Overlawyered: Chronicling The High Cost Of Our Legal System

Posts Tagged ‘class actions’

Shareholder Suits Reach New High

Apparently, 2005 was a record year for class-action securities settlements, (Patti Bond, “Class-Action Securities Settlements Set Record, Indianapolis Star, Feb 13)

If it has not become abundantly clear already, I am not a lawyer, so I can’t comment on the legal ins and outs. But from a philosophical standpoint, shareholder suits have never made much sense to me. While I can understand the shareholders of the company suing a minority shareholder who might be enriching themselves disproportionately (e.g. Rigas family at Adelphia), suits by shareholders against the company they own seem… crazy.

Any successful verdict for shareholders against the company would effectively come out of the pockets of the company’s owners who are.. the shareholders. So in effect, shareholders are suing themselves, and, win or lose, they as a group end up with less than if the suit had never been started, since a good chunk of the payout goes to the lawyers. The only way these suits make financial sense (except to the lawyers, like Bill Lerach) is if only a small subset of the shareholders participate, and then these are just vehicles for transferring money from half the shareholders to the other half, or in other words from one wronged party that does not engage in litigation to another wronged party who is aggressively litigious. Is there really justice here?

OK, you could argue that many of these shareholders are not suing themselves, because they are past shareholders that dumped their stock at a loss. But given these facts, these suits are even less fair. If these suits are made by past shareholders who held stock (ie, were the owners) at the time certain wrongs were committed, they are in fact paid by current and future shareholders who may well have not even owned the company at the time of the abuses, and who may in fact be participating in cleaning the company up. So these litigants are in effect making the argument that because the company was run unethically when they owned it, they are going to sue the people who bought it from them and cleaned it up? Shouldn’t the payment be the other way around, with past owners paying current owners for the mess they left?

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Pirate’s booty indeed?

Speaking of which: “A New York appeals court has thrown out a $3.5 million class action settlement — and $790,000 in attorney fees — over snack foods that were found to have more fat than advertised. The court found that the trial judge who approved the settlement did not adequately consider the relevant factors in certifying a class over Pirate’s Booty snacks. The opinion also said the attorneys who worked on the case had offered an insufficient explanation of their work to justify the fees.” Manhattan journalist Meredith Berkman, who had filed the original suit, objected to the settlement and attempted to opt out of the class; her lawyer, David Jaroslawicz, said: “This is the type of thing that brought class settlements into disrepute”. (Tom Perrotta, “Court Rejects Class Settlement and Attorney Fees in Suit Over Nutrition Data”, New York Law Journal, Feb. 7). See Apr. 23-24, 2002.

More: Ted is covering the case in considerably more detail at Point of Law. Plus: David Giacalone (Feb. 10).

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Steve Berman sues Apple over iPods

Specifically, Seattle attorney Steve Berman (Nov. 24, 2003 and links therein), on behalf of a Louisiana man, accuses Apple of selling a “defective” product because it can cause hearing loss if one turns up music to maximum volume using headphones. The lawsuit, filed in San Jose, seeks class action status, even though each member of the putative class will come to the table with different pre-existing knowledge about audio safety and different usage patterns for their device. (Many iPod users don’t use headphones at all.) Each iPod comes with a warning that “permanent hearing loss may occur if earphones or headphones are used at high volume,” but, of course, the lawsuit alleges that the warning is insufficient. The plaintiff, John Kiel Patterson, doesn’t even claim that his hearing has been damaged, thus making it a typical “Harm-Less Lawsuit.” (Dan Goodin, AP/Yahoo, Feb. 1, h/t W.F.)

Update: a pdf copy of the complaint.

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Welcome Forbes.com readers

I’m quoted and this site is mentioned by a Daniel Fisher Forbes.com article on the James Frey class action litigation. (“A Million Little Lawsuits Over Frey”, Jan. 30). The article refers to our January 12 post correctly predicting the “inevitable free-riding class action.” We had further coverage Jan. 17, Jan. 25, and Jan. 27. See also this site’s collection of class action posts, as well as that of our sister site, Point of Law, which also has extensive discussion of class actions.

Update: New York Daily News reports two more class actions in New York, including one filed in state court where it will be removed to federal court under the Class Action Fairness Act. One advantage of the Class Action Fairness Act is that, before, a defendant would face multiple suits, and would have to settle eventually, because winning one didn’t prevent another suit from moving forward. Plaintiffs could play “Heads I win, tails don’t count.” Now, all of these suits will be consolidated, and a defendant with a legally meritorious case has a chance of winning a case dispositively in court.

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Stupid class action of the day

Says a California appellate court: “[O]ffering discount admission prices to ‘baby-boomers’ to attend a musical about that generation does not involve an arbitrary class-based generalization protected by the [Unruh Civil Rights] Act.” Pizarro v. Lamb’s Players Theatre, 2006 WL 163612 (Cal.App. 4 Dist. Jan. 24, 2006). Tim Sandefur comments that the court was reassured that

“Providing discounted theater admissions to ‘baby-boomers’ to attend a musical about that generation does not perpetuate any irrational stereotypes.” Well, perhaps not, but reading decisions like this perpetuate irrational stereotypes about non-Boomers and their bloodsucking lawyers.

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Grand Theft Auto update

We told you about the first civil lawsuit Jul. 27 after predicting it Jul. 16. By popular demand, we note that the LA District Attorney, Rocky Delgadillo, has jumped on the bandwagon, presumably for publicity for his campaign for state attorney general against Jerry Brown. Of course, lawsuits like this aren’t the way to persuade people that he’s any more serious a candidate than Governor Moonbeam, though it doesn’t hurt when not a single mainstream media outlet questions the legitimacy of the suit. Brian Doherty of Hit & Run comments. Lawsuits like this are an effective means of censorship: if politically unpopular speech can be bankrupted with a thousand paper cuts of trumped-up “consumer protection” suits, it will be as chilling as any libel action.

(Full disclosure: Delgadillo and I both worked at different times for O’Melveny & Meyers LLP, where Warren Christopher was Delgadillo’s mentor and once pointed me the right direction to the men’s room.)

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A Million Little Plaintiffs III

Another class action over the James Frey affair; this one, in Seattle, seeks, inter alia, recovery for “lost time” spent reading the book, prompting the Bookslut blog to reconsider its opposition to tort reform. It is the third class action filed; an underpublicized class action was filed in California on the 13th, and we reported on the more prominent Illinois class action on Jan. 17. Of course, if “lost time” is actionable, everything is, and we might as well turn over the keys to the country to ATLA. Earlier: Jan. 12. Recommended reading: Michael Greve, Harm-Less Lawsuits?

Update: Eric Goldman has a copy of the complaint and more detail.

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Update: “Protests Put Netflix Settlement On Hold”

A California court has delayed by a month its consideration of the controversial settlement of a class action against Netflix, the DVDs-by-mail service. The “delay enables both sides to review more than 50 objections, including one by the Federal Trade Commission and another by the Trial Lawyers for Public Justice, a national public-interest law firm.” (Caroline E. Mayer, Washington Post, Jan. 18). We covered the settlement Nov. 3 and Jan. 11.

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A Million Little Plaintiffs

An acquaintance—whose self-accounts have appeared in several books, radio stories, prominent magazines and web publications—published a short story in a “non-fiction” anthology. I was familiar with the underlying events and asked her about it, since, even aside from unacknowledged name-changes, it plainly had invented and exaggerated elements, and a twisted chronology meant to fit a story arc. “Of course it does. It’s creative non-fiction,” she responded in exasperation, introducing me to a new definition of “non-fiction” that I hadn’t previously been aware of.

So the James Frey scandal (or a smaller one involving the Times’ Modern Love section) doesn’t surprise me in the slightest; I’ve just come to assume that anything published under the memoir label in the twenty-first century is the modern-day equivalent of a Philip Roth novel that isn’t well-written enough to be successfully marketed as fiction.

The question is what will a court do when confronted with the inevitable free-riding class action, claiming that the publisher has committed consumer fraud, and demanding the right for every book owner to get a full refund and punitive damages (and, of course, a taste for the attorneys who took the entrepreneurial risk of typing up a summary of The Smoking Gun story and filing it in court), before settling for 50-cent coupons, a donation of remaindered books to a “Books for Addicts” program, and a multi-million-dollar attorney fee. Will there be a ruling that “non-fiction” memoirs that aren’t require labelling? If so, what are the First Amendment implications for other non-fiction books? A ruling that doesn’t provide a clear swath of protection for publishers could essentially abolish memoirs or first-person reporting, because a ruling that establishes any sort of rule calling Frey’s book consumer fraud (or even just potentially actionable consumer fraud) could encourage other attempts to sue other successful memoir-publishers for less egregious exaggerations. (This problem earlier arose with the Beardstown Ladies (Nov. 16, 1999), and the California Court of Appeal was far from sympathetic to the First Amendment issues.)

Random House appears to be attempting to pre-empt litigation by offering refunds to anyone who asks, which will surely be a smaller percentage of customers than a hired plaintiffs’ damages expert would testify to.

Prawfsblawg asks about Frey’s liability to the publisher, which seems to miss the point: what’s the publisher’s theory of damages? “You sold us a book that made us a lot of money”?

Also of interest to Overlawyered readers is the bullying letter sent by Frey’s lawyer to The Smoking Gun to try to keep them from publishing their findings. We may have our own story of bullying letters to tell shortly.

(And welcome Wall Street Journal and Malkin readers; do check out our main page and sister site.)

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