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

Since it's the end of the year, it's worth taking a look back at what were the most interesting class-action articles this year. What do I mean by "this year"? Either the working-paper version of the article appeared in 2010, or the article was published then. (So Martin Redish's excellent article on cy pres relief qualifies, even though I wrote about that last December.) And what do I mean by interesting? It's a subjective judgment. While I took hits on this site as an indicator of audience interest (which elevated NERA's analysis of Italian class actions), articles that captured my interest--whether or not I wrote about them--also qualified. "Intereresting" does not mean "I agree with it." (After all, how interesting would that be?) Instead, it means "provokes thought or discussion."

So, without further ado, and in no particular order, the Ten Most Interesting Class-Action Articles of 2010:

1. Cy Pres Pathologies -- Northwestern professor Martin Redish challenged the use of cy pres relief in class action settlements. He based his analysis on the Rules Enabling Act. At the time, I did not think his analysis would gain much ground. It appears I was wrong; his article has already spawned a number of other articles.
2. Do Class Action Lawyers Make Too Little? -- This is the first (and maybe only) full-throated defense of huge class-action fees I've encountered. I disagree pretty strongly with the conclusions here, but that's often what happens when one writes a provocative article.
3. Apportioning Due Process: Preserving the Right to Affordable Justice -- Plaintiffs' counsel Elizabeth Cabreser tries an intellectual justification for certifying class actions and providing lucrative fees for counsel. It's an excellent example--and refinement--of some of the more effective rhetoric plaintiffs use when arguing for certification.
4. Italian class actions -- NERA's analysis of Italian lawsuits filed in the wake of its passage of a class-action act last year involves some good empirical work, and some insights as to why class actions are so prevalent in the United States, but not Europe.
5. Common Answers for Class Certification -- The late Vanderbilt professor Richard Nagareda will be missed. This article on the Dukes decision involved a deep and detailed look at exactly what we mean by predominance, and represented some of his best and most interesting work.
6. Lying and Getting Caught: An Empirical Study of the Effect of Securities Class Action Settlements on Targeted Firms -- Authors Lynn Bai, et al., test the "circularity critique" of securities class actions (that, because these lawsuits take money from the corporation and give it to the shareholders while extracting a fee, they wind up worse for shareholders than no lawsuit at all). They find that securities class actions can cause liquidity problems for the corporation, which can harm the class long-term, a finding that suggests that the SEC may be better equipped to handle to securities fraud.
7. Litigation Governance: Taking Accountability Seriously -- This is not the first article to compare running a class action to corporate governance, but John Coffee's discussion of "exit" reforms (allowing class members to opt out if they don't like the leadership) is thought-provoking, and has already led to at least one response. My guess is it will provoke several more.
8. Flawed but Noble: Desegregation and its Implications for the Modern Class Action -- I made several attempts over the course of this year to write a post about this article, but I could never find a good angle in. Nonetheless, this examination of the early history of the class action makes for interesting reading. It doesn't suggest any immediate strategic insight, but it will certainly help inform your understanding of what class actions are.
9. Litigation Daily on the Florida SBA beauty contest -- This article by the America Lawyer's Litigation Daily was great class-action journalism, providing some first-hand data about how securities plaintiffs' firms structure and sell themselves.
10. The Price of Pay to Play in Securities Class Actions -- The question of "pay to play" practices has become increasingly important in many areas where government hires private contractors. Professor Stephen Choi and his co-authors perform an important analysis of how these practices affect the fees that plaintiffs' counsel are paid in securities actions.

Hope your holidays have been happy, and see you in 2011.

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 Since it's the end of the year, it's worth taking a look back at what were the most significant class-action decisions of 2010. What do I mean by significant? A significant case does not have to be well-reasoned, or pro-defense, just one that will have an effect on class-action practice. Some of these are not cases I wrote about, either because I was conflicted out of doing so, or someone else got there first and said what I would have said. Also, the decision itself had to be a significant one, which is why Concepcion v. AT&T (which is important primarily because the Supreme Court has decided to review it) is not on the list this year. It will almost certainly qualify in 2011. This year, the cases are, in no particular order:

1. Morrison v. Australian National Bank (S. Ct.) -- Before the Supreme Court's opinion, it was unclear whether a plaintiff with no connection to the United States could still bring a class action in a US court. Now, this burgeoning and lucrative sideline of cases is likely extinct.
2. Shady Grove Orthopedic Assocs. v. Allstate Ins. Co. (S. Ct.) -- In this case, the Supreme Court decided a comparatively narrow question: do state statutory class-action bans trump Rule 23? Nonetheless, the strong language the Court used in deciding Rule 23 wins out over state statute--in particular its analysis of the Rules Enabling Act--has broader applications.
3. Dukes v. Wal-Mart Inc. (9th Cir.) -- In affirming certification of a large, diverse class of women who claim to have suffered sex discrimination, the Ninth Circuit placed itself at the center of a number of debates about class-action procedure. The popular characterization that the class was "too big to certify," while technically inaccurate, does capture a number of the criticisms of the Ninth Circuit's opinion. And the decision also prompted a strong academic response.  Now that the Supreme Court has granted certiorari, this case will likely also be one of the most significant decisions of 2011.
4. Cappuccitti v DirecTV (11th Cir.)  -- When a panel of the Eleventh Circuit originally held that at least one class-action plaintiff must assert a claim exceeding $75,000 even for removal under the Class Action Fairness Act, both plaintiffs and defendants scratched their heads. The panel quickly corrected itself, but the case is still significant for two reasons: (1) it completely clarified CAFA's reach, and (2) it strengthened the legitimacy of the federal courts in ruling on class-action issues.
5. In re Mercury Interactive Corp. (9th Cir.) -- Objectors play an important role in keeping class settlements honest. As a result, they are often viewed as an obstacle by plaintiffs, defendants, and courts that are trying to clear a complex case off a court's docket. The Ninth Circuit's opinion in this case confirmed that Rule 23(h), which allows for a right of objection, has teeth, and may not be abrogated by scheduling a hearing to preclude knowledgeable objections.
6. In re Gilden Activewear Securities Litigation (S.D.N.Y.) Judge Baer's order requiring that class counsel field a racially and sexually diverse litigation team drew strong criticism from a number of circles, but also took plaintiffs' claims to litigate on behalf of the public to their logical conclusion. While Judge Baer found counsel adequate in this case, he has opened a new debate on what it means to be "adequate class counsel."
7. American Honda Motor Company, Inc. v Allen (7th Cir.) -- Courts have occasionally certified classes based on unreliable expert testimony because they were reluctant to rule on the merits of an expert's opinion before trial. The Seventh Circuit's holding that "when an expert's report or testimony is critical to class certification ... a district court must conclusively rule on any challenge to the expert's qualifications or submissions prior to ruling on a class certification motion" should help to put an end to that practice.
8. UFCW Local 1776 v. Eli Lilly & Co. (2d Cir.) -- One of the largest problems plaintiffs face in bringing class actions is demonstrating that they can resolve complex issues of causation on a classwide basis. Sometimes plaintiffs attempt creative workarounds when they cannot prove causation on a classwide basis, such as arguing fraud on the market, "excess price theory," or "quantity effect theory." The Second Circuit held that plaintiffs cannot take shortcuts in demonstrating causation.
9. Avritt v. Reliastar Life Ins. (8th Cir.) -- In order to avoid the problems reliance can cause for proving fraud claims on a classwide basis, a number of plaintiffs have begun asserting fraud claims as breach-of-contract claims instead, citing the duty of good faith and fair dealing. The Eighth Circuit's opinion here effectively breaks down this new tactic and shows why it does not avoid the individualized issues at the heart of a fraud-related case.
10. Thorogood v Sears Roebuck & Co. (7th Cir.) - A plaintiffs' lawyer I know called this one of the "greatest self-inflicted wounds" in the plaintiffs' bar. The Eighth Circuit had laid out may of the same points in its Baycol opinion, but Judge Posner's opinion here leaves little doubt as to when a defendant may use the All Writs Act to block copycat class actions.

Coming up on Thursday, the 10 Most Interesting Class-Action Articles of 2010.
 

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Florida State law professor Elizabeth Chamblee Burch is the latest to weigh in on the problem of how to make sure class actions are adequately governed.  In an forthcoming article from the Vanderbilt Law Review, she asks what makes an optimal lead plaintiff in a securities class action.

Burch focuses on the the difficulties raised by what she refers to as plaintiffs' law firms "courting process," particularly the use of "pay to play" practices and investment monitoring agreements.  Her discussion of these issues is worth quoting at length:

After the PSLRA, plaintiffs’ law firms sought to maintain their competitive advantage by courting large institutions, developing repeat relationships with them, and encouraging them to serve as lead plaintiff. Law firms’ courting process may involve “pay-to-play” practices where plaintiffs’ law firms contribute to the political campaigns of those selecting counsel for public or labor pension funds and lobbying the officials who control public pension funds. Lobbyists encourage pension funds to serve as lead plaintiff and to then select the lobbyist’s law-firm employer as lead counsel. These practices forge repeat relationships and inhibit competition in ways that lack merit and transparency. And because other eligible institutions like banks, mutual funds, and insurance companies maintain commercial relationships with the defendants or defendants’ customers, public and union pension funds are the institutions that typically take on the lead-plaintiff role.

Law firms’ courting process also involves “portfolio monitoring,” where the law firm keeps abreast of the institution’s holdings and notifies it whenever it suffers a significant enough loss that it could serve as the lead plaintiff in a related class action. Portfolio monitoring is a preexisting contractual relationship between the lead plaintiff and class counsel. Preexisting relationships typically give courts pause, particularly when counsel has no relationship with other class members and no subclassing exists. But most courts find free portfolio monitoring in exchange for retaining the law firm unproblematic; they look for something more, like long-term friendships or familial relationships.Although courts have been slow to recognize it, portfolio monitoring is both widespread and troubling. The few courts who agree reason that the practice “creates a clear incentive for [the law firm] to discover ‘fraud’ in the investments it monitors” and thereby “fosters the very tendencies toward lawyer-driver litigation that the PSLRA was designed to curtail.” Plus, regularly depending on the same law firm makes it unlikely that institutions will bargain for lower attorneys’ fees or monitor trusted counsel. To be fair, some pension funds, such as MissPERS, use plaintiffs’ firms for free investment monitoring, but rely on multiple law firms and guarantee none that it will be selected as lead counsel. On one hand, portfolio monitoring is commendable—it encourages institutional investors to get involved, enforces substantive rights, and may uncover and deter fraud. But on the other, ongoing business relationships between the lead plaintiff and counsel appear improper, may cause counsel to maximize the institutional lead plaintiff’s return to the class’s detriment, and may encourage counsel to litigate in ways that establish favorable precedent for the institution.

(Emphases added.)  Burch has several suggestions for addressing these issues. Her most interesting is to recommend that securities class actions should be headed by plaintiff groups rather than lone plaintiffs, so long as the group reflects the diversity of the class.

Ideally, group members represent the class’s diverse interests such that when each member pursues her own self-interest, the group resembles a microcosm of the whole class.

Burch is not blind to the problems that plaintiffs' groups can pose. Nor is she a lone voice advocating for diversity. That said, she tends to be optimistic about how diverse stakeholders may interact in overseeing a class action. 

Put simply, class counsel should consult and take direction from the lead-plaintiff group on matters that implicate members’ values and litigation objectives or affect the case’s merits in much the same way that an attorney consults with her client in individual litigation. In short, if lead plaintiffs are to adequately represent class members’ interests, monitor the lawyers, and minimize agency costs, then, consistent with the PSLRA’s goal of increasing client control, they should have more decision-making authority.

While it would be helpful to know whether Burch is advocating a doctrinal or legislative reform (in other words, should courts just start enforcing this proposal, or does Congress need to amend the PSLRA?), the policy arguments she raises can prove useful for securities defense lawyers. At the very least, they exemplify a trend of continued concern about the adequacy of securities lead plaintiffs, and provide several examples of why one should not assume that institutional investors are always adequate lead plaintiffs.

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 With the growing trend of federal appellate courts enforcing district courts' "rigorous analysis" of class certification requirements, the danger of a class action getting certified on insufficient facts has diminished. But that hardly means that plaintiffs will always provide enough facts to justify certification. Take the case of Botehlo v. Hawaii, 2010 U.S. Dist. LEXIS 16936 (D. Haw. 2010).

The plaintiffs in Botehlo were prison inmates, both pre-trial detainees and convicts. They protested the conditions of their confinement, which allegedly included sleeping on the prison floor, being denied access to toilets, and lack of personal hygiene materials. After the plaintiffs filed their complaint, both sides stipulated to an administrative process that would involve placing evidence in front of a court-appointed Special Master. When those discussions broke down, the plaintiffs filed a motion to certify a class.

While the plaintiffs submitted one affidavit from their counsel, they submitted no other evidence. And the court noticed.

Finally, apart from Mr. Seitz's affidavit, there is no evidence for this Court to review and determine whether class certification is appropriate, particularly for the time period after August 2005. Although class certification is within the discretion of the court, the district court must still base its decision to certify on evidence.

(Emphasis added.)  The court also listed out other kinds of evidence that the plaintiffs could have submitted.

[E]xamples from other district courts show the type of evidence that parties might submit in furtherance of a motion to certify class. In Von Collin v. County of Ventura, the Central District of California certified a class of inmates who had been restrained by a "pro-straint" chair. 189 F.R.D. 583, 585 (C.D. Cal. 1999). Plaintiffs submitted documentation that the chair was used approximately 377 times over a 18-month period, and provided analysis of why the chair was used, jail incident reports, inmate monitoring logs, and forensic medical records. Id. at 590-95. The analysis showed: (1) the number of inmates processed during an 18-month period; (2) the number of times inmates were subjected to the alleged confinement during that period; (3) the reasons for each use of the alleged confinement; and (4) the length and number of times each inmate was subjected to the alleged confinement. Id. at 595-96. In Cartwright v. Viking Industries, Inc., the plaintiffs sought to certify a class of residents who installed Viking Series 3000 window products. 2009 U.S. Dist. LEXIS 83286, 2009 WL 2982887 (E.D. Cal. Sept. 14, 2009) (slip opinion). The plaintiffs presented evidence of one-million window product sales during the class period coupled with expert testimony providing the number of windows in an average residence. 2009 U.S. Dist. LEXIS 83286, 2009 WL 2982887, at *5. This allowed the court to conclude that windows were installed in approximately 50,000 residential units during the class period and joinder of these parties would be impracticable. Id. And in Amalgamated Transit Union Local 1309, AFL-CIO v. Laidlaw Transit Services, Inc., the plaintiffs sought to certify a class of bus operator employees for alleged meal and rest period violations. 2009 U.S. Dist. LEXIS 7171, 2009 WL 249888 (S.D. Cal. Feb. 2, 2009) (slip opinion). The plaintiffs submitted 12 declarations of class members in support of their motion.

As a result, the district court in this case refused to certify the class. What can defense counsel learn from this? It's still well worth challenging the factual basis of certification. If the plaintiffs have not provided enough facts to support certification of a class, courts are more prepared than ever to deny their request.

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 In welcome news for content-starved class-action bloggers, NERA Economic Consulting (source of the perennially popular report on Italian class actions) has released its annual report on trends in securities class actions.

The report contains some of its usual data, always interesting but mostly just confirming existing trends. Among those:

• Overall, securities class-action filings are up again.
• The average settlement is $42 million; the median settlement is $11.1 million.
• Securities plaintiffs' lawyers earned $1.353 billion in aggregate fees.

The report also contains some other interesting facts with greater strategic implications. Among these:

• The Ninth Circuit is no longer tied with the Second Circuit, it is now the single greatest source of securities class-action filings.
• The predicted effect of the Supreme Court's ruling in Morrison v. Australia National Bank (fewer international securities cases) was muted by increased filings against Chinese companies.
• The time to file securities class actions continues to get shorter. Now the average time to file is 185 days from an announcement of adverse news. The median time to file is 30 days, which means more than half of all class actions are filed within a month. (If I had to guess, I'd say this is likely the result of plaintiffs' lawyers' increased focus on investment monitoring.)
• Cases based on product defects (including "defective" financial products) are up, so are breach-of-fiduciary-duty cases.

NERA's reports always reward careful study.  The news about the Ninth Circuit is intriguing; it may suggest that plaintiffs' counsel have decided that the Ninth Circuit is simply more hospitable to class actions.  And the increase in international class actions, coupled with the decrease in time to file, suggest that global business and pervasive media continue to affect the way in which plaintiffs build cases against corporate defendants.  That, in turn, suggests that defense firms will not go without work in 2011.

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Classwide settlements are different from regular settlements in a few important ways. Most notably, they require approval from the court, which must ensure that the settlement is "fair, reasonable, and adequate." That extra step raises an important question, when does a classwide settlement bind the parties: when it's signed, or when it's approved? Earlier this year, the Third Circuit provided an answer in Ehrheart v. Verizon Wireless.

The case involves the Fair and Accurate Credit Transaction Act (FACTA), which required merchants to obscure credit-card information on receipts. The statute was intended to prevent identity theft, but proved controversial in class-action litigation because it allowed plaintiffs to sue for staggering damages even when the violation was technical and no consumer could have been harmed. As a result, Congress passed the Clarification Act, which removed liability for technical violations that did not result in any harm to the consumer.

In Ehrheart, the named plaintiff sued Verizon for a technical FACTA violation. Verizon began settlement negotiations, reached a final agreement, and got preliminary (but not final) approval from a federal district court in Pennsylvania. Before the final approval hearing, the Clarification Act became law. So Verizon moved to vacate the preliminary approval order (which the court granted), and then for judgment on the pleadings (which the court also granted). The plaintiffs, who had just watched what was likely a lucrative settlement vanish before their eyes, appealed.

On appeal, Verizon argued that a classwide settlement agreement is not binding until the court has issued its final approval order. (This argument makes sense; if the court does not approve the settlement, the parties have to start from scratch.) While the argument had convinced the trial court, the Third Circuit did not accept it.

In vacating its order granting preliminary approval to the settlement, the District Court lost sight of three important points that guide our decision today. First, there is a restricted, tightly focused role that Rule 23 prescribes for district courts, requiring them to act as fiduciaries for the absent class members, but that does not vest them with broad powers to intrude upon the parties' bargain. Second, a strong public policy exists, which is particularly muscular in class action suits, favoring settlement of disputes, finality of judgments and the termination of litigation. Third, our jurisprudence holds that changes in the law after a settlement is reached do not provide ground for rescission of the settlement.

What can defendants learn from this? Keep an eye on all circumstances surrounding a case; you never know when legislative action may moot the plaintiffs' claims. More importantly, don't sign a settlement agreement unless you're willing to be bound by it no matter what happens.

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 Class-action lawyers are no strangers to conspiracy. It forms the basis of many antitrust claims, as well as providing plaintiffs with a way of leveraging evidence against a poorer defendant into a case against defendants with deeper pockets.

Defending conspiracy class actions can be frustrating: savvy plaintiffs will often use any evidence of parallel conduct as evidence of conspiracy, and any lack of evidence as evidence of a coverup. Or, they could until the Supreme Court rendered its decision in Bell Atlantic Co. v. Twombly (as well as its companion case, Ashcroft v. Iqbal.) These two cases have provoked plenty of discussion among legal bloggers and academics. But a two-year old working paper by Cass Sunstein and Adrian Vermuele on Conspiracy Theories provides some context to the Twombly/Iqbal debate.

Sunstein and Vermuele define a conspiracy theory as

an effort to explain some event or practice by reference to the machinations of powerful people, who have also managed to conceal their role.

(Emphasis in original.) The definition, as they concede, embraces conspiracy theories that have turned out to be true (like Watergate), as well as some that are purely benign (like Santa Claus). Sunstein and Vermuele are more interested in the false, harmful theories, which

have some distinctive features, above all because of their self-sealing quality; the very arguments that give rise to them, and account for their plausibility, make it more difficult for outsiders to rebut or even to question them.

(Emphasis added.)  More specifically:

Those who accept such theories believe that the agents of the conspiracy have unusual powers, so that apparently contrary evidence can usually be shown to be a product of the conspiracy itself. Conspiracy theories display the characteristic features of a “degenerating research program” in which contrary evidence is explained away by adding epicycles and resisting falsification of key tenets.

(Emphasis added.)  So what does this have to do with Twombly? In that case, the Supreme Court required the plaintiffs to plead a conspiracy that was "plausible," and to do so using specific facts. Doing so filters out the worst aspects of a self-sealing conspiracy theory. Because the plaintiff must plead specific facts, logical contradictions in her conspiracy theory will be clearer, and those can justify dismissal. So can pleading a conspiracy with no obvious benefit to the defendant.

* * *

Today marks the end of the first year of Class Action Countermeasures. From my perspective, this experiment in blogging has been a rousing success. The blog has has gained more readers than I expected, thanks to the generosity of the legal blogosphere.  I've gotten to virtually "meet" a number of really interesting class-action bloggers.  And I got to announce my first book, on class-action stratgegy. (It makes an excellent holiday gift!)

I'm hoping for another good year in 2011. The Supreme Court seems intent on keeping class-action practice interesting.  And, despite one tragic loss, there is a thriving, diverse set of academics studying Rule 23. I also have a new project to keep me scouring SSRN and law review sites: I've contracted to co-author another book (with an old friend, Andrew Deguire).  It has the working title Complex Negotiation Strategy: A Business and Law Perspective, and should be due out in late 2012/early 2013. The blog won't change, although I may venture more into some more general strategic discussions--including a few on negotiations--on Thursdays. (I will always bring it back to class-action practice, the blog title is there for a reason.)

Anyway, I wanted to thank those of you who've been reading so far. I hope you've found this even a tenth as much fun as I have.

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 In a decision that has already garnered massive press coverage and commentary the Supreme Court yesterday granted certiorari in the case that will be known as Wal-Mart v. Dukes. The 9th Circuit's opinion affirmed certification of the largest-ever employment class action. (Too large, in Wal-Mart's opinion.)

The Supreme Court will not review all of the issues involved in the petition for certiorari. It has limited itself to Wal-Mart's Question 1 (roughly: when can plaintiffs seek Rule 23(b)(2) certification for a class seeking money damages), and has ordered briefing on an additional question:

"Whether the class certification ordered under Rule 23(b)(2) was consistent with Rule 23(a)."

So what does all this mean? In the short term, not too much. Argument is in the spring, the opinion is expected sometime mid-summer. Through that time, Ted Olson's team at Gibson Dunn & Crutcher, Brad Seligman's team at The Impact Fund (not to mention many, many, amici) have their work cut out for them. There may also be some increased motion to stay activity in labor class actions. Defense counsel are going to want to stay litigation in case the Court rules that 23(b)(2) class actions cannot support monetary damages like those the plaintiffs seek. Plaintiffs' counsel are likely to fight hard against those stay requests; any classes they can certify (and get through Rule 23(f) review) before the Dukes decision comes out will be difficult to reverse.

Longer-term, it's difficult say at this point. Court-watching is even more like Kremlinology than plaintiff-watching. The fact that the Court has eschewed the various statutory and Constitutional arguments the defendants raised indicates that it may be more interested in narrowing the scope of any decision it issues. (Although the Rule 23(b)(2) issue is controversial enough.) But the fact that the Court has ordered briefing on the separate question of whether the certified class met the Rule 23(a) requirements (numerosity, commonality, typicality, and adequacy) indicates that Wal-Mart's general framing of the class as simply too large to certify may have some traction.

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 Paul Karlsgodt of Classactionblawg.com got there first (in a post that should win "Title of the Month" hands-down), but Judge Posner's opinion yesterday denying rehearing (and announcing there will be no en banc rehearing) in Thorogood v. Sears Roebuck & Co. is still worth an extra post.  Not just because Judge Posner discusses the results of an informal poll of the panel's wives, not just because he cites a YouTube link of Simon Cowell, and not just because the ever-irreverent Above the Law is likely to feature the opinion as a classic benchslap.    

The primary reason to read the opinion is because it so thoroughly documents both the strategic choices plaintiffs' counsel may make, and the strategic incentives they face.  Some of this discussion is all the more credible because it comes from counsel's inadvertent disclosures:

Krislov says that “Sears’ resort to this Circuit for the preclusive shot is transparent forum shopping, looking for this Court’s derisory view of the claim to influence it into binding all class  members nationwide, because the Ninth Circuit’s standards are decidedly more favorable to plaintiffs’ claims.” This is what is known as chutzpah, since Krislov brought his copycat suit in California because, as he says unguardedly, “the Ninth Circuit’s standards are decidedly more favorable to plaintiffs claims.”

And some of the discussion is just the result of Judge Posner's typically prodigious research:

Krislov is concerned with harsh language in our opinion, but overstates the case when he decries “characterization of plaintiff class action lawyers as inherently corrupt and motivated primarily to sell out the class in order to gain large fees.” What we said was that the structure of class actions under Rule 23 of the federal rules gives class action lawyers an incentive to negotiate settlements that enrich themselves but give scant reward to class members, while at the same time the burden of responding to class plaintiffs’ discovery demands gives defendants an incentive to agree to early settlement that may treat the class action lawyers better than the class. Class action attorneys have an “inherent motivation” to enrich themselves at the expense of the class (and with the connivance of defendants), but motivation is not a synonym for action; any actual corruption or selling out is gauged case by case. The Boling letter is some indication that the present case is such a case. 

The criticisms in our opinion of the tactics employed by some class action lawyers are not criticisms made by judges alone, let alone by judges of the Seventh Circuit alone or members of this panel alone.

(Extensive citations omitted.)  I'll leave you with one further quote from the opinion, which comes after the extensive string cite I cut: 

Want more?  There is plenty more ...

Go, read the opinion.  It's a perfect starting point for understanding the strategic incentives plaintiffs' lawyers face.

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Two cases in the past few years involved a similar issue, but opposite outcomes. In the first, Murray v. GMAC Corp., the defendant argued that a family that had brought fifty Fair Credit Reporting Act lawsuits were "professional plaintiffs," and therefore inadequate to represent a class.  The Seventh Circuit, in an opinion by Judge Easterbrook, held that that the plaintiffs' "professional" status did not disqualify them from being adequate class plaintiffs. By contrast, in Gordon v. Virtumondo, Inc., the Ninth Circuit held that an individual plaintiff who set up an email account in order to collect emails that violated the Controlling the Assault of Non-Solicited Pornography and Marketing (CAN-SPAM) Act of 2003 was a professional plaintiff who lacked standing to sue even on his own behalf.

What's the difference between these two cases? Law student Brandon Murrill has an explanation, which he lays out in his Note The Business of Suing: Determining When a Professional Plaintiff Should Have Standing to Bring a Private Enforcement Action. As he puts it:

Despite superficial differences, professional plaintiffs like Gordon are members of a species of litigant—a species with a few defining characteristics. First, and most importantly, professional plaintiffs are professional, meaning that they are in the business of bringing lawsuits with the primary aim of winning large sums of money. They and their lawyers may claim to have other goals, such as fighting for the underrepresented “little guy” against powerful interests, but these goals remain secondary considerations to the ultimate goal of collecting damages.

Second, professional plaintiffs often play a role in bringing about the injuries that serve as the foundation for their lawsuits, al- though some play a more active role than others. One example is the professional plaintiff with a disability suing under the ADA who actively scours local businesses for obscure, technical violations to serve as the basis for a cause of action.

Murrill suggests that the best solution to the professional plaintiff problem is legislative: he recommends that states should adopt stricter standing requirements. But his Note also suggests a way for defense counsel to counter professional plaintiffs.  According to Murrill, the key difference between an acceptable and unacceptable plaintiff is the presence of a self-inflicted injury. It's one thing to be litigious, and another to have a business interest in bringing lawsuits. In one case, the plaintiff is experienced (and likely unpleasant). In the other, the plaintiff has a close business relationship with his attorney, one that leads him to expose himself to harm and likely compromises his ability to adequately represent a class. If the defense focuses on the professional's relationship with his attorney and the lengths he will go to further that relationship, it should be able to demonstrate that he lacks the independence to stand up to his business partner on behalf of a class of amateurs.

TAGS - adequacy FCRA

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