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

For many, the start of a new year is not just a time to look ahead, but also a nice landmark for looking back. So it is with class-action litigators. In the past month, there have been at least four different "Year End Reviews" of class actions. (I'm not counting my own, which are more top ten lists than anything else.)

So how do these various reviews stack up? Pretty well, actually.

Baker Hostetler's 2012 Class Action Year End Review
Where to find it: Here.
What's to like: It's a comprehensive look at class actions in 2012; and one of the authors is Paul Karlsgodt, the guy who brings you the Class Action Blawg.  It also has a very useful breakdown of recent class actions by topic and by specific industry.
What's to complain about:  Not much.  It gets the law largely right.  The most I might quibble with would be some of the editorial choices, but those are small potatoes indeed.
Most interesting finding: Watch out for privacy and LIBOR-related class actions.

"The continued proliferation of privacy class action litigation is widely expected in 2013, as the courts continue to grapple with the interpretation of both new and old privacy laws to rapidly changing technologies. Another potential trend to keep an eye on is the development of class action litigation relating to the LIBOR rate-fixing scandal, which has the potential to impact trillions of dollars of financial transactions worldwide and could be a catalyst to the accelerated expansion of class and collective action procedures in other parts of the world."

Skadden's Insights/Global Litigation
Where to find it: Here.
What's to like: A brief, incisive review of class action practice by defense guru John Beisner and his partner Jessica Miller. (Also, a products liability summary by former class action blogger Russell Jackson.)
What's to complain about: It's pretty brief; less than 2.5 pages. But it does pack a lot into them.
Most interesting finding: Watch out for single-state class actions.

"While nationwide classes based on state law are still moribund, a number of traditionally conservative courts around the country have embraced smaller, single-state consumer fraud and employment discrimination class actions, suggesting that 2013 may bring more class actions."

Seyfarth Shaw's Ninth Annual Workplace Class Actions
Where to find it: Here. 
What's to like: Comprehensive, detailed, data-driven analysis of awards and settlements in workplace class actions.
What's to complain about: Doctrinally, it's a little vague on occasion. And you have to order it, rather than just being able to download it. (I received only the first two chapters for review purposes.)
Most interesting finding: Dukes's big influence was in enabling a divide-and-conquer strategy for employment defendants.

"Wal-Mart influenced settlement strategies in workplace class actions in a profound way. Employers settled fewer employment discrimination class actions than at any time over the past decade and at a fraction of the levels as in 2006 to 2011. This reflected the impact of Wal-Mart, and the notion that difficulties in certifying nationwide, massive class actions impaired the ability of the plaintiffs’ bar to convert their case filings into blockbuster settlements. It also manifested the ability of defendants to dismantle large class cases, or to devalue them for settlement purposes. Simply stated, Wal-Mart aided employers to defeat, fracture, and/or devalue employment discrimination class actions, and resulted in fewer settlements at lower amounts."

(Internal footnote omitted.)

Cornerstone Research: Securities Class Action Filings 2012 Year in Review
Where to find it: Here. 
What's to like: Data, data, and more data. The class action media has already had a field day picking this apart, because there's just so much in it.
What's to complain about: Nothing, really. It does what it says on the tin, which is give data on filings, rather than settlements or decisions.
Most interesting finding: Merger class actions are declining.

"Compared with the past two years, federal filings associated with merger and acquisition (M&A) transactions have fallen sharply. Thirteen cases were filed in 2012 compared with 40 and 43 in 2010 and 2011, respectively. Evidence indicates these actions are now being pursued almost exclusively in state courts after the unusual jump in federal M&A filings in 2010 and 2011."

I understand how this probably looks: in the past month, I've complained that there's very little interesting going on in class action scholarship, and I've posted a "biting criticism" (as one correspondent put it) of the latest overview from two of the most respected names in class action academia. And then I turn around and praise three year end reviews by defense firms, and one by a consulting firm. But these are currently the facts on the ground. University academics--perhaps because they don't have much skin in the game except as "class action experts" in litigation--have shown in the past two years that they care mostly about Supreme Court cases and the "demise of the class action" that will result after the next wrong decision. Practicing lawyers, on the other hand, care about actually winning cases and serving clients. To do their jobs, they need good information; to get clients, they have to share that information. At this point, that apparently means that I'd rather be reading another firm's take on the last year than one by a law professor, no matter how distinguished.

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 So the small corner of the legal world that includes class action lawyers is up in arms this week because Jon King, formerly of Hausfeld LLP, has filed a wrongful termination complaint against his former employer, alleging that he was fired because he complained about ethical conflicts at the firm.

Hausfeld LLP is run by Michael Hausfeld, who has a larger than life reputation. And the complaint certainly contains its share of juicy allegations (Hausfeld LLP tried to spy on its landlord?), although, as Alison Frankel notes, portions of it read more as King's attempt to get back at folks who done him wrong than support for his actual cause of action. That's to be expected: this is a wrongful termination complaint, so King has an incentive to make everything as dramatic and one-sided as possible.

That said, even if one discards the juicy "he said-he said" portions and remains agnostic about the merits of the allegations, there's a lot in King's complaint that one can use to build a more accurate picture of how class action plaintiffs' firms interact, and how they think in strategic situations.  To wit:

• You have to pay to play. You have to spend money to make money. At least, that's what Hausfeld allegedly believed, as he took on a "crushing debt load" in part to create the "appearance of success." (¶ 1.) But participating in large-scale litigation like the antitrust case against the NCAA also requires contributing to the plaintiffs' litigation fund. (¶ 55.) (Indeed, according to those who have commented on this complaint so far, the most shocking allegation in it is that Hausfeld LLP would get other law firms to contribute to the fund while doing nothing himself. (Id.))
• Lead counsel makes the rules. Despite the fact that Hausfeld wasn't paying to prosecute the case, he handed out the work. The complaint alleges he did so as "some form of political deal relating to other matters." (¶ 55.) It also alleges that firms would fall in and out of favor very quickly. (¶ 57.)
• It's important to have a PR strategy. King spends a fair amount of time talking about how part of his role was to cultivate reporters. (¶¶ 64-66.) And he also talks a great deal about how many presentations he gave on panels. (¶¶ 61-63.) It's debatable how much these public-relations strategies actually helped, but there is no question that King at least (and likely Hausfeld) viewed them as important.
• It's about the money. If King is right, then Morris Ratner has it wrong: there's no need for a new model of the plaintiffs' attorney because the old one is still in play. Even if it isn't to start, it becomes so when the money is there. The most surprising revelation may be the degree to which the economic calculation at a large plaintiffs' firm looks like the stereotypical calculation at a defense firm: prioritize the cases that bill the most (or have "more lodestar" in plaintiffs' terms). (¶ 124.) But it does seem like, to a plaintiff, everyone has their hand out. Some attorneys want referral fees for finding clients. (¶ 131.) Other firms want a share of the take for a given case. (¶ 104.) Objectors need "paying off." (Id.)

The biggest takeaway for defense lawyers is not a surprising one. Assuming that the truth is somewhere between King's allegations and Hausfeld's likely denial, it still appears that those drawn to high-stakes plaintiffs' work tend to be people who are ultimately after the big checks and the big ego strokes. And while this insight may not be revolutionary, confirming it is always useful for the next big case.

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In 1998, the class action plaintiffs' firm Milberg Weiss filed sued Computer Associates for violating the federal securities laws by lying about its revenues in order to increase its stock price. In a perfectly unremarkable development, it was appointed co-lead counsel of the consolidated class. (Various firms had filed a total of eleven complaints.) Over the next four years, the pressure on Computer Associates mounted. Thirteen more complaints were filed, and the US Attorney's office (EDNY) and SEC launched a joint investigation of the firm.

So Computer Associates decided to settle the case. After seven months of mediation with the plaintiffs, it announced a settlement where class members would receive 5.7 million shares of stock in the company, then valued at around $140 million. Counsel's fee was 1.4 million shares, valued at approximately $35 million. (One might ask whether a settlement like this either (1) counts as a coupon settlement, or (2) created problems by diluting current shares, but neither of those was raise by the parties, who were all interested in the settlement going through.) By the end of 2003, the court had approved the settlement; there were no objectors.

Four months later, several Computer Associates executives pled guilty to conspiracy to commit securities fraud and obstruction of justice; the firm admitted that its executives had engaged in a multi-billion dollar fraud and coverup, and it restated an additional $2.2 billion in earnings. In addition, the Wall Street Journal reported that Computer Associates had withheld 23 boxes of documents during class-action discovery.

At this point, several of the class-action plaintiffs asked Milberg Weiss to vacate the certification order under Rule 60(b), because they had been deprived of essential information in the 23 boxes. Milberg Weiss declined to do so. So the plaintiffs proceeded on their own. After three years of litigation and discovery, the court dismissed the Rule 60(b) motion, in part because it wished to protect the "finality which a settlement is intended to produce." (It also noted that these plaintiffs had not objected to the settlement at the time.)

At that point, the disgruntled class members filed a malpractice action against Milberg Weiss and others in New York state court, alleging legal malpractice and breach of fiduciary duty. The lawyer-defendants responded by asking the E.D.N.Y. for an injunction against the malpractice action under the All Writs Act and Anti-Injunction Act, defending the settlement approval and the dismissal of the 60(b) motion. The E.D.N.Y. issued the injunction, and the plaintiffs appealed.

Which brings us to this week's case, Wyly v. Milberg, in which the Second Circuit affirmed the injunction. For those interested in the minutiae of the All Writs Act and Anti-Injunction Act, the court held that it could not uphold the injunction under the "in aid of jurisdiction" prong of the All Writs Act, because the court lacked in personam jurisdiction, and the mere connection with a class action was not enough to invoke any of the known exceptions to that rule:

We have never held that a district court's involvement in complex litigation justifies, without more, issuance of an injunction "in aid of" the court's jurisdiction, and we decline to create such a rule here.

Instead, the Second Circuit turned to the "relitigation" exception to the Anti-Injunction Act, which required it to conduct a preclusion analysis of the malpractice case. After determining that res judicata (claim preclusion) did not apply, it reasoned that

Before applying the elements of issue preclusion to this case, we begin with a preliminary observation about the Appellees' argument. In the course of the federal class action litigation, the District Court did not "actually decide" whether the Appellees committed legal malpractice; that claim was not presented, and therefore the Court had no reason to address malpractice as such. The Appellees' issue-preclusion argument is focused not on whether the District Court previously adjudicated a malpractice claim, however, but on whether the Court resolved one of the elements of a malpractice claim--namely, counsel's deficient performance.

(Emphasis in original.)  And it found that the Settlement Order had in fact established that the attorneys had acted in a reasonable manner, precluding a finding that could establish malpractice.

The Settlement Order held, inter alia, that the global settlement of the 1998 and 2002 class actions was "fair, reasonable[,] and adequate," and that class counsel was entitled to an award of fees that the District Court found to be "fair and reasonable." Whether an award of "fair and reasonable" attorneys' fees necessarily decides the deficient-performance prong of a legal malpractice claim is an issue of first impression in this Circuit. We conclude that the deficient-performance prong of New York's legal malpractice rule is identical to the reasonable-performance issue that the District Court decided as a necessary component of the Settlement Order.

(Internal footnote omitted.)  Since the lower court had found counsel to be adequate, and had also found that its performance merited its requested fee, there was no way another court could find that counsel had committed malpractice.

It is possible that the circumstances that gave rise to this case may come up again sometime. But that's not the reason for defense lawyers to focus on it. (After all, here, the defense had pulled off a coup: settling the case for less than it might be worth after the conclusion of a criminal investigation.) Instead, here are four other reasons this case is important for defense lawyers:

1. The full record is fascinating reading, and offers a lot of between-the-lines looks at how a large securities plaintiff's firm operates.
2. The Second Circuit's "relitigation" reasoning may have application in other cases where plaintiffs seek a second bite at the apple in state court. Defendants are often interested in finality, and this is a case that offers some help in achieving that in litigation.
3. We often talk about how plaintiffs in class actions are only nominal, and it is the attorneys who really run the cases.  This case is a stark example of just what that divorce between plaintiff and attorney can mean in a class action.
4. The case is an important reminder that if you do not challenge adequacy of counsel or the level of attorneys' fees when they first arise, you may be precluded from doing so later, when it really matters.

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For the last three months, much of the law-firm world has been watching the slow-motion train wreck that was the dissolution of Dewey & LeBeouf. The legal blogosphere has written a lot about what the collapse means, and offered numerous theories about why Dewey failed so spectacularly in only a few months. Most focus on the income guarantees for a number of partners. Some go so far as to worry about criminal conduct. And it seems clear that there was at least some level of mismanagement. (As usual, Adam Smith, Esq. has an outstanding discussion of the many factors that led to Dewey's collapse. But I shouldn't have to tell you that, because that is one website you should be checking constantly anyway.)

But we can draw a more general lesson from the Dewey collapse. [DISCLOSURE - I do not manage my law firm, or speak on behalf of it. My opinions are my own.] When it came to grand strategy--in the law firm context, the larger goals of the law firm and the overarching methods it will use to get there--Dewey simply didn't have one. Grand strategy is a tricky thing at the best of times. It has become even more tricky in an environment where individual lawyers pay close attention to profits per partner (PPP) instead of the firm's primary mission. (Indeed, many lawyers might argue that the firm has no mission other than maximizing its profits per partner.)  But it's still an essential element for long-term, sustainable success.

Looking at all of the accounts, it appears that at best, Dewey had no strategy, and at worst, it had a classic "bad strategy." In this case, Dewey's management mistook its goals (growth and profit) for an actual plan.  As the New York Times's Dealbook reports, the reasoning behind the Dewey/LeBeouf merger:

was to become the next Skadden, Arps, Slate, Meagher & Flom or Latham & Watkins, two profitable large firms with strong international networks. Together, LeBoeuf and Dewey created a firm with offices in 26 countries and $1 billion in revenue that Mr. Davis thought had the global reach and diverse practice to withstand a recession.

So, in other words, Dewey's goals was to become one of the biggest law firms. Its strategy to get there was to merge with another law firm.  (And its strategy to keep the partners from the other firm was to guarantee their income.)  That seems delightfully straightforward, but only because it wasn't a real goal: it was the kind of goal one gives when one hasn't thought through what a real strategic goal looks like. It did not diagnose any current challenge, and it did not offer any solution that took account of the current terrain. (Here, a competitive legal market, rapid technological change, and a looming recession.)

Moreover, the firm never seemed to consider another essential element of a good strategy--what to do if things did not go exactly as it planned. As bankruptcy lawyer Marty Bienenstock repeated several times in his interview with the Wall Street Journal:

I think that if [Dewey chair] Steve [Davis] is guilty of anything, it's the crime of optimism.

(Emphasis added) Optimism is no crime (as Bienenstock's use of dysphemism emphasizes), but excessive optimism is a hallmark of bad strategy. It's particularly bad strategy if part of the plan is to withstand a recession. One has to assume that, during a recession, firm revenues might contract. So where was the money going to come from to pay income guarantees if that happened? To borrow one of Professor Richard Rumelt's criteria for a good strategy, guaranteeing million-dollar incomes during a recession to protect against the effects of a recession indicates a lack of coherent action.

Lawyers--especially defense lawyers--tend to be reactive instead of strategic. Sure, we all like using the word strategy (I'm clearly no exception) but employing an actual strategy with a diagnosed challenge, a guiding policy, and a set of coherent actions to reach the end----is much more difficult, either in a given piece of litigation, in one's career, or on behalf of one's firm. Take too many shortcuts, do too much that sounds like strategy without actually being strategy, and you run a very large risk of ending up like Dewey.

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 I've spent a lot of time over the last two years poking (as best I can) into the head of the entrepreneurial plaintiff's lawyer. That is, the plaintiff's lawyer that treats her lawsuits like business opportunities, keeping a diversified portfolio and working to maximize the profit from each opportunity. But there is another kind of lawyer that brings class actions, one often referred to as the "cause lawyer." Rather than working for profit, this group is motivated by a desire for social change. Cause lawyers are rarer in class action practice, but they're not nonexistent. So, how does the class action defendant deal with a cause lawyer?

Colorado professor Deborah Cantrell has a new article Lawyers, Loyalty and Social Change (Oxford comma omitted in original), which tackles just that question.

According to Professor Cantrell, one can distinguish cause lawyers by their incentives. Cause lawyers are (clearly) not motivated by the money. Instead, they tend to be motivated by the advancement of a single social cause. As Professor Cantrell puts it, it is the

common feature of social change advocacy – that participants, including cause lawyers, identify strongly with their side of the issue and distrust with a similar intensity participants on the other side. In fact, this Article argues that such hyper-loyalty is considered a core condition and baseline requirement of the relationship between cause lawyer and cause client.

(Emphasis added). It is this "hyper-loyalty" that defines the cause lawyer:

In contrast to much for-profit lawyering, cause lawyering brings with it robust notions of solidarity between client and lawyer. The proposition is that there is more solidarity between the cause lawyer and client because both of them understand their work together to be situated within a larger interest in social change. … Independent of their legal relationship, the lawyer and client are loyal to each other because of their shared commitment to their cause (whatever it may be). Their “cause loyalty” is stronger than the typical professional loyalty between lawyer and client. It is hyper- loyalty.

(Emphasis added.) Cantrell traces that hyper-loyalty to a few causes. Since many cause lawyers appear to come from "elite" backgrounds (law school costs a lot of money, and cause lawyering may require some independent income since it pays much less than other legal work), hyper-loyalty may be a compensatory mechanism to assure poorer clients that the lawyer is truly on their side.

Moreover, this hyper-loyalty may also stem from cause lawyers' tendency to the see world as bipolar, divided into a clear "us" and "them."

Additionally, a constitutive part of social change, or cause, work is that cause advocates are pushing against the status quo. In order to mobilize a collective for action, there must be some sense that there is a group pushing for change and a group content with the status quo – in other words, some sense of “us” and “them."

(Emphasis added.) Most lawyers wind up buying into their clients' mindsets to some degree. (It can be hard not to.) But many for-profit lawyers can distance themselves from their clients by noting that every client its day in court, regardless of its views. Cause lawyers, by contrast, may hold a sincere and deep belief that their clients are in the right--why else would the lawyer represent them? In fact, Cantrell notes, some cause lawyers (or cause clients) may have deep suspicion of outside sources of funding, since they may threaten to change a cause into an "industry."

Cantrell identifies two problems with the cause lawyer's hyper-loyalty. First, if the lawyer is hyper-loyal to the cause, she may wind up selling out her individual client:

the worry is that cause lawyers will understand their true loyalty to be to the cause, and thus view their clients as one of several pieces of an advocacy strategy to be deployed. Clients become pawns, not empowered individuals.

On the other hand, if the lawyer is hyper-loyal to the client, not the cause, then she risks a polarized view of the world, in which others are either "friends" or "enemies," with little middle ground, and little room to negotiate. In that case, a cause lawyer may take actions that benefit her individual client, but sacrifice the actual cause. (And, in class action, the cause is likely to include the absent class members.)

So, how does the class-action defense lawyer deal with cause lawyers? Professor Cantrell's analysis suggests a few tactics to keep in mind:

• Focus on non-monetary compensation when negotiating. Courts are often suspicious of non-monetary compensation in class actions. But if one is negotiating with a cause lawyer, actual changes in behavior may be the real relief her client (and the class) seeks. These changes will have to be genuine, of course. Given the tendency for cause lawyers to view "enemies" with heightened suspicion, they're unlikely to be satisfied with lip service, and they have little monetary incentive to accept minor changes so long as there are large fees.
• Focus on the adequacy of the class representative. Given the risk that the lawyer and the client may be too loyal to each other (resulting in, say, demands for outsized incentive payments), it is doubly important that someone--most often the court--is paying attention to the needs of the absent class members.
• Focus on the adequacy of class counsel. If the lawyer is hyper-loyal to the cause, then she may make some moves that show an insufficient regard for her fiduciary duty to either the named plaintiff or to the absent class members (to the extent that they are just another means to support the cause). In those cases, the defense will want to make sure that the Court is paying attention to the needs of the class, as opposed to the lawyer.

It remains a central irony of class action practice that, regardless of whether the plaintiff's lawyer is motivated by money or loyalty to a larger cause, her incentives are not going to line up with her client's much of the time. As a result, it remains the case that the strongest class-action defenses often focus on what is best for the absent class members.

UPDATE - Russell Jackson of Consumer Class Actions & Mass Torts has some additional, less cynical, and of course, well-taken advice on how to deal with cause lawyers (or, as he likes to call them, "true believers").  If you've popped over here from there, welcome!  If not, do check out his take as well. 

(He's also, finally, picked himself up a Twitter feed ...)

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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.]

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 (I'm recovering from a cold, and on deadline for a book, so my apologies that this post is a little late and a little short.)

Today's piece of "classic scholarship" was published in Public Choice in 2003. The authors, Jeffrey Haymond and James E. West, took a public-choice perspective on the class action, arguing that class actions are basically a wealth-transfer from corporations to plaintiffs' lawyers. (In this case, it's not something that class-action lawyers should take personally. Public choice theory tends to treat any movement of money as a "wealth transfer." Taxes are a wealth transfer. So are campaign donations.) As they put it:

[A]n examination of class action lawsuits leads to a similar model of extortion, not political but legal extortion. In this theory, trial lawyers have obtained a conditional property right to impose costs via the class action lawsuit. They have obtained this right bypassing the bar (whereby government restricts competition from others).

This was hardly the first article to argue that class actions were a form of "legal extortion" (by threatening costly litigation), but it was one of the first to actually describe the mechanisms by which the economic pressure occurs before certification. The lawyers also offered an argument for why a legislature (the usual subject of public-choice analysis) would delegate the collection of this wealth transfer to private lawyers rather than hold onto it themselves:

Trial lawyers have contributed handsomely to politicians, especially those supportive of plaintiff's right to sue.

In addition, when private parties pay for the right to extract private rents, the extraction is one step removed from the political realm, making it easier for politicians to avoid blame in the aftermath of egregious verdicts.

These arguments have been well-rehearsed over the years. (And, to some degree, they have been ameliorated by legal reforms such as the enactment of CAFA, which reduced the potential problems from some elected state-court judges who might favor--consciously or unconsciously--plaintiffs who had contributed to their campaigns.) Nonetheless, the article is still worth a read, if only for its empirical work on what happens when a company is "threatened" (by press release or complaint) with a class action.

[T]he change in daily rate of return when the threat of a class action lawsuit was issued is negative and highly significant across both model specifications and all three event window durations, all well above the 99% level of significance. We found that most of the individual firms had a negative return when the threat of a class action lawsuit was issued, with around 70% of the cases in each treatment being negative. In short, we find the data consistent with Hypothesis 1 as described above.
Given the strong results ... it appears that on average a statistically significant reduction in return is observed when the threat of a class action lawsuit is issued. Whether our data is more consistent with legal rent extraction or a public interest hypothesis is determined by whether or not a significant increase in return of sufficient size is observed when the threat is retracted.

It is this research that keeps the article relevant even today. Among other things, it suggests that class counsel in securities cases who engage in publicity when filing their lawsuits may in fact be harming the interests of the same investors that they claim to protect.

Important disclaimer (which I may not include often enough): just as every population has a little rogue in it, so does every population have conscientious and hardworking folk.  I met many of these among the state judge population recently at the annual meeting of the American College of State Court Business Judges.  I have also been lucky to correspond with a number of conscientious, hardworking, and honest plaintiffs' lawyers in the past year.

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This month's piece of classic scholarship comes from the sociology of law. Thirty years ago, William L.F. Felstiner, Richard L. Abel, and Austin Sarat published a piece in the Law & Society Review titled "The Emergence and Transformation of Disputes: Naming, Blaming, Claiming …" 

The authors wanted to trace how experiences transform into legal disputes. And they identified three key steps along the way:

• Naming -- the party recognizes that she's been injured, or, as the authors put it, recognizes an experience as injurious;
• blaming -- she figures out that someone else is responsible for her injury; and
• claiming -- she communicates that conclusion to the faulty party. If the faulty party does nothing about her claim, then it evolves into a dispute.

As the authors point out, one of the interesting things about this process is that not all grievances evolve into lawsuits. They refer to this phenomenon as "grievance apathy."

We know that only a small fraction of injurious experiences ever mature into disputes. Furthermore, we know that most of the attrition occurs at the early stages: experiences are not perceived as injurious; perceptions do not ripen into grievances; grievances are voiced to intimates but not to the person deemed responsible.

In other words, grievance apathy makes the world go 'round. Not every "injurious experience" needs to wind up in a court of law.  And we would not want them all to.  In fact, the authors identified, even at the time, the problem that that lawyers often "'create' at least some of the needs they satisfy."

But they did not predict the extent to which, today, entrepreneurial class action attorneys have turned that social process on its head. In the course of looking for claims on which they can make money, they will identify entities with deep pockets (blaming), and then come up with a reason why they've done some injury (naming). They'll then look for someone who has suffered the pre-identified "injury." And, if that person's resolve wavers (that is, they begin to succumb to "grievance apathy"), they'll do their utmost to keep the plaintiff angry.

The problem is that manufactured conflicts rarely lead to good lawsuits. Those lawsuits tend to be a waste of time and money, for all concerned. They may very well focus on harms that are not really harms.  And they can lead to inordinately complicated "solutions," or duplication of previous solutions (with the added cost of judicial administration and attorneys fees), or cases that--if won--would harm innocent third parties.

Now, despite what some might argue, this does not mean that there is no such thing as a good class action. There are some instances where there will be clear-cut harms that are too small to bring as individual lawsuits, and where the defendant chooses not to offer a remedy. Those instances are why we have Rule 23. But, and this is a large but, Felstiner, et al.'s analysis does suggest that courts have good reason to be suspicious of manufactured lawsuits--in which a lawyer comes up with his case first and his plaintiff as an afterthought. Because, in those cases, there very well might be a reason that "grievance apathy" took hold.

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 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?

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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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So, it's the end of September. Let's talk baseball. And, since my beloved Red Sox have reverted to their old habits, we're not going to focus on this season. Instead, we're going to go back nine years and sixty-four years. And we're going to talk about two general managers. Billy Beane (the Brad Pitt of baseball management) and Branch Rickey (the Edward Herrman of baseball management). Between the two of them, these baseball managers came up with at least three innovations that changed the way the game was played. What were they?

Moneyball. What do you do when you want to be an American League pennant contender, but you don't have the same payroll as the big boys in New York and Boston? Hire a statistician instead. Have the statistician figure out which players are contributing the most to scoring or preventing runs, and which do so for the least amount of salary. Hire those guys. Sounds simple enough, but in 2002, the Oakland A's rode that strategy to first place in the AL West, including an AL record 20 wins in 22 days. How? At the time, no one else was doing it.

Jackie Robinson. Major League Baseball had a gentleman's agreement not to hire any blacks to play. (The only silver lining to this was a vibrant alternative set of teams, the Negro Leagues, that featured such great players--Hall of Famers, finally--as pitcher Satchel Paige, slugger Josh Gibson, and base-stealer James "Cool Papa" Bell.) Rickey was the man who decided to break the color barrier in the National League. A simple enough decision, probably, but hardly an easy one. He recruited former UCLA star and then-Kansas City Monarch Jackie Robinson, who spent one year with the minor-league Montreal Royals before braving racist fans and opponents in a blistering rookie year with the Brooklyn Dodgers.

Farm teams. Branch Rickey was the pioneer of the farm team, a method of developing home-grown talent for a ball club. Before that, scouts would try to recruit new talent from various semi-professional clubs; a risky proposition at best.

There's a common theme to these innovations. Baseball is a talent-oriented industry. To build a winning team, you need winning players. Rickey and Beane each recognized untapped (and therefore less-expensive) sources of winning players. Beane found players who could contribute to a team even if they weren't pretty enough to grab a scout's attention. Rickey began by taking players who needed seasoning and adding it, while in the process adding another source of revenue to his ball club's organization. Then he went straight for the talented, seasoned players that--because of virulent prejudice--no team would touch. There's no question that breaking the color barrier was costly in the short term, but it was far less expensive in the long term than maintaining it.

So what Rickey and Beane did was to find undervalued players. Finding (and employing) those players cost a little more in the short term, but it more than paid off in competitive advantage. How do we know? Today baseball is integrated, and scouts are continually looking for new sources of players. Every team has a farm team. And most teams have statisticians.

So what does this all have to do with class action practice?

Well, let's look at the lead counsel for each side of the 2010-11 Supreme Court term class action cases (I'm using this as a VERY loose proxy for "wicked smart class action lawyers") and where they each went to school.

• David Boies (Erica P. John Fund v. Halliburton) - Yale Law School
• Andrew Pincus (AT&T Mobility v. Concepcion) - Columbia University Law School
• Deepak Gupta (AT&T Mobility v. Concepcion) - Georgetown University Law Center
• Jonathan Hacker (Matrixx) - University of Michigan

• Richard A. Monahan (Smith v. Bayer Corp.) - University of Pittsburgh School of Law
• Philip S. Beck - (Smith v. Bayer Corp.) Boston University School of Law
• Theodore J. Boutros, Jr. (Wal-Mart Stores, Inc. v. Dukes) University of San Diego
• Joseph M. Sellers (Wal-Mart Stores, Inc. v. Dukes) Case Western Reserve School of Law
• David Sterling (Erica P. John Fund v. Halliburton) - The University of Texas School of Law

Pittsburgh, BU, San Diego, Case Western, UT. Hardly slouch schools. And yet there is a consensus that students from these schools can't get jobs in this market, because we have a glut of unemployed lawyers, and employed lawyers are often concerned with status and prestige.

It's no secret that the legal market is in turmoil right now. Firms are desperately looking to stay relevant, particularly given the competition they are receiving from technology and lawyers in other countries.

So here's what I'd do if I were in charge of a high-earning plaintiffs' firm. I would take $5 million out of my next contingency fee, and build a "farm firm" for recent law school grads. Offer a low base salary that would cover rent and a moderate student-loan payment, and then let them eat what they kill. If they're good enough, let them buy into the big leagues. Alternatively, I'd endow a clinic at a local law school. Students would have to interview for slots. Should we eventually no longer have a glut of just-graduated lawyers, I'd try to turn this into a law-school firm.

If I were rebuilding a a defense firm from the ground up, I'd do two things. First, I'd offer to take each of the complex litigation and civil procedure professors out to lunch. I'd want to pump them about their most promising students. Not just the ones that did best on the exams, but the ones that actually participated in class, and the ones that seemed most creative when asked offbeat questions. And I'd ask them specifically who seemed to underperform on their last exam. Those are the students I'd want to interview for jobs; and I'd want to start some of them right away as clerks. Yes, the search costs are slightly higher than just taking the appellate clerks and law-review editors, but I'm looking for students who exhibit skills other than just test-taking. Then I'd go to my best client, and make the following pitch: give us your lowest-tier class actions, the crazy, frivolous ones that are unlikely to turn into anything. Most companies have a few of these lying around. I'd offer to litigate these for a significant discount, provided I can use my new stable of clerks and first-years to do most of the work. The cases would still get partner attention, but they'd also get a significant discount to reflect the fact that they were essentially training cases.

While I doubt many current AmLaw firms would go for these ideas, my bigger worry is that they may not be crazy enough. Law firms (including class action firms) have the opportunity right now to grab and train great future lawyers on the cheap. And currently, most firms can't or won't do so. So it's only good strategy for someone else to.

[Image of Branch Rickey public domain, image of Billy Beane taken by Brett Farmiloe]

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 This is a tough year to be entering law school. Tuition is more expensive than ever. The job market for entering lawyers is worse than ever. And the combination of technology and cost pressures is changing the legal profession in ways that even longtime veterans have trouble getting their heads around. It's tough enough that the hot new legal blog is Professor Paul Campos's Inside the Law School Scam.

When young pre-laws (or 0Ls, as some call them) have asked my advice over the last decade, I've usually cautioned them to think long and hard about law school. Sure there's the now-crushing debt and the sometimes-brutal competition. But even in the days of lush lunches and the Brobeck bump, law was still a profession that ate its young. Even the most promising entry positions involve tedium, long hours, and intellectual drudgery. And many describe the process of making partner as a pie-eating contest in which first prize is more pie. But if you're a proud member of Law School Class of 2014, then you've probably already heard these warnings and decided they apply to the other guy.

So, so long as you're already in law school (or out in the larger, harsher legal world), my next piece of advice would be to buy yourself a copy of A Civil Action, and read it carefully.

A Civil Action has been a classic account of a mass tort case for years. When I was a wee baby attorney (not even, I was a first-year summer associate), reading it was my first assignment. I was the sole summer associate in the office of a small Boston firm, and much of the setting was the federal court in Boston. The book was not yet the perennial bestseller it is today. It was so new it was still in hardcover, and I could only locate one copy on the shelves of the local Borders. But I devoured it. Not just because it promised an inside look at complex litigation in Boston, but because Jonathan Harr did such a great job getting inside the head of the various lawyers.

For those who haven't read it (or seen the movie), it tells the story of litigation over cancer clusters in Woburn, Massachusetts. The plaintiffs, represented by tort lawyer Jan Schlichtmann, accused WR Grace & Company, which had a tanning plant nearby, of dumping various carcinogens into the local groundwater. The litigation spanned years, and resulted in a number of published opinions. In fact, it's since become a valuable teaching tool for civil procedure professors.

Jonathan Harr does an excellent job of providing a layperson's understanding of various motions practice and tactics. In particular, he provides a good early discussion of the defense's strategy behind filing a motion for Rule 11 sanctions against Schlictmann, a warning shot that hit a little too close to home, and set an often-hostile tone for the remainder of the case.

But what the book is really about--and this is the real reason to read it--is the personal toll complex litigation takes on the people involved: the plaintiffs, the defendants, and the lawyers.

"Rich and famous and doing good," mused Schlictmann. "Rich isn't so difficult. Famous isn't so difficult. Rich and famous together aren't so difficult. Rich, famous, and doing good--now, that's very difficult."

Harr, who spent most of his time shadowing the plaintiffs' team, gets in under the skin of the lawyers on each side, and his observations are useful for young lawyers. (Heck, they're useful for more experienced lawyers as well.) Among them:

Lawyers can take personal offense at various tactics. When the defense filed its Rule 11 motion against the plaintiffs, Schlictmann got personally offended at the tactic, a response that colored his strategy going into a crucial hearing.

Schlichtmann slammed the phone down. He was breathing hard, his face flushed, so angry that his hands shook. "This guy is an [expletive deleted]," Schlichtmann shouted.

When Schlichtmann got offended by the Rule 11 motion, he went out of his way to make the judge feel that same outrage. In fact, according to Harr, he spent more time on the emotional appeal of his argument than he did on the substance of his response. This is a rhetorical technique known as the "pathetic appeal," and many lawyers live by it. But, as Harr details, it is hard to make constant pathetic appeals without feeling the emotions you're trying to evoke. And if you can't evoke that emotion in others, the appeal may backfire (as it did on Schlichtmann).

Lawyers can get carried away with good news, too. In the course of their research, the plaintiffs retained Charles Nesson, who advised them they had a case that might be worth as much as a billion dollars. (Hence his nickname in the book, "Billion Dollar Charlie.") Despite their best efforts to remain calm, they're unable to dismiss the optimism that comes with the prediction. (They probably should have tried harder; Nesson has developed an idiosyncratic reputation in the years since.)

Litigation is full of highs and lows. Early in the book, Harr describes how Schlichtmann's car gets repossessed in the middle of a case. Later, he describes an opulent settlement conference at the Ritz-Carlton, one so excessive it actually backfires, convincing the defendants it would be better to fight than to settle. Towards the end of the litigation, Schlictmann moves into his office:

Although not without shelter, he had finally become homeless. He put his Dmitri suits in the reception-room closet, his silk ties and Bally shoes in the closet bathroom. He slept on a foldout couch in Crowley's office. He made herbal tea every night in the kitchen and watched television in the conference room. "It doesn't bother me living here," he said. "I'm a man of extremes. It's the middle ground I can't stand."

Not every lawyer experiences the specific financial highs and lows that Schlichtmann does, but complex litigation--with its demanding clients, aggressive adversaries, and insane workloads--does involve this kind of roller-coaster, feast-or-famine experience.

Intense litigation can be all-consuming.

Being in trial, Schlichtmann once said, is like being submerged in deep water for weeks at a time. The world above becomes a faint echo. War, scandal, and natural disaster may occur, but none of it seems to matter. The details of the case occupy every waking hour and usually intrude into dreams as well. Existence becomes spartan. When you finally come to the surface again, the world seems altered in fundamental ways. Win or lose, you set about rediscovering pleasures only dimly remembered. Colors seem brighter, food tastes better, the weather is of compelling interest.

This experience can be intoxicating for some, but it can also be profoundly disorienting. You'll notice Schlichtmann (through Harr) describes the experience in almost addictive terms. And for many lawyers, that experience can be addictive. If you want work to be your primary focus, that can be great. If not, it's somewhat less so.

So what can law students take from this book? Law school advertises itself as teaching students to "think like a lawyer." But it's just as important to know what it's like to feel like a lawyer. Lawyers are prone to bouts of excessive optimism and deep pessimism. They get angry, sometimes really angry. Human emotion is inescapable, and some lawyers deal with its effects better than others.

A number of studies have shown that you don't have to be rich to be happy. In fact, you may need as little as $40,000 per year in income. Instead, happiness with a job depends on some intangibles like being appreciated, and some tangible factors, like the length of one's commute.  So if, after reading A Civil Action, you still believe you'd enjoy the life--the whole life--that Harr describes, congratulations! You may have what it takes enjoy a fulfilling career as a lawyer. If not, it may be time to rethink litigation, because you may never find it that satisfying. (Don't worry that this says something bad about you. It doesn't. You're in very good company, including roughly half your law school class. And that includes many people who will make outwardly successful lawyers.)

[A brief personal note here, given the content: I am far from dissatisfied with my job. I've been extremely fortunate; I currently practice with a number of excellent class-action lawyers I admire a great deal. I have several clients I am outright proud to represent. And my colleagues are very tolerant of my writing compulsion. But I'm realistic. The legal life is not for everyone. I have known a number of talented lawyers who have moved on to other things where they are happier. And even the most satisfied practicing lawyers can identify with the characters in Harr's book.]

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It's no secret that most class action plaintiffs and defendants usually view each other with great suspicion from across a great divide. (I can't say all; I have a few good friends among the plaintiffs' bar, and I think quite highly of several plaintiffs' lawyers regardless of any substantive disagreements.) What may be surprising, though, is research that shows that this mutual distrust not just a paycheck-induced mental state, but a smart choice for both clients and the lawyers themselves.

At least, that's what a recent set of experiments conducted by several business professors suggests. Authored by Professors Sandy Jap, Diana Robertson, and Ryan Hamilton (this one, not this one), The Dark Side of Rapport describes two possible pitfalls for lawyers who develop rapport with the opposing side.

First, lawyers who develop rapport may be more likely to compromise their clients' interests. This is not necessarily all that surprising. Depending on the client, the lawyers may have longer-term relationships with each other. And a lawyer may justify compromising his client's interest in all kinds of ways, such as telling himself that the long-term relationship with opposing counsel will benefit future clients, or that the compromise is the only way to get the client at least some of what she wants.

Second, lawyers who develop rapport with each other may be more likely to deceive each other. At first glance, this may seem counterintuitive. If you have a rapport with someone, aren't you more likely to try to keep their trust?  Aren't we more inclined to deceive the jerk than the guy with whom we can see eye-to-eye? As it turns out, negotiators will often hide or downplay bad news in order to maintain the rapport that they have.

How did he researchers discover these issues? The experiments were built around a negotiation exercise known as the Bullard Houses case. Bullard Houses is designed for negotiation training. It pits a property seller (who absolutely does not want the property used for commercial purposes) against a hotel developer (who is trying to keep a low profile about its preferred locations). So Bullard Houses is designed to create an impasse; unless, of course, someone either lies or compromises her client's interests. The authors tweaked the conditions of the exercise in various ways to encourage rapport. (Specifically, they encouraged one group to negotiate face to face instead of by instant-messaging; they had another group engage in team-building exercises; and they "primed" a third group by having them think happy thoughts.) They then looked at how many members of each group resolved the impasse in some way. In general, conditions that encouraged rapport encouraged resolution. (The researchers also tried to prime one group with reminders about duty, ethics, and reputation. It didn't help.)

So what does this suggest for class action lawyers? The primary lesson may be to maintain a cordial distance from the other side. There's no reason to unnecessarily provoke opposing counsel, but a conscientious lawyer may remember not to get too chummy, either.

Another implication--peculiar to class actions--is that courts (and defense counsel) may need to be careful of rapport between plaintiffs' attorneys and clients. After all, rapport works both ways. And there is already some evidence that, where possible, class-action attorneys select plaintiffs that are easier to manipulate.  In a legal sense, the client's job is to represent the interests of the proposed class. But if the client is more interested in maintaining a rapport with her attorney (either because of the emotional satisfaction, or because that may be the best way to get the attorney to fight for an incentive payment), then the plaintiff may have a strong incentive to compromise the interests of class members she has never met for the interests of the attorney with whom she works.

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[Note: Many thanks to the folks at the WLF Legal Pulse for asking me to write this entry. It's cross-posted there.]

Given the stakes of class actions, which transform small-dollar claims into bet-the-company litigation, settlements are hardly unusual. And given the minuscule recoveries most class members receive compared to their lawyers' multi-million paydays, neither are objections to those settlements. What is unusual is for a court to reject a settlement because of these objections. And what’s even more unusual is for the court to put a small doctrinal booby trap into its rejection. But last week, the Second Circuit did just that.

The class action in question, In re Literary Works in Electronic Databases Copyright Litigation, involved a copyright challenge. The plaintiffs were freelance authors; the defendants were large publishers with electronic databases. The plaintiffs accused the defendants of "publishing" their articles in various electronic databases (like LEXIS/NEXIS) without their permission and without paying them. Back in 2001, the Supreme Court endorsed their theory in a parallel case, N.Y. Times Co. v. Tasini.

In the years since, the plaintiffs' claims were consolidated before the Southern District of New York, and underwent extensive mediation in front of mediation guru Kenneth Feinberg. By 2005, the parties had reached a classwide settlement that the district court approved. The settlement compensated three different categories of class members:

• Category A included works registered with the US Copyright Office in time to be eligible for statutory damages under the Copyright Act.
• Category B included works registered with the Copyright Office by 2002, but not in time to qualify for statutory damages.
• Category C--which comprised more than 99% of the claims--included later- and unregistered works.

Many authors held claims that fell into more than one category. As structured, the settlement would pay (on average) around $1,000 for each Category A claim, $150 for each Category B claim, and $60 for each Category C claim. The settlement was capped at $18 million. If the freelancers submitted more than $18 million in claims, a provision known as the "C reduction" kicked in. The "C reduction" did just what it said on the label; it reduced the payments to Category C claimants until the $18 million cap was reached. If it exhausted the C claims, it reduced A and B claims on a pro rata basis.

The settlement drew a number of objections, primarily from authors in Category C. By the time they appealed the order approving settlement, the objectors had identified three major problems: (1) the release was too broad (it released all future claims, which gave the publishers a free pass to republish any articles they had already wrongfully published); (2) the class representatives had sold out the Category C claimants with the "C reduction"; and (3) the settlement process had been unfair.

The majority (the panel split, 2-1) was unconcerned about the breadth of the release. In fact, it specifically noted that in most classwide settlements, if one did not release all future claims, the defendant had no real incentive to settle. It also found the process challenge to be moot.

But the majority was concerned with the adequacy of the class representatives under Rule 23(a)(4). One key measurement of adequacy is whether there are any conflicts of interest in the class. Here, the majority found that the "C reduction" showed that "[t]he selling out of one category of claim for another is not improbable ..." And it saw only one solution:

Only the creation of subclasses, and the advocacy of an attorney representing each subclass, can ensure that the interests of that particular subgroup are in fact adequately represented.

That's right. Each subclass would require its own independent attorney.

The rationale is simple: how can the value of any subgroup of claims be properly assessed without independent counsel pressing its most compelling case?

(Emphasis added.) But while the rationale may be simple, the execution is likely to be anything but. Class-action lawyers are a notoriously competitive lot. Many of them find it extremely difficult to work with each other, in part because they find it hard to trust each other. So finding a separate lawyer (presumably from a separate firm) for each subclass who will "press its most compelling case" will be extraordinarily difficult for them. This is good news for defendants, who often watch class actions rife with conflicts of interest get certified. Of course, class-action lawyers are also notably inventive; it will be interesting to see what they come up with to get around this requirement.

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 Law professor Geoffrey Hazard is well-known in legal and academic circles as an expert on civil procedure and legal ethics. So when he (with co-author Dana Remus) writes an article on the use of rhetoric in civil litigation, it's well worth reading, even if it never mentions class actions specifically.

The problem that Hazard and Remus set themselves up to address is whether recent ethical lapses by lawyers (including some covered here) can be prevented by stronger ethics rules, or by moving away from the adversarial system of litigation. Hazard and Remus argue that the best solutions to areas where advocacy may have overtaken a search for truth in litigation lie in procedure, rather than ethics.

We therefore reject the suggestion of many critics that the problems of advocacy are properly addressed by reconstituting our legal system. We believe that solutions are better sought in the rules of procedure and evidence and in the law governing lawyers.

In fact, according to Hazard and Remus, there is no "objective truth" in litigation:

The assumption that lawyers, judges, and jurors can access the objective truth of a litigated legal dispute is incorrect and unwarranted. As an initial matter, and as Aristotle explains, uncertainty inheres in any context of “practical knowledge”—any context of human affairs. This uncertainty is heightened in the subset of human relationships that deteriorate into litigation. Litigation signifies that the parties lack a shared understanding of the facts and differ over proper application of the law. The parties may agree on some facts—for example, who owned a particular car, who completed the accounting, or who was formally responsible for compliance measures—but, by definition, they will disagree on others. Similarly, they may agree on some aspects of applicable law but will necessarily disagree on others.

It's certainly true that, given the various cognitive biases human beings exhibit, finding an objective "truth" in a lawsuit may require superhuman effort. But Hazard and Remus go further, arguing that the strength of the adversarial system is that it doesn't focus on a search for truth.

The critics’ approach diverts attention from what we believe to be the proper focus of reform efforts—the extrinsic regulatory controls of procedural rules, rules of evidence, and the law governing lawyers. These controls seek to set the moral risk of the lawyer-advocate’s function at a socially accepted level by counterbalancing economic pressures on lawyer-advocates to engage in questionable or improper conduct. To the extent that lawyers are exhibiting the dishonesty and deceit that critics allege, the current risk level may be too high.

Instead, they argue (as a number of academic have over the years) that the adversarial system works best at resolving questions of fact, even if it's just providing a flawed but final answer to certain questions.

We have defended our system of adversarial advocacy not as capable of discovering objective truth, but as capable of constructing legitimate and authoritatively accepted truth.

In the end, the normative ("should") part of the article is a little weak, focusing on how "good" lawyers are good advocates, and it's just the "bad" ones who give advocacy a bad name. As an old friend of mine used to say, this kind of argument is as effective as defending the jury system by saying "Good juries convict guilty people." But since Hazard and Remus are responding to largely academic criticisms about the American justice system (I assume no one in a position to enact legislation is seriously considering a ground-up reform of litigation), it's probably not entirely fair to criticize them for not offering practical solutions to excessive rhetoric or truth-shading.

Nonetheless, Hazard and Remus offer some interesting observations about how advocacy and rhetoric work in legal argument. And they offer an excellent introduction to how Aristotle's classic Rhetoric applies to modern lawyering.

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 "Hey man, I don't practice law. I talk on the phone." -- Richard Scruggs, on federal wiretap

This week, Class Action Countermeasures introduces another regular feature: book reviews. Once a month, I'll be reviewing a book that has some relation to class action litigation. The primary purpose of the review will be to determine what class-action lawyers can learn that will assist them in formulating class-action defense strategies. (I've done this once or twice before.) First up is The Fall of the House of Zeus: The Rise and Ruin of America's Most Powerful Trial Lawyer, by Curtis Wilkie.

The Fall of the House of Zeus tells the story of Richard Scruggs. Scruggs began his career as a trial attorney in Pascalouga, Mississippi. He became one of the most financially successful attorneys in the country by extracting huge settlements from both the asbestos and tobacco industries. And he ended his career as a felon, convicted for attempting to bribe a judge.

Early in his introduction, Wilkie describes his subject as:

a remarkable story of personal treachery, clandestine political skullduggery, enormous professional hatred within the legal community, a zealous prosecution--all with ramifications that extended to high levels in Washington.

Wilkie delivers on that promise. The book is a fascinating portrait of Mississippi backroom politics, the plaintiffs' trial bar, and a single man wrestling with the effects of sudden wealth and gradual drug addiction. While the book is definitely sympathetic towards Scruggs, it whitewashes neither the crimes he committed nor his motives for doing so.

That said, the title of the book is a misnomer: by his own admission, Scruggs was no "trial lawyer." He was first and foremost a dealmaker whose most common tactics included:

• making large campaign contributions to various judges and prosecutors in Mississippi; and
• coordinating plaintiffs' counsel on large cases, including paying a number of lawyers not to interfere with his litigation.

Scruggs arguably was not even effective in his chosen role. Some of what he did to extract large settlements was either unethical or outright illegal:

• He bought documents from whistleblowers in at least two cases. (He bought 1,500 pages from a Brown & Williamson paralegal in the tobacco litigation; and paid the Rigsby sisters to be "consultants" so he could use their documents against State Farm in Katrina-related litigation.)
• He paid hush money to lawyers and politicians (including some no-interest loans) in order to cover up some of his conduct.
• And, of course, he famously tried to bribe a judge.

As a result, the litigation tactics Wilkie does describe largely involve setting up large, profitable agreements rather than trying to establish facts in a court of law.

• Scruggs consolidated cases that linked "a few strong cases with hundreds of lesser claims" as a means of inducing settlements from large defendants.
• He used smaller cases as "discovery engines" for larger planned litigation.
• And he passed along documents he did uncover to prosecutors to fuel investigations that would maximize the pressure on defendants to settle.

Ultimately, as Wilkie tells it, Scruggs's dealmaking was his undoing. Many of his alliances split up over the division of fees. And the crime that ultimately sent him to jail--trying to bribe a judge--arose from an effort to influence litigation over one of his fee agreements.

So what can defense lawyers learn from this book? The primary lesson is that--far more than most defense lawyers--class action plaintiffs' practice involves multiple fronts. Plaintiffs who follow Scruggs's model must coordinate with local officials, other lawyers who want a share of their action, the local press, and local politicians. (This lines up with the extensive email traffic Scruggs exchanged with the Rendon Group.) Moreover, plaintiffs lawyers may not always engage in direct tactics. Scruggs extracted large settlements by doing just about everything BUT the traditional practice of law. Clearly, not every plaintiffs' lawyer will follow the Scruggs model, but as Scruggs's career--and Wilkie's account of it--show, the backroom dealmaker fills an important niche in the ecology of the plaintiffs' bar.

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As I've discussed before, there are few areas of law as polarized as class actions. The plaintiff and defense bars in class-action law rarely agree on anything, from the proper scope of Rule 23 to what a class action is in the first place. And I'm not the only one to have noticed this divide. Connecticut law professor Alexandra Lahav recently published an essay in the Fordham Law Review on "Two Views of the Class Action."

Lahav's essay could improve from more focus.  She winds up talking about two different pairs of competing views--one of class actions, and one of class-action lawyers lawyers--that don't line up perfectly themselves.

The first set of competing views she discusses are often called the "entity" and the "joinder" views of class actions. The entity view (often espoused by plaintiffs in briefing) argues that a class is a single entity that exists independently of the class representative. This label is often helpful for courts trying to certify a class, or lawyers seeking greater control over their case. (If a class is an entity, then there is little need to listen to a rebellious class representative, or even objectors.) By contrast, defense lawyers often invoke the joinder analogy to remind the court that a mere joinder device cannot and should not change the substantive rights of the parties.

The second set of competing views involve how to look at class-action lawyers. One school of thought looks at these lawyers as entrepreneurs, businessmen who conjure cases and then find plaintiffs to staff them; the others as private attorneys general who serve the public good for a profit.

Lahav's account of these two sets of competing views gets confused in a few places. For example, she describes both the entity and the entrepreneur tropes as defendants' views of class actions, even though defendants traditionally do not argue (or believe) that litigation classes are cohesive entities. Instead, they often see--and point out to the court--a loose collection of people with different problems and different claims, not all of equal merit. Similarly, while plaintiffs may on occasion argue that a class action is just a joinder device, they are far more likely to describe a class as a coherent entity that exists independently of the class representative.

Moreover, rather than really explore how these conflicting views have informed class-action doctrine, Lahav then embarks on a completely different discussion. Relying heavily on references to poets Wallace Stevens and Percy Shelley, and novelist Nikolai Gogol, she asks whether plaintiffs' lawyers are rogues harnessed for a useful purpose, or a redemptive force that deserves more respect. (Personally, If we're going to make poetry out of something as prosaic as lawyering, I'd prefer Anna Barbauld's approach myself.)

The point that Lahav is leading up to (after invoking Gogol's novel Dead Souls) is that the law often treats class-action lawyers as greedy men whose greed is harnessed for the public good. In Lahav's view, this is a problem, not because class-action lawyers may in fact step over the line, but because seeking to limit their wrongdoing apparently causes the problem in the first place.  As she puts it:

The lawyer is sometimes a rogue, but the more our system accepts this as true and seeks to harness the rogue, the more our system creates roguish behavior.

There are two problems with this final argument. First, literary references or no, Lahav doesn't explain how treating class actions as susceptible to abuse winds up creating those abuses, and that failure to identify how the process works undermines her credibility. It also means her logic could apply to anyone, including defendant corporations. By Lahav's logic, treating corporations like criminals by regulating them just encourages them to commit illegal acts--a conclusion I doubt she would agree with. And that's the second problem with Lahav's article: it provides a one-way ratchet that gives plaintiffs' lawyers the benefit of the doubt, but no one else. Courts, she argues, should view the class-action lawyer as "capable of redemption," but not the defendant (who should be deterred from exploiting others).

As I've explained before, law (not to mention legal strategy) works best when it recognizes that everyone has a little rogue in them. Corporations are capable of good and bad things, and so are the self-appointed cops who police them. Assuming that one side can do no right and the other can do no wrong very rarely leads to accurate descriptions or good policy outcomes; while it may encourage the side that can do no right to clean up its act, it usually results in the side that can do no wrong testing exactly how far it can go.

I'm not saying Lahav's essay is useless. The first half contains an interesting (if somewhat muddled) description of several rhetorical tropes used in class-action practice. I just wish that the second half had stuck with analyzing the rhetoric instead of indulging in it.

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 Last year, I discussed Northwestern professor Martin Redish's argument that class actions are unconstitutional. Redish had predicted--and I largely agreed--that the argument would fall on deaf ears. It turns out we were both wrong. Leaving aside those defense lawyers who adopted his arguments about the Rules Enabling Act, Alexandra Lahav of the University of Connecticut has now reviewed his book Wholesale Justice.

Lahav praises the book, but largely disagrees with its conclusions. Specifically, she takes issue with Redish's argument that class actions violate separation of powers, and that they lack democratic accountability.

In arguing against Redish's separation-of-powers critique, Lahav observes that this separation is most often enforced through the use of "checks and balances"; and those, she says, are sufficient in their current form. As she points out, when abuses of class actions have grown especially prevalent, the legislature has stepped in to address the problem. In particular, it has done so when it enacted the PSLRA and CAFA. Lahav also claims that class actions are constitutional in a larger sense because they are--contrary to Redish's argument--subject to democratic accountability. As she puts it:

Not only are class actions salient on a national level, but individuals also have access to class actions, in the sense that many of us have been members of class actions. We have received notices in the mail and gathered that while we will only obtain a very small recovery, the lawyers managing these cases will get millions. Class members are entitled to call the lawyers in charge of the case and there is often a toll free number available for that purpose. Class members are also entitled to write to the court as well as to appear at a fairness hearing about the settlement.
The problem is that the class actions to which citizens have access— class actions of which they are actually a member—lack salience. This is either because class action notices are indeed mind numbing or because the amounts at stake are simply too small to bother over. Most people do not call that toll free number, protest the settlement in person or in writing, or even respond to the notice. Opt-out rates are low.

(Internal footnote omitted)

However, aside from a throwaway mention, Lahav's discussion of accountability leaves out perhaps the most important group to questions about class actions: class-action lawyers. Courts that regularly hear class actions have noted that, in most cases, the plaintiffs have little to no influence. Instead, they are "cats paws" for lawyers that even she points out stand to get millions for a case. (The cats-paw relationship has gone so far, in some cases experienced lawyers name plaintiffs without consulting them first.)

It's unfortunate that Lahav largely avoids this discussion, because it's where the real meat of the debate over the legitimacy of class actions lies. Those who worry about litigation-enforced "blackmail" are not worried about the plaintiffs looking to enforce their two-dollar claims. They're worried about more interested parties--the lawyers with the skewed incentives and the actual control over the lawsuit.

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 As I've written before, guessing at the motives and methods of plaintiffs' lawyers in class actions can be much like old-style Kremlinology. But every once in a while, we get a little more information. The most recent comes from University of Minnesota Law School professor Stephen Meili, who just published his article Collective Justice and Personal Gain? An Empirical Analysis of Consumer Class Action Lawyers and Named Plaintiffs in the Akron Law Review.

Professor Meili's methodology is not ideal: he basically just sent a series of open-ended questions to class-action plaintiffs and their attorneys, asking them about their perceptions of how a given case proceeded, and how fair the process was. As he admits, that means that no one talks about unsuccessful cases. Moreover, the self-reporting means that the plaintiffs' lawyers may try to make themselves sound more noble than they are otherwise. (For example, only 5 of 33 lawyers mentioned making money. There may be that many noble plaintiffs' attorneys, but they seem to disappear around the time they make fee requests.)

Nonetheless, because of its open-ended nature, Professor Meili's survey elicited some revealing statements from the plaintiffs attorneys, and he does not shy away from the implications of what those attorneys told him. Among them:

Unlike conventional plaintiffs' lawyers, class-action lawyers inflate the expectations of their clients.

[C]onsumer class action lawyers often deliberately inflate the expectations of their clients, encouraging them to look beyond individual monetary compensation and focus instead on relief for the entire class, which sometimes includes non-monetary awards. In this way, class action lawyers do more than merely manage their client's expectations, a well-documented process in individual litigation. Instead, they consciously urge their clients to expand those expectations. If their clients refuse to be so encouraged, the lawyers opt not to include them as named plaintiffs.

Class-action lawyers prefer ignorant clients because they are easier to control.

[I]t appears that in choosing a suitable class representative, consumer class action lawyers seek someone willing to represent large numbers of persons but who was unaware of such willingness before they talked to the lawyer. The lawyers find it easier to keep such named plaintiffs focused throughout the typically long class action process.

Class-action lawyers don't communicate with their clients.

This awareness of named plaintiff motivation is particularly noteworthy because most of the lawyers in the study said that they spend less time communicating with named plaintiffs than they do with their clients in individual cases.

What does these findings mean for defendants? They do confirm some of defense lawyers' suspicions. Class actions are usually manufactured cases, and it is really the lawyer driving the case, not the client. But the most disturbing conclusion is not that the lawyers are in the drivers' seat. After all, for many defense lawyers and judges, that is hardly news.   Instead, it is the finding that many class-action lawyers deliberately screen for the most ignorant and malleable clients, so that they'll be easier to control. In the day-to-day conduct of the litigation, this may not mean much. But should the parties try to reach a settlement, this means that the named plaintiff is more likely to serve the plaintiff attorneys' interests than those of the class. And that is exactly what courts try to guard against.

It also means that plaintiffs' counsel continue to treat the adequacy of their clients as a hurdle, rather than a requirement. As a result, as both zealous advocates and officers of the court, it is critical that defense lawyers probe the adequacy of the proposed class representative. In particular, defense attorneys should be asking:

• Was it the client's idea to bring the case as a class action?
• Was the client recruited to the case?
• How often does the client communicate with her lawyer?
• What were the client's expectations at the beginning of the litigation?

Defense counsel have long argued that ignorant plaintiffs are inadequate plaintiffs, often with little success. Professor Meili's study shows that, once again, defendants should not focus on the ignorance itself, but its effects. The reason ignorant plaintiffs are inadequate is not because they are ignorant, but because they lack the independence to stand up to their lawyers.

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Last year, Vanderbilt professor Brian Fitzpatrick made the bold argument that class action plaintiffs' attorneys aren't paid enough. Now, the University of Pennsylvania Law Review's online presence, PENNUmbra, has a response by University of Arizona professor David Marcus. 

Marcus levels several criticisms against Fitzpatrick's proposal. I'm going to ignore the easy ones and focus on two of his more interesting arguments. First, Marcus focuses on the effect of the Rules Enabling Act:.

Fitzpatrick believes that Federal Rule of Civil Procedure 23(h), which licenses "reasonable" fee awards in class actions, permits courts to do what he urges. But the REA prohibits rules of procedure that "abridge, enlarge or modify any substantive right," and this limitation might preclude an interpretation of "reasonable" to include such all-encompassing fee awards. An order giving the lawyer everything would effectively assign class members' claims to their counsel without their consent. Doctrine that regulates claim assignment is substantive law, and the Federal Rules themselves may not modify these assignments. Although the issue is quite complicated, Rule 23(h) might violate the REA's substantive rights limitation if applied in the manner Fitzpatrick desires.

(Footnotes omitted, emphasis added.)

His second critique is even more interesting: it appears Fitzpatrick may have made a basic math mistake and overestimated the deterrent effect of imposing 100% attorney fees. As Marcus explains:

[F]ee awards of the ilk Fitzpatrick prefers might cause a net deterrence loss. His proposal would apply in all cases involving minor per capita recoveries. But a case's aggregate value determines whether the game is worth the candle for the plaintiffs' lawyer. As a recent case illustrates, potential damages of three dollars per class member would hardly thwart litigation if the case as a whole might win $ 9.5 million. n25 Fitzpatrick's proposal might produce a greatly diminished settlement in this sort of case. Presently, if an attorney wants $ 2.5 million in fees, she must obtain a $ 10 million settlement. But if the lawyer gets 100% of the recovery, a $ 2.5 million settlement would earn her the same amount. The defendant could take advantage of class counsel's higher rate of return and discount a settlement offer by $ 7.5 million. A risk-averse plaintiffs' lawyer might accept such an offer, and there are reasons to think that risk aversion would be likely in this context. Whatever additional deterrence the eschewed $ 7.5 million might have created vanishes.

(Footnotes omitted, emphases added.)

What does this mean for day-to-day class-action practice? Not much, because realistically, there's not much chance that courts will adopt Fitzpatrick's proposal. But then, I suspect Fitzpatrick didn't make the argument in order to get it adopted; I suspect he wanted to kick off a robust debate about attorneys' fees. He's certainly done that, and Marcus's has provided a thought-provoking response.

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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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 Paul Karlsgodt of Classactionblawg.com got there first (in a post that should win "Title of the Month" hands-down), but Judge Posner's opinion yesterday denying rehearing (and announcing there will be no en banc rehearing) in Thorogood v. Sears Roebuck & Co. is still worth an extra post.  Not just because Judge Posner discusses the results of an informal poll of the panel's wives, not just because he cites a YouTube link of Simon Cowell, and not just because the ever-irreverent Above the Law is likely to feature the opinion as a classic benchslap.    

The primary reason to read the opinion is because it so thoroughly documents both the strategic choices plaintiffs' counsel may make, and the strategic incentives they face.  Some of this discussion is all the more credible because it comes from counsel's inadvertent disclosures:

Krislov says that “Sears’ resort to this Circuit for the preclusive shot is transparent forum shopping, looking for this Court’s derisory view of the claim to influence it into binding all class  members nationwide, because the Ninth Circuit’s standards are decidedly more favorable to plaintiffs’ claims.” This is what is known as chutzpah, since Krislov brought his copycat suit in California because, as he says unguardedly, “the Ninth Circuit’s standards are decidedly more favorable to plaintiffs claims.”

And some of the discussion is just the result of Judge Posner's typically prodigious research:

Krislov is concerned with harsh language in our opinion, but overstates the case when he decries “characterization of plaintiff class action lawyers as inherently corrupt and motivated primarily to sell out the class in order to gain large fees.” What we said was that the structure of class actions under Rule 23 of the federal rules gives class action lawyers an incentive to negotiate settlements that enrich themselves but give scant reward to class members, while at the same time the burden of responding to class plaintiffs’ discovery demands gives defendants an incentive to agree to early settlement that may treat the class action lawyers better than the class. Class action attorneys have an “inherent motivation” to enrich themselves at the expense of the class (and with the connivance of defendants), but motivation is not a synonym for action; any actual corruption or selling out is gauged case by case. The Boling letter is some indication that the present case is such a case. 

The criticisms in our opinion of the tactics employed by some class action lawyers are not criticisms made by judges alone, let alone by judges of the Seventh Circuit alone or members of this panel alone.

(Extensive citations omitted.)  I'll leave you with one further quote from the opinion, which comes after the extensive string cite I cut: 

Want more?  There is plenty more ...

Go, read the opinion.  It's a perfect starting point for understanding the strategic incentives plaintiffs' lawyers face.

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One of the peculiarities about class-action practice is how segmented it can be.  Because Rule 23 can apply to many different kinds of class actions--ranging from international human rights violations to the vagaries of various benefits plans--many lawyers will consider themselves "class action experts" even if all they've ever worked on are securities cases, or products-liability lawsuits.  

Rule 23 covers far more than just one subject area, something this blog has tried to reflect in its choice of cases.  But sometimes it helps to be able to call on specialists, practitioners who litigate one kind of class action and litigate it well.  That's why I'm pleased to report on a promising new trend: the emergence of the employment class action blog.  Seyfarth Shaw has just launched The Workplace Class Action Litigation Blog, helmed by partner Gerald L. Maatman, Jr. and co-authored by a number of associates and counsel, including an old colleague of mine, Rebecca Bjork.  Meanwhile, Greg Mersol of Baker Hostetler (home of venerable class action blog ClassActionBlawg) has launched the Employment Class Action Blog.  

Both blogs, while new, are already taking on distinctive voices.  The Employment Class Action Blog seems to be focusing more on developments in caselaw, while The Workplace Class Action Blog has cast its net wider to discuss developments in the news that may affect employment class actions.  Both approaches are valid, and both blogs bear further watching.  Add them to your RSS feed: I have.  

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Last March, dean of class action scholarship John Coffee Jr. published an article in the Columbia Law Review titled "Litigation Governance: Taking Accountability Seriously." Coffee's argument is that, from a corporate governance perspective, there are two ways to keep an organization's leaders accountable: "exit" and "voice." In other words, judges and legislators can make it easier for shareholders to leave an organization, or they can give them a greater voice in governing it. He then tries to apply those principles to class actions and other forms of collective redress. Specifically, he worries about how the current class-action regime may not really hold plaintiffs' counsel accountable during the course of a lawsuit:

Perhaps more importantly, an intense, low visibility competition has arisen for the coveted position of class counsel because the winner of this competition stands to capture significant rents. This competition has been the underlying cause of recent scandals within the plaintiffs' bar. Although the nature of this competition has recently changed, its latest manifestation - pay-to-play contributions by plaintiffs' law firms to public pension funds - may enable some competitors to undercut the very reforms that Congress established to control class action abuses. The vulnerability of these reforms, it will be argued, flows directly from the class action's special governance rules and reveals the dangers of relying primarily on "voice," rather than "exit."

(Internal footnote omitted.)  Coffee focuses on the "exit" method (which he identifies as opt-outs under Rule 23(b)(3)).  As a result, he spends much of his time analyzing the European model of certifying "opt-in" actions or--as they're sometimes called across the Atlantic--"collective redress." He notes that allowing for opt-in litigation (much like the FLSA collective action) usually does a better job of aligning counsel's interests with their clients', and that technology has made opting in more feasible in large-scale class actions. Given that many class actions generally have very low participation rates, encouraging opt-in classes would, at the very least, reduce exorbitant fees and remove the need for using the increasingly controversial

However, in the process, he also provides a good policy argument for defendants who seek to oppose certification. It's difficult to regulate exit, but courts already have a way to regulate voice that Coffee does not consider: enforcing the adequacy requirement. If courts were stricter about policing the adequacy of the named plaintiff--specifically, her ability to independently oversee her counsel--the plaintiff could potentially do a better job of policing counsel herself. How could courts do this?

• Allow discovery into the nature of plaintiff's relationship with her lawyer. Courts have already deemed family members and close friends to be inadequate class plaintiffs, but they have also allowed a number of close business and personal relationships to go unchallenged.
• Consider whether the lawsuit originated with the lawyer or the plaintiff. Courts frown on lawyers who craft a complaint and then recruit the plaintiff in individual lawsuits. There is little reason to assume that a recruited plaintiff has the independence to oversee her counsel when their interests might conflict with the class's.
• Examine what the plaintiff has done her homework. Courts are clear that plaintiffs do not need to be experts in the subject matter of the lawsuit to be adequate, which makes some sense. A plaintiff in an ERISA suit, for example, need not know the ins and outs of the statute like her lawyers should. But if the plaintiff has not read the complaint, does not keep tabs on the case with counsel, or offers an understanding of the case that contradicts her counsel's, the court has strong evidence that the plaintiff cannot independently oversee counsel.

I'm realistic. I don't expect a revolution in enforcing adequacy. Courts have long known the "open secret" that lawyers make the decisions about class actions instead of their clients.  And the prevalence of pay-to-play practices with large institutional clients in securities actions suggests that some plaintiffs' counsel are determined to co-opt their clients.  Nonetheless many courts gloss over adequacy when the defense raises it. Some of this may be inertia: why upset a system that may provide some rough justice. But some of this is also framing. When challenging adequacy, defense counsel should consider couching their arguments in terms of the ability to oversee counsel, rather than stressing more stringent, hard-to-meet standards like expertise.
 

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 Over the last ten days, Judge Baer issued a followup order in the Gildan Activewear case and gave an interview to the New York Law Journal discussing his reasoning. The order--which found both plaintiffs' firms to be adequate, and stressed that it was not criticizing their hiring practices--was pretty much a non-event. But Judge Baer's interview--in which he reaffirmed his belief that he has both the power and the responsibility to review a firm's diversity in discharging his Rule 23(f) function, has led to additional blog commentary. My own opinion on whether he can do so (probably yes) and whether he should (depends entirely on your conceptions of the proper role of government and preferences for disadvantaged minorities) hasn't changed. But the more I read about the reactions from both self-identified conservatives and liberals to Judge Baer's order, the more I become convinced that it may be a foreseeable, if unintended, consequence of using "public case" arguments to justify filing and certifying class actions.

The federal government does employ--with strict limts--some minority preferences in federal contracting. And, if one makes the argument (as academics like Brian Fitzpatrick and Myriam Gilles and plaintiffs' lawyers like Elizabeth Cabreser and Steve Berman do) that a class action is really a case on behalf of the public at large for deterring corporate misconduct, it's not a great stretch to see a securities class action as a contract from the federal judiciary (or public pension fund) to prosecute a case for the public good. (That may be why one tactic for recruiting institutional named plaintiffs--"pay to play"--bears the same name as a major concern for government regulation.)

Am I saying that class-action lawyers should be subject to minority-contracting rules? Most emphatically not. What I am saying is that rhetoric can have real-world consequences. In this case, if plaintiffs' lawyers successfully convince judges that they are quasi-public servants, they may find themselves being regulated much like public servants.

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 With the exception of Supreme Court rulings or groundbreaking appellate opinions, there is little that counts as "breaking news" in the class-action world. But a lead-counsel appointment in the Southern District of New York has drawn so much coverage in the last twenty-four hours that it seems worth at least a brief discussion on a Friday morning.

The case is In re Gildan Activewear Inc. Securities Litigation. Judge Baer's order appoints class counsel, and imposes a diversity requirement on the plaintiffs' firms (Robbins Geller and Labaton Sucharow). The relevant language:

"WHEREAS this proposed class includes thousands of participants, both male and female, arguably from diverse backgrounds, and it is therefore important to all concerned that there is evidence of diversity, in terms of race and gender, in the class counsel I appoint, see In re J.P. Morgan Chase Cash Balance Litigation, 242 FRD 265, 277 (S.D.N.Y. 2007); it is hereby"

"ORDERED that Co-Lead Counsel, Robbins Geller Rudman & Dowd LLP and Labaton Sucharow LLP, shall make every effort to assign to this matter at least one minority lawyer and one woman lawyer with requisite experience; and it is further ..."

"ORDERED that the parties shall appear for a preliminary approval hearing on October 7, 2010, at 12:30 p.m., at which point Plaintiffs' compliance with the diversity requirement, as well as the other requirements listed here, will be evaluated ..."

(Emphasis added.)  This is not the first time Judge Baer has imposed this requirement. (And I'm not sure why this order has drawn more attention than the last one.) Nonetheless, it's clear that the discussion around this particular order raises at least three questions:

Can Judge Baer do this? Yes. Leaving aside the fact that he's a judge, he's got discretion to do something exactly like this according to Rule 23(g), which regulates the appointment of class counsel.  That rule, in full:

(g) Class Counsel.
(1) Appointing Class Counsel.
Unless a statute provides otherwise, a court that certifies a class must appoint class counsel. In appointing class counsel, the court:
(A) must consider:
(i) the work counsel has done in identifying or investigating potential claims in the action;
(ii) counsel's experience in handling class actions, other complex litigation, and the types of claims asserted in the action;
(iii) counsel's knowledge of the applicable law; and
(iv) the resources that counsel will commit to representing the class;
(B) may consider any other matter pertinent to counsel's ability to fairly and adequately represent the interests of the class;
(C) may order potential class counsel to provide information on any subject pertinent to the appointment and to propose terms for attorney's fees and nontaxable costs;
(D) may include in the appointing order provisions about the award of attorney's fees or nontaxable costs under Rule 23(h); and
(E) may make further orders in connection with the appointment.

Most lawyers focus on 23(g)(1)(A), which gives the factors they must meet, and there's nothing about racial or gender diversity there. But, 23(g)(1)(B) mentions that the Court "may consider any other matter pertinent to counsel's ability to fairly and adequately represent the interests of the class." This is the justification Judge Baer used back in 2007 in In re JP Morgan ("The proposed class includes thousands of Plan participants, both male and female, arguably from diverse racial and ethnic backgrounds. Therefore, I believe it is important to all concerned that there is evidence of diversity, in terms of race and gender, of any class counsel I appoint.") Class counsel are aware, at least on a visceral level, that this requirement can include almost anything.  So it would appear that Judge Baer has the discretion to do so.

Should he do this? That really depends on one's political outlook. I'm a practicing class action lawyer; I'm more interested in strategy than policy. But, it appears that the strongest arguments on each side are probably:

• "Public lawyers" ought to be diverse. Governments everywhere have minority contracting requirements or opportunities. Why should courts be any different when they appoint class counsel? Many class-action lawyers already claim to be "public lawyers." [http://www.classactioncountermeasures.com/2010/06/articles/certification-1/are-class-actions-public-or-private-cases/] If so, there's no reason not to impose some of the same conditions we impose on government contractors.
• Diversity doesn't have much to do with securities law. In re JP Morgan (which was an age discrimination and ERISA case) the link between the diversity of counsel and the diversity of the class was at least marginally stronger. (Although Judge Baer did not require the firms to provide any aged lawyers.) It's harder to say why one's gender or racial background would affect their understanding of the securities laws, particularly when their clients are institutional investors, as opposed to individuals. And my guess is that, to the extent that either firm opposes the order, this is the line of argument they follow.

What does it mean that he did this? First, Judge Baer's order may tip the balance to Robbins Geller being lead counsel. A (very) quick trawl through both Robbins Geller's and Labaton Sucharow's websites shows that Robbins Geller has the requisite levels of diversity. Labaton, however, does not appear to have any female partners or senior partners. (It does have two female "Of Counsel.") If Judge Baer decides that partnership is the "requisite level of experience" (no guarantee), Labaton may have difficulty meeting that criterion.

Second, given how competitive plaintiffs' counsel already are in seeking lead counsel appointments, Judge Baer's order changes the game, at least for firms in the class-action-rich Southern District of New York. Expect to see a number of plaintiffs' firms reevaluating their hiring and attorney-development policies. And I would also guess we may see some firms use their diverse teams as a selling point in lead-counsel battles.

Finally, Judge Baer's order suggests a possible adequacy-of-counsel argument for defendants. Given the personal and political volatility of diversity debates, it's an argument that counsel should deploy carefully. But, if a firm finds itself defending a Title VII class action in the Southern District of New York, it may well be worth it to bring plaintiffs' counsel's lack of diversity to the court's attention.

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Back in 2001, Bruce G. Murphy, a California attorney, contacted the San Diego office of then-firm Milberg Weiss. He claimed to have several clients who had bought stock in Tut Systems, a technology company that had announced it was not going to meet its earning estimates for the fourth quarter of 2000. Murphy, who had provided clients for Milberg’s securities class actions before, wanted to know if the firm wished to pursue the case and pay him his customary 10% referral fee.

Four years later, Lerach Coughlin (which had broken off from Milberg) settled a securities class action against Tut Systems. But Lerach did not pay Murphy.

Murphy filed an application for attorneys’ fees in the trial court, claiming that he was contractually entitled to fees for referring clients. The trial court rejected the application. So Murphy appealed the application to the Ninth Circuit, which tersely rejected his arguments. In re Tut Systems, Inc. Securities Litigation,No. 07-16282, 2009 WL 725104 (9th Cir. Mar. 19, 2009)

So what's remarkable about the case? It provides another glimpse into how cases are brought, and the structure of class-action plaintiffs' consortia. Most opinions relating to class actions operate under the legal fiction that class actions, like other litigation, involve an injured plaintiff who seeks out a lawyer and then sues the defendant. In many ways, that fiction is a useful one -- it allows courts to focus on the legal issues of the case, instead of constantly refereeing disputes defendants might raise about whether the class counsel are really acting in their putative client's best interests. (The court will ultimately decide that issue when it decides whether to certify the class.)

But that fiction is not always accurate. Class actions rarely arise from an injured plaintiff seeking out counsel. Instead, counsel finds the basis for a class-action suit, and then searches for clients. And, as Tut Systems fee dispute illustrates, there are different kinds of counsel in the class-action ecosystem. One kind is the Referrer: counsel who may not have much Rule 23 or subject-matter expertise, but who -- for whatever reason -- are good at finding clients. Referrers may have contractual arrangements with counsel who specialize in securities class actions to provide them with possible clients. Despite Bill Lerach's famous pronouncement that class-action litigation requires no clients, clients are essential to a class-action lawsuit. But, as In re Tut Systems indicates, the Referrer faces a number of risks -- simply finding a client and figuring out whether they have a claim may not be enough to eventually earn fees. And, as this case implies, given the intense competition among plaintiffs’ firms, the Referrer may not be able to rely on any contract with the ultimate Class Counsel to collect fees, either.

What’s the lesson here for defendants? The plaintiffs’ side of the case is rarely monolithic. While often the infighting among plaintiffs’ firms won’t affect the defense, it is important to know when disputes may challenge the resolution of a case.

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A little while ago, I reviewed Circle of Greed, the story of William Lerach’s rise and fall in the world of the class-action plaintiffs’ bar. The posts on the subject drew some criticism from some plaintiffs’ lawyers, but I still think it was worth it to see how at least one plaintiffs’ counsel treated his class actions.

But Circle of Greed is not the only book to have been published taking an “inside the plaintiffs” view of class-action practice. Another, Inside a Class Action: The Holocaust and the Swiss Banks, by Jane Schapiro, looks at the litigation that then then-Cohen Milstein lawyer Michael Hausfeld filed (pro bono) against various Swiss banks for alleged mismanagement of funds during World War II. While the litigation did not progress very far before it was settled, Schapiro’s account of Hausfeld’s behind-the-scenes maneuvering provides a number of insights for defense counsel:

• Being first to file can bring disproportionate leverage for some plaintiffs. Plaintiffs’ attorney Ed Fagan filed before Hausfeld, in the same district he was intending to. Throughout the litigation, Fagan and Hausfeld clashed repeatedly over tactical decisions (such as whether to include compelling but difficult-to-prove slave labor claims).
• Government action can cause headaches for plaintiffs as well as defendants. While Schapiro does describe some coordination between the plaintiffs’ consortium and New York Senator Alfonse D’Amato, she also takes pains to describe how the consortium would hold its breath over various State Department actions, hoping that State would not interfere (inadvertently or otherwise) with the prosecution of the lawsuit. (The lawyers wound up having the same problems with some non-governmental organizations that became involved in the case.)
• The more lawyers involved, the harder it is to coordinate litigation. Schapiro reports that throughout the litigation Hausfeld, Fagan, and other attorneys would worry every time a new attorney was added to the Executive Committee. The lawyers attracted to this high-profile litigation tended to have large egos and conflicting agendas, and coordinating among them grew exponentially with each new addition.
• Settlement is still the endgame for plaintiffs. Given the size of this litigation, Schapiro reports that the plaintiffs seriously talked settlement at various preliminary stages, including during jurisdictional motions. Hausfeld was convinced for a long time that the mere threat of discovery would be enough induce the banks to negotiate.

Schapiro’s book isn’t perfect. For one thing, she seems unsure whether she’s writing about Holocaust victims or the workings of a class-action lawsuit, an ambiguity that tends to undercut the objectivity of her reporting as well as the power of her advocacy. But lawyers looking for an account of how driven lawyers interact in a single piece of high-profile litigation can find a lot of resources here.

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 Officially, I'm still on hiatus.  (Although the author-reviewed copy edits for The Class Action Playbook went in to the publisher yesterday.)  But today's article in the Wall Street Journal: "Lawyers Wrestle Over Driver's Seat in Litigation Against Toyota" deserves a brief post, if only to highlight some of the unusual qualifications plaintiffs' lawyers are touting in their applications to get lead counsel status on what they believe to be a very high-reward case.  Among other accomplishments that might make for a good lead counsel:

• Daniel Becnel Jr. donated a kidney to his brother, and can still work amicably with his ex-wife.
• Mike Eidson once got the key to Miami Beach.  
• Anita Jaskot speaks Polish, and is single.  
• Richard Arsenault knows Arianna Huffington, Kenneth Starr, former President Bill Clinton, and the late President Gerald R. Ford.

All of these facts were disclosed in the lawyers' applications to Judge Selna.  What do these personal tidbits tell us?  One, in the words of Hollywood screenwriter William Goldman, "Nobody knows anything."  Each of these lawyers is guessing at what might set them apart in a crowded field, but at the end of the day, that's all they can do -- guess.  Two, people will brag on some strange things.

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Over the last week, I provided a brief review of the new biography of disgraced (but largely successful) class-action plaintiff’s lawyer William Lerach, and a discussion of some of his psychological quirks that one might encounter in some other plaintiffs’ lawyers. Today, I’m closing out my discussion of Circle of Greed by looking at some of the strategies that class-action plaintiffs’ lawyers employ that may not make it into reported cases. As with the “psychology” post, I’ve included page references to the book for those following along at home.

• Smaller settled cases fund larger, riskier cases. One business strategy that plaintiffs’ firms employ is to take on a number of smaller cases that may settle more easily (say, because they involve straightforward issues or technical statutory violations). These settlements provide a steady income stream that can fund larger, riskier cases (like Lerach’s pursuit of Enron). (165)
• Smaller settlements with minor defendants can fund pursuit of larger targets. This same tactic applies within a larger case. In a case with multiple defendants, if some defendants are willing to settle early, the plaintiffs may be able to leverage larger settlements from later settlors. (380)
• Publicity is a major tool for plaintiffs’ lawyers. Lerach viewed leaking information to the media as a valid tactic for putting pressure on defendants. (177) And often, a sustained publicity campaign would also help him win battles to be appointed lead counsel. (330)
• Making the fight personal can be an effective tool. Lerach’s teams would sometimes file fraud claims against directors so that they could not invoke their D&O insurance policies, putting their personal finances on the line. (162) He would also seek to make trial as embarrassing as possible for the defendants, in order to increase the leverage in settlement discussions. (116) In one case, he went so far as to retain a fellow trial counsel whom he viewed as particularly obnoxious in depositions, specifically so that he would get under the defendants’ skin, provoking them into making errors in their testimony. (120)
• The strongest plaintiffs’ cases are often the simplest. Lerach was notorious within his own firm for “the chart”: a simple presentation that contrasted a defendant’s stock price with the allegedly dishonest statements its executives made. (116) It was a compelling trial exhibit, settlement tool, and organizing principle for Milberg’s (and later, Lerach Coughlin’s) stock-drop cases. And the primary reason it was compelling is that it laid out a simple, hard-to-contradict story.

None of these strategies were unique to Lerach. And while some may seem like “dirty pool” to some defendants, it’s important to keep in mind that they serve larger purposes – some are part of the business model, some are part of the competition among plaintiffs’ lawyers, and some are aimed more at settlement than winning an immediate tactical battle. The better a class-action defendant understands the strategies the other side employs, the better it will be able to counter them. And while it may not have been their primary goal, Patrick Dillon and Carl M. Cannon have given defendants a good resource for deepening that understanding.

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On Tuesday, I provided a brief review of the Lerach biography Circle of Greed. Today, I want to focus on what some of the stories about Lerach can reveal about the psychology of the class-action plaintiffs’ lawyer.

I freely concede that this is about as unscientific an inquiry as one can make. For better or for worse, William Lerach was an extreme case. (He was extremely successful plaintiffs’ lawyers, but the extremes he went to also landed him in jail for two years.) So, many plaintiffs’ lawyers may have some of these characteristics, but likely not to the same degree as Lerach did. Nonetheless, the insight into Lerach’s psychology provides a few insights into what may make one kind of successful plaintiffs’ lawyer (page cites are from the book):

• Plaintiffs’ lawyers are competitive, even with each other. Lerach’s “firm so dominated the field of class action securities lawsuits that ‘if other firms did not come to us with California cases, they very much risked being excluded altogether from these cases.’” (89)
• You don’t have to be paranoid to be a plaintiff’s lawyer, but it helps. “Lerach's mind was conditioned to think of the possible grift first, the innocent explanation second.” (79)
• Plaintiffs’ lawyers are not above making the fight personal. After Lerach had clashed with defense expert Daniel Fischel of Lexecon, he authorized “opposition research” to build a dossier on Fischel, worrying even his partner, Mel Weiss. (Disclosure: Daniel Fischel was my Corporations professor in law school.) (160)
• Sometimes, very personal. In a case against the Washington Public Power Supply System, Weiss and Fischel crossed paths. Fischel held out his hand and introduced himself. “‘I know who you are,’ Weiss sneered, ‘And I will destroy you.’” (164)

Why bother to look at how two plaintiffs’ lawyers (Lerach and Weiss) looked at the world? Because some of what we learn may apply more broadly. Milberg Weiss was not the only plaintiffs’ firm that played hardball with other plaintiffs’ firms. Nor is Lerach likely to be the only plaintiffs’ lawyer who winds up viewing all corporations with suspicion. (Much as many defense lawyers are eventually conditioned to view plaintiffs’ lawyers with suspicion.) Understanding what drives one’s adversary allows one to better respond to their strategies, whether in the courtroom or across a settlement table.

Next Tuesday, I’ll take one last look at this book, and pull out some of the more common tactics class-action plaintiffs (including Lerach) have used.
 

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I’ve written before about how – the odd beauty contest aside – the plaintiffs’ bar often seems as opaque as the Cold War Kremlin to defense lawyers. Journalists Patrick Dillon and Carl M. Cannon have done their part for class-action glasnost, however, with their new biography of William Lerach, Circle of Greed: The Spectactular Rise and Fall of the Lawyer Who Brought Corporate America to Its Knees. 

Bill Lerach (pronounced LEER-ach) – who was to become one of the most feared lawyers in the class-action plaintiffs’ bar – was born in Pittsburgh, and graduated from the University of Pittsburgh Law School. (While he was there, he wrote a law-review comment critical of class-action settlements.) He started his career at Reed Smith, before joining forces with Mel Weiss of Milberg Weiss, and moving to San Diego to open Milberg’s west coast office.  (That office later split to form Lerach Coughlin, now Coughlin Stoia.)

From that point, Lerach’s career took off. He was at the forefront of a number of big moments in class-action litigation. He perfected the pre-PLSRA securities suit. He helped develop the “fraud-on-the-market” theory that allows plaintiffs to presume reliance in certain kinds of securities class actions. He was a pioneer in developing “scheme liability.  And he took on a number of large corporations, including NuCorp, Worldcom, and Enron. He was poised to sue contracting giant Halliburton when he finally pled guilty to criminal conspiracy.

Ultimately, Lerach was undone by his own excesses. In his race to the courthouse to be the first to file, he had kickback agreements with several named plaintiffs. He paid one of his experts on contingency (a practice discouraged by most ethics rules). His early strategies gave rise to the Private Securities Litigation Reform Act (sometimes known colloquially as the “Get Lerach” Act). And his lawsuit against Lexecon consultant (and University of Chicago law professor) Daniel Fischel ultimately backfired and cost him and his firm more than $50 million in cash.

The authors tell the story well. They’re prone to easy moralizing in places (both against Lerach and the corporate defendants he sued), but for the most part they confine themselves to the facts they have unearthed. And they do provide an informative portrait of the development of much of today’s securities class-action practice.

The book’s biggest draw for class-action practitioners, however, is that it offers an invaluable, up-close portrait of one of the leading plaintiffs’ lawyers, and even an occasional look into plaintiffs’ tactics and strategies.

What lessons can we learn from this biography? Come back on Thursday to find out.

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Last week, I wrote that in class actions, divining the motives of plaintiffs’ firms can feel like Kremlinology; this week it seems more like missology. The Florida State Board of Administration (which oversees Florida’s retirement funds) has conducted a “beauty contest” for its next securities counsel, and done so with what various observers have called unparalleled transparency. The result is a trove of publicly-available data on the securities plaintiffs’ bar’s practices and priorities.

The American Lawyer’s Litigation Daily managed to obtain the various submissions from the securities firms that bid for the SBA’s business. And the submissions – from noted plaintiffs' firms Coughlin Stoia, Lieff Cabraser, Barrack Rodos & Racine, Berman DeValerio, Bernstein Liebhard, Bernstein Litowitz, Entwistle & Capucci, Granet & Eisenhoffer, Kaplan Fox, Labaton Sucharow, and Pomerantz Haudek – reveal a number of interesting facts about the competing firms. Among them:

• A number of plaintiffs’ firms have their own proprietary software systems for monitoring their clients’ investments. When an investment loses value, and the firm can correlate it to some fraud or other mismanagement, they recommend filing a lawsuit.
• In addition to monitoring investments, a number of these firms employ teams of in-house forensic accountants. At least one (Lieff Cabraser) also employs a former FBI agent for “identifying and conducting interviews with witnesses and performing other investigative tasks.”
• In response to the SBA’s question about litigation financing, most firms answered that they were sufficiently capitalized to handle motions practice, discovery, and the retention of experts.
• The SBA is very concerned with dismissal rates of lawsuits.
• Despite the fact that they weren’t asked, a number of firms discussed the number of times that they had been appointed Lead Counsel or – more interesting – the number of times they had won Lead Counsel motions.

There are a number of inferences defense firms can draw from the information in these submissions. Among them:

• Intelligence is very important to plaintiffs’ firms. Each of these firms invests a lot of money in monitoring stock prices and performing preliminary research
• For plaintiffs, the Motion to Dismiss is the critical motion. Because class-action defense firms want to rid themselves of a case early and completely, they often structure their defense around each of the dispositive motions that occur in a class action, starting with the motion to dismiss, but including the certification motion and summary judgment. Securities plaintiffs and their lawyers really emphasize the 12(b)(6) motion.
• Plaintiffs’ counsel are subject to intense competition. The other motion that the various firms tout is the Motion for Lead Counsel, which indicates that this is another landmark. (The intense investment in pre-lawsuit research also suggests intense competition to be “first to file.”)
• Reputation is paramount. Firms that compete regularly to represent public pension funds must work extremely hard to avoid the appearance of impropriety. (This beauty contest offers two examples. One firm was anonymously accused of various shady practices – including diverting cy pres settlement funds to a partner’s synagogue – into which the SBA is looking. In addition, Coughlin Stoia’s response to questions on restructuring and ethics issues labors to avoid mentioning founding partner William Lerach’s legal difficulties.)
• These firms’ business models are built around settlement. When touting their “wins” each of these firms promoted settlements that had resulted in large payments, as opposed to trial wins. This is no surprise (very few securities class actions go to trial), but it is helpful to remember that securities class-action practice is less about trial victory than it is about leveraging a successful settlement.

These aren’t universal observations. These are the firms at the top of the food chain, so their practices will not be the same as other plaintiffs’ firms. Also, these were submissions for beauty contests, which – as defense lawyers know – require a firm to put its best face forward. Still, knowing the structural differences between plaintiff and defense firms can be instructive in figuring out how best to respond to plaintiffs.

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