Monday, August 30, 2010

Professor John Palmer on the Center for Class Action Fairness

Professor John Palmer has some very generous things to say about me and the Center for Class Action Fairness on his excellent economics blog. Though I should note that we've never intervened on behalf of defendants; all of our work is plaintiff-side on behalf of consumers or shareholders.

Thursday, August 26, 2010

Appeal bond struck down

Imagine our surprise when we checked the docket in the Bachman case in late July (after checking it weekly since we filed our appeal) and learned that the judge had backdated an order requiring us to file a $325,000 appeal bond and then never served it on us or had it placed in the docket until a month later. We moved the Missouri appellate court to vacate the bond; plaintiffs cross-moved to dismiss our appeal for failure to pay the bond. Friday, the Missouri appellate court followed the law and struck down the illegal bond: there was no request for a stay of execution, and plaintiffs cannot self-impose a stay of execution by ripping off the class and then demand a bond to prevent an appeal of their own failure to look out for the class's interests. We're looking forward to the appellate court considering the problems with this class action settlement.

Tuesday, August 17, 2010

Against derivative shareholder strike suits: Sears Holding Corporation, Robert F. Booth Trust v. Crowley

In the 1998 case of Felzen v. Andreas, the Seventh Circuit suggested that it was looking for an opportunity to take action against derivative shareholder strike suits, suits where a shareholder purportedly sues on behalf of the corporation, but in reality is seeking legal extortion to drop the suit:
Rule 23.1 provides for notice to shareholders only in the event of dismissal or settlement, so that other investors may contest the faithfulness or honesty of the self-appointed plaintiffs; we do not doubt that this monitoring is often useful and that intervention to facilitate an appeal could be justified. Many thoughtful students of the subject conclude, with empirical support, that derivative actions do little to promote sound management and often hurt the firm by diverting the managers' time from running the business while diverting the firm's resources to the plaintiffs' lawyers without providing a corresponding benefit. Janet Cooper Alexander, Do the Merits Matter? A Study of Settlements in Securities Class Actions, 43 Stan. L.Rev. 497 (1991); Reinier Kraakman, Hyun Park & Steven Shavell, When are Shareholder Suits in Shareholder Interests?, 82 Geo. L.J. 1733 (1994); Roberta Romano, The Shareholder Suit: Litigation Without Foundation?, 7 J.L. Econ. & Org. 55 (1991); Mark L. Cross, Wallace N. Davidson & John H. Thornton, The Impact of Directors' and Officers' Liability Suits on Firm Value, 56 J. Risk & Insurance 128 (1989); Daniel R. Fischel & Michael Bradley, The Role of Liability Rules and the Derivative Suit in Corporate Law: A Theoretical and Empirical Analysis, 71 Cornell L.Rev. 261 (1986). The two shareholder-appellants in this case believe that the modest settlement, half of which will be paid to counsel, exemplifies this problem.
Unfortunately, the appeal in Felzen was thrown out on technical grounds, and no one has taken up the challenge, perhaps because it's more lucrative to agree to be paid off for withdrawing an objection to a bad settlement than for successfully challenging the bad settlement.

Until now. Plaintiffs brought a meritless derivative-shareholder suit over an alleged technical violation of the Clayton Act; the corporation found it cheaper to pay the plaintiffs' attorneys $925,000 to go away than to defend the suit. But the shareholders get nothing, so they're worse off because of the litigation.

Unfortunately for the plaintiffs, not only did they sue in the Northern District of Illinois, they sued a corporation where I own shares. After attempting to foreclose objections by mailing out notice three days before objections were due, the parties agreed to a new notice schedule, and I have moved to intervene and dismiss the action for failure to meet the Rule 23.1(a) standard for shareholder representation. The case is Robert F. Booth Trust v. Crowley, No. 09-5314 (N.D. Ill.) and the fairness hearing is August 27 in Chicago.

Monday, August 16, 2010

Court rejects settlement in Costco fuel case

Today's a busy day (there were filings in three different pending objections and appeals, two of them by us), but we'll have to postpone discussion of those cases to note that, on Friday, the U.S. District Court in Kansas rejected the $0-for-the-class/$10M-for-the-attorneys settlement in the Costco Fuel case that we argued in April. Alas, the court ruled on narrow technical grounds and punted on some critical economic questions, so we might see substantially the same settlement again in a couple of months if the parties can jump through the hoops the court established—but if the settlement remains unfair and unreasonable, I'm sure the objectors involved will want to object again.

Our associate, M. Frank Bednarz (Chicago '09), did much of the work on the Costco briefing, so I'm sure Friday was special to him—not least because it was also his wedding day! Mazel tov to Frank and Meridith. Go buy them some light bulbs before Frank starts at his BigLaw job in Boston in a couple of months. When Frank gets to Boston, I bet he'll be the only person there who already has a winning $10-million brief under his belt.

Tuesday, August 10, 2010

Amicus brief in AT&T Mobility v. Concepcion

The Ninth Circuit’s holding in Concepcion v. AT&T Mobility, barring an arbitration clause that prohibits class actions as "unconscionable," rests upon a belief in the exceptionalism of class actions, namely, that they are a uniquely superior form of dispute resolution the availability of which is necessary to vindicate consumer rights. But, as the Center’s experience indicates, class actions are far from an exceptional vehicle for providing consumers with meaningful access to justice.  Yesterday, the Center filed an amicus brief in the Supreme Court case of AT&T Mobility v. Concepcion (No. 08-893) in support of the petitioners.  O'Melveny & Myers attorneys Brian Brooks, Charles Borden, and R. Seth Davis did a phenomenal job with the brief, and we're grateful for their help.  Public Citizen, which ironically represents the anti-consumer/anti-arbitration/pro-trial-lawyer side in the name of paternalism, has a page devoted to the case with links and resources, though the weight of those links and resources is pro-paternalism; the left side of the blogosphere has paid far more attention to this case than the right side.  Among the briefs is one filed by a number of law professors I know and admire, including (but not limited to) Randy Barnett, Henry Butler, Richard Epstein, Michael Krauss, Geoff Manne, Michael Moreland, Larry Ribstein, and Josh Wright; it raises important points about unconscionability and freedom of contract.

Monday, August 9, 2010

In re Yahoo! Ninth Circuit appeal

Today the Center filed the opening brief in the appeal of the In re Yahoo! settlement approval.  We make a process argument—the district court gave no reasoning for its decision, which by itself requires remand—but we also argue the substantive issue that no court could reasonably approve a $0-for-the-class/$4.3 million-for-the-attorneys settlement.  Don't miss pp. 39-43, where we cite Seinfeld.

Friday, August 6, 2010

Settlement approved in Dewey v. Volkswagen

Wednesday, August 4, Judge Patty Shwartz (D.N.J.) approved the Dewey v. Volkswagen settlement to which the Center for Class Action Fairness had objected.

In one sense, the decision is a partial victory for CCAF: one reason the proposed settlement was unreasonable was because of the plaintiffs' attorneys's unreasonable request for $22.5 million in fees. The court adopted some of our arguments that the plaintiffs' attorneys claim that the settlement was worth $141 million overvalued the settlement by assuming 100% class participation and double- or even triple-counting many of the class benefits. The court approved only $9.2 million in fees, a $13.3 million reduction, though still a very healthy pay day of over $1100/hour for some of the self-appointed lawyers that negotiated a settlement that left a million of their putative clients in the cold.

Yet I still feel disappointment: though the opinion was 101 pages long, the court did not address our arguments that a million class members received nothing under the settlement, did not address our arguments that the settlement structure created impermissible intra-class conflicts, and did not address our arguments about the validity of the economic testimony finding value.  We argued that the settlement structure was impermissibly self-dealing; the court rejected that argument with a cite to a Third Circuit opinion that did not consider the argument we made.  The court's ultimate finding that the settlement was worth $69.3 million still reflects enormous inflation, given that only $8 million of the settlement reflects pecuniary benefits to class members; the court confused expense to the defendant with benefit to the class, encouraging future settlements that are structured inefficiently to maximize attorneys' fees at the expense of the both the class and defendants.  We were hamstrung by a jaw-dropping ruling by the court that there was no need for an objector to a settlement to cross-examine the plaintiffs' expert witness because the direct examination and the court's own questions had already asked the expert what he thought about our objection.  The cross-examination would have demonstrated severe contradictions between basic economic principles and the methodology used by the expert to calculate damages. That the court went on to entirely ignore our argument for why the expert report flunked Daubert was disturbing. All of this is reversible error in the Third Circuit: if nothing else, an appellate court cannot decide whether the rejection of an objection was an abuse of discretion unless the trial court expresses its reasons for rejecting the objection.

We have thirty days to decide whether to appeal, a decision we will make in conjunction with the four class members we represented in our objection.  Our decision may be made easier if the plaintiffs' attorneys appeal the fee decision, in which case we would cross-appeal at a minimum.