Pro 2 Notes
What happened to Zahn (every member of the class must meet the amount in controversy requirement)? The Circuits were split. The Supreme Court granted cert on more than one case to decide whether Zahn is preserved or is gone.
Settlement of class actions
How do we end class actions? How do lawyers get paid? This is the issue that has created the most controversy behind class actions. There is the perception that the lawyers get lots of money but the class itself gets next to nothing. Lawyers could get an hourly rate or work on contingency. But if the class is highly nebulous, the named plaintiffs don’t want to bear this burden. You can’t enter a contingency agreement with an unknown class. So here we have the common fund doctrine, which allows for the lawyers to be paid out of the pool of money that they are able to acquire for the class itself. As they create a fund for the relief of the plaintiff class, they get paid out of it. This arrangement has a contingency “flavor” to it. Typically, the common fund doctrine uses the lodestar: a calculation of how many hours one would reasonably expect to spend on the litigation times a reasonable hourly rate.
Say we have a solo practitioner working for a class of automobile consumers who have been overcharged. He spends three years on the case and gets a $100,000 settlement on the behalf of the class. He works 1500 billable hours over those three years. As a solo practitioner, he wouldn’t have charged as much as an experienced attorney, but an experienced attorney would have done it faster. We will give him $75 because that’s what he’s worth. How many hours will we credit him for? It would have taken the experienced attorney less time. If we had $75 times 1300 hours, we would have to pay the lawyer just under $100,000. The plaintiffs would only get $12.50 each! That’s stupid.
What if we have a 500 person class suing some defendant? The defendant makes a settlement offer that will give $95,000 to the lawyer and $5,000 to the class. Should the court approve it? Does it just look at a bribe to the lawyer? The class plaintiffs would probably object. The Rules have been recently amended to empower the court to do specific things in this situation. Rule 23(h) is brand new and talks about attorneys’ fees in class actions. The court may award reasonable attorneys’ fees. It must be done by motion under Rule 54. Notice of that motion must be served on all parties in a reasonable manner. The class must be told about the settlement! Then they have the chance to come and object. The court can hold a hearing if they want to. At the class counsel appointment stage at the beginning of the class action, the court can request the different lawyers competing to be class counsel to bid against one another. But will this really happen? Could it be good for the class?
What are settlement class actions? They are class actions where the complaint, answer, class certification and settlement are filed simultaneously. The parties have already worked out all the details. This is like the Amchem case. This is a framework that is a target of criticism. It “reeks of collusion”! Both sides have already agreed how to settle the suit, and the terms are usually highly favorable to the lawyers. Under the old Rule 23, there were a series of “trash for the class” settlement class actions where the lawyer would get a settlement offer that essentially bought off the lawyer. Sometimes the named plaintiff would get an “incentive award” that comes out of the attorneys’ fee award. How do mass small wrongs get righted? The 2002 reforms make it a bit tougher to get such a high level of inequity. But have the new rules done much? Almost no one will opt out of class litigation because their stake is so small. The tradeoff is between trying to redress many small grievances and giving a windfall to the attorneys.
Products, Inc. v.
is all about asbestos. There is lots of
procedure here. Amchem started out by
trying to find “global peace” for the asbestos companies. They don’t get it, but that was their
plan. Asbestos lawsuits are filed all
over the place. Lots of people have
cancer. Procedurally, the court uses a consolidation
device that allows you to move cases around in the federal courts for
efficiency reasons. All of the litigation
An administrative plan was proposed that would pay exposure-only plaintiffs in a similar way to workers’ compensation. Such a scheme would be cheaper for the asbestos companies than lawsuits. It is proposed as a settlement class action with all of the terms included. Both plaintiff classes and the attorneys will get paid. The District Court of Pennsylvania certifies the class as a (b)(3). The Third Circuit says it’s not fair. The Supreme Court upholds the Third Circuit and says you can’t do it. What’s the ethical situation here? You couldn’t agree not to represent future clients in return for settling a case. The ABA Rules forbid so-called “lock-out agreements”. A lawyer can’t agree to restrict his own right to practice law. What if they plan on settling all present and future cases? This seems substantially similar, but it’s not technically a lockout agreement. The global solution would be to bind everyone, which requires the use of administrative settlement procedure. The questions of law and fact in common must predominate. The district court found that the shared experience in asbestos exposure and interest in receiving money is what predominated. Ginsburg says Congress should create the asbestos fund, not courts.
Notice that the current plaintiffs get money, and the exposure-only plaintiffs get an administrative settlement procedure only (just the possibility of money). Here, the lawyers are representing two different groups with different interests. The inventory plaintiffs want money now, the exposure-only plaintiffs want money later. They could have remedied this by having separate counsel to represent each of the different groups. But that probably also would have blown up the global settlement: the exposure-only lawyers never would have agreed to such a scheme.