Class Action Countermeasures : Class Action Lawyers & Attorneys : McGuireWoods Law Firm : Complex Litigation, Mass Torts

Certain kinds of class actions – those predicated on technical violations of a federal statute like the Fair Debt Collection Practices Act (“FDCPA”) – provide a steady revenue stream for some plaintiffs’ lawyers, while plaguing some defendants. It can be difficult to oppose certification of these suits, because technical statutory violations may not be associated with many variations in proof. It becomes easier to defend these suits when the plaintiffs don’t do the work of establishing that the violation actually occurred.

Take the case of DeKoven v. Plaza Associates, Nos. 09-2016 & 09-2249 (7th Cir. Mar. 17, 2010). In DeKoven, several plaintiffs sued Plaza Associates, a debt-collection agency, arguing that a settlement letter it had sent to various debtors was confusing, and likely to mislead the debtors into believing that the offer it contained was their last chance to settle their debts. If true, that allegation would constitute a violation of the FDCPA.

In order to demonstrate that the letter was confusing, the plaintiffs hired an expert to interview 160 shoppers in a suburban shopping mall outside Chicago. The expert showed the shoppers a “control letter” that the plaintiffs claimed was less confusing, and the letter that was actually sent.
The defendant, Plaza Associates, moved for summary judgment, arguing that the plaintiffs’ survey evidence suffered from a number of defects. The trial courts granted both motions, and the plaintiffs appealed.

The panel, in an opinion written by Judge Richard Posner, engaged in a thorough analysis of the survey the plaintiffs had submitted, and found it wanting. The panel’s problems with the survey included:

• “the control letter was no good”;
• the sample size was not representative of the population, but just convenient to the sampler;
• the plaintiffs omitted an option in the survey for “don’t know/not sure,” making the survey responses even more confusing;
• “we don’t think [the survey] proves anything.”

Noting that “[s]uits under the Fair Debt Collection Practices Act have repeatedly come to grief because of flaws in the surveys conducted by plaintiffs’ experts,” the Seventh Circuit affirmed the grants of summary judgment. The lesson here for the defendants is simple: don’t forget to challenge the plaintiffs’ classwide evidence. If the class is not susceptible to common proof, then any attempts to massage evidence to make it apply to the entire class may very well render it inadmissible.
 

[Disclosure: Back in law school, I used to do academic research for Judge Posner.]

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Vanderbilt law professor Richard Nagareda has written an essay for the DePaul Law Review entitled "1938 All Over Again?: Pre-trial as Trial in Complex Litigation."  For the most part, this essay is a 30,000-foot view of litigation that emphasizes “cost imposition” (academic-speak for the idea that each party might try to drive up the other party’s costs).

Professor Nagareda’s analysis is still preliminary in places. (For example, in order to make his story of a chronological evolution work, he claims that class-action law became “distinctive” in 2006 with the In re Initial Public Offering opinion, in which the Second Circuit, like the Seventh Circuit five years before, and the Supreme Court nineteen years before that, held that a court deciding a class-certification motion must conduct a “rigorous analysis.” Most practitioners I know would call the 2009 Vinole decision in the Ninth Circuit a more recent development that better fits his thesis.)  However, much as a good essayist should, Nagareda lays out a though-provoking story about how the law has changed over time. According to him:

• Pre-trial litigation has evolved to allow defendants to challenge (and the court to evaluate) the merits of a claim at earlier stages, much like the pre-1938 code-pleading regime under the Federal Rules of Civil Procedure.
• That evolution has included class actions, which courts examine now with more rigor than they used to.
• The increased rigor stems largely from concerns about costs. Parties care about the costs of litigation and the uncertainty associated with a jury trial; in class actions, plaintiffs will exploit these concerns for maximum settlement value.
• As a result, courts should consider resolving early dispositive motions in more nuanced ways than just a binary grant or denial.

Much of Nagareda’s argument may sound obvious to practitioners. Parties (and, increasingly, courts) care about the costs associated with pre-trial litigation. And courts often rely on partial rulings or accompanying opinions to signal to the parties their chances of prevailing on later motions (which, one might argue, provides robust pricing information). But the story Nagareda tells here is a good reminder to defendants: federal civil procedure has evolved to enable defendants to challenge meritless claims earlier and more often; there is every reason to take advantage of that opportunity.

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Over the last week, I provided a brief review of the new biography of disgraced (but largely successful) class-action plaintiff’s lawyer William Lerach, and a discussion of some of his psychological quirks that one might encounter in some other plaintiffs’ lawyers. Today, I’m closing out my discussion of Circle of Greed by looking at some of the strategies that class-action plaintiffs’ lawyers employ that may not make it into reported cases. As with the “psychology” post, I’ve included page references to the book for those following along at home.

• Smaller settled cases fund larger, riskier cases. One business strategy that plaintiffs’ firms employ is to take on a number of smaller cases that may settle more easily (say, because they involve straightforward issues or technical statutory violations). These settlements provide a steady income stream that can fund larger, riskier cases (like Lerach’s pursuit of Enron). (165)
• Smaller settlements with minor defendants can fund pursuit of larger targets. This same tactic applies within a larger case. In a case with multiple defendants, if some defendants are willing to settle early, the plaintiffs may be able to leverage larger settlements from later settlors. (380)
• Publicity is a major tool for plaintiffs’ lawyers. Lerach viewed leaking information to the media as a valid tactic for putting pressure on defendants. (177) And often, a sustained publicity campaign would also help him win battles to be appointed lead counsel. (330)
• Making the fight personal can be an effective tool. Lerach’s teams would sometimes file fraud claims against directors so that they could not invoke their D&O insurance policies, putting their personal finances on the line. (162) He would also seek to make trial as embarrassing as possible for the defendants, in order to increase the leverage in settlement discussions. (116) In one case, he went so far as to retain a fellow trial counsel whom he viewed as particularly obnoxious in depositions, specifically so that he would get under the defendants’ skin, provoking them into making errors in their testimony. (120)
• The strongest plaintiffs’ cases are often the simplest. Lerach was notorious within his own firm for “the chart”: a simple presentation that contrasted a defendant’s stock price with the allegedly dishonest statements its executives made. (116) It was a compelling trial exhibit, settlement tool, and organizing principle for Milberg’s (and later, Lerach Coughlin’s) stock-drop cases. And the primary reason it was compelling is that it laid out a simple, hard-to-contradict story.

None of these strategies were unique to Lerach. And while some may seem like “dirty pool” to some defendants, it’s important to keep in mind that they serve larger purposes – some are part of the business model, some are part of the competition among plaintiffs’ lawyers, and some are aimed more at settlement than winning an immediate tactical battle. The better a class-action defendant understands the strategies the other side employs, the better it will be able to counter them. And while it may not have been their primary goal, Patrick Dillon and Carl M. Cannon have given defendants a good resource for deepening that understanding.

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On Tuesday, I provided a brief review of the Lerach biography Circle of Greed. Today, I want to focus on what some of the stories about Lerach can reveal about the psychology of the class-action plaintiffs’ lawyer.

I freely concede that this is about as unscientific an inquiry as one can make. For better or for worse, William Lerach was an extreme case. (He was extremely successful plaintiffs’ lawyers, but the extremes he went to also landed him in jail for two years.) So, many plaintiffs’ lawyers may have some of these characteristics, but likely not to the same degree as Lerach did. Nonetheless, the insight into Lerach’s psychology provides a few insights into what may make one kind of successful plaintiffs’ lawyer (page cites are from the book):

• Plaintiffs’ lawyers are competitive, even with each other. Lerach’s “firm so dominated the field of class action securities lawsuits that ‘if other firms did not come to us with California cases, they very much risked being excluded altogether from these cases.’” (89)
• You don’t have to be paranoid to be a plaintiff’s lawyer, but it helps. “Lerach's mind was conditioned to think of the possible grift first, the innocent explanation second.” (79)
• Plaintiffs’ lawyers are not above making the fight personal. After Lerach had clashed with defense expert Daniel Fischel of Lexecon, he authorized “opposition research” to build a dossier on Fischel, worrying even his partner, Mel Weiss. (Disclosure: Daniel Fischel was my Corporations professor in law school.) (160)
• Sometimes, very personal. In a case against the Washington Public Power Supply System, Weiss and Fischel crossed paths. Fischel held out his hand and introduced himself. “‘I know who you are,’ Weiss sneered, ‘And I will destroy you.’” (164)

Why bother to look at how two plaintiffs’ lawyers (Lerach and Weiss) looked at the world? Because some of what we learn may apply more broadly. Milberg Weiss was not the only plaintiffs’ firm that played hardball with other plaintiffs’ firms. Nor is Lerach likely to be the only plaintiffs’ lawyer who winds up viewing all corporations with suspicion. (Much as many defense lawyers are eventually conditioned to view plaintiffs’ lawyers with suspicion.) Understanding what drives one’s adversary allows one to better respond to their strategies, whether in the courtroom or across a settlement table.

Next Tuesday, I’ll take one last look at this book, and pull out some of the more common tactics class-action plaintiffs (including Lerach) have used.
 

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I’ve written before about how – the odd beauty contest aside – the plaintiffs’ bar often seems as opaque as the Cold War Kremlin to defense lawyers. Journalists Patrick Dillon and Carl M. Cannon have done their part for class-action glasnost, however, with their new biography of William Lerach, Circle of Greed: The Spectactular Rise and Fall of the Lawyer Who Brought Corporate America to Its Knees. 

Bill Lerach (pronounced LEER-ach) – who was to become one of the most feared lawyers in the class-action plaintiffs’ bar – was born in Pittsburgh, and graduated from the University of Pittsburgh Law School. (While he was there, he wrote a law-review comment critical of class-action settlements.) He started his career at Reed Smith, before joining forces with Mel Weiss of Milberg Weiss, and moving to San Diego to open Milberg’s west coast office.  (That office later split to form Lerach Coughlin, now Coughlin Stoia.)

From that point, Lerach’s career took off. He was at the forefront of a number of big moments in class-action litigation. He perfected the pre-PLSRA securities suit. He helped develop the “fraud-on-the-market” theory that allows plaintiffs to presume reliance in certain kinds of securities class actions. He was a pioneer in developing “scheme liability.  And he took on a number of large corporations, including NuCorp, Worldcom, and Enron. He was poised to sue contracting giant Halliburton when he finally pled guilty to criminal conspiracy.

Ultimately, Lerach was undone by his own excesses. In his race to the courthouse to be the first to file, he had kickback agreements with several named plaintiffs. He paid one of his experts on contingency (a practice discouraged by most ethics rules). His early strategies gave rise to the Private Securities Litigation Reform Act (sometimes known colloquially as the “Get Lerach” Act). And his lawsuit against Lexecon consultant (and University of Chicago law professor) Daniel Fischel ultimately backfired and cost him and his firm more than $50 million in cash.

The authors tell the story well. They’re prone to easy moralizing in places (both against Lerach and the corporate defendants he sued), but for the most part they confine themselves to the facts they have unearthed. And they do provide an informative portrait of the development of much of today’s securities class-action practice.

The book’s biggest draw for class-action practitioners, however, is that it offers an invaluable, up-close portrait of one of the leading plaintiffs’ lawyers, and even an occasional look into plaintiffs’ tactics and strategies.

What lessons can we learn from this biography? Come back on Thursday to find out.

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For the defendant, lead-plaintiff motions in class actions can often seem like a small sideshow to the real litigation. (Indeed, in many kinds of class actions, where only a single firm or consortium has brought a lawsuit, the lead-plaintiff motion may only be pro forma.) For plaintiffs however – particularly securities plaintiffs – lead-plaintiff motions lie somewhere between corporate merger and bloodsport. The consequences to winning or losing these motions can have effects for years, and the efforts to win have landed more than one attorney in ethical trouble, and sometimes prison.

But how important is the lead-plaintiff motion really? NYU Professor Stephen Choi offers one look (based on a survey of lead-plaintiff motions between 2003 and 2005) in a working paper entitled Motions for Lead Plaintiff in Securities Class Actions. His conclusion? Getting appointed lead plaintiff is still critically important to plaintiffs’ attorneys, primarily because it allows them to command higher fees.

Professor Choi also found that plaintiffs’ counsel – particularly experienced attorneys with lots of repeat interactions with co-counsel – will enter into side deals to determine who will be lead plaintiff, and with it, lead plaintiffs’ counsel. As a result, the plaintiffs with the largest losses are not always appointed lead plaintiff, and their attorneys are often able to command higher fees for fewer hours worked.

What use is Professor Choi’s study to the securities class-action defendant? The paper does provide valuable intelligence on how plaintiffs' counsel operate, something that defendants always need more of.  But, more importantly, Professor Choi’s data suggests a possible argument at class certification. His data on fees and hours worked can operate as a rough proxy for client supervision. If there is evidence that plaintiffs’ counsel cut a side deal to determine who would be lead plaintiff (for example, if an investor with larger losses stepped aside to allow another investor represented by a larger firm to be lead plaintiff), that may indicate that the lead plaintiff does not have the independence to adequately oversee its attorneys. In that case, the defendant may argue that the named plaintiff is not an adequate representative of the class.

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Antitrust class actions can be tough cases for defendants. By their nature, cases against alleged monopolists lend themselves well to David-versus-Goliath rhetoric. But, just as difficult, a number of the fundamental questions in antitrust class actions can only be decided after a “battle of the experts” that costs a great deal of money and may alienate judges who – like many lawyers – went to law school because they didn’t like math. So how can defendants rein in meritless antitrust class actions?

Kelly Bozanic, a fellow at Penn State’s Dickinson School of Law, has written a working paper that offers one solution. Her main argument, which is not of much help to practitioners, is that the court should “rigorously consider” antitrust standing at the class-certification stage. Of course, a court already must rigorously consider all Rule 23(a) requirements before certifying a class. And it would seem clear that a plaintiff who lacks antitrust standing would be either an atypical or inadequate class representative. At minimum, she will be subject to the “unique defense” of lack of antitrust standing. (In fact, one would expect to see a number of pre-certification summary judgment motions on the issue of antitrust standing.)

But Bozanic’s argument suggests a more interesting point: a wrongful certification of an antitrust class (or even just certification of an overbroad class) could lead to overenforcement, which would chill otherwise competitive conduct. To the extent that is true (and demonstrable), a defendant may argue that the class action against it is not superior because it would chill legitimately competitive conduct. (There’s a related argument also worth making – where a government agency like the Department of Justice Antitrust Division or Federal Trade Commission has investigated possible antitrust violations, certifying a class on top of that enforcement may also be considered overdeterrence.) Of course, to make that argument clearly to the court, the defendant may need the help of one of those high-priced experts.
 

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University of Pittsburgh Law Professor Rhonda Wasserman has posted a working paper to the Social Science Research Network (SSRN) with the weighty title “Transnational Class Actions and Interjurisdictional Preclusion.”  While it spends a great deal of time reviewing the current state of the literature on preclusion in class actions and class-action regimes in other countries (both useful surveys to have), the paper asks a simple but important question for class-action defendants: If a defendant settles a class action involving more than one country’s citizens, can it enforce the agreement against all of the class members?

This is not an abstract question. Multi-national class actions are becoming more common.  And for many defendants, the one benefit of class-action litigation is that it offers a degree of finality that one cannot find in individual litigation, and only rarely in mass torts.

To answer that question, Wasserman reviews a report of the British Institute of International and Comparative Law, which surveyed the preclusion doctrines of various European countries, including (among others) the United Kingdom (England and Wales), Germany, France, and Romania. As Wasserman reports, the Institute comes to three conclusions:

• Claim preclusion in Europe is “quite a bit narrower than the transactional test that is applied widely in the United States.” In particular, European courts are less likely to give preclusive effect to classwide settlements.
• “[A]bout half of the participating European countries do not accord their judgments issue preclusive effect.”
• “[A] review of the European class action and collective action vehicles reveals a deep reluctance to bind those who neither commence litigation in their own name nor affirmatively choose to opt in.”

What does this mean for class-action defendants? It actually has two implications, both equally important:

First, a defendant looking to settle a multi-national class action should be very sure of the preclusion doctrines in the countries where it may seek to enforce any settlement agreements.

But second, a multi-national class action may not be superior to other forms of litigation, because it may not resolve the dispute for various members of the class.
 

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As a few other blogs have noted, last week Justice Souter emerged from semi-retirement to write an opinion on a Rule 23(f) petition. While a new opinion from a former Supreme Court justice is – by itself – newsworthy, it also provides an important tactical lesson for defendants briefing certification.

In Gintis v. Bouchard Transportation Co., Inc., 2010 WL 617395 (1st Cir. Feb. 23, 2010) (Souter, J.).the plaintiffs brought a proposed class action for property damage caused when a fuel barge struck an offshore reef, spilling 98,000 barrels of oil across 90 miles of Massachusetts coastline. The defendants admitted they were negligent in causing the spill, although they did not concede liability to any individual property owners. The Massachusetts government took charge of the cleanup efforts, supervising a “Unified Command” consisting of the Coast Guard, the commonwealth’s Department of Environmental Protection, the defendants, and an unnamed “Licensed Site Professional.” The Command used a common methodology for cleaning the spill, dividing the coastline into segments and categorizing them by the degree of oil contamination. When the plaintiffs (all of whom owned property on the affected coastline) moved for class certification, the trial court declined, relying heavily on a previous case in the jurisdiction.

The First Circuit Court of Appeals reversed. Technically, its ground for doing so was that the lower court had not engaged in a “rigorous analysis” of the certification motion, but Justuce Souter also suggested “plaintiffs presented substantial evidence of predominating common issues.”

What were those issues?  Some were specific to the case, like the defendant’s admission of negligence, and the plaintiffs’ announced intent to use Command records to prove their claims.  But others appear to stem directly from the defendant’s arguments. Among them were the defendants’ announcement that it would oppose admitting the Command records into evidence:

Bouchard's very opposition to the use of the arguably helpful records seems to promise that most or all cases, if individually litigated, would require repetitious resolution of an objection by Bouchard that is common to each one of them. Bouchard's position, in other words, apparently guarantees a crucial common issue of great importance in the event of individual litigation.

and their announced intention to oppose common expert testimony:

Bouchard's effort to discredit this approach apparently portends a fight over admissibility and weight that would be identical in at least a high proportion of cases if tried individually.

What’s the defendant’s lesson from this? It is not enough to just challenge plaintiff’s common proof. The defendant must make an affirmative showing why individualized issues will predominate over common issues.
 

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