My Personal Bias For/Against Using Class Action Lawsuits

Franchisees, and many other categories of potential plaintiffs, think that bringing claims in court as class actions – suits by one or a few on behalf of themselves and all others similarly situated – increases the likelihood of favorable settlement due to a fear impact upon the defendant(s). They believe that it is also the most economical means of dispute resolution amongst many people who believe they have been wronged by a single defendant/small group of defendants.

In 45 years of business trial practice, I have used the class action mechanism as plaintiff only once. It worked because the defendant failed to appeal the class action certification ruling and because the defendants were gangsters who believed they had another way to deal with the case anyway. They were right. They so terrorized the nominal plaintiffs that the suit collapsed. Not knowing that they were hardcore criminals, one of my law clerks served the complaint and associated other documents, and was put in fear of his life in doing that. It turned out that the president of the franchise company I was suing had recently finished serving eight years in Jackson Prison for killing someone. The judge was so scared of this guy that he told me privately that he would recuse himself unless I demanded a jury trial.

I was young and stupid. Franchise disclosure acts had not yet been enacted. Franchising was a Wild West show. By the time franchise investment statutes came to be enacted, I had experienced over six death threats, half of them from the presidents of the companies I was suing, one in open court, and three actual attempts. One of the threats that was attempted to be carried out was from a Middle East gentleman who had come to me through the Arabic section of my law firm. He had previously been represented by an ex court of appeals judge, and he threatened him as well as me. This sawed off little punk showed up at the ex judge’s home with a gun. My very stupid ex wife asked the local police for protection. From that time on, the police kept asking me if I was still afraid of that four foot tall guy who my ex wife believed was a threat to my life. When I explained to them that I wished they would simply forget about that, as I could handle the situation without their help, they said that they were having too much fun laughing at me to close the file. They caught him a block from my home armed to the teeth. By arresting him, they saved his life.

Dumb stories aside, I believe that no one would want class action treatment if they had to pay legal fees. They want class actions because dummy lawyers will take the case on contingent fee agreements. Since a few of these have yielded huge settlements/awards, everybody thinks that the class action is a road to free money in huge amounts. In most of these cases, that is simply not so. Moreover, it is not unusual for two years to be consumed in adjudicating the class action issues – before getting to the merits of the case itself. Anyone having a large money damage claim is better off not being in a class action. Class action settlements usually yield less for such folks than they would have recovered had they proceeded on their own, individually. One noted antitrust lawyer was sued and lost the case in which the claim was made that he recommended class action to maximize his fees when the client would have recovered more in an individual proceeding. The fact frequently is that the lawyers in class action lawsuits make far more than any of the class members. Amongst defense counsel, it is standard practice to offer a sumptuous legal fee coupled with a wimpy settlement in order to get plaintiffs’ counsel to support it. That usually works. I have settled antitrust class actions in price fixing cases by providing a nice legal fee payment and in the settlement compensating the class members by giving them credits against their future purchases from my defendant clients. It is never difficult to get the acquiescence of co counsel to such an arrangement, although some will loudly pretend to be disgusted at the immorality of what they are about to participate in gleefully.

More and more we see courts of appeal reversing class certification orders in franchise cases, primarily upon the grounds that aspects of the case show the absence of commonality of law and fact questions across the putative class, and even that the potential recovery would be so huge as to make class action certification coercive in forcing large settlements because the risk of litigating and losing would foreclose anyone being able to obtain adjudication of their position on the merits.

I live in the Fifth Circuit. In the Fifth Circuit there were five class action certification appeals during 2007. In each case certification was barred. That is an excellent indication of the hostility of courts to class action cases. Underlying this animus is that the class action device is really just a suit for legal fees more than for the vindication of any plaintiff class member wrongful injuries. “Texas Business Litigation Journal”, Winter 2008, Vol. 30 Number 1 (Antitrust and Business Litigation Section of the Texas State Bar).

My bias is also affected by the fact that I do not accept any contingent fee clients. My reasons for that decision are another blog post, at least.

Franchisees believe, based upon what I see posted on BMM, that class action lawsuits scare the pants off franchise defendants and that they will give in if a class action suit is filed.

As a defense counsel in franchise cases, I welcome class action litigation because I have never seen such a case that did not over claim and assert claims on which the plaintiffs were losers. Recently, here on BMM, we have seen examples of that – plaintiff counsel bring antitrust claims where it is not possible for an antitrust violation to have occurred based upon current ruling case law. As defense counsel, that allows me to tie up the case in chief in a long priority proceeding over class certification, up and down the appellate chain, consuming years in which many plaintiff class members dry up and go away, take chump change settlements and become utterly disgusted that the cheer leading by plaintiffs’ counsel is not providing the happy magic they expected. I can always find counterclaims to assert, and under Federal Procedure Rule 23 precedent, counterclaims are the sexually transmitted disease of certification defense. That and the requirement to prove reliance in franchise fraud cases are pure gold for defense counsel. No franchise statute relieves a plaintiff franchisee in a fraud case from the burden to prove individual reliance. There are so many questions that are allowable in the defense of fraud under the flag of “reliance” issues that class action status is highly unlikely, to put it nicely. And don’t forget – every time I prevail on dismissal of an ineligible claim (like antitrust), the amended complaint must undergo relitigation of class action certification. It is a defense lawyer’s delight and a plaintiff lawyer’s worst nightmare. Defendants are no longer scared to death of bozo claims brought as class action suits. Defendants would actually prefer that their adversaries make mistakes like that. They can more easily afford to defend than to settle.

Whenever I see franchisees bruit it about that they ought to bring a class action suit, I know that the posting person has no idea on this planet what class action suits are all about or how they work/don’t work.

If I have a plaintiff franchisee group who will pay for legal services, I urge multiple named plaintiff litigation that is not certified as a class action. That saves a couple of years in procedural nonsense, and that is the kind of lawsuit that scares franchisors. Juries and judges believe 50 franchisees aren’t likely to be lying. Fifty franchisee witnesses surviving cross examination about what was done to them and the impact of that wrongdoing make one hell of a credible presentation of the case. My way works best. Of course it also helps that I have a reputation for never taking a bozo case. A case in which I represent franchisees has to pass my smell test before I will take the case. My smell test is tougher than the judge or jury who will be hearing the case. Franchisors know that I am like that. I and my A Team in any case will beat the productivity of any contingent fee class action law firm, with the only exceptions being people like Dady & Garner and Bob Zarco. They will take contingent fee cases, but rarely bring them as class actions. If they do bring them as class actions, they are much better expertised than any one else in America. They won’t waste their resources on bozo cases.

Thus endeth the lesson.