Class Action Suits

by Vin Suprynowicz

MAY 2, 2000

Of the lawyers, by the lawyers ...

In recent years, lawyers representing air travellers in a class action suit which charged airline price fixing collected $16 million in fees. The travellers they represented? They got "coupons, worth a few dollars off the next several tickets purchased," according to Forbes magazine. "Critics say not many have used them."

A class action lawsuit forcing Bank of Boston to return some funds held in escrow for mortgage customers "takes the prize," the financial magazine reports in its May 1 edition.

"Bank customers got quicker access to money that was eventually going to be returned to them anyway. They also got a few dollars of interest. The lawyers, meanwhile, got $8.5 million in fees, automatically drawn from those very same escrow accounts. Many customers only learned about the case after noticing $100 deductions on their monthly statements."

Such abuses have become so commonplace there's actually a special website dedicated to the topic — "" And defense attorneys are finally coming forward to reveal that the opportunist attorneys who bring these suits routinely grant concessions damaging to their own clients, in exchange for promises from the other side not to challenge their fee structure when presented to the courts.

"These lawyers are getting more brazen," says Lester Brickman, a professor at New York's Benjamin N. Cardozo School of Law. "They bargain away class rights for a higher fee and are virtually never called to justice."

The class action suit which seeks damages for the clients of a belly-up Florida commodities broker called MultiVest Options is one of the most egregious to date.

For years, the Fort Lauderdale company "got inexperienced investors to trade in and out of risky options, generating fat commissions for itself," the Forbes writers report, in a tone of outrage more reminiscent of Mother Jones.

When MultiVest failed in 1990, investors lost $120 million, of which $100 million were marked up to fees. In 1996, attorneys for owner James Grosfeld settled with the class action attorney on a settlement amount of $40 million to be made available to the plaintiff "class." But of that sum, "since customers would have to prove they were entitled to the money — and since it was now 12 years since they first invested — the amount of unclaimed money was likely to be considerable," Forbes reports.

Now, to start with, one wonders why the courts tolerate such filings in the first place. Do we retain no judges capable of asking: "Were these investors young orphans, or residents of the state farm for the feeble-minded? What ever happened to (start ital)caveat emptor? If an adult of sound mind is foolish or greedy enough to enter into the highly speculative trade in options and commodities without checking to see what commissions he's being charged, he probably deserves what he gets. Next time, try a passbook savings account."

But apparently we would be hopeless Pollyannas to expect such common sense from the bench today. Get hit by a hailstone; sue the weatherman for failing to issue you a helmet.

Nonetheless, even after a settlement is agreed upon by the parties, one might still have expected the court to stipulate that plaintiffs' attorneys receive only a percentage of the awards actually collected by former customers of MultiVest — thus creating some incentive for the attorneys to actually locate these presumed beneficiaries.

Wrong again. Instead, Forbes reports the deal OK'd by the the court in this case created the exact opposite incentive, allowing plaintiffs' attorney Neil Goteiner to keep whatever was left over after any "qualified claimants" made their claims. As a result, former MultiVest owner Grosfeld has so far paid only $6.5 million to those "victimized" when they voluntarily invested in the commodities market ... but $13 million to the lawyer who brought the suit.

Faced with such outrages, Congress is now considering legislation to cover all settlements in federal courts — capping plaintiff lawyers' fees at a maximum percentage of whatever moneys are actually collected by their "clients."

It's a shame the courts haven't policed this, themselves. Occasionally, a case may be so time-consuming that a law firm "on contingency" may indeed merit an unusually large fee.

But there certainly is some urgency to halting what has become little more than a crooked game of chance — the bench having abdicated its responsibility to make sure some palpable "tort" is proven before American businessmen are held down and sheared for the crime of "greedy capitalism" by the first ambulance chaser with the wherewithal and creativity to drag them into court.

Forcing losing plaintiffs — or losing plaintiff attorneys, in the case of "class action" suits — to pay the costs of their vindicated victims might be a better long-term solution, stiffening resistance to early settlements and injecting some downside risk into this particular perverse "lottery."

Till then, some sensible cap on these fees may be unavoidable.


Vin Suprynowicz is assistant editorial page editor of the Las Vegas Review-Journal.
His new book, Send in the Waco Killers is available at $24.95 postpaid from
Mountain Media, P.O. Box 271122, Las Vegas, Nev. 89127; or by dialing 1-800-244-2224

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29 apr 2000