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

As this blog has progressed, I've posted a few entries about how rhetoric and class actions interact. I've mostly assumed that everyone had a least a basic grounding in rhetorical techniques. But let's back up briefly. I'll start with a recommendation: if you'e interested in practical rhetoric, pick up Jay Heinrich's Thank You For Arguing: What Aristotle, Lincoln, and Homer Simpson Can Teach Us About the Art of Persuasion. Thank You for Arguing is hardly the only book on rhetoric out there, but it's one of the clearest and most practical. There are few better places to start. And early in the book, Heinrich explains in very clear terms the three classical components of rhetoric: logos, ethos, and pathos.

Logos is the appeal to pure logic. Does the argument make sense? Does it still make sense if you follow it to its logical conclusion? Logos is what most lawyers learned in law school.

Ethos is the appeal to credibility. As Heinrich puts it

In rhetoric, a sterling reputation is more than just good; it's persuasive. ... An audience is more likely to believe a trustworthy persuader, and to accept his argument.

A lawyer's ethos can come from a number of areas, including her professional reputation, the way she conducts herself in court, and the firm she has associated herself with.

Pathos is the appeal to pure emotion. According to Heinrich:

Logicians and language snobs hate pathos, but Aristotle himself--the man who invented logic--recognized its usefulness. you can persuade someone logically, but ... getting him out of his chair to act on it takes something more combustible.

(Emphasis in original.) When plaintiffs' lawyers or prosecutors focus on the victim's story while they're establishing liability -- that's pathos.

So, what does all this have to do with class actions? Class actions are lopsided when it comes to pathos. Rhetorically, they're all about the underdog taking on the big corporation. And corporations by themselves inspire little sympathy or empathy. So, rhetorically, how does the defense lawyer defend against a class action? By focusing logos and ethos. There are many, many logical reasons why a class action may not be viable. And ethos--the defendant's credibility--is almost always within its control.

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See, here's the thing. Russell Jackson stole my case. The Seventh Circuit decided an important case on the limits of Rule 23(b)(2)--Kartman v. State Farm Mutual Auto Ins.--and I set it aside to blog about today. But Jackson's great writeup covers everything I wanted to.  

And here's the other thing. There have been a lot of good writeups of class actions lately.  To wit:

• Drug & Device Law reported on Sergeant Benevolent Ass'n Health & Welfare Fund v. Sanofi-Aventis U.S. LLP in the Eastern District of New York.  The court denied certification to a RICO class because proof of reliance would be too individualized.  
• Jackson also wrote up a case in the Eastern District of Pennsylvania, Powers v. Lycoming Engines, that held that applying the law of a manufacturer's residence to a multi-state class action violated due process.  
• Gilbert Brosky of the Employment Class Action Blog reports on a decertification of an FLSA class action of Home Depot assistant managers based on the variations among managers' duties.  
• And Paul Karlsgodt reviews a recent article on whether class-action notices comply with Rule 23.  (Many of them don't.)

I usually don't like just to point you to what other people have written on class actions (that's what my Twitter feed is for).  But every once in a while, it's worth taking one post of mine to point out a bunch of really good posts by others.

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 Back in 2005, researchers at (among other institutions) Columbia, the University of Texas, and Microsoft began to look at certain types of new-fangled communications technology (email and instant-messaging) and wondered whether it mattered which medium one used when negotiating complicated agreements.

So they conducted an experiment. They took a bunch of business students from Stanford and Northwestern, and they told them to negotiate selling a car. They made half of the students buyers, and half sellers. They gave each pair eight issues to negotiate (including price, color, trim, and warranty specifications), and confidential instructions about how much they valued each issue. They gave half of the sellers simple arguments they could use to bluff a buyer who asked for a yellow car (coincidentally, all of them), and half more complex arguments. And they told half of the pairs to negotiate by email, and half by instant message.

The result: sellers who used instant messaging and intricate arguments enjoyed a much greater advantage than sellers under other conditions. Or, as the authors put it:

The ideal argument is one that is hard to rebut, of course, and what we have demonstrated is that an argument’s effectiveness is influenced by conversational dynamics in addition to its content. The communication medium one uses to negotiate supplies expectations about turn-taking tempo, and consequently how long one has to respond. While a simple argument was ineffective regardless of communication medium, we found that an intricate argument was effective if there were expectations of a rapid turn-taking tempo (generated by communicating with Instant Messaging), but was ineffective when there were only vague expectations about turn-taking (generated by communicating with E-mail). Thus one not only needs to craft good arguments, one also needs to be able to apply them fluently. Being at a loss for words can mean being at a loss for dollars.

In other words, conversational media (like instant messaging, telephone conversations, and face-to-face meetings) may favor fast talkers.

What does this mean for negotiation of class-action settlements? Classwide settlements already tend to involve complex issues, many of which involve the intricacies of Rule 23(e). While many lawyers pride themselves on their persuasive abilities, it may be best to use devices that disrupt conversational rhythms (like correspondence and mediation) if one wants to neutralize the effects of the other side's fast-talking.

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2011 has produced a number of class actions that have caught the attention of the news media. The class action against Taco Bell, for example, made headlines for the innovation involved in the defendant's PR strategy. The class action against former President Carter capitalized on a novel theory and a famous defendant. Now, a plaintiffs' firm has brought a lawsuit against the Dallas Cowboys on behalf of those ticketholders who didn't get the seats they thought they would at the Superbowl. This appears to be a PR-based class action, much like the ones against Taco Bell and Jimmy Carter. What does I mean by that? Much of the value of each of these lawsuits comes from the threat of adverse publicity rather than the risk of certification. And this case is no exception.
To bring this lawsuit, the plaintiffs had to argue that the NFL's apology offer (triple the ticket price) wasn't enough to make them legally whole. And that creates a number of problems for certifying that class. Based on the Amended Complaint [UPLOAD here are a few:

• Plaintiffs who overpaid for their tickets are suing the wrong people. One of the plaintiffs' complaints is that they paid far more than the ticket price for their tickets. That means they bought from scalpers. So a court will likely find the NFL's refund of triple the ticket price to be more than fair. If the class member paid more than that, he needs to talk to his hookup. (This hurts their two breach-of-contract claims, it also hurts their fraud claims.)
• The plaintiffs are seeking the wrong damages for a class action. They claim in the complaint that this includes travel costs to the Superbowl, and "disappointment and frustration." But the law does not usually award these kinds of damages for breach of contract claims. (The technical term for these kinds of damages is "consequential damages.") And, if it did, it would require the kind of individualized proof (how disappointed was each person) that makes a class action very hard to try. If they just want the ticket price, well, the NFL has already offered three times that.
• Courts don't like fraud class actions. Class actions need common proof. Most fraud cases can't provide that. Instead, to prove fraud, you have to prove that you personally relied on a false statement. Proving that reliance is next to impossible on a classwide basis, which is why most courts do not certify fraud claims.
• Rich ticketholders don't make great class-action plaintiffs. Class actions exist to protect the little guy. They're supposed to aggregate a lot of small claims that people could not bring on their own. But here, plaintiffs like Mr. Dolabi may be out as much as $100,000 (the price he paid for his seat license). If he stayed at a hotel, it likely wasn't a Motel 8. These guys aren't the little guys, these are the guys who spend literally tens of thousands of dollars on football tickets. They can afford to bring their own lawsuits, may compromise their ability to demonstrate superiority.

Based on several news items, it seems clear that plaintiffs' counsel is looking for a quick settlement. But a quick settlement tends to favor the lawyers rather than the class. If there is a settlement in this case, it will be interesting to see how much it improves on the original offer that the NFL made.

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 Still fighting a virus and a heavy schedule, so my apologies for providing only a brief post this week.  

So let me point you to a working paper from the American Antitrust Institute, titled Indirect Purchaser Class Action Settlements.  The paper was prepared by plaintiffs' lawyers, and is

intended to respond to the contentions made by corporate interests that indirect purchaser antitrust actions benefitted only plaintiffs’ attorneys and resulted in, at best, cy pres recoveries for the indirect benefit of the class members.

While the paper may have been written to rebut "corporate interests" (presumably critics of class actions), it does provide a case-by-case inventory of settlements in indirect purchaser class actions. That inventory may be useful for any number of purposes, including valuing upcoming settlements and determining the amount of fees class-action attorneys tend to receive.  

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To start, a brief apology.  A combination of a virus and a heavy schedule this week means that this entry will be brief.  

I'm just going to point to this news item, which details a class action that's been filed against former President Jimmy Carter's book Peace Not Apartheid: 

[A] group of Carter's detractors have filed suit against the 39th President of the United States, alleging that the book was falsely marketed as “the absolute truth” on the subject of peace negotiations between Palestine and Israel.

...

The action says that Carter's book contains “demonstrable falsehoods, omissions, and knowing misrepresentations designed to promote Carter’s agenda of anti-Israel propaganda,” and that Simon & Schuster has refused to issue corrections despite “irrefutable proof” that the book contains falsehoods.

The plaintiffs' counsel for the suit points to a previous class action against controversial author James Frey, who had admitted on The Oprah Winfrey Show that he marketed a novel as a recovery memoir.  

The Frey suit settled quickly, mainly because it was following on some epically bad publicity for the publisher.  If I had to guess (and I should stress I have absolutely no more information than what I can glean from the New York Times), this suit will be much tougher for plaintiffs.  Leaving aside the fact that the defendants are unlikely to settle quickly, the plaintiffs will have to demonstrate that each class member relied on the truth of the allegedly false statements.  Historically, that has been extremely difficult for plaintiffs to prove.  

The case bears watching though, because if political critics start using the class action device as a way of raising the costs of writing controversial non-fiction, there is no shortage of books, and no shortage of critics.  

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NERA Economic Consulting has released its annual study on Canadian securities class actions. It headlines the fact that there were a record number of active class actions (28). But some of the other trends it notes are as -- if not more -- interesting for class-action defense lawyers:

2010 was not substantially different from prior years.

In our 2009 update, we noted that Canadian securities class actions were continuing to mature. That year witnessed the certification of three class actions and the granting of leave to proceed under Part XXIII.1 of the Ontario Securities Act (OSA) in IMAX—rulings that we noted may ultimately prove to be an inflection point for this type of litigation. Although those judicial decisions may still prove to be a turning point, 2010 did not reveal any substantial upturn in filings or other trends as a result.

Canadian securities cases continue to focus on misrepresentations in accounting and operations.

Operational misrepresentations and accounting misrepresentations are historically the most common claims alleged by plaintiffs in Canadian securities class actions. This was also true for the cases filed in 2010, most of which involve allegations of operational misrepresentations, and two of which include allegations of accounting misrepresentations.

Canadian plaintiffs are getting faster at filing class actions.

Approximately one-third of the cases in our database of Canadian securities class actions were filed within two months of the end of the proposed class period, and almost two-thirds of all cases were filed within six months.

Cross-border class actions make up a significant portion of Canadian class actions.

As of 31 December 2010, there were a record 28 active Canadian securities class actions, representing approximately $15.9 billion in outstanding claims (including claims for punitive damages). Six of these are cross- border cases representing more than $11.6 billion in claims—about 73% of total claims. Excluding the $10 billion claim against CIBC, there is approximately $5.9 billion in outstanding claims, $1.6 billion (or 27%) of which are in cases with parallel US class actions.

NERA is not the only source to notice the cross-border trend (nor is it limited to securities cases), but it has done the best job of quantifying it. It also notes that in the wake of the US Supreme Court's ruling in Morrison v. Australian National Bank, this trend may actually decline.

All in all, the report makes interesting reading. So go, read.

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 This week, we're going to address one of the longest-standing debates in class-action litigation: How much may a court delve into the merits of a class action when deciding certification?

Plaintiffs often argue "not at all." Defendants often argue "as much as necessary." (Though not always; when defendants file motions to strike class allegations, they argue that the court need not look at the merits at all to decide a class is not appropriate.) Both arguments stem back to a single 1974 Supreme Court opinion: Eisen v. Carlisle & Jacquelin. 

Eisen was a class action filed by odd-lot traders on the NYSE, challenging the monopoly that a pair of brokerages (one of which was Carlisle & Jacqueline) held over odd-lot trades. The Supreme Court opinion concerned the question of whether the plaintiff or defendant was responsible for paying the costs of notice in a class action.

Originally, the Southern District of New York both certified a class and held that the defendant was responsible for the costs of notice. It based its decision not on a Rule 23 analysis, but on its judgment that the plaintiff odd-lot traders would likely prevail in the lawsuit. (In other words, it treated the proposed class action like a proposed injunction.)

The Second Circuit reversed the imposition of costs. And, in affirming that reversal, the Supreme Court held:

that petitioner must bear the cost of notice to the members of his class. The District Court reached the contrary conclusion and imposed 90% of the notice cost on respondents. This decision was predicated on the court's finding, made after a preliminary hearing on the merits of the case, that petitioner was "more than likely" to prevail on his claims. Apparently, that court interpreted Rule 23 to authorize such a hearing as part of the determination whether a suit may be maintained as a class action. We disagree.

We find nothing in either the language or history of Rule 23 that gives a court any authority to conduct a preliminary inquiry into the merits of a suit in order to determine whether it may be maintained as a class action. Indeed, such a procedure contravenes the Rule by allowing a representative plaintiff to secure the benefits of a class action without first satisfying the requirements for it. He is thereby allowed to obtain a determination on the merits of the claims advanced on behalf of the class without any assurance that a class action may be maintained. This procedure is directly contrary to the command of subdivision (c) (1) that the court determine whether a suit denominated a class action may be maintained as such "[a]s soon as practicable after the commencement of [the] action . . . ." ...

In determining the propriety of a class action, the question is not whether the plaintiff or plaintiffs have stated a cause of action or will prevail on the merits, but rather whether the requirements of Rule 23 are met. Additionally, we might note that a preliminary determination of the merits may result in substantial prejudice to a defendant, since of necessity it is not accompanied by the traditional rules and procedures applicable to civil trials. The court's tentative findings, made in the absence of established safeguards, may color the subsequent proceedings and place an unfair burden on the defendant.

(Internal quotations omitted, emphasis added.)  So, the proscription against merits inquiries is not against any look at the merits of the case where they overlap with the certification question, it's against deciding class certification based on one's opinion of how the case will turn out. If deciding whether a class is certifiable requires a court to probe behind the pleadings or to decide whether a given expert's testimony is admissible, then a court may--and in some cases must--make those decisions.

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