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Class Action Countermeasures Discussions of the Strategic Considerations Involved In Class Action Defense

A New Model of Plaintiffs’ Class Action Attorneys? Not Yet.

Posted in Lawyers

 I’ve made no secret about the fact that one of the purposes of this blog is to delve into how the other side thinks.  And I’ve also emphasized the fact that it’s important to keep an open mind when considering one’s adversaries in litigation.  So I was pleased to hear that plaintiffs’-lawyer-turned-academic Morris Ratner was working on a piece that would discuss how plaintiffs’ firms operate today.

Unfortunately, Ratner’s working paper–A New Model of Plaintiffs’ Class Action Attorneys–promises a heck of a lot more than he delivers. There is no "new model." Instead, he offers a critique of the old "conventional model," and offers an idea for a new model with no details to make it actually useful.

What do I mean by a useful model? A useful model is one that allows you to make predictions. The conventional model (that plaintiffs’ firms are rational and profit-maximizing, which usually–given their economic structure–means fee-maximizing) has lasted a while for several reasons:

  • It simplifies a necessarily messy set of facts and social forces into a useful account. (A 1:1 mapwill be very accurate, but don’t unfold it while you’re driving.)  The conventional account offers this.  While individual cases may vary, assuming that a plaintiff’s lawyer is looking to maximize fees explains a great deal of behavior in class action litigation.
  • It applies equally well to other parties in litigation. (One can also assume that defense firms will be rational and profit-maximizing. And that defendants will be. And that objectors will be.)
  • It matches much (though not necessarily all) of the empirical evidence out there. As of this writing, there are a number of books, papers, and reported cases that show that counsel are often looking to maximize fees.
  • Most importantly, it allows one to make falsifiable predictions about plaintiff firms’ behavior. (All other things being equal, they go for the fees.) This is important for two reasons. (1) It allows litigators to make guesses about what they’re going to face. (2) It allows scholars to make predictions about the effects of policy. And when either of these parties turns out to be wrong, it allows them to calibrate their next set of predictions, or it reveals important new questions for research.

So, how does Ratner’s model hold up? Not well, unfortunately. It’s more of a critique than a model. And, even as a critique, it’s not a very informed one.

Ratner’s primary observation is that plaintiffs’ firms are bigger now than when Professor Coffee first began writing about the entrepreneurial law firm. From that he infers that assuming that everyone in a plaintiffs’ firm is "in it for the money" is incorrect. Or, as he puts it:

Large firms possess internal structural complexity that creates diverse incentives other than law firm profit.

And he’s right, as far as he goes. But he really doesn’t go very far. The real question is, are those diverse incentives relevant to the firm’s behavior? (Either in the market for legal services overall, or in individual litigation.) Morris doesn’t really offer an answer to that. He argues that, in a given case, the structure of a firm, and the lead attorney’s place within that structure, may matter. And he mentions two alternative motivations to profit: (1) he hints that reputation might be important; (2) he observes (in part from personal experience) that "cause litigation" (like the Holocaust bank litigation) might inspire effort not justified by mere fees. But he doesn’t really explain how those would play out in litigation generally. What does litigation look like when it’s motivated primarily by reputation? How about "cause litigation"? Ratner has little, if anything, to say about either of these "new" incentives.

Ratner also argues that plaintiffs’ firms can’t be profit-maximizing because they can’t predict what their fees will be from a given case.

However the formula for expected fees is stated, it is too imprecise to carry the weight it has been given in the conventional account of how plaintiffs’ attorneys litigate and settle class actions.

It’s hardly a surprise to learn that firms can’t predict their fees with certainty. The fact that the outcomes of lawsuits are uncertain is well-documented. That’s what economists (who tend to insist on profit-maximizing) call incomplete information.  It turns out, there is lots of legal scholarship on how law firms (including plaintiffs’ firms) act rationally under conditions of uncertainty or incomplete information. Ratner, though, doesn’t address any of this. Instead he assumes that, if one can’t predict fees, one must not be engaging in profit-maximizing behavior.

Moreover, this particular criticism tends to show that Ratner doesn’t understand an important part of the rational-actor model. Most economists (and most legal scholars) aren’t stupid enough to argue that people or firms are actually rational. They argue that people or firms act as if they are rational. Ratner’s critiques of the "conventional model" indicate that he hasn’t grasped that distinction.  For example, in describing a potential counterexample, he argues that there was never a moment of actual calibration as suggested by 

At no procedural point in Avery did class counsel calibrate case investment along the lines implied by the conventional account …

There are strong critiques out there of rational-choice models, including of the "as-if" defense of that model. But the fact that a case in real life did not proceed like an idealized graph is not one of them.

Ratner suggests that one way to gather better data on plaintiffs’ incentives is to "ask the lawyers who are involved in class litigation." He admits this isn’t scientific. But more importantly, he doesn’t address any of the issues with self-reported data, even to explain how he would address them in data collection.

Now, some scholars already ask plaintiffs’ counsel about how they conduct their practice. Stephen Meili, for example, relied specifically on interviews with plaintiffs’ counsel in his account of lawyer-client interactions (and he explained how he addressed self-reporting bias). Richard Nagareda reported discussions that he had with plaintiffs’ counsel in working on his book on settlements and complex litigation.  And Lester Brickman relied on public conflicts between plaintiffs’ lawyers for some of his data, on the assumption that they would reflect the lawyers making their best arguments for their fees. But Ratner doesn’t address any of these examples where data has already been collected, and he doesn’t address the questions that those researchers have raised.

In short, while Ratner claims that his model is more "descriptively accurate," it makes things more complex without adding any insight, it doesn’t (in its present stage) match much of the empirical evidence out there, and it doesn’t allow for falsifiable predictions.

And it also doesn’t work for anything other than plaintiffs’ firms. As Ratner himself puts it, class-action plaintiffs’ firms are uniquely insulated from Darwinian and other economic pressures:

This is especially true among class action plaintiffs’ attorneys generally, who are a relatively independent and colorful lot, and plaintiffs’ firms that specialize in complex or aggregate litigation in particular, which can, by virtue of the pursuit of very large cases, generate enormous revenues for partners who need not devote much effort to achieving the kind of efficiency that economists deem paramount in other settings.

In other words, plaintiffs’ lawyers make so much money doing what they do, they don’t have to worry about maximizing profit. If this particular critique is true, it’s pretty damning. But it doesn’t indict the conventional model of plaintiffs’ firms, it indicts the firms themselves. After all, if class actions are so profitable that plaintiffs’ firms don’t have to act efficiently, who’s paying for that extra revenue?