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

E-book Price Fixing – The Benefit of State AG Actions

Posted in Settlement

Last Friday, Thomson/Reuters reporter Alison Frankel (who should be on every class-action lawyer’s RSS feed) wrote about an example of a new strategy class-action defendants have developed over the past few years. That strategy? Work with the government. In this case, publishers Harper Collins and Hachette–two of the defendants in both the Justice Department’s recent price-fixing complaint and a class action making the same allegations–have settled with 16 state attorneys general. Harper Collins has announced that it plans to settle with the other 34 state AGs as well if possible. Leaving aside the fact that settling with a government agency often the right thing to do when accused of wrongdoing, it also provides several immediate benefits to defending subsequent class actions.

From Frankel’s piece:

For the defendants, there are obvious benefits to reaching quick settlement with state regulators rather than slogging through litigation with class action lawyers who’ve already sunk millions into working up the case. The AG parens patriae cases aren’t subject to the same requirements as federal court class actions (although they do have to be approved by Cote, who is overseeing all of the e-books litigation). There are also no attorneys’ fees for the state AGs, which means cheaper settlements for defendants. In the muni bond derivatives litigation, class counsel repeatedly argued that defendants preferred to make deals with the AGs because the private lawyers would demand bigger settlements.

Settling with state AGs (or the Justice Department, for that matter), offers two other benefits for class action defendants as well.

First, it provides an excellent superiority argument should the class action proceed. Action by government agencies is often superior to a class action, in no small part because the government can tailor the remedy as it sees fit. (More support for the fact that state AG settlements are superior: CAFA requires parties to report class-action settlements to state AGs, not the reverse.)

Second, and related, negotiating with the government undermines one of the plaintiffs’ most common rhetorical justifications, that class actions are necessary for deterrence because the government cannot effectively regulate corporate misconduct. After all, if the government has already effectively regulated the conduct in question, then there is no need for a class action to "fill in the gaps." At that point, if plaintiffs’ counsel is still pushing the case, it becomes clearer to the court that it’s really about the fees, not the public good.

It’s interesting, because this likely means that class actions as a device do have some general benefit. They encourage negotiations with appropriate government authorities. The irony is that this benefit does little, if anything, for plaintiffs’ counsel.

  • bob

    If the settlement was with a federal agency I would try to keep the case alive with citations showing state law remedies are often broader than federal regulatory statutes. Of course that doesn’t work with AG parens patriae cases.

    In California if a defendant settled a case with state AGs with a similar class action pending that became moot, Plaintiff’s counsel may still seek fees under the catalyst theory and private attorney general statute. No class action settlement is needed. In other states without a private AG fee statute, the same remedy could be sought under a an equitable theory such as unjust enrichment.