Class action "cops": Public servants or private entrepreneurs?

Stanford Law Review

Volumn 57, Issue 5, 2005, Pages 1441-1474

  Beisner, John H ^a,b   Shors, Matthew ^c   Miller, Jessica Davidson ^c  

^a Office of O'Melveny and Myers LLP   (United States)

^b Class Action Practice Group   (United States)

^c Class Action and Strategic Counseling Practice Groups ^*

Author keywords

[No Author keywords available]

Indexed keywords

EID: 33646024311     PISSN: 00389765     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Conference Paper

References (161)

1. Class Action Fairness Act of 2005, Pub. L. No. 109-2, 119 Stat. 4 (codified in scattered sections of 28 U.S.C.).
2. Lieff Cabraser Heimann & Bernstein, LLP, Class Action Lawsuits: Answers to Frequently Asked Questions, at http://www.lieffcabraser.com/about.htm (last visited Mar. 20, 2005) [hereinafter Class Action Lawsuits FAQ].
3. Id. (emphasis added).
4. 28 U.S.C. § 2072(b) (2000).
5. Darryl Haralson & Adrienne Lewis, USA Today Snapshots: Opinions on Class-Action Lawsuits, USA TODAY, Mar. 24, 2003, at 1B;
6. Press Release, U.S. Chamber of Commerce, Chamber Poll Shows Americans Want Class Action Reform; Almost Half Believe Plaintiffs' Lawyers Benefit More than Consumers (Mar. 5, 2003), available at http://www.uschamber.com/press/releases/2003/march/03-40.htm.
7. Corporate Distrust on the Rise, Study Shows, TEX. LAW., Nov. 4, 2002, at 1.
8. See, e.g., Editorial, Class-Action Plaintiffs Deserve More than Coupons, USA TODAY, Oct. 9, 2002, at 12A;
9. Editorial, Class-Action Showdown, WALL ST. J., July 8, 2004, at A14;
10. Editorial, Reforming Class Actions, WASH. POST, June 15, 2003, at B6.
11. Editorial, Actions Without Class, WASH. POST, Aug. 27, 2001, at A14.
12. See Class Action Fairness Act of 2005, Pub. L. No. 109-2, 119 Stat. 4 (codified in scattered sections of 28 U.S.C.).
13. John H. Beisner & Jessica Davidson Miller, They're Making a Federal Case of It . . . In State Court, 25 HARV. J.L. & PUB. POL'Y 143, 157 (2001) [hereinafter Beisner & Miller, Federal Case].
14. Id.
15. Id.
16. John H. Beisner & Jessica Davidson Miller, Class Action Magnet Courts: The Allure Intensifies, 4 Class Action Litig. Rep. (BNA) 58 (Jan. 13, 2003) [hereinafter Beisner & Miller, Magnet Courts].
17. Richard Scruggs, Asbestos for Lunch, Remarks at the Prudential Financial Research Financial Services Group Conference (June 11, 2002).
18. Beisner & Miller, Magnet Courts, supra note 13, at 58.
19. Trisha L. Howard, While Congress Debated Bill, Lawyers Rushed to File in Madison County, ST. LOUIS POST-DISPATCH, Jan. 11, 2004, at E1.
20. Beisner & Miller, Magnet Courts, supra note 13, at 58.
21. Id.
22. S. REP. NO. 108-123, at 15-18 (2003). A recent study by Theodore Eisenberg and Geoffrey Miller purported to analyze attorneys' fees in state and federal class actions over the last decade and to determine (1) whether fees have generally increased over this period, and (2) whether state courts are more generous than federal courts when it comes to awarding fees to lawyers in class action settlements. See Theodore Eisenberg & Geoffrey P. Miller, Attorney Fees in Class Action Settlements: An Empirical Study, 1 J. EMPIRICAL LEGAL STUD. 27 (2004). While the study concluded that attorneys' fees are not higher in state court cases, it suffered from fundamental flaws that render this conclusion unreliable. First, the study almost exclusively analyzed federal court precedents and thus could not draw meaningful comparisons between federal and state court cases. And second, the study explicitly excluded "coupon" settlements. As a result, the study virtually ignored the cases where the attorneys' fees are typically most egregious and the state courts in which most of the abuses are occurring.
23. In re Gen. Motors Corp. Pick-Up Truck Fuel Tank Prods. Liab. Litig., 55 F.3d 768, 788 (3d Cir. 1995) (disapproving settlement granting $1000 coupons to class members who purchase new GM trucks).
24. Editorial, Pay the Lawyers in Coupons, Too, ROCKY MTN. NEWS (Denver, Colo.), July 25, 2004, at 7E [hereinafter Pay the Lawyers].
25. S. REP. NO. 108-123, at 15-16 (footnotes omitted).
26. Caroline E. Mayer, FTC Seeks to Limit Attorney Fees in Class Action Suits, WASH. POST, Sept. 30, 2002, at A17.
27. Thomas B. Leary, The FTC and Class Actions, Remarks at the Class Action Litigation Summit (June 26, 2003), available at http://www.ftc.gov/speeches/leary/classactionsummit.htm.
28. Id.
29. Id.
30. While some have sought to blame defense counsel (and to some extent, their clients) for agreeing to such settlements, that criticism cannot be justified. Defense counsel are under ethical obligations to zealously represent their clients (and, in turn, their shareholders). The responsibility for protecting the class interests lies exclusively with the purported class counsel, under the supervision of the court handling the matter.
31. See, e.g., David Averill, Editorial, So Sue!, TULSA WORLD, Oct. 26, 2003, at G1.
32. Editorial, Plaintiffs Left Out, ROCKY MTN. NEWS (Denver, Colo.), Nov. 11, 2003, at 34A.
33. S. REP. NO. 108-123, at 16-18 (2003).
34. The case discussions in the following paragraphs are adapted from a white paper the authors of this Article prepared during recent debates over class action reform. John Beisner & Jessica Davidson Miller, Recent State Court Class Action Settlements: Good for Lawyers, Bad for Consumers (n.d.) (unpublished white paper, on file with author).
35. For other, similar case discussions also adapted from the same white paper, see U.S. Chamber Inst. for Legal Reform, State Court Class Action Settlements: A Pattern of Abuse and a Proposed Solution (comments submitted to FTC), at http://www.ftc.gov/bcp/workshops/classaction/other/inst_legalreform.pdf (last visited Mar. 21, 2005).
36. No. 96-06932 CA-FN (Fla. Cir. Ct. filed May 1, 1996).
37. See The Law Offices of Douglas Bowdoin, for Plaintiffs, and Todd Pittenger of Lowndes, Drosdick, Doster, Kantor & Reed, P.A., for Defendant, Announce a Proposed Class Action Settlement, BUS. WIRE, July 2, 2003, LexisNexis Library, Business Wire File.
38. Premier Cruise Line Class Reaches Settlement, MEALEY'S LITIG. REP.: CLASS ACTIONS, July 17, 2003, at 19.
39. Tom Collins, Broward Judge Slashes Fee Request, Blasts Attorneys Suing Cruise Lines, BROWARD DAILY BUS. REV., Mar. 15, 2001, Westlaw, Broward Daily Business Review file.
40. No. 99 CV 17089 (Kan. Dist. Ct. Johnson Cty. filed July 29, 2003).
41. The relevant website is Microsoft Products Settlement - Kansas - Homepage, at http://www.microsoftproductssettlement.com/kansas (last updated Aug. 25, 2004).
42. Paul Adams, Judge Rejects Microsoft Settlement, BALTIMORE SUN, Jan. 12, 2002, at 1A;
43. Dan Voorhis, Here's How to Claim Your Share of Microsoft Settlement, WICHITA EAGLE, Dec. 28, 2003, at 1B.
44. No. E-0167637 (Tex. Dist. Ct. Jefferson Cty. filed July 31, 2002).
45. Miles Moore, BFS Settles Nationwide Class Action Suit, RUBBER & PLASTICS NEWS, Aug. 4, 2003.
46. No. 00 CH 13612 (Ill. Cir. Ct. Cook Cty. Nov. 18, 2003).
47. Judge Approves Portillo's Class Action Settlement over Mislabeled Beer, PR NEWSWIRE, Nov. 26, 2003, LexisNexis Library, PR Newswire File.
48. No. 02 CH 15838 (Ill. Cir. Ct. Cook Cty. Oct. 1, 2003).
49. Betty Lin-Fisher, 30% off Sale Part of KB Toys Settlement, AKRON BEACON J., Oct. 14, 2003, at D1.
50. Stephanie Zimmermann, KB Toys Settles Lawsuit over "Low" Prices by Offering Discount, CHI. SUN-TIMES, Oct. 11, 2003, at 3.
51. No. 03 CHK 817 (Ill. Cir. Ct. Kane Cty. Nov. 5, 2003).
52. Edward D. Murphy et al., Conflict and Change, PORTLAND PRESS HERALD, Jan. 4, 2004, at 1F;
53. see also Notice of Proposed Class Action Settlement and Settlement Hearing, Ramsey (Aug. 20, 2003), available at http://www.noticeclass.com/springwatersettlenient/LongFormNoticev2.pdf.
54. No. CGC-02-406658 (S.F. (Cal.) Super. Ct. Sept. 22, 2003).
55. Gamestop.com, Notice of Class Action and Proposed Settlement (Aug. 1, 2003), available at http://www.gamestop.com/gs/help/classaction.asp.
56. Id.
57. Pay the Lawyers, supra note 21.
58. See Class Action Fairness Act of 2005, Pub. L. No. 109-2, 119 Stat. 4 (codified in scattered sections of 28 U.S.C.).
59. Class Action Lawsuits FAQ, supra note 2. The website continues, "Michael B. Hyman, Editor in Chief of the ABA Publication Litigation Docket, agreed: 'The government can only do so much in policing corporate wrongdoing - society needs private attorneys general to assist in protecting victims' rights.'" Id.
60. Sheller Ludwig & Badey, Temple Graduate Class Learns Benefits of Class Actions, at http://www.sheller.com/NewsDetails.asp?NewsID=156 (Oct. 28, 2004).
61. Jamie Court, Limit on Class Action Suits Will Eviscerate Consumer Rights, at http://www.consumerwatchdog.org/ftcr/co/co000609.php3 (June 14, 2000).
62. See, e.g., Bill Isaeff et al., Origin and Development of the Office, in STATE ATTORNEYS GENERAL: POWERS AND RESPONSIBILITIES 3, 7-9 (Lynne M. Ross ed., 1990).
63. Richard P. Ieyoub & Theodore Eisenberg, State Attorney General Actions, the Tobacco Litigation, and the Doctrine of Parens Patriae, 74 TUL. L. REV. 1859, 1864 (2000).
64. 458 U.S. 592, 601 (1982).
65. Ieyoub & Eisenberg, supra note 57, at 1866-71.
66. John C. Coffee, Jr., Rescuing the Private Attorney General: Why the Model of the Lawyer as Bounty Hunter Is Not Working, 42 MD. L. REV. 215, 222 (1983).
67. Id. at 228.
68. Howard M. Erichson, Coattail Class Actions: Reflections on Microsoft, Tobacco, and the Mixing of Public and Private Lawyering in Mass Litigation, 34 U.C. DAVIS L. REV. 1, 40 (2000).
69. See id. at 1-3.
70. See, e.g., Brief of Amicus Curiae The Federal Trade Commission, In re First Databank Antitrust Litig., 209 F. Supp. 2d 96 (D.D.C. 2002) (No. 1:01CV00870), available at http://www.ftc.gov/os/2002/01/hearstbrief.pdf;
71. Brief of Amicus Curiae The Federal Trade Commission, In re Buspirone Patent Litig., 185 F. Supp. 2d 340 (S.D.N.Y. 2002) (MDL Docket No. 1410), available at http://www.ftc.gov/os/2002/01/busparbrief.pdf.
72. Monica Langley & Theo Francis, Risky Business: Insurers Reel from Spitzer's Strike, WALL ST. J., Oct. 18, 2004, at A1;
73. Pat Milton, Insurer Marsh Facing $500 Million Penalty, TULSA WORLD, Oct. 29, 2004, at E6;
74. Potential Liability Sparks Class Actions on Behalf of Policyholders, Shareholders, BEST'S INS. NEWS, Oct. 25, 2004, Westlaw, A.M. Best Newswire File.
75. Bryant Garth et al., The Institution of the Private Attorney General: Perspectives from an Empirical Study of Class Action Litigation, 61 S. CAL. L. REV. 353, 377 (1988).
76. Some courts have found class actions to be barred under those circumstances. See, e.g., In re Bridgestone/Firestone Inc. Tires Prods. Liab. Litig., 153 F. Supp. 2d 935, 946 (S.D. Ind. 2001) (holding that plaintiffs' request for vehicle recall was preempted by the decision of the National Highway Traffic Safety Administration not to order a recall).
77. See Avery v. State Farm Mut. Auto. Ins. Co., 746 N.E.2d 1242, 1254 (Ill. App. Ct. 2001), appeal allowed, 786 N.E.2d 180 (Ill. 2002).
78. Erichson, supra note 62, at 36-37.
79. See generally supra Part I.
80. See Associated Indus. v. Ickes, 134 F.2d 694, 704 (2d Cir. 1943).
81. 31 U.S.C. §§ 3729-3733 (2000).
82. Id. § 3729(a)(1); see also id. § 3730(a).
83. See id. § 3730(b).
84. CAL. BUS. & PROF. CODE §§ 17200-17208 (West 1997).
85. Id. § 17200.
86. See id. § 17204.
87. Id. (emphasis added).
88. See Comm. on Children's Television v. Gen. Foods Corp., 673 P.2d 660, 667 (Cal. 1983). Indeed, there is some authority holding that an individual basing a UCL claim on the violation of another statute may sue even if the other statute does not create a private right of action at all. See Midpeninsula Citizens for Fair Hous. v. Westwood Investors, 271 Cal. Rptr. 99, 108 (Ct. App. 1990).
89. Ara Lovitt, Note, Fight for Your Right to Litigate: Qui Tam, Article II, and the President, 49 STAN. L. REV. 853, 856 (1997).
90. Id. at 857.
91. CAL. BUS. & PROF. CODE § 17204 (West Supp. 2005).
92. OFFICIAL VOTER INFORMATION GUIDE: CALIFORNIA GENERAL ELECTION NOVEMBER 2004, at 38 (2004).
93. 31 U.S.C. § 3730(b)(2) (2000).
94. Id. § 3730(c)(1).
95. Id. § 3730(c)(2)(A).
96. See CAL. BUS. & PROF. CODE §§ 17203-17204, 17206 (West 1997).
97. See 28 U.S.C. § 2072(b) (2000).
98. S. REP. No. 106-420, at 41 (2000). To support this statement, the committee offered footnote 100, which reads in part: See. e.g., In re Baldwin-United Corp., 770 F.2d 328, 335 (2d Cir. 1985) (rejecting arguments that Fed. R. Civ. P. 23 could be used as authorizing issuance of an injunction to protect class members); Synanon Church v. United States, 557 F. Supp. 1329, 1330 n.2 (D.D.C. 1983) (rejecting argument that Fed. R. Civ., p. [sic] 57 creates right to jury trials in declaratory judgment actions). Cf. Douglas v. NCNB Nat'l Bank, 979 F.2d 1128, 1130 & n.2 (5th Cir. 1992) (declining to apply Fed. R. Civ., p. [sic] 13(a) where doing so would "abridge as lender's substantive rights and enlarge the debtor's substantive rights").
99. Martin H. Redish, Class Actions and the Democratic Difficulty: Rethinking the Intersection of Private Litigation and Public Goals, 2003 U. CHI. LEGAL F. 71, 81-82 (2003) (footnotes omitted).
100. See id.
101. See, e.g., Erichson, supra note 62, at 22; Edmondson Fed Up, DAILY OKLAHOMAN (Oklahoma City, Okla.), Sept. 10, 2004, at 6A;
102. Press Release, Dep't of Justice, Federal Court Dismisses Four Billion Dollar Claim Against the United States (Nov. 26, 2002), available at 2002 WL 31663169.
103. Erichson, supra note 62, at 19-20 (quoting former Colorado attorney general Gale Norton).
104. Deborah R. Hensler, The New Social Policy Torts: Litigation as a Legislative Strategy, 51 DEPAUL L. REV. 493, 497 (2001).
105. Id.
106. Edward Brunet, Improving Class Action Efficiency by Expanded Use of Parens Patriae Suits and Intervention, 74 TUL. L. REV. 1919, 1932 (2000).
107. Vesting enforcement power in a private attorney with a financial stake in the litigation may violate the Due Process Clause. See, e.g., Marshall v. Jerrico, Inc., 446 U.S. 238, 249-50 (1980) (holding that "[a] scheme injecting a personal interest, financial or otherwise, into the enforcement process may bring irrelevant or impermissible factors into the prosecutorial decision and in some contexts raise serious constitutional questions"). It may also violate basic tenets of the "neutrality" of enforcement officers. See, e.g., Clancy v. Superior Court, 705 P.2d 347, 353 (Cal. 1985) (holding that a contingency fee agreement between city and private attorney concerning abatement action was "antithetical to the standard of neutrality that an attorney representing the government must meet"). And at least one state's supreme court has found that separation of powers principles prevent the attorney general from entering into contingency fee agreements, period. Meredith v. Ieyoub, 700 So. 2d 478, 481 (La. 1997) ("[U]nder the separation of powers doctrine, unless the Attorney General has been expressly granted the power in the constitution to pay outside counsel contingency fees from state funds, or the Legislature has enacted such a statute, then he has no such power. . . . [O]ur constitution vests the power over state finances in the legislative branch as part of its plenary power, a power the Attorney General can obtain only by the constitution or other law.").
108. See, e.g., Meredith, 700 So. 2d at 483.
109. Hensler, supra note 94, at 498.
110. See, e.g., Margaret A. Little, A Most Dangerous Indiscretion: The Legal, Economic, and Political Legacy of the Governments' Tobacco Litigation, 33 CONN. L. REV. 1143, 1150-56 (2001);
111. Adam Cohen, Are Lawyers Running America?, TIME, July 17, 2000, at 22.
112. As suggested above, parens patriae is the power of the attorney general to act on behalf of state residents.
113. See, e.g., Meredith, 700 So. 2d at 484.
114. Meredith, 700 So. 2d at 481.
115. Other states have upheld contingency fee contracts with outside counsel where state attorneys general acted pursuant to a statutory grant of authority. City of San Francisco v. Philip Morris Inc., 957 F. Supp. 1130, 1135 (N.D. Cal. 1997) (denying defendant's motion to disqualify counsel hired under a contingency fee contract); Philip Morris Inc. v. Glendening, 709 A.2d 1230, 1240-41 (Md. 1998) (holding that a contingency fee contract authorized by the governor of Maryland was valid); State v. Philip Morris Inc., No. C1-94-8565 (Minn. Dist. Ct. filed Aug. 18, 1994) (holding that the Minnesota constitution provides the attorney general with the authority to enter into contingency fee contracts); Philip Morris Inc. v. State, No. L 11480-096 (N.J. Super. Ct. filed Aug. 20, 1996) (upholding New Jersey statutory scheme allowing contingency fee contracts); Philip Morris Inc. v. Graham, No. 960904948 CV (Utah Dist. Ct. Mar. 11, 1997) (upholding a Utah statute allowing contingency fee contracts).
116. Michael DeBow, Restraining State Attorneys General, Curbing Government Lawsuit Abuse, POL'Y ANALYSIS, May 10, 2002, at 1-18.
117. Bill Pryor, Curbing the Abuses of Government Lawsuits Against Industries, Presentation to the American Legislative Exchange Council 8-9 (Aug. 11, 1999), available at http://www.heartland.org/pdf/48482a.pdf.
118. See COLO. REV. STAT. ANN. § 13-17-304 (West Supp. 2004); KAN. STAT. ANN. § 75-37, 135 (Supp. 2003); N.D. CENT. CODE § 54-12-08.1 (Supp. 2003); TEX. GOV'T CODE ANN. § 2254.103 (Vernon 2000); VA. CODE ANN. § 2.2-510.1 (Michie Supp. 2004).
119. COLO. LEGIS. COUNCIL STAFF, CONCERNING A LIMITATION ON THE USE OF CONTINGENT FEE CONTRACTS BY GOVERNMENTAL ENTITIES TO RETAIN PRIVATE ATTORNEYS, S.B. 03-086, 2003 Sess. (2002).
120. COLO. REV. STAT. ANN. § 13-17-302(f) (West Supp. 2004).
121. Id. § 13-17-302(g)-(h).
122. Id. § 13-17-304.
123. KAN. STAT. ANN. § 75-37,135(a) (Supp. 2003).
124. Id. § 75-37,135(d).
125. Id. § 75-37,135(e).
126. Id.
127. State v. Hagerty, 580 N.W.2d 139 (N.D. 1998).
128. N.D. CENT. CODE § 54-12-08 (Supp. 2003).
129. See Hearing on SB2047 Before the Senate Judiciary Committee, 56th Leg. 3 (N.D. 1999) (statement of Sen. Stenehjem).
130. TEX. GOV'T CODE ANN. § 2254.103(d) (Vernon 2000).
131. Id. § 2254.105 (Vernon 2000).
132. Id.
133. Id. § 2254.106(a)-(b) (Vernon 2000).
134. Id. § 2254.106(c).
135. Id. § 2254.106(d).
136. Id. § 2254.104(a)-(b) (Vernon 2000).
137. Id. § 2254.104(c).
138. VA. CODE ANN. § 2.2-510.1 (Michie Supp. 2003).
139. Id.
140. VA. DEP'T OF PLANNING AND BUDGET, FISCAL IMPACT STATEMENT, H.B. 309, at 1 (2002).
141. Kevin Sack, Tobacco Industry's Dogged Nemesis, N.Y. TIMES, Apr. 6, 1997, at A22.
142. See Sam Tranum, W. Va. Tobacco Lawyer Fees Raise Questions, CHARLESTON DAILY MAIL, June 26, 2002, at P6A.
143. Pryor, supra note 106, at 8.
144. MODEL RULES OF PROF'L CONDUCT R. 7.6 (2003).
145. In 1998 an ABA Task Force on Lawyer's Political Contributions issued a divided report that condemned "pay-to-play" practices and recommended disclosure of political contributions by lawyers, but did not support the disqualification of lawyers (or law firms) who make political contributions. The ABA declined to adopt a pay-to-play rule until it approved Model Rule 7.6 in February 2000.
146. MODEL RULES OF PROF'L CONDUCT R. 7.6 cmt. 1.
147. N.Y. CODE OF PROF'L RESPONSIBILITY EC 2-37 (2000).
148. Id. at EC 2-38.
149. MUN. SECS. RULEMAKING BD. R. G-37(b)(i) (2005).
150. Id. R. G-37(e)(i).
151. In a recent Interpretive Notice on G-37, the Municipal Securities Rulemaking Board noted that the impact of the rule has been positive: "The rules have altered the political contribution practices of municipal securities dealers and opened discussion about the political contribution practices of the entire municipal industry." Mun. Sec. Rulemaking Bd., Notice Concerning Indirect Rule Violations: Rules G-37 and G-38 (Aug. 6, 2003), available at http://www.msrb.org/msrb1/archive/G-3738August2003.htm.
152. S.C. CODE ANN. § 8-13-1342 (Law. Co-op. Supp. 2004).
153. W. VA. CODE ANN. § 3-8-12(d) (Michie Ann. Supp. 2003).
154. OHIO REV. CODE ANN. § 3517.13(I) (Anderson Supp. 2003).
155. In re Synthroid Mktg. Litig., 264 F.3d 712, 718 (7th Cir. 2001).
156. Jim Copland, Turning out Trial Lawyers, Inc., NAT'L REV., Nov. 8, 2004, http://www.nationalreview.com/comment/copland200411080818.asp.
157. Beisner & Miller, Magnet Courts, supra note 13;
158. Beisner & Miller, Federal Case, supra note 10; Copland, supra note 145.
159. Copland, supra note 145.
160. Class Action Lawsuits FAQ, supra note 2.
161. Court, supra note 55.