Putting the Plaintiff Class' Needs in the Lead: Reforming Class Action Litigation by Extending the Lead Plaintiff Provision of the Private Securities Litigation Reform Act

Article excerpt

Imagine that you discover that you are a winner of a class action lawsuit and are due a modest damages award. You would be pleasantly surprised, right? Now suppose that upon further examination you discover that your claim was actually worth more than what you will recover under the settlement award, that the reward will come in the form of coupons that require you to buy more of the product that entitled you to damage awards in the first place, and that the fee award that the class attorney arranged as part of the settlement agreement will not only reduce your award, but will also force you to pay the class attorney more than the award amount you will receive! Given these additional insights, needless to say, you are not nearly as thrilled with the outcome of this settlement agreement.

Although the facts above are a bit extreme, such self-serving settlement agreements negotiated by class attorneys at the expense of class members actually do exist. For example, a settlement with General Mills over its use of an illegal pesticide on the oats used in its Cheerios resulted in class members receiving coupons that could be exchanged for more cereal while six law firms split almost $2 million in costs and fees, plus interest. (1) An even more perverse settlement agreement arose after lawyers brought a class action against Bank of Boston on behalf of 700,000 Bank customers who "claimed the bank was keeping too much of its customers' money by placing their funds in escrow accounts and denying them interest." (2) The judge approved a settlement that forced the Bank to pay $8.5 million in attorneys' fees and $10 to each customer. (3) In an interesting twist, however, the attorneys' fees amounted to $100 per customer and the agreement required the Bank to deduct the fees from each customer's account. (4) The lawsuit thus cost each class member $90!

Courts have long struggled to discover the mechanism to employ in class action litigation that will best enable class members to monitor their counsel and therefore prevent such egregiously unfavorable settlement awards. (5) The overarching goal of any method used to manage class action suits is to establish "monitoring mechanisms to substitute for the ordinary attorney-client relationship." (6) By simulating this relationship, the court, society, and the plaintiff class will be better assured that class counsel will make litigation decisions out of concern for the interests of the plaintiff class and not themselves. (7) In the typical attorney-client relationship, the client retains the power to accept or reject any settlement and has the power to negotiate the lawyer's compensation in advance. (8) These constraints, however, are not present in class action litigation: "Plaintiffs' attorneys typically do not rely on named plaintiffs for vital testimony, do not bargain with named plaintiffs over the fees they will be paid, and do not require named plaintiffs' approval of the terms on which they propose to settle class actions." (9) The conflicts of interest inherent in class actions have led critics to claim that class action attorneys are more interested in maximizing their fee when settling a case than in attaining a fair award for class members. (10)

The primary tool that courts use in class action litigation to simulate the traditional attorney-client relationship is the selection of both the class counsel and the class representative. Rule 23(a) of the Federal Rules of Civil Procedure requires the court to ensure that the "representative parties [lead plaintiff and lead counsel] will fairly and adequately protect the interests of the class." (11) Traditionally, the court has had discretion to choose the lead plaintiff and counsel, and judges either approve a private agreement among lawyers to determine who will represent the class, or in cases where there is no agreement, decide who should serve as lead counsel. …


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