Ted Frank, formerly of AEI,has started up a new consumer protection organization called “The Center for Class Action Fairness.” This is a worthwhile enterprise. The purpose of the organization is to protect consumers from collusive and unfair settlements of class action cases, especially cases that generate massive fees for class counsel with trivial benefits to consumers.
This is an issue that I worked on extensively while I was at the FTC, so I have some familiarity with how outrageous some of these settlements are and how important work like Ted’s is in protecting consumers. In particular, what I became aware of is how many of these lawsuits are essentially settled in a collusive bargain between class counsel and the defendant. Usually the defendant pays a couple million dollars to the lawyers and gives coupons or some similar redress to the members of the class. In one case a judge noted that the coupons–which allowed class members to get discounts on future purchases–essentially amounted to a request for a court-ordered promotional scheme. An example (in a case well after I left the Commission) was the FTC’s intervention in the Netflix settlement.
Ted is taking this on. Here’s an example of one of the settlements to which he has filed an objection.
Here’s a profile of Ted’s activity on this front from a few years ago, when he was doing it as a side activity. And here’s his license plate.
Steve says:
One of the easiest ways to make money in the class-action arena without doing much work is becoming a professional objector. Smart guy, Ted Frank. I hope he generates a lot of value for class members and makes a lot of money for himself along the way. Steve(Quote)
Lyric Critic says:
I benefitted in a small way from the Netflix settlement, receiving an extra rental or something. I guess that this was simply because I was a Netflix member. I was not a party to the lawsuit, nor did I feel that I had been deceived by Netflix. I liked getting the benefit, but it made me think that there’s something definitely wrong with such lawsuits. Lyric Critic(Quote)
Prosecutorial Indiscretion says:
Ted, when you make an obscene amount of money laying the smack down on lawyers making an obscene amount of money by selling out their clients, I hope I’m invited to your decadent parties. Prosecutorial Indiscretion(Quote)
Dotar Sojat says:
These types of class action plaintiff attorneys are scumbags, pure and simple. Whenever I am named as a class member of this or that for something I have never heard of (at least once a year, it seems), I do my best to throw some kind of monkey wrench into it. Dotar Sojat(Quote)
LTEC says:
I’m sure that many — if not most — class action suits are merely scams run by lawyers. However, Frank seems to think that any class action suit in which the members of the class get essentially nothing and the lawyers get millions, is a bad thing. Not necessarily. It is easy to imagine a case where the members are happy just to see a fraudulently or dangerously run company penalized, just as a warning to other similar enterprises.
For example, say that a bank is stealing one dollar from each customer each month for many years. No individual is being badly harmed, yet it is the sort of activity we would want banks not to be able to get away with, even if in the process we enrich lawyers. LTEC(Quote)
Steve says:
I benefitted in a small way from the Netflix settlement, receiving an extra rental or something.
An extra rental isn’t worth much, of course, but at least you’re getting something free. The truly pernicious sort of coupon settlement is the one where you’re basically sucked into a promotional offer (“$500 off the purchase of your next GM vehicle!”). These settlements are much less common than they used to be, but unless someone objects the only safeguard is the vigilance of the federal judge who approves the settlement.
Once upon a time, David Boies secured a very nice settlement for class members in the Sotheby’s/Christie’s antitrust litigation. The class members were getting a good deal, but part of their compensation was in the form of coupons. To drive home his argument that there would be a viable secondary market for the coupons and thus they should be considered a valuable component of the settlement, Boies offered to take his own legal fee in the form of coupons. More judges should consider this idea. Steve(Quote)
Soronel Haetir says:
I saw one of these where the judge said that the plaintiff lawyer had to take the settlement in the coupons offered to the class but they objected and that term was reversed. :/ Soronel Haetir(Quote)
David Chesler says:
Boies has the right idea. Coupons are either valuable or not. Some settlements gain me a few dollars. (That reminds me, have to put my Lenscrafter coupons up on Craigslist.) Other times how dare they settle on my behalf for beans and get paid for it in lots of real dollars? David Chesler(Quote)
PJens says:
Many years ago, I received part of a settlement in a class action suit. I was sent a debit card — new at the time — with about $30 on it. The catch was it only worked at participating vendors. I found a gas station that would take it, and ran the balance down to $1.50. Then I let the card company send me statements for months carrying that balance. Eventually they confiscated my $1.50 as a “fee”.
I wish Mr. Frank much success in his efforts. PJens(Quote)
Case Law says:
What he should be doing is working to abolish class actions once and for all. Rather than gathering together a dubious group of persons who may or may not have been harmed, each individual should be required to sue if they individually have been harmed. Class actions are legalized extortion. Case Law(Quote)
Dave N. says:
I wish him well. Class-action suits have become a racket, and I hold the lawyers who serve as “class counsel” in the same contempt I hold the ambulance chasers who advertise from out of state (they refer those who call to an attorney in the caller’s state and collect a percentage of the final award without doing much more than providing an answering and referral service). Dave N.(Quote)
paul yamada says:
Mr Volokh, if you believe ANYONE at AEI is actually a “scholar”, rather than a corrupt/corrupted hired gun, you are a moron. paul yamada(Quote)
Dave N. says:
Mr. Yamada, if you believe a) Todd Zywicki is “Mr. Volokh” or b) that an ad hominem drive-by comment is at all useful, YOU are a moron. Dave N.(Quote)
Per Son says:
There are always class action regimes where you opt-in (such as FLSA or ADEA). I agree there is some abuse, but on the otherhand, many FLSA (overtime) actions involve very small individual numbers, but when aggregated become massive evils.
For example, in a case near and dear to me, an employer essentially was geting about 15 minutes of free work everyday from every employee for years. WHy should the employer be able to do that? They were put to task, and all of employees ended up getting overtime plus interest and a portion of the liquidated damages. The lawyers got statutory fee-shifting atorney fees and a portion of the liquidated damages.
Anything wrong there? Not by my count. If you have a beef with overtime laws, fight them — not the trial lawyers. Per Son(Quote)
David Nieporent says:
Ted is not focusing on cases where individual class members don’t get much in relation to the lawyers, but where the entire class combined doesn’t get much in relation to the lawyers.
To use your bank example: true, each customer is only harmed by $12/year — let’s say, $50 per customer overall. Maybe there are a million class members, and so the damages are $50M, and the settlement is for a $5M refund to the class members, and a $1M payment to the lawyers. So, sure, each class member only gets $5, while the lawyers get many times that. Still, it’s (potentially) reasonable.
But, if instead, each class member gets a coupon which entitles him to $5 off application fees for the next loan he takes out from the bank, and the bank pays $50,000 to the Sierra Club, and the lawyers get $1,000,000, that’s quite a different story. Then the lawyers aren’t just getting far more than an individual class member; they’re getting far more than all the class member combined. David Nieporent(Quote)
CMH says:
Then opt-out of the class. Outrage averted. CMH(Quote)
geokstr says:
Yes, yes, yes, we’ve heard this type of BS from every leftist who comments here, over and over and over and over, ad nauseum.
Any source of anything whatsoever not on the left is a partisan hack, bought out by somebocdy or other. Anyone who is an AGW skeptic is a shill for Exxon. Anyone who is against Obama for any reason is a racist.
Conversely, all leftists good. geokstr(Quote)
David Nieporent says:
Not at all. For one thing, it may well cost more to opt-out ($0.44), plus your time, than the recovery is worth to you.
For another, the class action is imposing a cost on the defendant, which will, at least in part, be passed onto consumers, including those who “opt out.”
For a third, opting out only preserves your own individual claim. A settlement, no matter how bad, effectively prevents you from bringing your own class action, which means you’d have to bring an individual action to pursue your own claim, which means you lose the class action leverage. So to the extent a class action is legitimate in a particular situation, then approval of the settlement hurts you.
For a fourth, abusing the legal system is offensive on its own merits, whether or not it personally affects me. David Nieporent(Quote)
MGA says:
The sole purpose of class actions brought by lawyers seeking a fee is to generate that fee. It doesn’t matter whether the class benefits or is hurt. Nothing gets in the way of fee generation. MGA(Quote)
Steve says:
The sole purpose of class actions brought by lawyers seeking a fee is to generate that fee.
Of course it is. There are no lawyers who care about stopping fraud or compensating injured people. They’re all mustache-twirling villains, motivated 100% by pure greed. Steve(Quote)
LTEC says:
David Nieporent –
In my eyes, the evil in your last example is not that a class member receives a worthless coupon instead of $5 cold cash, but rather that the bank only loses less than 1/5 of its actual profit from its scam, rather than much more than its profit. LTEC(Quote)
Hal Duston says:
I recall sometime in the late 1990’s when I was a member of a class where the plaintiffs were suing Chase Chemical Credit for delaying posting of payments by 2 days if the payment was received at certain locations. I received a number of mailings as the settlement progressed. When the case was finally resolved my share of the settlement was 23 cents. Hal Duston(Quote)
Tweets that mention The Volokh Conspiracy » Blog Archive » Center for Class Action Fairness: -- Topsy.com says:
Martinned says:
Well, that’s in the nature of a settlement. You settle for less than you might like, in order to avoid the cost of going ahead with the litigation.
As for the topic of the OP, I’m having trouble seeing what the down side is, at least for the members of the class. Given that, at worst, they get something worthless, the only victim here is that poor, discriminated against corporation, victimised as usual by evil, socialist lawyers. Martinned(Quote)
NickM says:
Martinned — if the class as a whole gets something worthless, why should the lawyers get a large sum of money?
Nick NickM(Quote)
Martinned says:
Whether they should or not depends on the work they did. The point is merely that the members of the class aren’t being victimised here. (Well, to the extent that the current rules for opt-out and judicial scrutiny of the settlement work as they are supposed to.) If the class member doesn’t have a sufficient stake in the suit to make it worth their while to opt out, the suit doesn’t really affect them one way or another. They are not a victim. If the settlement causes a significant disadvantage for class members, in the sense that the payment they’re receiving is too small relative to the claim they’re giving up, the current opt-out rules should be enough.
The only possible victim of a (frivolous) class action is the defendant. And from the defendant’s point of view, there isn’t much difference between a class action and any other suit. So I’m not sure why it is necessary to create a center focusing solely on “class action fairness”. Martinned(Quote)
Anym_Avey says:
In my eyes, the evil in your last example is not that a class member receives a worthless coupon instead of $5 cold cash, but rather that the bank only loses less than 1/5 of its actual profit from its scam, rather than much more than its profit.
If a genuine scam is at work, there are sufficient criminal laws to deal with it and target the actual offenders. If it’s a question of a shady business practice, such as charging you $10/transaction for out-of-network ATMs while disclosing the fee in print that cannot be read without the aid of powerful optics, I’m not sympathetic to the notion that the bank should pay out more than the net value of the grievance, when punative action should rightfully be targeted at the person(s) responsible for the policy. And if it’s a grievance that the weather stripping on the front door makes the width of the opening 3/16″ too narrow for ADA compliance, then I vote for Lawyer Season. Anym_Avey(Quote)
Johnboy says:
The thing that astounds me about class actions is the fact that you can be made party to a suit without your active affirmation. How the courts allow this is beyond me.
If I want to sue someone, as part of a class, I should be required to notify the lawyers that I want to be part of the suit. I should NOT be required to opt out of something that I never wanted anything to do with in the first place. Johnboy(Quote)
CMH says:
(1) If the costs of opting out outweigh the recovery, then why the angst over someone else “settl[ing] on [your] behalf?” You’ve identified the cost of a stamp and the time to fill out a form, lick and envelope, and walk down the driveway to put it in the mailbox (although I suspect that a lot of opt-outs can be handled electronically these days). If even this de minimus effort and expense outweighs whatever value you place on you claim, then it hardly seems like you value your claim enough to get upset over.
(2) Assumes that the cost of defending and settling the class action is greater than the costs of defending (and likely settling) individual actions. This might be the case sometimes, but it’s definitely not categorically true. There’s a reason the asbestos manufacturers tried to shoehorn all existing and potential claimants into one ginormous (technical term) class about 15 years ago: it would have been cheaper that way.
And if the complaint here is that the underlying action is without merit, then the complaint lies not with the class action remedy, but with whatever substantive law is at issue.
(3) So in a post complaining about others asserting your rights via class action, your complaint is that doing so deprives you of the ability to assert the rights of others via class action. Seems quite incongruous. That being said, if you want to preserve the class action remedy for yourself in a meritorious claim, then file your own suit first. Or move for appointment as class counsel or lead plaintiff. Or define a class that is different for whatever reason than the first one. You’ve got options here.
(4) May be. I wrote only in response to your original comment, which seemed to be limited to the personal effect on you, not on a broader sense of societal well-being. CMH(Quote)
David M. Nieporent says:
CMM: Taking your comments point by point:
1. True; my comment here was directed more appropriately at objecting than at opting out.
2. When the claims aren’t legit anyway, or the individual damages are small, then there won’t BE individual claims, so of course the costs if the class action are greater than the costs of individual actions. (If the claims are legit, then they don’t fall into the category of cases we’re discussing, because those claims don’t get settled with no recovery for the class.)
3. You’re conflating the issue of the legitimacy of the particular settlement at issue with the merits of the actual case. I specifically said if the claim itself is legit. David M. Nieporent(Quote)
John Moore says:
Martinned says:
The other victim is the entire economy, damaged by our ridiculous class action system.
Why a center to focus on it? Because class action abuse is rampant, due to the deep pockets of and hence high profits available from the
victimdefendant. John Moore(Quote)Martinned says:
From the point of view of the economy as a whole, there is still no relevant difference between a class action and an individual one. The whole point of a class action is to bundle together a whole bunch of people who could, theoretically, each bring their own suit. If you have a problem with frivolous law suits, why not talk about tort reform (including Twombly/Iqbal pleading requirements) and changes in the substantive laws these suits are often brought under? Martinned(Quote)
vic says:
I am willing to bet — Dis guy is a class action/ trial lawyer vic(Quote)
NickM says:
Why should the amount of work the lawyers did be determinative?
Contingency fee actions don’t pay lawyers except to the extent the client recovers, and hourly fees are usually far lower than what lawyers are being awarded in settlements of this nature — not to mention that few plaintiffs pay a lawyer hourly except when they’re fairly sure of a strong likelihood of recovery.
Nick NickM(Quote)
Martinned says:
I said: “it depends on the work they did”, not “it depends on the amount of work they did”. It also depends on the quality of their work. Martinned(Quote)
NickM says:
On a settlement, how do you measure quality other than by the results obtained for the clients?
Nick NickM(Quote)
David M. Nieporent says:
The relevant difference between the class action and the individual one is that the problematic class actions tend to be ones where individuals would never bring suits in the first place. They “could, theoretically” bring their own suits, but they wouldn’t.
“Tort reform” is an independent issue; yes, it’s also important, and Ted has worked on that as well, but it’s not an answer here, because many of these cases aren’t literally meritless; they’re just trivial.
You need to look at the cases to which Ted is objecting, instead of talking about “class actions” generally, as if he were objecting to all of them. These are cases where the class counsel settles for essentially no relief to the class, but a big payout to the lawyers. That means that either:
1) The lawyers are selling out their clients, taking a bad settlement in order to boost their own fees; or
2) The case was a trivial case that involved no real damages to class members, and would never have been brought but for the instigation of lawyers who saw a chance to transfer money from a corporation’s pocket to their own. David M. Nieporent(Quote)
David M. Nieporent says:
...and their customers, who will bear some of the costs that have to be passed on by the corporation. David M. Nieporent(Quote)
Martinned says:
You don’t. Martinned(Quote)
Martinned says:
Hang on: If the case is not meritless, and you don’t have a problem with the law under which the case has been brought, why would you have a problem with outcome 2)? The defendant broke the law, and now they’re getting spanked for it. Martinned(Quote)
David M. Nieporent says:
I didn’t say that the case wasn’t meritless; I said it wasn’t technically meritless. Big difference.
The “law under which the case has been brought” may simply be a law against fraud. But the specific “fraud” in this case may be something so trivial that it does not, in fact, deserve “spanking.” David M. Nieporent(Quote)
Martinned says:
I detect a certain lawyer/non-lawyer disconnect. Which is strange, because AFAIK you do have a law degree. Law works on black and whites. Someone broke the law or they didn’t. Something is constitutional or it is not. The only problem is that in many situations it is difficult to say, which is why we have courts to decide once and for all. (The Supreme Court isn’t the highest court in the land because they’re always right. They’re always right because they’re the highest court in the land.) So the idea that something is only “technically” illegal doesn’t fit with the nature of the law. That doesn’t mean it isn’t a meaningful concept, but only outside the law.
You can’t amend the law to provide a category of “technically meritless” suits. (Although the Scottish possibility of the jury returning a “not proven” verdict comes pretty close.) If the result of a finding of “technically meritless” is that the suit is thrown out, that means the suit wasn’t “technically meritless” at all, it was completely meritless. If, for example, one were to allow the judge to throw out cases upon a finding that, on the balance of equities, the greater good requires the case to be dismissed, that just creates an additional category of meritless suits. Suits have merit, or they don’t.
(The question of what constitutes a “frivolous suit” is a separate problem, with a different legal question being asked to a different person with a different legal standard. But there, again, in the end the suit is determined to have been frivolous or not. There’s no such category as “technically frivolous”, at least not in the law.) Martinned(Quote)
David Nieporent says:
A case may fall within the bounds of a law — a consumer fraud law, for instance, that bars misleading statements by corporations to consumers — and thus not be technically meritless. However, there may be no injured parties and no actual consumers complaining as a result of a particular alleged violation. A suit about that particular alleged violation would be meritless; the only reason it’s being brought is because the applicable consumer fraud law is a fee-shifting statute providing for attorneys fees for the prevailing plaintiff.
(I have avoided the term “frivolous” because that word has a narrow technical meaning in the law.) David Nieporent(Quote)
Martinned says:
If there are no injured parties, no one has standing to sue. Textbook unmeritorious suit. Whether de minimis injury suffices is something you’ll have to take up with the (Lujan) Court. Martinned(Quote)
David Nieporent says:
You’re thinking of federal law. State laws don’t all have the same limitations. David Nieporent(Quote)
curious-george says:
How would one go about “making money” by objecting to a class-action settlement?
My dad asked me to look into one of these settlements in a securities case; he didn’t know about the case until the opt-out period arose, and didn’t like the lawyers’ recovery vs. what the ‘plaintiffs’ got.
I didn’t know, however, what good it would do to file an objection for him.
Did I leave money on the table here? What did I do wrong? curious-george(Quote)
Martinned says:
There are states that don’t require injury in fact for standing? What will they think of next??? Martinned(Quote)
David M. Nieporent says:
As an individual, you can’t, except to the extent you improve the settlement for the class, and benefit as all class members do; as an attorney, you can. David M. Nieporent(Quote)
curious-george says:
David M. Nieporent:
now you’ve got me curious. How does this work? Let’s say in my case, I had only one client, my dad. We file an objection, which the court rules on. Is there some provision that I, as counsel for an objector, get paid out of the total settlement fund? That would seem odd.
It seemed to me that the only money I, or my dad, would see, is if I filed an objection and the lawyers would agree to a higher payout for my dad just to avoid having to defend the justness of the entire settlement. curious-george(Quote)
David M. Nieporent says:
I myself am not a (so-called) “professional objector,” but I have had served as local counsel for some for years, so I have had an opportunity to observe the “game” up close. There are a few ways:
1) Get paid by the class counsel. Professional class counsel view all professional objectors as trying to “extort” money from them — as looking to be “bought off” to drop the objection. (The big threat from objectors is the threat of appeal, because an appeal can delay the payday for class counsel for a very long time.)
2) Have the court award fees, out of the total attorney fee portion of the settlement, if the court deems that the objections were meritorious and the settlement is improved for the class as a result.
3) Or move to intervene and then negotiate with the defendants directly. David M. Nieporent(Quote)
December 29 roundup says: