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

Classic Scholarship – Class Action Cops

Posted in Lawyers

For the last six or seven years, a growing academic literature has put forward the argument that the primary justification for class actions is not to compensate absent class members, but to deter corporate wrongdoing. That justification has formed the basis of a number of arguments, from Professor Fitzpatrick’s proposal that class action attorneys earn a 100% commission on their cases to Professor Lahav’s that the law should go a little easier on the class-action lawyer. It also underlies many of the fears that tightening the class-action rules may lead to rampant corporate misconduct.

Few practitioners or scholars have really confronted the deterrence justification for class actions in depth. However, today’s piece of Classic Scholarship, Class Action “Cops”: Public Servants or Private Entrepreneurs?, by John Beisner, Jessica Miller, and Matt Shors (57 STAN. L. REV. 1441), was an early and muscular entry into the debate. Beisner and company argue that, because of the incentives they face, class-action lawyers neither can nor should act as "private attorney generals," and that, in doing so, they distort the careful choices about how best to enforce the law that government must make.

First, they point out, there is no justification in the law for a "pure deterrence" class action. In fact, allowing class actions to operate as purely "private attorney general" vehicles would likely violate the Rules Enabling Act.

In the first place, the concept raises fundamental questions about the validity of the class action device under the Rules Enabling Act. After all, if the true purpose of the class concept were to facilitate private law enforcement, it would be a substantive right. The Rules Enabling Act, however, authorizes the federal judicial branch to create nothing more than purely procedural mechanisms.

Then, they show just why it is that we (rightly) don’t trust the idea of private enforcement in other areas of the law.

In this regard, the private law enforcement characterization promoted by some class action attorneys is no different from permitting self-appointed “police officers” to roam the streets, set up speed traps, pull over drivers (whether or not they were speeding), and give them the option of either (1) spending a few nights in jail, or (2) resolving the problem by paying the police officer (for personal benefit) whatever he demands. No doubt, the self-appointed “cops” would argue that this would be an efficient system. After all, it would discourage speeding.
But justifiably, the public would have no trust in–or respect for–such a system of law enforcement, since prosecutorial decisions would be driven (or at least would have the appearance of being driven) by the overwhelming financial self-interest of the police officers themselves.

(In layman’s terms, nobody rooted for Jackie Gleason in Smokey and the Bandit.)

Nonetheless, many continue to argue, if Smokey isn’t doing his job properly, don’t we need someone to backstop him? Isn’t that a strong argument to bring in Dog the Bounty Hunter, to what the cops don’t have the time or resources to do? [Warning: Link has autoplaying audio.]

As Beisner and company point out, the answer there is probably "no." First, Dog doesn’t have the same incentives as real police. He’s going to chase after the most telegenic fugitives, rather than the most dangerous. (Witness his current "Most Wanted," celebrity fugitive Randy Quaid.) And that will lead to over-deterrence in high-profile cases where the government is already working, and under-deterrence where the work is harder and the rewards less certain. The same thing happens in class actions, where many lawyers choose to just piggyback on government investigations or voluntary corporate action.

The reason class action lawyers prefer to follow–rather than to lead– government investigations is simple: those lawyers prefer “no research” lawsuits that appear likely (from the investigation itself) to yield lucrative settlements with only a minimal investment of time and money. In contrast, government lawyers, who by definition are not driven by profits, tend to be willing to spend more time doing the factual and legal research needed to decide what kinds of cases should be brought, not simply to increase revenue, but to further the public good.

Moreover, there may be good reason the government might choose not to chase after Randy Quaid.

"The “gap-filler” argument also ignores that state officials often choose not to initiate legal action for reasons other than inadequate resources. For example, state attorneys general, as elected officials tasked with pursuing the public interest, have discretion to determine that, although a particular lawsuit might produce a recovery, the lawsuit should not be brought."

When might it choose not to bring a lawsuit? Say, when doing so might harm another vulnerable population within the state.  (And here, despite mightily trying to bring this analogy around to reality TV and celebrity fugitives, I admit defeat.)

Their solution: if you want private cops, then you have to treat them more like cops than private businessmen. Cops don’t make 30% commissions on their drug busts, and with good reason. That kind of incentive would warp their instinct to protect the public rather than line their pockets. (Similarly, SEC lawyers don’t get to keep 30% of their fines, and yet they can still draw heavy criticism for under- or over-enforcement.)  Everything about the class action rules as they stand and are enforced–the emphasis on procedure, the allowance of contingency fees, the use of common funds–rests on the assumption that the attorneys are securing compensation for civil wrongs, rather than supplementing actual law enforcement.

But the most interesting aspect of this debate to me, after having reread this article, is that it makes one thing very clear. The real issue here is not whether corporations should be allowed to effectively self-regulate. That argument is difficult at the best of times, and these are not the best of times. But if we don’t trust corporations to effectively self-regulate, why would we trust plaintiff’s lawyers–whose incentives match the corporations’ rather than the government’s–to do the exact same thing? The best answer I can come up with isn’t very flattering to the plaintiffs’ lawyers.

[Disclosure: At the time the article was written, John, Jessica, and Matt were all colleagues of mine. To my knowledge, none of them have ever made Burt Reynolds or Dog the Bounty Hunter references.]