Windfalls and class-action lawsuits

A Kansas City pharmacist pleaded guilty recently to tampering, adulterating and misbranding two well-known cancer drugs, Gemzar and Taxol.

More than 300 lawsuits have been filed, including more than 100 wrongful-death claims.

Which would raise no eyebrows except that two-thirds of the suits target Eli Lilly & Co., maker of the chemotherapy drug Gemzar, and Bristol-Myers Squibb, maker of Taxol.

Kansas City trial lawyer Michael Ketchum, who represents more than 170 of the plaintiffs, claims that the pharmaceutical companies somehow failed to alert authorities that the pharmacist was diluting their drugs.

Yet, it was Lilly that dropped the dime on the felonious pharmacist. And had it not acted when it did, the company argued in a statement, "there's no telling how long this would have gone on."

So why is Ketchum going after Lilly and Bristol-Myers? Is it because the two drug makers were conspiring with the Kansas City pharmacist to dilute their own medications (which actually meant less profits for them)?

No. It's because the two pharmaceutical giants have deep pockets. And because Ketchum has dreams of millions of dollars in contingency fees from the patients and families he represents.

It is because class action litigation has gotten so out of hand that the U.S. House of Representatives passed a bill last week that targets the more questionable practices of trial lawyers such as Ketchum.

Among other key provisions, the measure aims to curb settlements, say sponsors, "where attorneys frequently reap millions in fees while class members are shortchanged."

In a case involving purported overcharges on cell phones, wireless customers received $15 coupons with which they could purchase future products. The class action lawyers, on the other hand, pocketed more than $1 million in fees.

A class action suit against the Bank of Boston resulted in an award of $8.76 to each individual listed as a plaintiff in the suit. However each of those individuals also had $90 deducted from their bank account to pay their attorney fees.

Then there was the class action suit against the maker of Cheerios concerning food additives. The class members got coupons to purchase more Cheerios. The lawyers got $2 million in fees.

It is because of the lure of such multimillion-dollar windfalls that trial lawyers are always on the lookout for potential class actions, no matter how dubious. And to improve their prospects of winning, they file suits in state courts that have a history of granting large awards to plaintiffs.

The House bill would rein in such "forum shopping." It would give federal courts jurisdiction in class action suits in which any plaintiff and defendant live in different states and the total claim is more than $2 million.

This provision is especially important to companies like Eli Lilly and Bristol-Myers Squibb, staring at class action lawsuits that could cost them tens of millions of dollars. For federal courts are not nearly as likely to impose huge damage awards against corporate defendants as state courts.

Of course, the nation's trial lawyers are not too happy about the House class action bill.

Not because the measure would make it more difficult for them to rake in millions of dollars in legal fees, they say. But because the legislation would make it more difficult for injured or aggrieved individuals to get the justice they deserve.

Indeed, that's precisely the argument being made against the legal reform bill by Democrats, who count the nation's trial lawyers among their biggest political donors (with more than $16.5 million in campaign contributions so far this year, according to the Center for Responsive Politics).

The bill would "drastically tilt the justice system in favor of big corporations and their executives and against the individuals they sometimes harm," said Rep. Martin Frost, the Texas Democrat.

Yes, of course. Well tell that to the individuals who were plaintiffs in the cell phone class action lawsuit, the Bank of Boston suit and the Cheerios suit.

They can attest that the civil justice system is tilted to neither big corporations nor individuals claiming harm. But to the buck-raking trial lawyers.

The lawyer industry is a wealthy criminal class parasitically preying opon and exploiting innocent, hard working Americans.

Moron alert.

1) I am an attorney, and a conservative republican.

2) I have no idea what you mean about "hard working Americans." That sounds like code from the democrats frankly. In your opinion, is it that one who is in a white-collar profession doesn't work hard? What if they used to be blue collar, worked two jobs, took out $50,000 in un-subsidized loans, and worked their way up to the American dream? That's not hard working?

3) Imagine if you actually had something to add to this post other than uninformed, substance-free insults. Wouldn't we all be better off if you would discuss the relative pros and cons of the legislation? What if you told us how it is that consumers would mount legal challenges against billion-dollar corporations without pooling their resources as a class? Who is going to do that work for free?

Freerepublic is free, and I sure learn much from every posting. Unfortunately, what I learn about the critical thinking abilities of some does more to frighten than reassure me.

Remember, lawyers are paid what the Market will bear, an you are the market.

I am an attorney, and a conservative republican. ... Remember, lawyers are paid what the Market will bear, an you are the market.

My brother (who I like) is an attorney, so I bear no automatic animus towards attorneys. But these days the attorneys who pocket multi-millions (and sometimes multi-tens- or multi-hundreds-of-millions) in contingency fees from outrageous class action lawsuits are not being "paid what the Market will bear", they are engaging in extortion. They go after deep pocket defendants whose connection to the damage is tenuous at best (or ridiculous at worst), but who are often coerced into paying off the attorneys with expensive settlements because it's still cheaper than the huge legal costs of defending themselves in court. There is seldom any downside to the attorneys, other than their own legal expenses. And it only takes one or a handful of big paydays for attorneys to fund lots of frivolous lawsuits in the hope that a small percentage will succeed in achieving their extortionary goals.

If this country had some form of "loser pays" provision to cover the legal costs of victorious defendants, that would vastly reduce the number or frivolous and extortionary lawsuits. Contingency fees are fine, as long as attorneys have to factor in their cost of paying the defendant's legal costs, and are therefore motivated to accept only reasonable cases against appropriate targets.

Of course under those circumstances there would clearly be a large oversupply of attorneys in this country, and those who continued in the profession would average lower salaries and far fewer jackpots.

It is true that groups like the ABA and the ATLA (American Trial Lawyers Association) are resistent to change that often seems to make perfect sense. And, frankly, not all of their members resist such change for good reasons. They resist it because of the pocket-book effect. (Taking care of old number-one is a fraility that crosses most professions).

Having said that, there are legitimate reasons why class actions make sense. And, in most cases, the corporations may only be making small sums of money of of each wronged consumer, but in the aggregate, as they know, they are making a fortune of many. The legal sytem provides a private remedy rather than asking for a government remedy in the form of a one-size fits all regulation that would likely dampen business.

It is true that most companies that "settle" these consumer-related class-action suits due that as a business decision. (though legal fees to their counsel is usually not the test. The test is usually either real damages exposure, or bad PR that will hurtt the bottom line). The problem is, without counsel to lead that charge, a consumer is a the mercy of huge corporations who can and do through their weight around.

Also, let's be clear, corporations budget for legal actions. So it is truly a rare case where their counsel's fees will break that budget. On the other hand, they know that most small firms or small cases can be won by out-lasting and out-spending a claimant. (This is definitely a litigation strategy that is employed regularly). For every seemingly frivolous class-action like the Plane voucher example, there are thousands of claims crushed out there in the courts everyday because consumers do not have the money to go the distance with large Corporations or even small businesses. (As a law clerk I watched a mediation where a consumer had spent $10,000 to have her lawyer fight with a car dealership that had clearly sold her a lemon. But they motioned that case to death to try to get her to drop it. In the end, they sold her a car at cost, and offered her 5k for her attorney). Essentially, she lost.

And let's be clear too, not all contingency cases win. In fact, about 65% are losers. (And that represents the ones that are pre-screened and predicted to win.) When that happens, a lawyer doesn't get paid for potentially a lot of work. In addition, he isn't taking other paid work because he is working on contingency.

Class-action suits certainly aren't perfect, but the Market has not shown us a better solution to balence the relationship between consumer, corporation, and the long-arm of government.

Loser-pay does have appeal on the surfuce, but it is not the cure-all it may appear to be.

For example, what if you were suing AT&T in a class action because you had some evidence that they were improperly charging undisclosed hidden fees. You find counsel to represent the class, and AT&T uses one of the Nation's top Law Firms. They put 6 lawyers, three paralegals, and countless temps and staff on the case. In the end, AT&T finds a procedural loophole that knocks the case out without ever reaching the merits of the dispute, though nonetheless the claim is barred. You lost. Counsel recovers nothing because the case was a contigency, but now AT&T hands you a bill for $825,000.00 for 5 months of legal work and discovery.

It would not take long before plaintiffs decide not to pursue difficult, yet meritorious claims. With the rules of evidence, and the state and federal rules of procedure, sometimes solid claims simply cannot make it through the process. That means fewer claims will be brought, and consumers would be at a greater disadvantage, as corporations would undoubtedly take greater liberties.

Thus, a "loser pays" system would cut down on frivolous claims, but it would also cut deep into meritorious claims. Unfortunately, people with good claims don't always win, and no one will chance losing both his attorney's fees as well as the other-side's fees.

Right now, the best shot at reform in my view would be to tighten the rule 11 sanctions for filing frivoluos suits. Under rule 11, every claim must be based on a existing law, or a good faith extension of or reversal of existing law. That standard is applied liberally for the same reasons as above. The Courts do not want to create a "chilling effect" on the right of people to bring tough cases. I think, however, that the standard has been so abused that it is rarely used. Many Courts disdain attorney's for bringing a rule 11 motion against an opponent, and many more courts never even consider raising the sanctions on their own -- which the rule entitles them to do.

Without truly boring the hell out of you, the problem is more complex because jurisdictions that are tough on frivolous claims like the Eastern District of Virginia are often circumvented by attorneys who use the Federal Rules to shop the case to another Court. Thus, Courts who apply the rules with an eye toward stopping frivolous suits are victimized by Courts that refuse to do so.

I think the Federal rules can be changed to close some of that forum shopping down. In addition, the Rule 11 sanctions, which have been tinkered with over the past few years, can be tightened to send a signal to Courts that the standard for good-faith extentions of existing law should be a tougher burden to meet. All of this will certainly help.

I agree with you about enforcing rule 11 and stopping forum shopping. There are many very frivilous suits that should be stopped in their tracks but aren't. I also think forum shopping is one of the things that make lawyers look so unseemly.

I also understand what you're saying about the loser pays system, but am still undecided about it. There is a cost/benefit analysis that need to be made. And I am concerned about filtering out meritorious cases that should be heard. But something also tells me if AT&T is overcharging me by $2 on my bill, it's probably better that I switch to Sprint and forget about it rather than file a class action lawsuit.

I know you used that as a 'for example' but there are a lot of suits filed on something just as petty and more, like the Cheerios case Perkins mentioned in the original article. Does something that petty merit a lawsuit? I don't think so, but some attorneys are just looking for deep pockets and the thinnest of excuses to sue. There are hundreds of other cereals out there. Just buy something else.

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