class actions settlements

Notice went out today, and five separate people have emailed me in the last hour about the Google Buzz settlement, which I've been tracking since it was first announced a couple of weeks ago.  It flunks Rule 23, but, believe it or not, is not the worst settlement in the world (we have four cases pending in Ninth Circuit courts alone that are worse, including one in in Judge Ware's court).  In addition, this case is going to attract attention from a lot of privacy advocates whether or not the Center for Class Action Fairness gets involved, so I don't know how much value-added we provide by being the n-th objection.  And I'm a class member, so if we do get involved, I can do so pretty quickly.

Anyway, this is just to say that yes, CCAF is aware of the Google Buzz settlement; we haven't decided yet whether to get involved because we have six or seven other briefs due between now and Christmas; if you're interested in getting involved without waiting for that decision, take a look at our Ninth Circuit briefs in the Bluetooth (09-56683) and AOL (10-55129) cases that we filed earlier this year.

Did you buy Apple stock between 2001 and 2006?

Ira Stoll and Jim Copland have discussed the outrageous Apple backdating lawsuit resulting in the outrageous Apple backdating settlement. The magnitude of the settlement compared to the original claims demonstrates that it is an extortionate nuisance settlement, being made because it would cost more to defend the suit than to pay the attorneys to go away.

But it should be noted: the settlement is not just outrageous, it is illegal. Under the Ninth Circuit's Six Mexican Growers precedent, a court should not be issuing cy pres that is not likely to benefit the class members. And as the Center for Class Action Fairness noted in recent Ninth Circuit briefing, the American Law Institute has said that cy pres is inappropriate where class members are readily identifiable. Given that the class attorneys are negotiating money for third parties instead of their own putative clients (for their own benefit, no less), there is also a breach of fiduciary duty that raises questions whether the class attorneys meet the Rule 23(a)(4) standard. The settlement is further problematic in that the vast majority of class members are entitled to zero compensation; it is far from clear that the sole lead plaintiff is a member of this subclass.

The Center for Class Action Fairness would love to object to such a blatantly illegal settlement. But it can't do so in a vacuum: it can only do so on behalf of a class member who is being ripped off by these attorneys. Class members are those who bought Apple stock (AAPL) between August 24, 2001 and June 29, 2006—but only people who bought the stock between November 2005 and May 2006 are entitled to recover any money under the settlement, and their recovery is being diluted by the diversion to cy pres. We'd be happy to represent you pro bono if you agree that settlement is objectionable and wish to object: please contact me. If you're not in the class, but know people or institutions who might be, spread the word.  (Update: we have one objector, and are talking to a couple of others. Isn't crowd-sourcing great?)

Trial lawyers often say that they care about access to justice, but that principle seems to go out the window when it comes to objectors to unfair class action settlements that might interfere with attorneys' fees.

In Dewey v. Volkswagen, currently pending on appeal in the Third Circuit (10-3618, consolidated with 10-3506, 10-3617, 10-3798, and cross-appeals 10-3651 and 10-3652), the plaintiffs' attorneys have asked for an oversized appeal bond explicitly to prevent the appeal from taking place.

Plaintiffs claim that such an appeal bond is necessary to prevent "extortion" on appeal, the problem where a "professional objector" seeks to hold up the payment of the settlement attorneys' fees with a meritless appeal in the hopes that the class attorney will pay some fraction of the time value of money to get the objector to drop the appeal.

The Center for Class Action Fairness took the plaintiffs at their word, and, in our brief opposing the appeal bond, cross-moved for a different remedy: an injunction against extortionate settlements of the objection. Such an injunction, by requiring court approval of any withdrawal of the appeal, would do far more than an appeal bond to deter the attempt to settle a case for a quid pro quo payment to the objector without any benefit to the class. We suggested, however, that the plaintiffs' attorneys weren't really concerned about extortionate appeals (which permit them to escape appellate scrutiny at relatively low cost) so much as the fact of appeal.

Sure enough, the class counsel opposed the Center's cross-motion for injunction, though on remarkably flimsy grounds that insultingly presuppose a lack of intelligence on behalf of the magistrate; surely they don't expect that the judge will be confused by the difference between a merits injunction and an injunction regarding the conduct of the parties on appeal? You'll also note that the plaintiffs completely changed their theory behind the reasoning of the appeal bond without ever addressing the Center's arguments in their reply brief, but one hopes the district court isn't so easily fooled by sandbagging.

Relatedly, on September 22, the Third Circuit decided In re Community Bank of N. Va., which all but guarantees that we will win our appeal, given that the Dewey settlement suffers from the same fatal defect of a prejudiced subclass being unrepresented.

You may have been one of the millions of people to receive a settlement notice regarding a class action against Classmates.com; the settlement notice implied that class members would receive $9.5 million (though only $2-$3 per person, and that mostly in coupons) and the attorneys would ask for $1.3 million.

You then probably received a supplemental notice saying that the attorneys were generously only asking for $1.05 million, and that, if you sent four letters to four different addresses, you could object to the fee request.

You probably didn't object: it's hardly worth your time to spend $1.76 in postage over a $2 or $3 settlement.

What you won't see on either of the settlement notices or the settlement website is how much the class is actually recovering: out of millions of class members, there were fewer than 50,000 claims made. The class will receive only $117,374 (see page 4 of PDF). The attorneys are asking for a 895% contingency fee.

Professor Michael Krauss of George Mason Law School will be objecting to the fee award (and an attempt to rip off the class by diverting $500,000 to an unrelated charity instead of to class members); the Center for Class Action Fairness is proud to represent him.

The fact that an Internet company didn't make it possible to object over email is just an attempt to limit the number of objections. But CCAF is willing to help: we won't represent you, but if you submit a conforming objection to me over email to classmates.objection@gmail.com in a pdf by November 15, CCAF will do the mailing for you. Here is an MS Word document to make the process easier; fill in the blanks, keep or delete or add to the paragraphs as you see fit, sign, scan, e-mail (or mail yourself to the addresses indicated). (CCAF is not your attorney if you choose to have us mail your objection for you; we reserve the right not to mail any pdf that is offensive or seems to be fake.)

The trial lawyers are arguing that the low number of objections means that this is a good settlement. That's clearly false given how hard they made it to object and the fact that class members weren't told the full truth about how bad the settlement was, but let's try to take away that argument by sending the court a few dozen more objections. And tell your friends.

Note that the class attorneys in this case are Kabateck Brown Kellner, who were the attorneys in the $0 AOL Footer settlement; in that case, they took the position that it was okay to hide conflicts of interest to the court and to the class in a class notice. So we're not just objecting, we're asking for the discovery that KBK said we should have done in the AOL case.

Update, September 4: Google is leading lots of people to this page, but this post is referring to a 2010 settlement, which we successfully objected to. If you came to this page from a search engine, you are probably looking for the revised 2011 settlement.

• In Lonardo v. Travelers Insurance, our objection resulted in a $2 million improvement in the settlement. We maintained the objection, and the court approved the settlement; we straightforwardly acknowledged that the court "could" approve the improved settlement (where the attorneys got nearly as much as the class as opposed to more than twice as much) under its discretionary powers, but "shouldn't," and the court found that offensive for some reason. To add insult to injury, the court preemptively made findings that we weren't entitled to even ask for attorneys' fees for our role in improving the settlement. On a motion to reconsider, the court begrudgingly awarded attorneys' fees, and then proceeded to come up with bad dicta that suggests that objectors are obligated to engage in expensive discovery about settlement negotiations before they are completed. (The scenario where a settlement is improved by 71% on the eve of the fairness hearing is rare enough that one hopes that does not matter; it's pretty clear that settling parties would object to the discovery that would produce the evidence that the Lonardo court says is required.) The $40,000 in fees is nice, but it was unfortunate that the court felt the need to insult us along the way; we made it clear that there was substantial work we performed on the case for which we were not seeking fees, and the court repeatedly implied that the only thing we did were the few dozen hours we requested fees for. We did get the court to acknowledge that Perdue v. Kenny A. applies to class-action attorney-fee requests (though that does not explain why the court awarded a 1.4 multiplier to the plaintiffs' attorneys). If those opinions were issued today, when we have a diversified donor base, we would have appealed. At the time, we were low on funds, and had to make a triage decision to save our powder for more egregiously bad decisions. Judging by Google hits, class members have started to receive their checks, which are 71% larger than they would have been without our objection.
• In the Sears case, the court denied our motion to dismiss and our motion to intervene, the latter because we sought to appeal, and therefore were "obstructive." That reasoning begs the question when one is entitled to move to intervene for purposes of appeal; the court did not cite the leading Seventh Circuit case on the issue. We will appeal: we believe Devlin gives us standing to do so, and, in any event, the denial of the motion to intervene was clearly erroneous. I am excited about this appeal, as it will give the Seventh Circuit the chance to clarify the law of derivative shareholder lawsuits and whether it is appropriate to bring them for the primary purpose of extracting attorneys' fees.
• I'm also enthused about our chances in the Dewey v. Volkswagen appeal to the Third Circuit. The plaintiffs have requested a punitive appeal bond, and the district court will rule on that in October. I'll have a post about that later in the week.
• Alas, I will not be participating in another appeal I was confident about, the Ninth Circuit Yahoo! appeal.  As you know, the Center for Class Action Fairness refuses to settle a class action objection unless the withdrawal of the objection results in a settlement that is fair, adequate, and reasonable. Our clients disagreed with that approach, and we have withdrawn as counsel. We did not ask for and will not accept any fees in that representation.

CCAF filed its reply brief today in the Nachshin v. AOL appeal.

The principal-agent problem does not just affect class action plaintiffs' attorneys enriching themselves at the expense of their putative clients. I see it far too often in the case of class action defense attorneys beholden to the billable hour at the expense of their clients. I've had securities defense attorneys admit to me sotto voce that they don't want to see securities law reformed, because they're making money off the status quo. If I were a defense client, I'd worry about attorneys like that; they might prefer to lose their 12(b)(6) motion in the hopes of churning some billable hours in discovery disputes. In a notorious example, attorneys from defense firms lobbied the ABA to release a statement opposing preemption—something that would hurt their clients, though would certainly increase the demand for lawyers' services. (I once had a lunch date with a pharmaceutical defense attorney who made a disparaging comment to me about "you people" believing in federal preemption. That second-person-plural mystified me: she was making a lot more money arguing in favor of preemption in court on behalf of her clients than I was making writing about preemption on public-policy grounds. If one's that offended by preemption, one should go work for a plaintiffs' firm where one can make more money in the long run: it's stupid to be selling out one's principles for less than one's opportunity cost of adhering to them.)

I've long felt that general counsels should do more to insist that their outside defense firms are really defense firms that believe in their clients' rights, rather than mercenary law firms that happen to represent defendants because their lawyers don't have the entrepreneurial courage to be contingent-fee plaintiffs' attorneys.  Top-of-the-line plaintiffs' attorneys are the best trial lawyers in the business: they don't get paid if they don't win, but they're the ones with the Gulfstream jets and 5000-person Christmas parties.  If a defendant responds by hiring a coddled Ivy-League defense attorney that's afraid of the inside of a courtroom and goes home at night feeling vaguely guilty that he's working for The Man, that defendant is going to get his head handed to him nine times out of ten.  That sort of ideological accounting is surely more important to the bottom line than the racial-diversity accounting many Fortune 500 companies insist upon in their outside law firms, but it happens far less than it should.

Anyway, in response to CCAF's opening brief in the Nachshin v. AOL case, the settling parties apparently agreed that AOL's defense attorneys would do all the briefing, and the plaintiffs' attorneys would simply free ride off the finished product:

• AOL response brief.
• Plaintiffs' response brief.

The plaintiffs couldn't even be bothered to cite their roman numerals in consecutive order.

For the life of me, I can't imagine why a defense attorney with the best interests of his client in mind wouldn't simply say: "You sued us, you defend the settlement. We're paying you hundreds of thousands of dollars to go away. My client shouldn't have to pay another penny into this case." But that would mean foregoing some fees. And why would a defendant's brief say something as vapid as "Both class actions and legal aid funds facilitate the supply of justice to those who cannot otherwise afford it" (p. 25)?  Trial lawyers, come sue AOL! According to AOL's brief, you're just facilitating the supply of justice when you do! (I was similarly amused that AOL of all parties would snark about the supposed fact that our opening brief would cite "online articles." That was especially ironic given that AOL pays writers to produce online articles for them.) I briefly worked at the same firm as Paul Cappuccio, a hard-nosed lawyer's lawyer who went on to become the general counsel of AOL before he escaped on a life-raft to keep the Time Warner general counsel job.  I cannot begin to imagine a general counsel's office supervised by Cappuccio permitting a brief like this to be filed, but perhaps I'm being naive.

As you can tell for yourself, these were exceedingly weak response briefs that never really engaged with our opening brief's argument against the conflict-of-interest problems in cy pres distribution, so I'm feeling good about our reply brief and about our chances.