Share

Opinion

Legal tide turning against lawyers who profit illegally from class-action lawsuits

|
Opinion,Op-Eds,Chambers of Commerce,Class-action lawsuits

Former plaintiffs’ superlawyer Stanley Chesley spent his 50-year career claiming to find justice for millions of his class-action clients, and from these efforts amassed great personal wealth.

This month, justice found the Ohio lawyer.

A Kentucky judge ruled Chesley and three others liable in a $42 million judgment for a scheme to take tens of millions of dollars from settlement proceeds in a class-action lawsuit against a diet drug manufacturer.

The now-disbarred lawyer’s infractions included helping to set up a phony charity to siphon off and hide some of the settlement money from his own clients.

Chesley is by no means the first such lawyer to be punished for doing wrong. In recent years, numerous powerful lawyers have been found guilty of using the law to help themselves rather than their clients.

Among them, securities class-action lawyers Bill Lerach and his former partner Melvyn Weiss, and Mississippi lawyer Richard F. "Dickie" Scruggs, once known as the “king of torts,” all went to jail for illegalities related to their law practice.

And then there is the most recent example of Steven Donziger, the plaintiffs’ attorney who won a multibillion-dollar judgment against Chevron in an Ecuadorean court.

In March, U.S. District Judge Lewis Kaplan ruled that Donziger “formulated and conducted a scheme to victimize a U.S. company through a pattern of racketeering” in the case, including bribing the Ecuadorean judge.

But beyond amassing (or attempting to amass) hundreds of millions — to billions — of dollars by corrupt means through litigation, their actions had another thing in common: the class-action lawsuit.

Modern American class-action litigation was invented 50 years ago this year. Its intent was to help speed justice to a whole group, or class, of people who had suffered a common harm by combining many cases with the same facts, evidence and witnesses into a single case.

The theory was that class action lawsuits would be more efficient, helping more victims get more money more quickly than if they had to sue each on his own.

Unfortunately, the opposite has happened. Far from helping victims, these lawsuits have become money machines for a few savvy plaintiffs’ lawyers who too often use the system to enrich themselves at the expense of their own clients.

Simply put, the class-action lawsuit has become the performance-enhancing drug of the litigation world. The financial muscularity of these cases, with the promise of massive paydays, has become so tempting to some in the legal profession that it has shifted the focus away from the victims altogether and is broadly distorting our civil justice system.

By now, class-action litigation is part of the fabric of our country. Just take a look in your mailbox or your email inbox.

Chances are, you have received notice about being part of a class action. Polling shows that 61 percent of Americans are aware of having received such notices, yet only 14 percent report getting anything of value from these lawsuits.

In 2012, makers of the hazelnut spread Nutella settled a California class action lawsuit in the U.S. District Court for the Southern District of California over allegedly false health claims. According to court documents, the class action attorneys received $1.01 million in attorneys’ fees and costs, almost double the $550,000 intended to reimburse class members for the Nutella they had purchased since 2009.  The two named plaintiffs received a combined $17,500.

A study commissioned by the U.S. Chamber Institute for Legal Reform in 2013 looked at the outcomes of 148 federal class action lawsuits and found that the vast majority of cases produced no benefits to most members of the class.

The study also found that after four years:

• Not a single case had gone to trial on its merits, either before a judge or a jury.

• For the one-third of resolved cases that were settled, it was almost impossible to know how much money actually went to class members because courts don’t require lawyers to make that information public.

• Of the six cases for which settlement distribution data were public, five delivered funds to only minuscule percentages of the class.

If the Chesley chapter of hubris and greed in class-action litigation does anything, it should at least cause us to re-examine and perhaps restructure this 50-year-old legal construct to ensure that only legitimate cases are allowed to proceed and that victims, not their lawyers, get just compensation.

Lerach, the former class-action lawyer, once bragged in an interview with Forbes magazine: “I have the greatest practice of law in the world. I have no clients.”

It’s time for that to change.

Lisa A. Rickard is president of the U.S. Chamber of Commerce's Institute for Legal Reform.

Correction: This oped has been updated to state correctly that the two named plaintiffs in the Nutella case received a combined $17,500.

View article comments Leave a comment

More from washingtonexaminer.com