readers there.

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Update: Judge unseals Shell case fee carve-up

Updating our Apr. 9 item about the New Orleans federal judge who sealed the division of fees in the settlement of a class action:

Five attorneys who served on a closed-door committee that helped U.S. Judge Ivan Lemelle decide how to divvy up $6.6 million in legal fees in a settled federal lawsuit over tainted gasoline steered nearly half the money to their own firms, court records unsealed this week show.

Of 32 plaintiff’s attorneys and law firms involved in the case over fuel-gauge damage caused by contaminated gas made at Shell-Motiva refinery in Norco, the four top fee recipients — set to collect between $480,000 and $1.1 million — each had a member on the five-lawyer team that Lemelle formed last fall to recommend how much to pay the 79 lawyers who worked on the case. …

Dane Ciolino, a Loyola Law School ethics professor who petitioned the court to unseal the records on behalf of attorneys who claimed they were shortchanged, said Tuesday he was intrigued by the money roster.

“I think it’s very interesting that of five attorneys on the fee committee — those five out of the 32 firms (in the case) — managed to get roughly half the fees,” he said. “Being on the fee committee apparently is good work.”

The New Orleans Times-Picayune had also petitioned to unseal the records. (Michelle Krupa, “Lawyers steered settlement money to own firms”, New Orleans Times-Picayune, Jun. 5).

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Offer refunds, get sued anyway: XM Radio

If you see Birmingham, Alabama lawyer Darrell L. Cartwright walking down the street, you might want to see if you can find some spare change in your pockets to give to him. He obviously must be hard up for money, because how else to explain the lawsuit he filed a couple of weeks ago?

On Monday, May 21, 2007, XM Satellite Radio suffered a satellite problem that caused partial or total service outages for parts of two days, lasting about 24 hours total. By late Tuesday, the problem was resolved, and XM announced that it would offer a two-day credit, worth about 87¢ — yes, 87¢ — to any customer who requested it. Problem solved. Everything right with the world, no?

No. You’ve forgotten about poor Mr. Cartwright. On Wednesday, May 23 — the day after XM promised a refund to all its customers — Mr. Cartwright found two neighbors of his who had subscribed to XM radio, slapped their names on a lawsuit, called it a class action suit, and demanded damages sustained by all its customers, in an unspecified amount of at least $5 million. (Via the Consumerist, which helpfully posted a copy of the complaint, which from the looks of things, took about 7 1/2 minutes of time to draft, typos and all: PDF.)

Now, you may wonder what benefit consumers get from this litigation, but to be fair, the lawsuit also demanded that the court issue an injunction to prohibit XM from suffering from technical problems in the future.

Sadly, it apparently isn’t sanctionable conduct, as the James Frey case we’ve discussed (Jun. 2, May 21, and earlier links therein) illustrates, for trial lawyers to file lawsuits demanding refunds that companies have already offered to their customers.

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