FIGHTING CLASS ACTION ABUSE
By Leslie Brueckner, Public Justice Staff Attorney
and Arthur Bryant, Executive Director of Public Justice
Without class actions, many victims would be powerless to stop corporate and government misconduct in areas ranging from race and sex discrimination, disability rights, dangerous consumer products, and environmental degradation, to widespread fraud and deceit in consumer transactions. Especially in cases where large numbers of people have suffered small amounts of damages or require injunctive relief, class actions are often the only way that justice can be obtained. Thus, the key is to stop class action abuse – not to throw the baby out with the bath water.
To that end, in 1993, when Public Justice was still known as Trial Lawyers for Public Justice, we launched a major project dedicated to monitoring, exposing, and fighting class action abuse nationwide – the Class Action Abuse Prevention Project. Our work against class action abuse continues as part of our Class Action Preservation Project.
As a national public interest law firm that prosecutes numerous class actions and is receives significant funding from trial lawyers and cy pres awards, we did not take this step lightly. Nevertheless, we were so concerned about the harmful effects of class action abuse – both on class members’ rights and on the public’s perception of class actions – that we felt dramatic action was needed. The project has achieved many major successes. But more work still needs to be done.
The Class Action Abuse Prevention Project
Through the Project, we sought to enforce class members’ existing legal rights by objecting to illegal or unfair class action settlements; develop the law by winning judicial recognition of additional protection against class action abuse; educate lawyers, the judiciary, and the public about class action abuse and possible ways to prevent it; and help others to do all of the above.
The Abuses We Target
While the following list is not all-inclusive, the primary abuses that concern us are:
• efforts to limit class members’ rights to opt out of class actions for damages and pursue their own compensatory and/or punitive damages claims on an individual basis;
• attempts to use class actions to settle the “future” personal injury claims of people who are not currently injured – or, in some cases, may not yet even exist;
• “settlement-only” class actions that would and could never be litigated as class actions, but are being used to cap the defendant’s liability through the class action device;
• settlements that release class members’ damages claims in exchange for “coupons” that provide little or no meaningful relief to the class – and, in some cases, provide extraordinarily handsome fees to class counsel;
• unnecessary claims procedures, such as requiring credit card customers to file claims forms, instead of simply crediting their recoveries to their accounts; and
• improper secrecy provisions, including gag orders on class members or their counsel and attempts to conceal terms of a settlement or the amount of attorneys’ fees.
The Project's Highlights
We have had great success fighting these class action abuses and establishing new law to help others fight them as well. To cite just a few examples:
• In a series of amicus briefs, Public Justice (then TLPJ) challenged – and ultimately helped persuade the U.S. Supreme Court to reject – the proposed class action settlements of millions of present and future asbestos victims’ claims in Amchem Products, Inc. v. Windsor and Ortiz v. Fibreboard Corporation, two cases that established important new procedural protections that help to limit class action abuse.
• In Walker v. Liggett Group, Inc. and Fletcher v. Liggett Group, Inc., in West Virginia federal court and Alabama state court, respectively, we ensured that tobacco victims nationwide could proceed with their claims against a cigarette company by defeating two proposed no-opt-out settlements that would have capped the company’s liability and provided virtually no relief to the class.
• In Graham v. Security Pacific Services, in Mississippi federal court, we obtained substantial improvements to a proposed nationwide settlement of consumer fraud claims against Bank America that would have paid approximately $2 million to class members, $5.4 million to class counsel, and deprived all Mississippi class members of their right to opt out. It also would have required all class members to file claim forms to receive compensation, allowed any unclaimed funds to revert to the bank, and paid non-Mississippi class members only half as much as Mississippi class members. In response to our objections, the final settlement paid $7.9 million to the class, $1.92 million to class counsel, and allowed all class members to opt out. The funds were automatically distributed, no class members had to file claims forms, no money reverted to the bank, and class members from all states received the same relief.
• In Kalhammer v. First USA Bank, in San Francisco federal court, we defeated outrageous secrecy provisions and won huge improvements to a proposed nationwide settlement of claims that First USA cheated its credit card holders. The original settlement barred public disclosure of both the total settlement amount and total attorneys’ fees, and prevented class counsel and class members – but not First USA – from talking to the press about the deal. It also provided current First USA cardholders with “rebate certificates” for five dollars or less, but gave nothing to former cardholders. According to experts, the rebate certificates would have yielded less than $400,000 in actual relief to the class. In response to our challenge, the settlement was amended to eliminate the secrecy, give automatic credits to the vast majority of the class, and require First USA to pay a minimum of $6 million.
• In Wilson v. Massachusetts Mutual Life Insurance Company, a nationwide class action filed in New Mexico state court, we defeated a proposed settlement of insurance claims that would have paid nothing to 6.5 million class members, paid two class representatives a total of $350,000, and paid class counsel a fee worth over $11 million. The settlement was so indefensible that it was withdrawn after we filed objections, before the Court even had a chance to decide whether to approve it.
• In Cash v. Farmland Industries, in Kansas state court, we prevented an illegal proposed class action settlement that could have forced class members to sell their homes to and release all their present and future injury claims against the defendant. The proposed settlement also included a secret side deal for the named class representatives. Because of our objections, the proposed settlement was abandoned and class members retained the right to keep or sell their homes and pursue their claims individually.
• In Boehr v. Bank of America, in Arizona federal court, we obtained dramatic improvements to a proposed nationwide settlement of credit card overcharge claims that, among other things, would have given virtually no money to the class. Instead, the settlement would have allowed Bank of America to give millions of dollars to five charities – with the bulk of the cash going to the Bank’s own “Consumer Education Fund.” In response to our objections, the agreement was reformed to provide that the money be distributed directly to the class, where it belonged.
• In In re Matter of Metropolitan Life Insurance Sales Practices Litigation, we defeated an attempt by a national insurance company (MetLife) to convince a Pennsylvania federal court that had approved a nationwide class action settlement involving MetLife to enjoin all of the individuals who had opted their claims out of the settlement from introducing key evidence in their individual, state-court cases against MetLife. In response to our objections that the requested injunction would blatantly violate Rule 23, the Anti-Injunction Act, and the U.S. Constitution, the federal magistrate judge reversed his earlier recommendation that the injunction be granted. The district court agreed, denied the injunction, and the Third Circuit affirmed.
Lessons We’ve Learned
Under the Class Action Abuse Prevention Project, we learned a great deal.
First, our experience and work convinced us that, far more than we even knew, class actions achieve enormous good in this country. Their continued vitality could hardly be more important to the achievement of justice.
Second, while we and other opponents of class action abuse have made a real difference, class action abuse remains a serious problem. Although abuse occurs in only a small percentage of class action cases, it shouldn’t take place at all.
Third, the driving force behind most class action abuse is the desire of wrongdoers to cap their liability. Defendants do not generally want cases to be litigated as class actions because they recognize that class actions, properly used, can be a powerful tool for vindicating victims’ rights. They do, however, often want cases to be inappropriately settled as class actions because they realize that class action settlements can be an equally powerful tool for limiting or even eliminating their victims’ rights.
Fourth, regardless of the defendants’ motives or desires, abusive class action settlements cannot take place without the cooperation of class counsel. Unfortunately, some class action counsel are too willing to agree to a class settlement in exchange for a quick or hefty fee. And, regrettably, many more feel forced to agree to objectionable or inadequate settlement terms because they sincerely believe – rightly or wrongly – that the judge will not allow them to pursue the class’s legitimate claims and that any recovery for the class (and a fee) is better than nothing for the class (and no fee at all).
Fifth, while plaintiffs, defendants, and their attorneys all contribute to class action abuse, judges have the power to prevent it. Unfortunately, some judges do not understand how they can stop class action abuse, others do not seem interested in stopping it, and others take actions that encourage it, such as certifying classes for “settlement purposes” that could never be litigated as class actions, approving settlements that contain woefully inadequate relief for the class, and/or signing off on huge attorneys’ fee awards that create an enormous incentive for abuse.
Finally, while Public Justice is dedicated to fighting class action abuse, any knowledgeable class member, defendant, attorney or judge can make a difference in this area. Abusive settlements cannot take place without the participation of all parties, their counsel, and the judge – so any of these participants can help stop it.
Conclusion
If you receive a notice of an objectionable class action settlement affecting you, object! If it’s truly outrageous, call us. We all need to work together to fight class action abuse. If we do, all of us and our system of justice will be better off.