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

Last month, I wrote about an old article of Professor Cass Sunstein's, on Outrage.  In it, I mentioned that he discussed (albeit very briefly) an interesting idea, "rhetorical advantage." So, what does the term actually mean for folks interested in legal strategy?

What makes Professor Sunstein's usage in Outrage so interesting is that he describes rhetorical advantage more as a feature of terrain than a deliberate strategy. And, to this practicing lawyer, that makes a lot of sense. Any given group, be it appellate court justices on a particular circuit, or the jury pool of a particular area, has a set of shared assumptions and beliefs. (Call it "culture," if you like.) And those shared assumptions will make certain arguments seem more intuitive than others. This is what I think he means by "rhetorical advantage." And that has important implications for class-action practice.

Among other things, it explains why certain rhetorical strategies recur in class-action practice. Class actions themselves bring certain rhetorical advantages to litigation. They (at their best) promote efficiency. They pit David against Goliath.  The plaintiffs are human beings; the defendants are usually faceless corporations. (I discussed some of this before here.)

But that terrain can be modified. Dan and Chip Heath, in their business bestseller Made to Stick, investigated why certain urban myths (like the "Kidney Heist," in which a traveling businessman comes to after a wild night in Vegas to find himself occupying an ice-filled bathtub, sans kidneys) stick around, while other demonstrably true facts just don't penetrate our brains. In the course of their investigation, they identify six characteristics of "sticky" ideas--that is, ideas that stay in your head, and stay with other people as well.

Those six characteristics, which the Heath brothers combine into the handy mnemonic "SUCCESs":

SIMPLE. Every idea has a core. Every one. (You might also call it a kernel.) The trick is to identify it, express it, and be ruthless about defending it. (Examples: Southwest Airlines, at its peak, was "THE low fare airline." It didn't waste time with ideas or strategies that didn't fit this one mission.) There's no question that "simple" is difficult (though not impossible) for lawyers defending class actions. After all, our primary story at certification is: "It's complicated." (And some lawyers simply insist on throwing the kitchen sink into their briefs. The Heaths call this kitchen-sink urge "The Curse of Knowledge.") But there's usually an underlying reason why a case is too complex; identifying that, and expressing that simply, can be an important too.

UNEXPECTED. Many, many things vie for our attention every day. As a result, many of us are expert at tuning out unwanted messages; we've got highly developed internal spam filters. If a message fits the same old pattern as the spam that surrounds us ("Attention K-Mart shoppers …" "Exits are located at the rear of the aircraft …"), we're likely to ignore it. But if it breaks that pattern:

"Hey you, the guy in aisle five, you're standing right next to our 50% off sale items!"

We're more likely to pay attention. And then we're more likely to remember.

CONCRETE. Lawyers (and other folks trying to get their ideas to stick) deal in ideas.  And their primary vehicle for communication ideas is language. But as the Heaths put it:

"Language is often abstract, but life is not abstract."

It turns out that while abstraction may help us understand, it gets in the way of our remembering. Remember US v. Microsoft, the case that made David Boies's reputation? It's widely believed that the deposition of Bill Gates won that case. Why? In part, because it was a concrete image that people could come back to. Tying is abstract, and hard to get one's head around. A CEO looking shifty and sounding evasive, that's right in front of us. That's sights and sounds. That's concrete. And that's memorable.

CREDIBLE. Credible ideas tend to come from sources we can trust, or want to emulate. That's why celebrity endorsements work well in selling mass products. And it's why some judges tend to get more attention than others when they write opinions. But ideas can also have internal credibility. What does that mean? It means adding detail that enhances the credibility of the idea. Urban legends do this. (The Kidney Heist story got a boost once it was rooted in Las Vegas, because it makes sense an out-of-town businessman would do something stupid in Vegas.) From this perspective, by the way, plaintiffs' lawyers should be thanking the Supreme Court for Twombly and Iqbal. After all, what is "plausibility" but "buttressed with enough credible details?" Sure, it may be more work to file a case with visible signs merit, but they'd have to do that work at some point.

EMOTIONAL. We can probably all agree that people shouldn't litter. But, at the same time, "Don't litter" seems to be one of those pieces of message spam. We all hear it so much, it turns out many of us tune it out. Back in the 1980s, the state of Texas hired anti-litter campaigner Dan Syrek to figure out a way to get Texans to clean up after themselves. His (insanely successful) result: "Don't Mess With Texas," which the Heaths argue hit just the right blend of self-interest and regional pride to stay in people's heads. Want an example closer to home? Tort reform is a dry and abstract issue. Until tort reformers pointed to a lawsuit that awarded $2.86 million to a woman who scalded herself with McDonalds' coffee.  The story was so useful at generating outrage about dumb lawsuits and excessive awards that 17 years after it happened, a former plaintiffs' lawyer still felt the need to direct a documentary to try to blunt its effect. The simple truth is, long after facts leave, emotional responses stay with us.

STORIES. It's conventional wisdom that people respond better to stories than dry recitations of facts. But the Heaths take that insight one step further. It's not just that lawyers should all learn to "tell a story." It's that stories work well at all levels of persuasion. The Heaths explore the fact that, in almost all work contexts, people learn as much (if not more) through shop talk as they do through employee manuals. And shop talk usually means war stories: "here's what I did, and here's how it worked."  In other words, when briefing issues before a judge, it may not be enough to tell the story of this case, it's just as important to tell the story of a line of reasoning: "here's why we have adequacy," or "this is why the voluntary payment doctrine evolved, for a case like this."

(S)ticky. The Heaths use the analogy of Velcro throughout their book. Sticky ideas have hooks, the same way Velcro does. These six components, Simple, Unexpected, Concrete, Credible, Emotional, Stories, are the hooks that make ideas stick, even in a judge's head. And they tend to recur in successful class certification briefs. Go figure.

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The Supreme Court decided AT&T Mobility LLC v. Concepcion back in April, a decision that many scholars (and lawyers) have bemoaned as killing the class action. The hyperbole about the death of class actions (or their rebirth as shambling undead corpses) isn't new, and it's likely not merited. At the very least, I don't seem to be any less busy.

So, what does the state of the arbitration in class actions look like, six months on? With roughly 120 published opinions reviewing motions to compel arbitration, it's possible to venture a few opinions.

Most of the immediate procedural mop-ups are now finished. (By "mop-ups," I mean motions to compel arbitration in cases that predated Concepcion. Much as after CAFA was passed, one finds a number of of cases discussing amendment and relation-back doctrines, now there are a number of cases discussing waiver and behavior inconsistent with arbitration, as defendants seek to invoke Concepcion in cases that have reached later stages of litigation.) But leaving aside these cases, the remaining issues should give a good indication of how class actions will proceed in a world where invoking arbitration is possible.

So what are the issues that remain?

The need for discovery on arbitration. Plaintiffs have argued that they need discovery to determine whether discovery is appropriate in this case. For the most part, courts have not accepted this argument.  See, e.g., Giles v. GE Money Bank, 2011 U.S. Dist. LEXIS 111018 (D. Nev. 2011) ("Whether the arbitration agreement is enforceable against Giles, is a straightforward matter of contract law.").  (A few have, however. See Hamby v. Power Toyota Irvine, 2011 U.S. Dist. LEXIS 77582 (S.D. Cal. Jul. 18, 2011).) Defendants seem to do best with this argument when they challenge plaintiffs to show exactly what discovery they need from the defendant. See Khan v. Orkin Exterminating Co., Inc., 2011 U.S. Dist. LEXIS 118486 (N.D. Cal. 2011) ("Aside from vague assertions regarding the need to conduct discovery, Plaintiff fails to articulate with any specificity what discovery he seeks to obtain."); Reeners v. Verizon Communications, Inc., 2011 U.S. Dist. LEXIS 76367 (M.D. Tenn. Jul. 14, 2011) ("Plaintiff has failed to carry his burden to show that he needs discovery to respond to Defendants' Motion."). Usually, the information the plaintiff wants is in his possession to begin with. The relative costs of arbitration and litigation, for example, are available from most arbitrators. (Although at least one court has held that Concepcion says the relative cost doesn't matter.  See Khan v. Orkin Exterminating Co., Inc., 2011 U.S. Dist. LEXIS 118486 (N.D. Cal. 2011)) Challenging plaintiffs often reveals that plaintiffs have made this argument as either (1) a delaying tactic, or (2) a method of imposing costs as early as possible in the litigation.

The "It's different here" argument. Sure, the Supreme Court overruled Discover Bank. But that was a California case. Connecticut law is different. (No, it's not. Ramirez v. Freescore, LLC, 2011 U.S. Dist. LEXIS 97374 (C.D. Cal. Aug. 30, 2011).) OK, well Florida law is different. (Not, it's not. Cruz v. Cingular Wireless, LLC, 2011 U.S. App. LEXIS 16811 (11th Cir. Aug. 11, 2011).) Delaware is. (No. Chavez v. Bank of Am., 2011 U.S. Dist. LEXIS 116630 (N.D. Cal. 2011).) How about Maryland? (No. Murphy v. DirecTV, Inc., 2011 U.S. Dist. LEXIS 87625 (C.D. Cal. 2011).) South Dakota or Illinois? (No. Tory v. First Premier Bank, 2011 U.S. Dist. LEXIS 110126 (N.D. Ill. Sep. 26, 2011). ) Utah? (No. Giles v. GE Money Bank, 2011 U.S. Dist. LEXIS 111018 (D. Nev. 2011).) There are 42 more states, not counting the District of Columbia, Puerto Rico, the American Virgin Islands, or Guam. But it's safe to say that this trend is moving in a single direction.

The exculpation argument. Here, plaintiffs argue that compelling arbitration would effectively exculpate the defendant, because it would not have to face liability for its alleged misconduct. So far, courts have not been persuaded by this argument; it veers too close to the underlying policies the Supreme Court found unpersuasive in Concepcion. Cruz v. Cingular Wireless, LLC, 2011 U.S. App. LEXIS 16811 (11th Cir. Aug. 11, 2011); Arellano v. T-Mobile USA, Inc., 2011 U.S. Dist. LEXIS 52142 (N.D. Cal. 2011).

The "vindication of rights" argument. This debate actually seems to give plaintiffs some play. It's similar to, but not quite the same as, the exculpation argument, since it's framed to focus on the plaintiff rather than the defendant. As a result, it has convinced a court in the Southern District of New York. Chen-Oster v. Goldman Sachs Group, Inc., 2011 U.S. Dist. LEXIS 73200 (S.D.N.Y. Jul. 7, 2011). Others, though, are not persuaded by the change in rhetoric. See D'Antuono v. Serv. Road Corp., 2011 U.S. Dist. LEXIS 57367 (D. Conn. 2011); Kaltwasser v. AT&T Mobility LLC, 2011 U.S. Dist. LEXIS 106783 (N.D. Cal. Sep. 20, 2011); Opalinski v. Robert Half Int'l, Inc., 2011 U.S. Dist. LEXIS 115534 (D.N.J. Oct. 6, 2011).

Piggybacking on another's arbitration agreement. Some defendants--such as bill collectors facing FDCPA class actions--have tried to invoke their client's arbitration agreements to shunt class actions to arbitration. The courts that have faced these cases have held that a third party may not invoke an arbitration agreement. Sakalowski v. Metron Servs., Inc., 2011 U.S. Dist. LEXIS 101652 (E.D. Mo. Sep. 8, 2011).  (The argument may turn out differently if the defendant is a named third-party beneficiary in the contract. See Chavez v. Bank of Am., 2011 U.S. Dist. LEXIS 116630 (N.D. Cal. 2011).)

Can arbitration clauses create predominance issues? The Northern District of California thinks so. It has held that, at least in one case,

Although it is not clear how many putative class members signed arbitration agreements, the evidence currently before the Court supports an inference that a significant number did, and that a significant portion of this litigation would be devoted to discovering which class members signed such agreements and enforcing those agreements, rather than to the resolution of plaintiffs' legal claims - which themselves are complex.

Pablo v. Servicemaster Global Holdings, Inc., 2011 U.S. Dist. LEXIS 87918, *6 (N.D. Cal. Aug. 9, 2011).

The "you asked for arbitration" ploy. In a much-publicized case, a set of plaintiffs sought arbitration against AT&T, which it opposed. Hypocritical, right? Well, probably not. The arbitration sought an injunction preventing AT&T's proposed merger with T-Mobile. AT&T argued that the injunction was outside the scope of its Customer Agreement (an argument supported by various state governments). The Southern District of New York held that injunctions against mergers are not covered by AT&T's Terms of Service with its wireless customers. AT&T Mobility LLC v. Gonnello, 2011 U.S. Dist. LEXIS 116420 (S.D.N.Y. Oct. 7, 2011).

In general, it's still too early to tell the overall effect of Concepcion on class action filings, since we don't yet have the data yet for the second half of 2011.  But it does appear that it's helping to corral class actions in credit card, cell phone, and labor cases where there were pre-existing contracts. What does that mean? Looking over the published cases, it appears that most of the class actions where arbitration was compelled addressed the kind of highly technical issues that are likely ginned up and tried out by plaintiffs' lawyers, regardless of their ultimate merit. Are we poorer off with those odd contract theories being decided by arbitrators rather than classwide settlements? I think the answer to that question is pretty clear.

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Cardozo law professor Lester Brickman has been a longtime critic of the contingency fee system. So it's no surprise that his latest work, Lawyer Barons: What Their Contingency Fees Really Cost America (introduction here), has a lot to say about how contingency fees skew the incentives of plaintiffs' lawyers. Among the most interesting observations he makes:

Many contingency fees don't reflect actual risk. Brickman documents how often, lawyers don't bear the risk of not getting paid, in part because of "careful case selection." This is not shocking; most plaintiffs' lawyers admit readily to being selective about the cases they take. And that selectiveness is a feature, not a bug. We want plaintiffs' lawyers to be selective, because it will reduce the number of meritless claims clogging the courts. But few have pointed out that this creates a mismatch between the justification for larger fees and the reality of the risk plaintiffs face. Brickman takes a first stab at this; he estimates that lawyers reject two-thirds of the clients who approach them, resulting in a 70-90% success rate for cases taken. And he also estimates the "effective hourly rates" of work on various kinds of cases. According to Brickman, class-action lawyers collect effective hourly rates of between $5,000 and $25,000 from their contingency fees. (Incidentally, Brickman does not address one phenomenon that a number of defense lawyers have reported--and that I've experienced personally. This is the phenomenon of "grossing up" the fee. Instead of calculating a fee as 1/3 of the plaintiff's recovery, a plaintiff's lawyer will take the recovery as a given, and then tack on another 30%-50%, "grossing up" the amount so that this additional amount is 25%-33% of the "total amount." Using this method allows a $500,000 fee to be "33%" of a $1 million recovery. It's safe to say that this calculation does not reflect risk so much as it does Hollywood-style accounting.)

Contingency fees result in acceptance of inferior settlements. Brickman's logic here is simple. One would assume the better the offer, the better the fee. But that's not quite right. A lawyer's calculation as to whether an offer is good is not OFFER/3, but (OFFER/3)-HOURS-OTHER COSTS-OPPORTUNITY COSTS. The longer a case goes on, the more HOURS and OTHER COSTS rise; and the more OPPORTUNITY COSTS he incurs. So a lawyer may very well counsel his client to accept a smaller offer, because his fee net hours and costs will be higher. (In a particularly interesting moment, Brickman compares these incentives to those created by using stock options as corporate compensation.)

Contingency fees (and reimbursement of costs) provide incentives to inflate costs. If a fee is driven by the amount awarded, and the amount awarded includes reimbursement of medical costs (for a plaintiff) or a separate reimbursement of costs (for class actions), then plaintiffs lawyers will maximize those costs to maximize their fees. This is also hardly shocking. After all, the inflation of costs and hours worked is a commonly-observed phenomenon among lawyers who charge by the hour. One supposed advantage of the contingency-fee system is that it bypasses this problem. But, as Brickman observes, it just shunts it to other places. For medical torts, lawyers don't inflate their costs, medical experts inflate theirs (which inflates the total award). For class actions, Brickman unearths some surprisingly brazen evidence from a case in the early 2000s that securities plaintiffs' firms were deliberately inflating the costs of reviewing discovery. And he also provides some examples from one of the most valuable sources of documenting plaintiff tactics in class actions: fights among plaintiffs' lawyers over fees.

Contingency fees inflate costs by justifying themselves. One of Brickman's most interesting observations is that, in class actions in particular, lawyers will hire experts whose sole purpose is to justify the fees they are charging. (He calls these "bless the fee" experts.) These experts don't work for free, of course. And their costs tend to get folded into the costs submitted by the plaintiffs' counsel.

So what use is Brickman's work to defense counsel? On one level, it's a great resource for understanding the incentives that drive plaintiffs' counsel. While he's clearly penning an indictment of the contingency-fee system, Brickman is a careful researcher, and takes great pains to document his findings. And he's excellent at drawing connections that many others have not, even though they may have the same information at hand. But as Brickman himself observes, in class actions, most fee requests are one-sided affairs: by the time they occur, the defendant has already graduated to just wanting to get rid of the case, and most class members don't have enough skin in the game to opt out of their $1, let alone object to the fees.

That said, Brickman's book also has some practical benefits. In those rare cases where the defendant is actually defending against a fee request after a plaintiffs' verdict, the book provides a clear roadmap to the tricks of the trade. Less obvious, but still important: when a defendant is engaged in settlement negotiations where its incentive is to minimize trial costs as opposed to settle a clear case of liability, Brickman's work may help it to reduce the amount it has to pay. After all, when a defendant is working out a nuisance settlement or a cost-of-litigation settlement, it actually has incentives to maximize the recovery to the class (to get the settlement approved) and minimize the lawyers' recovery (to minimize their incentive to bring another nuisance lawsuit). There, it makes a lot of sense to make sure that the lawyers are not inflating their fees.

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 Dora Surowitz, a seamstress and a widow, was a Polish immigrant with very little English. In 1957, she bought about $2,000 of Hilton stock, on the advice of her son-in-law, Mr. Brilliant. (Yes, his real name. Phi Beta Kappa from Columbia, Harvard Law School. But really, with that name, could he have done anything else?) In fact, Hilton bought the stock for her, using her money, and bought some for himself and his family using his own money.

Five years later, Mrs. Surowitz got a notice from Hilton that it was buying back its own stock. Because she wanted to understand the notice, she took it to Mr. Brilliant. Something in the notice disturbed him, and he began investigating. He was joined by Mr. Rockler, who had been his colleague at the Nuremburg war crimes trials. (Did we mention Mr. Brilliant worked at Nuremburg?) Their investigation--which included a meeting with Hilton's lawyers--uncovered a complicated fraud at the corporation. Mr. Brilliant went home, explained the fraud to his mother-in-law, and asked her to sign a letter to Hilton protesting the conduct, which she did.

Later that year, Hilton refused to send out a dividend. Mrs. Surowitz went to her son-in-law for an explanation, and he told her more about the fraud, and asked if she would be willing to sue Hilton. She was. Mr. Rockler served as her lawyer.

Hilton's lawyers--like any good class-action defense team--took Mrs. Surowitz's deposition. At that point, it became clear that she spoke next to no English, understood very little about the fraud itself, and really had just relied on Mr. Brilliant for her understanding of the case. Hilton moved to dismiss, claiming the complaint was a sham because Mrs. Surowitz's verification of the complaint (in compliance with then-Rule 23) was false. Mrs. Surowitz appealed, and the appellate court affirmed. She appealed again, and the Surpreme Court granted certiorari and then reversed the dismissal. As Justice Black's opinion put it:

Rule 23 (b) was not written in order to bar derivative suits. Unquestionably it was originally adopted and has served since in part as a means to discourage "strike suits" by people who might be interested in getting quick dollars by making charges without regard to their truth so as to coerce corporate managers to settle worthless claims in order to get rid of them. On the other hand, however, derivative suits have played a rather important role in protecting shareholders of corporations from the designing schemes and wiles of insiders who are willing to betray their company's interests in order to enrich themselves. And it is not easy to conceive of anyone more in need of protection against such schemes than little investors like Mrs. Surowitz.

So why call this case a classic? Particularly in a blog called Class Acton Countermeasures? Two reasons.

First, Surowitz v. Hilton Hotels Corp. is the original source of the oft-cited proposition that a named plaintiff's ignorance of the case does not make her inadequate. And there is no denying the influence of the line of cases that held so since. After all, many courts have reasoned, if a Polish seamstress with little English and little understanding of a complex fraud can bring a derivative suit, who are we to say that this named plaintiff cannot be an adequate class representative?

But second, and more important, the actual case shows just how far afield courts have taken the original holding. Here are some things to consider about the Supreme Court's holding in Surowitz:

• Surowitz was not a holding about adequacy. Leaving aside the fact that this case predated the 1966 Amendments that made Rule 23 what it is today, Hilton's lawyers did not challenge Mrs. Surowitz's adequacy to represent a class as we understand that today. They challenged her right to bring a lawsuit at all. The Supreme Court was reviewing a motion to dismiss, not a motion for class certification.
• Mrs. Surowitz was not recruited by plaintiffs' counsel. One of the primary concerns in Surowitz was whether the case was a strike suit. And the question there was whether Mrs. Surowitz was just a stand-in for her attorney. The Court found that, on the facts, she wasn't. And those facts were not related to her knowledge of the suit. Instead, they were related to the fact that she had held the stock for years, had approached her son-in-law, who had then found her an attorney. Those facts today would raise eyebrows only because they tend to be so rare. These days, it is well-acknowledged that class-action attorneys recruit plaintiffs. (And that is why, today, ignorance is a greater concern.)
• There was no concern that the attorneys would sell out the shareholders. In fact, Hilton conceded that the attorneys were working in good faith, and that they were not simply holding the company up for a quick settlement. It argued that those facts were irrelevant. But, in the intervening forty-five years, those have become the relevant facts. Today, we ask whether a named plaintiff is adequate to represent a class because we know that there will be times in the litigation (such as settlement) when the attorneys will face overwhelming temptation to act in their own interests rather than those of the class.  And we want the named plaintiff to be able to stand up to the attorney when that happens. On the record in Surowitz, there was little concern that Mrs. Surowitz would not do so. If she relied on anyone, it was her son-in-law, who was not her attorney. And she had discovered the problem and taken the first steps to investigate it. Do we have the same confidence in a named plaintiff who has been recruited by an attorney and knows only what her attorney has told her?

So yes, Surowitz is a classic case, but it's a misunderstood classic. While plaintiffs and courts often cite it as holding that an ignorant plaintiff can be an adequate class representative, what it really held was that an ignorant plaintiff, relying on lawyers who had demonstrably acted in good faith, was entitled to bring a complaint under Rule 23. In the intervening forty-five years, however, the facts about class-action litigation have changed. And it is worth pointing out those changes to courts when plaintiffs' counsel argue that their hand-picked, pliable named plaintiffs are adequate class representatives.

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As you may know, most bloggers have some kind of service that provides a statistical analysis of their site. In addition to telling us how many of you visit, and what you read, and whether you come back, these services also tell us what searches bring (some of) you here. And, over the last year and change, there are certain searches that have recurred enough that I consider them "frequently asked questions." Here are four, with brief answers:

What is the definition of "bet the company" litigation? This is--at least to me--a surprisingly common question. My own working definition is:

litigation where the stakes are so high that a verdict against the company would have serious financial repercussions, including bankruptcy.

Class actions, which transform small-dollar individual claims into multi-million dollar aggregate claims, are often considered to be "bet the company" litigation. Particular kinds of class actions (like those brought under FACTA have been so lopsided in the potential risks, that they have spawned a subspecies of superiority argument sometimes called the "annihilation defense," which argue that when the likely result of a class action would be annihilate the company, it's not superior to other forms of litigation.

What are good standard class action interrogatories? Well, this will depend on the specific case. However, I would say that the best class action interrogatories unearth individualized facts about the class members' claims. So they may include:

• What events gave rise to plaintiff's claim (such as the purchase of a product, the various days that an employee worked overtime).
• When and where those events took place.
• Who witnessed the events.

(For more discussion of class-action interrogatories that work on both sides, see The Class Action Playbook.) I personally have a bias against contention interrogatories. ("List all facts and identify all evidence that support your claim that …") While these can be effective in a trial setting, they are much less so when the largest battle is over class certification. In that case, the opposing party can usually postpone providing a real answer until after class certification has already been briefed. This wouldn't be a problem if interrogatories were unlimited, but under the Federal Rules of Civil Procedure, they're not.

(There are some other specialized interrogatories often worth asking if one suspects some conflict of interest or other chicanery.  They include: "Identify any third party sources of funding." "Identify your confidential witnesses." "Identify any PR consultants your counsel has employed." And "identify the date you retained your counsel.)

How does one depose a class action plaintiff?
Much as one does for interrogatories, one asks for the individualized facts surrounding the plaintiff's claim. Among other questions, one can ask:

• the plaintiff to verify the accuracy of her interrogatory responses; 
• to describe any policies and procedures she claims are classwide; 
• to explain any factual inconsistencies in the discovery she has produced; 
• to identify when they first met plaintiffs' counsel; 
• whether they've ever been convicted of a felony; 
  (For more discussion of class-action deposition questions, see The Class Action Playbook.)

For an excellent list of deposition questions in one ADA class action, see Anotinentti v. Chipotle.  And, for more on deposition questions, you can also see the Class Action Playbook.

What is a defendant class? A defendant class is just what it sounds like, a class action where a plaintiff sues a number of defendants, represented by a single class representative. As one might imagine, while it is theoretically possible to organize a number of defendants into a class so that one may sue them more effectively, in practice, it is extremely difficult.

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Today's opinion is a short one from the Seventh Circuit, but a very useful one for defendants nonetheless. Keeling v. Esurance Insurance Company was a class action filed against automobile insurer Esurance (created of the popular advertising icon Erin Esurance) that alleged that it sold a series worthless insurance policies in Illinois. Esurance removed to federal court, and a trial court in the Southern District of Illinois remanded, because the dispute did not meet the $5 million amount in controversy requirement. Since policies at issue had only collected 613,894 in premiums, the trial court reasoned it was "legally impossible" to meet the amount in controversy requirement.

Not so fast, said Judge Easterbrook. Once one took into account all of the relief the plaintiffs were asking for, $5 million was indeed a conceivable number. How did he get there?

First, Judge Easterbrook held that defendant may count the financial loss from complying with injunction as part of the amount in controversy.

The district court wrote that the cost to Esurance would be trivial: just reprint the forms. But this suit is about money, not ink. If the class is right and Esurance must either stop charging a premium or change the terms so that policyholders receive indemnity more frequently, it will suffer a financial loss.

(Emphasis added.)  Judge Easterbrook counted the financial loss from complying as roughly $1.4 million; meaning restitution plus injunction put $2 million at issue.

That's still $3 million short of the amount-in-controversy requirement, however. But the plaintiffs had also requested punitive damages. And Judge Easterbrook noted that Illinois courts had held punitive multipliers of up to 7x to be legitimate (although the Supreme Court preferred a multiplier closer to 4x). So, counting just a 5x multiplier would add in the additional $3 million.

We therefore do not think it "legally impossible" for the class to recover more than $3 million in punitive damages. Improbable, perhaps, but not impossible.

The takeaway of this opinion should be pretty clear: as a removing defendant, think through all of the costs you may incur.

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This month's piece of "Classic Scholarship" constitutes a small exception. It's not exactly scholarship (it was adapted from a speech), and it doesn't focus exclusively on class-action practice. Nonetheless, Deborah Lilienthal's Litigation Public Relations: The Provisional Remedy of the Communications World, 43 N.Y.L. Sch. L. Rev. 895 (2000), contains some important insights for class-action practitioners.

Lilienthal's primary argument, that corporate defendants in litigation cannot afford to ignore public relations, is hardly controversial today. There is no question that plaintiffs' counsel consider public relations to be an important weapon in their arsenal against corporate defendants.  Nor is there any real question that public relations can form an important part of a defendant's litigation strategy. 

However, in the corners of Lilienthal's speech (which was then adapted into a law-review article), are a number of insights about the tensions that can arise between litigators and public-relations professionals. Among the most important insights she reveals:

Media fit new cases into ready-made stories. Lilienthal introduces her argument by noting the coverage in the 1970s of a famous alleged automotive defect. While the company was largely vindicated in the courts, the damage to the particular brand had already been done. And, as Lilienthal notes,

This expose by a "radical" publication in the seventies lead the way to the expose-driven, scandal-obsessed media of the eighties and nineties, where news coverage is framed in stories of winners and losers, bad guys and good guys, David and Goliath.

The "David and Goliath" story in particular is one that is attractive to both plaintiffs' lawyers and reporters. And it highlights a natural rhetorical vulnerability for corporate defendants.

Media coverage usually provides only a shallow understanding of complex topics. Or, as Lilenthal puts it:

Increased media coverage and public discussion, however, have not brought greater clarity about the law. As news and tabloid converge, the coverage of celebrity scandals - most of which are pending before a court of law - are open game for news and tabloid media alike.
What does this mean to lawyers? Two things. First, a lot more people know the law. Second, a lot more people think they know the law. If I may take a Machiavellian moment, these "legal" programs are supplying viewers with just enough law to make them dangerous. They are developing a cocktail-party familiarity with theories of tort liability, the grand jury process, even the exclusionary rule.

This widespread but shallow understanding of the law is even more prevalent today than it was ten years ago. Ten years ago, there were few, if any, legal blogs, and no widespread social media tools like Facebook or Twitter, that can broadcast announcements of complaint filings as if they were final verdicts. (I have nothing against Twitter; I use it myself. But I'm aware of the risk of distortion it carries.) For most class-action lawyers, who have trained hard in a specialized field of law, figuring out how to communicate complex arguments in simple terms can extremely challenging.

Most media abhors nuance. Media has always operated in an attention economy. And today, where outlets include 24-hour cable news, social media tools, and discussion forums, attention is even scarcer than it used to be.

Non-lawyers - for better or worse - are far less deliberative than lawyers. They are looking for and want to give an absolute answer. Their perceptions of law and those involved in a legal battle are shaped by different factors than lawyers. And these non-lawyers are your future jurors. For lawyers to ignore this truism is virtual malpractice.

In class-action practice, non-lawyers are not just future jurors. They're future class members, future objectors, and future plaintiffs in other cases. A litigation strategy that is tone-deaf about public relations can alienate all of these different constituencies.

So what's the takeaway from Lilienthal's piece? Lawyers--especially defense lawyers--tend to be risk-averse and comfortable playing defense. While that instinct to deliberate can be helpful in motions practice, it may cause larger problems for the client when a crisis first breaks. PR professionals, reporters, and customers are not as deliberative, but they're hardly stupid. A savvy litigation strategy that marries solid PR practice with a vigorous defense (like, say Taco Bell's) can create a number of strategic opportunities for a defendant.

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 While it remains popular among settling lawyers and courts, the doctrine of cy pres in class actions (where defendants wind up paying charities with an ostensible link to the gravamen of a lawsuit) has been garnering criticism for some time. A few federal district courts (including the Southern District of New York and the District of New Hampshire) have questioned the application of cy pres in specific cases. Last year, Professor Martin Redish published an article questioning whether cy pres relief violates the Rules Enabling Act. After that, John Beisner and Jessica Miller of Skadden Arps published a working paper through the Chamber of Commerce expanding on the critique. And the press has begun to pay attention as well.

Now, a federal appellate court (the Court of Appeals for the Fifth Circuit) has weighed in as well, in Klier v. Elf Atochem, Inc.  Alison Frankel provided excellent immediate coverage of the opinion here, but Judge Higginbotham's opinion (coupled with Judge Jones's concurrence) does far more than just call the doctrine of cy pres into question.

Before we get into what else it did, a quick recap of the background. The defendant, Elf Atochem (now Arkema, Inc.), had previously settled a class action in Texas state court that had accused one of its agrochemical plants of contaminating the local environment with arsenic and other toxic chemicals. The class action ultimately settled for $41.4 million, which was supposed to be distributed among three subclasses:

• Subclass A included class members who had suffered actual physical injuries (primarily cancer, stillborn pregnancies, or other birth defects).
• Subclass B included class members who had been exposed to chemicals, and wanted medical monitoring.
• Subclass C included class members who had suffered damage to their property.

The settlement agreement did not include a provision for a cy pres distribution, or for reversion of unspent funds to the defendant. It was approved, and the settlement funds were paid out to the various subclasses according to the agreements' terms. (As one might expect, this meant that Subclass A members did not receive what they considered full compensation for their injuries.) After the funds were paid out, the claims administrator reported that $830,000 remained unspent from Category B. As the Fifth Circuit described what happened next:

Taking an inexplicably narrow view of their duty to the class, class counsel did not respond.

Arkema, however, did, suggesting the remainder could be donated to a scholarship fund and two local museums. One of the Subclass A members (Ralph Klier) objected, arguing that the funds would be better spent on the injured who had only been partially compensated. The court disagreed, and designated the charities, as well as a local genealogy and history library.

Klier appealed, and the Fifth Circuit agreed with his arguments. As Judge Higginbotham's opinion put it:

Because the settlement funds are the property of the class, a cy pres distribution to a third party of unclaimed settlement funds is permissible "only when it is not feasible to make further distributions to class members." Where it is still logistically feasible and economically viable to make additional pro rata distributions to class members, the district court should do so, except where an additional distribution would provide a windfall to class members with liquidated-damages claims that were 100 percent satisfied by the initial distribution.

(Internal footnotes omitted.)  The opinion would be notable for this discussion of cy pres alone. But, as it turns out, it went far further. What else did it do?

It provided a gimlet-eyed statement of the benefits defendants get out of class actions. Judge Higginbotham began his opinion with a description of the settlement from the defendant's point of view.

The defendant paid substantial sums for res judicata protection from the claims of persons assertedly injured by the toxic emissions of an industrial plant near Bryan, Texas.

Defendants may settle cases for other reasons: it may be cheaper to settle than to continue to litigate, for example. Or the specter of classwide liability may provide the proverbial "hydraulic pressure" to settle. But the primary benefit the defendant receives is, in fact, preclusion of any further claims.

It renders a stark critique of medical monitoring. One question lurks behind the issue that prompted the appeal: why were there extra funds in the medical monitoring subclass? The opinion does not shy from the answer:

First, the initial participation rate was low. Some 329 members of Subclass B—less than three percent of the total subclass membership—opted to receive medical monitoring in lieu of a cash payment; just 221 attended their first monitoring examination.

In fact, the opinion's description of medical monitoring is even more damning, noting that most of those 221 members eventually dropped out of the program as well. Plaintiffs often proffer medical monitoring as a means of helping class members, but few scholars or pundits have followed up on whether medical monitoring programs actually work. Assuming this was a typical medical monitoring program (and we have no reason to assume it wasn't), it would appear that the benefits of medical monitoring programs are overhyped.

It makes a strong case for reverter settlements. Judge Jones wrote separately, primarily to suggest that if the settlement agreement had not waived the defendant's right to a refund of unspent funds, then it could have simply collected them. According to Judge Jones, reverter settlements are superior to cy pres settlements because they are not subject to the same abuse as cy pres. (And she spends some time, relying in no small part on Professor Redish, detailing that abuse.) As Judge Jones points out, a reverter settlement does a better of job of actually determining the value of the benefits to the class. If funds revert to the defendant, that's an indication that the class was not harmed as much as the parties thought at first. (Judge Jones describes this in contract terms, as a "mutual mistake.")

These critiques are not likely to be popular. Many defendants have a vested interest in cy pres awards, because they allow them to settle cases quickly with a minimum of fuss. But in the long term, making sure settlements reflect the actual benefits to class members serves defendants' interests. If it turns out that the techniques lawyers use to inflate settlement value--such as cy pres and medical monitoring--do not pass muster with courts, then perhaps plaintiffs' lawyers will file fewer cases that require these kinds of inflation.

(Hat tip to Alison Frankel of Reuters, who first reported on this case when it came out.)

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