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Class Action Countermeasures

Discussions of the Strategic Considerations Involved In Class Action Defense

Adequacy & Class Action Governance

Posted in Certification

For a long time, I have had a very specific law review article I’ve wanted to write, but with my many other commitments, it has never come to fruition. And, given my schedule coming up, it’s unlikely it ever will. But I do have this blog, so why not just outline the idea here?

Scholars have worked for a long time to establish a governance mechanism for class actions that would prove both effective and legitimate. It’s a difficult balance to strike: most policymakers want class actions that can operate effectively as litigation devices, but that don’t just hijack the choses in action of numerous unnamed class members. As a result, we’ve seen radical proposals to reform the class action, including making it into a trust device, and just eliminating class plaintiffs altogether.

In fact, there’s an even more radical solution, that would at the same time require no change to the existing Rule 23. Enforce Rule 23(a)(4)’s adequacy requirement. As written, and as originally interpreted, the adequacy requirement exists to ensure due process is met. It is the constitutional guarantee that a representative action like a class action is legitimate.

The problem, then, is that most modern class plaintiffs are not adequate to the task. That’s not to speak ill of class plaintiffs. They’re recruited, and then “trained” to defer to their lawyers’ judgment of what is best for the class. And that makes sense from the lawyers’ standpoint, too. There is nothing that can disrupt a carefully planned legal theory in a complex case more than a wilful client.

This is why Rule 23(a)(4) is honored mostly in the breach. The other reason, as I’ve alluded to elsewhere, is a line of cases that read too much into a old motion to dismiss ruling upheld by the Supreme Court. The end result of that misreading is similar to the end result of the misreading of Eisen for several decades: courts inclined to certify class actions simply quote, without further analysis, the proposition that a named plaintiff does not have to be Arthur Miller [] in order to represent a class.

So what would this kind of adequacy enforcement look like? Several courts this year have actually offered an idea.

  • There would have to be affirmative evidence of the plaintiff’s adequacy. Boilerplate assurances of “zealous advocacy” would not be enough.
  • Named plaintiffs would have to have actual working knowledge of their case. They still wouldn’t need to be legal experts themselves, but courts would not allow them to simply say they defer to their lawyers.
  • Class lawyers would not be allowed to replace named plaintiffs without consequence.

Of course, this proposal is likely to receive criticism as well. The largest criticism is probably that reinforcing the adequacy requirement may make class actions as a device less effective. And, to the extent “less effective” means “requires some up-front work to file and maintain,” that may very well be true. But that does not make the criticism valid. The Supreme Court has recently reminded us that Rule 23’s requirements are “stringent” and “in practice exclude most claims.” And (and you’ll see here that I am a defense lawyer) that’s OK. Class actions should be rare, and they should be more expensive than the average lawsuit. They are far more lucrative, after all. If tracking down an adequate plaintiff—that is, one who has suffered an actual harm and is willing to represent the class and stand up to her lawyers when necessary—is that difficult, it may be that the lawsuit doesn’t have much merit to begin with.

What’s interesting is that we’ve tried this experiment at least once, and with good results. The Private Securities Litigation Reform Act added some prohibitions that made it extremely difficult to pull anyone who had bought a single share of stock into a securities lawsuit. The result was that institutional investors became class plaintiffs. There were fewer (though not no) meritless securities lawsuits, and the quality of the securities class action bar improved as well.

Properly enforced, adequacy makes a great asset to class action practice on both sides: it screens out truly frivolous suits, and it gives meritorious suits an edge by giving them a plaintiff who will do more than sign interrogatories and testify for three hours.

Amending Rule 23: Lessons from the PSLRA

Posted in Strategy

Earlier this year, it became clear that the Advisory Committee on Civil Rules is considering possible amendments to Rule 23. As Tony Lathrop’s post summarizes, the “front burner” issues at the moment largely concern class action settlements, focusing in on possible limits to cy pres relief and greater clarity on what Rule 23(e)’s “fair, reasonable, and adequate” criteria mean.

I think these are great ideas for possible amendments.  I’m certainly on record about the possible problems that arise from cy pres relief, and I’ve also written about the proliferation of settlement standards that arise from Rule 23(e)’s vague language.

But, if we’re thinking about amending Rule 23 again, I have to ask, why be cautious?  Why not really think about the ways in which class action litigation could be improved?  The Advisory Committee is already grappling with several weighty issues, including the runaway cost of discovery, that have large class-action components.  So why not look at ways to reform Rule 23 to help ensure the “just, speedy, and inexpensive” determination of proceedings?

What we would be looking for, then, are reforms that would reduce the expense of class actions and increase the odds that meritorious class actions got a fair hearing.  A tall order, but one, as it turns out that was filled almost two decades ago.  So here is my simple but radical proposal for class action reform: amend Rule 23 to make all class actions look like securities class actions.

Nineteen years ago, Congress passed the Private Securities Litigation Reform Act (“PSLRA”) to address the perceived scourge of runaway securities class actions.  Strike suits were common: class action lawyers would wait for any drop in stock price, and then file a lawsuit.  Courts would often rubber-stamp certification, leaving defendants with the choice of settling or risking bet-the-company liability.

The PSLRA enacted a number of reforms.  Among them:

  • it imposed an automatic discovery stay as soon as any dispositive motion was filed (15 U.S.C. § 78u–4(b)(3)(B));
  • it required the court to conduct an independent inquiry into whether the pleadings meet the requirements of Rule 11 and, if they do not, it requires the imposition of sanctions (15 U.S. Code § 78u–4(c)); and
  • it tied attorneys’ fees to relied actually obtained for class members.  (15 U.S. Code § 78u–4(a)(6).)

There was, of course, a huge outcry.  Opponents of the PSLRA argued it would would kill the securities class action.  (Securities plaintiffs’ lawyers still maintain the statute is problematic.)  But with the benefit of nineteen years of experience, we can say that those arguments were wrong.  As NERA Consulting has continued to document in its yearly reviews of trends in securities class actions, complaint filings have remained largely stable at between 200 and 270 new cases per year since the PSLRA’s enactment.  (See pages 2-3 of the linked report.)

So the PSLRA did not kill the securities class action.  But, at the same time, we hear less about truly abusive securities class actions.  Lazy, sloppy, or vague pleadings are weeded out at the motion to dismiss stage, without embarking on expensive discovery.  (And the discovery stay ensures that costs don’t mount while the dismissal motion is pending.)  The mandatory sanctions review acts as an effective deterrent against fishing expeditions.  And while the fee provisions may not have reduced fees, they have increased awards to class members.

So why not take advantage of our findings from this two-decade experiment?  Amend Rule 23 to add a discovery stay, sanctions review, and value-for-fees provision.  The worst that happens is that plaintiffs’ lawyers will up their game.

Vulnerability Theory & Class Actions

Posted in Uncategorized

SUNY-Buffalo professor Christine Bartholomew has an article out with the intriguing title “Redefining Predator and Prey in Class Actions.”  Unfortunately, it does not use zoology or mathematical predator-prey equations to explain class litigation—the kind of loopy academic mashups that can be both fun to read and insightful.  Instead, she uses a new “vulnerability theory” to critique the “current impotency” of Rule 23.

So what is “vulnerability theory”?  It appears to be a critique of current policies, arguing that they tend to favor the interests of entrenched institutions over truly disadvantaged groups when determining what is a public good.  In terms class action lawyers on both sides would likely understand better, that would mean placing the interests of the absent class members first.

According to Professor Bartholomew’s vulnerability-based critique, traditional class action scholarship and recent class action caselaw has focused too much on pro-corporation rhetoric, resulting in a superficially neutral, but de facto pro-defense interpretation of the Rule.  Or, as she puts it:

[B]y prioritizing efficiency over public good, rhetoric has redefined the “victim” in class actions. Individual consumers, or putative class members, are no longer seen as the victims of corporate defendants’ malfeasance. Instead, building on dicta from one Seventh Circuit decision, defendants are advancing arguments that class action procedures harm corporate defendants by forcing them into extortionist settlements. Successful class action attorneys have been redefined as the predators with corporations their prey.

It’s probably an overstatement to argue that corporate defendants are perceived as “victims” in a given class action lawsuit.  And Professor Bartholomew is hardly the first academic to believe that class counsel are unfairly maligned, or that legal policy should do more to favor plaintiffs. Indeed, the general progress of her argument will seem very familiar to many consumers of class action scholarship.  She argues that

  • Class actions have been rendered impotent by decisions that have advantaged corporations over consumers.  Specifically, courts began accepting two arguments from defendants: (1) certification had the potential to coerce settlements in meritless cases, and (2) class actions were designed to serve judicial efficiency.
  • Absent class members are the “vulnerable” group in class action litigation; not corporate defendants, because: (1) they are at a financial disadvantage compared to corporations; (2) they are at an informational disadvantage; and (3) courts favor corporations over consumers.
  • As a result, reforming Rule 23 should focus on enhancing deterrence of corporate misconduct, on increasing participation from class members, and on allowing easier cy pres distributions to charities.

Some of these arguments are hardly controversial.  I know of no one who would argue that absent class members are the most vulnerable group in class litigation.  Many of these arguments are well-trod ground.  And a few of the phrasings that Professor Bartholomew employs betray either her bias towards automatically believing the merits of any plaintiff’s claim (“the dominant judicial attitude towards class actions is knee-jerk skepticism”), or a misunderstanding of how class actions work (such as her characterization of cy pres relief: “Class actions have allowed consumers to fund public benefits …”) (Emphasis added.)

Nonetheless, this article is important for two reasons.  First, it provides a relatively new justification for some of the same results-oriented arguments defendants tend to hear from plaintiffs.  “Vulnerability theory” may be novel, but in a political system that seems increasingly polarized between haves and have-nots, or between the 1% and the 99%, knowing the nuances of arguments for skewing the rules in a particular direction is always good.  Second, and more importantly, it reinforces from both a rhetorical and theoretical standpoint one of the central truths defendants must learn when litigating class actions: the best arguments are framed in terms of what is best for absent class members.  Absent class members are the beneficiaries of Rule 23.  Caselaw has consistently held that named plaintiffs, class counsel, and even judges owe absent class members a fiduciary duty.  And, as I have argued before, the interests of absent class members and defendants in a fair procedure for certifying a class often coincide in surprising ways.

The Guardianship Model of the Class Action

Posted in Scholarship

Northwestern Law professor Martin Redish should be very familiar to readers of this blog. I’ve covered his work before, from his constitutional challenges to the class action through his critique of the cy pres remedy to his surprising turn to what looked like a “trust model” of the class action last year. Professor Redish’s work is—unlike many modern class action scholars—not easily classified. I’ve said before, and I’ll likely say again (I’m certainly saying it now): you ignore Professor Redish at your peril.

So, when I saw he had a new article coming out in the Emory Law Journal, “Rethinking the Theory of the Class Action: The Risks and Rewards of Capitalistic Socialism in the Litigation Process,” I sat down with great anticipation to read it.

The thesis of the article is, while hardly surprising, certain to be controversial. Professor Redish reaffirms his recent argument that the class action should be treated as a form of trust or guardianship (what he calls the “Guardianship Model”).

As background, he points out that there have traditionally been three competing models of the class action:

 To this point, it would be accurate to assert that practitioners, scholars, and jurists have either proposed or implicitly assumed one of three underlying theories of the modern class action:

(1) the Aggregation model;

(2) the Entity model; or

(3) the Private Attorney General model.

The latter two models—at least in the ways in which scholars have employed them—must be categorically rejected. While the Private Attorney General Model implements legitimate purposes served by the modern class action, it is grossly incomplete and therefore leads to a skewed perspective on the class action, which effectively alters the underlying substantive law being enforced in democratically and constitutionally impermissible ways. The Entity Model, on the other hand, has absolutely nothing to recommend it. On the contrary, the model represents an alchemy-like transformation of the nature of underlying substantive rights in a manner that violates core notions of American democratic theory.

(Emphases added, internal footnotes omitted.) This is not to say, however, that Professor Redish approves of the Aggregation Model, either. Professor Redish believes that the Aggregation Model does not account for the unique nature of the attorney-client relationship in a class action, where the attorney is the driving force behind the litigation, and may experience serious conflicts of interest with various class members.

His solution is to propose a series of modifications to Rule 23, based on what he cals the “Guardianship Model” of the class action. As he explains that model:

in order to prevent the harms caused by the departures from the traditional attorney–client relationship the class attorneys must be deemed to function as guardians of the interests of the absent class members. By imposing on class attorneys the fiduciary obligations which guardians have to their wards, our procedural system should be able to obtain the benefits of the modern class action while simultaneously avoiding at least most of the pathologies to which the current practice gives rise. I should emphasize that the analogy to a legal guardian is by no means perfect. In some ways, class attorneys function as traditional attorneys, qualitatively different from the traditional guardian model. Thus the Guardianship Model of the modern class action represents a synthesis of traditional procedural aggregation and a form of guardianship, reminiscent of the fiduciary manner in which guardians legally function under long established principles of equity.

(Emphases added, internal footnotes omitted.)  To formalize this new way of looking at the class action, Professor Redish proposes four reforms:

  • inserting a “significant likelihood of meaningful relief for the bulk of the absent class members” requirement into Rule 23(a), the section of Rule 23 that applies to all class actions;
  • changing attorney compensation so that it relates only to the amount actual class members receive;
  • abolishing cy pres relief; and
  • treating the class attorney as the real party in interest for the purposes of preclusion.

These are all interesting ideas. And while I’m usually the first to point out when something is not likely to actually be adopted, I’m aware that the Rule 23 subcommittee is currently entertaining proposals on at least one of these reforms. So these are also worth taking seriously.

I have two other brief reactions to this article.

First, I’m surprised that Professor Redish doesn’t mention the work of University of Miami law professor Sergio Campos, who has also written extensively on looking at class actions as trusts instead of aggregation devices.  Indeed, despite their conflicting views on the usefulness of the class action in general, they converge remarkably on the proposed reform.  That alone is extremely interesting.

Second, I think that Professor Redish may be overcomplicating the issue somewhat. Granted, his proposals are colored in part by his belief that Rule 23 as it currently stands likely violates the Rules Enabling Act. However, reining in the “pathologies” with which he is most concerned could also be accomplished by strengthening enforcement of Rule 23(a)’s adequacy requirement and Rule 23(g)’s adequacy of counsel requirement. While the text of both of these requirements counsels courts to keep a close eye on named plaintiffs and class attorneys as fiduciaries of the proposed class, the reality is that many courts provide only a cursory examination of adequacy.

Regardless of whether I personally agree with all of Professor Redish’s conclusions, this is easily one of the most important class-action articles of the year, and Professor Redish’s proposals are worth a serious look. Scholars sympathetic to class action plaintiffs frequently propose new ways of looking at the class action, which can often be interpreted as ways of getting around the restrictions imposed by Rule 23.  This is the first defense-side argument for a new way of looking at class aggregation, and that alone makes it worthy of study.  But, just as important, Professor Redish’s proposals can have important practical effects.  Courts should study them to see how they might better fulfill their own fiduciary duties. And defense lawyers should study them because—like much of Professor Redish’s work—these provide the seeds for some excellent oppositions to class certification.

A Theory of Novel Injury Theories

Posted in Uncategorized

Back in 2010, noted legal scholar Marc Galanter wrote an article on “The Dialectic of Injury and Remedy.” It contains only one explicit mention of class actions, but, in general, touches on some points that recur frequently for class action lawyers.

Professor Galanter’s primary argument is that both injuries and remedies are socially constructed. That’s a point that should come as no great shock to lawyers: we spend our careers engaging with a very specific and well-known social construct. But Professor Galanter zeros in on the fact that, like many social constructs, ideas about injury and remedy change over time. Things that the ordinary citizen would have accepted as just plain bad luck a generation ago now—because of advancing technology, changed social attitudes, or an increase in litigiousness, take your pick—are considered injuries that require legal remedies.

Or, as he puts it:

 So injury and remedy are not fixed and determinate, but moving and changing. Is this change random, or is there a pattern? Is there some force driving the moving frontier? These questions take us back to naming and blaming—to changing perceptions of injury and changing attributions of responsibility for causing injury and providing remedy. In the long run, new ways of envisioning and understanding troubles and remedies are the hidden fount and engine of our expanding sense of injustice.

Crudely, our sense of legal injury and remedy reflects the changing capabilities of human society. Human inventiveness, accumulated in science, technology, and social organization, has enlarged our capacity to prevent and address many kinds of harm. Think of inoculations, electrical insulation, and safer aircraft. As more things are capable of being done by human institutions, the line between unavoidable misfortune and remediable injury shifts. The realm of injury is enlarged.

(Emphasis added, footnote omitted.)

Why is this sociological observation important to class action lawyers? Because the evolution of the class action, which we often attribute to “adventuresome” plaintiffs is just as attributable to changes in the understanding of injury and remedy. And frequently, certification opinions hinge on whether the judge believes that there is an injury that requires a class action to remedy it. The classic cases Castano v. American Tobacco Co. and In re Rhone-Poulenc Rorer grappled with the concept of the “immature tort”; really just a question of whether a novel injury theory (“addiction” for Castano, “serendipity” for Rhone-Poulenc Rorer) could justify aggregating a series of personal-injury lawsuits into bet-the-industry litigation. And it’s not hard to read the Dukes opinions, both majority and dissent, as arguing over whether being subjected to a corporate culture that was “vulnerable” to gender discrimination could support a class action.

Novel theories of injury are, in short, one of the chief engines of the class action. And so it is vitally important that class action lawyers learn to question the injury theories that show up in complaints.

Professor Galanter’s argument is largely neutral on whether the expansion of our understanding of injury is a good thing; he treats it more as a historical inevitability. But he does offer three observations about “the future of injury,” all of which are worth some attention.

  • First, he points out that, because we tend to construct injuries by analogy, the more injuries we recognize, the more we are likely to find, even if we are remedying the many we already know about. This counsels against recognizing too many inventive injuries today.
  • Second, he points out that the more injuries we find, the more we will be forced to ration out remedies. Society’s resources are finite, after all. This is a powerful point for defense lawyers; providing a legal remedy for a largely theoretical or unrecognized injury takes up resources that could be used to better effect somewhere else.
  • Third, because our understandings of injury and remedy shift over time, some seemingly frivolous claims may become mainstream in the future. But, by the same logic, other claims that seem to make sense now will seem foolish in a few years’ time. The trick is to recognize the trajectory various injuries and remedies are on, and, where appropriate, to call that to the court’s attention.

As its title suggests, “The Dialectic of Injury and Remedy” is not completely free of academic jargon. But, for the most part, it’s written in deceptively simple prose. It’s well worth the look for any class action lawyer who needs to wrap her head around arguing cutting-edge theories of injury or damages.


The State of the Merger Class Action

Posted in Scholarship

Merger-challenge class actions have become very popular in the last decade. (For a great source of data, check Cornerstone Research’s surveys on the subject.) They operate similar to traditional securities class actions, but have found a way of resurrecting the sense of urgency that the Private Securities Litigation Reform Act (PSLRA) removed; they do it by litigating deals that are already in progress. Because the litigation threatens to disrupt an otherwise-lucrative deal, it is likely that the parties will pay to settle it quickly.

In general, merger class actions have gained a reputation as “low-hanging fruit” for class action firms looking for a quick buck. One recent paper, by “Deal Professor” Steven M. Davidoff, Penn Law’s Jill Fisch, and Fordham Law’s Sean J. Griffith, Confronting the Peppercorn Settlement in Merger Litigation: An Empirical Analysis and a Proposal for Reform, argues that merger litigation that results in just disclosures tends to offer no benefit whatsoever to shareholders (making them the proverbial “peppercorn” settlement). (By contrast, merger litigation that results in some amendment to the deal offers at least minimal value, but “amendment settlements” tend to be rarer beasts.)

Washington University’s Adam B. Badawi published an interesting strategic look at the merger class action last year in the Washington University Law Review. In Merger Class Actions in Delaware and the Symptoms of Multi-Jurisdictional Litigation, he examines two seemingly contradictory trends involving the Delaware Chancery Court’s role in merger class actions: from 2005-2011, plaintiffs were turning to other courts as venues for merger challenges. But starting in 2011, cases began to return to Delaware. The exodus from Delaware is largely understood to have occurred after the Chancery Court grew more critical of merger class actions.  Badawi theorizes that the return may be driven by strategic concerns:

It appears that filing a case in Delaware may provide a number of strategic benefits to out-of- state counsel who have lost the race to the courthouse in a non-Delaware jurisdiction. Given that foreign jurisdictions often select lead counsel on the basis of the first to file the case, out-of-state counsel who lose the race to the courthouse have little to gain by filing in that foreign jurisdiction. If, however, these counsel have a plausible chance at being named as lead counsel in Delaware—where the selection of lead counsel largely depends on the size of a plaintiffs’ shareholdings and the perceived quality of its law firm—they can file in Delaware.

(Emphasis added, internal footnote omitted.)

Most interesting, though, is the recent study by Case Western’s C.N.V. Krishnan, Steven Davidoff, and Vanderbilt’s Randall S. Thomas, Zealous Advocates or Self-Interested Actors? Assessing the Value of Plaintiffs’ Law Firms in Merger Litigation. This paper surveys a large number of merger lawsuits over the last decade, and concludes that they can be broken into two tiers. The top tier are brought by the top five to ten plaintiffs’ firms at any given time, involve more contentious deal terms, more frequent docket activity, and result in greater benefit to shareholders. The bottom tier are brought by the remaining three hundred or so firms that have filed merger class actions, and look a lot more like the stereotypical merger lawsuit.

For most corporate defendants, merger class actions do not occur with the same frequency as other litigation. So it is well worth the time to collect information on the landscape should you be considering a large deal. These three studies are an excellent place to start.



What Is the Standard for Class Certification?

Posted in Certification

The answer is nowhere near as simple as you might think. Everyone knows that a court is supposed to conduct a “rigorous analysis,” but what that means in practice is not quite as clear.

For example, last year, the Supreme Court (in dicta) made a statement about Rule 23 that many, including myself, thought would reverberate throughout class action cases in the years to come. In American Express Co. v. Italian Colors Restaurant, it said that Rule 23 “imposes stringent requirements for certification that in practice exclude most claims.” A year later, only one court has mentioned the Supreme Court’s characterization, let alone applied it. By contrast, in that same time, a number of courts have continued to follow the Second Circuit’s dictate that Rule 23 be given a “liberal rather than restrictive construction,” or held that courts should “err in favor” of certification.

Similarly, the degree to which a “rigorous analysis” may require further factual inquiry still varies by jurisdiction. The Southern District of Texas has decided that Justice Scalia’s admonition that Rule 23 requires affirmative evidence applies to every facet of the Rule, even those, like adequacy, that courts have traditionally enforced only loosely.  Most courts would not go that far.

The fact is that the standard applied on the ground for class certification still varies wildly from court to court. Some of these variations come from simple error, such as the handful of district courts in the past year that still treated allegations in pleadings as true for certification.

Penn law professor Tobias Barrington Wolff believes that the variation comes from the fact that courts are granted wide discretion to decide class certification. In his article Discretion in Class Certification he comprehensively surveys the various ways in which courts have employed that discretion, both to certify classes, and to deny certification even when there is no textual requirement to do so. Some of the examples he provides stretch his thesis a little too far. Courts certifying a class under Rule 23(b)(3) have every reason to consider manageability; it’s built into the text of the Rule. Similarly, while Judge Posner’s opinion in In re Rhone-Poulenc Rorer and the majority opinion in Castano (two cases he contends declined certification despite the lawsuit having met all of Rule 23′s requirements) both discuss the difficulty of certifying classes in “immature torts,” they also both rely on the predominance requirement as spelled out in Rule 23.

But while Professor Wolff may have overstated the degree to which courts exercise their discretion, he makes a cogent argument as to why that discretion is necessary, given the rapid advancement of litigation technologies compared with the slower pace of changes to legal procedure. He argues that this discretion is a necessary “safety valve” for Rule 23, allowing courts to deny certification in individual cases rather than forcing rulings that would turn Rule 23 upside down on a regular basis.

And it’s true, as I’ve written elsewhere that appellate and trial courts have a number of strategies for cabining class action rulings with which they disagree.

But that doesn’t obscure the real lesson here. And that lesson is: that boilerplate about class certification standards at the start of your brief? Treat it as more than just boilerplate, because this is an area where it’s possible to lose the certification debate before you’ve even started.

I’m Back (Baby)

Posted in Uncategorized

I’d like to apologize for my unannounced absence over the last few months (and say a public “thank you” to those who contacted me to make sure I was OK). I had some writing projects (including the 2015 edition of the Class Action Playbook), and a new baby boy that demanded my attention. But I’m back, and I should be back to a regular publishing schedule going forward.

While I was on my unannounced hiatus, I gave some thought to how this blog works best, and so I’m going to make a few changes for the foreseeable future. In the past, I’ve published a post on a case each week and then a quick summary of some more theoretical work.

While the “case a week” format is attractive for this busy practitioner, there are plenty of blogs that already provide that service. Class Action Countermeasures has always worked best when it’s either spotting new trends or going over ground not everyone else does. As a result, I’m going to cut back to one post a week instead of two, but they will be in more depth. Some will be on academic or strategic topics. But others will cover broader class action topics. What do I mean by that? I mean that, instead of grabbing a recent case and just recapping it, I’ll try to put developments in context, like this post on motions to strike, or this one on PR tactics. These take a little longer to write, but I think (and my stats reflect) that they’re very popular.

So come back next Wednesday, when I’ll be diving back into some interesting trends and articles.

[And, of course, let me know if you would like a review copy of the new Playbook]

The Cost-Conscious Plaintiff

Posted in Scholarship

After years in the class action defense bar, I’ve learned that few things will get the average non-lawyer to think I’m doing God’s work more than talking about class action attorneys’ fees. The general consensus is that while all lawyers overcharge their clients, class action lawyers do it more–and more spectacularly–than most.

And that’s why it’s so surprising to read a recent article for the DePaul Law Review from law professors Morris A. Ratner and William B. Rubenstein titled Profit for Costs, which argues that, in addition to attorneys’ fees, class action plaintiffs’ lawyers should be allowed to mark up their photocopying and expert expenses. Or, as they put it:

[F]ocusing on law firm investments, we explore how enabling cost profits might funnel resources to cases that are meritorious but presently underfunded, thereby increasing access to justice.

I’ll leave it to others to debate the policy implications of this proposal (although a few flaws are apparent right away, including a few the authors acknowledge).

I’m more interested in how Professors Ratner & Rubinstein analyze the effect costs have on plaintiffs’ work, in no small part because Professor Ratner used to be a plaintiffs’ lawyer himself. And there are two primary implications they identify. First, plaintiffs’ lawyers may not take on cases that require too much expert development as opposed to just motions practice:

[A] firm considering investing in two cases, one involving high costs and low attorney time and the other involving relatively low costs and high attorney time, will invest in the latter case because the possibilities of fee profits and fee multipliers—with no possibility of profiting from costs—makes the investment much more attractive. This means that a set of high-costs cases will likely not be pursued, even if the odds of prevailing are similar.

The authors provide a table that develops a few examples of what they mean by high-cost versus low-cost cases. What’s most interesting is that the low-cost cases, at least according to their descriptions, are more likely to get certified than the “meritorious” high-cost cases. Some enterprising law student might look at whether not making costs a profit center might actually screen out cases that should not be class actions. (I’d also point out briefly that Professor Ratner’s earlier work undermines the decision-making model presented here; according to him, plaintiffs’ firms are very poor at guessing what their fees will look like.)

Second, the authors write that cost investments may drive some early settlement decisions:

Because attorneys receive relatively little reward for their cost in- vestments, they may be tempted to settle cases on the eve of such investment points. For example, a firm may:

•  Work a case through motion practice, but settle before investing significantly in outside experts;

•  Avoid or defer moving for class certification, although such certification would give it settlement leverage, if it were going to be required to pay the costs of notice of a litigation class—costs that would normally be shouldered by the defendant in the event of a settlement; or

•  Pursue a case to the point of trial but settle before investing significantly in such a trial.”

The strategic implications here are clear. (No, not “pursue strategies that drive up costs”– plaintiffs already assume defense counsel do that, and several courts have pointed out that it is improper.) Instead, keep an eye on the cost points the plaintiff is likely to face. If you have to make a settlement overture, that may well be the time to do so.

Can Class Counsel Use Discovery to Find Their Named Plaintiffs?

Posted in Motions Practice

Two couples, the Varsamises and the Giannopolouses, sued Iberia Air Lines for not properly compensating them after their international flights were delayed. Their counsel soon ran into plaintiff-related difficulties: the Giannopolouses were not typical of the class (and wound up accepting Iberia’s Rule 68 offer of judgment); the Varsamises’ claims were dismissed at the summary judgment stage. The class action was over; all that was necessary was for someone to call time of death. And Iberia filed a motion for final judgment to do just that.

At that point, plaintiffs’ counsel filed a motion of their own, “to reopen discovery for the purpose of identifying substitute class representatives and for an order authorizing plaintiffs’ counsel to engage in pre-certification communications with putative class members.”

In essence, counsel wanted the opportunity to identify other potential class members, so that they could solicit them to carry on with the lawsuit. To continue belaboring the medical drama analogy, counsel looking for any extraordinary measures it could take to bring this case back. Iberia, for what should be obvious reasons, opposed the motion.

Class counsel relied on a pair of opinions by Judge Posner that suggested that, under certain circumstances, an uncertified class action has a life beyond that of the named plaintiff who filed the complaint.

The trial court, in Giannopolous v. Iberia Lineas Aeras de Espana SA, No. 11 C 775, 2014 U.S. Dist. LEXIS 73003 (N.D. Ill. May 29, 2014), disagreed, observing that counsel’s

 arguments miss the point. The question is not whether the Court retains jurisdiction, nor whether contact information for potential class members is relevant and discoverable. Rather, the salient question is whether the Court can permit Plaintiffs’ counsel to issue discovery requests when there is no named plaintiff (or certified class) with a “live claim” who can “carry on” the litigation–including issuing discovery requests. The Court retains jurisdiction to entertain motions to intervene while the former named plaintiff whose claim is dismissed or moot keeps the case warm so that someone with a live claim can intervene. However, “carrying on” the litigation–i.e., issuing discovery requests or filing an appeal–cannot occur without a new named plaintiff with a legally protected interest who is willing to step forward to pick up the spear dropped by the named plaintiffs. The former named plaintiff cannot propose to be the representative itself, even though its claim has been resolved. Here, Plaintiffs’ counsel is lacking a client with a live claim, and so Plaintiffs’ counsel may not seek discovery to find one.”

(Emphases added, internal quotations & citations omitted.) Class actions involve high stakes (and therefore lucrative fees), so it’s not surprising that class counsel will do everything in their power to keep a case going even after it appears to have died a natural death. The Giannopolous opinion is an excellent reminder that there are limits to the extraordinary measures plaintiffs’ counsel can take to keep a dying case alive.