This post was actually written by Steve McConnell who is currently on vacation in a little country that gave Jay Gatsby an award for military heroism. So where in the world is Stevie Mac?
Any day now you might be getting your piece of the settlement proceeds in the Ticketmaster class action litigation, which has been banging around since 2003. The complaint alleged that the fee labels were misleading. Maybe everybody already suspected that the “convenience” fee (a misnomer if ever there was one) was a profit center, but the plaintiffs alleged that order processing and delivery fees were, too – that they had little to do with, er, order processing or delivery. The proposed settlement would offer roughly $400 million in credits to 50 million ticket buyers. But the defendant estimates that the settlement would cost it only $35 million, because of the low participation rate in class action settlements. Meanwhile, the plaintiff lawyers are seeking $15 million in fees, along with up to $1.5 million in expenses. The math speaks for itself.
The same day that we read about the Ticketmaster settlement, we read Judge Posner’s opinion that rejects – actually hammers – a proposed settlement of the Pella windows litigation. Posner called the settlement “scandalous,” pointing out plaintiff counsel’s conflicts of interest and challenging the valuation of the settlement. Judge Posner did some math on his own, and concluded that the purported $90 million settlement was more likely to be something on the order of $1 million. It is a judicial beat-down.
Then, as if to prove the old adage about everything coming in 3’s, we got a peek at a forthcoming article in the NYU Law Review, “Judging Multidistrict Litigation” by Georgia Professor Elizabeth Chamblee Burch. Professor Burch argues that federal judges, lacking the broad powers granted them in administering Rule 23 class actions, improvise tools to usher MDLs toward settlement. That is an important trend because there are fewer class actions (especially in the drug and device area) and more MDLs, and because, as Burch quotes Judge Weinstein, “Federal judges tend to be biased toward settlement.” Yeah, we’ve noticed that.
Burch contends that MDL judges facilitate settlement by appointing repeat players to plaintiff law firm leadership positions, and she has the statistics to prove it. Burch also contends that repeat players’ financial, reputational, and reciprocity concerns lead to collusive deals, minimal dissent, and iffy client service. The fee issue is interesting. Judges play a role in compensating plaintiff lawyers. Lead lawyers get more fees. Burch says that class action fees average around 20%, while MDL plaintiff lawyers do their best to get the fees into the neighborhood of 33%. Judges can try to rein the fees in, but sometimes the parties contract around the judge.
As with most law review articles, we find the descriptive part more interesting than the prescriptive part. Burch argues that judges should appoint plaintiff lead firms with “cognitive diversity,” and that fees be apportioned on a quantum meruit basis. We have little idea how that would work out. But when Burch argues in favor of third-party financing, that’s where we throw up our hands. If you think that litigation settlements are fraught with ethical peril, wait until you get a look at third-party litigation financing. Let’s just leave it at this: Third party litigation financing is an interesting business with interesting characters. Think Damon Runyon.
It is hard for us to comment on these settlement issues as colorfully as we might like, since many of our clients are forced to engage in the settlement game. The ink is barely dry on the complaint before some plaintiff lawyer volunteers to fly up for a visit, with a Robb Report in one hand and a settlement grid in the other. Every once in a while a client gets disgusted with the process – sort of like when George Bailey wipes off his palm after shaking hands with Mr. Potter in It’s a Wonderful Life – and orders us to try cases. Even Ralph Waldo Emerson once said that gunpowder sometime smells good. We don’t mean to criticize settlements per se. Like most lawyers, we’ve read what Abraham Lincoln said in favor of settlements. The realities are undeniable. The first time we were called in for jury duty we found ourselves in a huge bullpen room. We knew we were never actually going to serve as a juror; being a former prosecutor and current corporate defense attorney made us desirable to precisely nobody. The presiding judge came in and delivered a civic duty speech. He told us not to get discouraged if we served on a case that settled before we could deliberate. Something like 92% of cases settled, and if that percentage dropped even just one point the court system could not handle it. It is rational for judges to favor settlements. The problem is when judges distort their decisions solely to strong arm settlements. Meanwhile, a corporate defendant has to deal with these same realities. A settlement might look rotten, but it might simply be a rational response to a rotten reality.