The Dewey v. Volkswagen settlement where attorneys are asking for over $23 million for recovering an $8 million reimbursement fund for a small subset of the class (but attributing tens of millions of dollars to a valuation of injunctive relief where VW and Audi send a letter to class members) has gotten a lot of reaction around the Internet. (E.g., Major, Olson (and commenters), Pero, CJAC, Passat World.)
Today, the Center for Class Action Fairness filed an objection on behalf of four class members, including one who gets nothing despite water leakage into the passenger compartment that required over $1000 of repairs. The fairness hearing is July 26. Oddly (but all too typically), objections are due before the parties make their filings and present their evidence for the fairness of the settlement, so we'll need to make a supplemental filing July 12 to address the expert report's valuation of the injunctive relief.
The case is Dewey v. Volkswagen AG, No. 07-CV-2249 (D.N.J.).
Update, June 16: see also Public Citizen.
Tuesday, June 15, 2010
Thursday, June 10, 2010
Coupon settlement in DC approved in Envision EMI case
"Some 15,000 students paid between $2,380 and $2,729 to attend" 2009 inauguration conferences organized by Envision EMI, which class action attorneys claimed, quite plausibly, was a ripoff. So the class members get... two $625 coupons for two more conferences from the same substandard vendor. And those coupons have several limitations, including the fact that only ten percent of seats at any given conference are eligible for coupon use. The settlement is characterized as a "$17 million settlement" in the press, though in fact claims will certainly be much lower. (If fewer than $8 million is awarded, the remainder will go to cy pres, but the settlement does not specify the cy pres recipient.) The lawyers, including the Hausfeld LLP firm, will get over $1.4 million. Several state attorneys general objected, but the court approved the settlement anyway, while holding the fee award in abeyance. Looks like the students will be getting ripped off twice.
Monday, June 7, 2010
Cy pres bill in Ohio House
I've previously written about the problem of cy pres, charitable donations used to expand the apparent value of class action settlements that often serve as double-compensation for the trial lawyers. One particular Ohio law firm, Dworken & Bernstein, has demonstrated this problem first-hand by regularly negotiating for cy pres awards in settlements that otherwise are pretty lackadaisical in terms of class benefits, getting the settlement approved by claiming the cy pres award is a benefit to the class (even when it benefits a charity affiliated with the judge, or is a local charity despite the fact that the money is supposed to be going to a national class), and then taking personal credit for the donation in ceremonies with oversized checks, as if the money being donated was the law firm's rather than that of their clients. (The website's stock photo of the grateful child with the flower is particularly compelling.)
Public choice aficionados would be fascinated by recent Ohio developments where the Dworken firm has lined up multiple charities to support pernicious legislation, HB 427, that would enshrine this conflict of interest and breach of fiduciary duty to one's clients into Ohio law. On May 18, I testified before an Ohio House committee on the subject.
Public choice aficionados would be fascinated by recent Ohio developments where the Dworken firm has lined up multiple charities to support pernicious legislation, HB 427, that would enshrine this conflict of interest and breach of fiduciary duty to one's clients into Ohio law. On May 18, I testified before an Ohio House committee on the subject.
Sunday, May 30, 2010
Thoughts on "professional objectors"
I'm quoted in a May 23 Maryland Daily Record story on professional objectors (and don't miss the correction at the bottom of the story).
Because class action settlements bind class members absent from court proceedings, and because class action attorneys are negotiating their fees as part of the same settlement as the class settlement (even when they engage in the fiction of negotiating seriatim), Fed. R. Civ. Proc. 23(e) requires class action settlements to receive court approval as "fair, adequate, and reasonable" to ensure that class attorneys are not breaching their fiduciary duty to the class.
This permits legitimate objections to the settlement. But it also permits holdups. If class attorneys are awarded a $4 million fee, but appeals of a class action settlement approval take two to three years, the time-value of money means that it's worth hundreds of thousands of dollars to the class attorneys to pay the objectors to go away. This leads to rent seeking.
A reform to the Federal Rules of Civil Procedure was meant to address this problem: an objection cannot be withdrawn in district court without court approval. This certainly rids the system of the more blatant holdup payments that do nothing to benefit the class—though, given that the resulting proceeding will be non-adversary and any approval will not be appealed, there's little incentive for district courts not to rubber-stamp objection withdrawals.
Of more concern is that there is no parallel rule in the Federal Rules of Appellate Procedure. Simply by filing a notice of appeal, a holdup objector can avoid the need for court approval: indeed, appellate court mediators will formally encourage settlement to lighten the appellate court's docket. There's some reduction in the value of the objection, because the buyoff comes later rather than sooner, affecting the time-value of money for both the objector and the class counsel, but there's no real reduction in the incentive for rent-seeking.
Worse, the structure leads to perverse incentives: a rent-seeking or "professional" objector is likely to be financially better off if the district court denies the objection, permitting an immediate appeal—especially since many district courts are reluctant to award attorneys' fees to objectors even if the objection improved the settlement.
This can lead to low-quality objections. Of course, even professional objectors can make legitimate objections: they object to bad settlements as well as reasonable settlements, and even win occasionally: see, e.g., Synfuel Tech. v. DHL Express, 463 F.3d 646 (7th Cir. 2006). But low-quality objections hurt consumers in four ways: first, poor objections lead to poor precedent that encourages judges to rubber-stamp bad settlements over objections; second, one would expect that class counsel anticipates the expense of buying off professional objectors, and builds that into the settlement fee, increasing the cost of class action litigation to the detriment of consumers; third, to the extent the settlement legitimately provides class members with benefits, rent-seeking delays reduce the value of the settlement to the class if the class counsel has not negotiated interest-bearing escrow accounts (which is why courts should condition findings of fairness on the establishment of such accounts); and fourth, there is a signaling problem whereby it is difficult for legitimate objections to be treated as legitimate objections because the objector cannot distinguish himself from rent-seeking objectors. (Indeed, an intelligent Bayesian would expect most objectors to be rent-seeking: for the same reasons we have class actions to aggregate litigation, an objector has no financial incentive to spend time and money petitioning the court over an unfairness to a settlement where an excessive attorneys' fee might deprive the class member of a few dollars or even less. This is why thoughtful courts do not equate lack of formal objections with class members' approval of the settlement.)
The Center for Class Action Fairness resolves the signaling problem in a unique way: we announce in advance that we refuse to settle unless the settlement results in an objectively fair and reasonable settlement, and we refuse to request a fee for more than 4.4% of the additional pecuniary benefit to consumers resulting from our objections (with that fee coming from class attorneys' fees, rather than from consumers); to date, we've never settled an objection. Our interests are to put consumer welfare first. This hasn't stopped class counsel from trying to tar us with the "professional objector" brush, but we can demonstrate that they're being dishonest if they accuse us making a bad-faith objection for profit.
Because class action settlements bind class members absent from court proceedings, and because class action attorneys are negotiating their fees as part of the same settlement as the class settlement (even when they engage in the fiction of negotiating seriatim), Fed. R. Civ. Proc. 23(e) requires class action settlements to receive court approval as "fair, adequate, and reasonable" to ensure that class attorneys are not breaching their fiduciary duty to the class.
This permits legitimate objections to the settlement. But it also permits holdups. If class attorneys are awarded a $4 million fee, but appeals of a class action settlement approval take two to three years, the time-value of money means that it's worth hundreds of thousands of dollars to the class attorneys to pay the objectors to go away. This leads to rent seeking.
A reform to the Federal Rules of Civil Procedure was meant to address this problem: an objection cannot be withdrawn in district court without court approval. This certainly rids the system of the more blatant holdup payments that do nothing to benefit the class—though, given that the resulting proceeding will be non-adversary and any approval will not be appealed, there's little incentive for district courts not to rubber-stamp objection withdrawals.
Of more concern is that there is no parallel rule in the Federal Rules of Appellate Procedure. Simply by filing a notice of appeal, a holdup objector can avoid the need for court approval: indeed, appellate court mediators will formally encourage settlement to lighten the appellate court's docket. There's some reduction in the value of the objection, because the buyoff comes later rather than sooner, affecting the time-value of money for both the objector and the class counsel, but there's no real reduction in the incentive for rent-seeking.
Worse, the structure leads to perverse incentives: a rent-seeking or "professional" objector is likely to be financially better off if the district court denies the objection, permitting an immediate appeal—especially since many district courts are reluctant to award attorneys' fees to objectors even if the objection improved the settlement.
This can lead to low-quality objections. Of course, even professional objectors can make legitimate objections: they object to bad settlements as well as reasonable settlements, and even win occasionally: see, e.g., Synfuel Tech. v. DHL Express, 463 F.3d 646 (7th Cir. 2006). But low-quality objections hurt consumers in four ways: first, poor objections lead to poor precedent that encourages judges to rubber-stamp bad settlements over objections; second, one would expect that class counsel anticipates the expense of buying off professional objectors, and builds that into the settlement fee, increasing the cost of class action litigation to the detriment of consumers; third, to the extent the settlement legitimately provides class members with benefits, rent-seeking delays reduce the value of the settlement to the class if the class counsel has not negotiated interest-bearing escrow accounts (which is why courts should condition findings of fairness on the establishment of such accounts); and fourth, there is a signaling problem whereby it is difficult for legitimate objections to be treated as legitimate objections because the objector cannot distinguish himself from rent-seeking objectors. (Indeed, an intelligent Bayesian would expect most objectors to be rent-seeking: for the same reasons we have class actions to aggregate litigation, an objector has no financial incentive to spend time and money petitioning the court over an unfairness to a settlement where an excessive attorneys' fee might deprive the class member of a few dollars or even less. This is why thoughtful courts do not equate lack of formal objections with class members' approval of the settlement.)
The Center for Class Action Fairness resolves the signaling problem in a unique way: we announce in advance that we refuse to settle unless the settlement results in an objectively fair and reasonable settlement, and we refuse to request a fee for more than 4.4% of the additional pecuniary benefit to consumers resulting from our objections (with that fee coming from class attorneys' fees, rather than from consumers); to date, we've never settled an objection. Our interests are to put consumer welfare first. This hasn't stopped class counsel from trying to tar us with the "professional objector" brush, but we can demonstrate that they're being dishonest if they accuse us making a bad-faith objection for profit.
Monday, May 10, 2010
Heartland podcast
Arin Greenwood interviews me about some recent Center for Class Action Fairness cases.
Tuesday, May 4, 2010
Wherein I join the Manhattan Institute
I have joined the Manhattan Institute as an adjunct fellow. This won't have any adverse effect on the Center for Class Action Fairness—I'll still be litigating cases on behalf of consumers against settlements that are rip-offs, and that litigation will be entirely separate from the Manhattan Institute. (Wednesday alone we filed two briefs and negotiated a discovery dispute with opposing counsel.)
It just means that I'll be spending more of my spare time writing for MI (and especially its Point of Law blog), and can be more of a fox and less of a hedgehog on legal issues because I'll have an outlet to publicize my thinking on civil justice reform beyond the problem of class action abuse. Thanks to the kind words from Wally Olson (who, by moving to Cato, leaves me big shoes to fill), Jim Copland, Carter Wood, and Dan Pero.
Update: also in Legal Newsline.
It just means that I'll be spending more of my spare time writing for MI (and especially its Point of Law blog), and can be more of a fox and less of a hedgehog on legal issues because I'll have an outlet to publicize my thinking on civil justice reform beyond the problem of class action abuse. Thanks to the kind words from Wally Olson (who, by moving to Cato, leaves me big shoes to fill), Jim Copland, Carter Wood, and Dan Pero.
Update: also in Legal Newsline.
Saturday, May 1, 2010
Bluetooth case press coverage
Our appeal has drawn attention from the National Law Journal, Overlawyered, Bob Dorigo Jones, California Civil Justice, Hans Bader, and AetherCzar. It was previously covered in Forbes.
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