Thursday, February 10, 2005


Class Action Tort Reform Nearly Here

The Senate is set to vote on class action tort reform. The crux of the reform is to take the biggest of these suits from the state courts where payouts have been outrageous. The federal courts are typically much more conservative with the awards. While the origin of the class action suit was noble, they have become a joke for the plaintiffs and windfalls for the plaintiff's layers. The companies and corporations never take the fines and punishment themselves, it is all put right back on the consumer. The only time a company really looses is when it pays the ultimate price - ie Dow for their breast implant judgment. People wonder why prescription drugs cost so much. I refer them to the hundreds of websites promising payouts if you took Vioxx and the slew of television and radio ads to the same end. Check out the examples below and ask yourself who has won and who has lost. The entire profession of lawyering is getting quickly out of control as their ever increasing numbers necessarily mean that they have to manufacture work for themselves. We certainly NEED lawyers to help keep things fair and defend the law of our land. But the next time you meet one of the "good" lawyers, ask that person what they are personally doing to deter and punish their own colleagues from running amok in our legal system. Unfortunately, in my conversations, I have not found one lawyer working to clean up their profession.
Some examples:

More Examples:

In 1989, attorneys sued a San Francisco title company because its fees included a $25 charge for a rarely performed physical inspection of the property. (If the company had included the charge as a service fee, there would have been no grounds for a lawsuit.) The company settled the case by setting up a $4.9 million fund representing the revenue from the inspection fees. Class members who filed a written request for a refund received $15. Those who did not file a request received additional insurance coverage.

In 1988, class action lawyers sued the Mt. Konocti Water Company for overcharging lot owners on their water bills in a Lake County, California subdivision. The court ordered the water company to return $1.2 million, but the company only had $500,000 in assets. The real problem, however, was that the water company was self-insured and owned by the owners of the lots. As a result of the judgment, the water company went into bankruptcy, requiring it to pay over $3 million in attorneys' fees for the settlement and a plan of reorganization. The original plaintiff
received $300 as a result of the class action settlement, but will owe $6,000 for the cost of the reorganization.

In 1993, class action lawyers settled a lawsuit in Alabama against the Bank of Boston. The bank had allegedly taken excessive escrow fees from customer accounts to cover taxes and insurance payments. As part of the settlement, the bank was permitted to charge class member accounts for the costs of the litigation, including attorneys’ fees. One objecting class member got a $2.19 credit on his account and was charged $91.33 for the cost of obtaining the credit.

In 1993, class action lawyers sued a large California bank, claiming that it was collecting an excessive late fee penalty of $3 to $5 dollars and overlimit fees of $10. The bank admitted that it had not done a study to determine whether its fees reflected the actual cost of handling late payments. As a result of the lawsuit, the bank instituted such a study and determined that costs associated with late payments exceeded fees collected. It returned $1 million in overlimit fees, but has raised its late fee charges to future customers. The attorneys who brought the lawsuit negotiated a $450,000 attorney payment. As a result of that type of litigation, several California bank credit card operations have moved to neighboring states. Effective 1995, the California legislature allows credit card issuers to impose late fees of up to $15.

In 1992, class action lawyers sued VIACOM Cable Company, claiming that a $6 late fee charged in several Northern California communities was excessive. The judge concluded that the method used to calculate the late fee at $6, while not perfect, was reasonable. The judge nonetheless approved a settlement reducing the late fee for customers who paid within fifty days of the payment due date, but increasing for those who paid after the fifty day period. The lawyers received $514,000 in attorneys' fees for bringing the lawsuit.

In 1994, in Los Angeles, California, after learning about a lawsuit by Compaq Computer against Packard Bell Corporation, class action lawyers sued Packard Bell for selling computers containing recycled and reconditioned parts in new computers. The suit claimed that the practice reduced the value of computers sold to the general public. The case was settled; the company agreed to place language in its instruction manual for a three-year period with words to the effect that the computer "may contain used or reconditioned parts." In seeking approval of the settlement, both sides agreed that recycled parts have lower failure rates and thus are, in fact, better than new parts. The lawyers received $3.95 million in attorneys’ fees for a settlement negotiated within two months after filing the complaint.

In 1986, class action lawyers sued several major banks in San Francisco, California, for conspiring to fix credit card interest rates at 18 percent. The evidenceof the conspiracy (in addition to purported statistical probability) came from a Southern California college professor who claimed that an employee of one of the banks, since deceased, told him of a meeting he had attended twenty years earlier. Reportedly, bank representatives discussed interest rates. (The professor’s motives, it was found, were suspect; he had sued one of the banks unsuccessfully for allegedly stealing his idea for a debit card.) Three banks settled for $55 million (plaintiffs had alleged nearly $2 billion in damages), of which $7 million went to attorneys' fees. The professor himself opposed the settlement as inadequate. A fourth bank refused to settle and a jury, after ten weeks of testimony, found in the bank's favor.

One juror stated that the plaintiffs "had no case." The judge, commenting on the plaintiffs' expert witness, said "I would never let this man testify at a criminal trial . . . and anyone who did would be worthy of discipline."

In 1995, in Portland, class action lawyers sued a west coast lumber company on behalf of homeowners because the company's wood siding was subject to premature deterioration. It was later disclosed that the company itself arranged to be sued in a national class action. The company was seeking to avoid numerous individual lawsuits. Although the settlement could theoretically cost the defendants up to $425 million, collections from class members almost always are less than the total settlement amounts made available. The average payout per class member to date has been $6,300, in spite of the fact that a complete home residing can cost between $10,000 and $20,000. The class action attorneys received $26.2 million in attorneys' fees.

In 1993, class action attorneys sued General Chemical Corporation over an accidental release of sulfuric acid from its facility in Richmond, California. At its highest level of concentration, the amount of sulfuric acid released in the onetime event was a small fraction of the daily exposure limit allowed by California safety laws. Plaintiffs' lawyers hired "representatives" to scour the neighborhood. They successfully signed sixty thousand clients. Thirty thousand residents flooded local hospitals but treating doctors claimed that very few had any significant injury.

It was reported that neighbors in adjacent communities came to the area in order to become clients in the litigation. The chemical firm's insurance company settled the case for $180 million, $50 million of which went to the lawyers. The average payment to class members was under $1,000

Linked up in Outside the Beltway

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