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Article Excerpt
INTRODUCTION
I. THERE IS GROWING PUBLIC DISTRUST OF THE CLASS ACTION DEVICE II. IN RESPONSE TO GROWING CRITICISM, SOME PLAINTIFFS' ATTORNEYS MISLEADINGLY SEEK TO PORTRAY THEMSELVES AS "PRIVATE ATTORNEYS GENERAL" A. The Profit-Seeking Class Action Lawyer and the Concomitant Effects on Lawsuit Initiation, Selection, and Settlement 1. Lawsuit initiation and selection 2. Settlement B. State Attorneys General Are Subject to Constraints Unknown to Private Class Action Attorneys C. The Enforcement Analogy's Inconsistency with Private Attorney General Statutes D. Blurring Public/Private and Civil/Criminal Distinctions E. Delegation of Attorney General Functions to Private Lawyers III. IF CLASS ACTION LAWYERS SEEK TO PORTRAY THEMSELVES AS PUBLIC SERVANTS, THEY SHOULD BE SUBJECT TO THE SAME ETHICAL STANDARDS AS PUBLIC SERVANTS A. Some Jurisdictions Have Enacted Legislation Addressing Ethical Issues That Arise When States Retain Private Lawyers to Represent Their Citizens 1. Some states bar payment of contingency fees in public representations by private attorneys 2. States are also addressing ethical concerns raised by attorney general retention of campaign contributors B. States Should Consider Applying the Same Types of Ethical Standards to Class Action Lawyers 1. Contingency fees should be eliminated or drastically curtailed 2. Class action attorneys should be prohibited from litigating class actions before judges to whom they have contributed CONCLUSION
INTRODUCTION
Recent surveys indicate growing public distrust of the class action device. Initially intended as a means of resolving numerous commonly grounded controversies through a single lawsuit, class actions are now widely perceived as little more than a money generator for attorneys. This perception should not be surprising, given the emerging pattern of class action settlements (particularly in state courts) in which virtually all of the recovered money flows to the class attorneys, rather than the allegedly injured class members.
During the congressional debate over the recently enacted Class Action Fairness Act, (1) opponents of the legislation sought to recharacterize class actions as private law enforcement efforts and to paint the class attorneys who bring such actions as "private attorneys general"--extensions of federal and state regulators. This has become a common theme among plaintiffs' lawyers. As one commentator has put it, "Because the government has limited resources, private parties need to pick up the slack. Our entire system of government is based on private initiatives, and class actions are no different." (2) Or as another commentator sees it, "The government can only do so much in policing corporate wrongdoing--society needs private attorneys general to assist in protecting victims' rights." (3)
There are two fundamental problems with this revisionist rationale for class actions. In the first place, the concept raises fundamental questions about the validity of the class action device under the Rules Enabling Act. (4) After all, if the true purpose of the class concept were to facilitate private law enforcement, it would be a substantive right. The Rules Enabling Act, however, authorizes the federal judicial branch to create nothing more than purely procedural mechanisms.
That insight is more than a mere technicality. Class actions were designed to allow more efficient recovery of damages for allegedly injured parties. On the other hand, the purpose of law enforcement is to stop or deter wrongful behavior; the restoration of private losses is not a core element of that concept. Thus, recharacterizing class actions as law enforcement tools will serve to reinforce the current negative public perception that although class actions are purportedly brought to recover losses for purportedly injured parties, the real purpose is to take money away from alleged wrongdoers and put it in the hands of uninjured third parties (mostly the attorneys who bring the actions).
The other problem with this analogy is that the incentives for private attorneys bear no resemblance to what motivates classic governmental law enforcement personnel. A government enforcer is charged with promoting the public good and typically is paid the same modest salary regardless of (1) which alleged wrongdoers he or she chooses to pursue, and (2) the size of any settlement or verdict he or she obtains. Private class action attorneys, in contrast, have a very direct interest in the outcome of class action litigation, since they normally keep a hefty portion of the proceeds.
In this regard, the private law enforcement characterization promoted by some class action attorneys is no different from permitting self-appointed "police officers" to roam the streets, set up speed traps, pull over drivers (whether or not they were speeding), and give them the option of either (1) spending a few nights in jail, or (2) resolving the problem by paying the police officer (for personal benefit) whatever he demands. No doubt, the self-appointed "cops" would argue that this would be an efficient system. After all, it would discourage speeding. But justifiably, the public would have no trust in--or respect for--such a system of law enforcement, since prosecutorial decisions would be driven (or at least would have the appearance of being driven) by the overwhelming financial self-interest of the police officers themselves.
Even if the law enforcement rationale for class actions could be squared with established concepts of American law (which it cannot), it would be valid only if the analogy to law enforcement were made complete--i.e., only if the current massive financial incentives for attorneys bringing class actions were eliminated. More specifically, if class actions are law enforcement mechanisms, the counsel who bring them should be paid like law enforcers. They should be paid a reasonable wage for their work, but they should not be sharing the fruits of whatever recovery they obtain. In particular, they should not be eligible for a percentage of whatever recovery they obtain, which has always been an irrational means for paying counsel who bring class actions.
Part I of this Article addresses the growing public distrust of the class action device that is due, in part, to a general perception that the main beneficiaries are the attorneys who receive massive fee awards, rather than the allegedly injured consumers. Part II discusses plaintiffs' attorneys' attempts to recast themselves as private attorneys general and examines the problems that arise from the delegation of attorney general functions to private lawyers. Part III offers some proposals for increasing the accountability of class action lawyers by implementing ethical standards for class attorneys and reducing or eliminating contingency fees.
I. THERE IS GROWING PUBLIC DISTRUST OF THE CLASS ACTION DEVICE
Over the past decade, public disillusionment with class actions has grown. Polls have found that Americans do not trust the class action system, do not think that consumers benefit from class actions, and believe that lawyers take home all the money recovered in such cases. In one recent nationwide poll, only 5% of the respondents thought consumers benefited the most from class actions; 47% viewed attorneys as the primary beneficiaries. (5) Another poll taken in Texas found that 81% of potential jurors resent class action lawyers, and believe that class actions are merely a good way for plaintiffs' lawyers to make money--not a good way for people who sue to receive the compensation they deserve. (6) Over the past two years, more than one hundred editorials in major newspapers have decried the class action "mess" in this country and have urged Congress to take corrective action. These include newspapers of all political stripes, including the Wall Street Journal, the Washington Post, and USA Today. (7) For example, in one of its several editorials on the subject, the Washington Post observed that "[n]o portion of the American civil justice system is more of a mess than the world of class actions." (8) The growing sense that something must be done about class actions recently culminated in passage of the bipartisan Class Action Fairness Act, legislation that expands federal jurisdiction over interstate class actions and requires federal courts to carefully scrutinize coupon settlements. (9)
The criticism of class action practice (particularly in state courts) that led to the passage of the new law stems from several factors. The first is the exponential growth in the number of class actions. (10) Studies show that class action filings have more than tripled over the last decade, (11) an increase occurring primarily in state courts. (12) Much of that explosion is taking place in a small number of rural counties that have come to be known as "magnet" (13) courts or "magic jurisdictions." (14) For example, Madison County, Illinois, covers just 725 square miles and is home to less than 1% of the U.S. population. Yet, class action filings in that county's courts, which are frequently cited as major class action magnets, have increased by more than 5000% over the last five years. In 1998, there were just two class actions filed in Madison County's courts; (15) in 2003, there were 106. (16) Similar increases have been noted in Jefferson County, Texas, Palm Beach County, Florida, and other jurisdictions that are reputedly plaintiff-lawyer friendly. (17) It is expected that the recent passage of the Class Action Fairness Act will substantially reduce the role of magnet courts in class action practice, but the precise effects of the bill obviously remain to be seen.
Numerous reasons have been given for the increase in class action filings, all of which are targeted in the new legislation. A bipartisan report issued by the U.S. Senate Judiciary Committee noted several abuses that have become more commonplace as the volume of class actions has increased: the filing of duplicative class actions by competing attorneys, violations of the class members' and defendants' due process fights, the proliferation of confusing settlement materials that class members are unable to understand, and the use of bounties to compensate some class members at the expense of others. (18) But far and away, one of the most heavily criticized class action abuses has been the use of class action settlements to generate huge fees for lawyers and little or nothing for the allegedly injured consumers. (19)
The U.S. Court of Appeals for the Third Circuit was among the first tribunals to express concerns about class action settlement abuses. In a groundbreaking ruling, it rejected a proposed settlement involving alleged fuel tank defects in General Motors (GM) trucks in 1995, noting that "settlement classes create especially lucrative opportunities for putative class attorneys to generate fees for themselves without any effective monitoring by class members." (20) Nearly ten years and thousands of coupon settlements later, one of many newspaper editorial boards calling for class action reform made essentially the same point: "something [is] terribly wrong with a legal system in which class-action lawyers can win settlements for their clients in the form of coupons while collecting hefty fees for themselves in cash." (21)
The Senate Report accompanying a prior version of the Class Action Fairness Act (the Senate Report for the passed legislation has not yet been published) similarly highlighted lopsided settlements as the first and foremost class action abuse, pointing in particular to
the now infamous Bank of Boston class action settlement ... [in which] the defendant bank was accused of over-collecting escrow monies from homeowners and profiting from the interest. The settlement, approved by an Alabama state court, awarded up to $8.76 each to individual class members, while the class counsel got more than $8.5 million in fees. To make matters worse, the fees were simply debited directly from individual class members' escrow accounts, leaving many of them worse off than they were before the suit. In testimony before the Subcommittee on Administrative Oversight and the Courts, class member Martha Preston recounted how she received $4 from the settlement, but was charged a mysterious $80 "miscellaneous deduction," which she later learned was an expense used to pay the class lawyers' $8.5 million settlement fee. Ms. Preston expressed her disbelief over how "people who were supposed to be my lawyers, representing my interests, took my money and got away with it." (22)
The Federal Trade Commission (FTC) has also voiced growing concerns about class action abuse, to the point where it has begun filing amicus briefs opposing class action settlements in select cases in which the class relief seems too low or the attorneys' fees egregiously high. As former FTC chairman Timothy Muris put it, "Our job is to get more money to consumers, and by giving attorneys less, we're giving consumers more." (23) In a speech about the FTC's amicus brief program, Commissioner Thomas B. Leary expressed particular concern about cases in which private attorneys file a class action on the heels of a government investigation, basically free-riding on the government's investigative efforts. (24) "The counsel then negotiate a settlement in which the class members receive nominal recoveries, the defendants are protected from future private lawsuits, and the plaintiffs' lawyers recover generous fees for very little work." (25) Leary noted that in such cases, either the class members were genuinely injured, in which case they were undercompensated, or the class members were not really injured at all, in which case the lawyers were overcompensated. (26) Either way, these cases effectively amount to a transfer of wealth from a company to a class action lawyer, with no real work accomplished by the plaintiffs' lawyer and no real benefit to the consumers on whose behalf the suit was supposedly brought. (27)
Almost daily, newspapers spotlight class action settlements in which the attorneys are the sole beneficiaries. Frequently, newspaper reporters learn about these settlements when they receive a mailed notice that they are part of a proposed class action settlement. (28) Some have expressed concern not only about the windfall for plaintiffs' lawyers, but also about the problematic nature of providing "relief" to class members that is little more than a marketing program in disguise. As one editorial put it, "The most despicable of class-action settlements in...
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