JUDICIAL CONFERENCE, PROP. 201 MAY REFORM GROUP-LAWSUIT PRACTICE,\IF NOT, IT'S... CLASS WARS.
All it took was one highly publicized row with a rock group and Ticketmaster Corp. got hit with 15 class-action lawsuits.
Pearl Jam's claim last year that the Los Angeles-based company monopolized the concert ticket market prompted a U.S. Justice Department investigation. The agency ruled that the company held no monopoly, but the publicity generated a slew of class-action antitrust suits, filed by lawyers on behalf of thousands of unnamed ticket buyers.
"They look for anything that is available for them to do that," said Ned Goldstein, Ticketmaster's chief counsel. "What happened with us is not uncommon."
If it's not a shareholder winding up with pennies in a settlement or a corporate chief who spends millions to defend the suits, then it's a politician who is complaining about class-action lawsuits.
Originally designed to give average Americans some muscle when taking on corporate titans, class-action suits are angering many inside and outside the legal community. Critics say class actions are less a weapon for the ordinary citizen and more a way to make an attorney a millionaire overnight.
"The greatest abuse is that you and I can be represented and not know it," said U.S. Rep. Christopher Cox, R-Newport Beach, who sponsored legislation last year to reform some types of class actions. "(Attorneys) can settle a claim on our behalf, and we can end up getting cents on the dollar as a result, and they can get a big fee."
The most sweeping reforms are being considered by the Judicial Conference of the United States, the rule-making body for federal courts, headed by U.S. Chief Justice William H. Rehnquist. For the first time in 30 years, the conference is reviewing court rules for class-action lawsuits.
In January, the judicial conference received a 230-page report on a study of the system. An advisory committee is scheduled to discuss the issue next month and could then send it to the general conference for consideration.
"This is not a process that is undertaken lightly," said Edward Cooper, a University of Michigan law professor and public liaison to the conference board. "Yes, we are likely to make significant changes. My guess is we're likely to go to the next step."
Among the issues the judiciary is considering are broad reforms that could raise the bar on giving lawsuits the class-action designation. There also are provisions that would make it easier for class members to get out of the lawsuits and for judges to throw out cases that bring minimal rewards for the plaintiffs.
If the committee recommends the changes, those findings go to the general conference. Then a recommendation would be made to the Supreme Court, and ultimately Congress would vote on it. Enactment could take place by 1998 at the earliest.
The judiciary's study, completed in January by its Federal Judicial Center research arm, found that judges already are trying to weed out meritless suits. The study followed 407 suits filed as class actions in four separate federal courts during a two-year period, finding that 152 actually received the necessary certification by judges.
"We expected classes would be certified much more often than that," said Tom Willging, senior researcher for the judicial center.
Willging said the average settlement for each class member was low, ranging from $315 to $528, a fraction of the losses usually involved.
Researchers also found that class actions are eating a significant portion of court time, up to five times that of other cases and nearly the most time-consuming of all.
The judiciary's study comes on the heels of other actions designed to reform the class-action system.
Cox's legislation came after an override of President Clinton's veto by Congress. Those reforms give judges the power to sanction attorneys for meritless shareholder lawsuits and to order settlements in proportion with guilt.
It also puts control of a lawsuit more in the hands of investors who have been victimized, giving them a greater role in determining settlements. Attorneys also would be barred from paying investors to act as lead plaintiffs to a lawsuit.
A similar measure, Proposition 201, affecting state courts will be considered by California voters Tuesday.
While attorneys say many class-action claims have merit, critics say that a growing number are filed simply to intimidate companies through the sheer number of plaintiffs involved - often thousands in each case - and to generate quick and lucrative settlements.
Patricia Reilly, a stockbroker for A.G. Edwards in San Diego, protested two class-action settlements in which she was a plaintiff. As a shareholder in two companies, she lost $7,700 in some investments and recouped about $700 - little more than $1 per share - while attorneys got $11 million.
"I think fraud is committed in a lot of cases, but I think it's easy to file frivolous suits," Reilly said.
A San Diego attorney who handled one of her cases was William Lerach, who charged $450 an hour, she said. One of the more prominent class-action lawyers, Lerach has become the target of reform advocates. His firm was cited in the Judicial Center's study as being the most active.
Lerach could not be reached for comment.
Companies are anxious to settle because a class-action suit is so onerous and costly, even though most class members know very little about the case that has their names on it, said Lawrence Schonbrun, a Berkeley attorney. He specializes in challenging class-action settlements on behalf of disgruntled plaintiffs.
"It's just a playground for lawyers because they have no clients," Schonbrun said. "They have no clients, and the judge will do anything to get the case out of the courts at all costs."
Class litigation may need some fine tuning, but it still is effective, contends Elizabeth Cabraser, a partner at Lieff, Cabraser, Heimann and Bernstein in San Francisco, one of the more prominent class-action firms in the nation. She said corporations oppose class action because it forces them to be held accountable.
"Nobody would mind class action suits if they didn't work," Cabraser said.
George Wade, a Fresno equipment-leasing manager, said he was happy with the results of a shareholder class action involving Industrial Leasing Inc., a Portland industrial leasing company that went defunct in 1993.
When the lawsuit was settled For $10 million in 1994, Wade was able to recoup one-third his investment, and some in the class action recovered up to 100 percent, depending on when they had invested. Attorneys in the case got $3 million, Wade said.
"I think it was worth it. They earned every dollar they got," he said. "When I found out the thing went down the tubes, I was prepared to eat it and walk away."
Steve Sidener, a class-action attorney who handled the case, said the courts are trying to do some self-policing.
"There's probably a need for there to be some type of correction in this area. My experience is (that) courts were trying to do that on their own," Sidener said.
Anecdotal evidence points to a steep climb in the number of suits filed. Companies such as Ticketmaster have gone from on in-house lawyer to three to fight class actions, Goldstein said.
Alan Shugart, chairman of Seagate Technology Inc. in Scotts Valley, said he has spent millions defending five lawsuits. He has a large legal staff, including 80 paralegals, who are working to fight the actions.
"It's been tens of millions of dollars in legal fees," Shugart said. "What you can't measure is the time it takes away from your company."
Cabraser said her firm's caseload has not increased significantly, but the number of plaintiffs in each case is growing. The cases that are being filed also are more complex, requiring more attorney time.
Agents fire lawyer
In recent months, several class actions have driven home the point that reform is needed, critics say.
The most recent is a proposed $25 million settlement between Allstate Insurance Co. and its 1,600 California agents over unreimbursed expenses. Attorneys in the case are expected to receive $7.5 million while each agent would get $10,000, but one side effect is that employees will lose their jobs and be rehired as independent agents.
Agents were angry at not being kept informed about the lawsuit's progress, and more than half opted for a new lawyer as a result. About 500 agents have rejected the settlement, which was agreed to by lawyers in the case and by five former Allstate agents who spearheaded the claims.
"Obviously I don't think much of class-action lawsuits now. I didn't want to be a part of it," said one San Fernando Valley Allstate agent who asked not to be identified. "I hate class-action suits if they can do this to you."
Some class actions end up with most of the overall settlement paid in attorney fees, and few remedies are imposed. Packard Bell Electronics Inc., which had headquarters in Westlake Village until it moved to Sacramento last year, was sued for putting used parts in its computers.
Packard Bell paid out $3.6 million in fees to the plaintiffs' lawyers and consumers ended up with $1 million or less, said Schonbrun, who contested the case. Consumers may not have received all the $1 million; the actual tally was kept under wraps, Schonbrun said.
"There was a maximum of $1 million. We don't know how much actually went in their pockets," he said. "Packard Bell still continues to use these used parts in their machines (with a warning)."
When attorneys file a class action, they find the tactic is very effective. Many companies agree on settlements because the financial exposure is great and the potential long-term damage is high.
Pacific Enterprises agreed to pay $45 million to shareholders in February 1995 in a suit filed by Lerach's firm, which asked for $8 million. The suit was filed after the company realigned itself and sold some assets, causing its stock to drop.
"We sold those businesses because they were doing very poorly and they were driving down our results," said company spokesman Tom Sanger. "We did not feel we had done anything wrong."
But Pacific Enterprises settled because the litigation was becoming expensive, Sanger said.
Only now are a few companies beginning to fight. Some computer firms are challenging the class action system and are financing Prop. 201's inclusion on the ballot.
Some companies simply are refusing to roll over. Ticketmaster's Goldstein said he has the backing of chief executive Fred Rosen, also an attorney, to challenge the claims.
Goldstein has fought all of the Pearl Jam-related lawsuits. Several have been dismissed. In one case, he confronted an attorney over a lawsuit he considered particularly frivolous. Goldstein told the attorney he would make an example of him
"He asked to settle. I told him I would settle only if we didn't have to pay a dime," Goldstein said. "He said, 'I'll dismiss the lawsuit if you agree not to sue us.' "
DRAWING[ordinal indicator, masculine]PHOTO
Photo Ticketmaster's chief counsel, Ned Goldstein, rear, and his staff face stacks of files in class-action lawsuits. Myung J. Chun/Daily News Drawing; (Color) No caption (Scales of justice) Bradford Mar/Daily News
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|Publication:||Daily News (Los Angeles, CA)|
|Date:||Mar 24, 1996|
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