29 November 2003

Some might argue that Professor Bainbridge's comments on class litigation reform are merely the tryptophan-hangover musings of a conservative. Well, perhaps that is to some extent true; but much of his concern is nonetheless sensible. Just like the Copyright Act, and in particular the DMCA, his comments make more sense working from the back toward the front. At least to me, in the throes of my tryptophan hangover.

   First, Professor Bainbridge proposes a number of reforms to class actions. N.B. I have no idea whether Professor Bainbridge ever actually engaged in class action litigation; I did, on the plaintiff's side, before switching over to IP. His proposals (my comments in this font):

1. Class action litigation reform, including:
   • Making it easier to remove class actions to federal court, so as to prevent plaintiff[s'] counsel from forum shopping the case into notorious state court tort hellholes like Mississippi or Madison County in Illinois. No argument here, but for different reasons. Although I am a strong supporter of the Constitution, I am also disdainful of state courts. With very few exceptions, I'd rather be in Federal court no matter what the posture of my action or the purported advantages of a "sympathetic" local population. The streamlined and more-uniform procedure (not entirely uniform; try pleading a civil RICO case in the Northern District of Illinois, and compare it to the otherwise-identical pleadings prepared in the District of Connecticut), vastly greater transparency, smarter clerks, and a variety of other factors actually level the playing field between large law firms and small law firms much more readily than do state courts. Further, the total cost of litigation—excluding possible travel, which is an issue either way—is usually quite a bit less in federal than in state court, because there are fewer steps in the appellate chain and the first-level appellate decision is almost always better written and on point. Litigators who forget to include the appellate phase in their plans are like the Bush Administration in its neglect of post-combat operations in Iraq. Finally, this change might actually force Congress to provide some relief for our overworked, underpaid Federal judiciary by increasing pay, improving available resources, and increasing the number of judgeships.
   • Eliminating coupon settlements in which plaintiffs' lawyers reap millions in fees while plaintiff class members get coupons (I've been deluged lately with notices that I'm entitiled to a $10-off coupon towards the purchase of Microsoft products as part of the settlement of some lawsuit against Microsoft). Again, no argument here. In my experience, "coupon settlements" are a misguided "excuse" to keep a public company from having to take an accounting hit, and therefore potential reduction in share prices, for past conduct by actually forking over cash. Further, they are unfair to the actual victims, because they tie victims to product lines that—if the cause for the lawsuit is actually valid, such as (say) TILA violations that hid a finance charge amounting to several thousand dollars on an automobile—have harmed those victims and thus may not be acceptable to the victims. Coupon settlements should be very, very rare, limited only to regulated areas; I can understand a coupon settlement for, say, a state-owned water utility that overcharged its customers and is prohibited by law from issuing bonds for anything other than new construction. On the other hand, I'd rather see some repeat and particularly egregious bad actors forced into bankruptcy or otherwise forced to acquire new management than allow some of the slimy coupon settlements that allow existing management to essentially evade all responsibility for its actions.
   • Cap attorneys' fees in class action litigation by reference to a reasonable hourly rate rather than a percentage of the award or settlement. The tobacco lawyers made billions, while public health programs remain underfunded. The money those lawyers made is now being used to finance new litigation against new targets for regulation by litigation (see Overlawyered's coverage here). With the exception of so-called product liability and mass tort actions, this is in fact the ordinary procedure. The "percentage of the fund" system is actually used in only a small minority of cases; most class actions that result in an award of attorney's fees use the lodestar (hourly rate) system, although for administrative convenience that is often compared to or turned into a percentage-of-fund award after consideration of the lodestar. Admittedly, there are abusive exceptions; but those can be controlled through actual enforcement of Model Rule of Professional Conduct 1.5(a), which begins "A lawyer's fee shall be reasonable." This is a problem for professional regulation more than for the courts—because the reasonability of fees in a given circumstance may depend upon factors that cannot be taken into account merely by revising Fed. R. Civ. P. 23.
2. Adopt a variant on the English system for attorneys fees. Under the American system, each side pays its own legal fees. Under the English sytem, the losing side pays the attorneys fees for both sides. A clever plaintiffs' lawyer might try to get around that rule by bringing on board some judgment proof activist to serve as the named plaintiff. If the regulation by litigation class action suit gets tossed, as the obesity suit against McDonalds was - twice!, make the lawyer who filed the suit pay the defendants' legal fees. If the lawyers are going to recycle fees against new targets, make them pay when those targets prevail. The only necessary response here is Fed. R. Civ. P. 11. Or, in more extreme cases, I suppose resorting to Model Rule of Professional Conduct 3.1 ("A lawyer shall not bring or defend a proceeding, or assert or cotnrovert an issue therein, unless htere is a basis for doing so that is not frivolous, which includes a good faith argument for an extension, modification or reversal of existing law."). In other words, this is not a problem with class actions per se, or even one limited to class actions; it is a problem with the profession's refusal to self-regulate.
3. Congress could use its powers under the exceptions clause of section 2 of Article III of the Constitution to remove issues of national regulatory import from the jurisdiction of the courts. I think this a remarkably bad idea; but that is primarily because I trust what the legislative process has become—as distinct from the Constitutional vision of it—even less than I do the courts.
4. Congress could adopt special protections against expansive tort liability for manufacturers of lawful but politically incorrect products (like guns or alcohol). If Congress does so, it is doing what the courts have stepped in to do: acting on an issue of public concern that Congress has evaded. In a sense, then, the courts provide an indirect motivation for Congress to act instead of sit there doing nothing. Whether I agree with the substance of the particular provisions or not, the result is that government has taken place.

   Where Professor Bainbridge and I differ is in our perceptions of the motivation for class litigation:

The question is whether we want some self-appointed legal activist, who stands to makes millions in legal fees, to find some self-appointed social activist willing to serve as a named plaintiff to make national policy on a key issue by filing suit in front of some unelected judge. I believe regulation through litigation is a gross subversion of democracy. As Senator Mitch McConnell argues:

The…fundamental problem with “regulation through litigation” is that private parties obtain through lawsuits what legislatures have not chosen, or even have chosen to reject.

(emphasis added) Senator McConnell's statement implies that all legislative results—positive and negative—result from an actual legislative choice. In an ideal system, this would be true. In an ideal system, we would not have the potential and actual corruption imposed through the realities of Congress's reliance on campaign financing, or skewed parliamentary procedure, or the antidemocratic House Rules Committee, or anything else. Although perhaps overused, class litigation's theoretical function is to provide an alternative for the practically or literally disenfranchised to obtain government-level actual hearings for their positions. Consider, for example, the Civil Rights Act of 1964. Absent Brown v. Board of Education of Topeka, Kansas—a class action—the ability of a few senior Senators and Congresscreatures from Jim Crow states to continue to block a clear majority desire would have prevented such legislation from even receiving serious consideration. This is not to say that every class action is the proper response to Congressional constipation (as opposed to conscious choice); it is only to say that sometimes "regulation through litigation" is democracy in response to subversion through opacity in the legislature.

   The phrase in Professor Bainbridge's comment that I have emphasized also reflects a problem with the profession, not with the system. Bluntly, the people who "stand[] to make[] millions in legal fees" are almost uniformly insurance-defense counsel. Prosecuting a class action can be shockingly expensive, especially once it becomes time to notify the class members of the litigation. Further, if the fee is unreasonable, all we need to do is get the profession to enforce Rule 1.5(a). On both sides of the v; there is no excuse for some senior partner at Windstrom & Crusher charging $600 or more an hour (that will ultimately be completely deductible for his/her client as a business expense) for the "valuable time" he/she spends consulting with corporate directors on Wednesday afternoon at 4:30 near the 13th green.

   On the principle that less government is perhaps better, maybe if the legal profession did a better job regulating itself some of these issues would disappear—allowing the government to actually govern.