1 Chapter Fifteen THE GREAT BIG QUESTION ABOUT CLASS ACTIONS For all our effort, we do not know whether this is a good or a bad thing. The great big question is whether the social utility of the large class action outweighs the limited benefits to individuals, the aroma of gross profiteering, and the transactional costs to the court system. John Frank, 1966 Civil Rules Advisory Committee Member, in a memorandum to the Chair of the 1995 Committee 1 When we peered into the class action fishbowl, we found a murky picture of Rule 23(b)(3) damage class actions. In the ten class actions we studied closely, plaintiff attorneys seemed sometimes to be driven by financial incentives, sometimes by the desire to right perceived wrongs, and sometimes by both. They sometimes devoted substantial resources to investigating case facts and law, but at other times moved quickly to negotiating settlements. Some of these settlements served class members interests better than others. Most produced substantial fees for the lawyers themselves. Judges sometimes used their authority to ensure that settlements provided more for class members and the public than for the lawyers, but at other times seemed reluctant to do so. Objectors sometimes contributed to improving the quality of settlements, but at other times they appeared on the scene seemingly only to collect fees for themselves. Is there any way to sort out this mix of practices and outcomes to answer the great big question about damage class actions: Do they, on balance, serve the public well? From ten case studies, we cannot extrapolate to the universe of damage class actions, or even to all consumer class actions or all mass tort class actions. To determine whether, on balance, Rule 23(b)(3) damage class actions do more good than harm we would need to survey a large, statistically representative sample of class actions and reliably measure their outcomes. Such a study would require a list of the universe of damage class actions and detailed information about their direct and indirect consequences, neither of which is easy to obtain at present. But even if we could conduct that study, there is no guarantee that we could agree on how to interpret the results. Without a consensus on what the social utility of damage class actions should be, there can be no 401
2 402 Class Action Dilemmas consensus on how to weigh the social benefits of class actions against their costs. What the ten case studies do provide is a concrete basis for considering the claims that underlie the great big question about damage class actions: that these lawsuits are solely the creatures of class action attorneys entrepreneurial incentives; that it is easy to detect nonmeritorious class actions and that most suits fit in that category; that the benefits of class actions accrue primarily to the lawyers who bring them; that transaction costs far outweigh benefits to the class; and that existing rules are not adequate to insure that class actions serve their public goals. By arraying the facts of the ten class actions that we studied closely alongside the claims of critics, we can better understand the public policy dilemmas posed by damage class actions. A. HOW DAMAGE CLASS ACTIONS ARISE The notion that Rule 23(b)(3) class actions are lawyer-driven is at least as old as the rule itself. The claim is not that it takes a lawyer to bring a class action that is self-evident but rather that class actions turn our whole concept of civil litigation on its head. Instead of an injured individual finding a lawyer to help her obtain a legal remedy, and paying that lawyer for his time and expenses, the lawyer looks for instances in which individuals may have been injured, finds a representative plaintiff, and files a class action to obtain fees for himself, giving short shrift to the question of whether the claims he brings have merit. 2 As one prominent class action critic put it, The class action suit... is the deputation of the nation s lawyers as bounty hunters to sue whomever they can legally assert has engaged in conduct injurious to large groups of individuals. In practice, it amounts to the lawyers suing whomever they believe vulnerable to a settlement and capable of paying large attorneys fees. 3 Our case studies of ten damage class actions tell a more textured tale of how damage class actions arise. Class actions are complex social dramas. Plaintiff class action attorneys play a crucial role, but so do individual consumers, regulators, journalists, and ordinary lawyers. Defendants roles in the litigation vary: They contest some suits vigorously, but pursue certification when it appears to offer an efficient means of capping liability exposure. The choreography of the litigation is often complicated: Class action attorneys seek out jurisdictions where they think their suits will fare well, but cases move from jurisdiction to jurisdiction and new actors appear and disappear from the stage. Although lawyers drive the drama to its conclusion, it is American society and culture that provide the ingredients for the story.
3 The Great Big Question About Class Actions The Role of Class Action Attorneys In the ten lawsuits we studied closely, class action attorneys played myriad roles. Sometimes they uncovered what they thought was a legal violation, either on their own or in response to queries from consumers or clients, and pursued defendants on behalf of the class of individuals who allegedly had been harmed. Sometimes the lawyers followed up on information produced by regulators or the media, seeing in this information an opportunity for initiating a financially beneficial series of class actions. Sometimes the attorneys jumped onto a litigation bandwagon that was constructed by other class action attorneys. Sometimes they brought resources and expertise that enabled them to conclude the case successfully for the class. Sometimes they arrived on the scene seemingly simply to claim a share of the spoils. Although lawyers dominated these class actions, nonlawyer individuals were often involved as parties to individual lawsuits that started a chain of events that led to the class action, or as consumers who brought their complaints to companies, regulatory agencies, the press, or to the lawyers themselves. Regulators in their official and unofficial capacities also often played key roles in the unfolding of the cases. The conventional view of damage class actions is that consumer cases arise as representative actions, without any prior individual litigation, and that mass tort cases arise out of individual litigation. Among the ten class actions we studied, however, we found two consumer cases in which individual litigation preceded the class action, and two mass torts in which the litigation first arose as a class action, without any preceding individual litigation (see Table 15.1). In the Great Western Brokerage Products case, the class action was preceded by a non-class suit brought by Michael Linfield on behalf of his elderly relative, Ruby Rosenthal, and two dozen other Great Western depositors like her who had traded their savings for mutual funds. In the Heilig-Meyers credit life insurance litigation, the chain of events was more complicated: Initially, Cindy Mc- Cullar went to attorney J. O. Isom for help in dealing with a suit that was brought against her for default on her automobile loan. Isom filed a lawsuit on her behalf, claiming she had been the victim of fraudulent business practices. But as he investigated the case, Isom became interested in the credit life insurance policy that she had purchased when she financed her automobile purchase. Ultimately, he filed a suit against the credit life insurer and the automobile dealership, claiming they had violated Alabama s truth-in-lending law. When he shared his legal complaint with consumer attorney Garve Ivey, the latter saw a potential for large-scale litigation against Heilig-Meyers and other similarly situated defendants.
4 404 Class Action Dilemmas Table 15.1 How the Ten Class Actions Began Was there prior individual litigation? Did individual(s) seek legal assistance? Did class action piggyback on prior class action? Did regulatory attention help stimulate the class action? Roberts v. Bausch & Lomb Pinney v. Great Western Bank Graham v. Security Pacific Housing Selnick v. Sacramento Cable Consumer Class Actions No (complaints) Yes No Yes, FDA and state attorneys general Yes Yes No No None reported No (complaints) Yes Yes No No Yes Yes, cable commission investigation Inman v. Heilig-Meyers Yes Yes Yes No Martinez v. Allstate/Sendejo No No No No v. Farmers Mass Tort Class Actions In re Factor VIII or IX Blood Products Yes Yes No No Atkins v. Harcros No Yes No Yes, state EPA remediation In re Louisiana-Pacific Siding Litigation None reported (complaints) (arbitration) In at least one instance Yes (4 similar State attorneys actions were general investigations helped pub- filed by different sets licize complaints of attorneys) Cox et al. v. Shell et al. Yes Yes Yes No Turning to mass torts, often thought to emerge from individual suits, the Harcros chemical factory toxic exposure litigation and the Louisiana-Pacific home siding product defect litigation both began as class actions, without prior individual litigation. Often when individual litigation did not precede class action lawsuits, individuals other than lawyers nevertheless played a role in stimulating the litigation. It was California optometrist Dr. Robert Pazen s dismay over the notion of charging his patients different prices for physically equivalent contact lenses that set off the chain of events that ultimately led to the Bausch & Lomb contact lens pricing class action. Pazen pursued the question first with the company s management, then with a local assistant district attorney whose office, in turn, contacted the federal Food and Drug Administration (FDA). Attorney Linfield invited attorney friends with employment law and civil rights experience to join him in a class action only after hundreds of Great Western brokerage products
5 The Great Big Question About Class Actions 405 purchasers called him in reaction to his press conference discussing Ruby Rosenthal s suit. Individual consumer complaints against Sacramento Cable s late fee policy led to an investigation by the Sacramento Metropolitan Cable Television Commission, which, in a somewhat circuitous fashion, attracted the attention of local consumer attorney Mark Anderson. Individual consumer complaints concerning Louisiana-Pacific s home siding led to mass media coverage, to efforts to adopt local ordinances banning the siding, and to attorneys general investigations in Florida, Oregon, and Washington state. Sometimes individual consumers went directly to lawyers with their complaints. The Harcros chemical factory class action arose when residents of the Gert Town neighborhood approached a local lawyer. One of the four class actions that were ultimately filed in the home siding case was stimulated by a consumer who was dissatisfied with the outcome of Louisiana-Pacific s arbitration of his complaint and contacted his attorney. In some instances, the lawyers litigants turned to were class action attorneys. Rick Ellis, the lead counsel in the Bausch & Lomb contact lens pricing class action, was contacted by Boston-area contact lens wearers. In the Security Pacific collateral protection insurance case, John Graham, a former client of lead counsel John Deakle whom Deakle had represented on a workers compensation claim, asked the lawyer to review documents pertaining to Graham s mobile home loan from Security Pacific. Deakle is a class action attorney, and Graham s decision to seek his assistance was apparently stimulated in part by the news that he had settled a class action against another bank, alleging that it had overcharged borrowers for collateral protection insurance. Sometimes the lawyers to whom litigants first turned contacted class action practitioners even, on occasion, when they themselves had class action experience. Ellis turned to Ralph Knowles, a personal injury lawyer with whom he had become acquainted in the course of the silicone gel breast implant class action, and together they assembled a team of class action practitioners based in different parts of the country to bring the contact lens pricing lawsuit against Bausch & Lomb. Linfield first turned to employment and civil rights attorneys Stormer and Frank. Then, after federal district court Judge Irving Hill indicated that he did not believe the three of them could adequately represent the class in the brokerage products class action, Linfield called on Milberg, Weiss, Bershad, Hynes & Lerach, one of the nation s leading plaintiff securities class action firms. The lawyer whom Gert Town residents talked to about environmental remediation around their neighborhood chemical factory contacted local class action practitioners on their behalf. The class action phase of the polybutylene pipes litigation began when a lawyer on the staff of Trial Lawyers for Public Justice (TLPJ) sought out solo practitioner Marc Murr to assist her in collecting damages for leaky pipes in her condominium; working with him, TLPJ assem-
6 406 Class Action Dilemmas bled a team of class action practitioners who filed a class action lawsuit in state court in Houston. In all the cases we studied, whatever the role of nonlawyers in stimulating the litigation, the idea of bringing a class action came from, not surprisingly, the lawyers. Had it not been for the press conference Linfield organized and the attendant publicity other Great Western brokerage product purchasers would likely never have learned that they might have a legal claim. John Graham may have believed that he was bringing John Deakle the ingredients for a class action against Security Pacific, or he may simply have been seeking individual legal assistance; Deakle, however, knew a class action when he saw it. It was the plaintiffs lawyers who petitioned the Judicial Panel on Multidistrict Litigation to transfer all pending blood products cases to Judge John Grady in the federal district court of northern Illinois and then asked Judge Grady to certify a nationwide class action. All three sets of lawyers involved in the home siding litigation had some class action experience, and two of the lawsuits were litigated by teams of class action specialists. Among the ten class actions, the only one that appears to have been wholly lawyer-driven meaning that we could find no evidence of prior individual litigation, individuals initiating the action directly by contacting lawyers, or individuals initiating the litigation indirectly by pursuing complaints with lawyers, regulators or the press is the Allstate/Farmers insurance premium double rounding case. Were it not for Dallas personal injury lawyer John Cracken s hiring of former Texas Department of Insurance General Counsel D. J. Powers as a consultant to investigate the potential for developing class actions against the insurance industry, how the Allstate and Farmers insurance companies were calculating premiums would likely never have attracted public attention. Lawyers seem to have been prepared, if not looking, for class actions in five others among those we studied Security Pacific collateral protection insurance, Sacramento Cable TV late fees, Heilig-Meyers credit life insurance and the Louisiana-Pacific home siding and polybutylene pipes. In each of these, class action attorneys modeled their cases after other class actions that either they or other attorneys had litigated previously. Deakle had brought a class action against a different financial institution, alleging that the defendant had imposed excessive charges for collateral protection insurance; Ivey had brought prior credit life insurance class actions; Anderson had brought a class action against a different cable TV company in a different court, alleging that the defendant charged excessive late fees; and one group of class action lawyers in the home siding case had brought a similar class action against a different wood product manufacturer.
7 The Great Big Question About Class Actions 407 Attention from regulators, which sometimes led to an enforcement action against the defendants, directly or indirectly stimulated class actions in four of the cases. Media coverage of the FDA s refusal to sanction Bausch & Lomb, as well as statements by some state attorneys general that they were investigating Bausch & Lomb s pricing practices, apparently attracted the attention of Boston-area consumers who, in turn, contacted the class action attorneys who filed a lawsuit against that company. Anderson apparently found out about Sacramento Cable TV s late-fee policy from a lawyer acquaintance who was assisting the Sacramento Metropolitan Cable Commission. Louisiana s Department of Environmental Quality s order for remediation measures against toxic contamination on the Harcros chemical factory s property stirred concern among neighborhood residents. Media coverage of state attorneys general investigations of consumer complaints regarding home siding products may have helped attract the attention of the attorneys who filed lawsuits against Louisiana-Pacific The Role of Defendants Although public commentary frequently depicts damage class actions as plaintiff lawyers suits, an alternative view is that they are the creature of defendants desires to forestall more costly forms of litigation or continued consumer complaints. Indeed, in the qualitative interviews we conducted with attorneys before we conducted the case studies, some respondents claimed that defendants, rather than plaintiffs, sometimes initiate damage class actions. Among the class actions we studied, we did not find any in which the available evidence suggests that it was defendants who initiated the action, but defendants efforts to contest the class actions varied from case to case (see Table 15.2). In seven of the ten cases, defendants engaged in at least some activity directed at ending class litigation. Often, they opposed class litigation vigorously, not only seeking to have the case dismissed on substantive legal grounds but also contesting certification, sometimes all the way up to the highest appellate courts. For example, in the Texas insurance premium double rounding case, defendants Allstate and Farmers insurance companies sought (variously) removal to federal court, change of venue from one state court to another, and dismissal of the complaint on the grounds that the proper method of calculating premiums was a matter for administrative law proceedings. They opposed certification at the trial level, and under Texas state law filed an interlocutory appeal of certification. Rather than pursue these cases to trial, however, defendants in these seven cases ultimately joined plaintiff attorneys in seeking approval of a class settle-
8 408 Class Action Dilemmas Table 15.2 How Defendants Responded to the Ten Class Actions Roberts v. Bausch & Lomb Pinney v. Great Western Bank Graham v. Security Pacific Housing Services, Inc. Selnick v. Sacramento Cable Inman v. Heilig- Meyers Martinez v. Allstate/Sendejo v. Farmers In re Factor VIII or IX Blood Products Did defendants attempt to shift case to another court? No No No Did defendants contest the class action? Consumer Class Actions Yes, moved for summary judgment, petitioned for writ of mandamus but were denied; argued motion to decertify to trial court Yes, filed motion to dismiss, opposed initial certification, argued motion to decertify No, never answered complaint. Joined plaintiff attorney in requesting temporary certification even before settlement was reached Did defendants try to narrow or broaden the class definition? Class was expanded, apparently to ensure competing class actions were dropped Defendants agreed to expand class to all of California Supported expanding class to nation to close off litigation. Negotiated non-opt-out provision for Mississippi class members with punitive claims (later dropped) No Yes, opposed certification Agreed to plaintiff attorneys expanded definition of class, which included some members who had no opportunity to opt out No Yes, tried to remove to federal court, but they were unsuccessful. Sought change of venue to another state court No Yes, opposed certification, sought summary judgment, moved for reconsideration of certification Yes, filed motion to dismiss on grounds that matter was administrative, opposed certification, appealed certification Mass Tort Class Actions Yes and no. Opposed MDL, sought mandamus, resulting in decertification of first class, did not oppose certification of new class Agreed to expand non-opt-out class to all Alabama residents who had ever purchased credit life or disability insurance from them No Initially, conditioned settlement on limiting the number of opt-outs, but this condition was later dropped
9 The Great Big Question About Class Actions 409 Table 15.2 (continued) Did defendants attempt to shift case to another court? Did defendants contest the class action? Did defendants try to narrow or broaden the class definition? Atkins v. Harcros In re Louisiana- Pacific Siding Litigation Cox et al. v. Shell et al. Yes, tried to remove to federal appealed certification Yes, unsuccessfully court, but were to appellate courts unsuccessful No No Negotiated non-opt-out class for punitive damage claims Not much. Moved for Sought global settlement, and dismissal, but then conditioned settlement on joined plaintiff attorneys limiting the number of optouts in seeking certification for settlement 4 months after filing No, all defendants joined Sought global settlement with Beeman class attorneys in seeking certification; one defendant subsequently sought certification in another court; other defendants sought certification in third court, and facilitated cooperation among competing class counsel ment. For example, defendant Heilig-Meyers initially sought to have the credit life insurance overcharge claims against them dismissed, and then opposed certification. But after the Alabama Supreme Court held that the way they and other retailers had been pricing credit life policies for years contravened the plain language of the relevant statutes, they joined with plaintiff attorney Ivey in seeking approval of a class settlement. Defendants in the blood products mass tort case, who succeeded in derailing certification for trial of an earlier class action by petitioning the Seventh Circuit for mandamus and decertification, ultimately joined with plaintiff attorneys in seeking settlement class certification. In three of the ten cases, defendants seemed about as eager as plaintiff attorneys to settle the litigation against them by means of a class action, which followed either extensive individual litigation or previous class actions or both. In the collateral protection insurance case, the defendant who had previously been the target of similar class actions never answered the complaint, never engaged in formal discovery, and joined with the plaintiff attorney in seeking certification of a settlement class less than a year after the lawsuit was filed. In the home siding case, a defendant who had previously attempted to satisfy con-
10 410 Class Action Dilemmas sumers complaints through both a warranty program and an arbitration program reached settlement with the plaintiff attorneys just six months after the first of several class actions was filed. In the polybutylene pipes case, defendants who had been the targets of individual litigation for more than a decade actually helped plaintiff attorneys who had filed competing class actions get together, so that they could join forces in seeking a global resolution of the litigation. Once defendants decided to support class action treatment of the litigation against them, they (not surprisingly) favored as broad a definition of the class as possible. Defendants also sought to bind class members definitively, by seeking certification of non-opt-out classes or subclasses. 5 In four cases collateral protection insurance premium, cable TV late fees, credit life insurance, and the chemical factory toxic exposure litigation defendants negotiated a settlement that had a no opt out provision for all or some class members. (In the collateral protection lawsuit, objectors subsequently forced the defendant and plaintiff attorneys to drop the no opt out provision.) In the cable TV late fee lawsuit, the plaintiff attorney and defendant agreed to expand the class definition (and provided no opportunity for the newly eligible class members to opt out). In sum, in all ten class actions, defendants decided it was in their interest to negotiate a classwide settlement at some stage of the litigation. When they did, they often pursued class certification as vigorously as the class action attorneys. 3. Deciding Where to File Another recurrent complaint about Rule 23(b)(3) damage class actions is that plaintiff attorneys file lawsuits in courts where they believe the judges are more likely to grant certification. As with many other aspects of damage class actions, deciding where to file a damage class action lawsuit turns out to be more complicated than the general critique suggests. In ordinary civil litigation, plaintiff attorneys decide what forum (i.e., state court or federal court, a California state court or an Arizona state court) in which to file a lawsuit. Within a state, attorneys sometimes also have a choice among different venues (i.e., geographic locations, typically counties). In the federal court system, attorneys can sometimes choose as their venue any one of the nearly one hundred federal districts. These choices can give a plaintiff attorney great latitude in deciding where to file a lawsuit. If defendants are unhappy with the plaintiff attorney s choice, they may be able to move the case to an alternative forum (e.g., from state to federal court) or venue.
11 The Great Big Question About Class Actions 411 Class action attorneys often have greater latitude in their choice of forum or venue than their counterparts in traditional litigation: Under some circumstances, an attorney filing a statewide class action could file in any county of a state and an attorney filing a nationwide class action could file in virtually any state in the country, and perhaps any county in that state as well. Class action attorneys may also be able to file duplicative suits and pursue them simultaneously. These are powerful tools for shaping litigation, providing opportunities to seek out favorable law and positively disposed decisionmakers, as well as to maintain (or wrest) control over high-stakes litigation from other class action lawyers. Historically, public policymakers have tried to discourage lawyers from forum shopping by maximizing the likelihood that cases and litigants will be treated in the same fashion by every judge in every court within a jurisdiction. 6 But differences in states substantive law which not only applies to cases filed in state courts but also to cases filed in federal courts under diversity jurisdiction 7 as well as differences between federal and state courts, and among states in court procedural rules, offer incentives for both plaintiff and defense attorneys to seek out jurisdictions that may be more friendly to them. Lawyers may also believe (rightly or wrongly) that certain judges will be more or less favorably inclined toward their claims or clients, 8 and that juries in certain jurisdictions are pro-plaintiff or pro-defendant. And sometimes lawyers choose a jurisdiction or venue because they think that a lawsuit may move more quickly or slowly there than it would if they filed it elsewhere, which may have important implications for their suit. Although courts formally frown on forum shopping, plaintiff and defense lawyers who ignore the potential effects of forum selection on case outcomes are failing their clients. Class action attorneys choices are shaped by all these factors and others as well. Plaintiff class action attorneys may seek out states whose law is more inviting of class actions generally or more amenable to nationwide class actions, in particular, or whose procedural rules provide for quicker and, perhaps, easier certification. Defendants may counter by removing cases from state courts to federal courts, where in recent times defendants have hoped that judges appointed by conservative presidents would be less amenable to class actions. Some jurisdictions have local rules specifying that when cases are identical (as most statewide and nationwide class actions arising out of the same circumstances tend to be), the first case filed has priority over others filed within that jurisdiction. Other rules give priority to the first case certified. In some jurisdictions, cases can be preliminarily certified as class actions on the very day that they are filed. How quickly a court moves its cases toward conclusion may also be important, because once a case is settled and approved by the judge in a
12 412 Class Action Dilemmas particular jurisdiction, it binds all members of the class who have not opted out, including those putatively included in class actions filed elsewhere by other class action attorneys. 9 Our analysis of class action activity in (reported in Chapter Three) suggested that there is some truth to the notion that certain states are more popular venues for consumer class actions, and that mass toxic exposure class actions are found in higher numbers in some states, than we would expect simply on the basis of the population of those states. Among the ten class actions we studied which we did not choose because of their jurisdiction or locale two were filed in Alabama and two in California; the other six were filed in Illinois, Louisiana, Mississippi, Oregon, Tennessee, and Texas (see Table 15.3). What strategic preferences might have contributed to plaintiff attorneys choices of these jurisdictions and venues? Half of the cases were filed in the states where we would expect to find them, because the class actions were local or statewide (rather than nationwide) and the class members lived in those states (see Table 15.3). For example, the Sacramento Cable TV late fee case was filed in Sacramento County, California. In the other five instances, attorneys could have filed their lawsuits elsewhere because they were nationwide classes; their choices of jurisdiction were clearly strategic. Table 15.3 Forum Choice in the Ten Class Actions Roberts v. Bausch & Lomb Pinney v. Great Western Graham v. Security Pacific Housing Services, Inc. Jurisdiction and scope of class action Federal court, Alabama, nationwide Federal court, California, statewide Federal court, Mississippi, nationwide (initially filed as statewide class) Did class action attorneys file elsewhere? Consumer Class Actions No Yes, parallel case later filed in state court Yes, filed in 6 state courts and 2 other federal courts Were there competing class actions? Yes, 2 nationwide suits, 1 filed in CA and 1 in NY state courts Yes, multistate case filed in Florida No, Graham attorneys spearheaded all litigation Did similar or competing class actions affect resolution? Yes, class somewhat expanded and attorneys in later cases were paid unknown amount of fees by the defendant to settle No NA
13 The Great Big Question About Class Actions 413 Table 15.3 (continued) Selnick v. Sacramento Cable Inman v. Heilig- Meyers Martinez v. Allstate/Sendejo v. Farmers In re Factor VIII or IX Blood Products Atkins v. Harcros In re Louisiana- Pacific Siding Litigation Cox et al. v. Shell et al. Jurisdiction and scope of class action State court, California, metro-area subscribers State court, Alabama, statewide State court, Texas, statewide Federal court, Illinois, nationwide State court, Louisiana, neighborhood residents Federal court, Oregon, nationwide State court, Tennessee, nationwide Did class action attorneys file elsewhere? No Were there competing class actions? Yes, in same state court Did similar or competing class actions affect resolution? No, competing class action was settled for a minimal amount No No NA No No NA Mass Tort Class Actions No other class actions were brought by these attorneys Yes, filed 5 other similar suits in Louisiana courts that were subsequently consolidated No Yes None significant No 1 previously settled statewide class action; 2 competing nationwide class actions NA NA 3 nationwide class actions joined. All attorneys participated in separately negotiated fee award 3 competing From first proposed attorney groups settlement to final filed nationwide settlement, class class actions in expanded, settlement fund in- multiple federal and state creased by 12 courts. Other percent, and statewide class plaintiff attorney actions were fees increased by also filed in 67 percent various states Sometimes, lawyers who filed state court cases made strategic decisions about what venue within the state to file in. For example, the lawyers who filed the insurance premium double rounding case chose Zavala County in rural and remote southwest Texas, rather than Dallas or Austin as the site in which to pursue their litigation, and the attorneys in the polybutylene pipes litigation chose rural Obion County in Tennessee, rather than Memphis or Nashville.
14 414 Class Action Dilemmas Sometimes, the plaintiff attorneys choice of jurisdiction was based, in part, on that jurisdiction s law. For example, in the collateral insurance protection case, although John Deakle lived in Mississippi, he filed his lawsuit there in part because he believed that Mississippi law was particularly favorable toward his claims against Security Pacific. In some instances, plaintiff attorneys forum selection strategy seemed to reflect a desire to have a particular judge preside over their case or to try the case to a jury in a particular locale. Plaintiff lawyers in the contact lens pricing case told us that among the factors affecting their choice of the Northern District of Alabama was that they believed they would get a fair shake from that district s judges and that a jury from that area would be favorably inclined toward their claims. John Cracken chose Zavala County renowned locally as a plaintifffriendly venue for the insurance premium double rounding case, and hired a Zavala County lawyer to assist him who had been a high-school classmate of the presiding judge. Garve Ivey s choice of venue for the credit life insurance class action was fortunate; his local counsel was a judge who had recently retired from that county s bench and was reputed to have personally selected his successor. Plaintiff attorneys in the blood products class action wanted federal Judge John Grady to be assigned to the multidistrict litigation that ultimately led to the class action because they had been impressed by his handling of an individual liability suit against blood product manufacturers. But often, plaintiff attorneys jurisdiction or venue choice was driven by a desire to maintain control over their class action in the face of competition from other class action lawyers. Although Deakle preferred the federal court in Mississippi for the collateral protection insurance class action, he filed other class actions in other states to protect against the possibility that he would be unsuccessful in Mississippi. The plaintiff attorneys in the chemical factory class action took the unusual step of filing five other essentially identical class actions in local courts in the hopes of finding one court that would move the matter quickly. One set of attorneys in the home siding litigation filed their class action in the federal district of Oregon in expectation that, if all the class actions that had been filed in federal courts were transferred to a single federal district by the MDL panel, they would most likely be transferred to the defendant s home state, and attorneys who had already filed there would have an edge when it was time for the judge to appoint lead counsel. In the polybutylene pipes litigation, the first nationwide class action lawsuit, Beeman, was filed in Texas state court in Houston, where it progressed for 17 months until the judge presiding over the matter rejected a proposed settlement. Meanwhile, another group of attorneys who had copied the original Houston complaint almost verbatim had filed a competing nationwide class action in state court in Greene County, Alabama; they were able to get preliminary approval of a settlement class just six months later, three months after the Houston settlement was turned away by the judge. The
15 The Great Big Question About Class Actions 415 Beeman attorneys tried to maintain their own case by refiling it in federal court in Galveston, Texas, where they hoped to have the matter heard quickly before the competing Alabama case was resolved by a judge with a reputation for a fast docket. Unfortunately for them, that federal judge transferred the case to Houston, where the federal court was backlogged and moving slowly. When yet another set of class action attorneys was ready to file a third competing national class action (Cox), they selected a state court in Union City, Tennessee, where they could get a class certified the day they filed the complaint. As a result of competition among class action attorneys, defendants may find themselves litigating in multiple jurisdictions and venues at once. But defendants then may also choose among competing lawyers and among jurisdictions, venues, and judges by deciding to negotiate with one set of class action attorneys rather than another. Sometimes, attorney competition may produce a better deal for class members but at a price. For example, in the contact lens pricing class action, the filing of tag-along cases in California and New York eventually resulted in the expansion of the class in the Alabama action to include another line of lenses and a longer purchase period. In return, the attorneys in those tag-along cases received an unknown amount of fees from defendants. When the Cox attorneys agreed to settle the polybutylene pipes litigation against Shell Oil Company and Hoechst Celanese, they initially bargained for an increase of $100 million in the settlement fund for future claims (and later added another $100 million) and an increase of $25 million in the fund to pay past claims, as compared to the settlement that had been proposed by the Beeman attorneys. When the defendants fearing the tentative settlement might unravel brokered an invitation for the Beeman attorneys to join with the Cox attorneys, attorney fees also increased, from a reported $24 million proposed in the Beeman case to $45 million proposed by the Cox group. When the third group of attorneys, who had filed a competing class action in Alabama, was brought into the Cox settlement, total attorney fees increased to $75 million. In other instances, there may be no benefits to the class from the forum selection dance, but it is not clear that there are costs to the class, either. In the collateral protection insurance class action, the attorneys who collaborated with Deakle in filing similar cases in other jurisdictions arguably precluding competitive class actions received an unknown share of his fees, rather than an additional share of the compensation fund. Whether forum choice ought to be constrained in damage class actions poses another dilemma for public policymakers. On the one hand, broad forum choice for class actions derives from our federal system of laws, which has deep historic roots and is a central feature of our democratic system of government. Moreover, the availability of multiple fora may sometimes provide access to
16 416 Class Action Dilemmas compensation through the courts to consumers who would not otherwise have redress. Whether one views this access as good or bad depends, of course, on one s perspective on the merits of using damage class actions for such redress. On the other hand, the pursuit of multiple class actions arising out of the same facts and law increases the private and public costs of litigation, which are ultimately passed on to consumers in the price of products and services, and to taxpayers whose dollars support federal and state courts. The availability of multiple fora also dilutes judicial control over class action certification and settlement, as attorneys who are unhappy with the outcome in one jurisdiction move on to seek more favorable outcomes in another. Broad forum choice enables both plaintiff class action attorneys and defendants to seek better deals for themselves, which may or may not be in the class members or the public s interest. B. QUESTIONS OF MERIT A central theme of the testimony before the Civil Rules Advisory Committee in 1996 and 1997 was the notion that a large fraction of such lawsuits just ain t worth it 10 because the alleged damages to class members are trivial, 11 technical, or just plain make-believe. The evidence critics cited to support this claim usually concerned the amounts individual class members were offered in various class action settlements. But a class action that arose as a result of significant harm to class members could lead to very low recoveries because the lawsuit was compromised by class action attorneys and defendants. Hence, we cannot judge the seriousness of the underlying claims in class actions merely by looking at the amounts class members obtain. To counter the notion that damage class actions involve disputes over trivial amounts, class action supporters who testified before the Advisory Committee pointed to large total settlement amounts, which they argued indicated the power of class actions to enforce regulations and deter the manufacture of unsafe products. But if defendants agree to pay large sums simply to cap their risks and get on with their business, without much regard to the validity of the underlying claims, aggregate payouts are not a good measure of the deterrent power of damage class actions, either. To gauge the seriousness of the claims that underlie class actions lawsuits, we looked at the claims themselves and the allegations that parties made about practices and products, rather than at the way the claims were settled. We could not systematically evaluate the validity of every assertion or counterassertion by the parties. But we did examine the materials in court records, and in some cases we talked not only with the litigators but also with consumer
17 The Great Big Question About Class Actions 417 advocates and regulators about plaintiffs charges and defendants counterassertions. The proposal to institute a just ain t worth it test for certification implied that deciding the value of a class action to class members might be easy. But after reviewing information about the claims underlying the ten class actions we felt like a member of the audience at a production of the Japanese drama Rashomon. Viewed from one perspective, the claims appear meritorious and the behavior of the defendant blameworthy, but viewed from another, the claims appear trivial or even trumped up, and the defendant s behavior seems proper. The complexity of the stories behind these lawsuits and the ambiguity of the facts underlying them provide a partial explanation of why it is so difficult to reach consensus over what sorts of damage class actions should be entertained by the courts. 1. Monetary Claims A common approach to assessing the worth of class actions is to look to the monetary values of class members claims. Among the ten class actions we studied closely, the alleged losses to individuals ranged from less than $5 per person to death (see Table 15.4). Table 15.4 Claims Underlying the Ten Class Actions Nature of alleged harm a Regulators assessment of whether practice violated the law Estimated alleged loss to individual class members b Estimated alleged gain to defendants b Consumer Class Actions Roberts v. Bausch & Lomb Pinney v. Great Western Bank Labeled same product differently and sold at different prices Encouraged depositors to convert savings to riskier investments while implying FDIC insurance FDA held that labeling complied with regulations; state attorneys general held practice unlawful At retail price, loss ranged from $7 to $62 per pair; over the period covered by suit approximately $210 $310 per lens wearer SEC reportedly Approx. $4550 per conducted eligible claimant investigation; no public record available Estimated at $33.5 million by plaintiff attorneys and defendant, based on wholesale price differences Not estimated in lawsuit; Great Western reportedly drew $2.8 billion into the mutual funds
18 418 Class Action Dilemmas Table 15.4 (continued) Nature of alleged harm a Regulators assessment of whether practice violated the law Estimated alleged loss to individual class members b Estimated alleged gain to defendants b Graham v. Security Pacific Housing Services, Inc. Selnick v. Sacramento Cable Inman v. Heilig- Meyers Purchased more coverage than necessary for loan-holders, increasing premium Charged excessive late fees Sold more coverage than needed Martinez v. Overcharged for Allstate/Sendejo v. policies Farmers No regulatory action Cable commission investigation led to change in policy Representative plaintiffs claimed damage ranging from several hundred dollars to nearly $1000 $5 per late payment; could have totaled $250 if all payments were late Not estimated. Plaintiff attorneys alleged that insurance charges were 10 times market rate $5 million Insurance and banking dept. staff said practice was in compliance; supreme court held practice contravened plain meaning of statute $3.83 on average Not estimated in settlement, but probably less than $1 million Insurance commission said current regulations were ambiguous; refused to take action but issued order requiring single rounding in future Mass Tort Class Actions $3 per year on average, with a maximum of $14; could have totaled $30 on average over ten years, or a maximum of $140 Estimates ranged from $18 million (defendants ) to $46 million (plaintiffs ); parties compromised on $42 million In re Factor VIII or IX Blood Products Atkins v. Harcros Sold HIVcontaminated products Chemical factory contaminated property around site No dispute that blood products were HIV contaminated La. Dept. of Environmental Quality required remediation At time of suit, HIV infection was viewed as invariably fatal Illnesses due to exposure, diminished property value, and fear No allegations re defendants gain No allegations re defendants gain
19 The Great Big Question About Class Actions 419 Table 15.4 (continued) In re Louisiana- Pacific Siding Litigation Cox et al. v. Shell et al. Nature of alleged harm a Product deteriorated, requiring replacement Product deteriorated, requiring replacement and property repairs Regulators assessment of whether practice violated the law Estimated alleged loss to individual class members b Defendant settled attorney structure c $4367 per general complaints in Oregon and Washington by paying penalties and revising advertising and warranty practices Federal Trade Commission reportedly conducted investigation. No record of outcome Costs to replumb: $1200 per mobile home; $3700 per single home c Estimated alleged gain to defendants b No allegations re defendants gain No allegation re defendants gain a Based on plaintiffs complaints. Defendants never admitted liability in any of these cases. b Alleged losses and gains were the subject of contentious litigation. The numbers in this table indicate the general magnitude of losses and gains alleged by the parties in settlement negotiations and are presented to provide some general sense of the economic values at stake. In the credit life insurance case, individual losses were not estimated on the record; we estimated the average alleged overcharge based on public reports of class size and the total value of all premiums paid. In most of the mass tort cases, plaintiffs claims of personal injury or property damage were disputed by defendants. For bases of parties estimates, see case studies and Appendix E. c Average value of claims paid to June Among consumer suits, the alleged individual dollar losses ranged from an average of $3.83 in the credit life insurance class action 12 to an average of $4550 in the brokerage products class action. But averages can be deceptive. Some of those who purchased brokerage products allegedly lost more than $4500 and some less. Some cable TV subscribers may have paid a single $5 late fee, and others may have paid penalties on multiple occasions. The total amount of overcharges would have depended on how many times the subscriber paid her bill late and how much of the late fee was unjustified. Assuming that all of the $5 fee was excessive, the maximum amount of alleged overcharges would have been $250 for the 50-month period involved in the lawsuit. Some credit life insurance policy holders may have paid less than $1 in additional premiums. The average Allstate/Farmers insurance policy holder might have paid $3 per year more than he allegedly should have, over a period of ten years, for a total of
20 420 Class Action Dilemmas $30 in alleged overcharges. But in some circumstances because of the way premiums were calculated individual per year overcharges may have been as high as $14, totaling $140 over ten years. On the other hand, some policy holders may have paid only $1 more in premiums than they allegedly should have been charged. We do not know nor could plaintiff attorneys or defendants estimate the total additional cost that contact lens purchasers incurred as a result of buying the higher-cost packages of Bausch & Lomb lenses. Consumers who purchased the more expensive lenses probably paid from two to nine times the price of the less expensive lenses, but they also purchased their lenses less often. Over the five-year period, consumers could have spent several hundred dollars more than they might have, had they known that the differently priced lenses were identical. We do not know the range of losses suffered by Security Pacific borrowers as a result of alleged collateral protection insurance overcharges. Judging from the claims of the representative plaintiffs, those who borrowed from Security Pacific incurred additional charges ranging from several hundred to nearly one thousand dollars. When one closely examines the claims underlying the six consumer class actions we studied, it is a matter of judgment whether alleged losses to individuals are trivial e.g., $3 per average class member in the Texas double rounding case in a single year or not so trivial e.g., $140 for Texas insurance policyholders over a ten-year period in the worst-case scenario. Whatever one s assessment of the alleged individual losses underlying the lawsuits, it is clear that, absent a class action, consumers would not have been able to obtain compensation through the courts. In all of the consumer cases the average loss was less than $5000, and in five of the six cases the average was probably less than $1000. It is highly unlikely that any individual claiming such losses would find legal representation without incurring significant personal expense. 13 The individual losses alleged in the mass tort class actions that we studied varied more, in quality and quantity, when compared with the consumer class actions. In the polybutylene pipes case, the claims facility paid in 1997 an average of about $1200 to replumb mobile homes and $3700 to replumb site-built homes. (Defendants had estimated the costs to replumb mobile homes at $800 and site-built homes at about $4000.) In the home siding case, the claims facility has paid an average of about $4400 to replace a structure s siding. The claims facilities payments are based on inspections by contractors hired by the facilities; we have no information on how well they accord with class members own estimates of loss. Actual dollar losses were never estimated in the blood products and the chemical factory class actions, the two personal injury class actions that we studied. In the blood products litigation, the average damages in individual litigation if plaintiffs had prevailed would have been in the
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