Rebuttal: A Response to the 'Tale' on Class Action

Messrs. Wallace and Kelly's (Authors) historical account of the Rule 23(b)(3) class action (see article infra) goes like this: Once, “public interest lawyers” used the class action to “help[] facilitate major social justice reforms,” but now, avaricious plaintiff's attorneys misuse it to enrich themselves at the public expense. Though they used to bring class actions to do good, plaintiff's attorneys now bring them to get rich. And what is the solution to the corrupting of the modern plaintiff's lawyer? Why, ban the rule 23(b)(3) action altogether. And in any event, they say, whatever plaintiff's attorneys' intentions, they are not doing any good: Class actions do not deter malfeasance, and do not compensate victims.

Doing Good and Doing Well

One problem with the Authors' public interest/private enrichment dichotomy is that it is based upon the incorrect assumption that attorneys may only act either in the public interest or for their own financial gain. Must surgeons choose between doing good and making money? Must inventors? Must architects? Of course not! Monetary reward for success is the genius of capitalism, and entrepreneurism has a positive connotation except when it appears in the same sentence as “lawyer.” But it should have a positive connotation in this sphere as well. Our small firm alone has played a role in recovering over $15 billion for investors and consumers, including: over $7 billion plus for Enron investors; over $6 billion for WorldCom investors; over $1 billion for homeowners with defective building products; and over $25 million for Holocaust survivors whose personal property was misappropriated by the government.

In bringing these lawsuits and others like them, we have hoped to do well, but we have also hoped to do good. And as much as the plaintiff's bar is the bogeyman for corporate America, its dynamism and success is a testament to what is best about capitalism. Incentivized not just by altruism but also by profit, plaintiff's attorneys have served as vigilant watchdogs against corporate misconduct, not only recouping consumer and investor losses, but uncovering scandals that would never have been uncovered if detection had been left to underfunded government agencies. For example, through his incredible detective work, Georgia lawyer Lance Cooper uncovered the GM ignition switch defect, which in turn saved the lives of countless drivers of General Motors vehicles. See Martha Neil, Solo Practitioner 'Single-Handedly Set The Stage' for Massive GM Recall, ABA Journal (Mar. 17, 2014), http://bit.ly/1K2fuZ. The National Highway Traffic Safety Administration ' one of the agencies that the authors believe could protect the American people on its own ' was caught flatfooted, to put it politely. Mr. Cooper is now helping to lead a class action against GM.

Debunking Myths

According to the Authors, the notion that the rule 23(b)(3) provides any benefit is based on “myth.” First, there's the “myth” that class actions compensate victims, which, according to the Authors, is belied by the fact that “the vast majority of class members” do not make claims in class actions. In fact, thorough and objective studies have demonstrated that the majority of rule 23(b)(3) class actions are “successful” ' meaning there is a “delivering to a significant portion of the class compensation commensurate with the expected value of their claims.” Brian T. Fitzpatrick & Robert C. Gilbert, An Empirical Look at Compensation in Consumer Class Actions at 3 (2015), http://bit.ly1DqUygj.

The Authors also claim that the notion that class actions deter wrongdoing is “myth,” in that any deterrence achieved is “largely hypothetical.” Again, we disagree. Class actions are the only mechanism by which suits involving small claims are feasible. Without them, miscreants could steal in peace. Therefore, they serve as the only real deterrence against corporations committing relatively petty malfeasance against members of the American public. For example, currently there is a suit against a bank that allegedly charged improper overdraft fees to its customers. No single client could possibly seek to remedy such misconduct. But as a class, the bank's customers have a chance to redress the wrong, and thereby deter future wrongdoing by this defendant and other banks. (In fact, we have already seen how boldly corporations will push the limits imposed by the law when they are allowed to impose class action waivers and mandatory arbitration clauses on consumers.) Jessica Silver-Greenberg and Michael Corkery, Failed by Law and Courts, Troops Come Home to Repossessions, New York Times (Mar. 16, 2015), http://nyti.ms/1eQM9Y6.

Government Can Do It

The Authors seem to suggest that governmental agencies can do a sufficient job deterring this sort of misconduct. That viewpoint ignores the well-recognized problem that agencies lack the funding necessary to do their jobs effectively. Both the Antitrust Division of the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) rely upon a vibrant class action system to augment their efforts. As the Supreme Court has noted, “[t]he aggregation of individual claims in the context of a classwide suit is an evolutionary response to the existence of injuries unremedied by the regulatory action of government.” Roper v. Deposit Guar. Nat'l Bank, 445 U.S. 326, 339 (1980). In other words, we tried it the Authors' way, and it did not work. Indeed, empirical studies have repeatedly demonstrated that private class actions are more effective than, and are a necessary complement to, government regulation in deterring corporate malfeasance. See, e.g., Stephen Choi & Adam Pritchard, SEC Investigations and Securities Class Actions: An Empirical Comparison (2012), http://bit.ly/1DnMhKD (finding that that private class actions are more effective than SEC investigations at deterring securities fraud and lead to a higher incidence of top officer resignations); see also Deborah R. Hensler & Thomas D. Rowe, Jr., Beyond “It Just Ain't Worth It”: Alternative Strategies for Damage Class Action Reform, 64 Law &Contemp. Probs. 137, 137 (2001) (noting that damages class actions can “supplement regulatory enforcement by administrative agencies that are under-funded, susceptible to capture by the subjects of their regulation, or politically constrained”).

Furthermore, as scholars have noted for some time, “to impose upon public agencies the task of asserting civil sanctions on behalf of injured groups will require a substantial increase in size, personnel and expenditures.” Harry Kalven, Jr. & Maurice Rosenfield, The Contemporary Function of the Class Suit, 8 U. Chi. L. Rev. 684, 720 (1941). However much moneyed interests rail against the class action, we doubt they would support the class action's demise if it were contingent upon a ballooning of the administrative state.

Abuse by Plaintiffs' Attorneys

The Authors' main complaint appears to be that the plaintiffs' attorneys can easily abuse the class action device. The truth is, however, that there are many safeguards against class action abuse. No case can proceed as a class action until the court says it can. The Supreme Court has put exacting standards in place for class certification. See Adam Liptak, Corporations Find a Friend in the Supreme Court, New York Times (May 4, 2013), http://nyti.ms/1eQMZUu (detailing how recent decisions by the Supreme Court have made class actions more difficult to prosecute in federal court). And several cases at issue next term, including Tyson Foods v. Bouaphakeo , could make these standards even more stringent. See Alison Frankel, Class Actions Face Crucible in Next Supreme Court Term, Reuters (June 9, 2015), http://reut.rs/1KOP8M5 (noting that three cases to be considered next term could “make Wal-Mart v. Dukes seem like a speed bump”). Moreover, despite the Authors' suggestion to the contrary, courts have cracked down on plaintiff's attorneys' attempts to take substantial fees for Rule 23(b)(3) class actions in which, in their view, the class has received little benefit. See, e.g., Pearson v. NBTY, Inc., 772 F.3d 778 (7th Cir. 2014)

Conclusion

Government regulations serve an important purpose, but we believe that class actions serve as the only real means of seeking compensation for, and keeping in check, corporate fraud. That plaintiff's attorneys profit from class actions is not evidence of their “sordid[ness],” but the key to their success. Our system is not perfect, but it is far better than any alternative we know of, and we are proud to count ourselves as members of the class action bar.

Jonathan W. Cuneo is the founding partner of Cuneo Gilbert & LaDuca LLP, a class action firm specializing in consumer fraud, antitrust, and corporate governance suits. Taylor Asen and Ben Elga are attorneys in the firm's Brooklyn, NY, office.

Messrs. Wallace and Kelly's (Authors) historical account of the Rule 23(b)(3) class action (see article infra) goes like this: Once, “public interest lawyers” used the class action to “help[] facilitate major social justice reforms,” but now, avaricious plaintiff's attorneys misuse it to enrich themselves at the public expense. Though they used to bring class actions to do good, plaintiff's attorneys now bring them to get rich. And what is the solution to the corrupting of the modern plaintiff's lawyer? Why, ban the rule 23(b)(3) action altogether. And in any event, they say, whatever plaintiff's attorneys' intentions, they are not doing any good: Class actions do not deter malfeasance, and do not compensate victims.

Doing Good and Doing Well

One problem with the Authors' public interest/private enrichment dichotomy is that it is based upon the incorrect assumption that attorneys may only act either in the public interest or for their own financial gain. Must surgeons choose between doing good and making money? Must inventors? Must architects? Of course not! Monetary reward for success is the genius of capitalism, and entrepreneurism has a positive connotation except when it appears in the same sentence as “lawyer.” But it should have a positive connotation in this sphere as well. Our small firm alone has played a role in recovering over $15 billion for investors and consumers, including: over $7 billion plus for Enron investors; over $6 billion for WorldCom investors; over $1 billion for homeowners with defective building products; and over $25 million for Holocaust survivors whose personal property was misappropriated by the government.

In bringing these lawsuits and others like them, we have hoped to do well, but we have also hoped to do good. And as much as the plaintiff's bar is the bogeyman for corporate America, its dynamism and success is a testament to what is best about capitalism. Incentivized not just by altruism but also by profit, plaintiff's attorneys have served as vigilant watchdogs against corporate misconduct, not only recouping consumer and investor losses, but uncovering scandals that would never have been uncovered if detection had been left to underfunded government agencies. For example, through his incredible detective work, Georgia lawyer Lance Cooper uncovered the GM ignition switch defect, which in turn saved the lives of countless drivers of General Motors vehicles. See Martha Neil, Solo Practitioner 'Single-Handedly Set The Stage' for Massive GM Recall, ABA Journal (Mar. 17, 2014), http://bit.ly/1K2fuZ. The National Highway Traffic Safety Administration ' one of the agencies that the authors believe could protect the American people on its own ' was caught flatfooted, to put it politely. Mr. Cooper is now helping to lead a class action against GM.

Debunking Myths

According to the Authors, the notion that the rule 23(b)(3) provides any benefit is based on “myth.” First, there's the “myth” that class actions compensate victims, which, according to the Authors, is belied by the fact that “the vast majority of class members” do not make claims in class actions. In fact, thorough and objective studies have demonstrated that the majority of rule 23(b)(3) class actions are “successful” ' meaning there is a “delivering to a significant portion of the class compensation commensurate with the expected value of their claims.” Brian T. Fitzpatrick & Robert C. Gilbert, An Empirical Look at Compensation in Consumer Class Actions at 3 (2015), http://bit.ly1DqUygj.

The Authors also claim that the notion that class actions deter wrongdoing is “myth,” in that any deterrence achieved is “largely hypothetical.” Again, we disagree. Class actions are the only mechanism by which suits involving small claims are feasible. Without them, miscreants could steal in peace. Therefore, they serve as the only real deterrence against corporations committing relatively petty malfeasance against members of the American public. For example, currently there is a suit against a bank that allegedly charged improper overdraft fees to its customers. No single client could possibly seek to remedy such misconduct. But as a class, the bank's customers have a chance to redress the wrong, and thereby deter future wrongdoing by this defendant and other banks. (In fact, we have already seen how boldly corporations will push the limits imposed by the law when they are allowed to impose class action waivers and mandatory arbitration clauses on consumers.) Jessica Silver-Greenberg and Michael Corkery, Failed by Law and Courts, Troops Come Home to Repossessions, New York Times (Mar. 16, 2015), http://nyti.ms/1eQM9Y6.

Government Can Do It

The Authors seem to suggest that governmental agencies can do a sufficient job deterring this sort of misconduct. That viewpoint ignores the well-recognized problem that agencies lack the funding necessary to do their jobs effectively. Both the Antitrust Division of the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) rely upon a vibrant class action system to augment their efforts. As the Supreme Court has noted, “[t]he aggregation of individual claims in the context of a classwide suit is an evolutionary response to the existence of injuries unremedied by the regulatory action of government.” Roper v. Deposit Guar. Nat'l Bank , 445 U.S. 326, 339 (1980). In other words, we tried it the Authors' way, and it did not work. Indeed, empirical studies have repeatedly demonstrated that private class actions are more effective than, and are a necessary complement to, government regulation in deterring corporate malfeasance. See, e.g., Stephen Choi & Adam Pritchard, SEC Investigations and Securities Class Actions: An Empirical Comparison (2012), http://bit.ly/1DnMhKD (finding that that private class actions are more effective than SEC investigations at deterring securities fraud and lead to a higher incidence of top officer resignations); see also Deborah R. Hensler & Thomas D. Rowe, Jr., Beyond “It Just Ain't Worth It”: Alternative Strategies for Damage Class Action Reform, 64 Law &Contemp. Probs. 137, 137 (2001) (noting that damages class actions can “supplement regulatory enforcement by administrative agencies that are under-funded, susceptible to capture by the subjects of their regulation, or politically constrained”).

Furthermore, as scholars have noted for some time, “to impose upon public agencies the task of asserting civil sanctions on behalf of injured groups will require a substantial increase in size, personnel and expenditures.” Harry Kalven, Jr. & Maurice Rosenfield, The Contemporary Function of the Class Suit, 8 U. Chi. L. Rev. 684, 720 (1941). However much moneyed interests rail against the class action, we doubt they would support the class action's demise if it were contingent upon a ballooning of the administrative state.

Abuse by Plaintiffs' Attorneys

The Authors' main complaint appears to be that the plaintiffs' attorneys can easily abuse the class action device. The truth is, however, that there are many safeguards against class action abuse. No case can proceed as a class action until the court says it can. The Supreme Court has put exacting standards in place for class certification. See Adam Liptak, Corporations Find a Friend in the Supreme Court, New York Times (May 4, 2013), http://nyti.ms/1eQMZUu (detailing how recent decisions by the Supreme Court have made class actions more difficult to prosecute in federal court). And several cases at issue next term, including Tyson Foods v. Bouaphakeo , could make these standards even more stringent. See Alison Frankel, Class Actions Face Crucible in Next Supreme Court Term, Reuters (June 9, 2015), http://reut.rs/1KOP8M5 (noting that three cases to be considered next term could “make Wal-Mart v. Dukes seem like a speed bump”). Moreover, despite the Authors' suggestion to the contrary, courts have cracked down on plaintiff's attorneys' attempts to take substantial fees for Rule 23(b)(3) class actions in which, in their view, the class has received little benefit. See, e.g., Pearson v. NBTY, Inc. , 772 F.3d 778 (7th Cir. 2014)

Conclusion

Government regulations serve an important purpose, but we believe that class actions serve as the only real means of seeking compensation for, and keeping in check, corporate fraud. That plaintiff's attorneys profit from class actions is not evidence of their “sordid[ness],” but the key to their success. Our system is not perfect, but it is far better than any alternative we know of, and we are proud to count ourselves as members of the class action bar.

Jonathan W. Cuneo is the founding partner of Cuneo Gilbert & LaDuca LLP, a class action firm specializing in consumer fraud, antitrust, and corporate governance suits. Taylor Asen and Ben Elga are attorneys in the firm's Brooklyn, NY, office.