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In our earlier columns focusing on class action imbroglios, 1 we reported on the requirements for class action treatment, the controversy as to whether class actions are good or bad (e.g., the device has been hailed as the “great equalizer” and denounced as an “engine of destruction”), the race to the courthouse by competing attorneys, and vices, flaws and dangers in not applying tight standards. We also commented on the incisive opinion by Judge Richard A. Posner in the famous Rhone-Poulenc case, 2 re-evaluating the wisdom of placing all claimants’ eggs in one super-litigation basket, Judge Frank Easterbrook’s analytical opinion in the Bridgestone/Firestone tire litigation 3 regarding inadvisability of certain national, mass products liability class actions, Justice Eugene Nardelli’s informative opinion in Frank v. DaimlerChrysler Corp., 4 rejecting, on legal and policy grounds, so-called “hypothetical malfunction” or “no injury” product liability class actions in which it is claimed that some condition may result in some future accident or injury. Since then, Congress passed the Class Action Fairness Act of 2005, popularly called CAFA, intended to enhance removal of certain class actions from state to federal courts and expedite appeals from decisions by district courts on class certification. But, while CAFA has, to some extent, impacted upon attempted national mass tort suits being lodged in state venues “friendly” or “comfortable” to plaintiffs’ class lawyers, these specialists have adjusted by vigorously pursuing more statewide classes and teaming up or coordinating with lawyers in other states chasing the same defendants with the same kinds of claims. The weaknesses in CAFA, a piece of heavily compromised legislation, have been duly noted by keen lawyers who now are adept at filing more, not fewer, class actions. A kind of feeding frenzy has evolved in which some specialized class counsel or some hungry, aspiring class action lawyers routinely scan the news of the day looking for litigation opportunities in which some corporation may have slipped, tripped, erred or, pursuant to regulatory requirements, issued notifications to consumers, recalled products for repairs, or otherwise announced some corrective, remedial or upgrading step. They then advertise for plaintiffs or find secretaries or paralegals in their office or family members or friends to act as putative class representatives and file class actions for megabucks in the friendliest, class certification-prone courts available. Every day, it seems, a blitz of class lawsuits are being filed on every conceivable, imaginable, alleged wrong. Lawsuit Reeks This seems to be a lawyer-driven whirlwind and, no doubt, is profitable enough to attract a growing legion of practitioners. The expanding custom of lawyers placing ads for plaintiffs or seeking out law firm associates, paralegals, office personnel or personal friends or relatives of the lawyers to become so-called class representatives is not only unwholesome, it may have greater repercussions. Recently, U.S. District Judge Marilyn Hall Patel in San Francisco rejected class certification in Bodner v. Oreck Direct LLC and blasted the plaintiff’s lawyer for what she called unethical conduct in allegedly manufacturing a case and then finding a plaintiff for a class suit against a manufacturer of purifiers. 5 Her reasons: “In short, the conduct in this action does not look good, does not sound good, and does not smell good. In fact, it reeks. The court will not participate in this scheme by certifying a class.” 6 Bodner was a class action seeking certification of a statewide class of over 77,000 Californians who purchased allegedly dysfunctional air purifiers. The named plaintiff and class representative claimed to suffer seasonal allergies, saw an infomercial and purchased the product. He claimed that the air purifier had no positive impact on his allergies although he admitted his window is frequently open, that he is exposed to allergies in other locations throughout the day, that he does not know what he is allergic to and that he has never been diagnosed or treated for his allergies. The purifier unit he bought has never been tested to determine whether it works as it is supposed to. Plaintiff Answered Advertisement Mr. Bodner became a plaintiff in the action by answering an advertisement by plaintiff’s counsel in an area newspaper. He testified that counsel told him “they were going to have a lawsuit” and they were looking for a class representative. He met his attorney in person for the first time the day before his deposition. Plaintiff did not read the complaint before it was filed. All of his knowledge regarding the matter came from his attorneys. The court said: “In light of plaintiff’s undeniable and overwhelming ignorance regarding the nature of this action, the facts alleged, and the theories of relief against defendant, the court cannot conclude that he has met the threshold typicality or adequacy requirements of Rule 23(a).” The court further stated that it “was clear” that plaintiff’s counsel, not the plaintiff, was the “driving force behind this action.” This was a “cart before the horse” approach to litigation and not the “proper mechanism for the vindication of legal rights.” The court cited to a New York case, Meachum v. Outdoor World Corp., 7 where the court said that “[s]olicitation of clients for the commencement or continuation of a class action is improper, sufficient to warrant denial of class action certification.” In Bodner, plaintiff’s counsel “constructed this lawsuit before it had a plaintiff.” The action was “nothing more” than the law firm “bringing its show to the Northern District and continuing its practice of selecting stand-in plaintiffs, even ones who are inappropriate.” The court refused to put its imprimatur on litigation practices “it finds abhorrent and inconsistent with the standards of federal class action suits.” 8 The California lawyer who opposed the Bodner class actions is said to routinely hire private investigators to probe pre-existing relationships between plaintiffs and their lawyers or the possibility that plaintiffs had been solicited improperly. The concept was stimulated by a perception that the standard lines of attack – attempts to show plaintiff’s claims are not typical of the class – were losing steam. He sensed that courts had begun developing a “rubber stamp mentality.” 9 Close Relationships Cozy relationships between persons designated as class representatives and class counsel should cause concern since, as stated in Federal Civil Procedure Rule 23(a)(4), one of the prerequisites to a class action is that “the representative parties will fairly and adequately protect the interests of the class.” When class representatives are closely affiliated with counsel, a significant question is raised whether the representative is or appears to be prosecuting the suit for the benefit of class counsel rather than the benefit of the class. As a major treatise puts it, “if a class representative is closely affiliated with class counsel, courts usually consider this a disqualifying conflict of interest.” 10 For example, family members, partners, employees, economically dependent persons, close friends, and the like, have an incentive to accept a settlement that would be unfavorable to the class but would generate a large award of attorney’s fees. What about close friendships and business ties between named plaintiffs and counsel? In London v. Wal-Mart Stores, Inc., 11 a Truth in Lending Act class action was filed against a credit card issuer and credit life insurer. Plaintiff, a close friend of the lawyer since high school and also his stockbroker, did not think he needed the credit life insurance to get the Wal-Mart credit card but was told by his lawyer to continue to pay premiums for the coverage and to file suit. The lawyer earlier had filed a similar class action against another store and made a large deposit with plaintiff after obtaining a class settlement in that case. The adequacy of the class representative was an issue on appeal from certification of the class. The U.S. Court of Appeals for the Eleventh Circuit observed that plaintiff bore the burden of proving adequacy. Courts must undertake a “stringent and continuing examination” of the adequacy of representation by the named class representative “at all stages of the litigation where absent members will be bound by the court’s judgment.” The requirement for a stringent examination is “especially great” when the attorney’s fees will far exceed the class representative’s recovery. Here the plaintiff and his lawyer had “significant personal and financial ties.” The long-standing, very close personal friendship casts doubt on plaintiff’s ability to place the interests of the class above that of class counsel. A present conflict of interest had been created. The grant of class certification was reversed. Perhaps the lowest form of class representative manipulation of the legal system was detailed in a July 2007 guilty plea agreement entered by attorney David J. Bershad, former managing partner of the New York-based class action powerhouse law firm, Milberg Weiss & Bershad. The lawyer admitted to obstructing justice by “corruptly influencing” the administration of justice, conspiring in the payment of illegal kickbacks to individual class action plaintiffs, and making false statements in court. Prosecutors claim Milberg Weiss partners paid more than $11 million to three individuals who acted as name plaintiffs in scores of class action suits brought by the firm over the past 20 years. 12 Two other former name partners, Melvyn I. Weiss and William S. Lerach, reportedly have rejected plea deals with prosecutors. Neither has yet been charged. 13 Fee Sharing Appended as Exhibit A to the plea agreement for Mr. Bershad is a Statement of Facts supporting the plea agreement. It is a very sobering document. 14 Beginning in the 1970s and continuing through 2005, in order to facilitate the recruitment and retention of named plaintiffs, certain senior Milberg Weiss partners agreed with various individuals that the latter would be secretly paid a portion of the class action attorney’s fees the law firm obtained in cases where such individuals served, or caused a relative or associate to serve, as a named plaintiff. Generally, they were promised approximately 10 percent of the net attorney’s fees. The amount could be lower if they were paid in cash or if the law firm had payment obligations on the case to others. According to the Statement of Facts, by entering into such secret payment arrangements, Mr. Bershad and conspiring partners “were able to secure a reliable source of individuals who were ready, willing and able to serve as named plaintiffs in class actions the firm wanted to bring.” Additionally, some of these individuals would investigate and propose to Mr. Bershad and others potential class actions for the firm to file. The payment arrangements generally enabled the Milberg Weiss firm to file more class actions more quickly. This enhanced the firm’s ability to obtain lead counsel status. Mr. Bershad knew that the payment arrangements created conflicts of interest between the paid plaintiffs and the absent class members. Misleading documents were filed in court to conceal the existence of the secret payment arrangements. When the individuals were prepared for their class action depositions, they were cautioned that disclosure of the secret pay arrangements would disqualify them from serving as named plaintiffs. Some of the payments were in cash. Sometimes “bonuses” were paid to approximate income taxes on the payments. Sometimes payment was made through select intermediary law firms, lawyers and other professionals, under the guise of “referral fees” or a “share” of attorney’s fees owed to such intermediaries. If the facts stated in Exhibit A are true, they reveal a class action system highly vulnerable to exploitation and much in need of meaningful supervision at all stages of the proceedings. The practice by some to find cozy, friendly plaintiffs to staff lawsuits is not rare. Sometimes, however, the relationship is buried in a class action decision focusing on other dispositive issues. That was the case in a significant U.S. Court of Appeals for the Fifth Circuit opinion called Cole v. General Motors Corp. 15 The appellate court reversed the certification of a national class claiming that the automobile manufacturer somehow shortchanged car owners when it had to recall some 200,000 Cadillacs because their side-airbag sensing modules might cause deployment under certain conditions without a crash. The court’s decision ordering denial of class certification is based on a very important factor militating against creation of a national class. This is the existence of variations in state law and diversity in legal standards that can swamp any common issues and defeat the “predominance” requirement of the class action rule. In Cole, the plaintiffs seeking a nationwide class had the burden to provide an “extensive analysis” of state law variations to reveal whether these posed insuperable obstacles. Failure to engage in such analysis of state law variations is grounds for decertification. The appellate court examined the plaintiffs’ showing and found it inadequate. Because the ruling rested on this ground, the court did not decide other issues raised by defendant. One of those was the inadequacy of the three named plaintiffs as class representatives. Who were they? One was the mother of one of plaintiffs’ counsel. A second was a paralegal for another of plaintiffs’ counsel. The third was the paralegal’s cousin. These relationships, coupled with the attenuated nature of the claims, should have set off alarm bells and warning buzzers. Instead the district court certified a national class. Fortunately, after much time and expense, the circuit court acted vigorously in ending a class lawsuit that never should have gotten off the ground. Conclusion Much is not well with today’s class action regime. The courts, the interested public and society in general deserve better. As Justice Eugene Nardelli observed in the Frank case, such suits can have a profound effect on the market place. We should demand that such costly, extraordinary proceedings possess a dignified reality and substance rather than look and sound like a family cabal plotting a big kill. Michael Hoenig is a member of Herzfeld & Rubin. Endnotes: 1. Hoenig, “Class Action Imbroglios,” New York Law Journal, May 8, 1995, p. 3; “Class Action Imbroglios Revisited,” NYLJ, May 13, 2002, p. 3; for other articles on some imbroglios, see Bone & Evans, “Class Certification and the Substantive Merits,” 51 Duke L.J. 1252 (2002); Hay & Rosenberg, “‘Sweetheart’ and ‘Blackmail’ Settlements in Class Actions: Reality and Remedy,” 75 Notre Dame L. Rev. 1377 (2000). 2. In re Rhone-Poulenc Rorer, Inc., 51 F3d 1293 (7th Cir. 1995). 3. In re Bridgestone/Firestone Tire Prod. Liab. Litig., 288 F3d 1012 (7th Cir. 2002). 4. 741 NYS 2d 9 (App. Div. 1st Dept. 2002). 5. See Bodner v. Oreck Direct, LLC, 2007 U.S. Dist. LEXIS 30408 (N.D. Calif. April 25, 2007); P.A. MacLean, “Judges Blast Brings Hope for Trend,” Nat’l L.J., May 14, 2007, p. 7. 6. Bodner, Id., LEXIS at *7. 7. 171 Misc2d 354, 369 (Sup. Ct. 1996). 8. Apparently, this was not the first time the said law firm had trouble with its choice of plaintiffs. From 2003 to 2005, the firm (together with another) jointly filed 10 class actions under California’s Unfair Competition Law in which an attorney from the law firm or a relative of one of the attorneys was the named plaintiff, resulting in disqualification of the firm from a class action case. 9. M. Hirsch, “Thelen Reid Partner ‘Ambushes’ Class Certifications With Private Eyes’ Help,” The Recorder (June 13, 2007). 10. Moore’s Federal Practice 3d ?23.25[2][b][vii], p. 23-126. 11. 340 F3d 1246 (11th Cir. 2003). 12. A. Lin, “ Bershad Pleads Guilty to Plan Using Kickbacks,” NYLJ, July 10, 2007. 13. News In Brief, “ Lerach Sets Date to Retire From Firm,” NYLJ, Aug. 29, 2007, pp. 1, 4. 14. United States v. Bershad, No. CR 05-587(B)-JFW (C.D. Cal. 2007) (Plea Agreement for Defendant David J. Bershad and Statement of Facts in Support of David J. Bershad Plea Agreement and Information, July 2007). 15. 484 F3d 717 (5th Cir. 2007), 2007 U.S. App. LEXIS 8284.

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