Presentation on theme: "Class Action Abuses and Recent Reforms in the United States: Lessons for Europe (?) Daniel Meron Principal Deputy Assistant Attorney General Civil Division."— Presentation transcript:
Class Action Abuses and Recent Reforms in the United States: Lessons for Europe (?) Daniel Meron Principal Deputy Assistant Attorney General Civil Division U.S. Department of Justice
“Class actions permit almost infinite venue shopping; national class actions can be filed just about anywhere and are disproportionately brought in a handful of state courts whose judges get elected with lawyers’ money. These judges effectively become regulators of products and services produced elsewhere and sold nationally. And when the cases are settled, the ‘clients’ get token payments, while the lawyers get enormous fees. This is not justice. It is an extortion racket that only Congress can fix.” The Washington Post, “Making Justice Work,” November 25, 2002.
Southwestern Bell and Cellular One (Illinois State Court, 1998) Each class member gets coupon for $15 off future services Cannot use against current bills, only for new services More than $1 million in attorneys’ fees
American Airlines Case (Cook County, Illinois, 2000) Members of the class receive vouchers worth $25 to $75 for future flights on American Travel experts quoted as saying that “practical value of those discounts will be modest” and that “American could end up generating enough extra revenue to more than offset the cost of the offer” Lawyers get up to $25 million in fees
Challenged length of time that Bank held money in escrow Average plaintiff recovered $9 Agreement stated that Bank would not contest legal fees, and that the fees would be deducted from plaintiffs’ accounts Court awarded $8 million to the lawyers, based on 1/3 of the value of escrow accounts, rather than based on true recovery to the plaintiffs (lost interest) Hoffman v. Bank of Boston (Alabama state court, 1994)
Hoffman v. Bank of Boston (Alabama state court) cont’d Notice did not alert class members as to the method of recovery of the legal fees. Many plaintiffs suffered a net loss. For example, one Dexter Kamilewicz received a credit of $2.19 and a debit (for legal fees) of $91.33. When Kamilewicz objected and accused the lawyers for the class of malpractice, the lawyers sued him for libel and slander.
Traditional Rationale For Class Action Device Solving the “Insufficient Incentive” Problem
Does the Class Action Mechanism In Fact Solve the “Insufficient Incentive” Problem?
Do class members have an incentive to monitor and control the litigation on “their” behalf? Costs of monitoring: Does the pendency of the action alter incentives in any meaningful way? Will class members even know of the existence of the lawsuit prior to execution of a settlement agreement? When class certified before settlement reached: no “opt-out” ability. When class certification is simultaneous with settlement agreement execution, agreement is a fait accompli.
Do the class lawyers have an incentive to represent class interests? No individual within the class is a client to whom the lawyers owe duties of loyalty Class members are not paying clients in any meaningful sense Class members’ lack of knowledge and limited incentive to monitor conduct of lawyers Does the Class Action Mechanism In Fact Solve the “Insufficient Incentive” Problem?
Do the defendants have an incentive to protect class members’ interests? Defendants want releases Broad class definitions Narrow opt out opportunities Settlement terms can generate new revenue and business for the defendants Legalized extortion
Pressure on Defendants To Settle Matter of Rhone-Poulenc Rorer, Inc., 51 F.3d 1293 (7th Cir. 1995) Recognizing “blackmail settlements”: “settlements induced by a small probability of an immense judgment in a class action” Castano v. American Tobacco Company, 84 F.3d 734 (7th Cir. 1996) Class certification creates insurmountable pressure to settle
Does the Class Action Mechanism In Fact Solve the “Insufficient Incentive” Problem? Can judges protect class members’ interests? Lack of access to information Settlements prior to substantive litigation Limited access to facts pre-trial in adversarial judicial system Institutional inability to assess utility Can elected (state) judges be insulated from pressures?
Recent US Federal Procedural Reforms (2003) Notice and “opt-out” opportunities: Preexisting provisions Parties to settlement must direct notice in a reasonable manner to all class members who would be bound If class already certified, no right to opt-out at settlement stage, only to object
Recent US Federal Procedural Reforms (2003) Notice and “opt-out” opportunities: New provisions In action previously certified by the court as a class action, court may refuse to approve settlement unless a new opt-out right is provided to class members Parties to settlement must disclose any so-called “side” agreements
Recent US Federal Procedural Reforms (2003) Clarification of Class Counsel Role: Must fairly represent interests of class Rule drafters: counsel represent class as a whole, not individual members Class representatives cannot fire class counsel or order them to accept or reject a settlement offer Are servants to all, servants to no one?? Independent, thus unaccountable??
Recent US Federal Procedural Reforms (2003) Court may award attorneys’ fees, whether authorized by law or by agreement of the parties, only upon motion Served upon opposing party Directed to class members in a reasonable manner Class members may object (not just opposing party) Court must “find facts and state its conclusions of law on the motion” May refer issues related to amount of award to a special master
Legislative Reform: Class Action Fairness Act of 2005 Provides for federal court jurisdiction over most large class actions Independent federal judges with life tenure v. elected state judges Controls fees in coupon settlements Attorneys’ fees, if based on value of settlement to the class, must be based on value of coupons as redeemed Court may condition approval on distribution of unclaimed amounts to governmental or charitable orgs.
Is the US Experience Relevant for Europe? Litigiousness of culture No elected judges No or limited jury use in civil cases Limitations on contingency fees
Issues to Consider Standing of organizations/class counsel Lawyers fees based on percentage of recovery Collusive settlements Opt-in requirements Appointment of master/expert with access to evidence to evaluate settlement
Issues to consider (cont’d) Centralized law v. regional autonomy (US – EU comparison)
Ott v. MCI WorldCom, Inc. (Aug 28, 2000) Plaintiff, from Delaware, sues Mississippi Corp. in Madison County, Illinois Nationwide class action challenging MCI’s advertising Ask judge to issue nationwide injunction based on Illinois Deceptive Business Practices Act Only basis for venue is tiny fraction of MCI customers residing in county