Legally Speaking: Hardly a 'Class' Act

By John G. Browning | May 10, 2011

We've all gotten them in the mail—the densely-written legal notices in tiny print advising us that we may be among the members of a class action currently pending in some far-off federal court.

Usually, it's about a purchase or a service you may not even remember, or a legal "wrong" that may not even apply to you—a class action lawsuit over late fees assessed for video rentals, for example, or interest rates being charged by a credit card company.

Invariably, they're written in legalese so thick you may not even be able to decipher whether or not it's worthwhile to pursue a claim, or if so what the exact procedure entails. I've got a law degree and over 21 years of practicing law under my belt and even I have a hard time figuring out just what is at issue and exactly what the consumer/class member is going to get out of it.

All too frequently, the answer to the question of "what's in it for me" is "not much," while the real money is pocketed by the plaintiffs' lawyers representing the class itself.

I've seen this time and time again, in class action settlements where the consumer gets nothing more than a token — often, just a voucher redeemable from the defendant manufacturer or retailer, or worse a coupon requiring you to purchase something else from the defendant, albeit at a discount.

Meanwhile, the plaintiff's lawyers pocket huge fees—sometimes the only outlay of real cash by the defendant. One of my heroes when it comes to such practices is now-retired Los Angeles County Judge Brett Klein.

Klein was presented with a proposed settlement of a class action lawsuit against the Windsor Fashions women's clothing store chain, in which the plaintiffs had alleged that Windsor Fashions violated a state law by asking credit card customers for personally identifying information.

Under the settlement, class members would each get a $10 gift card good at any Windsor Fashions store, while plaintiffs' attorney Neil Fineman would pocket $125,000.

That didn't sit too well with Judge Klein, who ordered that Mr. Fineman's fee should be in the form of 12,500 $10 gift cards — just like his clients.

The ruling was later vacated, and Judge Klein was censured by California's Commission on Judicial Performance for his "bias" and the "highly unorthodox manner" in which he handled the attorney's fee award — but I think he should've been given a medal.

But Judge Klein's is hardly the only voice to speak out on outrageous fee awards in class action settlements. Enter Ted Frank, a University of Chicago-educated attorney and former fellow at the conservative think tank American Enterprise Institute.

Several years ago, Frank—at his own expense—traveled to New York and filed an objection to a proposed class action settlement involving the video game "Grand Theft Auto." Spurred by complaints about excessive sexual content in the game, class action attorneys sued its makers, Take Two Interactive Software.

Although the software giant had received only $27,000 in claims from irate consumers, it agreed to a settlement in which the plaintiffs' lawyers themselves would collect a cool $1 million. Frank's objection succeeded, and the settlement was halted and the class decertified (the plaintiffs' lawyers appealed the ruling).

Bolstered by this success, Frank was inspired to found the Center for Class Action Fairness, a nonprofit group that represents consumers contesting class action settlements. Frank hasn't yet sought or received attorney's fees for his work, since the Center is funded by Donors Trust, a charity that according to its website is "dedicated to the ideals of limited government, personal responsibility, and free enterprise."

The Center has filed objections to seven settlements, and has been hired by class members to contest two others. Such action is needed, according to Frank.

"The whole reason I started this is because there is a high probability of district courts rubber-stamping settlements."

George Mason University law professor Todd Zywicki agrees. "What Ted is doing is something very necessary: being there to protect classes from potentially collusive settlements between businesses and lawyers," he says.

For example, after Toshiba America agreed to a $2 billion settlement over allegedly defective laptops in 2000, relatively few consumers availed themselves of the claims process.

But that didn't stop another part of the settlement from going forward: the creation of a charitable foundation, the Beaumont Foundation, with $353 million of Toshiba's money.

The chairman of the foundation was Wayne Reaud, the lead counsel for the class plaintiffs, and the foundation hired a former state bar president, W. Frank Newton, as its president.

While the Beaumont Foundation has supported many worthy causes with its money, it was also sued by the Texas Attorney General's office for allegedly breaching fiduciary duty.

However, what is done with the money in class action settlements, and the extent to which it actually benefits the class, is just one issue.

The question of the plaintiffs' attorneys fees can be even more controversial. Courts are supposed to consider a number of factors when weighing these requests for attorneys' fees.

Theoretically, these can include such things as the attorneys' time and the amount of work performed, how the requested fee relates to the overall settlement itself, and public policy concerns like the benefit to consumers or society in general.

In reality, courts usually evaluate the "lodestar," the hourly rate charged by the attorneys multiplied by the number of hours claimed.

But with even these calculations, the potential for abuse is rampant. It's one thing for plaintiffs' attorneys in class actions to claim a certain hourly rate, but can they demonstrate that other clients have paid such a rate, or that this rate truly reflects the market? And what about documenting the time that was supposedly devoted to reaching a certain result for the class members?

Abuses like this have also been targeted by Ted Frank and the Center for Class Action Fairness. For example, in April 2011 the Center filed an objection to the $3.4 billion, taxpayer-funded, Cobell Indian trust settlement in federal court in Washington, D.C., on behalf of class member (and Sisseton-Wahpeton Ovate tribe member) Kimberly Craven. Earlier in the case, class attorneys promised Congress they would keep their fee request under $100 million.

They later requested $223 million. One of the attorneys seeking fees under the settlement, a Mr. Gingold, claims to have billed 48,772 hours on the case between Nov. 4, 1995, and Dec. 7, 2009. That, Frank's objection points out, comes to "almost 9.5 hours a day, every day, without a single day off."

Frank points out that perhaps Mr. Gingold is "one of those exceptional individuals, so far above average that he can routinely bill 4,000 hours a year without loss of productivity or health, but this proposition merits scrutiny."

I'll say. It also bears noting that on several days (Feb. 14, 2005; Sept. 6, 2005; and July 6, 2000), Mr. Gingold claimed to have worked beyond 24 hours in a day—something I didn't think was possible without defying the laws of physics or having control over the time/space continuum.

As Frank notes in his brief to the court, the federal government has criminally prosecuted "far less ambitious billing" when it comes to doctors and Medicaid fraud. In the end, Frank argues, "This is a case about greed," as demonstrated by the outrageous fee requests by the class action attorneys.

Class actions are supposed to be about righting a wrong suffered by a large group of people, usually consumers. They're not supposed to be about lawyers behaving like pigs at a trough to the detriment of the very people they should be representing.

It's time to put some "class" back in class action, and curb these offensive attorney's fee awards.

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