CHICAGO - After the rule governing federal class actions was adopted in 1938, a constitutional lawyer who co-authored a treatise on federal practice and procedure commented that the rule made a "bold attempt" to encourage class action lawsuits.
Five decades and numerous amendments to Rule 23 in the Federal Rules of Civil Procedure later, Daniel Karon, a plaintiffs' class action lawyer in Ohio, said he "would challenge anyone to admit or believe that that's the current vibe out there today."
Karon, an attorney with Goldman, Scarlato, Karon & Penny in Ohio, moderated a discussion on Saturday at the American Bar Association's annual meeting in Chicago about "The practice that never sleeps: What's happened to, and what's next for class actions."
Joined by attorneys, judges and a law professor from the United States and Canada, Karon said class action lawsuits, as well as the attorneys who bring them, have come under fire in recent years.
Although legislation like the Class Action Fairness Act and court rulings in recent cases, such as Bell Atlantic Corp. v. Twombly, AT&T Mobility v. Concepcion and Wal-mart v. Dukes, have changed the legal landscape of class action lawsuits, Karon said most of the scrutiny has come from the public.
Pointing to the approved and preliminary settlements in suits brought against Nutella and Netflix, Karon said it's not surprising the idea of class action lawsuits has left a bad taste in the mouths of the public.
In those cases, plaintiffs' lawyers are expected to reap millions of dollars in fees while their clients will only get few bucks, if that.
"It's not as if the practice is getting pushed positively," Karon said. "It's more getting pushed out the door."
While Karon referred to the environment in which class action lawyers practice in today as "hostile," Margaret Lyle, a defense class action lawyer from Texas who sat on Saturday's panel, said she would characterize it as more "rigorous" since recent court rulings have limited the scope of these suits and required more from attorneys at the pleading stage.
Fees Drive Negative Perceptions
Karon asked Lyle and the other panelists where they think the increased scrutiny has come from.
"I think a lot of that has to do with public perception," said U.S. District Judge David Katz of the Northern District of Ohio.
It's not Rule 23, but rather the public's reaction to news that a settlement in a class action lawsuit left each plaintiff with an award of $3.75 while attorneys receive $3.75 million in legal fees.
While they might think it's unfair, Katz said that the public often forgets that these plaintiffs wouldn't have had enough money to sue in the first place if it weren't for class action lawyers.
Brian Fitzpatrick, an associate professor at Vanderbilt Law School, agreed. He said he has spent the past five years conducting an empirical study of class action settlements and their fee awards.
The issue of "fees is the No. 1 driver behind the negative public perception of the class action device," Fitzpatrick said. "The perception is that lawyers are making all the money, but is that perception accurate? In my own view, it is not."
What the public doesn't know when they read stories about plaintiffs' awards in class action suits is that they had a small stake in the matter, Fitzpatrick said. So while the legal fees may be much more than the plaintiffs' award, he said it makes sense in light of what the plaintiffs had at stake.
Although not discussed at Saturday's panel, one local example of a settlement with hefty legal fees comes in the class action lawsuit brought against Syngenta Crop Protection and Syngenta AG over the weed killer atrazine.
Under the proposed $105 settlement that attorneys agreed to in May, plaintiffs' lawyers, including St. Louis lawyer Stephen Tillery, will share about $34.9 million in fees.
On average, attorneys in the case estimate that each water provider that files a claim will get about $2,000. Some providers, however, are expected to get much more. A final fairness hearing over the proposed settlement will take place at federal court in East St. Louis in October.
As part of Fitzpatrick's study, he said he researched all of the class action settlements that took place in the nation's federal courts in 2006 and 2007. During that time period, he said there were 688 settlements that produced about $33 billion in awards, of which lawyers received 15 percent in legal fees.
"It really changed my mind about the class action system," Fitzpatrick said of his findings.
Karon said members of the public pay more attention to television news and social media than court filings, which means they only hear about the absurd or really big class action settlements; something he contends drives their poor perception of the system.
François Rolland, the chief justice of the Quebec Superior Court, said Canada has yet to see the hostility that some of the American panelists described. Canada, he said, enacted legislation on class actions in 1978, much later than the U.S.
He said Quebec hasn't experienced the same volume of class action suits that the U.S. has either and that they "have become a formidable, fantastic tool to access justice" over the years. He said there are about 375 class action suits going on right now in Quebec.
He said Quebec lawmakers loosened the rules for class actions in 2002 in an effort to better facilitate access to the courts because many people believed their claims were not worth the cost of going to court.
"I think there has always been that perception that it's too expensive for what you get, but I don't think we have hostility," Rolland said.
"We haven't reached the attitude that we're seeing in the United States... about fees."
David Elman of Borden Ladner Gervais in Ontario said each providence in Canada has its own system for handling class action lawsuits under the law. He said Ontario's system is newer than Quebec's and as such, lawyers there are still watching and learning.
When it comes to attorneys' fees, Elman said an Ontario study from 2007 showed that these awards typically worked out to be about 15 percent of the class action settlement. Since then, Elman estimated that awards for attorneys' fees have jumped to about 25 percent of a settlement.
While there has been some media attention on the business of class actions and whether attorneys' fees in certain cases have been justified, Elman said attorneys haven't experienced any backlash over the matter.
Cy Pres and the Tooth Fairy
Pointing to the proposed Netflix settlement, Karon said cy pres awards are also facing scrutiny in the U.S. these days. Under the proposed settlement that intends to resolve privacy claims over customers' viewing histories, Netflix has agreed to pay $9 million into a settlement fund.
That money will be used to pay settlement expenses, attorneys' fees and incentive awards for the named plaintiffs with the remainder set to be given as cy pres awards to not-for-profit groups that focus on privacy issues.
"In my opinion, these cases are not about compensation. They are about one thing and one thing only: deterrence," Karon said. "It doesn't matter who the money goes to go. Give it to the Tooth Fairy. It really doesn't matter. The only thing that matters is whether the defendant pays it."
Over the years, Karon said the goal of class action lawsuits has evolved from litigation efficiency to deterrence. It's a somewhat new idea, but one that he said provides the public with a remedy to a problem that they probably would not have had enough money to take to court.
While class action law has changed over the years and created additional hurdles for plaintiffs' lawyers to jump through, some of which may explain fewer filings, Katz said he believes the surge in the number of cases being handled through multi district litigation is a contributing factor to the reduction of class action suits.
Katz said there is a different reaction to multi district ligation than there is with class actions. He said multi district litigation provides a schedule so attorneys and plaintiffs know how the case will proceed and the amount of attorneys' fees at an early stage in the proceedings.
Because there could be multiple trials in multi district litigation, Katz said there is more of a pressure to settle, as opposed to class action lawsuits that only include one trial.
While the panelists of Saturday's ABA session agreed that public perception plays a large role in the bad reputation class action lawyers get, Karon said plaintiffs' lawyers need to do their part and avoid "stupid cases," the ones that "don't make you feel good" and "can't tell your wife or mom about."
He said it is necessary for plaintiffs and defense lawyers to work together in order to keep the practice as vibrant as possible in today's hostile and rigorous environment.
All of the panelists agreed that providing more meaningful notice could go a long way in appeasing the public's concern over class actions.
"Notice intends to inform, but it doesn't always do so," he said, explaining that notice of proposed settlements typically are written using legal terminology, making the public assume the lawyers are trying to hide something in the oft-difficult to understand notices.
As a judge, Katz said the topic of notice can become a major side issue to a class action suit. He said lawyers need to write them so non-lawyers can understand them and make them big enough that can be seen in a newspaper notice.
Lyle said she has seen both good and bad notices in her career. When she can't understand the terminology used in a notice in a case she is handling as a lawyer, Lyle said there is a problem.
Fitzpatrick said not only do notices need to be written in plain English, but they need to actually be meaningful. If it's not worth a plaintiff's time to make a claim for a few bucks, the notice should explain that, as well as point out exactly how much money the lawyers will get under the proposed settlement.
Karon also noted that on top of trying to better educate the public, class action lawyers need to wait and see how recent court rulings on class actions will play out.
For instance, he said, the U.S. Supreme Court handed down a ruling in AT&T Mobility v. Concepcion last year, holding that an arbitration contract couldn't be invalidated just because it included a provision that prohibited class actions.
Since this ruling, as well as a few others on class action law, have come down in the past few years, Karon said, it's going to take some time to see their full effects.
"When all the chips have finally fallen, I think it's going to be a threat to class actions," Karon said of the Concepcion ruling. "We're just going to have to wait and see."